As filed with the Securities and Exchange Commission on January 14, 1999
Registration Nos. 33-33479
811-6048
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
PRE-EFFECTIVE AMENDMENT NO. | |
POST-EFFECTIVE AMENDMENT NO. 15 |x|
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 | |
AMENDMENT NO. 17 |x|
(Check appropriate box or boxes)
PRUDENTIAL GLOBAL
LIMITED MATURITY FUND, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET, 9TH FLOOR
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-1496
CAREN CUNNINGHAM, ESQ.
GATEWAY CENTER THREE (GC3)
100 MULBERRY STREET, 9TH FLOOR
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT. IT IS PROPOSED THAT THIS FILING WILL
BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
| | immediately upon filing pursuant to paragraph (b)
|x| on January 22, 1999 pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a)(i)
| | on (date) pursuant to paragraph (a) (i)
| | 75 days after filing pursuant to paragraph (a)
| | on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
|x| this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Title of Securities Being Registered: Shares of Common Stock,
Par Value $.001 per share.
<PAGE>
FUND TYPE:
- --------------------
Global debt
INVESTMENT OBJECTIVE:
- --------------------
Total return, made up
of current income and
capital appreciation
PRUDENTIAL
GLOBAL LIMITED
MATURITY FUND, INC.
- --------------------------
LIMITED MATURITY PORTFOLIO
PROSPECTUS DATED JANUARY 22, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved the Fund's shares, nor has the SEC determined that this prospectus is
complete or accurate. It is a criminal offense to state otherwise.
[LOGO]
<PAGE>
TABLE OF CONTENTS
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses
6 HOW THE FUND INVESTS
6 Investment Objective and Policies
8 Other Investments
10 Derivative Strategies
11 Additional Strategies
12 Investment Risks
16 HOW THE FUND IS MANAGED
16 Manager
16 Investment Adviser
16 Portfolio Managers
17 Distributor
17 Year 2000 Readiness Disclosure
18 FUND DISTRIBUTIONS AND TAX ISSUES
18 Distributions
19 Tax Issues
20 If You Sell or Exchange Your Shares
22 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
22 How to Buy Shares
30 How to Sell Your Shares
34 How to Exchange Your Shares
36 FINANCIAL HIGHLIGHTS
37 Class A Shares
38 Class B Shares
39 Class C Shares
40 Class Z Shares
41 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (BACK COVER)
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LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<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 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 U.S. dollars and foreign currencies. The Fund may invest up to
20% of its assets in below investment grade securities--also known as high yield
or "junk bonds"--which have a higher risk of default and tend to be less liquid.
While we make every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests primarily in bonds, there is the risk that interest rates will go up
significantly, which generally causes bond prices to go down. Bonds with longer
maturity dates typically produce higher yields and are subject to greater price
shifts as a result of changes in interest rates than bonds with shorter maturity
dates.
Bond prices and the Fund's net asset value generally move in opposite
directions--if interest rates go up, the prices of the bonds in the Fund's
portfolio may fall because the bonds the Fund holds won't, as a rule, pay as
well as the newer bonds issued. Bonds that are issued when interest rates are
high generally increase in value when interest rates fall. There is also the
risk that the borrower will not repay the debt. In addition, the Fund may
actively and frequently trade its portfolio securities.
Since we invest in foreign securities, there are more risks than if we
invested only in obligations of the U.S. government and U.S. corporations. The
amount of income available for distribution may be affected by our foreign
currency gains or losses and certain hedging activities. Foreign markets,
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MULTI-MARKET STRATEGY
In deciding when to buy or sell, we consider a country's
economic strength as well as the relationship of its currency to the U.S.
dollar, credit quality and interest rates. Sometimes we may invest more than 25%
of the Fund's total assets in one country if we think it will help the Fund
achieve its investment objective.
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1
<PAGE>
RISK/RETURN SUMMARY
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 is non-diversified, meaning we can invest more than 5% of our
assets in the securities of any one issuer. Investing in a non-diversified
mutual fund involves greater risk than investing in a diversified fund.
The Fund may use risk management techniques to try to preserve assets or
enhance return. These strategies may present above average risks. Derivatives
may not fully offset the underlying positions and this could result in losses to
the Fund that would not otherwise have ocurred. Some of our investment
strategies involve additional risks. Like any mutual fund, an investment in the
Fund could lose value, and you could lose money. For more detailed information
about the risks associated with the Fund, see "Investment Risks."
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--affect how the Fund performs. The following
bar chart and table show the Fund's performance for each full calendar year of
operation. They demonstrate the risk of investing in the Fund and how returns
can change from year to year. Past performance does not mean that the Fund will
achieve similar results in the future.
ANNUAL RETURNS 1 (CLASS B SHARES)
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1991 9.68%
1992 -1.01%
1993 7.08%
1994 -5.13%
1995 8.38%
1996 11.98%
1997 3.28%
1998 2.88%
BEST QUARTER: 4.06% (4th quarter of 1996) WORST QUARTER: -5.67%
(3rd quarter of 1992)
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1 THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN.
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2 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
AVERAGE ANNUAL RETURNS AS OF 12/31/98
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1 YR 5 YRS SINCE INCEPTION
Class A shares (.56) 4.07 4.83 (Since 11-1-90)
Class B shares (.12) 4.12 4.50 (Since 11-1-90)
Class C shares .85 N/A 5 43 (Since 8-1-94)
Class Z shares 3.68 N/A 4.26 (Since 1-27-97)
Morgan GSTI2 N/A
Lipper Average3 N/A
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. THE SECURITIES
IN THE GSTI MAY BE VERY DIFFERENT FROM THOSE IN THE FUND. THESE RETURNS WOULD
BE LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES. GSTI RETURNS SINCE
INCEPTION OF EACH CLASS ARE _% FOR CLASS A, _% FOR CLASS B, _% FOR CLASS C AND
_% FOR CLASS Z SHARES. SOURCE: LIPPER, INC.
3 THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN THE
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 RETURNS SINCE INCEPTION OF EACH CLASS ARE _% FOR CLASS
A, _% FOR CLASS B, _% FOR CLASS C AND _% FOR CLASS Z SHARES. SOURCE: LIPPER,
INC.
FEES AND EXPENSES
These tables show 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."
3
<PAGE>
RISK/RETURN SUMMARY
SHAREHOLDER FEES1 (PAID DIRECTLY FROM YOUR INVESTMENT)
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering 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
</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .55% .55% .55% .55%
+ Distribution and service (12b-1) fees .30%4 1.00%4 1.00%4 None
+ Other expenses .66% .66% .66% .66%
= Total annual Fund operating expenses 1.51% 2.21% 2.21% 1.21%
</TABLE>
1 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. CLASS B
SHARES CONVERT TO CLASS A SHARES APPROXIMATELY FIVE YEARS AFTER PURCHASE.
