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TABLE OF CONTENTS
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- Risk/Return Summary
- Investment Objective and Principal Strategies
- Principal Risks
- Evaluating Performance
- Shareholder Fees and Expenses
- How the Fund Invests
- Investment Objective and Policies
- Other Investments
- Derivative Strategies
- Additional Strategies
- Investment Risks
- How the Fund is Managed
- Manager
- Investment Adviser
- Portfolio Manager
- Distributor
- Year 2000
- Fund Distributions and Tax Issues
- Distributions
- Tax Issues
- If You Sell or Exchange Your Shares
- How to Buy, Sell and Exchange Shares of the Fund
- How to Buy Shares
- How to Sell Your Shares
- How to Exchange Your Shares
- Financial Highlights
- Class A Shares
- Class B Shares
- Class C Shares
- Class Z Shares
- The Prudential Mutual Fund Family
For More Information (Back Cover)
1
<PAGE>
RISK / RETURN SUMMARY
This section highlights key information about the Prudential Global Limited
Maturity Fund, Inc. - Limited Maturity Portfolio, which we refer to as "the
Fund." Additional information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is to maximize total return, made up of current income
and capital appreciation. We normally invest at least 65% of the Fund's total
assets in income-producing securities of issuers in at least five different
countries, including the United States. To achieve our income objective, we look
for investment-grade securities denominated in the U.S. dollar and a range of
foreign currencies. While we make every effort to achieve our objective, we
can't guarantee success.
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MULTI-MARKET STRATEGY
In deciding which securities to buy, we use a multi-market style. That is, we
invest in securities in different currencies, including the U.S. dollar, and
within each of the countries, in diffferent types of securities. As a "global
fund," we usually invest in at least five different countries, including the
U.S.
The Fund is non-diversified, meaning it can invest more than 5% of its assets in
the securities of any one issuer. Investing in a non-diversified mutual fund
involves greater risk than investing in a diversified fund.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests in foreign securities, there are additional risks than if the Fund
invested only in obligations of the U.S. government and U.S. corporations. The
amount of income available for distribution may be affected by the Fund's
foreign currency gains or losses and certain hedging activities of the Fund.
Foreign markets, especially those in developing countries, tend to be more
volatile than U.S. markets and changes in currency exchange rates can reduce or
increase market performance.
The Fund may invest up to 20% of its assets in non-investment grade
securities - also known as high yield or "junk bonds" - which have a higher risk
of default and tend to be less liquid.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
EVALUATING PERFORMANCE
A number of factors - including risk - can affect how the Fund performs. The
following bar chart and table show the Fund's performance since it began in 1990
and demonstrate how returns can change from year to year. Past performance does
not mean that the Fund will achieve similar results in the future.
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ANNUAL RETURNS Class A shares1
(as percent)
[ Bar Chart Here]
1990:
1991:
1992:
1993:
1994:
1995:
1996:
1997:
1998:
Best Quarter:___% (___ quarter of 19__) Worst Quarter:___% ( __ quarter of 19__)
- -----
1 These annual returns do not include sales charges. If the sales charges were
included, the annual returns would be lower than those shown. The total return
of the Class A shares from 1-1-98 to 9-30-98 was __%.
2 From 11-1-90 (commencement of operations) to 12-31-90.
AVERAGE ANNUAL RETURNS AS OF 12-31-971
1 YR 5 YRS SINCE INCEPTION
Class A shares (Since 11-1-90)
Class B shares (Since 11-1-90)
Class C shares (Since 8-1-94)
Class Z shares (Since 1-27-97)
Morgan GSTI2
Lipper Average3
1 The Fund's returns are after deduction of sales charges and expenses.
2 The J. P. Morgan Global Short-Term Index (GSTI) is a weighted index of liquid,
short-term government bonds of the following nations: Belgium, Sweden,
Germany, Australia, Canada, Denmark, France, Italy, Japan, the Netherlands,
Spain, the United States and the United Kingdom. The GSTI is an unmanaged
index and changes in market capitalization in the GSTI are revised monthly.
These returns do not include the effect of any sales charges. These returns
would be lower if they included the effect of sales charges. GSTI since
inception returns are _% for Class A, _% for Class B, _% for Class C and _%
for Class Z shares.
3 The Lipper Average is based on the average return of all mutual funds in the
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Lipper Global Income category and does not include the effect of any
sales charges. Again, these returns would be lower if they included the
effect of sales charges. Lipper Since Inception returns are _% for Class
A, for Class B, _% for Class C and _% for Class Z shares.
SHAREHOLDER FEES AND EXPENSES
This table shows the sales charges, fees and expenses for each share class of
the Fund - Class A, B, C and Z. Each share class has different sales charges -
known as loads - and expenses, but represents an investment in the same fund.
Class Z shares are available only to a limited group of investors. For more
information about which share class may be right for you, see "How to Buy, Sell
and Exchange Shares of the Fund."
SHAREHOLDER FEES1 (paid directly from your investment)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
<S> <C> <C> <C> <C>
price) 3% None 1% None
Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or sale proceeds)
None 3%2 1%3 None
Maximum sales charge (load) imposed on
reinvested dividends and other
distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
Maximum account fee None None None None
ANNUAL FUND OPERATING EXPENSES (deducted from fund assets)
CLASS A CLASS B CLASS C CLASS Z
Management fees .55% .55% .55% .55%
+ Distribution (12b-1) and service fees
.30%4 .75% .75% None
+ Other expenses _____ _____ _____ _____
= Total annual Fund operating expenses
</TABLE>
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1 The maximum sales charges permitted by the National Association of
Securities Dealers, Inc. may not exceed 6.25% of total gross sales per
class. Because of 12b-1 fees, long-term shareholders may pay more than
6.25% of their investment in shares of the Fund. Your broker may charge you
a separate or additional fee for purchases and sales of shares.
2 The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by
1% annually to 1% in the third and fourth years and 0% in the fifth year.
3 The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.
4 The Distributor of the Fund has voluntarily reduced its distribution
and service fees for Class A shares to .25 of 1% of the average daily net
assets of the Class A shares. This voluntary reduction may be terminated at
any time without notice. With this reduction, Total annual Fund operating
expenses are __%.
FEES AND EXPENSES EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 yr 3 yrs 5 yrs 10 yrs
Class A shares
Class B shares
Class C shares
Class Z shares
You would pay the following expenses on the same investment if you did not sell
your shares:
1 yr 3 yrs 5 yrs 10 yrs
Class A shares
Class B shares
Class C shares
Class Z shares
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HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to maximize total return, made up of CURRENT
INCOME and CAPITAL APPRECIATION. This means we seek investments that will
increase in value, as well as pay the Fund interest and other income. While we
make every effort to achieve our objective, we can't guarantee success.
In pursuing our objective, we normally invest at least 65% of the Fund's total
assets in income-producing securities - these include U.S. government
securities, securities issued by foreign governments and supranational
organizations, U.S. and foreign corporate debt instruments, commercial paper,
loan participations, zero coupon securities, certificates of deposit, bankers'
acceptances and time deposits. The Fund can invest up to 10% of its total assets
in separate parts (that is, the principal or a scheduled interest payment) of
U.S. and foreign government debt securities (these are called "stripped
securities"). We also buy equity-related securities such as common stock,
preferred stock and convertible securities. As a "global" fund, we usually
invest in issuers from at least five different countries, including the U.S.
Although the Fund adjusts this mix as market conditions and economic outlooks
change, it typically invests at least 30% of its total assets in U.S. dollar
denominated securities and at least 50% of the Fund's assets in securities
denominated in U.S., Canadian, Australian or New Zealand dollars. The Fund may
invest in securities of developing countries, which may be subject to more
abrupt or erratic market movements than those of developed countries.
Most of the Fund's debt securities are "investment grade." This means major
rating services, like Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"), have rated the securities within one of
their four highest quality grades. Up to 20% of the Fund's assets may be
invested in lower rated securities which are more risky, including high-yield or
"junk" bonds, with a minimum rating of B by Moody's or S&P or another major
rating service. We also may invest in obligations that are not rated, but which
we believe are of comparable quality to the obligations described above.
The securities held by the Fund have a weighted average maturity of more than 2,
but less than 5 years, with the maturity of individual securities generally not
more than 10 years. The maturity of a bond is simply the number of years until
the principal is due and payable. Weighted average maturity is calculated by
adding the maturities of all of the bonds in a portfolio and dividing by the
number of bonds on a weighted basis.
The Fund may also use a variety of "hedging" strategies intended to protect the
value of the Fund's securities rather than to make a profit. These may include
derivative transactions and cross-currency hedges which are described in more
detail in the Fund's Statement of Additional Information.
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For more information about this Fund and its investments, see
"Investment Risks" below and the Statement of Additional Information,
"Description of the Fund, Its Investments and Risks." The Statement of
Additional Information - which we refer to as the SAI - contains additional
information about the Fund. To obtain a copy, see the back cover page of this
prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Prudential Global Limited
Maturity Fund, Inc. can change investment policies of the Limited Maturity
Portfolio that are not fundamental.
OTHER INVESTMENTS
We may also use the following investment strategies to increase the Fund's
returns or protect its assets if market conditions warrant.
TEMPORARY DEFENSIVE INVESTMENTS
Under normal circumstances, the Fund may invest in the commercial paper of
U.S. corporations, obligations of U.S. banks, certificates of deposit and
obligations issued or guaranteed by the U.S. government or its agencies. If we
believe it is necessary, we may temporarily invest up to 100% of the Fund's
assets in securities denominated in U.S. dollars or U.S. Treasury securities or
hold cash. Investing heavily in these securities limits our ability to achieve
capital appreciation, but may help to preserve the Fund's assets when the bond
markets are volatile.
EQUITY-RELATED SECURITIES
The Fund may invest up to 10% of its assets in EQUITY-RELATED
SECURITIES (including up to 5% of its assets in convertible securities). These
include common stock, preferred stock, warrants, and rights that can be
exercised to obtain stock, investments in various types of business ventures,
including partnerships and joint ventures, and securities like American
Depositary Receipts (ADRs) that represent an equity investment in a foreign
company. Convertible securities are bonds, debentures, corporate notes and
preferred stocks that can be converted into the company's common stock or some
other equity security.
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
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borrower's obligations thereunder and includes various types of restrictive
covenants which must be met by the borrower.
ZERO COUPON SECURITIES
The Fund may invest up to 10% of its assets in ZERO COUPON SECURITIES.
These are bonds that are sold for a price that is less than their stated value.
Interest payments on a zero coupon bond are not made during the life of the
bond, but at the bond's maturity, the holder gets the bond's stated value. Thus,
the difference between the price paid for the bond and the amount paid to the
holder at the bond's maturity is the holder's return. These types of securities
may experience greater fluctuation in value and less liquidity than similarly
rated bonds that pay interest at regular intervals.
DERIVATIVE STRATEGIES
We may use a number of alternative investment strategies - including DERIVATIVES
- - to try to improve the Fund's returns or protect its assets, although we cannot
guarantee they will work. Derivatives - such as futures, options, forward
foreign currency exchange contracts and options on futures - involve costs and
can be volatile. With derivatives, the investment adviser tries to predict
whether the underlying investment, a security, market index, currency, interest
rate or some other investment, will go up or down at some future date. We may
use derivatives to try to reduce risk or to increase return consistent with the
Fund's overall investment objective. Any derivatives we may use may not match
the Fund's underlying holdings.
The Fund may invest without limit in commercial paper and other instruments
which are "indexed" to certain specific foreign currency exchange rates. This
means that the instrument's principal amount is adjusted upwards or downwards
(but not below zero) to reflect changes in the exchange rate between two
currencies from the time the instrument is outstanding until it matures. When
the Fund purchases one of these instruments, it pays with the currency in which
the instrument is denominated and, at maturity, it receives interest and
principal payments in the same currency. These instruments offer the potential
for realizing gains as a result of changes in foreign currency exchange rates
which can be used to hedge (or cross-hedge) against a decline in the U.S. dollar
value of the investments while providing an attractive money market rate of
return.
For more information about these strategies, see the SAI, "Description of the
Fund, Its Investments and Risks - Hedging and Return Enhancement Strategies."
ADDITIONAL STRATEGIES
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund.
The Fund also follows certain policies when it: BORROWS MONEY (the Fund can
borrow up to 20% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund can lend up to 30% of the
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<PAGE>
value of its total assets, including collateral received in the transaction);
and holds ILLIQUID SECURITIES (the Fund may hold up to 15% of its net assets in
illiquid securities, including restricted securities, those without a readily
available market and repurchase agreements with maturities longer than seven
days). The Fund is "NON-DIVERSIFIED," meaning it can invest more than 5% of its
assets in the securities of any one issuer. The Fund is subject to certain
investment restrictions that are fundamental policies, which means they cannot
be changed without shareholder approval. For more information about these
restrictions, see the SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. This chart outlines the key risks and potential rewards of the Fund's
principal investments.
<TABLE>
<CAPTION>
- ---------------------------------------- ---------------------------------------- -------------------------------------
INVESTMENT TYPE RISKS POTENTIAL REWARDS
% OF FUND'S ASSETS
- ---------------------------------------- ---------------------------------------- -------------------------------------
<S> <C> <C>
INCOME-PRODUCING SECURITIES >>Credit risk--the risk >>Regular interest
that the borrower can't income
At least 65% of total assets pay back the money
borrowed or make
interest payments >>Generally more secure than
(particularly high for stock since companies
junk bonds) must pay their debts
before they can pay
>>Market risk--the risk dividends
that bonds or other debt
instruments may lose
value in the market
because interest rates
change or there is a
lack of confidence in
the borrower (particularly
high for junk bonds)
>>Interest rate risk can lead
to price volatility, particularly
for junk bonds and stripped
securities
>>As a non-diversified fund,
will have greater exposure
to loss from a single issuer
>>Not all U.S. government
securities are insured or
guaranteed by the
government but only by
the issuing agency
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------- ---------------------------------------- -------------------------------------
<S> <C> <C>
FOREIGN SECURITIES >> Foreign markets, economies >> Investors can participate
and political systems may not in the growth of foreign
Percentage varies, but usually be as stable as in the U.S., markets and companies
is 20% particularly those in developing operating in those markets
countries
>> Changing value of foreign
>> Currency risk - changing currencies
values of foreign currencies
>> May be less public information
about foreign companies
>> Debt securities issued by
supranational organizations may be
backed by limited assets in the
event of default
>> May be less liquid than U.S. stocks
and bonds
>> Foreign laws and accounting
standards may not be as strict as
they are in the U.S.
>> Year 2000 conversion
may not be successful
- ---------------------------------------- ---------------------------------------- -------------------------------------
EQUITY-RELATED SECURITIES >>Individual stocks could >>Historically, stocks have out-
lose value performed other investments
over the long term
>>The equity markets could
Up to 10% of total assets go down >>Generally, economic
(including up to 5% in convertible growth means higher
securities) >>Companies that pay corporate profits, which leads
dividends may not do to an increase in stock prices,
so if they don't have known as capital appreciation
profits or adequate cash flow
>>May be a source
>>Changes in economic or of dividend income
political conditions,
both domestic and
international
- ---------------------------------------- ---------------------------------------- -------------------------------------
DERIVATIVES >>Generally involves trying >>One way to manage
to predict whether the Fund's risk/return
Percentage varies the underlying security, balance by locking in
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
market index, currency the value of an
or interest rate will investment ahead of
increase or decrease at time
some future date
>>May be used to hedge
>>If the investment adviser against changes in
predicts incorrectly, the Fund currency exchange
can lose money rates
>>Using derivatives also >>A source of income
costs money
- ---------------------------------------- ---------------------------------------- -------------------------------------
ILLIQUID SECURITIES >>May be difficult to >>May offer a more
value and sell attractive yield or
Up to 15% of net assets potential for growth
>>Could result in losses than more liquid
securities
- ---------------------------------------- ---------------------------------------- -------------------------------------
MONEY MARKET INSTRUMENTS >>Limits potential for >>May preserve the
capital appreciation Fund's assets
up to 100% on a temporary basis
>> See Credit risk and
Market risk
- ---------------------------------------- ---------------------------------------- -------------------------------------
LOAN PARTICIPATIONS >>Credit risk--the risk >>A source of income
that the borrower can't
up to 5% of net assets repay the money >>May offer right to receive
borrowed or make principal, interest and
interest payments fees without as much risk as
a lender
>>The Fund is also subject to
the credit risk of the lender
- ---------------------------------------- ---------------------------------------- -------------------------------------
ZERO COUPON BONDS >>Generates "phantom income" for >>May lock in a higher rate
up to 10% of net assets the Fund for tax purposes of return than is available
although no income is paid in the market place at time
of maturity.
>>Typically subject to greater
volatility and less liquidity in
adverse markets than other
income producing securities
- ---------------------------------------- ---------------------------------------- -------------------------------------
</TABLE>
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HOW THE FUND IS MANAGED
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended October 31, 1998, the Fund paid PIFM management fees of .55% of the Fund's
average net assets.
As of November 30, 1998, PIFM served as the Manager to all __ of the
Prudential Mutual Funds, and as Manager or administrator to __ closed-end
investment companies, with aggregate assets of approximately $__ billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, known as Prudential Investments, is the
Fund's investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102. Through a subadvisory agreement with PRICOA Asset
Management Ltd., PRICOA furnishes investment advisory services to Prudential
Investments. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses. Prudential Investments, in turn, pays PRICOA an
annual fee of .30% of the Fund's average net assets. PRICOA's address is 115
Houndsditch, London EC3A 7BU.
PRICOA, an indirect wholly-owned subsidiary of Prudential, is located at Cutlers
Court, 115 Houndsditch, London EC3A 7BU England. It was incorporated under U.K.
law in January 1997 and as of September 30, 1998 had approximately $2.5 billion
under management.
PORTFOLIO MANAGERS
The Fund is managed by J. Gabriel Irwin and Simon Wells, who head the Global
Fixed Income Group of Prudential Investments. Messrs. Irwin and Wells have
managed the Fund since April 1995. Messrs. Irwin and Wells have been officers of
PRICOA since August 1997 and have been employed by Prudential Investments and
Prudential-Bache Securities (U.K.) Inc. since April 1995. Previously, they were
employed by Smith Barney Global Capital Management Inc., where they worked
together as Directors and Senior members of the Investment Policy Committee.
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<PAGE>
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's Class A, B, C and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees - known as
12b-1 fees - are shown in the "Shareholder Fees and Expenses" table.
YEAR 2000
Many computer systems used today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded. This could be a problem when the year
2000 arrives and could affect securities trades, interest and dividend payments,
pricing and account services. Although we cannot guarantee that this will not be
a problem, the Fund's service providers have been working on adapting their
computer systems. They expect that their systems, and the systems of their
service providers, will be ready for the year 2000.
In addition, issuers of securities may also encounter year 2000 compliance
problems. If these problems are significant and are not corrected, securities
markets could go down or issuers could have poor performance. If the Fund owns
these securities, then it is possible that the Fund could lose money.
FUND DISTRIBUTIONS AND TAX ISSUES
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS and CAPITAL GAINS, if any,
to shareholders. These distributions are subject to taxes, unless you hold your
shares in a 401(k) plan, an Individual Retirement Account (IRA) or some other
qualified tax-deferred plan or account.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless your shares are
held in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax
issues you should be aware of, but is not meant to be tax advice. For tax
advice, please speak with your tax adviser.
DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders,
typically every quarter. For example, if the Fund owns ACME Corp bonds and the
bond pays income, the Fund will pay out a portion of this income to its
shareholders, assuming the Fund's income is more than
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<PAGE>
its costs and expenses. The dividends you receive from the Fund will be taxed as
ordinary income, whether or not they are reinvested in the Fund.
The Fund also distributes CAPITAL GAINS to shareholders - typically
once a year which are generated when the Fund sells its assets for a profit. For
example, if the Fund bought 100 shares of ACME Corp. stock for a total of $1,000
and later sold the shares for a total of $1,500, the Fund has capital gains of
$500, which it will pass on to shareholders (assuming the Fund's total gains are
greater than any losses it may have). Capital gains are taxed differently
depending on how long the Fund holds the security - the longer a security is
held before it is sold, the lower the capital gains tax rate, up to a point.
For your convenience, Fund distributions of dividends and capital gains
are AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us
to pay the distributions in cash, we will send you a check if your account is
with the Transfer Agent. Otherwise, if your account is with a broker you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.
TAX ISSUES
FORM 1099
During the tax season every year, you will receive a Form 1099, which reports
the amount of dividends and capital gains we distributed to you during the prior
year. If you own shares of the Fund as part of a qualified tax-deferred plan or
account, your taxes are deferred, so you will not receive a Form 1099. However,
you will receive a Form 1099 when you take any distributions from your qualified
tax-deferred plan or account.
Fund distributions are generally taxable to you in the year they are received,
except when we declare certain dividends in the fourth quarter and actually pay
them in January of the following year. In such cases, the dividends are treated
as if they were paid on December 31 of the prior year. Corporate shareholders
are eligible for the 70% dividends-received deduction for certain dividends.
WITHHOLDING TAXES
If you are subject to backup withholding, we will withhold and pay to the U.S.
Treasury 31% of your distributions, or, if federal tax law requires you to
provide the Fund with your tax identification number and certifications as to
your tax status, and you fail to do this, we will withhold and pay to the U.S.
Treasury 31% of your distributions and sale proceeds. Dividends of net
investment income and short-term capital gains paid to a nonresident foreign
shareholder generally will be subject to a U.S. withholding tax of 30%. This
rate may be lower, depending on any tax treaty the U.S. may have with the
shareholder's country.
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<PAGE>
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to you
as a shareholder of record. As explained above, the distribution may be subject
to income or capital gains taxes. You may think you've done well, since you
bought shares one day, and soon after received a distribution. That is not so
because when dividends are paid out, the value of each share of the Fund
decreases by the amount of the dividend and the market changes (if any) to
reflect the payout. The distribution you receive makes up for the decrease in
share value. However, the timing of your purchase does mean that part of your
investment came back to you as taxable income.
RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts - available to certain taxpayers beginning in 1998
- - contributions are not tax deductible, but distributions from the plan may be
tax-free. Please contact your broker or a Prudential professional for
information on a variety of retirement plans offered by Prudential.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax, unless you hold shares in a qualified
tax-deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have.
$
RECEIPTS CAPITAL GAIN
FROM SALE (taxes owed)
OR
CAPITAL LOSS
(offset against
gain)
Exchanging your shares of the Fund for the shares of another Prudential
Mutual Fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
15
<PAGE>
Any gain or loss you may have from selling or exchanging Fund shares
will not be reported on the Form 1099. Therefore, unless you hold your shares in
a qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell - or exchange - Fund shares,
as well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares which happens automatically approximately five years after
purchase - is not a "taxable event"
because it does not involve an actual sale of your Class B shares. This
opinion, however, is not binding on the IRS. For more information about the
automatic conversion of Class B shares, see "Class B Shares Convert to Class A
Shares After Approximately Five Years" in the next section.
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUNDS SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After PMFS
receives your completed application, you will receive an account number. For
additional information about purchasing shares of the Fund, see the back cover
page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Fund) or suspend or modify the sale of Fund
shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that meets your
needs. With Class A shares, you pay the sales charge at the time of purchase,
but the operating expenses each year are lower than the expenses of Class B and
Class C shares. With Class B shares, you only pay a sales
16
<PAGE>
charge if you sell your shares within certain time periods (that is why it is
called a Contingent Deferred Sales Charge, or CDSC), but the operating expenses
each year are higher than the Class A share expenses. With Class C shares, you
pay a low front-end sales charge and a low CDSC, but the operating expenses are
also higher than the expenses for Class A shares.
WHEN CHOOSING A SHARE CLASS, YOU SHOULD CONSIDER THE FOLLOWING:
o The amount of your investment
o The length of time you expect to hold the shares and the impact of the varying
distribution fees.
o The different sales charges that apply to each share class Class A's front-end
sales charge vs. Class B's CDSC vs. Class C's lower front-end sales charge
and low CDSC.
o Whether you qualify for any reduction or waiver of sales charges
o The fact that Class B shares automatically convert to Class A shares
approximately five years after purchase
o Whether you qualify to purchase Class Z shares
SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
------- ------- ------- -------
<S> <C> <C> <C>
Minimum purchase amount1 $1,000 $1,000 $2,500 None
Minimum amount for subsequent
purchases1 $100 $100 $100 None
Maximum initial sales charge 3% of the public None 1% of the None
offering price public
offering
price
Contingent Deferred Sales Charge
(CDSC)2 None If sold during: 1% on sales None
Year 1 3% made within
Year 2 2% 18 months
Year 3 1% of purchase2
Year 4 1%
Year 5 0%
Annual distribution (12b-1) and .30 of 1% (.15 of 1% .75 of 1% .75% of 1% None
service fees (shown as a currently)
percentage of average net assets)3
- ----------------------
</TABLE>
1 The minimum investment requirements do not apply to certain retirement and
employee
17
<PAGE>
savings plans and custodial accounts for minors. The minimum
initial and subsequent investment for purchases made through the Automatic
Investment Plan is $50. For more information, see "Additional Shareholder
Services - Automatic Investment Plan."
2 For more information about the CDSC and how it is calculated, see
"Contingent Deferred Sales Charges (CDSC)." Class C shares bought before
November 2, 1998 have a 1% CDSC if sold within one year.
3 These distribution fees are paid from the Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's sales charge by
increasing the amount of your investment. This table shows you how the sales
charge decreases as the amount of your investment increases.
<TABLE>
<CAPTION>
Sales charge as % Sales charge as % Dealer
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
- ------------------ ------------------ ------------------ -----------
<S> <C> <C> <C>
Less than $100,000 3.00% 3.09% 2.75%
$100, 000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 but less than $5,000,0001 0.00% 0.00% 0.70%
$5,000,000 but less than $10,000,000 0.00% 0.00% 0.50%
$10,000,000 and above 0.00% 0.00% 0.25%
</TABLE>
- --------------
1 If you invest $1 million or more, you can buy only Class A shares, unless you
qualify to buy Class Z shares.
To satisfy the purchase amounts above, you can:
o invest with an eligible group of related investors;
o buy the Class A shares of two or more Prudential Mutual Funds at the same
time;
o use your RIGHTS OF ACCUMULATION, which allow you to combine the value of
Prudential Mutual Fund shares you already own with the value of the shares you
are purchasing for purposes of determining the applicable sales charge; or
o sign a LETTER OF INTENT, stating in writing that you or an eligible group of
related investors will purchase a certain amount of shares in the Fund and
other Prudential Mutual Funds within 13 months.
BENEFIT PLANS. 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
18
<PAGE>
and 403(b)(7) of the Internal Revenue Code - which we call BENEFIT PLANS - can
avoid Class A's initial sales charges if the Benefit Plan has existing assets of
at least $1 million invested in shares of Prudential Mutual Funds (excluding
money market funds other than those acquired under the exchange privilege) or
250 eligible employees or participants. Class A shares may also be purchased
without a sales charge by participants who are repaying loans from Benefit Plans
where Prudential (or its affiliates) provides administrative or recordkeeping
services, sponsors the product or provides account services.
Certain Prudential retirement programs- such as PruArray Association Benefit
Plans and PruArray Savings Programs - may also be exempt from Class A's sales
charges. For more information, see the SAI or contact your Prudential
professional. In addition, waivers are available to investors in certain
programs sponsored by brokers, investment advisers and financial planners who
have agreements with Prudential Investments Advisory Group relating to:
* Mutual fund "wrap" or asset allocation programs where the sponsor
places Fund trades and charges its clients a management, consulting or
other fee for its services;
* Mutual fund "supermarket" programs where the sponsor links its
customers' accounts to a master account in the sponsor's name; or
* Retirement programs where Prudential provides no administrative
services.
OTHER TYPES OF INVESTORS. Other investors may pay no sales charges,
including certain officers, employees or agents of Prudential and its
affiliates, Prudential Mutual Funds, the subadvisers of the Prudential Mutual
Funds and of brokers that have entered into a selected dealer agreement with the
Distributor. To qualify for a reduction or waiver of sales charges, you must
notify the Transfer Agent or your broker at the time of purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares -
Reduction and Waiver of Initial Sales Charges - Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
[PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived for
puchases of Class C shares by both qualified and non-qualified retirement and
deferred compensation plans participating in the PruArray Plan if Prudential
also provides administrative or recordkeeping services.
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. Such purchases must be made
within 60 days of redemption. If you are entitled to the waiver, you must notify
either the Transfer Agent or your broker. The Transfer Agent may require any
supporting documents it considers to be appropriate.]
19
<PAGE>
QUALIFYING FOR CLASS Z SHARES
Class Z shares of the Fund can be purchased by any of the following:
o Any Benefit Plan as defined above, and certain nonqualified plans, provided
the Benefit Plan - in combination with other plans sponsored by the same
employer or group of related employers - has at least $50 million in defined
contribution assets
o Participants in any fee-based program sponsored by
Prudential or an affiliate which includes mutual funds as investment options
and the Fund as an available option
o 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 option
o Benefit Plans for which an affiliate of the Distributor serves as recordkeeper
and as of September 20, 1996 were either Class Z shareholders of the
Prudential Mutual Funds or executed a letter of intent to purchase Class Z
shares of the Prudential Mutual Funds
o Current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund)
o Employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee savings plan
o Prudential with an investment of $10 million or more
In connection with the sale of shares, the Manager, the Distributor or
one of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 3% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class Z shares from
their own resources based on a percentage of the net asset value of shares sold
or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY FIVE YEARS
If you buy Class B shares and hold them for approximately five years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the
number of Class B shares converted if the price of the Class A shares is higher
than the price of Class B shares. The total dollar value will be the same, so
you will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares -
Conversion Feature - Class B Shares."
20
<PAGE>
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share
value. The share value of a mutual fund - known as the NET ASSET VALUE or NAV -
is determined by a simple calculation - it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. For
example, if the value of the investments held by Fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund - or the NAV - is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Fund's Board. Most national newspapers report the
NAVs of most mutual funds, which allows investors to price mutual funds daily.
- --------------------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio change constantly. For example, if Fund XYZ holds ACME Corp. bonds in
its portfolio and the price of ACME bonds go up, while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.
We determine the NAV of our shares once each business day at 4:15 p.m. New York
Time on days that the New York Stock Exchange is open for trading. We do not
determine NAV on days when we have not received any orders to purchase, sell or
exchange, or when changes in the value of the Fund's portfolio do not materially
affect the NAV.