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 .15% OF 1% OF THE AVERAGE DAILY NET ASSETS
OF THE CLASS A SHARES AND .75% OF 1% OF BOTH THE CLASS B AND CLASS C SHARES.
THESE VOLUNTARY REDUCTIONS MAY BE TERMINATED AT ANY TIME WITHOUT NOTICE. WITH
THESE REDUCTIONS, TOTAL ANNUAL FUND OPERATING EXPENSES ARE 1.36% FOR CLASS A
SHARES AND 1.96% FOR BOTH CLASS B AND CLASS C SHARES.
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4 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
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:
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<TABLE>
<CAPTION>
1 yr 3 yrs 5 yrs 10 yrs
<S> <C> <C> <C> <C>
Class A shares $449 $763 $1099 $2047
Class B shares $524 $791 $1185 $2130
Class C shares $422 $784 $1273 $2619
Class Z shares $123 $384 $ 665 $1466
</TABLE>
You would pay the following expenses on the same investment if you did not
sell your shares:
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<TABLE>
<CAPTION>
1 yr 3 yrs 5 yrs 10 yrs
<S> <C> <C> <C> <C>
Class A shares $449 $763 $1099 $2047
Class B shares $224 $691 $1185 $2130
Class C shares $322 $784 $1273 $2619
Class Z shares $123 $384 $ 665 $1466
</TABLE>
5
<PAGE>
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 and
agency securities, securities issued by foreign governments and their agencies
and supranational organizations, U.S. and foreign corporate debt instruments,
commercial paper, loan participationst, zero coupon securities, certificates of
deposit, bankers' acceptances and time deposits. The Fund can invest up to 10%
of its total assets in "stripped securities" combined with investments in
similar U.S. government securities (securities where the principal or a
scheduled interest payment is sold separately) of U.S. and foreign
government debt securities. We also buy equity-related securities such as common
stock, preferred stock and convertible securities.
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THE EURO
On January 1, 1999, 11 of the 15 member states of the European Union introduced
the "euro" as a common currency. During a three year transitional period, the
euro will coexist with each participating state's currency. Beginning July 1,
2002, the euro is anticipated to become the sole currency of the member states.
During the transition period, the Fund will treat the euro as a separate
currency from that of any participating state.
The conversion may adversely affect the Fund if: the euro does not take effect
as planned; a participating state withdraws from the European Monetary Union; or
if the computing, accounting and trading systems used by the Fund's service
providers or by entities with which the Fund or its service providers do
business, are not capable of recognizing the euro as a distinct currency at the
time of, and following, euro conversion. In addition, the conversion could cause
markets to become more volatile.
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6 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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 total assets may be
invested in lower-rated securities, which are riskier and considered
"speculative." These high-yield or "junk" bonds have a minimum rating of B by
Moody's or S&P or another major rating service at the time they are purchased.
The Fund may continue to hold such a security if it is subsequently downgraded
below B or is no longer rated by a major rating service. We also may invest in
obligations that are not rated, but that we believe are of comparable quality to
the obligations described above.
The Fund has a weighted average maturity of more than two, but less than
five 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 help
protect the value of the Fund's securities rather than to make a profit. These
may include derivative transactions which are described in more detail in the
Fund's Statement of Additional Information.
For more information about this Fund and its investments, see "Investment
Risks" 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.
7
<PAGE>
HOW THE FUND INVESTS
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
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 AND CASH MANAGEMENT
Under normal circumstances, the Fund may invest in corporate debt securities,
commercial paper of U.S. corporations, certificates of deposit, bankers'
acceptances and time deposits of U.S. or foreign banks with assets of at least
$500 million and obligations issued or guaranteed by the U.S. government or its
agencies. In response to adverse market, economic or political conditions, 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 can
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 as part of the 10%, up to 5% 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.
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8 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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 and includes various
types of restrictive covenants which must be met by the borrower.
ZERO COUPON SECURITIES
We can invest up to 10% of 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. 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. This type of security may experience
greater fluctuation in value and less liquidity than similarly rated bonds that
pay interest at regular intervals.
ADJUSTABLE/FLOATING RATE SECURITIES
The Fund can invest in adjustable or floating rate securities whose interest
rate is calculated by reference to a specific index and is reset periodically.
The value of adjustable or floating rate securities does not respond as quickly
to changing interest rates as do fixed rate securities.
REPURCHASE AGREEMENTS
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.
9
<PAGE>
HOW THE FUND INVESTS
DERIVATIVE STRATEGIES
We may use alternative investment strategies--including investing in
DERIVATIVES--to try to improve the Fund's returns or protect its assets,
although we cannot guarantee these strategies will work, that the instruments
necessary to implement these strategies will be available or that the Fund will
not lose money.
Derivatives--such as futures, options, foreign currency forward 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 benchmark -- 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.
The investment adviser will consider other factors (such as cost) in deciding
whether to employ any particular strategy or use any particular instrument. Any
derivatives we use may not match the Fund's underlying holdings.
Because we are a global fund and invest in securities denominated in
different foreign currencies, we may use "currency hedges." Currency hedges can
help protect the Fund's NAV from declining if a particular foreign currency were
to decrease in value compared to the U.S. dollar.
The Fund may invest without limit in commercial paper and other instruments
that are "indexed" to certain specific foreign currency exchange rates. This
means that the instrument's principal amount is adjusted upward or downward (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 that
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.
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10 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks--Risk Management and Return Enhancement
Strategies."
ADDITIONAL STRATEGIES
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 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
securities with legal or contractual restrictions, those without a readily
available market and repurchase agreements with maturities longer than seven
days). The Fund is "NONDIVERSIFIED," 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.
PORTFOLIO TURNOVER
As a result of the strategies described above, the Fund may have an annual
portfolio turnover rate of up to 200%. Portfolio turnover is generally the
percentage found by dividing the lesser of portfolio purchases or sales by the
monthly average value of the portfolio. High portfolio turnover (100% or more)
results in higher brokerage commissions and other transaction costs and can
affect the Fund's performance. It can also result in a greater amount of
distributions as ordinary income rather than long-term capital gains.
11
<PAGE>
HOW THE FUND INVESTS
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. See, too, "Description of the Fund, Its Investments and
Risks" in the SAI.