- --------------------------------------------------------------------------------
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND? For Class A and Class C shares,
you'll pay the public offering price, which is the NAV next determined after we
receive your order to purchase, plus an initial sales charge (unless you're
entitled to a waiver). For Class B and Class Z shares, you will pay the NAV next
determined after we receive your order to purchase (remember, there are no
up-front sales charges for these share classes). Your broker may charge you a
separate or additional fee for purchases of shares.
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out - or distributes - its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends:
21
<PAGE>
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the money automatically withdrawn from your bank or
brokerage account at specified intervals.
RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs or SEP-IRAs for a one-person business,
please contact your broker or a Prudential professional. If you are interested
in opening a 401(k) or other company-sponsored retirement plan (SIMPLES, SEP
plans, Keoghs, 403(b)(7) plans, pension and profit-sharing plans), your broker
or a Prudential professional will help you determine which retirement plan best
meets your needs. Complete instructions about how to establish and maintain your
plan and how to open accounts for you and your employees will be included in the
retirement plan kit you receive in the mail.
THE PRUTECTOR PROGRAM. Optional group term life insurance - which protects the
value of your Prudential Mutual Fund investment for your beneficiaries against
market downturns - is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund - also known as redeeming your shares - the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, he must receive your order to sell by 4:15 p.m. New York time to
process the sale on that day. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: REDEMPTION SERVICES
P.O. BOX 15010
22
<PAGE>
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days after
the Transfer Agent receives your sell order. If you hold shares through a
broker, payment will be credited to your account. If you are selling shares you
recently purchased with a check, we may delay your sale until your check clears,
which can take up to 10 days. Your broker may charge you a separate or
additional fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. If you invest by check, we will only process
your redemptions after your check clears. You can avoid delay if you purchase by
wire, certified check or cashier's check. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares - Sale of Shares."
If you hold your shares directly with the Transfer Agent, you may have to have
the signature on your sell order guaranteed by a financial institution. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares -
Sale of Shares - Signature Guarantee."
CONTINGENT DEFERRED SALES CHARGES (CDSC)
If you sell Class B shares within four years of purchase or Class C shares
within 18 months of purchase (one year for Class C shares purchased before
November 2, 1998), you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
o Amounts representing shares you purchased with reinvested dividends and
distributions
o Amounts representing the increase in NAV above the total amount of payments
for shares made during the past six years (five years for Class B shares
purchased before January 22, 1990)
o Amounts representing the cost of shares held beyond the CDSC period (four
years for Class B shares and 18 months for Class C shares)
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid - or at least
minimize - the CDSC.
Having sold the exempt shares first, if there are any remaining shares
that are subject to the CDSC, we will apply the CDSC to the value of your oldest
shares first. To value these shares, we will use the original purchase price or
the current value, whichever is less.
As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 3% in the first year, 2% in the second, 1% in the third and
the fourth, and 0% in the fifth year. The rate decreases on the first day of the
month following the anniversary date of your purchase,
23
<PAGE>
not on the anniversary date itself. The CDSC of 1% for Class C shares - which is
applied to shares sold within 18 months of purchase (or one year if purchased
before November 2, 1998) - is the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
The CDSC will be calculated from the first day of the month after
initial purchase, excluding any time shares were held in a money market fund.
WAIVER OF THE CDSC - CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
o After a shareholder is deceased or disabled (or, in the case of a trust
account, the death or disability of the grantor). This waiver applies to
individual shareholders, as well as shares owned in joint tenancy (with rights
of survivorship), provided the shares were purchased before the death or
disability o To provide for certain distributions - made without IRS penalty -
from a tax-deferred retirement plan, IRA or Section 403(b) custodial account
o On certain sales from a Systematic Withdrawal Plan
For more information, see the SAI, "Purchase, Redemption and Pricing of
Fund Shares - Waiver of Contingent Deferred Sales Charges-Class B Shares."
WAIVER OF THE CDSC - CLASS C SHARES
The CDSC will be waived for purchases of Class C shares by both qualified and
nonqualified retirement and deferred compensation plans participating in the
PruArray Plan if Prudential also provides administrative or recordkeeping
services.
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA or some other
tax-deferred plan or account.
24
<PAGE>
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC wen you redeemed your
shares, we will credit your new account with the appropriate number of shares to
reflect the amount of the CDSC you paid. In order to take advantage of this
privilege, you must notify the Transfer Agent or your broker at the time of the
repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund Shares - Sale
of Shares."
RETIREMENT PLANS
To sell shares and receive a distribution from a retirement account, call your
broker or the Transfer Agent for a distribution request form. There are special
distribution and income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer or
plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in certain
other Prudential Mutual Funds - including certain money market funds - if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of the Fund for Class A shares of another Prudential Mutual Fund, but
you can't exchange Class A shares for Class B, Class C or Class Z shares. Class
B and Class C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund, Inc. We may change the terms of the
exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
There is no sales charge for such exchanges. However, if you exchange -
and then sell - Class B shares within approximately five years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B shares into a money
market fund, the time you hold the shares in the money market account will not
be counted for purposes of calculating the required holding period for CDSC
liability.
Remember, as we explained in the section entitled "If You Sell or
Exchange Your Shares," exchanging shares is considered a sale for tax purposes.
Therefore, if the shares you exchange are
25
<PAGE>
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account Exchange Privilege."
[If you own Class B or Class C shares and qualify to purchase Class A
shares without paying an initials sales charge or Class Z shares, we will
automatically exchange your Class B or Class C shares which are not subject to a
CDSC for Class A or Class Z shares, as appropriate. We make such exchanges on a
quarterly basis, if you notify the Transfer Agent that you qualify for this
exchange privilege. We have obtained a legal opinion that this exchange is not a
"taxable event" for federal income tax purposes. This opinion is not binding on
the IRS.]
FREQUENT TRADING
You should not use the Fund for frequent trading in response to short-term
changes in the market. Doing this makes it harder for us to efficiently manage
the Fund, and it also increases transaction costs. If we believe you are engaged
in this kind of trading, we reserve the right to refuse any of your purchase
orders or exchanges. The Fund will reject all exchanges and purchases from any
person or group we believe is following a market timing strategy unless we have
an agreement to follow by certain procedures, including a daily dollar limit on
trading.
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and report of
independent accountants which appear in the SAI and are available upon request.
Additional performance information for each share class is contained in the
annual report, which you can receive at no charge.
26
<PAGE>
CLASS A SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by __________, and the financial highlights for the three years ended October
31, 1996 were audited by other independent auditors, whose reports were
unqualified.
<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL YEARS ENDED 10-31)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE 1998 19972 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $8.82 $8.39 $8.56 $9.29
----- ----- ----- -----
Income from investment operations:
Net investment income .60 .60 .61 .70
Net realized and unrealized gain (loss)
on investment and foreign currency transactions (.16) .40 (.21) (.86)
----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS .44 1.00 .40 (.16)
- -------------------------------------------------------------------------------------------------------------------
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) (.57)
Net asset value, end of year $8.41 $8.82 $8.39 $8.56
TOTAL RETURN1 5.14% 12.35% 4.92% (1.89)%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA: 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $85,109 $69,051 $18,216 $28,841
Average net assets (000) $83,590 $53,284 $20,153 $38,000
Ratios to average net assets:
Expenses, including distribution fees 1.35% 1.32% 1.21% 1.17%
Expenses, excluding distribution fees 1.20% 1.17% 1.06% 1.02%
Net investment income 6.94% 7.12% 7.25% 7.67%
Portfolio turnover rate 53% 101% 199% 232%
- ------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and any other distributions, but does not
include the effect of sales charges. It is calculated assuming shares are purchased on the
first day and sold on the last day of each period reported.
2 Calculated based upon average shares outstanding during the year.
</TABLE>
27
<PAGE>
CLASS B SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by __________, and the financial highlights for the three years ended October
31, 1996 were audited by other independent auditors, whose reports were
unqualified.
<TABLE>
<CAPTION>
CLASS B SHARES (FISCAL YEARS ENDED 10-31)
PER SHARE OPERATING PERFORMANCE 1998 19972 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $8.85 $8.42 $8.56 $9.29
----- ----- ----- -----
Income from investment operations:
Net investment income .55 .55 .56 .62
Net realized and unrealized gain (loss)
on investment and foreign currency transactions (.16) .40 (.19) (.19)
----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS .39 .95 .37 (.24)
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.55) (.52) (.43) --
Distributions in excess of net investment income (.24) -- -- --
Tax return of capital distributions -- -- (.08) (.49)
----- ----- ----- -----
Total distributions (.79) (.52) (.51) (.49)
----- ----- ----- -----
Net asset value, end of year $8.45 $8.85 $8.42 $8.56
----- ----- ----- -----
TOTAL RETURN1 4.59% 11.61% 4.60% .75%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $3,938 $44,804 $108,454 $188,966
Average net assets (000) $17,941 $70,794 $139,248 $281,143
Ratios to average net assets:
Expenses, including distribution fees 1.95% 1.92% 1.83% 1.97%
Expenses, excluding distribution fees 1.20% 1.17% 1.08% 1.02%
Net investment income 6.34% 6.51% 6.61% 6.82%
Portfolio turnover 53% 101% 199% 232%
- ------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and any other distributions, but does not
include the effect of sales charges. It is calculated assuming shares are purchased on the
first day and sold on the last day of each period reported.
2 Calculated based upon average shares outstanding during the year.
</TABLE>
28
<PAGE>
CLASS C SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by ___________, and the financial highlights for the two years ended October 31,
1996 and the period from August 1, 1994 through October 31, 1994 were audited by
other independent auditors, whose reports were unqualified.
CLASS C SHARES (FISCAL PERIODS ENDED 10-31)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 RETURN2 4.59% 11.61% 4.60% .75%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
1994
Net assets, end of period (000) $107 $54 $7554 $2004
Average net assets (000) $116 $4 $1,4614 $1994
Ratios to average net assets:
Expenses, including distribution fees 1.95% 1.92% 1.70% .93%5
Expenses, excluding distribution fees 1.20% 1.17% .95% .18%5
Net investment income 6.36% 6.35% 6.43% 7.02%5
Portfolio turnover 53% 101% 199% 232%
- ------------------------------------------------------------------------------
1 For the period from August 1, 1994 (when Class C shares were first offered) through October 31, 1994.
2 Total Return assumes reinvestment of dividends and any other distributions, but does not
include the effect of sales charges. It is calculated assuming shares are purchased
on the first day and sold on the last day of each period reported. Total
return for periods of less than a full year is not annualized.
3 Calculated based upon average shares outstanding during the period.
4 Amounts are actual and not rounded to the nearest thousand.
5 Annualized.
</TABLE>
29
<PAGE>
CLASS Z SHARES
The financial highlights for the year ended October 31, 1998 and for the period
from January 27, 1997 through October 31, 1997 were audited by
______________________, whose report was unqualified.
CLASS Z SHARES (FISCAL PERIODS ENDED 10-31)
PER SHARE OPERATING PERFORMANCE 1998 19971,2
- --------------------------------------------------------------------------------
Net asset value, beginning of period $8.57
-----
Income from investment operations:
Net investment income .43
Net realized and unrealized gain (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 RETURN3 3.53%
RATIOS/SUPPLEMENTAL DATA 1998 1997
- --------------------------------------------------------------------------------
Net assets, end of period (000) $4
Average net assets (000) $3084
Ratios to average net assets:
Expenses, including distribution fees 1.20%5
Expenses, excluding distribution fees 1.20%5
Net investment income 14.07%5
Portfolio turnover 53%
- ------------------------------------------------------------------------------
1 Information shown is for the period from January 27, 1997 (when Class Z shares
were first offered) through October 31, 1997.
2 Calculated based upon average shares outstanding during the period.
3 Total return assumes reinvestment of dividends and any other distributions.
It is calculated assuming shares are purchased on the first day and sold on
the last day of each period reported. Total return for periods of less than
a full year is not annualized.
4 Amount is actual and not rounded to the nearest thousand.
5 Annualized.
30
<PAGE>
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your broker or Prudential
professional or call us at (800) 225-1852. Read the prospectus carefully before
you invest or send money.
<TABLE>
<CAPTION>
<S> <C>
STOCK FUNDS GLOBAL FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC. GLOBAL STOCK FUNDS
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC. PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL EQUITY INCOME FUND PRUDENTIAL DEVELOPING MARKETS
PRUDENTIAL INDEX SERIES FUND EQUITY FUND
PRUDENTIAL SMALL-CAP INDEX FUND PRUDENTIAL LATIN AMERICA
PRUDENTIAL STOCK INDEX FUND EQUITY FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC. PRUDENTIAL EUROPE GROWTH FUND,
PRUDENTIAL JENNISON GROWTH FUND INC.
PRUDENTIAL JENNISON GROWTH & INCOME FUND PRUDENTIAL GLOBAL GENESIS FUND,
PRUDENTIAL MID-CAP VALUE FUND INC.
PRUDENTIAL REAL ESTATE SECURITIES FUND PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL SMALL COMPANY VALUE FUND, INC. PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL 20/20 FOCUS FUND PRUDENTIAL NATURAL RESOURCES FUND,
PRUDENTIAL UTILITY FUND, INC. INC.
NICHOLAS-APPLEGATE FUND, INC. PRUDENTIAL PACIFIC GROWTH FUND,
NICHOLAS-APPLEGATE GROWTH EQUITY FUND INC.
PRUDENTIAL WORLD FUND, INC.
ASSET ALLOCATION/BALANCED FUNDS GLOBAL SERIES INTERNATIONAL
PRUDENTIAL BALANCED FUND STOCK SERIES
PRUDENTIAL DIVERSIFIED FUNDS GLOBAL UTILITY FUND, INC.
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND GLOBAL BOND FUNDS
HIGH GROWTH FUND PRUDENTIAL GLOBAL LIMITED MATURITY
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC. FUND, INC.
PRUDENTIAL ACTIVE BALANCED FUND LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL
INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND
FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
BOND FUNDS MONEY MARKET FUNDS
TAXABLE BOND FUNDS TAXABLE MONEY MARKET FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC. CASH ACCUMULATION TRUST
PRUDENTIAL GOVERNMENT SECURITIES TRUST LIQUID ASSETS FUND
SHORT-INTERMEDIATE TERM SERIES NATIONAL MONEY MARKET FUND
PRUDENTIAL HIGH YIELD FUND, INC. PRUDENTIAL GOVERNMENT SECURITIES TRUST
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, MONEY MARKET SERIES
INC. U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
PRUDENTIAL STRUCTURED MATURITY FUND, INC. MONEY MARKET SERIES
INCOME PORTFOLIO PRUDENTIAL MONEYMART ASSETS, INC.
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND TAX-FREE MONEY MARKET FUNDS
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL MUNICIPAL BOND FUND PRUDENTIAL CALIFORNIA MUNICIPAL FUND
HIGH INCOME SERIES CALIFORNIA MONEY MARKET SERIES
INSURED SERIES PRUDENTIAL MUNICIPAL SERIES FUND
PRUDENTIAL MUNICIPAL SERIES FUND MASSACHUSETTS MONEY MARKET SERIES
FLORIDA SERIES CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS SERIES NEW JERSEY MONEY MARKET SERIES
NEW JERSEY SERIES NEW YORK MONEY MARKET SERIES
NEW YORK SERIES COMMAND FUNDS
NORTH CAROLINA SERIES COMMAND MONEY FUND
OHIO SERIES COMMAND GOVERNMENT FUND
PENNSYLVANIA SERIES COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL NATIONAL MUNICIPALS FUND, PRUDENTIAL INSTITUTIONAL LIQUIDITY
INC. PORTFOLIO INC.
INSTITUTIONAL MONEY MARKET SERIES
</TABLE>
31
<PAGE>
FOR MORE INFORMATION
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
Brokers should contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 225-1852
Visit Prudential's web site at
HTTP://WWW.PRUDENTIAL.COM
Additional information about the Fund can be obtained without charge and can be
found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)
32
<PAGE>
In Person:
Public Reference Room
in Washington, DC
(For hours of operation, call 1(800) SEC-0330.)
Via the Internet:
http://www.sec.gov
CUSIP Numbers:
Class A: 74433F 10 8
Class B: 74433F 20 7
Class C: 74433F 50 4
Class Z: 74433F 60 3
Investment Company Act File No: 811-6048
33
<PAGE>
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Statement of Additional Information
dated December 30, 1998
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 Fund's investment
objective is to maximize total return, made up of current income and capital
appreciation. It seeks to achieve this 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 U.S. dollars and a
range of foreign currencies. There can be no assurance that the Fund's
investment objective will be achieved. See "Description of the Fund, Its
Investments and Risks."
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated December 30, 1998, a copy
of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
------- ----------------
<S> <C> <C>
Fund History ................................................. B-2 -
Description of the Fund, Its Investments and Risks ........... B-2 -
Investment Restrictions ...................................... B-15 -
Management of the Fund ....................................... B-16 -
Control Persons and Principal Holders of Securities. ......... B-20 -
Investment Advisory and Other Services ....................... B-21 -
Brokerage Allocation and Other Practices ..................... B-24 -
Capital Shares, Other Securities and Organization ............ B-26 -
Purchase, Redemption and Pricing of Fund Shares .............. B-27 -
Shareholder Investment Account ............................... B-36 -
Net Asset Value .............................................. B-41 -
Taxes, Dividends and Distributions ........................... B-42 -
Performance Information. ..................................... B-43 -
Financial Statements ......................................... B-46 -
Report of Independent Accountants ............................ B- -
Description of Security Ratings .............................. A-1 -
Appendix I-General Investment Information .................... I-1 -
Appendix II-Historical Performance Data ...................... II-1 -
Appendix III-Information Relating to Prudential .............. III-1 -
</TABLE>
- --------------------------------------------------------------------------------
MF131B
B-1
<PAGE>
FUND HISTORY
Prudential Global Limited Maturity Fund, Inc. was incorporated under the
laws of Maryland on February 21, 1990. Its only portfolio, the Limited Maturity
Portfolio (the Fund), commenced investment operations on November 1, 1990.
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
(A) CLASSIFICATION. The Fund is a non-diversified open-end management
investment company.
(B) AND (C) INVESTMENT STRATEGIES, POLICIES AND RISKS. The Fund's
investment objective is to maximize total return, made up of capital
appreciation and current income. While the principal investment policies and
strategies for seeking to achieve this objective are described in the Fund's
Prospectus, the Fund may from time to time also use the securities, instruments,
policies and strategies described below in seeking to achieve its objective. The
Fund may not be successful in achieving its objective and you could lose money.
FOREIGN SECURITIES
As a global fund, the Fund will invest a substantial portion of its total
assets in foreign money market instruments and debt and equity securities. (ADRs
are not considered foreign securities within this limitation.) In many
instances, foreign securities may provide higher yields but may be subject to
greater fluctuations in price than securities of domestic issuers which have
similar maturities and quality. Under certain market conditions these
investments may be less liquid than the securities of U.S. corporations and are
certainly less liquid than securities issued or guaranteed by the U.S.
Government, its instrumentalities or agencies.
Foreign securities involve certain risks, which should be considered
carefully by an investor in the Fund. These risks include political or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange controls
and the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. Government, its instrumentalities or agencies. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States, and, for certain foreign countries, there is a
possibility of expropriation, confiscatory taxation or diplomatic developments
which could affect investment in those countries. Finally, in the event of a
default of any such foreign debt obligations, it may be more difficult for the
Fund to obtain, or to enforce a judgment against, the issuers of such
securities.
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 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
B-2
<PAGE>
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.
If the security is denominated in a foreign currency, it may be affected by
changes in currency rates and in exchange control regulations, and costs may be
incurred in connection with conversions between currencies. The Fund may enter
into forward foreign currency exchange contracts for the purchase or sale of
foreign currency for hedging purposes. See "Hedging and Return Enhancement
Strategies-Special Risks Related to Forward Foreign Currency Exchange Contracts"
below.
INCOME-PRODUCING SECURITIES
Under normal circumstances, the Fund will invest at least 65% of its total
assets in income producing securities. The Fund anticipates that it will
primarily invest in fixed income securities rated A or better by Moody's
Investors Service, Inc. (Moody's) or Standard & Poor's Ratings Group (S&P) or
comparably rated by another nationally recognized statistical rating
organization (NRSRO). The Fund may also invest up to 20% of its total assets in
debt securities rated below investment grade but no lower than B by either S&P
or Moody's or another NRSRO.
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, the market perception of the creditworthiness of the issuer and
general market liquidity (market risk). Lower rated or unrated (I.E., high
yield) securities are more likely to react to developments affecting market and
credit risk than are more highly rated securities, which react primarily to
movements in the general level of interest rates. The investment adviser
considers both credit risk and market risk in making investment decisions for
the Fund.
Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. Under adverse
market or economic conditions, the secondary market for high yield securities
could contract further, independent of any specific adverse changes in the
condition of a particular issuer. As a result, the investment adviser could find
it more difficult to sell these securities or may be able to sell the securities
only at prices lower than if such securities were widely traded. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating the Fund's net
asset value.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's portfolio and increasing
the exposure of the Fund to the risks of high yield securities.
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.
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 the 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
B-3
<PAGE>
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.
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 "Risk of Transactions in Stock Options."
EQUITY AND EQUITY-RELATED SECURITIES
Equity-related securities include common stocks, preferred stocks,
securities convertible or exchangeable for common stocks or preferred stocks,
equity investments in partnerships, joint ventures and other forms of
non-corporate investments, American Depositary Receipts (ADRs) and American
Depositary Shares (ADS), and warrants and rights exercisable for equity
securities. Common stocks may include securities of foreign issuers.
A convertible security is typically a bond, debenture, corporate note,
preferred stock or other similar security that may be converted at a stated
price within a specified period of time into a specified number of shares of
common stock or other equity securities of the same or a different issuer. A
warrant or right entitles the holder to purchase equity securities at a specific
price for a specific period of time. Convertible securities are generally senior
to common stocks in a corporation's capital structure, but are usually
subordinated to similar non-convertible 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 non-convertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation attendant upon a
market price advance in the convertible security's underlying common stock.
Convertible securities also include preferred stocks which technically are
equity securities.
In general, the market value of a convertible security is at least the
higher of its "investment value" (that is, its value as a fixed-income security)
or its "conversion value" (that is, 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
common 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. While no securities investment is
without some risk, investments in convertible securities generally entail less
risk than investments in the common stock of the same issuer.
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
B-4
<PAGE>
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 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.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
The Fund also may engage in various portfolio strategies, including using
derivatives, to reduce certan risks of its investments and to attempt to enhance
return. 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 "Taxes, Dividends
and Distributions" below. 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 ON SECURITIES
The Fund may purchase and write (that is, sell) put and call options on
securities that are traded on national securities exchanges or in the
over-the-counter market to enhance return or to hedge the Fund's portfolio.
These options will be on equity securities and financial indices (E.G., S&P
500). The Fund may write covered put and call options to generate additional
income through the receipt of premiums, purchase put options in an effort to
protect the value of a security that it owns against a decline in market value
and purchase call options in an effort to protect against an increase in the
price of securities 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.
A call option gives the purchaser, in exchange for a premium paid, 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). The writer of
a call option, in return for the premium, has the obligation, upon exercise of
the option, to deliver, depending upon the terms of the option contract, the
underlying securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When the Fund writes a call option, the Fund
gives up the potential for gain on the underlying securities 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 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 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.
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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 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.
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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 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 (ii) segregates cash or other liquid
assets in an amount equal to or greater than its obligation under the option.
Under the first circumstance, the Fund's losses are limited because it owns the
underlying security; under the second circumstance, in the case of a written
call option, the Fund's losses are potentially unlimited.
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.
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.
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.
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FUTURES CONTRACTS AND OPTIONS THEREON
The Fund may purchase and sell interest rate and financial 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. The Fund, and thus its investors, may
lose money through any unsuccessful use of these strategies.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act are exempt from the definition of
"commodity pool operator," subject to compliance with certain conditions. The
exemption is conditioned upon the Fund's purchasing and selling futures
contracts and options thereon for BONA FIDE hedging transactions, except that
the Fund may purchase and sell futures contracts and options thereon for any
other purpose to the extent that the aggregate initial margin and option
premiums do not exceed 5% of the market value of the Fund's total assets.
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 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 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 asssets which can be placed in the
segregated account.
The Fund's successful use of futures contracts and options thereon depends
upon the investment adviser's ability to predict the direction of the market and
interest rates and requires skills and techniques different from those used in
selecting portfolio securities. The correlation between movements in the price
of a futures contract and movements in the price of the securities being hedged
is imperfect and the risk from imperfect correlation increases as the
composition of the Fund's portfolio diverges from the composition of the
relevant index. There is also a risk that the value of the securities 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 options thereon 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 options thereon on any particular
day.
Certain of the futures and options on futures sold or purchased in the Fund
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 (1) other
complex foreign political, legal and economic factors, (2) lesser availability
than in the United States of data on which to make trading decisions, (3) delays
in the Fund's ability to act upon economic events occurring in the foreign
markets during non-business hours in the United States, (4) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States and (5) lesser trading volume.
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
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 or 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 being hedged; (3) the fact
that the 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 risk that the
counterparty may be unable to complete the transaction; and (6) the possible
inability of the Fund to purchase or sell a portfolio security at a time
B-8
<PAGE>
that otherwise would be favorable for it to do so, or the possible need for the
Fund to sell a portfolio security at a disadvantageous time, due to the need for
the Fund to maintain "cover" or to segregate securities in connection with
hedging transactions.
The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if the investment adviser believes
that the other party to the options will continue to make a market for such
options.
LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS, OPTIONS ON STOCK
INDICES, STOCK INDEX FUTURES AND OPTIONS THEREON
Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate with its Custodian, or pledge to a broker as collateral for the
option, cash, other liquid assets or "qualified securities" with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts.
If the Fund has written an option on an industry or market segment index,
it will segregate with its Custodian, or pledge to a broker as collateral for
the option, at least ten "qualified securities," which are stocks of issuers in
such industry or market segment, with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts. Such stocks will include stocks which represent
at least 50% of the weighting of the industry or market segment index and will
represent at least 50% of the Fund's holdings in that industry or market
segment. No individual security will represent more than 15% of the amount so
segregated or pledged in the case of broadly-based stock market index options or
25% of such amount in the case of industry or market segment index options.
If at the close of business on any day the market value of such qualified
securities so segregated or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, the Fund will so segregate
or pledge an amount in cash or other liquid assets, equal in value to the
difference. In addition, when the Fund writes a call on an index which is
in-the-money at the time the call is written, the Fund will segregate with its
Custodian or pledge to the broker as collateral cash or other liquid assets,
equal in value to the amount by which the call is in-the-money times the
multiplier times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a national securities exchange or listed on the National
Association of Securities Dealers Automated Quotation System against which the
Fund has not written a stock call option and which has not been hedged by the
Fund by the sale of stock index futures. However, if the Fund holds a call on
the same index as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash or other liquid assets segregated with its Custodian, it will not be
subject to the requirements described in this paragraph.
The Fund will engage only in transactions in stock index futures contracts
and options thereon as a hedge against changes, resulting from market
conditions, in the values of securities which are held in the Fund's portfolio
or which it intends to purchase or when they are economically appropriate for
the reduction of risks inherent in the ongoing management of the Fund or for
return enhancement. The Fund may not purchase or sell stock index futures or
purchase options thereon if, immediately thereafter, more than one-third of its
net assets would be hedged and, in addition, except as described above in the
case of a call written and held on the same index, will write call options on
indices or sell stock index futures only if the amount resulting from the
multiplication of the then current level of the index (or indices) upon which
the option or futures contract(s) is based, the applicable multiplier(s), and
the number of futures or options contracts which would be outstanding, would not
exceed one-third of the value of the Fund's net assets. The Fund also may not
purchase or sell stock index futures or options thereon for risk management
purposes or income enhancement if, immediately thereafter, the sum of the amount
of margin deposits on the Fund's existing futures positions and premiums paid
for such options would exceed 5% of the market value of the Fund's total assets,
taking into account unrealized profits and unrealized losses on any such
contracts, provided, however, that in the case of an option that is
in-the-money, the in-the-money amount may be excluded in computing such 5%. The
above restriction does not apply to the purchase and sale of stock index futures
or options thereon for BONA FIDE hedging purposes. In instances involving the
purchase of stock index futures contracts by the Fund, an amount of cash and
other liquid assets, equal to the market value of the futures contracts, will be
segregated with the Fund's Custodian and/or in a margin account with a broker to
collateralize the position and thereby ensure that the use of such futures is
unleveraged.
The Fund will use stock index futures and options thereon as described
herein in a manner consistent with these requirements.
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<PAGE>
The Fund's ability to enter into or close out stock index futures
contracts, options thereon and options on stocks and stock indices may be
limited by certain requirements for qualification as a regulated investment
company under the Internal Revenue Code. See "Taxes, Dividends and
Distributions."
RISKS OF TRANSACTIONS IN STOCK OPTIONS
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying securities acquired through the
exercise of call options or upon the purchase of underlying securities for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (1) there may be insufficient trading interest in certain
options; (2) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (3) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (4) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (5) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (6) one or more exchanges could, for economic or other
reasons, decide, or be compelled at some future date, to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders. However, The Options Clearing Corporation, based on forecasts provided
by the U.S. exchanges, believes that its facilities are adequate to handle the
volume of reasonably anticipated options transactions, and such exchanges have
advised such clearing corporation that they believe their facilities will also
be adequate to handle reasonably anticipated volume.
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.
RISKS OF OPTIONS ON INDICES
The Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Stock Options." In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, might be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the Fund's policy to
purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced, including options on industry indices.
Although the
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<PAGE>
markets for certain index option contracts have developed rapidly, the markets
for other index options are still relatively illiquid. The ability to establish
and close out positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that this market
will develop in all index option contracts. The Fund will not purchase or sell
any index option contract unless and until, in the opinion of the investment
adviser, the market for such options has developed sufficiently that the risk in
connection with such transactions is no greater than the risk in connection with
options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDICES. Because exercises of index
options are settled in cash, a call writer such as the Fund cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described above under "Limitations on Purchase and Sale of Stock
Options, Options on Stock Indices, Stock Index Futures and Options Thereon."
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience a loss on
the call which would not be offset by an increase in the value of its portfolio
and might also experience a loss in its portfolio. However, because the value of
a diversified portfolio will, over time, tend to move in the same direction as
the market, movements in the value of the Fund's portfolio in the opposite
direction as the market would be likely to occur for only a short period or to a
small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of the
Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its stock portfolio in order to make settlement in cash,
and the price of such stocks might decline before they can be sold. This timing
risk makes certain strategies involving more than one option substantially more
risky with index options than with stock options. For example, even if an index
call which the Fund has written is "covered" by an index call held by the Fund
with the same strike price, the Fund will bear the risk that the level of the
index may decline between the close of trading on the date the exercise notice
is filed with the clearing corporation and the close of trading on the date the
Fund exercises the call it holds or the time the Fund sells the call which in
either case would occur no earlier than the day following the day the exercise
notice was filed.
SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON INDICES. If the Fund holds an
index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiplier) to the assigned writer. Although the Fund may be able to minimize
this risk by withholding exercise instructions until just before the daily
cutoff time or by selling rather than exercising an option when the index level
is close to the exercise price, it may not be possible to eliminate this risk
entirely because the cutoff times for index options may be earlier than those
fixed for other types of options and may occur before definitive closing index
values are announced.
SPECIAL RISKS RELATED TO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payment is
made or received.
B-11
<PAGE>
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of dollars
to sell the amount of foreign currency approximating the value of some or all of
the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The Fund does not intend to enter into
such forward contracts to protect the value of its portfolio securities on a
regular or continuous basis. The Fund will also not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the long-term
investment decisions made with regard to overall diversification strategies.
However, the Fund believes that it is important to have the flexibility to enter
into such forward contracts when it determines that the best interest of the
Fund will thereby be served. If the Fund enters into a position hedging
transaction, the transaction will be "covered" by the position being hedged or
the Fund's Custodian or sub-custodian will segregate cash or other liquid assets
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. The assets segregated will be marked-to-market
daily, and if the value of the assets segregated declines, additional cash or
securities will be segregated so that the value of the assets will, at all
times, equal the amount of the Fund's net commitment with respect to such
contract.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between the Fund's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent that the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Fund's dealings in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Fund is not required
to enter into such transactions with regard to its foreign currency-denominated
securities. It also should be realized that this method of protecting the value
of the Fund's portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities which
are unrelated to exchange rates. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain which might result should
the value of such currency increase. The Fund's ability to enter into forward
foreign currency exchange contracts may be limited by certain requirements for
qualification as a regulated investment company under the Internal Revenue Code.
See "Taxes, Dividends and Distributions."
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
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
B-12
<PAGE>
order to secure what is considered to be an advantageous price and yield to the
Fund at the time of entering into the transaction. The Fund's Custodian will
segregate 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
net asset value.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open, the Fund owns an equal
amount of such securities or securities convertible into or exchangeable for,
with or without payment of any further consideration, such securities; provided
that if further consideration is required in connection with the conversion or
exchange, cash or other liquid assets in an amount equal to such consideration
must be segregated for an equal amount of the securities of the same issuer as
the securities sold short (a short sale against-the-box).
REPURCHASE AGREEMENTS
The Fund may on occasion enter into repurchase agreements, whereby the
seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money is
invested in the repurchase agreement. The Fund's repurchase agreements will at
all times be fully collateralized by U.S. Government obligations in an amount at
least equal to the resale price. The instruments held as collateral are valued
daily, and if the value of the instruments declines, the Fund will require
additional collateral. If the seller defaults and the value of the collateral
securing the repurchase agreement declines, the Fund may incur a loss.
The Fund will enter into repurchase transactions only with parties meeting
creditworthiness standards approved by the Fund's Directors. The Fund's
investment adviser will monitor the creditworthiness of such parties under the
general supervision of the Directors. In the event of a default or bankruptcy by
a seller, the Fund will promptly seek to liquidate the collateral.
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 (Commission). On
a daily basis, any uninvested cash balances of the Fund may be aggregated with
those of such investment companies and invested in one or more repurchase
agreements. Each fund participates in the income earned or accrued in the joint
account based on the percentage of its investment.
BORROWING
The Fund may borrow an amount equal to no more than 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 and to take advantage
of investment opportunities. The Fund may pledge up to 20% of its total assets
to secure these borrowings. If the Fund's asset coverage for borrowings falls
below 300%, the Fund will take prompt action to reduce its borrowings.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 30% of the value of the
Fund's total assets and that the loans are callable at any time by the Fund. As
a matter of fundamental policy, the Fund will not lend more than 30% of the
value of its total assets. The loans must at all times be secured by cash or
other liquid assets or secured by 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 loaned securities. The collateral is segregated 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. The advantage of such loans is that the Fund continues to
receive payments in lieu of the interest and dividends on the loaned securities,
while at the same time earning interest either directly from the borrower or on
the collateral, which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice or by
the Fund at any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates and the Fund can use the
collateral to replace
B-13
<PAGE>
the securities while holding the borrower liable for any excess of replacement
cost over collateral. As with any extensions of credit, there are risks of delay
in recovery and in some cases loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms determined to be creditworthy pursuant to
procedures approved by the Directors of the Fund. On termination of the loan,
the borrower is required to return the securities to the Fund, and any gain or
loss in the market price during the loan would inure to the Fund.
Since voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loan, in whole or
in part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan. The Fund will pay reasonable
finders', administrative and custodial fees in connection with a loan of its
securities or may share the interest earned on collateral with the borrower.
SEGREGATED ASSETS
When the Fund is required to segregate assets in connection with certain
hedging transactions, it will segregate cash or liquid assets with the Fund's
Custodian. "Liquid assets" mean cash, U.S. Government securities, equity
securities (including foreign securities), debt obligations or other liquid,
unencumbered assets, marked-to-market daily.
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 investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. The Fund's investment in Rule
144A securities could have the effect of increasing illiquidity to the extent
that qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. Repurchase agreements subject to demand are
deemed to have a maturity equal to the applicable notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Directors. In reaching liquidity decisions, the investment adviser will
B-14
<PAGE>
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, (a) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser, and (b) it must not be "traded
flat" that is, 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 Commission has taken the position that purchased
over-the-counter options and the assets used as "cover" for written
over-the-counter options are illiquid securities unless the Fund and the
counterparty have provided for the Fund, at the Fund's election, to unwind the
over-the-counter option. The exercise of such an option ordinarily would involve
the payment by the Fund of an amount designed to reflect the counterparty's
economic loss from an early termination, but does allow the Fund to treat the
assets used as "cover" as "liquid."
(C) DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in money market instruments, including commercial paper of
corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, non-convertible debt securities
(corporate or government), obligations issued or guaranteed by the U.S.
Government, its instrumentalities or its agencies, repurchase agreements
(described more fully above) and cash (foreign currencies or U.S. dollars). Such
investments may be subject to certain risks, including future political and
economic developments, the possible imposition of withholding taxes on interest
income, the seizure or nationalization of foreign deposits and foreign exchange
controls or other restrictions.
(D) PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions, and the Fund's portfolio
turnover rate may exceed 100%, but is not expected to exceed 200%. The portfolio
turnover rates for the Fund for the fiscal years ended October 31, 1998 and 1997
were % and 53%, respectively. The portfolio turnover rate is generally the
percentage computed by dividing the lesser of portfolio purchases or sales
(excluding all securities, including options, whose maturities or expiration
date at acquisition were one year or less) by the monthly average value of the
long-term portfolio. High portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which are borne directly by
the Fund. In addition, high portfolio turnover may also mean that a
proportionately greater amount of distributions to shareholders will be taxed as
ordinary income rather than long-term capital gains compared to investment
companies with lower portfolio turnover. See "Brokerage Allocations and Other
Practices" and "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 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 (1) 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 (2) 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.
B-15
<PAGE>
(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.
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.
MANAGEMENT OF THE FUND
<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 and Director or Trustee of
funds within the Prudential Mutual Funds.
Delayne Dedrick Gold (59) Director Marketing and Management Consultant and Director or Trustee of
funds within the Prudential Mutual Funds.\
* Robert F. Gunia (51) Vice President and Vice President (since September 1997), Prudential Investments;
Director Executive Vice President and Treasurer (since December 1996),
Prudential Investments Fund
Management LLC (PIFM); 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 (since
May 1989) of The Asia Pacific
Fund, Inc. and Director or
Trustee of funds within the
Prudential Mutual Funds.
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS** AND (AGE) WITH FUND DURING PAST FIVE YEARS
- ------------------------- --------- ----------------------
<S> <C> <C>
Douglas H. McCorkindale (58) Director Vice Chairman (since March 1984) and President (since
September 1997) of Gannett Co. Inc. (publishing and media);
Director of Continental Airlines, Inc., Gannett Co., Inc. and
Frontier Corporation and Director or Trustee of funds within the
Prudential Mutual Funds.
* Mendel A. Melzer, CFA (38) Director Chief Investment Officer (since October 1996) of Prudential Mutual
100 Mulberry Street Funds; formerly Chief Financial Officer of Prudential Investments
Gateway Two (November 1995-September 1996), Senior Vice President and
Newark, NJ 07102 Chief Financial Officer of Prudential Preferred Financial Services
(April 1993-November 1995), Managing
Director of Prudential Investment
Advisors (April 1991-April 1993) and
Senior Vice President of Prudential
Capital Corporation (July 1989-April
1991); Chairman and Director of
Prudential Series Fund, Inc.; , and
Director or Trustee of funds within
the Prudential Mutual Funds.
Thomas T. Mooney (56) Director President of the Greater Rochester Metro Chamber of Commerce;
former Rochester City Manager; Trustee of Center for
Governmental Research, Inc.; Director of Blue Cross of
Rochester, The Business Council of New York State, Executive
Service Corps of Rochester, Monroe County Water Authority,
Rochester Jobs, Inc., Monroe County Industrial Development
Corporation, Northeast Midwest Institute; President, Director
and Treasurer of First Financial Fund, Inc. and The High Yield
Plus Fund, Inc. and Director or Trustee of funds within the
Prudential Mutual Funds.
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) and Director or Trustee of funds within the Prudential
Mutual Funds.
* Richard A. Redeker (54) Director Employee of Prudential Investments; formerly President, Chief
100 Mulberry Street Executive Officer and Director (October 1993-September 1996),
Gateway Three Prudential Mutual Fund Management, Inc., Executive Vice
Newark, NJ 07102 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), 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. and Director or Trustee of
funds within the Prudential Mutual
Funds.
Robert B. Smith (58) Director Chairman and Chief Executive Officer (since August 1996),
formerly President and Chief Executive Officer (January
1988-August 1996) and President and Chief Operating Officer
(September 1981-December 1988) of Publishers Clearing
House; Director of BellSouth Corporation, Texaco Inc., Spring
Industries Inc. and Kmart Corporation and Director or Trustee of
funds within the Prudential Mutual Funds.
</TABLE>
B-17
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS** AND (AGE) WITH FUND DURING PAST FIVE YEARS
- ------------------------- --------- ----------------------
<S> <C> <C>
Brian M. Storms (44) President and President, Prudential Investments (October 1998-Present).
Director President, Prudential Mutual Funds, Annuities, and Investment
Management Services (September 1996-October 1998).
Managing Director, Fidelity Investments Institutional Services
Company, Inc. (July 1991-September 1996). President, J.K.
Schofield (October 1989-September 1991). Senior Vice
President, INVEST Financial Corporation (September
1982-October 1989).
Louis A. Weil, III (57) 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 (May
1989-March 1991) of Time Magazine, President, Publisher and
Chief Executive Officer (February 1986-August 1989) of The
Detroit News and member of the Advisory Board, Chase
Manhattan Bank-Westchester; Director of The High Yield Income
Fund, Inc. and Director or Trustee of funds within the
Prudential Mutual Funds.
Clay T. Whitehead (59) Director President of National Exchange Inc. (new business development
firm) (since May 1983) and Director or Trustee of funds
within the Prudential Mutual Funds.
Grace C. Torres (39) Treasurer and First Vice President (since December 1996) of PIFM; First Vice
Principal Financial President (since March 1993) of Prudential Securities; formerly
and Accounting First Vice Principal Financial President (March 1994-September
Officer 1996) of Prudential Mutual Fund and Accounting Management,
Inc. and Vice President (July 1989-March 1994) of Bankers
Trust Corporation.
Marguerite E. H. Morrison Secretary Vice President and Associate General Counsel (since December
(42) 1996) of PIFM; Vice President and Associate General Counsel of
Prudential Securities; formerly Vice President and Associate
General Counsel (June Secretary 1991-September 1996) of
Prudential Mutual Fund Management, Inc.
Stephen M. Ungerman (44) Assistant Treasurer Tax Director (since March 1996) of Prudential Investments;
formerly First Vice President (February 1993-September 1996)
of Prudential Mutual Fund Management, Inc.
</TABLE>
- ----------
* "Interested" Director, as defined in the Investment Company Act, by reason
of affiliation with Prudential Securities, The Prudential Insurance Company
of America or the Manager.
** Unless otherwise stated, the address is c/o Prudential Investments Fund
Management LLC, Gateway Center Three, 100 Mulberry Street, 9th Floor,
Newark, New Jersey 07102-4077.
The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, Subadviser and Distributor, decide upon matters of general
policy. The Directors also review the actions of the Fund's officers, who
conduct and supervise the daily business operations of the Fund.
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Investment Management Services LLC.
B-18
<PAGE>
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 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.
The Fund pays each of its Directors who is not an affiliated person of the
Manager or the investment adviser annual compensation of $2,500, in addition to
certain out-of-pocket expenses.
Directors may receive their Director's fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Director's fees which accrue interest at a rate equivalent
to the prevailing rate applicable to 90-day U.S. Treasury bills at the beginning
of each calendar quarter or, pursuant to a Commission exemptive order, at the
daily rate of return of the Fund. Payment of the interest so accrued is also
deferred and accruals become payable at the option of the Director. The Fund's
obligation to make payments of deferred Directors' fees, together with interest
thereon, is a general obligation of the Fund.
B-19
<PAGE>
The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended October 31, 1998 and the aggregate compensation paid to such Director for
service on the Fund's Board and the Boards of all other investment companies
managed by PIFM (Fund Complex) for the calendar year ended December 31, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL 1997 COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TRUSTEES
- ----------------- -------------- ------------------ ------------------ ---------------------------
<S> <C> <C> <C> <C>
Edward D. Beach-Director $ None N/A $ 135,000(38/63)*
Delayne D. Gold-Director None N/A $ 135,000(38/63)*
Robert F. Gunia-Director+ -- None None None
Douglas H. McCorkindale-Director** None N/A $ 70,000(20/35)*
Mendel A. Melzer-Director+ -- None None None
Thomas T. Mooney-Director** None N/A $ 115,000(31/64)*
Stephen P. Munn-Director None N/A $ 45,000(15/21)*
Richard A. Redeker-Director+ - None None None
Robin B. Smith-Director** None N/A $ 90,000(27/34)*
Louis A. Weil, III-Director None N/A $ 90,000(26/50)*
Clay T. Whitehead-Director None N/A $ 45,000(15/21)*
</TABLE>
- ----------
* Indicates number of Funds/portfolios in Fund Complex to which aggregate
compensation relates.
** Total compensation from all of the funds in the Fund Complex for the calendar
year ended December 31, 1997, includes amounts deferred at the election of
Directors under the funds' deferred compensation plans. Including accrued
interest, total compensation amounted to $71,640, $143,909 and $139,707 for
Messrs. McCorkindale and Mooney and Ms. Smith, respectively.
+ Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are interested
Directors, do not receive compensation from the Fund or any fund in the
Prudential Mutual Fund Family.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Directors of the Fund are eligible to purchase Class Z shares of the Fund
which are sold without either an initial sales charge or CDSC to a limited group
of investors.
As of December , 1998, the Directors and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding shares of beneficial interest
of the Fund.
As of December , 1998, each of the following entities owned more than 5% of
the outstanding voting securities of each of the classes indicated:
owned Class shares (or approximately % of the outstanding
Class shares).
As of December , 1998, Prudential Securities was record holder of Class A
shares (or % of the outstanding Class A shares), Class B shares
(or % of the outstanding Class B shares), Class C shares (or % of the
outstanding Class C shares) and Class Z shares (or % of the outstanding Class Z
shares) of the Fund. In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy material to the
beneficial owners for which it is the record holder.
B-20
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
(a) MANAGER AND INVESTMENT ADVISER
The manager of the Fund is Prudential Investments Fund Management LLC (the
Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. The Manager serves as manager to all of the other investment
companies that, together with the Fund, comprise the Prudential Mutual Funds.
See "How the Fund Is Managed-Manager" in the Prospectus. As of November 30,
1998, the Manager managed and/or administered open-end and closed-end management
investment companies with assets of approximately $ billion. According to the
Investment Company Institute, as of November 30, 1998, the Prudential Mutual
Funds were the th largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities and The Prudential Insurance
Company of America (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 Fund's Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, the Manager is obligated to keep certain books and records of the
Fund. The Manager also administers the Fund's business affairs and, in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by State Street Bank and Trust Company (the Custodian), the Fund's custodian,
and the Fund's Transfer Agent and dividend disbursing 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 Fund's average daily net
assets. The fee is computed daily and payable monthly. The Management Agreement
also provides that, in the event the expenses of the Fund (including the fees of
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
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 business 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 The Prudential Investment
Corporation, doing business as Prudential Investments (the Subadviser), pursuant
to the subadvisory agreement between the Manager and the Subadviser (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 and Dividend Disbursing Agent, including the cost of providing records
to the Manager in connection with its obligation of maintaining required records
of the Fund and of pricing the Fund's shares, (d) the charges and expenses of
legal counsel and independent accountants for the Fund, (e) brokerage
commissions and any issue or transfer taxes chargeable to the Fund in connection
with its securities transactions, (f) all taxes and corporate fees payable by
the Fund to governmental agencies, (g) the fees of any trade associations of
which the Fund may be a member, (h) the cost of share certificates representing
shares of the Fund, (i) the cost of fidelity and liability insurance, (j)
certain organization expenses of the Fund and the fees and expenses involved in
registering and maintaining registration of the Fund and of its shares with the
Commission, 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
B-21
<PAGE>
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.
For the fiscal years ended October 31, 1998, 1997 and 1996, the Manager
received management fees of $ , $559,063 and $682,450, respectively, from the
Fund.
The Manager has entered into the Subadvisory Agreement with the Subadviser,
a wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
the Subadviser will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, the Subadviser is obligated to
keep certain books and records of the Fund. The Subadviser has entered into an
agreement with PRICOA Asset Management Ltd. (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. The
Subadviser is reimbursed by the Manager for the reasonable costs and expenses
incurred by the Subadviser in furnishing those services and PRICOA is paid by
the Subadviser 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 the Subadviser 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. [PIC remuneration for last 3 yrs.]
(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12B-1 PLANS
Prudential Investment Management Services LLC (the Distributor), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts as the
distributor of the shares of the Fund. Prior to June 1, 1998, Prudential
Securities Incorporated (Prudential Securities) was the Fund's distributor. The
Distributor and Prudential Securities are subsidiaries of Prudential.
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), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares. The Distributor
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 expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of brokers or financial institutions which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of the Distributor associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses. The
distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor for
its distribution-related activities with respect to Class A shares at an annual
rate of up to .30 of 1% of the average daily net assets of the Class A shares.
The Class A Plan provides that (1) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service
B-22
<PAGE>
and/or the maintainance of shareholder accounts (service fee) and (2) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1%. The Distributor has voluntarily limited its distribution related fees
payable under the Class A Plan to .15 of 1.% of the average daily net assets of
the Class A shares. This voluntary waiver may be terminated at any time without
notice.
For the fiscal year ended October 31, 1998, the Distributor and Prudential
Securities received payments of approximately $ and, $ respectively, under the
Class A Plan and spent approximately $ and $ , respectively, in distributing the
Class A shares. This amount was primarily expended for payments of account
servicing fees to financial advisers and other persons who sell Class A shares.
For the fiscal year ended October 31, 1998, the Distributor and Prudential
Securities also received approximately $ and $ , respectively, in initial sales
charges.
CLASS B AND CLASS C PLANS. Under the Class B and Class C Plans, the Fund
may pay the Distributor for its distribution-related activities with respect to
Class B and Class C shares at an annual rate of up to 1% of the average daily
net assets of each of the Class B and Class C shares. The Class B Plan provides
that (1) up to .25 of 1% of the average daily net assets of the Class B shares
may be paid as a service fee and (2) up to .75 of 1% (not including the service
fee) of the average daily net assets of the Class B shares (asset based sales
charge) may be used as reimbursement for distribution-related expenses with
respect to the Class B shares. The Class C Plan provides that (1) up to .25 of
1% of the average daily net assets of the Class C shares may be paid as a
service fee for providing personal service and/or maintaining shareholder
accounts and (2) up to .75 of 1% of the average daily net assets of the Class C
shares may be paid for distribution-related expenses with respect to Class C
shares. The service fee (.25 of 1% of average daily net assets) is used to pay
for personal service and/or the maintenance of shareholder accounts. The
Distributor also receives contingent deferred sales charges from certain
redeeming shareholders.
CLASS B PLAN. For the fiscal year ended October 31, 1998, the Distributor
and Prudential Securities received $ and $ , respectively, from the Fund under
the Class B Plan and spent approximately $ and $ , respectively, in distributing
the Fund's Class B shares. It is estimated that of the latter total amount,
approximately % ($ ) was spent on printing and mailing of prospectuses to other
than current shareholders; % ($ ) was spent on compensation to broker-dealers
for commissions to representatives and other expenses, including an allocation
of overhead and other branch office distribution-related expenses, incurred for
distribution of Fund shares; and
% ($ ) on the aggregate of (1) payments of commissions and account servicing
fees to financial advisers ( % or $ ) and (2) an allocation of overhead and
other branch office distribution-related expenses for payments of related
expenses ( % or $ ). The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating
Prudential Securities' and Pruico Securities Corporation's (Prusec's) 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.
The Distributor (and Prudential Securities as its predecessor) also
receives the proceeds of contingent deferred sales charges paid by investors
upon certain redemptions of Class B shares. For the fiscal year ended October
31, 1998, the Distributor and Prudential Securities received approximately $ and
$ , respectively, in contingent deferred sales charges attributable to Class B
shares.
CLASS C PLAN. For the fiscal year ended October 31, 1998, the Distributor
and Prudential Securities received $ and $ , respectively, under the Class C
Plan and spent approximately $ and $ , respectively, in distributing Class C
shares. It is estimated that of the latter total amount, approximately % ($ )
was spent on printing and mailing of prospectuses to other than current
shareholders; % ($ ) on compensation to broker-dealers for commissions to
representatives and other expenses, including an allocation of overhead and
other branch office distribution-related expenses, incurred for distribution of
Fund shares; and
% ($ ) on the aggregate of (1) payments of commissions and account
servicing fees to financial advisers ( % or $ ) and (2) an allocation of
overhead and other branch office distribution-related expenses for payments of
related expenses ( % or $ ). The Distributor (and Prudential Securities as its
predecessor) also receives the proceeds of contingent deferred sales charges
paid by investors upon certain redemptions of Class C shares. For the fiscal
year ended October 31, 1998, the Distributor and Prudential Securities received
approximately $ and $ , respectively, in contingent deferred sales charges
attributable to Class C shares.
Distribution expenses attributable to the sale of Class A, Class B and
Class C shares of the Fund are allocated to each such class based upon the ratio
of sales of each such class to the sales of Class A, Class B and Class C shares
of the Fund other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize the
sale of another class.
B-23
<PAGE>
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Directors, including a majority vote of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the Class A, Class B or Class C Plan or in any agreement related to
the Plans (Rule 12b-1 Directors), cast in person at a meeting called for the
purpose of voting on such continuance. A Plan may 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 of the Fund on not more than 30 days' written notice to any other party to
the Plan. The Plans may not be amended to increase materially the amounts to be
spent for the services described therein without approval by the shareholders of
the applicable class (by both Class A and Class B shareholders, voting
separately, in the case of material amendments to the Class A Plan), and all
material amendments are required to be approved by the 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 Directors will review at least quarterly a
written report of the distribution expenses incurred on behalf of each class of
shares of the Fund by the Distributor. The report includes 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 the Rule
12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under federal securities laws.
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 brokers and other persons which
distribute shares of the Fund (including Class Z shares). Such payments may be
calculated by reference to the net asset value of shares sold by such persons or
otherwise.
[NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Fund may not exceed .75 of 1% per class. The 6.25% limitation
applies to each class of the Fund rather than on a per shareholder basis. If
aggregate sales charges were to exceed 6.25% of total gross sales of any class,
all sales charges on shares of that class would be suspended.]
(C) OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States.
The Transfer Agent, Raritan Plaza One, Edison, New Jersey 08837, serves as
the transfer and dividend disbursing agent of the Fund. 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, the payment of dividends and distributions and
related functions. For these services, the Transfer Agent receives an annual fee
of $ per shareholder account, a new account set-up fee of $ for each manually
established account and a monthly inactive zero balance account fee of $ per
shareholder account. The Transfer Agent is also reimbursed for its out-of-pocket
expenses, including but not limited to postage, stationery, printing, allocable
communication expenses and other costs.
PricewaterhouseCoopers 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.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager is responsible for decisions to buy and sell securities,
futures and options on 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 Fund portfolio transactions, including options 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
B-24
<PAGE>
the extent and in the manner permitted by applicable law, Prudential Securities
and its affiliates. Brokerage commissions on United States securities, options
and futures exchanges or boards of trade are subject to negotiation between the
Manager and the broker or futures commission merchant.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments and U.S. Government 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 or any affiliate in any
transaction in which Prudential Securities or any affiliate acts as principal,
except in accordance with rules of the Commission. Thus, it will not deal in the
over-the-counter market with Prudential Securities acting as market maker, and
it will not execute a negotiated trade with Prudential Securities if execution
involves Prudential Securities' acting as principal with respect to any part of
the Fund's order.
In placing orders for portfolio securities of the Fund, the Manager's
overriding objective is to obtain the best possible combination of price and
execution. The Manager seeks to effect each transaction at a price and
commission that provides the most favorable total cost or proceeds reasonably
attainable in the circumstances.
The factors that the Manager may consider in selecting a particular broker,
dealer or futures commission merchant (firms) are the Manager's knowledge of
negotiated commission rates currently available and other current transaction
costs; the nature of the portfolio transaction; the size of the transaction; the
desired timing of the trade; the activity existing and expected in the market
for the particular transaction; confidentiality; the execution, clearance and
settlement capabilities of the firms; the availability of research and research
related services provided through such firms; the Manager's knowledge of the
financial stability of the firms; the Manager's knowledge of actual or apparent
operational problems of firms; and the amount of capital, if any, that would be
contributed by firms executing the transaction. Given these factors, the Fund
may pay transaction costs in excess of that which another firm might have
charged for effecting the same transaction.
When the Manager selects a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research related products and/or services,
such as research reports, research compilations, statistical and economic data,
computer data bases, quotation equipment and services, research oriented
computer software, hardware and services, reports concerning the performance of
accounts, valuations of securities, investment related periodicals, investment
seminars and other economic services and consultants. Such services are used in
connection with some or all of the Manager's investment activities; some of such
services, obtained in connection with the execution of transactions for one
investment account, may be used in managing other accounts, and not all of these
services may be used in connection with the Fund.
The Manager maintains an internal allocation procedure to identify those
firms who have provided it with research and research related products and/or
services, and the amount that was provided, and to endeavor to direct sufficient
commissions to them to ensure the continued receipt of those services that the
Manager believes provides a benefit to the Fund and its other clients. The
Manager makes a good faith determination that the research and/or service is
reasonable in light of the type of service provided and the price and execution
of the related portfolio transactions.
When the Manager deems the purchase or sale of equities to be in the best
interests of the Fund or its other clients, including Prudential, the Manager
may, but is under no obligation to, aggregate the transactions in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the transactions, as well as the
expenses incurred in the transaction, will be made by the Manager in the manner
it considers to be most equitable and consistent with its fiduciary obligations
to its clients.
The allocation of orders among firms and the commission rates paid are
reviewed periodically by the Fund's Directors. Portfolio securities may not be
purchased from any underwriting or selling syndicate of which Prudential
Securities or any affiliate, during the existence of the syndicate, is a
principal underwriter (as defined in the Investment Company Act), except in
accordance with rules of the Commission. This limitation, in the opinion of the
Fund, will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other funds
with similar objectives but not subject to such limitations.
Subject to the above considerations, 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 firms in connection with
comparable transactions
B-25
<PAGE>
involving similar securities or futures 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 firm in a
commensurate arm's-length transaction. Furthermore, the Directors of the Fund,
including a majority of the non-interested Directors, have adopted procedures
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) of the Securities
Exchange Act of 1934, as amended, 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 and futures transactions with Prudential Securities
(or any affiliate) are also subject to such fiduciary standards as may be
imposed upon Prudential Securities (or such affiliate) by applicable law.
During the fiscal years ended October 31, 1997 and 1996, the Fund did not
pay any brokerage commissions to Prudential Securities. During the fiscal year
ended October 31, 1998, the Fund paid total brokerage commissions of $ , of
which $ or % of the total brokerage, was paid to Prudential Securities.
The Fund effected approximately % of the total dollar amount of its
transactions involving the payment of commissions to Prudential Securities
during the year ended October 31, 1998. Of the total brokerage commissions paid
during that period, $ (or %) were paid to firms which provide research,
statistical or other services to the Subadviser. The Manager has not separately
identified a portion of such brokerage commissions as applicable to the
provision of such research, statistical or other services.
The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents at October 31, 1998. As of October 31, 1998, the Fund held
securities of in the amount of $ .
CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION
The Fund is authorized to issue an unlimited number of shares of common
stock, $.001 per share divided into four classes, designated Class A, Class B,
Class C and Class Z shares, initially all of one series. Each class of common
stock represents an interest in the same assets of the Fund and is identical in
all respects except that (1) each class is subject to different sales charges
and distribution and/or service fees (except for Class Z shares, which are not
subject to any sales charges and distribution and/or service fees), which may
affect performance, (2) 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, (3) each
class has a different exchange privilege, (4) only Class B shares have a
conversion feature and (5) Class Z shares are offered exclusively for sale to a
limited group of investors. In accordance with the Fund's Articles of
Incorporation, the Directors may authorize the creation of additional series and
classes within such series, with such preferences, privileges, limitations and
voting and dividend rights as the Directors may determine. The voting rights of
the shareholders of a series or class can be modified only by the majority vote
of shareholders of that series or class.
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. Each share of
each class is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares (with the exception of Class Z shares,
which are not subject to any distribution or service fees) bears the expenses
related to the distribution of its shares. Except for the conversion feature
applicable to the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of 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 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 the 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.