<TABLE>
<CAPTION>
INVESTMENT TYPE RISKS POTENTIAL REWARDS
% OF FUND'S ASSETS ----- -----------------
- -----------------
<S> <C> <C>
>> The Fund's share >> Bonds have generally
INCOME-PRODUCING price, yield and outperformed money
SECURITIES total return will market instruments
fluctuate in over the long term
AT LEAST 65% OF TOTAL ASSETS response to bond with less risk than
market movements stocks
>> Credit risk--the >> Most bonds will rise
default of an issuer in value when
would leave the Fund interest rates fall
with unpaid interest
or principal >> Regular interest income
>> Market risk--the >> Generally more
risk that the market secure than stock
value of an investment since companies must
may move up or down, pay their debts
sometimes rapidly or before paying
unpredictably. Market stockholders
risks may affect an
industry, a sector >> Investment-grade
or the market as a bonds have a lower
whole. risk of default
>> Interest rate >> Principal and
risk--the value of interest on
most bonds will fall government
when interest rates securities may be
rise; the longer a guaranteed by the
bond's maturity and issuing government
the lower its credit
quality, the more >> Junk bonds offer
its value typically higher yields and
falls. It can lead higher potential
to price volatility, gains
particularly for
junk bonds and
stripped securities
>> As a non-diversified
fund, we will have
greater exposure to
loss from a single
issuer
>> Not all government
securities are
insured or
guaranteed by the
government but only
by the issuing
agency
>> Junk bonds (rated
BB/Ba or lower) have
a higher risk of
default, tend to be
less liquid and may
be more difficult to
value.
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12 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT TYPE (CONT'D) RISKS POTENTIAL REWARDS
% OF FUND'S ASSETS ----- -----------------
- ------------------------
<S> <C> <C>
>> Foreign markets, >> Investors can
FOREIGN SECURITIES economies and participate in
political systems foreign markets and
PERCENTAGE VARIES, may not be as stable companies operating
BUT USUALLY IS GREATER as in the U.S., in those markets
THAN 50% OF TOTAL ASSETS particularly those
in developing >> Changing value of
countries foreign currencies
>> Currency >> Opportunities for
risk--changing diversification
values of foreign
currencies
>> Debt securities
issued by
supranational
organizations or
semi-governmental
issuers may be
backed by limited
assets in the event
of default
>> May be less
liquid than U.S.
stocks and bonds
>> Differences in
foreign laws,
accounting
standards, public
information, custody
and settlement
practices
>> Year 2000
conversion may
be more of a problem
for some foreign
issuers
>> Euro transition
may disrupt
world markets
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EQUITY-RELATED SECURITIES >> Individual stocks >> Historically,
could lose value stocks have out
UP TO 10% OF TOTAL performed other
ASSETS (INCLUDING UP >> The equity investments
TO 5% IN CONVERTIBLE markets could go
SECURITIES) down resulting in a >> Generally,
decline in value of economic growth
the Fund's means higher
investments corporate profits,
which leads to an
>> Companies that increase in stock
pay dividends may prices, known as
not do so if they capital appreciation
don't have profits
or adequate cash >> May be a source
flow of dividend income
>> Changes in
economic or
political
conditions, both
domestic and
international, may
result in a decline
in value of the
Fund's investments
</TABLE>
13
<PAGE>
HOW THE FUND INVESTS
<TABLE>
<CAPTION>
INVESTMENT TYPE (CONT'D) RISKS POTENTIAL REWARDS
% OF FUND'S ASSETS ----- -----------------
- ------------------------
<S> <C> <C>
DERIVATIVES >> Derivatives such >> The Fund could
as futures, options make money and
PERCENTAGE VARIES and foreign currency protect against
forward contracts losses if the
that are used for investment analysis
hedging purposes may proves correct
not fully offset the
underlying positions >> Derivatives that
and this could involve leverage
result in losses to could generate
the Fund that would substantial gains at
not have otherwise low cost
occurred 1
>> Derivatives used >> One way to manage
for risk management the Fund's
may not have the risk/return balance
intended effects and is by locking in the
may result in losses value of an
or missed investment ahead of
opportunities time
>> The other party >> May be used to
to a derivatives hedge against
contract could changes in currency
default exchange rates
>> If the Investment
Adviser predicts
wrong, the Fund
can lose money
>> Derivatives that
involve leverage
could magnify losses
>> Certain types of
derivatives involve
costs to the Fund
that can reduce
returns
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES >> May be difficult >> May offer a more
to value precisely attractive yield or
UP TO 15% OF NET ASSETS potential for growth
>> May be difficult than more widely
to sell at the time traded securities
or price desired
-------------------------------------------------------------------------------
MONEY MARKET >> Limits potential >> May preserve the
INSTRUMENTS for capital Fund's assets
appreciation
UP TO 100% ON A
TEMPORARY BASIS >> See Credit risk
and Market risk
- --------------------------------------------------------------------------------
LOAN PARTICIPATIONS >> The Fund is also >> A source of income
subject to the
credit risk of the >> May offer right
lender to receive
UP TO 5% OF NET ASSETS >> See Credit risk and principal, interest
Market risk and fees without as
much risk as a
lender
</TABLE>
1 AN OPTION IS THE RIGHT TO BUY OR SELL SECURITIES IN EXCHANGE FOR A PREMIUM. A
FUTURES CONTRACT IS AN AGREEMENT TO BUY OR SELL A SET QUANTITY OF AN
UNDERLYING PRODUCT AT A FUTURE DATE, OR TO MAKE OR RECEIVE A CASH PAYMENT
BASED ON THE VALUE OF A SECURITIES INDEX. A FOREIGN CURRENCY FORWARD CONTRACT
IS AN OBLIGATION TO BUY OR SELL A GIVEN CURRENCY ON A FUTURE DATE AND AT A
SET PRICE.
- --------------------------------------------------------------------------------
14 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
<TABLE>
<CAPTION>
INVESTMENT TYPE (CONT'D) RISKS POTENTIAL REWARDS
% OF FUND'S ASSETS ----- -----------------
- ------------------------
<S> <C> <C>
ZERO COUPON BONDS >> Generates "phantom >> May lock in a
income" for higher rate of
UP TO 10% OF NET ASSETS the Fund for tax return than is
purposes although no available in the
income is paid marketplace at time
of maturity
>> Typically subject
to greater
volatility and less
liquidity in adverse
markets than other
income-producing
securities
- --------------------------------------------------------------------------------
ADJUSTABLE/FLOATING >> Value lags value >> Can take
RATE SECURITIES of fixed rate advantage of rising
securities when interest rates
PERCENTAGE VARIES interest rates
change
</TABLE>
15
<PAGE>
HOW THE FUND IS MANAGED
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 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 46 of the
Prudential Mutual Funds, and as Manager or administrator to 22 closed-end
investment companies, with aggregate assets of approximately $69 billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. Prudential Investments has entered into a service agreement
with PRICOA Asset Management Ltd. (PRICOA), a subsidiary of The Prudential
Insurance Company of America, for the provision of investment advisory services
to the Fund and compensates PRICOA for its reasonable costs and expenses in
providing such services. PIFM has responsibility for all investment advisory
services, supervises Prudential Investments and PRICOA and reimburses Prudential
Investments for its reasonable costs and expenses.
PRICOA, an indirect wholly-owned subsidiary of Prudential, is located at
Cutlers Court, 100 Piccadilly, London WIV9 FN, 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 co-managed by J. Gabriel Irwin and Simon Wells.
Gabriel Irwin and Simon Wells both joined Prudential Investments in April
1995 to lead the Global Fixed Income Group and have been co-managing the Fund
since then. Before joining Prudential they were Senior Vice Presidents at Smith
Barney Global Capital Management in London.
Simon and Gabriel use a fundamental approach to international bond
investing. They analyze worldwide macro-economic, political and social events
and trends searching for opportunities they believe will offer attractive
yields, as well as the potential for price appreciation.
- --------------------------------------------------------------------------------
16 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
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 "Fees and Expenses" table.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. The Manager, the
Distributor, the Transfer Agent and the Custodian have advised the Fund that
they have been actively working on necessary changes to their computer systems
to prepare for the year 2000. The Fund and its Directors receive and have
received since early 1998 satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
particpants) will successfully complete the necessary changes in a timely manner
or that there will be no adverse impact on the Fund. Moreover, the Fund at this
time has not considered retaining alternative service providers or directly
undertaken efforts to achieve year 2000 readiness, the latter of which would
involve substantial expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased
by the Fund, may confront Year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and result in a decline in the value of the securities held
by the Fund.
17
<PAGE>
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 of ordinary income and any
realized net CAPITAL GAINS 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 you hold your
shares 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 declares daily and distributes DIVIDENDS of any net investment income
to shareholders, typically every month. For example, if the Fund owns Utopia
government 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 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 amount of income available for distribution to shareholders will be
affected by any foreign currency gains or losses generated by the Fund and
cannot be predicted. This fact, coupled with the different tax and accounting
treatment of certain currency gains and losses, increases the possibility that
distributions, in whole or in part, may be a return of capital to shareholders.
The Fund also distributes realized net 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 more than one year later sold the shares for a total of
$1,500, the Fund has net long-term 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--if a security is held more than one year before it is sold,
LONG-TERM capital gains are taxed at the rate of 20%, but if the security is
held one year or less, SHORT-TERM capital gains are taxed at
- --------------------------------------------------------------------------------
18 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
ordinary income rates of up to 39.6%. Different rates apply to corporate
shareholders.
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
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 calendar 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.
19
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
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 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.
QUALIFIED 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, contributions are not tax deductible, but
distributions from the plan may be tax-free. Please contact your financial
adviser for information on a variety of Prudential Mutual Funds that are
suitable for 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.
- --------------------------------------------------------------------------------
CAPITAL GAIN
$ (taxes owed)
RECEIPTS OR
FROM SALE
CAPITAL LOSS
(offset against gain)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
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.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099, however proceeds will be reported on Form
1099-B. 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.
- --------------------------------------------------------------------------------
21
<PAGE>
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 Fund's sale of
its 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 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 1% front-end
sales charge and a 1% CDSC if you sell within 18 months of purchase, but the
operating expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
>> The amount of your investment
>> The length of time you expect to hold the shares and the impact of the
varying distribution fees
- --------------------------------------------------------------------------------
22 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
>> 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
>> Whether you qualify for any reduction or waiver of sales charges
>> The fact that Class B shares automatically convert to
Class A shares approximately five years after purchase
>> Whether you qualify to purchase Class Z shares
See "How to Sell Your Shares for a description of the impact of CDSCs."
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>
SHARE CLASS COMPARISON
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <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 None 1% of the None
public offering public
price 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 and .30 of 1% 1% 1% None
service (12b-1) fees shown (.15 of 1% (.75 of 1% (.75 of 1%
as a percentage of average currently) currently) currently)
net assets3
</TABLE>
1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN RETIREMENT AND
EMPLOYEE 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. THE SERVICE FEE FOR CLASS A,
CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION FEE FOR CLASS A
SHARES IS LIMITED TO .30 OF 1% (INCLUDING THE .25 OF 1% SERVICE FEE) AND IS
.75 OF 1% FOR CLASS B AND CLASS C SHARES.
- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
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
>> invest with an eligible group of related investors;
>> buy the Class A shares of two or more Prudential Mutual
Funds at the same time;
>> 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 (note: you must notify the Transfer Agent if you qualify for
Rights of Accumulation); or
>> 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. Benefit Plans can avoid Class A's initial sales charge 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. For
these purposes, a Benefit Plan is a pension, profit-sharing or other employee
benefit plan qualified under Section 401 of the Internal Revenue Code, a
deferred compensation or annuity plan under Sections 403(b) and 457 of the
Internal Revenue Code, a "rabbi" trust or a non-qualified
- --------------------------------------------------------------------------------
24 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
deferred compensation plan sponsored by an employer that has a tax-qualified
benefit plan with Prudential. 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 charge. For more information, see the SAI or contact your financial
adviser. In addition, waivers are available to investors in certain programs
sponsored by brokers, investment advisers and financial planners who have
agreements with the 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; and
>> Mutual fund "supermarket" programs where the sponsor
links its customers' accounts to a master account in the sponsor's name
and the sponsor charges a fee for its services.
OTHER TYPES OF INVESTORS. Other investors pay no sales charge, including
certain officers, employees or agents of Prudential and its affiliates,
Prudential Mutual Funds, the subadvisers of the Prudential Mutual Funds and
clients of brokers that have entered into a selected dealer agreement with the
Distributor. To qualify for a reduction or waiver of the sales charge, 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 Charge--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
BENEFIT PLANS. Benefit Plans (as defined above) may purchase Class C shares
without paying an initial sales charge. Class C shares may also be purchased
without an initial 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.
- --------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived for
purchases of Class C shares by both qualified and non-qualified retirement and
deferred compensation plans participating in the PruArray Plan and other plans
if Prudential also provides administrative or record-keeping services.
INVESTMENTS 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 shores 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. These purchases must be made
within 60 days of the redemption. To qualify for this waiver, you must:
>> purchase your shares through an account at Prudential Securities
>> purchase your shares through an ADVANTAGE Account or an
Investor Account with Pruco Securities Corporation
>> purchase your shares through another broker
This waiver is not available to investors who purchase shares directly from
the Transfer Agent. 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.
QUALIFYING FOR CLASS Z SHARES
Class Z shares of the Fund can be purchased by any of the following:
>> Any Benefit Plan as defined above, and certain
non-qualified 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
>> Participants in any fee-based program or trust program
sponsored by Prudential or an affiliate which includes mutual funds as
investment options and the Fund as an available option
>> 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
>> Benefit Plans for which an affiliate of the Distributor
provides administrative or record-keeping services and as of September
20, 1996 were either Class Z shareholders of the Prudential Mutual
Funds or
- --------------------------------------------------------------------------------
26 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
executed a letter of intent to purchase Class Z shares of the Prudential
Mutual Funds
>> The Prudential Securities Cash Balance Pension Plan, an employee-defined
benefit plan sponsored by Prudential Securities
>> Current and former Directors/Trustees of the Prudential
Mutual Funds (including the Fund) >> Employees of Prudential
and/or Prudential Securities who participate in a Prudential-sponsored
employee savings plan
>> 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."
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.