Under the Articles of Incorporation, the Directors may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and
B-26
<PAGE>
share purchase, redemption and net asset value procedures) with such
preferences, privileges, limitations and voting and dividend rights as the
Directors may determine. All consideration received by the Fund for shares of
any additional series, and all assets in which such consideration is invested,
would belong to that series (subject only to the rights of creditors of that
series) and would be subject to the liabilities related thereto. Under the
Investment Company Act, shareholders of any additional series of shares would
normally have to approve the adoption of any advisory contract relating to such
series and of any changes in the investment policies related thereto. The
Directors do not intend to authorize additional series at the present time.
The Directors have the power to alter the number and the terms of office of
the Directors and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Directors have been elected by the
shareholders of the Fund. The voting rights of shareholders are not cumulative,
so that holders of more than 50 percent of the shares voting can, if they
choose, elect all Directors being selected, while the holders of the remaining
shares would be unable to elect any Directors.
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) at the time of purchase (Class A or
Class C shares) and/or (2) 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 Sell Your Shares" 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 sales charges and distribution and/or service fees (except for Class Z
shares, which are not subject to any sales charges and distribution and/or
service fees), which may affect performance, (ii) each class has exclusive
voting rights with respect to 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 "Distributor" and
"Shareholder Investment Account- Exchange Privilege."
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, an
investor must complete an application and telephone the Transfer Agent at (800)
225-1852 (toll-free) to receive an account number. The following information
will be requested: the investor's name, address, tax identification number,
class election, dividend distribution election, amount being wired and wiring
bank. Instructions should then be given by the investor to his/her 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 the investor's name and identifying the class in which the investor is
eligible to invest (Class A, Class B, Class C or Class Z shares).
If an investor arranges 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, the
investor may purchase shares of the Fund as of that day.
In making a subsequent purchase order by wire, an investor 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 the investor's 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.
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations, (2) statutory mergers, or (3)
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, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) is approved by the Fund's investment adviser.
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of
3%, Class C* shares are sold with a 1% sales charge, and Class B* and Class Z
shares of the Fund are sold at NAV. Using the NAV at October 31, 1998, the
maximum offering price of the Fund's shares is as follows:
B-27
<PAGE>
<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share ................. $
Maximum sales charge (3% of offering price) ............................
Maximum offering price to public ....................................... $
========
CLASS B
Net asset value, redemption price and offering price per Class B share* $
========
CLASS C
Net asset value and redemption price per Class C share* ................ $
Sales Charge (1% of offering price) ....................................
Offering price to public ............................................... $
========
CLASS Z ................................................................
Net asset value, redemption price and offering price per Class Z share . $
========
</TABLE>
- ----------
** Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions.
SELECTING A PURCHASE ALTERNATIVE
The following is provided to assist investors in determining which method
of purchase best suits their 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 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 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 longer than 4 years, but less
than 5 years, and do not qualify for a reduced sales charge on Class A shares,
you should consider purchasing Class B or Class C shares over Class A shares.
This is because the initial sales charge plus the cumulative annual
distribution-related fee on Class A shares would exceed those of the Class B and
Class C shares if you redeem your investment during this time period. In
addition, more of your money would be invested initially in the case of Class C
shares, because of the relatively low initial sales charge, and all of your
money would be invested initially in the case of Class B shares, which are sold
at NAV.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B 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 plus, in the
case of Class C shares, the 1% initial sales charge to exceed the initial sales
charge plus the cumulative annual distribution-related fees on Class A shares.
This does not take into account the time value of money, which further reduces
the impact of the higher Class B or Class C distribution-related fee on the
investment, fluctuations in NAV, the effect of the return on the investment over
this period of time or redemptions when the CDSC is applicable.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES-CLASS A SHARES
BENEFIT PLAN. 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 Section 457 and 403(b)(7) of the Internal
Revenue Code (collectively, Benefit Plans), provided that the Benefit 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 (Prudential
Securities or Subsidiary Prototype Benefit Plans), Class A shares may be
purchased at NAV by participants who are repaying loans made from such plans to
the participant.
B-28
<PAGE>
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 (1) the plan has at least
$1 million in existing assets or 250 eligible employees and (2) 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 and
403(b)(7) of the Internal Revenue Code and plans that participate in the
PruArray Program (benefit plan recordkeeping service) (hereafter referred to as
a PruArray Plan). All plans of a company for which Prudential serves as plan
administrator or recordkeeper are aggregated in meeting the $1 million
threshold. The term "existing assets" includes stock issued by a plan sponsor,
shares of Prudential Mutual Funds and shares of certain unaffiliated mutual
funds that participate in the PruArray Plan (Participating Funds). "Existing
assets" also include monies invested in The Guaranteed Interest Account (GIA), a
group annuity insurance product issued by Prudential, B264 and units of The
Stable Value Fund (SVF), and unaffiliated bank collective fund. Class A shares
may also be purchased at NAV by plans that have monies invested in GIA and SVF,
provided (1) the purchase is made with the proceeds of a redemption from either
GIA or SVF and (2) 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 Plan 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 (1) have retirement plan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (2) 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 (1) employees who open an
IRA or Savings Accumulation Plan account with the Transfer Agent and (2) spouses
of employees who open an IRA account with the Transfer Agent. The program is
offered to companies that have at least 250 eligible employees.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray 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 the Distributor or the Transfer Agent, by:
o officers of the Prudential Mutual Funds (including the Fund),
o employees of the Distributor, Prudential Securities, 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,
o employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer,
o 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,
o registered representatives and employees of brokers who have entered
into a selected dealer agreement with the Distributor provided that
purchases at NAV are permitted by such person's employer,
o 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 purchase, and
o 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 Prudential Investments serves as the recordkeeper or
administrator.
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the
B-29
<PAGE>
sale qualifies for the reduced or waived sales charge. The reduction or waiver
will be granted subject to confirmation of your entitlement. No initial sales
charges are imposed upon Class A shares acquired upon the reinvestment of
dividends and distributions.
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 "How to Buy, Sell and Exchange Shares of the Fund-Reducing
or Waiving of Class A's Initial Sales Charge" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
o an individual;
o the individual's spouse, their children and their parents;
o the individual's and spouse's Individual Retirement Account (IRA);
o 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); o a trust
created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children; o a Uniform Gifts
to Minors Act/Uniform Transfers to Minors Act account created by the
individual or the individual's spouse; and
o one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).
The Transfer Agent, the Distributor or a broker 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. The Combined Purchase and Cumulative Purchase Privilege does not apply
to individual participants in any retirement or group plans.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through a broker will not be aggregated to determine the
reduced sales charge. 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. 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,
Prudential or its affiliates and through your broker will not be aggregated to
determine the reduced sales charge.
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,
B-30
<PAGE>
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 net asset value. 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 the sales charge actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
will liquidate sufficient escrowed shares to obtain such difference. Investors
electing to purchase Class A shares of the Fund pursuant to a Letter of Intent
should carefully read such Letter of Intent.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will, 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.
CLASS B SHARES
The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, a broker or the Distributor.
Although there is no sales charge imposed at the time of purchase, redemptions
of Class B shares may be subject to a CDSC. See "Sale of Shares-Contingent
Deferred Sales Charges", below.
The Distributor will pay, from its own resources, sales commissions of up
to 3% of the purchase price of Class B shares to brokers, 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. The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee.
CLASS C SHARES
The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, 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 currently are available for purchase by the
following categories of investors:
o pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code, deferred compensation 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 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;
o participants in any fee-based program sponsored by Prudential
Securities, 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;
o 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 option;
o Benefit Plans for which Prudential Retirement Services serves as
recordkeeper and as of September 20, 1996, (a) were Class Z
shareholders of the Prudential Mutual Funds or (b) executed a letter of
intent to purchase Class Z shares of the Prudential Mutual Funds;
B-31
<PAGE>
o current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund);
o employees of Prudential and/or Prudential Securities who participate in
a Prudential-sponsored employee savings plan and
o Prudential with an investment of $10 million or more.
After a Benefit Plan qualifies to purchase Class Z shares, all subsequent
purchases will be for Class Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay brokers, financial advisers and other persons
which distribute shares a finders' fee from its own resources based on a
percentage of the net asset value of shares sold by such persons.
Class Z shares of the Fund may also be purchased by certain savings,
retirement and deferred compensation plans, qualified or non-qualified under the
Internal Revenue Code of 1986, as amended (the Internal Revenue Code), provided
that (1) the plan purchases shares of the Fund pursuant to an investment
management agreement with The Prudential Insurance Company of America or its
affiliates, (2) the Fund is an available investment option under the agreement
and (3) the plan will participate in the PruArray Plan (benefit plan
recordkeeping services) sponsored by Prudential Mutual Fund Services LLC. [These
plans include pension, profit-sharing, stock-bonus or other employee benefit
plans under Section 401 of the Internal Revenue Code and deferred compensation
and annuity plans under Sections 457 or 403(b)(7) of the Internal Revenue Code.]
SALE OF SHARES
An investor can redeem shares at any time for cash at the NAV next
determined after the redemption request is received in proper form (in
accordance with procedures established by the Transfer Agent in connection with
investors' accounts) by the Transfer Agent. 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 an investor
is redeeming shares through a broker, the broker must receive the sell order
before the Fund computes its NAV for that day (that is, 4:15 P.M., New York
time) in order to receive that day's NAV. The investor's broker will be
responsible for furnishing all necessary documentation to the Distributor and
may charge the investor for its services in connection with redeeming shares of
the Fund.
If an investor hold shares of the Fund through Prudential Securities, he or
she must redeem the shares through Prudential Securities. Please contact your
Prudential Securities financial adviser.
If an investor holds shares in non-certificate form, a written request for
redemption signed by the investor exactly as the account is registered is
required. If an investor holds certificates, the certificates, signed in the
name(s) shown on the face of the certificates, must be received by the Transfer
Agent, the Distributor or the investor's broker in order for the redemption
request to be processed. If redemption is requested by a corporation,
partnership, trust or fiduciary, written evidence of authority acceptable to the
Transfer Agent must be submitted before such request will be accepted. All
correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services LLC, Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010, the
Distributor or to the investor's broker.
SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $50,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or (4) 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 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, the Distributor or the broker of
the certificate and/or written request, except as indicated below. If an
investor holds shares through Prudential Securities, payment for shares
presented for redemption will be credited to the investor's account at his or
her broker, unless the investor indicates otherwise. Such payment may be
postponed or the right of redemption suspended at times (1) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (2)
when trading on such Exchange is restricted, (3) when an emergency exists as a
result of which disposal by the Fund of securities owned
B-32
<PAGE>
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 (4) during any other
period when the Commission, by order, so permits; provided that applicable rules
and regulations of the Commission shall govern as to whether the conditions
prescribed in (2), (3) or (4) exist.
Payment for redemption of recently purchased shares will be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has been
honored, which may take 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 Directors determine 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
Commission. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, under which the Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any
one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If a shareholder redeems his or her shares and
have not previously exercised the repurchase privilege, the shareholder may
reinvest any portion or all of the proceeds of such redemption in shares of the
Fund at the NAV next determined after the order is received, which must be
within 90 days after the date of the redemption. Any CDSC paid in connection
with such redemption will be credited (in shares) to the shareholder's account.
(If less than a full repurchase is made, the credit will be on a pro rata
basis.) The shareholder must notify the Transfer Agent, either directly or
through the Distributor or the shareholder's broker, 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.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 3% to zero over a four-year period. Class C
shares redeemed within 18 months of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid to
the shareholder. The CDSC will be imposed on any redemption by a shareholders
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 the shareholders for shares
during the preceding six years, in the case of Class B shares, and 18 months, in
the case of Class C shares (one year for Class C shares purchased before
November 2, 1998). 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 shares or shares acquired through reinvestment of dividends or distributions
are not subject to a CDSC. The amount of any CDSC will be paid to and retained
by the Distributor.
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
"Shareholder Investment Account-Exchange Privilege."
B-33
<PAGE>
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEARS' SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
--------------------- ------------------------------
First ........................ 3.0%
Second ....................... 2.0%
Third ........................ 1.0%
Fourth ....................... 1.0%
Fifth and thereafter ......... None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in NAV above the total amount of
payments for the purchase of Fund 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 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the 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 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 CONTINGENT DEFERRED SALES CHARGES-CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions are:
(1) in the case of a tax-deferred retirement plan, a lump-sum or other
distribution after retirement;
(2) in the case of an IRA (including a Roth IRA), a lump-sum or other
distribution after attaining age 591|M/2 or a periodic distribution based on
life expectancy;
(3) in the case of a Section 403(b) custodial account, a lump sum or other
distribution after attaining age 591|M/2; and
(4) 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 (that is, 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
Prudential Securities or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.
B-34
<PAGE>
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% is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
Shareholders must notify the Fund's Transfer Agent either directly or
through the brokers, at the time of redemption, that they 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.
In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.
<TABLE>
<S> <C>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
Death A copy of the shareholder's death certificate or, in the case of a
trust, a copy of the grantor's death certificate, plus a copy of
the trust agreement identifying the grantor.
Disability-An individual will be considered disabled if he A copy of the Social Security Administration award letter or a
or she is unable to engage in any substantial gainful letter from a physician on the physician's letterhead stating
activity by reason of any medically determinable physical that the shareholder (or, in the case of a trust, the grantor) is
or mental impairment which can be expected to result in permanently disabled. The letter must also indicate the date of
death or to be of long-continued and indefinite duration. 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-CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994
The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchased an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares of
the Fund following the second purchase was $550,000, the quantity discount would
be available for the second purchase of $450,000 but not for the first purchase
of $100,000. The quantity discount will be imposed at the following rates
depending on whether the aggregate value exceeded $500,000 or $1 million:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
-------------------------------------------
YEAR SINCE PURCHASE
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
- ------------------------------------- ------------------------ ----------------
<S> <C> <C>
First ......................... % %
Second ........................ % %
Third ......................... % %
Fourth and thereafter ......... % %
</TABLE>
B-35
<PAGE>
Shareholders must notify the Fund's Distributor either directly or through
Prudential Securities or Prusec, at the time of redemption, that they are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of their holdings.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES-CLASS C SHARES
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans for which
Prudential provides administrative or recordkeeping services that participate in
the PruArray Plan.
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 net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (1)
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 (2) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately five years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately five years from the initial purchase (I.E., $1,000 divided
by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The Manager
reserves the right to modify the formula for determining the number of Eligible
Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share 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.
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 would 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 (1) that 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 (2) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
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 share certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.
B-36
<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund. An investor
may direct the Transfer Agent in writing not less than five full business days
prior to the record date to have subsequent dividends and/or distributions sent
in cash rather than reinvested. In the case of recently purchased shares for
which registration instructions have not been received on the record date, cash
payment will be made directly to the dealer. Any shareholder who receives a cash
payment representing a dividend or distribution may reinvest such dividend or
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.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
In order to exchange shares by telephone, an investor must authorize
telephone exchanges on his or her initial application form or by written notice
to the Transfer Agent and hold shares in non-certificate form. Thereafter, the
investor may call the Fund at (800) 225-1852 to execute a telephone exchange of
shares, on weekdays, except holidays, between the hours of 8:00 A.M. and 6:00
P.M., New York time. For the investor's protection and to prevent fraudulent
exchanges, telephone calls will be recorded and the investor will be asked to
provide his or her personal identification number. A written confirmation of the
exchange transaction will be sent to the investor. 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.
If an investor holds shares through Prudential Securities, the shares must
be exchanged by contacting the investor's Prudential Securities financial
adviser.
If an investor holds 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.
An investor may also exchange shares by mail by writing to the Fund's
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 investors should make exchanges by
mail by writing to the Transfer Agent, at the address noted above.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds 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.
B-37
<PAGE>
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, respectively, of
certain other Prudential Mutual Funds and shares of the money market funds
specified below. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of the Class B and Class C shares acquired as a
result of 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 first day of the month after the initial purchase, rather than
the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares of
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 of other funds, respectively, without
being subject to any CDSC.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. 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 net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities, Prusec or
another broker 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
B-38
<PAGE>
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 net asset value.
[The Prudential Securities Cash Balance Pension Plan may only exchange its
Class Z shares for Class Z shares of those Prudential Mutual Funds which permit
investment by the Prudential Securities Cash Balance Pension Plan.]
Additional details about the exchange privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent, the
Distributor or the investor's broker. The exchange privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $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 beginning in 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
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------------- ---------- ---------- ---------- ---------
25 Years ............... $ 110 $ 165 $ 220 $ 275
20 Years ............... 176 264 352 440
15 Years ............... 296 444 592 740
10 Years ............... 555 833 1,110 1,388
5 Years ................ 1,371 2,057 2,742 3,428
See "Automatic Investment 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 INVESTMENT PLAN (AIP)
Under AIP, 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
brokerage account (including a Prudential Securities 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. Share certificates
are not issued to AIP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through the
Transfer Agent, the Distributor or an investor's broker. Such withdrawal plan
provides for monthly or quarterly checks in any amount, except as provided
below, up to the value of the shares in the shareholder's account. Withdrawals
of Class B or Class C shares may be subject to a CDSC.
B-39
<PAGE>
In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) withdrawals may not be for less than $100 and (3) the
shareholder must elect to have all dividends and/or distributions automatically
reinvested in additional full and fractional shares at NAV on shares held under
this plan.
The Transfer Agent, the Distributor or an investor's broker act as agents
for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the periodic withdrawal payment. The systematic withdrawal
plan may be terminated at any time, and the Distributor reserves the right to
initiate a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must generally be recognized for federal income tax
purposes. In addition, withdrawals made concurrently with purchases of
additional shares are inadvisable because of the sales charges applicable to (1)
the purchase of Class A and Class C shares and (2) the redemption of Class B and
Class C shares. Each shareholder should consult his or her own tax adviser with
regard to the tax consequences of the systematic withdrawal plan, particularly
if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax-deferred retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING1
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- --------------- ----------- ----------
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ----------
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.
Distributions from a Roth IRA which meet the conditions required under the
Internal Revenue Code will not be subject to tax upon withdrawal 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.
B-40
<PAGE>
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, individuals should consult their financial
advisor 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
The Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Directors have fixed the specific time of day for the computation of the Fund's
net asset value to be as of 4:15 P.M., New York time. The Fund will compute its
NAV at 4:15 P.M., New York time, on each day the New York Stock Exchange is open
for trading except on days on which no orders to purchase, sell or redeem Fund
shares have been received or days on which changes in the value of the Fund's
portfolio securities do not affect NAV. In the event the New York Stock Exchange
closes early on any business day, the NAV of the Fund's shares shall be
determined at the time between such closing and 4:15 P.M., New York time. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Under the Investment Company Act, the Directors are responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Directors, the value of investments
listed on a securities exchange and NASDAQ National Market System securities
(other than options on stock and stock indices) are valued at the last sale
price of such exchange system on the day of valuation or, if there was no sale
on such day, the mean between the last bid and asked prices on such day, or at
the bid price on such day in the absence of an asked price. Corporate bonds
(other than convertible debt securities) and U.S. Government securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed by the Manager in consultation with the
Subadviser to be over-the-counter, are valued on the basis of valuations
provided by an independent pricing agent or principal market maker which uses
information with respect to transactions in bonds, quotations from bond dealers,
agency ratings, market transactions in comparable securities and various
relationships between securities in determining value. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed by the Manager in
consultation with the Subadviser to be over-the-counter, are valued at the mean
between the last reported bid and asked prices provided by principal market
makers. Options on stock and stock indices traded on an exchange are valued at
the mean between the most recently quoted bid and asked prices on the respective
exchange and futures contracts and options thereon are valued at their last sale
prices as of the close of trading on the applicable commodities exchange or
board of trade or, if there was no sale on the applicable commodities exchange
or board of trade on such day, at the mean between the most recently quoted bid
and asked prices on such exchange or board of trade. Quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
current rate obtained from a recognized bank or dealer, and forward currency
exchange contracts are valued at the current cost of covering or offsetting such
contacts. Should an extraordinary event, which is likely to affect the value of
the security, occur after the close of an exchange on which a portfolio security
is traded, such security will be valued at fair value considering factors
determined in good faith by the investment adviser under procedures established
by and under the general supervision of the Fund's Board of Directors.
Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Directors) does not represent fair value, are valued by the Valuation
Committee or Board of Directors in consultation with the Manager or Subadviser,
including its portfolio manager, traders, and its research and credit analysts,
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, Subadviser, Board of Directors or
Valuation Committee to materially affect the value of the security. Short-term
debt securities are valued at cost, with interest accrued or discount amortized
to the date of maturity, if their original maturity was 60 days or less, unless
this is determined by the Directors not to represent fair value. Short-term
securities with remaining maturities of more than 60 days, for which market
quotations are readily available, are valued at their current market quotations
as supplied by an independent pricing agent or principal market maker.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class Z shares will generally be higher than the NAV of Class A, Class B
or Class C shares as a result of the fact that the Class Z shares
B-41
<PAGE>
are not subject to any distribution or service fee. It is expected, however,
that the NAV of the four classes will tend to converge immediately after the
recording of dividends, if any, which will differ by approximately the amount of
the distribution and/or service fee expense accrual differential among the
classes.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves the Fund (but not its shareholders) from paying federal income tax
on income and capital gains which are distributed to shareholders, and permits
net long-term capital gains of the Fund (I.E., the excess of net long-term
capital gains over net short-term capital losses) to be treated as long-term
capital gains of the shareholders, regardless of how long shares in the Fund are
held.
Qualification as a regulated investment company requires, among other
things, that (a) the Fund derive at least 90% of its annual gross income
(without reduction 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
options thereon or foreign currencies, or other income (including but not
limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities or currencies; (b) the
Fund diversify its holdings so that, at the end of each quarter of the taxable
year, (i) at least 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 value of the Fund's assets and
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities); and (c) the Fund 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.
Gains or losses on sales of securities by the Fund will 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 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. Certain of the Fund's transactions 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. In addition, debt
securities acquired by the Fund may be subject to original issue discount and
market discount rules which, respectively, may cause the Fund to accrue income
in advance of the receipt of cash with respect to interest or cause gains to be
treated as ordinary income.
"Regulated futures contracts" and certain listed options which are not
"equity options" constitute "Section 1256 contracts" and will be required to be
"marked to market" for federal income tax purposes at the end of the Fund's
taxable year; that is, treated as having been sold at market value. Except with
respect to certain forward foreign currency exchange contracts, sixty percent of
any gain or loss recognized on such "deemed sales" and on actual dispositions
will be treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss. Gain or loss on the sale, lapse or
other termination of options on narrowly-based stock indices will be capital
gain or loss and will be long-term or short-term depending on the holding period
of the option. In addition, positions which are part of a "straddle" are to be
subject to rules which apply certain wash sale and short sale provisions of the
Internal Revenue Code. The Fund may be required to defer the recognition of
losses on positions it holds to the extent of any unrecognized gain on
offsetting positions held by the Fund.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on forward foreign
currency exchange contracts or dispositions of debt securities denominated in a
foreign currency attributable to fluctuations in the value of the foreign
currency between the date of acquisition of the security and the date of
disposition also are treated as ordinary gain or loss. These gains, referred to
under the Internal Revenue Code as "Section 988" gains or losses, increase or
decrease the amount of the Fund's investment company taxable income available to
be distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If Section 988 losses
exceed other investment company taxable income during a taxable year, the Fund
would not be able to make any
B-42
<PAGE>
ordinary dividend distributions, or distributions made before the losses were
realized would be recharacterized as a return of capital to shareholders, rather
than as an ordinary dividend, reducing each shareholder's basis in his or her
Fund shares.
Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of the Fund on the
reinvestment date.
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the dividends or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to federal income taxes. Therefore, prior to purchasing shares of the
Fund, the investor should carefully consider the impact of dividends or capital
gains distributions which are expected to be or have been announced.
Dividends and distributions may also be subject to state and local taxes.
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 per share dividends on Class B and Class C shares will be lower than
the per share dividends 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 net capital gains, if any, will be paid in the same
amount for Class A, Class B, Class C and Class Z shares. See "Net Asset Value."
The Fund is required under the Internal Revenue Code to distribute 98% of
its ordinary income in the same calendar year in which it is earned. The Fund is
also required to distribute during the calendar year 98% of the capital gain net
income it earned during the twelve months ending on October 31 of such calendar
year. In addition, the Fund must distribute during the calendar year any
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior
calendar year, respectively. To the extent it does not meet these distribution
requirements, the Fund will be subject to a non-deductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which the Fund
pays income tax is treated as distributed.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs may subject the Fund to federal income taxes on certain income and gains
realized by the Fund. Under proposed Treasury regulations, the Fund would be
able to avoid such taxes and interest by electing to "mark-to-market" its
investments in PFICs (I.E., treat them as sold for fair market value at the end
of the year).
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries is not known.
PERFORMANCE INFORMATION
Average Annual Total Return. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.
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 of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).
B-43
<PAGE>
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, 1998 were
, and , respectively. The average annual total returns for Class B shares for
the one year, five year and since inception (November 1, 1990) periods ended
October 31, 1998 were , and , respectively. The average annual total returns for
Class C shares for the one year and since inception (August 1, 1994) periods
ended October 31, 1998 were and , respectively. The average annual total returns
for the Class Z shares for the one year and since inception (January 27, 1997)
periods ended October 31, 1998 were and , 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.
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 (0r
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 on October 31, 1998 were %, % and
%, respectively. The aggregate total returns for Class B shares for the
one year, five year and since inception periods ended on October 31, 1998 were
%, % and %, respectively. The aggregate total returns for Class C shares
for the one year and since inception periods ended October 31, 1998 were % and
%, respectively. The aggregate total returns for the Class Z shares for the one
year and since inception periods ended October 31, 1998 were % and %,
respectively.
YIELD. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, 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 maximum
offering price per share on the last day of this period. 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.
The Fund's 30-day yields for the 30 days ended October 31, 1998 were %, %,
% and % for the Class A, Class B, Class C and Class Z
shares, respectively.
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. 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
B-44
<PAGE>
[ART TO COME]
- ----------
1 Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation-1998
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. 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-45
<PAGE>
[FINANCIAL STATEMENTS TO COME]
B-46
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than 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 present
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 some time in the future.
BAA: Bonds which are rated Baa are considered as medium-grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obliqations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA:An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B, CCC AND CC: Obligations rated BB, B, CCC and CC are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and CC the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-2
<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, 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 offset
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.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.
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.
The following chart shows the long-term performance of various asset
classes and the rate of inflation.
C/R/C
Source: Stocks, Bonds, Bills, and Inflation 1998 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 the reinvestment of
any gains. Bond returns are due to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index 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 measured using a constant one-bond
portfolio with a maturity of roughly 20 years. 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 1997. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
[NEW ART TO COME]
- ----------
1 LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.
2 LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).
3 LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.
4 LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one
year.
5 SALOMON BROTHERS WORLD GOVERNMENT INDEX (NON U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
II-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 31, 1986 through December 31, 1997. It does not represent
the performance of any Prudential Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS 12/31/86-12/31/97 (IN
U.S. DOLLARS)
[ART]
Source: Morgan Stanley Capital International (MSCI) and Lipper Analytical
Services, Inc. as of 12/31/97. Used with permission. Morgan Stanley Country
indices are unmanaged indices which include those stocks making up the largest
two-thirds of each country's total stock market capitalization. Returns reflect
the reinvestment of all distributions. This chart is for illustrative purposes
only and is not indicative of the past, present or future performance of any
specific investment. Investors cannot invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.
[ART]
Source: Stocks, Bonds, Bills, and Inflation 1998 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is used for illustrative
purposes only and is not intended to represent the past, present or future
performance of any Prudential Mutual Fund. Common stock total return is based
on the Standard & Poor's 500 Stock Index, a market-value-weighted index made up
of 500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.
----------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL: $12.5 TRILLION
[ART]
Source: Morgan Stanley Capital International, December 31,
1998. Used with permission. This chart represents the
capitalization of major world stock markets as measured by
the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the
value of approximately 1577 companies in 22 countries
(representing approximately 60% of the aggregate market
value of the stock exchanges). This chart is for
illustrative purposes only and does not represent the
allocation of any Prudential Mutual Fund.
II-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1997)
[CHART TO COME]
- ----------------------------------------
Source: Stocks, Bonds, Bills, and Inflation 1998 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1997. Yields represent that
of an annually renewed one-bond portfolio with a remaining maturity of
approximately 20 years. This chart is for illustrative purposes and should not
be construed to represent the yields of any Prudential Mutual Fund.
The following chart, although not relevant to share ownership in the Fund,
may provide useful information about the effects of a hypothetical investment
diversified over different asset portfolios. The chart shows the range of annual
total returns for major stock and bond indices for the period from December 31,
1976 through December 31, 1996. The horizontal "Best Returns Zone" band shows
that a hypothetical blended portfolio constructed of one-third U.S. stock (S&P
500), one-third foreign stock (EAFE Index), and one-third U.S. bonds (Lehman
Index) would have eliminated the "highest highs" and "lowest lows" of any single
asset class.
[CHART]
- ----------
* Source: Prudential Investment Corporation based on data from Lipper Analytical
New Application (LANA). Past performance is not indicative of future results.
The S&P 500 Index is a weighted, unmanaged index comprised of 500 stocks which
provides a broad indication of stock price movements. The Morgan Stanley EAFE
Index is an unmanaged index comprised of 20 overseas stock markets in Europe,
Australia, New Zealand and the Far East. The Lehman Aggregate Index includes all
publicly-issued investment grade debt with maturities over one year, including
U.S. government and agency issues, 15 and 30 year fixed-rate government agency
mortgage securities, dollar denominated SEC registered corporate and government
securities, as well as asset-backed securities. Investors cannot invest directly
in stock or bond market indices.
II-4
<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 "Management of the Fund-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,
1997 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 PIC1 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,
1997. 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 more than 79,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and 6,500
domestic and international 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 40 million people
worldwide. Long one of the largest issuers of life insurance, Prudential has 25
million life insurance policies in force today with a face value of almost $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 1.5 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, 1997, Prudential had more than $370 billion in assets
under management. Prudential Investments, a business group of Prudential (of
which Prudential Mutual Funds is a key part) manages over $211 billion in assets
of institutions and individuals. In Pensions & Investments, May 12, 1996,
Prudential was ranked third in terms of total assets under management.
REAL ESTATE. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers and
agents and more than 1,100 offices throughout the United States.2
HEALTHCARE. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care membership.
FINANCIAL SERVICES. The Prudential Savings Bank FSB, a wholly-owned
subsidiary of the Prudential, has nearly $1 billion in assets and serves nearly
1.5 million customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of December 30, 1997 Prudential Investments Fund Management is the
eighteenth largest mutual fund companies 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.