- --------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
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 check the price of mutual
funds daily.
- --------------------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds Utopia government
bonds in its portfolio and the price of Utopia government bonds goes 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. Because
we are a global fund, the NAV can change on days when you cannot buy or sell
shares. We do not determine NAV on days when we have not received any orders to
purchase, sell or exchange Fund shares, 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
- --------------------------------------------------------------------------------
28 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
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.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: 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 financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs,
403(b) plans, pension and profit-sharing plans), your financial adviser 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 declines--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.
- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
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 Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.
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 or she 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
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker 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 sending you the sales proceeds until your check clears, which can take up
to 10 days from your purchase date. You can avoid delay if you purchase by wire,
certified check or cashier's check. 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. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
- --------------------------------------------------------------------------------
30 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
If you are selling more than $50,000 of shares, you want the check sent to
someone or some place that is not in our records, you are a business or a trust
or if you hold your shares directly with the Transfer Agent, you will need 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:
>> Amounts representing shares you purchased with reinvested
dividends and distributions
>> Amounts representing the increase in NAV above the total amount of
payments for shares made during the past four years for Class B shares
and 18 months for Class C shares (one year for Class C shares purchased
before November 2, 1998)
>> 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 amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
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, not on the anniversary
date itself. The CDSC is 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).
For both Class B and Class C shares, the CDSC is the lesser of the original
purchase price or the redemption proceeds. For purposes of determining how long
you've held your shares, all
- --------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
purchases during the month are grouped together and considered to have been
made on the last day of the month.
The holding period for purposes of determining the applicable 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:
>> 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
>> To provide for certain distributions--made without IRS penalty--from a
tax-deferred retirement plan, IRA or Section 403(b) custodial account
>> On certain sales from a Systematic Withdrawal Plan
For more information on the above and other waivers, 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
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived for purchases of Class C
shares by both qualified and non-qualified retirement and deferred compensation
plans participating in the PruArray Plan and other plans if Prudential also
provides administrative or recordkeeping services. The CDSC will also be waived
on redemptions from Benefit Plans sponsored by Prudential and its affiliates to
the extent that the redemption proceeds are invested in The Guaranteed
Investment Account (a group annuity insurance product sponsored by Prudential),
the Guaranteed Insulated Separate Account (a separate account offered by
Prudential) and shares of The Stable Value Fund (an unaffiliated bank collective
fund).
OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit Plans
holding shares through a broker not affiliated with Prudential and for which the
broker provides administrative or record-keeping services.
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32 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
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.
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 when 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
one-time 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.
- --------------------------------------------------------------------------------
33
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
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. After an exchange, at redemption 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. 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 four 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 or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding periods for CDSC
liability.
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues -- If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
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 initial 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
- --------------------------------------------------------------------------------
34 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
exchanges on a quarterly basis if 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, but the opinion is not binding on the IRS.
FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When, in our opinion, such activity would have a disruptive effect on portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
into the Fund by any person, group or commonly controlled accounts. The Fund may
notify a market timer of rejection of an exchange or purchase order after to
the day the order is placed. If the Fund allows a market timer to trade Fund
shares, it may require the market timer to enter into a written agreement to
follow certain procedures and limitations.
- --------------------------------------------------------------------------------
35
<PAGE>
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 annual report and 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.
- --------------------------------------------------------------------------------
36 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
CLASS A SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by PricewaterhouseCoopers LLP, independent accountants, 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)
PER SHARE OPERATING PERFORMANCE 19981 19971 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $8.41 $8.82 $8.39 $8.56 $9.29
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .54 .60 .60 .61 .70
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions (.29) (.16) .40 (.21) (.86)
TOTAL FROM INVESTMENT OPERATIONS .25 .44 1.00 .40 (.16)
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.54) (.60) (.57) (.48) --
Distributions in excess of
net investment income (.22) (.25) -- -- --
Tax return of capital distributions (.10) -- -- (.09) (.57)
TOTAL DISTRIBUTIONS (.86) (.85) (.57) (.57) (.57)
NET ASSET VALUE, END OF YEAR $7.80 $8.41 $8.82 $8.39 $8.56
TOTAL RETURN2 3.01% 5.14% 12.35% 4.92% (1.89)%
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
NET ASSETS, END OF YEAR (000) $64,538 $85,109 $69,051 $18,216 $28,841
Average net assets (000) $73,853 $83,590 $53,284 $20,153 $38,000
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.36% 1.35% 1.32% 1.21% 1.17%
Expenses, excluding distribution
fees 1.21% 1.20% 1.17% 1.06% 1.02%
Net investment income 6.65% 6.94% 7.12% 7.25% 7.67%
Portfolio turnover 40% 53% 101% 199% 232%
</TABLE>
1 CALCULATED BASED UPON AVERAGE SHARES OUTSTANDING DURING THE YEAR.
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.
- --------------------------------------------------------------------------------
37
<PAGE>
FINANCIAL HIGHLIGHTS
CLASS B SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by PricewaterhouseCoopers LLP, independent accountants, 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 19981 19971 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $8.45 $8.85 $8.42 $8.56 $9.29
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .51 .55 .55 .56 .62
Net realized and unrealized gain (loss)
on investment and foreign
currency transactions (.31) (.16) .40 (.19) (.86)
Total from Investment Operations .20 .39 .95 .37 (.24)
- -------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.51) (.55) (.52) (.43) --
Distributions in excess of
net investment income (.19) (.24) -- -- --
Tax return of capital distributions (.10) -- -- (.08) (.49)
TOTAL DISTRIBUTIONS (.80) (.79) (.52) (.51) (.49)
NET ASSET VALUE, END OF YEAR $7.85 $8.45 $8.85 $8.42 $8.56
TOTAL RETURN2 2.48% 4.59% 11.61% 4.60% 2.62%
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
NET ASSETS, END OF YEAR (000) $1,562 $2,397 $44,804 $108,454 $188,966
Average net assets (000) $2,397 $17,941 $70,794 $139,248 $281,143
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.96% 1.95% 1.92% 1.83% 1.97%
Expenses, excluding distribution fees 1.21% 1.20% 1.17% 1.08% 1.02%
Net investment income 6.03% 6.34% 6.51% 6.61% 6.82%
Portfolio turnover 40% 53% 101% 199% 232%
</TABLE>
1 CALCULATED BASED UPON AVERAGE SHARES OUTSTANDING DURING THE YEAR.
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.
- --------------------------------------------------------------------------------
38 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
CLASS C SHARES
The financial highlights for the two years ended October 31, 1998 were audited
by PricewaterhouseCoopers LLP, independent accountants, 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.
<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL PERIODS ENDED 10-31)
PER SHARE OPERATING PERFORMANCE 19981 19971 1996 1995 19942
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.45 $8.85 $8.42 $8.56 $8.61
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .50 .55 .55 .54 .14
Net realized and unrealized gain (loss)
on investment and foreign
currency transactions (.30) (.16) .40 (.17) (.06)
TOTAL FROM INVESTMENT OPERATIONS .20 .39 .95 .37 .08
- --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.50) (.55) (.52) (.43) --
Distributions in excess of
net investment income (.20) (.24) -- -- --
Tax return of capital distributions (.10) -- -- (.08) (.13)
TOTAL DISTRIBUTIONS (.80) (.79) (.52) (.51) (.13)
NET ASSET VALUE, END OF PERIOD $7.85 $8.45 $8.85 $8.42 $8.56
TOTAL RETURN3 2.48% 4.59% 11.61% 4.60% .75%
RATIOS/SUPPLEMENTAL DATA 19981 19971 1996 1995 19942
NET ASSETS, END OF PERIOD (000) $51 $107 $54 $7554 $2004
Average net assets (000) $64 $116 $4 $1,4614 $1994
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.96% 1.95% 1.92% 1.70% .93%5
Expenses, excluding distribution fees 1.21% 1.20% 1.17% .95% .18%5
Net investment income 6.07% 6.36% 6.35% 6.43% 7.02%5
Portfolio turnover 40% 53% 101% 199% 232%
</TABLE>
1 CALCULATED BASED UPON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
2 FOR THE PERIOD FROM AUGUST 1, 1994 (WHEN CLASS C SHARES WERE FIRST OFFERED)
THROUGH OCTOBER 31, 1994.
3 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.
4 AMOUNTS ARE ACTUAL AND NOT ROUNDED TO THE NEAREST THOUSAND.
5 ANNUALIZED.
- --------------------------------------------------------------------------------
39
<PAGE>
FINANCIAL HIGHLIGHTS
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
PricewaterhouseCoopers LLP, independent accountants, whose report was
unqualified.
CLASS Z SHARES (FISCAL PERIODS ENDED 10-31)
PER SHARE OPERATING PERFORMANCE 19981 19971,2
- -------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $8.44 $8.57
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .55 .43
Net realized and unrealized gain (loss)
on investment and foreign currency transactions (.28) (.11)
TOTAL FROM INVESTMENT OPERATIONS .27 .32
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.55) (.43)
Tax return of capital distributions (.10) --
Distributions in excess of net investment income (.22) (.02)
TOTAL DISTRIBUTIONS (.87) (.45)
NET ASSET VALUE, END OF PERIOD $7.84 $8.44
TOTAL RETURN3 3.28% 3.53%
RATIOS/SUPPLEMENTAL DATA 19981 19971,2
Net assets, end of period (000) $49 $4
Average net assets (000) $43 $3084
Ratios to average net assets:
Expenses, including distribution fees 1.21% 1.20%5
Expenses, excluding distribution fees 1.21% 1.20%5
Net investment income 6.83% 14.07%5
Portfolio turnover 40% 53%
1 CALCULATED BASED UPON AVERAGE SHARES OUTSTANDING
DURING THE PERIOD.
2 FOR THE PERIOD FROM JANUARY 27, 1997 (WHEN CLASS Z SHARES WERE FIRST OFFERED)
THROUGH OCTOBER 31, 1997.
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.
- --------------------------------------------------------------------------------
40 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
[This page has been left blank intentionally.]
- --------------------------------------------------------------------------------
41
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Read the prospectus carefully before you invest or send
money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES
FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT
PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH
& INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM
FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE
FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH
EQUITY FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT
PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS
EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES
FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY
FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL INCOME
FUND, INC.
PRUDENTIAL INTERNATIONAL BOND
FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
- --------------------------------------------------------------------------------
42 LIMITED MATURITY PORTFOLIO [LOGO] (800) 225-1852
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME
FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN
FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY
FUND, INC.
INCOME PORTFOLIO
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS
FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET
FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
43
<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.)
- --------------------------------------------------------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- --------------------------------------------------------------------------------
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 affect 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.)
In Person:
Public Reference Room in Washington, DC
(For hours of operation, call
1(800) SEC-0330)
Via the Internet:
http://www.sec.gov
MF144A
- --------------------------------------------------------------------------------
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
[Logo] Printed on Recycled Paper
<PAGE>
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Statement of Additional Information
dated January 22, 1999
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
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 January 22, 1999, a copy
of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <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-19
Investment Advisory and Other Services ........................ B-20
Brokerage Allocation and Other Practices ...................... B-24
Capital Shares, Other Securities and Organization ............. B-25
Purchase, Redemption and Pricing of Fund Shares ............... B-26
Shareholder Investment Account ................................ B-36
Net Asset Value ............................................... B-40
Taxes, Dividends and Distributions ............................ B-41
Performance Information. ...................................... B-44
Financial Statements .......................................... B-46
Report of Independent Accountants ............................. B-59
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
Appendix IV-Five Percent Shareholder Report ................... IV-1
</TABLE>
================================================================================
MF149B
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.
(American Depositary Receipts and American Depositary Shares 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 costs attributable to foreign investing are higher than the costs of
domestic investing. For example, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for domestic securities, and
transaction and settlement costs of foreign investing are frequently higher than
those attributable to domestic investing. Foreign investment income may be
subject to foreign withholding or other government taxes that could reduce the
return to the Fund on those securities. Tax treaties between the United States
and certain foreign countries may, however, reduce or eliminate the amount of
foreign tax to which the Fund would be subject.
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, British Pound Sterling, Canadian Dollar, Japanese Yen, New
Zealand Dollar, Mexican Peso, Danish Kroner, Norwegian Kroner, Swedish Krona,
Swiss Franc and the Euro. 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. On January 1, 1999, 11 of the 15 member states of the
European Monetary Union introduced the "euro" as a common currency. During a
three year transitional period, the euro will coexist with each participating
state's currency and on July 1, 2002, the euro is expected to become the sole
currency of the participating states. During the transition period, the Fund
will treat the euro as a separate currency from that of any participating state.
The conversion may adversely affect the Fund if the euro does not take
effect as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Funds'
service providers,
B-2
<PAGE>
or by entities with which the Fund or its service providers do business, are not
capable of recognizing the euro as a distinct currency at the time of, and
following, euro conversion. In addition, the conversion could cause markets to
become more volatile.
The overall effect of the transition of member states' currencies to the
euro is not known at this time. It is likely that more general short- and
long-term ramifications can be expected, such as changes in the economic
environment and change in the behavior of investors, which would affect the
Fund's investments and its net asset value. In addition, although U.S. Treasury
regulations generally provide that the euro conversion will not, in itself,
cause a U.S. taxpayer to realize gain or loss, other changes that may occur at
the time of the conversion, such as accrual periods, holiday conventions,
indices, and other features may require the realization of a gain or loss by the
Fund as determined under existing tax law.
The Fund's Manager has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Fund and its service providers to
process transactions accurately and completely with minimal disruption to
business activities and (2) to obtain reasonable assurances that appropriate
steps have been taken by the Fund's other service providers to address the
conversion. The Fund has not borne any expense relating to these actions.