- ----------
1 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 one of the
subadvisers to The Prudential Investment Portfolios, Inc. and Mercator Asset
Management LP as the subadviser to International Stock Series, a portfolio of
Prudential World Fund, Inc. There are multiple subadvisers for The Target
Portfolio Trust. 2 As of December 31, 1996.
III-1
<PAGE>
EQUITY FUNDS. Forbes magazine 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 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 Fund, a growth-style equity
fund managed by Jennison Associates LLC, 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
approximately 200 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 viability 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 government 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 LLC, 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.
- ----------
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-US 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 Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage Funds.
6 As of December 31, 1994.
III-2
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1997, assets held by Prudential Securities for its
clients approximated $235 billion. During 1997, over 29,000 new customer
accounts were opened each month at Prudential Securities.7
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.
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Three
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 ArchitectsSM, 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 financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
7 As of December 31, 1997.
8 On an annual basis, INSTITUTIONAL INVESTOR magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are 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 sends its survey to approximately 2,000 institutions and a group of
European and Asian institutions.
III-3
<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.
5. (c)Sub-Investment Management Agreement between the Prudential
Investment Corporation and PRICOA Asset Management Limited*
6. (a)Distribution Agreement*
(b)Form of Selected Dealer Agreement*
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) To be filed by amendement
(b) To be filed by amendement
13. Not Applicable.
14. Not Applicable.
15. (a)AMENDED AND RESTATED Distribution and Service Plan for Class A
shares.*
(b)AMENDED AND RESTATED Distribution and Service Plan for Class B
shares.*
(c)AMENDED AND RESTATED Distribution and Service Plan for Class C
shares.*
17. Financial Data Schedules, filed as Exhibit 27 for electronic
purposes.*
18. Form of Amended Rule 18f-3 Plan*
- - ---------
* 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 , 1998 there were Class A shareholders, Class B
shareholders, Class C and 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 agaisnst 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--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of 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 100 Mulberry Street,
Gateway Center Three, 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
Frank W. Giordano Executive Vice Senior-Vice President, Prudential Securities Incorporated; Executive Vice
President, Secretary President, Secretary and General Counsel, PIFM
and General Counsel
Robert F. Gunia Executive Vice Vice President, Prudential Investments; Executive Vice President and
President and Treasurer, PIFM; Senior Vice President, Prudential Securities Incorporated
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
Mendel A. Melzer, CFA Senior Vice President Chief Investment Officer of Prudential Mutual Funds
Gateway Center Two and Director President of Private Asset Management Group of Prudential; Senior
100 Mulberry Street
Newark, NJ 07102
John R. Strangfeld Vice President Vice President, Prudential; Vice President and Director, PIC
and Director
</TABLE>
ITEM 29. PRUDENTIAL UNDERWRITERS
(a) Prudential Investment Management Services LLC (PIMS)
PIMS is distributor for Cash Accumulation Trust, Command Money Fund,
Command Government 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 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 High
Total Return Fund, Inc., Prudential Index Series Fund, Prudential Institutional
Liquidity Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc.,
Prudential International Bond Fund, Inc., The Prudential Investment Portfolios,
Inc., Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets, Inc.,
Prudential Mortgage Income 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 Real Estate Securities Fund, Prudential Small-Cap Quantum Fund, Inc.,
Prudential Small Company Value Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structed Maturity Fund, Inc. Prudential Tax-Free Money Fund,
Inc., Prudential 20/20 Focus Fund, Prudential Utility Fund, Inc., Prudential
World Fund, Inc. and The Target Portfolio Trust.
(b) Information concerning the officers and directors of PIMS is set forth
below.
<TABLE>
<CAPTION>
<S> <C> <C>
Positions and Positions and
offices with Offices with
Name(1) Underwriter Registrant
E. Michael Caulfield President None
Mark R. Fetting
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102 Executive Vice President None
Mendel A. Melzer, CFA
Gateway Center Two
100 Mulberry Street
Newark, NJ 07102 Executive Vice President Director
Jean D. Hamilton Executive Vice President None
Ronald P. Joelson Executive Vice President None
Brian M. Storms Executive Vice President None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
John R. Strangfeld Executive Vice President None
Mario A. Mosse Senior Vice President and Chief Operating None
Gateway Center Three Officer
100 Mulberry Street
Newark, New Jersey 07102
Scott S. Wallner Vice President, Secretary and Chief Legal None
Officer
Michael G. Williamson Vice President, Comptroller and Chief None
Financial Officer
C. Edward Chaplin Treasurer None
(1) The address of each person named is Prudential Plaza, Newark, New Jersey 07102 unless otherwise noted.
</TABLE>
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), 31a-1(f) 31a-1(b)(4) and 11 and
31a-1(d) will be kept at Gateway Center Three, 100 Mulberry Street, Newark, NJ
07102-4077 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 Post-Effective
Amendment to the Registration Statement, Registrant is not a party to any
management-related service contract.
ITEM 32. UNDERTAKINGS
Registrant make the following undertaking:
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 Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(a) 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 Newark, and State of New Jersey, on the 2nd day of November, 1998.
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
/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 November 2, 1998
- ------------------------------- Principal Financial and
Grace C. Torres Accounting Officer
/s/ Edward D. Beach Director November 2, 1998
- -------------------------------
Edward D. Beach
/s/ Delayne Dedrick Gold Director November 2, 1998
- -------------------------------
Delayne Dedrick Gold
/s/ Robert F. Gunia Vice President and Director November 2, 1998
- -------------------------------
Robert F. Gunia
/s/ Douglas McCorkindale Director November 2, 1998
- -------------------------------
Douglas McCorkindale
/s/ Mendel A. Melzer Director November 2, 1998
- -------------------------------
Mendel A. Melzer
/s/ Thomas T. Mooney Director November 2, 1998
- -------------------------------
Thomas T. Mooney
/s/ Stephen P. Munn Director November 2, 1998
- -------------------------------
Stephen P. Munn
/s/ Richard A. Redeker President and Director November 2, 1998
- -------------------------------
Richard A. Redeker
/s/ Robin B. Smith Director November 2, 1998
- -------------------------------
Robin B. Smith
/s/ Louis A. Weil, III Director November 2, 1998
- -------------------------------
Louis A. Weil, III
/s/ Clay T. Whitehead 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.
5 (c) Sub-Investment Management Agreement between The Prudential Investment
Corporation and PRICOA Asset Management Limited*
6 (a) Distribution Agreement*
(b) Form of Selected Dealer Agreement*
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) To be filed by Amendment
(b) To be filed by Amendment
13. Not Applicable.
14. Not Applicable.
<PAGE>
15. (a) AMENDED AND RESTATED Distribution and Service Plan for Class A shares.*
(b) AMENDED AND RESTATED Distribution and Service Plan for Class B shares.*
(c) AMENDED AND RESTATED Distribution and Service Plan for Class C shares.*
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. Form of Amended Rule 18f-3 Plan*
- ------------
* Filed herewith.
SUB-INVESTMENT MANAGEMENT AGREEMENT
This Sub-Investment Management Agreement (this "AGREEMENT") between THE
PRUDENTIAL INVESTMENT CORPORATION ("PIC"), a corporation organized and existing
under the laws of the State of New Jersey. ("INVESTMENT MANAGER"), and PRICOA
ASSET MANAGEMENT LTD ("PRICOA"), a private limited company organized and
existing under the laws of England and regulated by IMRO in the conduct of its
investment business ("SUB-INVESTMENT MANAGER"), is made as of September 30, 1997
and will come into force at the commencement of business on the next business
day after that date. No services will be provided under this Agreement until it
comes into force.
W I T N E S S E T H:
WHEREAS, Investment Manager desires Sub-Investment Manager to manage
and control the investment of the assets contained in the Client Accounts;
WHEREAS, Sub-Investment Manager is willing to accept the duties and
responsibilities of an investment manager with respect to the Client Accounts;
and
WHEREAS, Sub-Investment Manager is regulated in the conduct of its
investment business by IMRO.
NOW THEREFORE, in consideration of the premises and mutual
considerations provided in this Agreement, and intending to be legally bound,
Investment Manager and Sub-Investment Manager agree as follows:
1. APPOINTMENT. Sub-Investment Manager will act as an investment
manager with respect to the Client Accounts which are detailed in SCHEDULE A
annexed to this Agreement. In providing its services Sub-Investment Manager will
act for Investment Manager on the basis that Investment Manager is a non-private
customer (as defined for the purposes of IMRO rules). The parties acknowledge
that with respect to the Client Accounts listed on SCHEDULE A as of the date
hereof, the Investment Manager is the customer of Sub-Investment Manager for
purposes of IMRO.
2. FEES. Investment Manager will pay Sub-Investment Manager, as
compensation for its services under this Agreement, a fee determined in
accordance with SCHEDULE A annexed to this Agreement.
3. AUTHORITY OF INVESTMENT MANAGER. Subject to section 4 of this
Agreement, Sub-Investment Manager shall have the discretionary authority to
manage and control the assets in the Client Accounts, including the power to
acquire assets for and dispose of assets in the Client Accounts. When exercising
its authority under this section 3, Sub-Investment Manager shall be under no
obligation to consult with or obtain the consent of
<PAGE>
Investment Manager, subject to any written instructions and procedures which
Investment Manager shall communicate to Sub-Investment Manager.
Provided Sub-Investment Manager manages the Client Accounts in
accordance with the guidelines set out in SCHEDULE B (as altered from time to
time by agreement in writing), neither Sub-Investment Manager nor any of its
agents, executives or employees shall be liable for any depreciation in the
value of the Client Accounts or the consequences of any investment decisions
made in good faith and in the absence of gross negligence or willful default. In
this connection, Investment Manager accepts and agrees to the provisions of
SCHEDULE E (Ratification, Indemnity and Exclusion of Liability) which forms part
of this Agreement.
All transactions shall be subject to IMRO rules and the rules of any
other regulatory authority to which Sub-Investment Manager is subject and to the
dealing, settlement and other applicable rules or customs of the market or
exchange (if any) on which such transaction is effected. In the event of any
conflict between the terms of this Agreement and any such rules or customs, the
latter shall prevail.
The authority given to Sub-Investment Manager to manage the Client
Accounts shall be irrevocable until this Agreement is terminated pursuant to
clause 12 below and shall continue in force despite any event which might
otherwise terminate it, until Sub-Investment Manager has actual notice of such
event.
4. INVESTMENT LIMITATIONS AND GUIDELINES. Investment Manager may from
time to time communicate general investment guidelines to Sub-Investment Manager
with respect to the Client Accounts, and Sub-Investment Manager shall be
obligated to act in accordance therewith. Until contrary general investment
guidelines are communicated from Investment Manager to Sub-Investment Manager,
the Client Accounts shall be managed in accordance with the guidelines contained
in SCHEDULE B annexed hereto.
5. CUSTODY OF MONEY AND INVESTMENTS AND SETTLEMENT PROCEDURES.
Investment Manager shall appoint a custodian or custodians for the Client
Accounts ("the Custodian") and will establish the Client Accounts by paying or
delivering to the Custodian such cash sum or securities holdings as may be
agreed. The initial composition and value of the Client Accounts will be as set
out in SCHEDULE C annexed to this Agreement.
The Client Accounts shall be accounted for, and will be valued, in the
Client Accounts currency. Sub-Investment Manager may, at its discretion, buy and
sell other currencies on behalf of Investment Manager if this is required for
the efficient management of the Client Accounts.
2
<PAGE>
In respect of Sub-Investment Manager's equity operations, Investment
Manager's Equity Operations Department is responsible for issuing settlement
instructions to the Custodian and Sub-Investment Manager has no authority to
issue such instructions.
In respect of Sub-Investment Manager's equity operations, Investment
Manager will instruct the Custodian duly to settle all transactions in
accordance with Investment Manager's Equity Operations Department instructions,
to deal with all stock benefits as directed by Investment Manager's Equity
Operations Department and to deliver to Investment Manager's Equity Operations
Department on such basis as may be agreed detailed statements of Investment
Manager's securities and cash accounts.
In respect of Sub-Investment Manager's bond operations, Sub-Investment
Manager is responsible for issuing settlement instructions to the Custodian.
Investment Manager will instruct the Custodian duly to settle all transactions
in accordance with Sub-Investment Manager's instructions, to deal with all stock
benefits as directed by Sub-Investment Manager and to deliver to Sub-Investment
Manager on such basis as may be agreed detailed statements of Investment
Manager's securities and cash accounts.
The Custodian is the custodian of the Client Accounts for Investment
Manager and not for Sub-Investment Manager and, accordingly, Sub-Investment
Manager cannot accept responsibility for any default on the part of the
Custodian or any nominee or agent for it. Investment Manager shall be
responsible for the fees and charges of the Custodian.
The Custodian shall duly settle every transaction not closed out by
Sub-Investment Manager hereunder by its settlement date and shall deal with
stock benefits. Sub-Investment Manager's responsibility shall be limited to the
issue (or procuring the issue) to the Custodian of delivery, payment or other
investment instructions in respect of Sub-Investment Manager's bond operations.
Investment Manager shall forthwith settle all transactions not settled
by the Custodian or closed out by Sub-Investment Manager. Sub-Investment Manager
shall be entitled to close out any such transaction not so settled or which
Sub-Investment Manager reasonably believes will or may not be duly settled; all
losses shall be for Investment Manager's account and all costs Sub-Investment
Manager incurs shall be debited to the Client Accounts. Sub-Investment Manager's
obligations are limited to those expressly provided for herein and, in
particular, Sub-Investment Manager shall have no responsibility for the
settlement of any transaction (including, for the avoidance of doubt, the
payment of any margin).
Investment Manager may at any time deliver or transfer further
investments or funds to the Custodian for credit to the Client Accounts and
shall notify, or cause the Custodian to notify, Sub-Investment Manager
accordingly. Investment Manager agrees that it will not withdraw any investments
or money from the Client Accounts without prior notification to Sub-Investment
Manager. Unless Investment Manager notifies Sub-Investment Manager
3
<PAGE>
otherwise, Sub-Investment Manager shall direct the cash investments acquired
under any transaction entered into by Sub-Investment Manager hereunder to be
delivered to (and any transfer form to be executed in favour of) the Custodian.
Sub-Investment Manager shall not hold the Client Accounts nor be
entitled to call for delivery of the Client Accounts to itself; accordingly,
Sub-Investment Manager will not itself hold money on behalf of Investment
Manager nor be the registered holder of any of Investment Manager's Investments.
6. BROKERAGE. Subject to any guidelines annexed hereto, Sub-Investment
Manager shall use its best efforts to obtain execution of orders at the most
favorable prices reasonably obtainable. When determining the most favorable
prices reasonably obtainable, Sub-Investment Manager may consider, in accordance
with Section 28(e) of the Securities Exchange Act of 1934, the value of the
receipt by Sub-Investment Manager of services that affect securities
transactions and incidental functions, such as clearance and settlement
services, and advice as to the value of securities, the advisability of
investing in securities, the availability of securities or purchasers or buyers
of securities, and analyses and reports concerning issues, industries,
securities, economic factors, trends, portfolio strategy, and the performance of
accounts. Commissions charged by brokers who provide these services may be
somewhat higher than the commissions charged by brokers who do not provide these
services, provided that if Sub-Investment Manager should at any time enter into
any arrangement with a broker to provide Sub-Investment Manager with research
and other facilities or any other services or benefits in return for placing
business with it, the arrangement will provide that all transactions for the
Client Accounts with or through that broker will be effected by that broker so
as to secure best execution (disregarding any benefit which may ensure directly
or indirectly to Investment Manager from the facilities, services or benefits
provided under the arrangement). Sub-Investment Manager will, in any event,
disclose to Investment Manager any such arrangements in existence at the date of
this Agreement and will thereafter disclose any such arrangement to Investment
Manager on each anniversary thereof. Details of Sub-Investment Manager' policy
on Soft Commission (Soft Dollar) Agreements are set out In SCHEDULE D (Soft
Commission) annexed on this Agreement.
In the course of its business Sub-Investment Manager intends to perform
investment management and advisory services for other clients. Investment
Manager's attention is drawn to the contents of SCHEDULE F (Conflicts) which
sets out the basis on which Sub-Investment Manager is to act both having regard
to its duties to Investment Manager and its other clients and in transactions in
which Sub-Investment Manager or connected persons may be involved (whether as
principal or as agent).
7. OTHER ACTIVITIES OF SUB-INVESTMENT MANAGER. In addition to the
investment management services performed under this Agreement, Sub-Investment
Manager may engage in any other business and may render investment advisory
services to any other person. Sub-Investment Manager may render investment
advisory services to any other
4
<PAGE>
person, even if Sub-Investment Manager or the other person may have investment
policies similar to those followed by Sub-Investment Manager for the Client
Accounts. Sub-Investment Manager may, at any time, buy or sell, or may direct or
recommend that another person buy or sell, securities of the same kind or class
that are purchased or sold for the Client Accounts upon the directions of
Sub-Investment Manager.
8. REPORTS. In respect of Sub-Investment Manager's bond operations,
Sub-Investment Manager shall promptly review any custodian's periodic statements
of account for investments in the Client Accounts, reconcile any differences,
and certify the correctness of the statements of account, as reconciled, to
Investment Manager.
In respect of Sub-Investment Manager's equity operations,
Sub-Investment Manager will not have any responsibility for the reconciliation
of investments in the Client Accounts with any custodian's periodic statements,
such responsibility lying with Investment Manager's Equity Operations
Department.
Sub-Investment Manager shall not be responsible for preparing
valuations of the Clients Accounts. Sub-Investment Manager will provide to
Investment Manager such advice or information as it may reasonably require for
the purpose of preparing statements and calculating the value of the Client
Accounts. Sub-Investment Manager will also provide Investment Manager with
periodic reviews and analysis of the Client Accounts and any other reports and
information that Investment Manager may reasonably require. Investment Manager
hereby confirms that it does not want Sub-Investment Manager to send Investment
Manager periodic statements as defined by IMRO Rules.
Sub-Investment Manager will arrange for Investment Manager to receive
promptly copies of confirmation slips and any contract notes relating to each
transaction effected for the Client Accounts directly from the agents executing
those transactions.
9. WARRANTIES. Each party hereby warrants to the other that it has full
power and authority to enter into and perform this Agreement.
SUB-INVESTMENT MANAGER WARRANTIES
a. Sub-Investment Manager warrants that it is registered
as an investment adviser under the Investment
ADVISERS ACT of 1940 (the "ADVISERS ACT") and is
regulated by IMRO in the conduct of its investment
business. Sub-Investment Manager shall immediately
notify Investment Manager of any change in its status
as such.
b. Sub-Investment Manager will carry out its duties and
obligations under this Agreement in accordance with
the requirements and fiduciary
5
<PAGE>
standards applicable to it which are contained in
ERISA or any regulations promulgated thereunder.
c. To the extent that any provision of this Agreement,
schedule or other documents annexed hereto, or
written or oral instruction given to Sub-Investment
Manager in connection with the management of the
Client Accounts shall conflict with any provision of
ERISA or the Advisers Act or any regulation
promulgated thereunder, the provision of ERISA or the
Advisers Act or the regulation shall be followed.
INVESTMENT MANAGER WARRANTIES
Investment Manager warrants and undertakes to Sub-Investment
Manager that:
a. for so long as Sub-Investment Manager's appointment
remains in force Investment Manager will ensure that
the Client Accounts remain free from any lien, charge
or other encumbrance (unless effected by
Sub-Investment Manager). Investment Manager will not
sell, assign or otherwise dispose of any part of the
Client Accounts or agree to do so (except through
Sub-Investment Manager) or appoint any other
investment manager or investment adviser in respect
of the whole or any part of the Client Accounts
without Sub-Investment Manager's prior written
consent;
b. Investment Manager is not resident or domiciled in
the United Kingdom for taxation purposes and
Investment Manager will advise Sub-Investment Manager
forthwith of any change in such status; and
c. Investment Manager will comply with all legal and
regulatory requirements of the United Kingdom or
elsewhere which apply to the Client Accounts or to
Investment Manager and will promptly supply
Sub-Investment Manager with any information or other
assistance necessary to enable Sub-Investment Manager
to properly discharge any duties or responsibilities
which such requirements may at any time impose upon
Sub-Investment Manager; and
d. Investment Manager does not carry on investment
business (as defined by the FSA) in the UK.
10. VOTING OF PORTFOLIO SECURITIES. Unless Investment Manager otherwise
specifically requests in writing, Sub-Investment Manager will not be required to
take any action, or render any advice, with respect to the voting of portfolio
securities.
6
<PAGE>
11. COMPLAINTS PROCEDURE. If Investment Manager has any complaint about
Sub-Investment Manager's performance under this Agreement Investment Manager
should direct that complaint, in the first instance, to the appropriate
portfolio manager. If the portfolio manager is unable to resolve the complaint
within two (2) business days or the sums involved are material, he will refer it
to one of Sub-Investment Manager's directors who will investigate and attempt to
resolve the complaint in accordance with Sub-Investment Manager's complaints
procedure (a copy of which is available on request). If the director is unable
to do so, he will refer the matter to Sub-Investment Manager's compliance
officer. Investment Manager also has a right of complaint direct to the
Investment Ombudsman.
12. TERMINATION. Sub-Investment Manager may terminate this Agreement on
30 days' written notice to Investment Manager. Investment Manager may terminate
Sub-Investment Manager's appointment as an investment manager at any time upon
written notice which will take effect immediately upon receipt. Termination of
this Agreement will be without prejudice to the completion of transactions
already initiated and accordingly, despite the termination of this Agreement,
Sub-Investment Manager shall be entitled to:
a. settle or close out all transactions entered into or for which the
order was placed with a broker or which was otherwise initiated or
agreed by Sub-Investment Manager on Investment Manager's behalf
hereunder, in good faith before Sub-Investment Manager received
notice of termination (or, if later, the expire of any such
notice); and
b. require Investment Manager to pay all outstanding fees and expenses
including those incurred pursuant to paragraph (a) above.
Investment Manager shall pay Sub-Investment Manager on demand the
amount of any costs incurred in closing out any transaction and shall also pay
Sub-Investment Manager all unpaid fees and expenses which Sub-Investment Manager
shall discharge on Investment Manager's behalf. Any losses incurred on a closing
out shall be for Investment Manager's account. On termination of this Agreement,
Investment Manager shall pay to Sub-Investment Manager such proportion of
Sub-Investment Manager's fees and expenses as may have accrued to the date such
termination takes effect.
The provisions relating to ratification, indemnity and exclusion of
liability set out in SCHEDULE E shall apply notwithstanding termination of this
Agreement.
13. NO ASSIGNMENT. Sub-Investment Manager may not assign (as that term
is defined by the Advisers Act) this Agreement without the prior written consent
of Investment Manager.
7
<PAGE>
14. CONFIDENTIAL RELATIONSHIP. Each party shall use its best efforts to
treat all information and advice furnished by the other party to it as
confidential and to avoid disclosing same to third parties (other than
associates of Sub-Investment Manager) except as agreed to in writing by both
parties or where Sub-Investment Manager is requested or required to do so by
IMRO or any other regulatory or fiscal authority or as required by law.
Conversely, Sub-Investment Manager shall not be required to disclose or
use for the benefit of Investment Manager any confidential information relating
to or acquired while working on the managed Client Accounts or affairs of
another client or to disclose or use any other information not known to the
manager of the Client Accounts even though it is known to any of Sub-Investment
Manager's employees, directors or agents.
15. DISCLOSURE STATEMENT. Investment Manager acknowledges receipt of
Sub-Investment Manager's Disclosure Statement, as required by Rule 204-3 under
the Advisers Act, more than 48 hours prior to the date of execution of this
Agreement as written above.
16. TERMINOLOGY: In this Agreement (including the Schedules), the
following terms bear the following respective meanings:
"THE FSA" means the Financial Services Act 1986.
"INVESTMENTS" mean all shares, debt securities, warrants, options and
futures (other than options and futures relating to land) and any other assets,
rights or interests which constitute an investment for the purposes of Part I of
Schedule 1 to the FSA (or which would do so apart from the Notes to the
respective paragraphs in Part I of that Schedule) and commodity options and
currencies.
"OPTIONS" means options other than options to subscribe shares or debt
securities.
"THE CLIENT ACCOUNTS" means all investments, money, assets (including
the benefit of contracts) or borrowings for the time being subject to
Sub-Investment Manager's discretionary authority hereunder, including, for the
avoidance of doubt, liabilities relating to investments sold short (that is sold
even though not yet so held). The term does not include any portion of an
account managed by Investment Manager that is not subject to Sub-Investment
Manager's discretionary authority.
"THE CLIENT ACCOUNTS CURRENCY" means US$
"CONNECTED PERSON" means any person who is Sub-Investment Manager's
holding company or controller, any person who is a controller or subsidiary of
any such person and any company of which Sub-Investment Manager or any connected
person is a controller or who (whether or not such a person) is Sub-Investment
Manager's associate, and "controller" bears the same meaning as in the FSA.
8
<PAGE>
"IMRO" means The Investment Management Regulatory Organization Limited.
"IMRO RULES" means the rules and regulations of and guidance issued by
IMRO as for the time being in force (and so that if Sub-Investment Manager
obtains any waiver or dispensation from an IMRO rule that rule shall to the
extent of that waiver or dispensation be deemed not to be in force) and "rules"
shall be construed accordingly in relation to any other regulator, market or
exchange.
"THE SIB" means the Securities and Investments Board, the supervisory
regulatory agency under the FSA.
"STOCK BENEFITS" means rights attaching to investments (other than
voting rights) and takeover, rights or other offers relating to investments, and
references to dealing with stock benefits or stock benefit situations are
referenced to exercising any such rights and accepting any such offers or
refraining from doing so.
In this Agreement (including the Schedules):
(a) References to acquiring investments include references to writing
put options and exercising call options.
(b) References to selling investments include references to writing or
granting futures contracts or call options, selling investments
short (that is, selling investments which are not yet part of the
Client Accounts) and exercising put options.
(c) References to settling transactions include references to paying
margin calls, premiums and deposits and delivering collateral as
required in relation to any investment acquired or sold by
Sub-Investment Manager hereunder.
Terms and expressions defined in IMRO rules and not specifically defined herein
bear the same respective meanings herein.
17. COMMUNICATIONS. To the extent reasonable and practical,
communications from Investment Manager to Sub-Investment Manager, or vice versa,
shall be in writing or in another reasonable manner and promptly confirmed in
writing.
18. GENERAL. This Agreement constitutes the entire agreement of the
parties with respect to the management of the assets in the Client Accounts and
may be amended only by a written instrument signed by Investment Manager and
Sub-Investment Manager.
For all purposes of this Agreement, Sub-Investment Manager shall act as
an independent contractor and nothing in this Agreement shall constitute
Sub-Investment
9
<PAGE>
Manager as Investment Manager's dependent agent or as creating any form of
partnership or joint venture between Sub-Investment Manager and Investment
Manager. Except as provided in this Agreement, neither party shall have any
authority to bind, obligate or represent the other
19. GOVERNING LAWS. This Agreement shall be construed in accordance
with the laws of the State of New Jersey (without regard to the legislative or
judicial conflict of laws/rules of any state), except to the extent superseded
by federal law.
IN WITNESS WHEREOF, Investment Manager and Sub-Investment Manager have
executed this Agreement as of the day and year written above.
THE PRUDENTIAL INVESTMENT CORPORATION
By:_____________________________
Name:___________________________
Title:__________________________
PRICOA ASSET MANAGEMENT LTD.
By:_____________________________ By: _______________________________
Name:___________________________ Name:______________________________
Title:__________________________ Title: ___________________________
10
<PAGE>
SCHEDULE A
TO THE SUB-INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LIMITED
SCHEDULE OF REMUNERATION
FUND ANNUAL FEE
Prudential International Bond Fund
(formerly The Global Government Plus Fund, Inc.) 30 basis points
The Global Total Return Fund, Inc. 30 basis points
Prudential Intermediate Global Income Fund, Inc. 30 basis points
Prudential Global Limited Maturity Fund, Inc. 30 basis points
PRICOA World Wide Investors Portfolio 30 basis points
PRICOA Money Market Portfolio, Deutsche Mark Series 30 basis points
PRICOA Money Market Portfolio, Pound Sterling Series 0 basis points
Prudential Global Genesis Fund, Inc. 55 basis points
Prudential General Account:
- -European Portion of the Small Cap Account 65 basis points
- -European Small Cap Account 65 basis points
- -European Portion of Global Small Cap Account 65 basis points
Prudential Group Trust Account (Pru Plan)
- -European Portion of International Large Cap Account 100 basis points
- -European Portion of International Small Cap Account
100 basis points
TOLI GLOBAL-Roche Retiree Welfare Investment Trust 100 basis points
- --------------------------------------------------------------------------------
1. The fee payable for each quarter is calculated at the above rates on
the average funds under management during the quarter.
2. Fees are due and invoiced on the first day of each calendar quarter
(1 January, 1 April, 1 July and 1 October), calculated at the above
rates on funds under management at the end of the previous quarter (i.e.
on 31 December, 31 March, 30 June and 30 September).
3. The difference between the fee paid on the first day of the quarter
(2 above) and the fee payable for the quarter (1 above) is added
to/deducted from the next quarter's fee payment.
4. Fees are payable with 30 days of invoice date.
5. Fees are calculated pro-rata where funds are not managed for the full
term of a calendar quarter.
11
<PAGE>
SCHEDULE B
TO THE SUB-INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LTD
INVESTMENT GUIDELINES FOR CLIENT ACCOUNTS
The investment guidelines for the following Prudential Mutual Funds are as set
out in each fund's statutory documentation (i.e., the Prospectuses and
Statements of Additional Information). The following are highlights from those
documents, however, Sub-Investment Manager is subject to them in their entirety.
PRUDENTIAL INTERNATIONAL BOND FUND, INC. (formerly, The Global Government Plus
Fund, Inc.)
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund attempts to achieve its
objective by investing primarily in debt securities issued or guaranteed by
governments, semi-government entities, governmental agencies, supranational
entities and other governmental entities in the United States and in other
countries and denominated in the currencies of such countries.
The Fund's detailed investment polices and investment restrictions are set out
in the Fund's Prospectus dated February 28, 1997 and the Fund's Statement of
Additional Information dated February 28, 1997.
THE GLOBAL TOTAL RETURN FUND, INC.
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund attempts to achieve its
objective by investing, under normal circumstances, at least 65% of its total
assets in governmental (including supranational), semi-governmental or
government agency debt securities or in short-term bank debt securities or
deposits in the United States and in foreign countries denominated in US dollars
or in foreign currencies, including debt securities issued or guaranteed by the
US Government and foreign governments, their agencies, authorities or
instrumentalities. The remainder is generally invested in corporate debt
securities or longer term bank debt securities.
The Fund will invest primarily in investment grade securities or in non-rated
securities determined by the Fund's investment adviser to be of equivalent
quality. The Fund may invest up to 10% of its total assets in debt securities
rated below investment grade, with a minimum rating of B, by either S&P or
Moody's or by another NRSRO, or, if unrated, are deemed to be of equivalent
quality by the investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated February 28, 1997.
12
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
The Fund's objective is to seek to maximise total return, the components of
which are current income and capital appreciation. The Fund will attempt to
achieve its objective by investing primarily in obligations issued or guaranteed
by the US Government, its agencies, authorities or instrumentalities and in
obligations issued or guaranteed by certain foreign governments,
quasi-governmental entities, governmental agencies, supranational entities or
any of their political subdivisions or instrumentalities. The Fund will invest
primarily in investment grade securities or in non-rated securities determined
by the Fund's investment adviser to be of equivalent quality. The Fund may
invest up to 10% of its total assets in debt securities rated below investment
grade, with a minimum rating of B, by either S&P or Moody's or by another NRSRO,
or if unrated, are deemed to be of equivalent quality by the investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated February 28, 1997 and the Fund's Statement of
Additional Information dated February 28, 1997.
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
The Fund's investment objective is to maximise 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 US 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
investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated December 30, 1996 and the Fund's Statement of
Additional Information dated December 30, 1996.
PRICOA WORLDWIDE INVESTORS PORTFOLIO
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund seeks to achieve its
investment objective by investing primarily in investment grade bonds issued by
governments and corporations with varying maturities. It may also have limited
exposure to non-investment grade issues from emerging markets.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated October 28, 1996.
PRICOA MONEY MARKET PORTFOLIO
The Fund's investment objective is to provide the highest level of current
income in each designated currency consistent with safety of principal. Each
Series seeks to achieve this objective by investing in a portfolio of high
quality money market instruments and short-term debt obligations having a
maturity of one year or less denominated (1) in the designated currency of the
Series or (2) in US dollars (or other currencies) in combination with forward
currency exchange contracts to purchase matching amounts of the designated
currency.
13
<PAGE>
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated June 12, 1991.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
The Fund's investment objective is long-term growth of capital. The Fund seeks
to achieve its investment objective by investing primarily in common stocks,
common stock equivalents (such as warrants and convertible debt securities) and
other equity securities (including preferred stocks) of smaller foreign and
domestic companies. Under normal circumstances, the Fund will invest 65% of its
total assets in such securities.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated July 30, 1997 and the Fund's Statement of
Additional Information dated July 30,1997.
The investment guidelines for the remaining funds are as follows:
PRUDENTIAL GENERAL ACCOUNT
EUROPEAN PORTION OF THE SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. The majority of investments to be in the stocks with market
capitalization less than $1.5 billion.
3. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
4. The portfolio will not purchase more than 10% of the issued capital of any
one company.
5. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during initial portfolio building.
6. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO). Foreign currency futures and options
contracts can only be employed to hedge underlying currency exposure (i.e.,
up to but not more than 100% of underlying exposure to a foreign currency as
measured by the value of cash plus securities held in that foreign
currency).
EUROPEAN SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to$1.5 billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during portfolio building.
14
<PAGE>
7. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO). Foreign currency futures and options
contracts can only be employed to hedge underlying currency exposure (i.e.,
up to but not more than 100% of underlying exposure to a foreign currency as
measured by the value of cash plus securities held in that foreign
currency).
EUROPEAN PORTION OF THE GLOBAL SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. The majority of investments to be in the stocks with market
capitalization less than $750 million.)
3. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
4. The portfolio will not purchase more than 10% of the issued capital of any
one company.
5. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during initial portfolio building.
6. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO). Foreign currency futures and options
contracts can only be employed to hedge underlying currency exposure (i.e.,
up to but not more than 100% of underlying exposure to a foreign currency as
measured by the value of cash plus securities held in that foreign
currency).
PRUDENTIAL GROUP TRUST ACCOUNT (PRU PLAN)
EUROPEAN PORTION OF THE INTERNATIONAL LARGE CAP ACCOUNT
1. The investment objective will be long term capital appreciation through
investment in a broadly diversified portfolio from outside the United
States. The portfolio will be measured against the Morgan Stanley
International "EAFE" Index.
2. Investments will be composed primarily of securities publicly traded in
Europe.
3. Portfolio will be invested primarily (75%) in securities of large
capitalization companies.
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 15% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO).
EUROPEAN PORTION OF THE INTERNATIONAL SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Portfolio will be primarily in securities of small capitalization companies.
The majority of investments to be in the stocks with market capitalization
less than $750 million.
15
<PAGE>
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 15% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO).
16
<PAGE>
TOLI GLOBAL- ROCHE RETIREE WELFARE INVESTMENT TRUST (EUROPEAN PORTION OF THE
GLOBAL ACCOUNT)
1. Investment will be composed primarily of securities publicly traded
represented in the EMI as well as the stock exchanges of Mexico, Thailand,
Indonesia, Philippines, Taiwan, and South Korea, as well as options and
futures contracts related to those securities and convertible bonds of small
capitalization companies. No options, futures, or other derivatives will add
any leverage to the portfolio. Investment may also be made in cash or in the
equivalents of cash or in any commingled money market account maintained by
Prudential.
2. Investments will be targeted primarily in securities of companies of small
market capitalization of less than Stocks which are included in the
portfolio not meeting the cap size definition should normally be ones which
are constituents of the EMI, except for Southeast Asia where larger traded
stocks may be used.
3. No more than 7% of any regional sub-portfolio will be invested in any one
company at the time of purchase; no more than 3% of the total global
portfolio will be so invested.
4. The portfolio will not purchase more than 10% of the issued capital of any
one company. The regional portfolios are generally kept diversified in 30 to
60 names. Industry weights are determined on a bottom up basis but monitored
at the portfolio level and may cut back to limit potential sector risk.
5. Investments in cash and related instruments will not exceed 17% of the
portfolio, except during initial building.
6. Currency hedging will be allowed, although it is not anticipated that Global
Small Cap Equity will employ an active currency overlay program. Any
currency hedging must be covered by an underlying cash/stock position.
GENERAL
SUBJECT TO THE INVESTMENT GUIDELINES FOR THE CLIENT ACCOUNTS DESCRIBED HEREIN OR
AS SUBSEQUENTLY NOTIFIED TO SUB-INVESTMENT MANAGER IN WRITING:
1. The Client Accounts may contain securities which are or were the subject of
a relevant offer or issue, whether at the time Sub-Investment Manager
acquires them on behalf of Investment Manager, within a period of 12 months
preceding that or otherwise. For the purpose of this paragraph, a "relevant
offer or issue" is an offer or issue of any securities (whether or not those
securities are to be listed on the London Stock Exchange or any other
recognized or designated investment exchange) which is or was sponsored,
underwritten, managed or arranged, or in connection with which other
services were provided, by Sub-Investment Manager or a connected person.
2. Sub-Investment Manager may not commit Investment Manager to any obligation
to underwrite any issue or offer for sale of securities.
3. Sub-Investment Manager may, on behalf of Investment Manager, acquire or
dispose of units in a regulated collective investment scheme, whether or not
operated, managed or advised by Sub-Investment Manager or a connected
person.
4. Sub-Investment Manager may enter into repo or reverse repo transactions but
may not otherwise lend or borrow securities for any purpose.
17
<PAGE>
5. Sub-Investment Manager is authorized by Investment Manager to deal in
warrants, options (including traded options) futures or contracts for
differences on behalf of Investment Manager (provided they are investments
as defined herein). The limits on margins will vary as between the Client
Accounts as set out in Schedule B above and the Prospectuses and Statements
of Additional Information mentioned therein.
6. Where the requisite currency of settlement is not the Client Accounts
Currency Sub-Investment Manager shall be entitled to use spot or forward
foreign exchange contracts (and accordingly enter into them on Investment
Manager's behalf) to fund the acquisition of spot or forward investments or
dispose of sale proceeds in a foreign currency. Notwithstanding
Sub-Investment Manager's right to do this, Investment Manager accepts that
if a liability in one currency is matched by an asset in a different
currency, or if any investment acquired or sold hereunder is denominated or
paid for in a currency other than the Client Accounts Currency, a movement
of exchange rates may be unfavourable rather than favourable, on the gain or
loss otherwise experienced on the investment.
18
<PAGE>
SCHEDULE C
TO THE SUB-INVESTMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LIMITED
THE INITIAL COMPOSITION AND VALUE OF CLIENT ACCOUNTS
[See Attached Documents]
19
<PAGE>
SCHEDULE D
TO THE SUB-INVESTMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LIMITED
SOFT COMMISSION
1. Soft Commission Agreements
A list of the Soft Commission Agreements which Sub-Investment Manager has
entered into from time to time is available from Sub-Investment Manager upon
request. Details of the Soft Commission Agreements are also available from
Sub-Investment Manager upon request.
2. Soft Commission Policy Statement
The provision of commissions under a Soft Commission Agreement will allow
Sub-Investment Manager to provide Investment Manager with services that could
not otherwise be provided as cost effectively.
Sub-Investment Manager will not enter into Soft Commission Agreements unless:
(a) the benefits provided under the agreement are goods or services which can
reasonably be expected to assist in the provision of Sub-Investment Manager's
services to customers, and are in fact so used and fall within the permitted
categories of goods and services under the Rules;
(b) the broker concerned agrees to provide Best Execution on transactions
effected for customers;
(c) Sub-Investment Manager is satisfied that the terms of business and methods
by which the relevant broking services will be supplied do not involve any
potential for a comparative price disadvantage to customers.
Sub-Investment Manager will send Investment Manager annual reports on
Sub-Investment Manager's Soft Commission Arrangements as required by the IMRO
rules.
20
<PAGE>
SCHEDULE E
TO THE SUB-INVESTMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LIMITED
RATIFICATION, INDEMNITY AND EXCLUSION OF LIABILITY
1. Investment Manager hereby undertakes to ratify and confirm everything done by
Sub-Investment Manager in the performance or purported performance in good faith
of Sub-Investment Manager's duties hereunder and by the Custodian or depository
in settlement of any transactions entered into by Sub-Investment Manager on
Investment Manager's behalf hereunder and not closed out prior to the settlement
date.
2. Investment Manager shall indemnify Sub-Investment Manager against all costs,
expenses, claims, actions, demands or liabilities (including costs and expenses
incurred in any proceedings relating there to and including any liability for
payment of tax on Investment Manager's income or profits) which may be suffered
or incurred by or made against Sub-Investment Manager in connection with
Sub-Investment Manager's appointment hereunder or the performance or purported
performance in good faith, of Sub-Investment Manager's duties hereunder.
However, this indemnity shall not apply where Sub-Investment Manager has been
grossly negligent or has willfully defaulted or in relation to breaches by
Sub-Investment Manager of IMRO rules or the requirements of the FSA.
3. Sub-Investment Manager shall use its best efforts and judgment and shall
exercise due care in performing its duties and acting as investment manager
hereunder. However, Sub-Investment Manager shall not be liable for any
depreciation in value of the Client Accounts, loss of profit, gain or income
suffered by Investment Manager in relation to the Client Accounts unless it
results from Sub-Investment Manager's gross negligence or willful default and
for this purpose the failure to use or disclose confidential information
relating to another client or any other person shall not be regarded as gross
negligence or willful default.
4. Sub-Investment Manager shall not be responsible or required to indemnify
Investment Manager for any loss resulting from the failure or default of any
broker, or other agent, or counter-party.
5. In this Schedule, references to Sub-Investment Manager include references to
all Sub-Investment Manager's connected persons and or their directors, employees
or agents.
21
<PAGE>
SCHEDULE F
TO THE SUB-INVESTMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LIMITED
CONFLICTS
1. Sub-Investment Manager (and any connected person) may carry on investment and
trading activities for its own account and may act as investment manager or
investment adviser for other clients (whether or not connected persons) on terms
including provisions for remuneration on terms which may be different from those
under this Agreement, including payment of a performance fee.
2. Provided that Sub-Investment Manager acts in good faith and fairly as between
Investment Manager and all other clients concerned and conforms to IMRO rules,
Sub-Investment Manager shall not be required to prefer Investment Manager's
interests to its own interests or to the interests of its other clients or to
subordinate the interests of itself or such other clients to Investment
Manager's interests. In particular in case of competition Sub-Investment Manager
may acquire or dispose of investments on a pro rata basis, or such other basis
as Sub-Investment Manager considers fair and reasonable, as between Investment
Manager and itself or such other clients. When considering or deciding whether
or not to acquire or dispose of an investment for Investment Manager or
executing a decision to do so, Sub-Investment Manager may also consider or
decide upon such acquisition or disposal or execute such a decision for itself
or other clients at the same time (whether by way of block trading or otherwise)
and may advise advisory clients accordingly without having first to initiate or
effect the relevant transaction for Investment Manager.
3. Sub-Investment Manager shall not be required to acquire for Investment
Manager any investment which Sub-Investment Manager in good faith considers not
to be suitable for Investment Manager even though Sub-Investment Manager may
consider that investment suitable for either itself or any connected person or
for other clients and accordingly acquire that investment for its own account or
for any connected person or for, (or recommended that investment to) such other
clients. This applies similarly in the case of sales.
4. Sub-Investment Manager and its connected persons may carry on investment and
trading activities for its own account and may carry out investment advisory or
management services for other clients. Accordingly, Investment Manager accepts
that when Sub-Investment Manager deals for Investment Manager Sub-Investment
Manager, or any connected person may have an interest that is material to the
investment or transaction concerned. In particular, Investment Manager
acknowledges that Sub-Investment Manager may acquire or dispose of investments
on Investments Manager's behalf hereunder notwithstanding that Sub-Investment
Manager or any connected person may have or simultaneously acquire or dispose of
positions in such investments in such investments for its own account or for
other clients.
22
<PAGE>
SCHEDULE A (AMENDED)
TO THE SUB-INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LIMITED
SCHEDULE OF REMUNERATION
<TABLE>
<CAPTION>
LIST OF FUNDS ANNUAL FEE
------------- ----------
<S> <C> <C>
BOND FUND Prudential International Bond Fund
(formerly The Global Government Plus Fund, Inc.) 30 Basis Points
The Global Total Return Fund, Inc. 30 Basis Points
Prudential Intermediate Global Income Fund, Inc. 30 Basis Points
Prudential Global Limited Maturity Fund, Inc. 30 Basis Points
MONEY MARKET FUNDS: PRICOA World Wide Investors Portfolio, Global Bond Fund 30 Basis Points
PRICOA Money Market Portfolio, Deutsche Mark Series 30 Basis Points
PRICOA Money Market Portfolio, Pound Sterling Series 0 Basis Points
EQUITY FUNDS: Prudential General Account:
-European Portion of the Small Cap Account 65 Basis Points
-European Small Cap Account 65 Basis Points
-European Portion of Global Small Cap Account 65 Basis Points
Prudential Group Trust Account (Pru Plan)
-European Portion of International Large Cap Account 100 Basis Points
-European Portion of International Small Cap Account 100 Basis Points
TOLI GLOBAL-Roche Retiree Welfare Investment Trust 100 Basis Points
Prudential Global Genesis Fund, Inc. 55 Basis Points
Prudential Europe Growth Fund, Inc. 55 Basis Points
PRICOA World Wide Investors Portfolio, European Growth Fund 55 Basis Points
</TABLE>
- --------------------------------------------------------------------------------
1. Investment Manager will pay Sub-Investment Manager a fee equal to the greater
of the amount of Sub-Investment Manager's expenses associated with
Sub-Investment Manager's management for Investment Manager of the funds above,
plus 5% of such expenses, or the basis point fees.
2. Sub-Investment Manager will invoice Investment Manager at the end of each
quarter for actual fees due as calculated in accordance with 1 above and
invoices will be payable within 30 days of invoice date.
3. Investment Manager will undertake to use best endeavours to prepay each
quarter's estimated fees at the beginning of the relevant quarter (1 January, 1
April, 1 July, 1 October).
4. Fees are calculated pro-rata where funds are not managed for the full term of
a calendar quarter.
This amended schedule is deemed to be effective as of January 1, 1998.
FOR THE PRUDENTIAL INVESTMENT CORPORATION
By:_______________________________
Date:_____________________________
FOR PRICOA ASSET MANAGEMENT LIMITED
Director: ________________________ Director: _________________________
Date: ________________________________ Date: ____________________________
23
<PAGE>
A M E N D M E N T
TO SUB-INVESTMENT MANAGEMENT AGREEMENT ("AGREEMENT")
BETWEEN THE PRUDENTIAL INVESTMENT CORPORATION
("INVESTMENT MANAGER")
AND
PRICOA ASSET MANAGEMENT LIMITED ("SUB-INVESTMENT MANAGER")
This Amendment to the Agreement dated September 30, 1997, is dated
January 8, 1998 and effective as of December 1, 1997.
WHEREAS, the parties have agreed that the Sub-Investment Manager will
provide investment advisory services to the Prudential Europe Growth Fund, Inc.,
a registered investment company under the Investment Company Act of 1940, and
PRICOA Worldwide Investors Portfolio-European Growth Fund, an investment company
organized under the laws of the Grand Duchy of Luxembourg ;
NOW THEREFORE, it is agreed as follows:
1. Section 1 of the Agreement is hereby amended to read as follows:
APPOINTMENT. Sub-Investment Manager will act as an investment manager
with respect to the Client Accounts which are detailed in SCHEDULE A annexed to
this Agreement. In providing its services Sub-Investment Manager will act for
Investment Manager on the basis that Investment Manager is a non-private
customer (as defined for the purposes of IMRO rules). Investment Manager agrees
that it is the only customer of Sub-Investment Manager hereunder for the
purposes of IMRO Rules and that, notwithstanding Investment Manager has
identified the Client Accounts to Sub-Investment Manager, none of the Client
Accounts will be an indirect customer of Sub-Investment Manager for those
purposes. In addition to providing investment management services,
Sub-Investment Manager may arrange for the execution of trades on behalf of the
Investment Manager for portfolios specified from time to time by the Investment
Manager.
2. Schedules A and B to the Agreement are hereby amended and
substituted by the attached Schedules A and B, respectively:
24
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed
as of the date indicated above.
THE PRUDENTIAL INVESTMENT CORPORATION
BY:
---------------------------------------------
NAME: JONATHAN M. GREENE
-------------------------------------------
TITLE: SENIOR VICE PRESIDENT
------------------------------------------
PRICOA ASSET MANAGMENT LIMITED
BY:
---------------------------------------------
NAME:
-------------------------------------------
TITLE:
------------------------------------------
BY:
---------------------------------------------
NAME:
-------------------------------------------
TITLE:
------------------------------------------
25
<PAGE>
SCHEDULE A (AMENDED)
TO THE SUB-INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LIMITED
SCHEDULE OF REMUNERATION
FUND ANNUAL FEE
Prudential International Bond Fund
(formerly The Global Government Plus Fund, Inc.) 30 basis points
The Global Total Return Fund, Inc. 30 basis points
Prudential Intermediate Global Income Fund, Inc. 30 basis points
Prudential Global Limited Maturity Fund, Inc. 30 basis points
PRICOA world Wide Investors Portfolio, Global Bond Fund 30 basis points
PRICOA World Wide Investors Portfolio, European Growth Fund 55 basis points
PRICOA Money Market Portfolio, Deutsche Mark Series 30 basis points
PRICOA Money Market Portfolio, Pound Sterling Series 0 basis points
Prudential General Account:
- -European Portion of the Small Cap Account 65 basis points
- -European Small Cap Account 65 basis points
- -European Portion of the Global Small Cap Account 65 basis points
Prudential Group Trust Account (Pru Plan)
- -European Portion of International Large Cap Account 100 basis points
- -European Portion of International Small Cap Account 100 basis points
TOLI GLOBAL-Roche Retiree Welfare Investment Trust 100 basis points
Prudential Global Genesis Fund, Inc. 55 basis points
Prudential Europe Growth Fund, Inc. 55 basis points
- --------------------------------------------------------------------------------
1. The fee payable for each quarter is calculated at the above rates on
the average funds under management during the quarter.
2. Sub-Investment Manager will invoice Investment Manager at the end of
each quarter for actual fees due as calculated in accordance with 1
above and invoices will be payable within 30 days of invoice date.
3. Investment Manager will undertake to use best endeavors to prepay
each quarter's estimated fees at the beginning of the relevant quarter
(1 January, 1 April, 1 July, 1 October)
4. Fees are calculated pro-rata where funds are not managed for the full
term of a calendar quarter.
This amended schedule is deemed to be effective from the commencement
of this agreement.
FOR THE PRUDENTIAL INVESTMENT CORPORATION
By:_______________________________
Date:
FOR PRICOA ASSET MANAGEMENT LIMITED
Director: ____________________ Director: _______________________
Date: _________________________ Date:____________________________
26
<PAGE>
SCHEDULE B
TO THE SUB-INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LTD
INVESTMENT GUIDELINES FOR CLIENT ACCOUNTS
The investment guidelines for the following Prudential Mutual Funds are as set
out in each fund's statutory documentation:
PRUDENTIAL INTERNATIONAL BOND FUND, INC. (formerly, The Global Government Plus
Fund, Inc.)
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund attempts to achieve its
objective by investing primarily in debt securities issued or guaranteed by
governments, semi-government entities, governmental agencies, supranational
entities and other governmental entities in the United States and in other
countries and denominated in the currencies of such countries.
The Fund's detailed investment polices and investment restrictions are set out
in the Fund's Prospectus dated February 28, 1997 and the Fund's Statement of
Additional Information dated February 28, 1997.
THE GLOBAL TOTAL RETURN FUND, INC.
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund attempts to achieve its
objective by investing, under normal circumstances, at least 65% of its total
assets in governmental (including supranational), semi-governmental or
government agency debt securities or in short-term bank debt securities or
deposits in the United States and in foreign countries denominated in US dollars
or in foreign currencies, including debt securities issued or guaranteed by the
US Government and foreign governments, their agencies, authorities or
instrumentalities. The remainder is generally invested in corporate debt
securities or longer term bank debt securities.
The Fund will invest primarily in investment grade securities or in non-rated
securities determined by the Fund's investment adviser to be of equivalent
quality. The Fund may invest up to 10% of its total assets in debt securities
rated below investment grade, with a minimum rating of B, by either S&P or
Moody's or by another NRSRO, or, if unrated, are deemed to be of equivalent
quality by the investment adviser.
27
<PAGE>
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated February 28, 1997.
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
The Fund's objective is to seek to maximize total return, the components of
which are current income and capital appreciation. The Fund will attempt to
achieve its objective by investing primarily in obligations issued or guaranteed
by the US Government, its agencies, authorities or instrumentalities and in
obligations issued or guaranteed by certain foreign governments,
quasi-governmental entities, governmental agencies, supranational entities or
any of their political subdivisions or instrumentalities. The Fund will invest
primarily in investment grade securities or in non-rated securities determined
by the Fund's investment adviser to be of equivalent quality. The Fund may
invest up to 10% of its total assets in debt securities rated below investment
grade, with a minimum rating of B, by either S&P or Moody's or by another NRSRO,
or if unrated, are deemed to be of equivalent quality by the investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated February 28, 1997 and the Fund's Statement of
Additional Information dated February 28, 1997.
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
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 debt securities denominated
in the US 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
investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated December 30, 1996 and the Fund's Statement of
Additional Information dated December 30, 1996.
PRICOA WORLDWIDE INVESTORS PORTFOLIO, GLOBAL BOND FUND
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund seeks to achieve its
investment objective by investing primarily in investment grade bonds issued by
governments and corporations with varying maturities. It may also have limited
exposure to non-investment grade issues from emerging markets.
28
<PAGE>
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated October 28, 1996.
PRICOA WORLDWIDE INVESTORS PORTFOLIO, EUROPEAN GROWTH FUND
The Fund's investment objective is long-term growth of capital through
investment in a portfolio of transferable equity and debt securities of
companies domiciled in Europe.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated October 28, 1996.
PRICOA MONEY MARKET PORTFOLIO
The Fund's investment objective is to provide the highest level of current
income in each designated currency consistent with safety of principal. Each
Series seeks to achieve this objective by investing in a portfolio of high
quality money market instruments and short-term debt obligations having a
maturity of one year or less denominated (1) in the designated currency of the
Series or (2) in US dollars (or other currencies) in combination with forward
currency exchange contracts to purchase matching amounts of the designated
currency.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated June 12, 1991.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
The Fund's investment objective is long-term growth of capital. The Fund seeks
to achieve its investment objective by investing primarily in common stocks,
common stock equivalents (such as warrants and convertible debt securities) and
other equity securities (including preferred stocks) of smaller foreign and
domestic companies. Under normal circumstances, the Fund will invest 65% of its
total assets in such securities.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated July 30, 1997 and the Fund's Statement of
Additional Information dated July 30,1997.
PRUDENTIAL EUROPE GROWTH FUND, INC.
The Fund's investment objective is to seek long-term growth of capital. The Fund
attempts to achieve this objective by investing primarily in equity securities
(common stock, securities convertible into common stock and preferred stock) of
companies domiciled in Europe.
29
<PAGE>
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated July 1, 1997, and the Fund's Statement of
Additional Information dated July 1, 1997.
The investment guidelines for the remaining funds are as follows:
PRUDENTIAL GENERAL ACCOUNT
EUROPEAN PORTION OF THE SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to $1.5billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO). Foreign currency futures and options
contracts can only be employed to hedge underlying currency exposure (i.e.,
up to but not more than 100% of underlying exposure to a foreign currency as
measured by the value of cash plus securities held in that foreign
currency).
EUROPEAN SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to$1.5 billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
30
<PAGE>
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO). Foreign currency futures and options
contracts can only be employed to hedge underlying currency exposure (i.e.,
up to but not more than 100% of underlying exposure to a foreign currency as
measured by the value of cash plus securities held in that foreign
currency).
EUROPEAN PORTION OF THE GLOBAL SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to$1.5 billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO). Foreign currency futures and options
contracts can only be employed to hedge underlying currency exposure (i.e.,
up to but not
31
<PAGE>
more than 100% of underlying exposure to a foreign currency as measured by
the value of cash plus securities held in that foreign currency).
PRUDENTIAL GROUP TRUST ACCOUNT (PRU PLAN)
EUROPEAN PORTION OF THE INTERNATIONAL LARGE CAP ACCOUNT
1. The investment objective will be long term capital appreciation through
investment in a broadly diversified portfolio from outside the United
States. The portfolio will be measured against the Morgan Stanley
International "EAFE" Index.
2. Investments will be composed primarily of securities publicly traded in
Europe.
3. Portfolio will be invested primarily (75%) in securities of large
capitalization companies (greater than $1.5 billion).
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
32
<PAGE>
6. Investments in cash and related instruments will not exceed 15% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO).
EUROPEAN PORTION OF THE INTERNATIONAL SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Portfolio will be primarily (70%) in securities of small capitalization
companies.(Stocks which primarily make up the lowest 20 percent of the total
market capitalization of $30 million to$1.5 billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 15% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Small Cap Equities CIO).
TOLI GLOBAL- ROCHE RETIREE WELFARE INVESTMENT TRUST (EUROPEAN PORTION OF THE
GLOBAL ACCOUNT)
1. Investment will be composed primarily of securities publicly traded
represented in the EMI as well as the stock exchanges of Mexico, Thailand,
Indonesia, Philippines, Taiwan, and South Korea, as well as options and
futures contracts related to those securities and convertible bonds of small
capitalization companies. No options, futures, or other derivatives will add
any leverage to the portfolio. Investment may also be made in cash or in the
equivalents of cash or in any commingled money market account maintained by
Prudential.
2. Investments will be targeted primarily (i.e. a minimum of 70% of the
invested portion of the portfolio) in securities of companies which meet
Global Small Cap
33
<PAGE>
Equities definition of small capitalization companies. Throughout the world,
Global Small Cap Equities uses the largest market cap of the stocks in
lowest 20% of the market capitalization, within the U. S. markets as its
upper capitalization limit (currently $1.5 billion), except in Japan where
Global Small Cap Equities applies the 20% test separately due to currency
fluctuations. (In Japan, the upper limit is currently $1.5 billion). The
majority of investments to be in the stocks with market capitalization less
than $750 million. Stocks which are included in the portfolio not meeting
the cap size definition should normally be ones which are constituents of
the EMI, except for Southeast Asia where larger traded stocks may be used.
3. No more than 7% of any regional sub-portfolio will be invested in any one
company at the time of purchase; no more than 3% of the total global
portfolio will be so invested.
4. The portfolio will not purchase more than 10% of the issued capital of any
one company. The regional portfolios are generally kept diversified in 30 to
60 names. Industry weights are determined on a bottom up basis but monitored
at the portfolio level and may cut back to limit potential sector risk.
5. Investments in cash and related instruments will not exceed 17% of the
portfolio, except during initial building.
6. Currency hedging will be allowed, although it is not anticipated that Global
Small Cap Equity will employ an active currency overlay program. Any
currency hedging must be covered by an underlying cash/stock position.
7. Within the global portfolio, none of the four regions (Japan, Southeast
Asia, Europe, or North America) will be weighted at time of purchase (or
allocation shift) by more than 12% of the benchmark weight or less than 12%
of the benchmark weight. This 12% guideline will also apply to country
weights within each regional sub-portfolio.
GENERAL
SUBJECT TO THE INVESTMENT GUIDELINES FOR THE CLIENT ACCOUNTS DESCRIBED HEREIN OR
AS SUBSEQUENTLY NOTIFIED TO SUB-INVESTMENT MANAGER IN WRITING:
1. The Client Accounts may contain securities which are or were the subject of
a relevant offer or issue, whether at the time Sub-Investment Manager
acquires them on behalf of Investment Manager, within a period of 12 months
preceding that or otherwise. For the purpose of this paragraph, a "relevant
offer or issue"
34
<PAGE>
is an offer or issue of any securities (whether or not those securities are
to be listed on the London Stock Exchange or any other recognized or
designated investment exchange) which is or was sponsored, underwritten,
managed or arranged, or in connection with which other services were
provided, by Sub-Investment Manager or a connected person.
2. Sub-Investment Manager may not commit Investment Manager to any obligation
to underwrite any issue or offer for sale of securities.
3. Sub-Investment Manager may, on behalf of Investment Manager, acquire or
dispose of units in a regulated collective investment scheme, whether or not
operated, managed or advised by Sub-Investment Manager or a connected
person.
4. Sub-Investment Manager may enter into repo or reverse repo transactions but
may not otherwise lend or borrow securities for any purpose.