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, the European Investment Bank; the
European Coal and Steel Community, and the Asian Development Bank.
Foreign government securities also include mortgage-backed securities
issued or guaranteed by foreign entities including semi-governmental entities
and Brady Bonds, which are long-term bonds issued by governmental entities in
developing countries as part of a restructuring of their commercial loans.
A change in the value of a foreign currency against the US. dollar will
result in a corresponding change in the U.S. dollar value of the Fund's assets
denominated in that currency. These currency fluctuations can result in gains or
losses for the Fund. For example, if a foreign security increases in value as
measured in its currency, an increase in value of the U.S. dollar, relative to
the currency in which the foreign security is denominated can offset some or all
of such gains. These currency changes will also affect the Fund's return, income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency decreases after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions. Similarly, if an exchange rate for any such currency
decreases between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to be converted
into U.S. dollars in order to pay such expenses in U.S. dollars will be greater
than the equivalent amount of such currency at the time such expenses were
incurred. Under the Internal Revenue Code of 1986, as amended (the Internal
Revenue Code), changes in an exchange rate 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 will result in foreign exchange gains or
losses that increase or decrease distributable net investment income. Similarly,
dispositions of certain debt securities (by sale, at maturity or otherwise) at a
U.S. dollar amount that is higher or lower than the Fund's original U.S. dollar
cost may result in foreign exchange gains or losses, which will increase or
decrease distributable net investment income. Gains and losses on security and
currency transactions cannot be predicted. This fact coupled with the different
tax and accounting treatment of certain currency gains and losses increases the
likelihood of distributions in whole or in part constituting a return of capital
to shareholders.
The Fund's interest income from Foreign Government securities issued in
local markets may, in some cases, be subject to applicable withholding taxes
imposed by governments in such markets. The Fund may sell a foreign security it
owns prior to maturity in order to avoid foreign withholding taxes on dividend
and interest income and buy back the same security for a future settlement date.
Interest on Foreign Government securities is not generally subject to foreign
withholding taxes. See "Taxes, Dividends and Distributions."
Investing in the fixed-income markets of emerging market countries involves
exposure to economies that are generally less diverse and mature, and to
political systems which can be expected to have less stability than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of developed
countries. The risks associated with investments in foreign securities,
described above, may be greater with respect to investments in developing
countries.
B-3
<PAGE>
Returns available from foreign currency denominated debt Instruments can be
adversely affected by changes in exchange rates. The Fund's investment adviser
believes that the use of foreign currency hedging techniques, including
"cross-currency hedges" may assist, under certain conditions, in helping to
protect against declines in the U.S. dollar value of income available for
distribution to shareholders and declines in the U.S. dollar value of income
available for distribution to shareholders and declines in the net asset value
of the Fund's shares resulting from adverse changes in currency exchange rates.
However, there can be no assurance that the Fund will be able to engage in
cross-currency hedging or that foreign exchange rate relationships will be
sufficiently predictable to enable the investment adviser to employ
cross-currency hedging techniques successfully. A cross-currency hedge cannot
protect against exchange rate risks perfectly, and if the investment adviser is
incorrect in its judgment of future exchange rate relationships, the Fund could
be in a less advantageous position than if such a hedge had not been
established.
The Fund may invest in component parts of debt securities of foreign
governments or semi-governmental entities, namely either the corpus (principal)
of such obligations or one or more of the interest payments scheduled to be paid
on such obligations. These securities may take the form of (1) obligations from
which the interest coupons have been stripped (principal only); (2) the interest
coupons that are stripped (interest only); (3) book entries at a bank
representing ownership of obligation components; or (4) receipts evidencing the
component parts (corpus or coupons) of obligations that have not actually been
stripped. Such receipts evidence ownership of component parts of obligations
(corpus or coupons) purchased by a third party (typically an investment banking
firm) and held on behalf of the third party in physical or book-entry form by a
major commercial bank or trust company pursuant to a custody agreement with the
third party. The Fund may also invest in custodial receipts held by a third
party. Stripped securities are, in general, more sensitive to interest rate
changes than securities that have not been stripped. Combined with investments
in similar U.S. Government securities, the Fund will not invest more than 10% of
its total assets in such securities.
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) or, if unrated, deemed comparable by the Subadviser. 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 or, if unrated, deemed comparable by the Subadviser. Unrated securities
may, but are not necessarily, deemed to be lower rated securities by the
Subadviser.
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). The markets in which medium and
lower-rated securities (or unrated securities that are equivalent to medium and
lower-rated securities) are traded are generally more limited than those in
which higher-rated securities are traded. The existence of limited markets may
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value. Moreover,
the lack of a liquid trading market may restrict the availability of debt
securities for the Fund to purchase and may also have the effect of limiting the
ability of the Fund to sell debt securities at their fair value either to meet
redemption requests or to respond to changes in the economy or the financial
markets. Lower rated or, if unrated, deemed comparable by the investment adviser
(such as, high yield or "junk bonds") 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 securities, under these circumstances, may be
less than the prices used in calculating the Fund's net asset value.
Lower rated 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.
B-4
<PAGE>
Ratings of fixed-income securities represent the rating agency's opinion
regarding their credit quality and are not a guarantee of quality. Rating
agencies attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than a rating indicates. See "Description of Security Ratings."
Subsequent to its purchase by the Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of these securities by the Fund, but
the Subadviser will consider this event in its determination of whether the Fund
should continue to hold the securities.
During the year ended October 31, 1998, the monthly dollar weighted average
ratings of the debt obligations held by the Fund, expressed as a percentage of
the Fund's total investments, were as follows:
PERCENTAGE OF TOTAL
RATINGS INVESTMENTS
- ------------------- --------------------
AAA/Aaa ......... 52.17%
AA/Aa ........... 12.38
A/A ............. 10.63
BBB/Baa ......... 9.72
BB/Ba ........... 13.82
B/B ............. 0.78
CCC/Caa ......... 0.29
Unrated ......... 0.21
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 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."
B-5
<PAGE>
EQUITY AND EQUITY-RELATED SECURITIES
Equity-related securities include common stocks, non-convertible 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, real estate investment trusts, American Depositary
Receipts (ADRs), American Depositary Shares (ADSs) 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 may 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 stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the 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 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.
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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.
RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
The Fund also may engage in various portfolio strategies, including using
derivatives, to seek to reduce certain risks of its investments and 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, foreign currency forward contracts and futures contracts, and
options on such contracts. The Fund's ability to use these strategies may be
limited by various factors, such as market conditions, regulatory limits and tax
considerations, and there can be no assurance any of these strategies will
succeed. See "Taxes, Dividends and Distributions" below. If new financial
products and risk management techniques are developed, the Fund may use them 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 seek to enhance return or to protect against adverse
price fluctuations in securities in the Fund's portfolio. These options will be
on equity securities and financial indices (for example, 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, as
the writer of a put option, might, therefore, be obligated to purchase the
underlying securities for more than their current market price.