5. Sub-Investment Manager is authorized by Investment Manager to deal in
warrants, options (including traded options) futures or contracts for
differences on behalf of Investment Manager (provided they are investments
as defined herein). The limits on margins will vary as between the Client
Accounts as set out in Schedule B above and the Prospectuses and Statements
of Additional Information mentioned therein.
6. Where the requisite currency of settlement is not the Client Accounts
Currency Sub-Investment Manager shall be entitled to use spot or forward
foreign exchange contracts (and accordingly enter into them on Investment
Manager's behalf) to fund the acquisition of spot or forward investments or
dispose of sale proceeds in a foreign currency. Notwithstanding
Sub-Investment Manager's right to do this, Investment Manager accepts that
if a liability in one currency is matched by an asset in a different
currency, or if any investment acquired or sold hereunder is denominated or
paid for in a currency other than the Client Accounts Currency, a movement
of exchange rates may be unfavorable rather than favorable, on the gain or
loss otherwise experienced on the investment.
35
<PAGE>
A M E N D M E N T
TO SUB-INVESTMENT MANAGEMENT AGREEMENT ("AGREEMENT")
BETWEEN THE PRUDENTIAL INVESTMENT CORPORATION
("INVESTMENT MANAGER")
AND
PRICOA ASSET MANAGEMENT LIMITED ("SUB-INVESTMENT MANAGER")
This Amendment to the Agreement dated September 30, 1997, is dated
February 11, 1998, and effective as of January 1, 1998.
WHEREAS, the parties have agreed that the Sub-Investment Manager will
provide investment advisory services to the registered investment companies
established under the Investment Company Act of 1940, the investment companies
organized under the laws of the Grand Duchy of Luxembourg and the insurance
company general accounts, listed on Schedule A;
NOW THEREFORE, it is agreed as follows:
1. Section 12 of the Agreement is hereby amended to read as follows:
TERMINATION. Sub-Investment Manager may terminate this Agreement on 60
days' written notice to Investment Manager, with respect to managed
accounts and investment companies. Investment Manager may terminate
Sub-Investment Manager's appointment as an investment manager at any
time upon written notice which will take effect immediately upon
receipt. With respect to the registered investment companies, the
agreement also (i) may be terminated without the payment of any
penalty, by the board of directors of such registered investment
company or by a vote of a majority of the outstanding voting securities
on not more than 60 days' written notice to the Sub-Investment Manager;
(ii) shall continue in effect for a period 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 requirements of the
Investment Company Act of 1940; and (iii) shall terminate automatically
for a particular registered investment company upon the termination of
Investment Manager's Sub-Advisory Agreement for such registered
investment company. Termination of this Agreement will be without
prejudice to the completion of transactions already initiated and
accordingly, despite termination of this Agreement, Sub-Investment
Manager shall be entitled to:
a. settle or close out all transactions entered into or for which
the order was placed with a broker or which was otherwise
initiated or agreed by Sub-Investment Manager on Investment
Manager's behalf hereunder, in good faith before Sub-Investment
Manager received notice of termination (or, if later, the
expiration of such notice); and
36
<PAGE>
b. require Investment Manager to pay all outstanding fees and
expenses including those incurred pursuant to paragraph (a)
above.
2. Section 13 of the Agreement is hereby amended to read as follows:
NO ASSIGNMENT Sub-Investment Manager may not make on assignment (as
that term is defined in the Investment Advisers Act of 1940) of this
Agreement without the prior written consent of Investment Manager. This
Agreement, with respect to registered investment companies, shall not
be assigned by either party hereto and shall automatically terminate
forthwith in the event of such assignment (as that term is defined in
the Investment Company Act of 1940).
3. Schedules A and B to the Agreement are hereby amended and
substituted by the attached Schedules A and B, respectively:
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed
as of the date indicated above.
THE PRUDENTIAL INVESTMENT CORPORATION
BY:
-----------------------------------------
NAME: JONATHAN M. GREENE
---------------------------------------
TITLE: SENIOR VICE PRESIDENT
--------------------------------------
PRICOA ASSET MANAGMENT LIMITED
BY:
-----------------------------------------
NAME:
---------------------------------------
TITLE:
--------------------------------------
BY:_________________________________________
NAME:______________________________________
TITLE:_______________________________________
37
<PAGE>
SCHEDULE A (AMENDED)
TO THE SUB-INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LIMITED
SCHEDULE OF REMUNERATION
<TABLE>
<CAPTION>
LIST OF FUNDS ANNUAL FEE
-------------- ----------
<S> <C> <C>
BOND FUNDS
Prudential International Bond Fund, Inc.
(formerly The Global Government Plus Fund, Inc.) Cost + 5% of cost
The Global Total Return Fund, Inc. Cost + 5% of cost
Prudential Intermediate Global Income Fund, Inc. Cost + 5% of cost
Prudential Global Limited Maturity Fund, Inc. Cost + 5% of cost
PRICOA Worldwide Investors Portfolio, Global Bond Fund 30 basis points
MONEY MARKET FUNDS
PRICOA Money Market Portfolio, Deutsche Mark Series 30 basis points
PRICOA Money Market Portfolio, Pound Sterling Series 0 basis points
EQUITY FUNDS Prudential General Account:
-European Portion of the Small Cap Account Cost + 5% of cost
-European Small Cap Account Cost + 5% of cost
- European Large Cap Account Cost + 5% of cost
-European Portion of the Global Small Cap Account Cost + 5% of cost
Prudential Group Trust Account (Pru Plan)
-European Portion of International Large Cap Account Cost + 5% of cost
-European Portion of International Small Cap Account Cost + 5% of cost
38
<PAGE>
TOLI GLOBAL-Roche Retiree Welfare Investment Trust Cost +5% of cost
Prudential Global Genesis Fund, Inc. Cost +5% of cost
Prudential Europe Growth Fund, Inc. Cost + 5% of cost
39
<PAGE>
PRICOA Worldwide Investors Portfolio,
European Growth Fund 55 basis points
</TABLE>
- --------------------------------------------------------------------------------
1. The fee payable for each quarter is calculated at the above rates on
the average funds under management during the quarter.
2. Sub-Investment Manager will invoice Investment Manager at the end of
each quarter for actual fees due as calculated in accordance with 1 above and
invoices will be payable within 30 days of invoice date.
3. Investment Manager will undertake to use best endeavors to prepay
each quarter's estimated fees at the beginning of the relevant quarter (1
January, 1 April, 1 July, 1 October)
4. Fees are calculated pro-rata where funds are not managed for the
full term of a calendar quarter.
This amended schedule is deemed to be effective as of January 1, 1998.
FOR THE PRUDENTIAL INVESTMENT CORPORATION
By:_______________________________
Date:_____________________________
FOR PRICOA ASSET MANAGEMENT LIMITED
Director: ____________________ Director: _________________________
Date: _________________________ Date: ____________________________
40
<PAGE>
SCHEDULE B
TO THE SUB-INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LTD
INVESTMENT GUIDELINES FOR CLIENT ACCOUNTS
The investment guidelines for the following Prudential Mutual Funds are as set
out in each fund's statutory documentation:
PRUDENTIAL INTERNATIONAL BOND FUND, INC. (formerly, The Global Government Plus
Fund, Inc.)
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund attempts to achieve its
objective by investing at least 65% of its total assets in debt securities of
issuers located in at least three countries, excluding the United States (except
in periods of market weakness). The Fund invests in foreign debt securities
issued by foreign corporate issuers as well as securities issued or guaranteed
by foreign governments, semi-governmental entities, governmental agencies,
supranational entities and other governmental entities.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
THE GLOBAL TOTAL RETURN FUND, INC.
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund attempts to achieve its
objective by investing, under normal circumstances, at least 65% of its total
assets in governmental (including supranational), semi-governmental or
government agency debt securities or in short-term bank debt securities or
deposits in the United States and in foreign countries denominated in US dollars
or in foreign currencies, including debt securities issued or guaranteed by the
US Government and foreign governments, their agencies, authorities or
instrumentalities. The remainder is generally invested in corporate debt
securities or longer term bank debt securities.
The Fund will invest primarily in investment grade securities or in non-rated
securities determined by the Fund's investment adviser to be of equivalent
quality. The Fund may invest up to 10% of its total assets in debt securities
rated below investment grade, with a minimum rating of B, by either S&P or
Moody's or by another NRSRO, or, if unrated, are deemed to be of equivalent
quality by the investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
41
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
The Fund's objective is to seek to maximize total return, the components of
which are current income and capital appreciation. The Fund will attempt to
achieve its objective by investing primarily in obligations issued or guaranteed
by the US Government, its agencies, authorities or instrumentalities and in
obligations issued or guaranteed by certain foreign governments,
quasi-governmental entities, governmental agencies, supranational entities or
any of their political subdivisions or instrumentalities. The Fund will invest
primarily in investment grade securities or in non-rated securities determined
by the Fund's investment adviser to be of equivalent quality. The Fund may
invest up to 10% of its total assets in debt securities rated below investment
grade, with a minimum rating of B, by either S&P or Moody's or by another NRSRO,
or if unrated, are deemed to be of equivalent quality by the investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
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 US 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 investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
PRICOA WORLDWIDE INVESTORS PORTFOLIO, GLOBAL BOND FUND
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund seeks to achieve its
investment objective by investing primarily in investment grade bonds issued by
governments and corporations with varying maturities. It may also have limited
exposure to non-investment grade issues from emerging markets.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus as amended from time to time.
PRICOA WORLDWIDE INVESTORS PORTFOLIO, EUROPEAN GROWTH FUND
42
<PAGE>
The Fund's investment objective is long-term growth of capital through
investment in a portfolio of transferable equity and debt securities of
companies domiciled in Europe.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus amended from time to time.
PRICOA MONEY MARKET PORTFOLIO
The Fund's investment objective is to provide the highest level of current
income in each designated currency consistent with safety of principal. Each
Series seeks to achieve this objective by investing in a portfolio of high
quality money market instruments and short-term debt obligations having a
maturity of one year or less denominated (1) in the designated currency of the
Series or (2) in US dollars (or other currencies) in combination with forward
currency exchange contracts to purchase matching amounts of the designated
currency.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's offering circular as amended from time to time.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
The Fund's investment objective is long-term growth of capital. The Fund seeks
to achieve its investment objective by investing primarily in common stocks,
common stock equivalents (such as warrants and convertible debt securities) and
other equity securities (including preferred stocks) of smaller foreign and
domestic companies. Under normal circumstances, the Fund will invest 65% of its
total assets in such securities.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
PRUDENTIAL EUROPE GROWTH FUND, INC.
The Fund's investment objective is to seek long-term growth of capital. The Fund
attempts to achieve this objective by investing primarily in equity securities
(common stock, securities convertible into common stock and preferred stock) of
companies domiciled in Europe.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
The investment guidelines for the remaining funds are as follows:
PRUDENTIAL GENERAL ACCOUNT
EUROPEAN PORTION OF THE SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
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2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to $1.5 billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO). Foreign currency futures and options contracts can
only be employed to hedge underlying currency exposure (i.e., up to but not
more than 100% of underlying exposure to a foreign currency as measured by
the value of cash plus securities held in that foreign currency).
EUROPEAN SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to $1.5 billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during portfolio building.
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7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO). Foreign currency futures and options contracts can
only be employed to hedge underlying currency exposure (i.e., up to but not
more than 100% of underlying exposure to a foreign currency as measured by
the value of cash plus securities held in that foreign currency).
EUROPEAN LARGE CAP ACCOUNT
1. Investments will be composed primarily of publicly traded securities of
companies headquartered in European countries, the majority of which would
also be included in the MSCI European Index.
2. The portfolio will consist of no fewer than 25 securities, and no single
security will represent more than 10% of the portfolio at the time of
purchase.
3. The portfolio will not purchase more than 10% of the issued capital of any
one company.
4. Investments in cash and related instruments, except during the initial
portfolio building period, will not exceed 15% of the portfolio.
5. The portfolio may use futures contracts, forward contracts, options and
derivatives related to the underlying stock or foreign exchange markets of
the countries in which they are invested, provided such instruments are used
in bona fide hedging transactions.
6. Additional policies and guidelines will be established by the Portfolio
Management Group.
EUROPEAN PORTION OF THE GLOBAL SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to $1.5 billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
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6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO). Foreign currency futures and options contracts can
only be employed to hedge underlying currency exposure (i.e., up to but not
more than 100% of underlying exposure to a foreign currency as measured by
the value of cash plus securities held in that foreign currency).
PRUDENTIAL GROUP TRUST ACCOUNT (PRU PLAN)
EUROPEAN PORTION OF THE INTERNATIONAL LARGE CAP ACCOUNT
1. The investment objective will be long term capital appreciation through
investment in a broadly diversified portfolio from outside the United
States. The portfolio will be measured against the Morgan Stanley
International "EAFE" Index.
2. Investments will be composed primarily of securities publicly traded in
Europe.
3. Portfolio will be invested primarily (75%) in securities of large
capitalization companies (greater than $1.5 billion).
4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 15% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO).
EUROPEAN PORTION OF THE INTERNATIONAL SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Portfolio will be primarily (70%) in securities of small capitalization
companies.(Stocks which primarily make up the lowest 20 percent of the total
market capitalization of $30 million to$1.5 billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
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4. No more than 10% of the portfolio will be invested in any one company at the
time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 15% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO).
TOLI GLOBAL- ROCHE RETIREE WELFARE INVESTMENT TRUST (EUROPEAN PORTION OF THE
GLOBAL ACCOUNT)
1. Investment will be composed primarily of securities publicly traded
represented in the EMI as well as the stock exchanges of Mexico, Thailand,
Indonesia, Philippines, Taiwan, and South Korea, as well as options and
futures contracts related to those securities and convertible bonds of small
capitalization companies. No options, futures, or other derivatives will add
any leverage to the portfolio. Investment may also be made in cash or in the
equivalents of cash or in any commingled money market account maintained by
Prudential.
2. Investments will be targeted primarily (i.e. a minimum of 70% of the
invested portion of the portfolio) in securities of companies which meet
Global Equities definition of small capitalization companies. Throughout the
world, Global Equities uses the largest market cap of the stocks in lowest
20% of the market capitalization, within the U. S. markets as its upper
capitalization limit (currently $1.5 billion), except in Japan where Global
Equities applies the 20% test separately due to currency fluctuations. (In
Japan, the upper limit is currently $1.5 billion). The majority of
investments to be in the stocks with market capitalization less than $750
million. Stocks which are included in the portfolio not meeting the cap size
definition should normally be ones which are constituents of the EMI, except
for Southeast Asia where larger traded stocks may be used.
3. No more than 7% of any regional sub-portfolio will be invested in any one
company at the time of purchase; no more than 3% of the total global
portfolio will be so invested.
4. The portfolio will not purchase more than 10% of the issued capital of any
one company. The regional portfolios are generally kept diversified in 30 to
60 names. Industry weights are determined on a bottom up basis but monitored
at the portfolio level and may cut back to limit potential sector risk.
5. Investments in cash and related instruments will not exceed 17% of the
portfolio, except during initial building.
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6. Currency hedging will be allowed, although it is not anticipated that Global
Equities will employ an active currency overlay program. Any currency
hedging must be covered by an underlying cash/stock position.
7. Within the global portfolio, none of the four regions (Japan, Southeast
Asia, Europe, or North America) will be weighted at time of purchase (or
allocation shift) by more than 12% of the benchmark weight or less than 12%
of the benchmark weight. This 12% guideline will also apply to country
weights within each regional sub-portfolio.
GENERAL
SUBJECT TO THE INVESTMENT GUIDELINES FOR THE CLIENT ACCOUNTS DESCRIBED HEREIN OR
AS SUBSEQUENTLY NOTIFIED TO SUB-INVESTMENT MANAGER IN WRITING:
1. The Client Accounts may contain securities which are or were the subject of
a relevant offer or issue, whether at the time Sub-Investment Manager
acquires them on behalf of Investment Manager, within a period of 12 months
preceding that or otherwise. For the purpose of this paragraph, a "relevant
offer or issue" is an offer or issue of any securities (whether or not those
securities are to be listed on the London Stock Exchange or any other
recognized or designated investment exchange) which is or was sponsored,
underwritten, managed or arranged, or in connection with which other
services were provided, by Sub-Investment Manager or a connected person.
2. Sub-Investment Manager may not commit Investment Manager to any obligation
to underwrite any issue or offer for sale of securities.
3. Sub-Investment Manager may, on behalf of Investment Manager, acquire or
dispose of units in a regulated collective investment scheme, whether or not
operated, managed or advised by Sub-Investment Manager or a connected
person.
4. Sub-Investment Manager may enter into repo or reverse repo transactions but
may not otherwise lend or borrow securities for any purpose.
5. Sub-Investment Manager is authorized by Investment Manager to deal in
warrants, options (including traded options) futures or contracts for
differences on behalf of Investment Manager (provided they are investments
as defined herein). The limits on margins will vary as between the Client
Accounts as set out in Schedule B above and the Prospectuses and Statements
of Additional Information mentioned therein.
6. Where the requisite currency of settlement is not the Client Accounts
Currency Sub-Investment Manager shall be entitled to use spot or forward
foreign exchange contracts (and accordingly enter into them on Investment
Manager's behalf) to fund the acquisition of spot or forward investments or
dispose of sale proceeds in a foreign currency.
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Notwithstanding Sub-Investment Manager's right to do this, Investment
Manager accepts that if a liability in one currency is matched by an asset
in a different currency, or if any investment acquired or sold hereunder is
denominated or paid for in a currency other than the Client Accounts
Currency, a movement of exchange rates may be unfavorable rather than
favorable, on the gain or loss otherwise experienced on the investment.
49
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
DISTRIBUTION AGREEMENT
Agreement made as of June 1, 1998, between Prudential Global
Limited Maturity Fund, Inc. (the Fund), and Prudential Investment Management
Services LLC, a Delaware limited liability company (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the Investment Company Act), as a non-diversified,
open-end, management investment company and it is in the interest of the Fund to
offer its shares for sale continuously;
WHEREAS, the shares of the Fund may be divided into classes
and/or series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer Class A, Class B, Class C and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended, and is engaged in the business
of selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other, with respect to the continuous offering of the Fund's
Shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Shares; and
WHEREAS, the Fund has adopted a plan (or plans) of
distribution pursuant to Rule 12b-1 under the Investment Company Act with
respect to certain of its classes and/or series of Shares (the Plans)
authorizing payments by the Fund to the Distributor with respect to the
distribution of such classes and/or series of Shares and the maintenance of
related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Shares of the Fund to sell Shares to the
public on behalf of the Fund and the Distributor hereby accepts such appointment
and agrees to act hereunder. The Fund hereby agrees during the term of this
Agreement to sell Shares of the Fund through the Distributor on the terms and
conditions set forth below.
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the
Fund to act as principal underwriter and distributor of the Fund's Shares,
except that:
2.1 The exclusive rights granted to the Distributor to sell
Shares of the Fund shall not apply to Shares of the Fund issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of all
(or substantially all) the assets or the outstanding shares of any such company
by the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions or
through the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made
through the Fund's transfer and dividend disbursing agent in the manner set
forth in the currently effective Prospectus of the Fund. The term "Prospectus"
shall mean the Prospectus and Statement of Additional Information included as
part of the Fund's Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to time, and the
term "Registration Statement" shall mean the Registration Statement filed by the
Fund with the Securities and Exchange Commission and effective under the
Securities Act of 1933, as amended (Securities Act), and the Investment Company
Act, as such Registration Statement is amended from time to time.
Section 3. PURCHASE OF SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund
on behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of
the Fund and delivered by the Distributor or selected dealers, as described in
Section 6.4 hereof, to investors at the offering price as set forth in the
Prospectus.
3.3 The Fund shall have the right to suspend the sale of any
or all classes and/or series of its Shares at times when redemption is suspended
pursuant to
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<PAGE>
the conditions in Section 4.3 hereof or at such other times as may be determined
by the Board. The Fund shall also have the right to suspend the sale of any or
all classes and/or series of its Shares if a banking moratorium shall have been
declared by federal or New Jersey authorities.
3.4 The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for Shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Shares. The Fund (or its agent)
will confirm orders upon their receipt, will make appropriate book entries and
upon receipt by the Fund (or its agent) of payment therefor, will deliver
deposit receipts for such Shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF SHARES BY THE FUND
4.1 Any of the outstanding Shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Shares
so tendered in accordance with its Declaration of Trust as amended from time to
time, and in accordance with the applicable provisions of the Prospectus. The
price to be paid to redeem or repurchase the Shares shall be equal to the net
asset value determined as set forth in the Prospectus. All payments by the Fund
hereunder shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption
price as defined in the above paragraph pursuant to the instructions of the
Distributor on or before the seventh day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Shares
shall be paid by the Fund as follows: (i) in the case of Shares subject to a
contingent deferred sales charge, any applicable contingent deferred sales
charge shall be paid to the Distributor, and the balance shall be paid to or for
the account of the redeeming shareholder, in each case in accordance with
applicable provisions of the Prospectus; and (ii) in the case of all other
Shares, proceeds shall be paid to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions of the
Prospectus.
4.3 Redemption of any class and/or series of Shares or payment
may be suspended at times when the New York Stock Exchange is closed for other
than customary weekends and holidays, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange Commission, by order,
so permits.
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<PAGE>
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Shares
as provided herein, the Fund agrees to sell its Shares so long as it has Shares
of the respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Shares, and
this shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board and the shareholders, all necessary action to
fix the number of authorized shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to notify such states
as the Distributor and the Fund may approve of its intention to sell any
appropriate number of its Shares; provided that the Fund shall not be required
to amend its Articles of Incorporation or By-Laws to comply with the laws of any
state, to maintain an office in any state, to change the terms of the offering
of its Shares in any state from the terms set forth in its Registration
Statement, to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims arising out of
the offering of its Shares. Any such notification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As provided in Section 9
hereof, the expense of notification and maintenance of notification shall be
borne by the Fund. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such notifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to
effect sales of Shares, but shall not be obligated to sell any specific number
of Shares. Sales of the Shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with other
investment companies. The Distributor shall compensate the selected dealers as
set forth in the Prospectus.
6.2 In selling the Shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of Securities Exchange Act Rule 10b-10 and the rules of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities dealers and
other financial institutions of its choice for the sale of Shares, provided that
the Fund shall approve the forms of such agreements. Within the United States,
the Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD or are institutions exempt from
registration under applicable federal securities laws. Shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
7.1 With respect to classes and/or series of Shares which
impose a front-end sales charge, the Distributor shall receive and may retain
any portion of any front-end sales charge which is imposed on such sales and not
reallocated to selected dealers as set forth in the Prospectus, subject to the
limitations of Rule 2830 of the Conduct Rules of the NASD. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of any applicable Plans.
7.2 With respect to classes and/or series of Shares which
impose a contingent deferred sales charge, the Distributor shall receive and may
retain any contingent deferred sales charge which is imposed on such sales as
set forth in the Prospectus, subject to the limitations of Rule 2830 of the
Conduct Rules of the NASD.
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<PAGE>
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of any Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under any Plans adopted by the Fund and this Agreement a distribution
and service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of the commissions and account servicing
fees with respect to the relevant class and/or series of Shares to be paid by
the Distributor to account executives of the Distributor and to broker-dealers,
financial institutions and investment advisers which have dealer agreements with
the Distributor. So long as a Plan (or any amendment thereto) is in effect, at
the request of the Board or any agent or representative of the Fund, the
Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. ALLOCATION OF EXPENSES
The Fund shall bear all costs and expenses of the continuous
offering of its Shares (except for those costs and expenses borne by the
Distributor pursuant to a Plan and subject to the requirements of Rule 12b-1
under the Investment Company Act), including fees and disbursements of its
counsel and auditors, in connection with the preparation and filing of any
required Registration Statements and/or Prospectuses under the Investment
Company Act or the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and periodic reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
such Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of making notice
filings for the Shares for sale, and, if necessary or advisable in connection
therewith, of qualifying the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing notification therein until the Fund decides to
discontinue such notification pursuant to Section 5.4 hereof. As set forth in
Section 8 above, the Fund shall also bear the expenses it assumes pursuant to
any Plan, so long as such Plan is in effect.
6
<PAGE>
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any reasonable counsel fees incurred in connection therewith)
which the Distributor, its officers, members or any such controlling person may
incur under the Securities Act, or under common law or otherwise, arising out of
or based upon any untrue statement of a material fact contained in the
Registration Statement or Prospectus or arising out of or based upon any alleged
omission to state a material fact required to be stated in either thereof or
necessary to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out of or are
based upon any such untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished by
the Distributor to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to the benefit
of any such officer, member or controlling person unless a court of competent
jurisdiction shall determine in a final decision on the merits, that the person
to be indemnified was not liable by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement (disabling conduct), or, in
the absence of such a decision, a reasonable determination, based upon a review
of the facts, that the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of Directors or Directors who
are neither "interested persons" of the Fund as defined in Section 2(a)(19) of
the Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and members and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or members, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue and
sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the
Fund, its officers and Directors and any person who controls the Fund, if any,
within the meaning of Section 15 of the Securities Act, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and directors or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its
7
<PAGE>
Directors or officers or such controlling person may incur under the Securities
Act or under common law or otherwise, but only to the extent that such liability
or expense incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or be based upon
any alleged untrue statement of a material fact contained in information
furnished by the Distributor to the Fund for use in the Registration Statement
or Prospectus or shall arise out of or be based upon any alleged omission to
state a material fact in connection with such information required to be stated
in the Registration Statement or Prospectus or necessary to make such
information not misleading. The Distributor's agreement to indemnify the Fund,
its officers and Directors and any such controlling person as aforesaid, is
expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and directors or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from the date hereof
and thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of the Fund, or by the vote of a majority of the
outstanding voting securities of the applicable class and/or series of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of any of the
Fund's Plans or in any agreement related thereto (Independent Directors), cast
in person at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the independent Directors or by vote of
a majority of the outstanding voting securities of the applicable class and/or
series of the Fund, or by the Distributor, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
11.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities", when used
in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of the Fund, or by the vote
of a majority of the outstanding voting securities of the applicable class
and/or series of the Fund, and (b)
8
<PAGE>
by the vote of a majority of the independent Directors cast in person at a
meeting called for the purpose of voting on such amendment.
Section 13. SEPARATE AGREEMENT AS TO CLASSES AND/OR SERIES
The amendment or termination of this Agreement with respect to
any class and/or series shall not result in the amendment or termination of this
Agreement with respect to any other class and/or series unless explicitly so
provided.
Section 14. GOVERNING LAW
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New Jersey as at the
time in effect and the applicable provisions of the Investment Company Act. To
the extent that the applicable law of the State of New Jersey, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Investment Management Services LLC
By: /S/ BRIAN M. STORMS
-------------------
Brian M. Storms
Executive Vice President
Prudential Global Limited Maturity Fund, Inc.
By: /S/ ROBERT F. GUNIA
-------------------
Robert F. Gunia
Vice President
9
DEALER AGREEMENT
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
Prudential Investment Management Services LLC ("Distributor") and
_________________ ("Dealer") have agreed that Dealer will participate in the
distribution of shares ("Shares") of all the funds and series thereof (as they
may exist from time to time) comprising the Prudential Mutual Fund Family (each
a "Fund" and collectively the "Funds") and any classes thereof for which
Distributor now or in the future serves as principal underwriter and
distributor, subject to the terms of this Dealer Agreement ("Agreement"). Any
such additional Funds will be included in this Agreement upon Distributor's
written notification to Dealer.
1. LICENSING
a. Dealer represents and warrants that it is: (i) a
broker-dealer registered with the Securities and Exchange Commission ("SEC");
(ii) a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD"); and (iii) licensed by the appropriate regulatory agency
of each state or other jurisdiction in which Dealer will offer and sell Shares
of the Funds, to the extent necessary to perform the duties and activities
contemplated by this Agreement.
b. Dealer represents and warrants that each of its partners,
directors, officers, employees, and agents who will be utilized by Dealer with
respect to its duties and activities under this Agreement is either
appropriately licensed or exempt from such licensing requirements by the
appropriate regulatory agency of each state or other jurisdiction in which
Dealer will offer and sell Shares of the Funds.
c. Dealer agrees that: (i) termination or suspension of its
registration with the SEC; (ii) termination or suspension of its membership with
the NASD; or (iii) termination or suspension of its license to do business by
any state or other jurisdiction or federal regulatory agency shall immediately
cause the termination of this Agreement. Dealer further agrees to immediately
notify Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects
subject to the Conduct Rules of the NASD and such Conduct Rules shall control
any provision to the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all
applicable state and federal laws and all rules and regulations promulgated
thereunder generally affecting the sale or distribution of mutual fund shares.
2. ORDERS
a. Dealer agrees to offer and sell Shares of the Funds
(including those of each of its classes) only at the regular public offering
price applicable to such Shares and in effect at the time of each transaction.
The procedures relating to all orders and the handling of each order
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(including the manner of computing the net asset value of Shares and the
effective time of orders received from Dealer) are subject to: (i) the terms of
the then current prospectus and statement of additional information (including
any supplements, stickers or amendments thereto) relating to each Fund, as filed
with the SEC ("Prospectus"); (ii) the new account application for each Fund, as
supplemented or amended from time to time; and (iii) Distributor's written
instructions and multiple class pricing procedures and guidelines, as provided
to Dealer from time to time. To the extent that the Prospectus contains
provisions that are inconsistent with this Agreement or any other document, the
terms of the Prospectus shall be controlling.
b. Distributor reserves the right at any time, and without
notice to Dealer, to suspend the sale of Shares or to withdraw or limit the
offering of Shares. Distributor reserves the unqualified right not to accept any
specific order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer
is not authorized to act as broker or agent for, or employee of, Distributor,
any Fund or any other dealer, and Dealer shall not in any manner represent to
any third party that Dealer has such authority or is acting in such capacity.
Rather, Dealer agrees that it is acting as principal for Dealer's own account or
as agent on behalf of Dealer's customers in all transactions in Shares, except
as provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.
d. All orders are subject to acceptance by Distributor in its
sole discretion and become effective only upon confirmation by Distributor.
e. Distributor agrees that it will accept from Dealer orders
placed through a remote terminal or otherwise electronically transmitted via the
National Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate documentation thereof and agreements
relating thereto are executed by both parties to this Agreement, including in
particular the standard NSCC Networking Agreement and any other related
agreements between Distributor and Dealer deemed appropriate by Distributor, and
that all accounts opened or maintained pursuant to that program will be governed
by applicable NSCC rules and procedures. Both parties further agree that, if the
NSCC Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.
3. DUTIES OF DEALER
a. Dealer agrees to purchase Shares only from Distributor or
from Dealer's customers.
b. Dealer agrees to enter orders for the purchase of Shares
only from Distributor and only for the purpose of covering purchase orders
Dealer has already received from its customers or for Dealer's own bona fide
investment.
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c. Dealer agrees to date and time stamp all orders received by
Dealer and promptly, upon receipt of any and all orders, to transmit to
Distributor all orders received prior to the time described in the Prospectus
for the calculation of each Fund's net asset value so as to permit Distributor
to process all orders at the price next determined after receipt by Dealer, in
accordance with the Prospectus. Dealer agrees not to withhold placing orders for
Shares with Distributor so as to profit itself as a result of such inaction.
d. Dealer agrees to maintain records of all purchases and
sales of Shares made through Dealer and to furnish Distributor or regulatory
authorities with copies of such records upon request. In that regard, Dealer
agrees that, unless Dealer holds Shares as nominee for its customers or
participates in the NSCC Fund/Serv Networking program, at certain matrix levels,
it will provide Distributor with all necessary information to comply properly
with all federal, state and local reporting requirements and backup and
nonresident alien withholding requirements for its customer accounts including,
without limitation, those requirements that apply by treating Shares issued by
the Funds as readily tradable instruments. Dealer represents and agrees that all
Taxpayer Identification Numbers ("TINs") provided are certified, and that no
account that requires a certified TIN will be established without such certified
TIN. With respect to all other accounts, including Shares held by Dealer in
omnibus accounts and Shares purchased or sold through the NSCC Fund/Serv
Networking program, at certain matrix levels, Dealer agrees to perform all
federal, state and local tax reporting with respect to such accounts, including
without limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its
customers Prospectuses, proxy solicitation materials and related information and
proxy cards, semi-annual and annual shareholder reports and any other materials
in compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.
f. Dealer agrees that if any Share is repurchased by any Fund
or is tendered for redemption within seven (7) business days after confirmation
by Distributor of the original purchase order from Dealer, Dealer shall forfeit
its right to any concession or commission received by Dealer with respect to
such Share and shall forthwith refund to Distributor the full concession allowed
to Dealer or commission paid to Dealer on the original sale. Distributor agrees
to notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.
g. Dealer agrees that payment for Shares ordered from
Distributor shall be in Fed Funds, New York clearinghouse or other immediately
available funds and that such funds shall be received by Distributor by the
earlier of: (i) the end of the third (3rd) business day following Dealer's
receipt of the customer's order to purchase such Shares; or (ii) the settlement
date established in accordance with Rule 15c6-1 under the Securities Exchange
Act of 1934, as amended. If such payment is not received by Distributor by such
date, Dealer shall forfeit its right to any concession or commission with
respect to such order, and Distributor reserves the right, without notice,
forthwith to cancel the sale, or, at its option, to sell the Shares ordered back
to the Fund, in which case Distributor may hold Dealer responsible for any loss,
including loss of profit, suffered by Distributor resulting from Dealer's
failure to make payment as aforesaid. If a purchase is made by check, the
purchase is deemed made upon conversion of the purchase instrument into Fed
Funds, New York clearinghouse or other immediately available funds.
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h. Dealer agrees that it: (i) shall assume responsibility for
any loss to the Fund caused by a correction to any order placed by Dealer that
is made subsequent to the trade date for the order, provided such order
correction was not based on any negligence on Distributor's part; and (ii) will
immediately pay such loss to the Fund upon notification.
i. Dealer agrees that in connection with orders for the
purchase of Shares on behalf of any IRAs, 401(k) plans or other retirement plan
accounts, by mail, telephone, or wire, Dealer shall act as agent for the
custodian or trustee of such plans (solely with respect to the time of receipt
of the application and payments), and Dealer shall not place such an order with
Distributor until it has received from its customer payment for such purchase
and, if such purchase represents the first contribution to such a retirement
plan account, the completed documents necessary to establish the retirement
plan. Dealer agrees to indemnify Distributor and its affiliates for any claim,
loss, or liability resulting from incorrect investment instructions received by
Distributor from Dealer.
j. Dealer agrees that it will not make any conditional orders
for the purchase or redemption of Shares and acknowledges that Distributor will
not accept conditional orders for Shares.
k. Dealer agrees that all out-of-pocket expenses incurred by
it in connection with its activities under this Agreement will be borne by
Dealer.
l. Dealer agrees that it will keep in force appropriate
broker's blanket bond insurance policies covering any and all acts of Dealer's
partners, directors, officers, employees, and agents adequate to reasonably
protect and indemnify the Distributor and the Funds against any loss which any
party may suffer or incur, directly or indirectly, as a result of any action by
Dealer or Dealer's partners, directors, officers, employees, and agents.
m. Dealer agrees that it will maintain the required net
capital as specified by the rules and regulations of the SEC, NASD and other
regulatory authorities.
4. DEALER COMPENSATION
a. On each purchase of Shares by Dealer from Distributor, the
total sales charges and dealer concessions or commissions, if any, payable to
Dealer shall be as stated on Schedule A to this Agreement, which may be amended
by Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such dealer concession or commissions by
amendment, sticker or supplement to the then current Prospectus for each Fund.
Such sales charges and dealer concessions or commissions, are subject to
reduction under a variety of circumstances as described in each Fund's then
current Prospectus. For an investor to obtain any reduction, Distributor must be
notified at the time of the sale that the sale qualifies for the reduced sales
charge. If Dealer fails to notify Distributor of the applicability of a
reduction in the sales charge at the time the trade is placed, neither
Distributor nor any Fund will be liable for amounts necessary to reimburse any
investor for the reduction that should have been effected. Dealer acknowledges
that no sales charge or concession or commission will be paid to Dealer on the
reinvestment of dividends or capital gains reinvestment or on Shares acquired in
exchange for
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Shares of another Fund, or class thereof, having the same sales charge structure
as the Fund, or class thereof, from which the exchange was made, in accordance
with the Prospectus.
b. In accordance with the Funds' Prospectuses, Distributor or
any affiliate may, but is not obligated to, make payments to dealers from
Distributor's own resources as compensation for certain sales that are made at
net asset value ("Qualifying Sales"). If Dealer notifies Distributor of a
Qualifying Sale, Distributor may make a contingent advance payment up to the
maximum amount available for payment on the sale. If any of the Shares purchased
in a Qualifying Sale are redeemed within twelve (12) months of the end of the
month of purchase, Distributor shall be entitled to recover any advance payment
attributable to the redeemed Shares by reducing any account payable or other
monetary obligation Distributor may owe to Dealer or by making demand upon
Dealer for repayment in cash. Distributor reserves the right to withhold
advances to Dealer, if for any reason Distributor believes that it may not be
able to recover unearned advances from Dealer.
c. With respect to any Fund that offers Shares for which
distribution plans have been adopted under Rule 12b-1 under the Investment
Company Act of 1940, as amended ("Rule 12b-1 Plans"), Distributor also is
authorized to pay the Dealer continuing distribution and/or service fees, as
specified in Schedule A and the relevant Fund Prospectus, with respect to Shares
of any such Fund, to the extent that Dealer provides distribution, marketing,
administrative and other services and activities regarding the promotion of such
Shares and the maintenance of related shareholder accounts.
d. In connection with the receipt of distribution fees and/or
service fees under Rule 12b-1 Plans applicable to Shares purchased by Dealer's
customers, Distributor directs Dealer to provide enhanced shareholder services
such as: processing purchase and redemption transactions; establishing
shareholder accounts; and providing certain information and assistance with
respect to the Funds. (Redemption levels of shareholder accounts assigned to
Dealer will be considered in evaluating Dealer's continued ability to receive
payments of distribution and/or service fees.) In addition, Dealer agrees to
support Distributor's marketing efforts by, among other things, granting
reasonable requests for visits to Dealer's office by Distributor's wholesalers
and marketing representatives, including all Funds covered by a Rule 12b-1 Plan
on Dealer's "approved," "preferred" or other similar product lists, if
applicable, and otherwise providing satisfactory product, marketing and sales
support. Further, Dealer agrees to provide Distributor with supporting
documentation concerning the shareholder services provided, as Distributor may
reasonably request from time to time.
e. All Rule 12b-1 Plan distribution and/or servicing fees
shall be based on the value of Shares attributable to Dealer's customers and
eligible for such payment, and shall be calculated on the basis of and at the
rates set forth in the compensation schedule then in effect. Without prior
approval by a majority of the outstanding shares of a Fund, the aggregate annual
fees paid to Dealer pursuant to any Rule 12b-1 Plan shall not exceed the amounts
stated as the "annual maximums" in each Fund's Prospectus, which amount shall be
a specified percent of the value of the Fund's net assets held in Dealer's
customers' accounts that are eligible for payment pursuant to the Rule 12b-1
Plans (determined in the same manner as each Fund uses to compute its net assets
as set forth in its then current Prospectus).
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<PAGE>
f. The provisions of any Rule 12b-1 Plan between the Funds and
the Distributor shall control over this Agreement in the event of any
inconsistency. Each Rule 12b-1 Plan in effect on the date of this Agreement is
described in the relevant Fund's Prospectus. Dealer hereby acknowledges that all
payments under Rule 12b-1 Plans are subject to limitations contained in such
Rule 12b-1 Plans and may be varied or discontinued at any time.
5. REDEMPTIONS, REPURCHASES AND EXCHANGES
a. The Prospectus for each Fund describes the provisions
whereby the Fund, under all ordinary circumstances, will redeem Shares held by
shareholders on demand. Dealer agrees that it will not make any representations
to shareholders relating to the redemption of their Shares other than the
statements contained in the Prospectus and the underlying organizational
documents of the Fund, to which it refers, and that Dealer will pay as
redemption proceeds to shareholders the net asset value, minus any applicable
deferred sales charge or redemption fee, determined after receipt of the order
as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its
customers at a price below that next quoted by the Fund for redemption or
repurchase, I.E., at the net asset value of such Shares, less any applicable
deferred sales charge, or redemption fee, in accordance with the Fund's
Prospectus. Dealer shall, however, be permitted to sell Shares for the account
of the customer or record owner to the Funds at the repurchase price then
currently in effect for such Shares and may charge the customer or record owner
a fair service fee or commission for handling the transaction, provided Dealer
discloses the fee or commission to the customer or record owner. Nevertheless,
Dealer agrees that it shall not under any circumstances maintain a secondary
market in such repurchased Shares.
c. Dealer agrees that, with respect to a redemption order it
has made, if instructions in proper form, including any outstanding
certificates, are not received by Distributor within the time customary or the
time required by law, the redemption may be canceled forthwith without any
responsibility or liability on Distributor's part or on the part of any Fund, or
Distributor, at its option, may buy the shares redeemed on behalf of the Fund,
in which latter case Distributor may hold Dealer responsible for any loss,
including loss of profit, suffered by Distributor resulting from Distributor's
failure to settle the redemption.
d. Dealer agrees that it will comply with any restrictions and
limitations on exchanges described in each Fund's Prospectus, including any
restrictions or prohibitions relating to frequent purchases and redemptions
(i.e., market timing).
6. MULTIPLE CLASSES OF SHARES
Distributor may, from time to time, provide Dealer with
written guidelines or standards relating to the sale or distribution of Funds
offering multiple classes of Shares with different sales charges and
distribution-related operating expenses.
7. FUND INFORMATION
a. Dealer agrees that neither it nor any of its partners,
directors, officers, employees, and agents is authorized to give any information
or make any representations
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concerning Shares of any Fund except those contained in the Fund's then current
Prospectus or in materials provided by Distributor.
b. Distributor will supply to Dealer Prospectuses, reasonable
quantities of sales literature, sales bulletins, and additional sales
information as provided by Distributor. Dealer agrees to use only advertising or
sales material relating to the Funds that: (i) is supplied by Distributor, or
(ii) conforms to the requirements of all applicable laws or regulations of any
government or authorized agency having jurisdiction over the offering or sale of
Shares of the Funds and is approved in writing by Distributor in advance of its
use. Such approval may be withdrawn by Distributor in whole or in part upon
written notice to Dealer, and Dealer shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales bulletins and
advertising. Dealer is not authorized to modify or translate any such materials
without Distributor's prior written consent.
8. SHARES
a. Distributor acts solely as agent for the Fund and
Distributor shall have no obligation or responsibility with respect to Dealer's
right to purchase or sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with
information identifying the states or jurisdictions in which it is believed that
all necessary notice, registration or exemptive filings for Shares have been
made under applicable securities laws such that offers and sales of Shares may
be made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.
c. Dealer agrees not to transact orders for Shares in states
or jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws
regulating the sale of securities in the United States or any foreign
jurisdiction, with respect to the qualification or status of Dealer or Dealer's
personnel selling Fund Shares. Distributor shall not, in any event, be liable or
responsible for the issue, form, validity, enforceability and value of such
Shares or for any matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of
Shares in any foreign jurisdiction, except with the express written consent of
Distributor.
9. INDEMNIFICATION
a. Dealer agrees to indemnify, defend and hold harmless
Distributor and the Funds and their predecessors, successors, and affiliates,
each current or former partner, officer, director, employee, shareholder or
agent and each person who controls or is controlled by Distributor from any and
all losses, claims, liabilities, costs, and expenses, including attorney fees,
that may be assessed against or suffered or incurred by any of them howsoever
they arise, and as they are incurred, which relate in any way to: (i) any
alleged violation of any statute or regulation (including without limitation the
securities laws and regulations of the United States or any state
A-7
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or foreign country) or any alleged tort or breach of contract, related to the
offer or sale by Dealer of Shares of the Funds pursuant to this Agreement
(except to the extent that Distributor's negligence or failure to follow correct
instructions received from Dealer is the cause of such loss, claim, liability,
cost or expense); (ii) any redemption or exchange pursuant to instructions
received from Dealer or its partners, affiliates, officers, directors, employees
or agents; or (iii) the breach by Dealer of any of its representations and
warranties specified herein or the Dealer's failure to comply with the terms and
conditions of this Agreement, whether or not such action, failure, error,
omission, misconduct or breach is committed by Dealer or its predecessor,
successor, or affiliate, each current or former partner, officer, director,
employee or agent and each person who controls or is controlled by Dealer.
b. Distributor agrees to indemnify, defend and hold harmless
Dealer and its predecessors, successors and affiliates, each current or former
partner, officer, director, employee or agent, and each person who controls or
is controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any written
sales literature or other marketing materials provided by the Distributor to the
Dealer, required to be stated therein or necessary to make the statements
therein not misleading.
c. Dealer agrees to notify Distributor, within a reasonable
time, of any claim or complaint or any enforcement action or other proceeding
with respect to Shares offered hereunder against Dealer or its partners,
affiliates, officers, directors, employees or agents, or any person who controls
Dealer, within the meaning of Section 15 of the Securities Act of 1933, as
amended.
d. Dealer further agrees promptly to send Distributor copies
of (i) any report filed pursuant to NASD Conduct Rule 3070, including, without
limitation quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed
with any other self-regulatory organization in lieu of Rule 3070 reports
pursuant to Rule 3070(e) and (iii) amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification
provisions shall survive any termination of this Agreement.
10. TERMINATION; AMENDMENT
a. In addition to the automatic termination of this Agreement
specified in Section 1.c. of this Agreement, each party to this Agreement may
unilaterally cancel its participation in this Agreement by giving thirty (30)
days prior written notice to the other party. In addition, each party to this
Agreement may terminate this Agreement immediately by giving written notice to
the other party of that other party's material breach of this Agreement. Such
notice shall be deemed to have been given and to be effective on the date on
which it was either delivered personally to the other party or any officer or
member thereof, or was mailed postpaid or delivered to a telegraph office for
transmission to the other party's designated person at the addresses shown
herein or in the most recent NASD Manual.
b. This Agreement shall terminate immediately upon the
appointment of a Trustee under the Securities Investor Protection Act or any
other act of insolvency by Dealer.
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c. The termination of this Agreement by any of the foregoing
means shall have no effect upon transactions entered into prior to the effective
date of termination and shall not relieve Dealer of its obligations, duties and
indemnities specified in this Agreement. A trade placed by Dealer subsequent to
its voluntary termination of this Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary suspension of
Dealer, will only be effective upon written notification by Distributor.
d. This Agreement is not assignable or transferable and will
terminate automatically in the event of its "assignment," as defined in the
Investment Company Act of 1940, as amended and the rules, regulations and
interpretations thereunder. The Distributor may, however, transfer any of its
duties under this Agreement to any entity that controls or is under common
control with Distributor.
e. This Agreement may be amended by Distributor at any time by
written notice to Dealer. Dealer's placing of an order or accepting payment of
any kind after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.
11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
Distributor represents and warrants that:
a. It is a limited liability company duly organized and
existing and in good standing under the laws of the state of Delaware and is
duly registered or exempt from registration as a broker-dealer in all states and
jurisdictions in which it provides services as principal underwriter and
distributor for the Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's
charter and by-laws to enter into this Agreement and perform all activities and
services of the Distributor provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Distributor's ability to perform under this
Agreement.
d. All requisite actions have been taken to authorize
Distributor to enter into and perform this Agreement.
12. ADDITIONAL DEALER REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties found
elsewhere in this Agreement, Dealer represents and warrants that:
a. It is duly organized and existing and in good standing
under the laws of the state, commonwealth or other jurisdiction in which Dealer
is organized and that Dealer will not offer Shares of any Fund for sale in any
state or jurisdiction where such Shares may not be legally sold or where Dealer
is not qualified to act as a broker-dealer.
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b. It is empowered under applicable laws and by Dealer's
organizational documents to enter into this Agreement and perform all activities
and services of the Dealer provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Dealer's ability to perform under this
Agreement.
c. All requisite actions have been taken to authorize Dealer
to enter into and perform this Agreement.
d. It is not, at the time of the execution of this Agreement,
subject to any enforcement or other proceeding with respect to its activities
under state or federal securities laws, rules or regulations.
13. SETOFF; DISPUTE RESOLUTION; GOVERNING LAW
a. Should any of Dealer's concession accounts with Distributor
have a debit balance, Distributor shall be permitted to offset and recover the
amount owed from any other account Dealer has with Distributor, without notice
or demand to Dealer.
b. In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted to binding
arbitration under the commercial arbitration rules and procedures of the NASD.
The parties agree that, to the extent permitted under such arbitration rules and
procedures, the arbitrators selected shall be from the securities industry.
Judgment upon any arbitration award may be entered by any state or federal court
having jurisdiction.
c. This Agreement shall be governed and construed in
accordance with the laws of the state of New Jersey, not including any provision
which would require the general application of the law of another jurisdiction.
14. INVESTIGATIONS AND PROCEEDINGS
The parties to this Agreement agree to cooperate fully in any
securities regulatory investigation or proceeding or judicial proceeding with
respect to each's activities under this Agreement and promptly to notify the
other party of any such investigation or proceeding.
15. CAPTIONS
All captions used in this Agreement are for convenience only,
are not a party hereof, and are not to be used in construing or interpreting any
aspect hereof.
16. ENTIRE UNDERSTANDING
This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter contained herein and
supersedes all previous agreements. This Agreement shall be binding upon the
parties hereto when signed by Dealer and accepted by Distributor.
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17. SEVERABILITY
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law.
If, however, any provision of this Agreement is held under applicable law to be
invalid, illegal, or unenforceable in any respect, such provision shall be
ineffective only to the extent of such invalidity, and the validity, legality
and enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any way.
18. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter contained herein and
supersedes all previous agreements and/or understandings of the parties. This
Agreement shall be binding upon the parties hereto when signed by Dealer and
accepted by Distributor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year set forth below.
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
By: _________________________________
Name:_____________________________________
Title:____________________________________
Date:_____________________________________
DEALER: __________________________________
By: _________________________________
(Signature)
Name: _________________________________
Title: _________________________________
Address:__________________________________
__________________________________________
__________________________________________
Telephone: ______________________________
NASD CRD # _____________________________
Prudential Dealer # _____________________
(Internal Use Only)
Date: _________________________________
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PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Amended and Restated
Distribution and Service Plan
(CLASS A SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Global Limited Maturity Fund, Inc. (the Fund) and by
Prudential Investment Management Services LLC, the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will employ the Distributor to distribute Class A shares issued by the
Fund (Class A shares). Under the Plan, the Fund intends to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class A shares.
A majority of the Board of Directors/Trustees of the Fund, including a
majority of those Directors/Trustees who are not "interested persons" of the
Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors/Trustees), have determined by votes cast
in person at a meeting called for the purpose of voting on this Plan that there
is a reasonable likelihood that adoption and continuation of this Plan will
benefit the Fund and its shareholders. Expenditures under this Plan by the Fund
for Distribution Activities (defined below) are primarily
1
<PAGE>
intended to result in the sale of Class A shares of the Fund within the meaning
of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class A shares of
the Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network, including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall
2
<PAGE>
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services
a distribution fee, together with the service fee (described in Section 2
hereof), of .30 of 1% per annum of the average daily net assets of the Class A
shares of the Fund for the performance of Distribution Activities. The Fund
shall calculate and accrue daily amounts payable by the Class A shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors/Trustees. The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors/Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(a) sales commissions and trailer commissions paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch
expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class A
shares of the Fund, including sales commissions, trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or
on account of, broker-dealers and financial institutions
(other than Prudential Securities or Prusec) which have
entered into selected dealer agreements with the Distributor
with respect to Class A shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as the Board shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
4
<PAGE>
The Distributor will inform the Board of Directors/Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a majority of the Board of Directors/Trustees of the Fund and a
majority of the Rule 12b-1 Directors/Trustees by votes cast in person at a
meeting called for the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time, without the payment of any
penalty, by a majority of the Rule 12b-1 Directors/Trustees, or by vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund, or by the Distributor, on sixty
(60) days' written notice to the other party. This Plan shall automatically
terminate in the event of its assignment.
5
<PAGE>
7. AMENDMENTS
The Plan may not be amended to change the combined service and
distribution fees to be paid as provided for in Sections 2 and 3 hereof so as to
increase materially the amounts payable under this Plan unless such amendment
shall be approved by the vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class A shares of the Fund.
All material amendments of the Plan shall be approved by a majority of the Board
of Directors/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan. 8. RULE 12B-1 DIRECTORS/TRUSTEES
While the Plan is in effect, the selection and nomination of the
Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: August 1, 1994
Amended: June 1, 1998
6
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Amended and Restated
Distribution and Service Plan
(CLASS B SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Global Limited Maturity Fund, Inc. (the Fund) and by
Prudential Investment Management Services LLC, the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will employ the Distributor to distribute Class B shares issued by the
Fund (Class B shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class B shares.
A majority of the Board of Directors/Trustees of the Fund, including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors/Trustees), have determined by votes cast in person at a meeting called
for the purpose of voting on this Plan that there is a reasonable likelihood
that adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
B shares
1
<PAGE>
of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated
under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class B shares of
the Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class B
shares of the Fund are referred to herein as "Distribution Activities."
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall
2
<PAGE>
calculate and accrue daily amounts payable by the Class B shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services
a distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class B shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors/Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors/Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors/Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(a) sales commissions (including trailer commissions)
paid to, or on account of, account executives of the
Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of Distribution Activities including central
office and branch expenses;
(c) amounts paid to Prudential Securities or Prusec for
performing services under a selected dealer agreement between
Prudential Securities or Prusec and the Distributor for sale
of Class B shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, agents and
indirect and overhead costs associated with Distribution
Activities;
(d) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and other financial
institutions (other than Prudential Securities or Prusec)
which have entered into selected dealer agreements with the
Distributor with respect to Class B shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
4
<PAGE>
The Distributor will inform the Board of Directors/Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a majority of the Board of Directors/Trustees of the Fund and a
majority of the Rule 12b-1 Directors/Trustees by votes cast in person at a
meeting called for the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time, without the payment of any
penalty, by a majority of the Rule 12b-1 Directors/Trustees, or by vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund, or by the Distributor, on sixty
(60) days' written notice to the other party. This Plan shall automatically
terminate in the event of its assignment.
5
<PAGE>
7. AMENDMENTS
The Plan may not be amended to change the combined service and
distribution expenses to be paid as provided for in Sections 2 and 3 hereof so
as to increase materially the amounts payable under this Plan unless such
amendment shall be approved by the vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class B shares of
the Fund. All material amendments of the Plan shall be approved by a majority of
the Board of Directors/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan.
8. RULE 12B-1 DIRECTORS/TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: August 1, 1994 amended and restated as of June 5, 1995
Amended: June 1, 1998
6
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Amended and Restated
Distribution and Service Plan
(CLASS C SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Global Limited Maturity Fund, Inc. (the Fund) and by
Prudential Investment Management Services LLC, the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will employ the Distributor to distribute Class C shares issued by the
Fund (Class C shares). Under the Plan, the Fund wishes to pay to the
Distributor, as compensation for its services, a distribution and service fee
with respect to Class C shares.
A majority of the Board of Directors/Trustees of the Fund, including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors/Trustees), have determined by votes cast in person at a meeting called
for the purpose of voting on this Plan that there is a reasonable likelihood
that adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
C shares
1
<PAGE>
of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class C shares of
the Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class C
shares of the Fund are referred to herein as "Distribution Activities."
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall
2
<PAGE>
calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services
a distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class C shares of the Fund will
not be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors/Trustees. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors/Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors/Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(a) sales commissions (including trailer commissions) paid
to, or on account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of Distribution Activities including central
office and branch expenses;
(c) amounts paid to Prudential Securities or Prusec for
performing services under a selected dealer agreement between
Prudential Securities or Prusec and the Distributor for sale
of Class C shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, agents and
indirect and overhead costs associated with Distribution
Activities;
(d) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and other financial
institutions (other than Prudential Securities or Prusec)
which have entered into selected dealer agreements with the
Distributor with respect to Class C shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of
Directors/Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors/Trustees of the Fund such
additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
4
<PAGE>
The Distributor will inform the Board of Directors/Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, the Plan shall, unless earlier
terminated in accordance with its terms, continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually by a majority of the Board of Directors/Trustees of the Fund and a
majority of the Rule 12b-1 Directors/Trustees by votes cast in person at a
meeting called for the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time, without the payment of any
penalty, by a majority of the Rule 12b-1 Directors/Trustees, or by vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund, or by the Distributor, on sixty
(60) days' written notice to the other party. This Plan shall automatically
terminate in the event of its assignment.
5
<PAGE>
7. AMENDMENTS
The Plan may not be amended to change the combined service and
distribution expenses to be paid as provided for in Sections 2 and 3 hereof so
as to increase materially the amounts payable under this Plan unless such
amendment shall be approved by the vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class C shares of
the Fund. All material amendments of the Plan shall be approved by a majority of
the Board of Directors/Trustees of the Fund and a majority of the Rule 12b-1
Directors/Trustees by votes cast in person at a meeting called for the purpose
of voting on the Plan. 8. RULE 12B-1 DIRECTORS/TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors/Trustees shall be committed to the discretion of the Rule 12b-1
Directors/Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: August 1, 1994
Amended: June 1, 1998
6
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
(the Fund)
Form of
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18F-3
The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares in the Fund. Any
material amendment to this plan is subject to prior approval of the Board of
Directors, including a majority of the independent Directors.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to a
high initial sales charge and a distribution
and/or service fee pursuant to Rule 12b-1
under the 1940 Act (Rule 12b-1 fee) not to
exceed .30 of 1% per annum of the average
daily net assets of the class. The initial
sales charge is waived or reduced for
certain eligible investors.
CLASS B SHARES: Class B shares are not subject to an initial
- -------------- sales charge but are subject to a high
contingent deferred sales charge (declining
from [3%] [5%] to zero over a [four-year]
[six-year] period) which will be imposed on
certain redemptions and a Rule 12b-1 fee not
to exceed 1% per annum of the average daily
net assets of the class. The contingent
deferred sales charge is waived for certain
eligible investors. Class B shares
automatically convert to Class A shares
approximately [five] [seven] years after
purchase.
CLASS C SHARES: Class C shares issued before October 28,
- -------------- 1998 are not subject to an initial sales
charge but are subject to a 1% contingent
deferred sales charge which will be imposed
on certain redemptions within the first 12
month after purchase and a Rule 12b-1 fee
not to exceed 1% per annum of the average
daily net assets of the class. Class C
shares issued on or after October 28, 1998
are subject to a low initial sales charge
and a 1% contingent deferred sales charge
which will be imposed on certain redemptions
within the first 18 months after purchase
and a Rule 12b-1 fee not to exceed 1% per
annum of the average daily net assets of the
class.
<PAGE>
CLASS Z SHARES: Class Z shares are not subject to either an
- --------------- initial or contingent deferred sales charge,
nor are they subject to any Rule 12b-1 fee.
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and
expenses not allocated to a particular class of the Fund will be
allocated to each class of the Fund on the basis of the net asset value
of that class in relation to the net asset value of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by the Fund to each class of
shares, to the extent paid, will be paid on the same day and at the
same time, and will be determined in the same manner and will be in the
same amount, except that the amount of the dividends and other
distributions declared and paid by a particular class of the Fund may
be different from that paid by another class of the Fund because of
Rule 12b-1 fees and other expenses borne exclusively by that class.
EXCHANGE PRIVILEGE
Holders of Class A Shares, Class B Shares, Class C Shares and Class Z
Shares shall have such exchange privileges as set forth in the Fund's
current prospectus. Exchange privileges may vary among classes and
among holders of a Class.
CONVERSION FEATURES
Class B shares will automatically convert to Class A shares on a
quarterly basis approximately [five] [seven] years after purchase.
Conversions will be effected at relative net asset value without the
imposition of any additional sales charge.
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and
shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class.
B. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any
2
<PAGE>
material conflicts among the interests of its several classes. The
Directors, including a majority of the independent Directors, shall
take such action as is reasonably necessary to eliminate any such
conflicts that may develop. Prudential Investments Fund Management LLC,
the Fund's Manager, will be responsible for reporting any potential or
existing conflicts to the Directors.
C. For purposes of expressing an opinion on the financial statements of
the Fund, the methodology and procedures for calculating the net asset
value and dividends/distributions of the Fund's several classes and the
proper allocation of income and expenses among such classes will be
examined annually by the Fund's independent auditors who, in performing
such examination, shall consider the factors set forth in the relevant
auditing standards adopted, from time to time, by the American
Institute of Certified Public Accountants.
Approved: August 26, 1998
Effective: October 28, 1998
3
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000861002
<NAME> PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> LIMITED MATURITY PORTFOLIO (CLASS A)
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