The Fund may wish to protect certain portfolio securities against a decline
in market value through purchase of put options on other securities which The
Prudential Investment Corporation, doing business as Prudential Investments
(Prudential Investments), and PRICOA Asset Management Ltd (PRICOA, and together
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 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.
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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 the fulfillment of every exchange-traded
option transaction. In contrast, OTC options are contracts between the Fund and
its counterparty with no clearing organization guarantee. Thus, when the Fund
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction. The
Board of Directors of the Fund 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 counterparty, the Fund may be unable to liquidate
an OTC option.
OTC options purchased by the Fund will be treated as illiquid securities
subject to any applicable limitation on such securities. Similarly, the assets
used to "cover" OTC options written by the Fund will be treated as illiquid
unless the OTC options are sold to qualified dealers who agree that the Fund may
repurchase any OTC options it writes for a maximum price to be calculated by a
formula set forth in the option agreement. The "cover" for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.
The Fund will write only "covered" options. An option is covered if, as
long as the Fund is obligated under the option, it (1) owns an offsetting
position in the underlying security or (2) 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 foreign
currency forward 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
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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.
FOREIGN CURRENCY FORWARD CONTRACTS
The Fund's transactions in foreign currency forward contracts will be
limited to risk management involving either specific transactions or portfolio
positions. Transaction risk management 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 risk management 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 segregate cash or other liquid assets (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 segregated declines, additional cash or securities will
be segregated so that the value of the cash or other liquid assets 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 foreign
currency forward 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.
FUTURES CONTRACTS AND OPTIONS THEREON
The Fund will purchase or sell interest rate or currency futures contracts
to seek to take advantage of or to protect the Fund against fluctuations in
interest rates affecting the value of debt securities which the Fund holds or
intends to acquire and may also purchase or sell currency futures contracts and
options thereon to manage currency risks. Since the futures market may be more
liquid than the cash market, the use of futures contracts as a risk management
technique permits the Fund to maintain a defensive position without having to
sell portfolio securities.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time.
At the time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment (initial margin). It is expected that
the initial margin on U.S. exchanges will vary from one-half of 1% to 4% of the
value of the securities or commodities underlying the contract. Under certain
circumstances, however, such as periods of high volatility, the Fund may be
required by an exchange to increase the level of its initial margin payment.
Thereafter, the futures contract is valued daily and the payment of "variation
margin" may be required, a process known as "mark to the market." Each day the
Fund is required to provide or is entitled to receive variation margin in an
amount equal to any decline (in the case of a long futures position) or increase
(in the case of a short futures position) in the contract's value since the
preceding day.
Certain futures contracts are settled on a net cash payment basis rather
than by the sale and delivery of the securities or currency underlying the
futures contracts. U.S. futures contracts are traded on exchanges that have been
designated as
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<PAGE>
"contract markets" by the Commodity Futures Trading Commission (the CFTC), an
agency of the U.S. Government, and must be executed through a futures commission
merchant (I.E., a brokerage firm) which is a member of the relevant contract
market. Futures contracts trade on these contract markets and the exchange's
affiliated clearing organization guarantees performance of the contracts as
between the clearing members of the exchange.
Although futures contracts by their term may require the actual delivery or
acquisition of underlying assets, in most cases the contractual obligation is
extinguished by offset before the expiration of the contract without having to
make or take delivery of the assets. The offsetting of a contractual obligation
is accomplished by buying (to offset an earlier sale) or selling (to offset an
earlier purchase) an identical futures contract calling for delivery in the same
month.
The ordinary spreads between values in the cash and futures markets, due to
difference in the character of those markets, are subject to distortions. Due to
the possibility of distortion, a correct forecast of general interest rate or
currency trends by the Subadviser may still not result in a successful
transaction.
Although the Fund believes that use of futures contracts will benefit the
Fund, if the Subadviser's judgment about the general direction of interest rates
or currency value is incorrect, the Fund's overall performance would be poorer
than if it had not entered into any such contracts.
RISKS OF RISK MANAGEMENT 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 possible need to defer
closing out certain "hedged" positions to avoid adverse tax consequences; (6)
the risk that the counterparty may be unable to complete the transaction; and
(7) the possible inability of the Fund to purchase or sell a portfolio security
at a time that otherwise would be favorable for it to do so, or the possible
need for the Fund to sell a portfolio security at a disadvantageous time, due to
the need for the Fund to maintain "cover" or to segregate assets in connection
with hedging transactions.
The Fund will generally purchase or sell 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 or sell OTC options only if the
investment adviser believes that the other party to the contract will continue
to make a market for such options.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FORWARD CONTRACTS
The Fund may enter into foreign currency forward 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 may 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.
ADDITIONAL RISKS OF OPTIONS ON SECURITIES AND CURRENCIES,
FUTURES CONTRACTS AND OPTIONS THEREON
Options, futures contracts, options on futures contracts and forward
contracts on securities and currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States, may not involve a clearing mechanism and related guarantees, and
are subject to the risk of governmental action affecting trading in, or the
prices of, the instrument being traded. 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
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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.
Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.
If so, this could limit the ability of the Fund fully to protect against these
risks.
Futures exchanges may establish daily limits in the amount that the price
of a futures contract or related options contract may vary either up or down
from the previous day's settlement price. Once the daily limit has been reached
in a particular contract, no trades may be made that day at a price beyond the
limit. The daily limit governs only price movements during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. Futures or options contract prices
could move to the daily limit for several consecutive trading days with little
or no trading and thereby prevent prompt liquidation of positions and subject
some traders to substantial losses. In such event, it may not be possible for
the Fund to close out a position, and in the event of adverse price movements,
the Fund would have to make daily cash payments of variation margin (except in
the case of purchased options).
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. If a secondary
market does not exist, it might not be possible to effect closing transactions
in particular options the Fund has purchased with the result that the Fund would
have to exercise the options in order to realize any profit. If the Fund is
unable to effect a closing purchase transaction in a secondary market in an
option the Fund has written, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise or
it otherwise covers its position. Reasons for the absence of a liquid secondary
market include the following: (1) there may be insufficient trading interest in
certain options; (2) restrictions may be imposed by a securities exchange on
operating 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 clearing organization 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 a particular class or series of
options) would cease to exist, although outstanding options would continue to be
exercisable in accordance with their terms.
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the maintenance of
a liquid market. Although the Fund generally will purchase or sell only those
futures contracts and options thereon for which there appears to be a liquid
market, there is no assurance that a liquid market on an exchange will exist for
any particular futures contract or option thereon at any particular time. In the
event no liquid market exists for a particular futures contract or option
thereon in which the Fund maintains a position, it will not be possible to
effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a
purchased option, exercise the option. In the case of a futures contract or an
option on a futures contract which the Fund has written and which the Fund is
unable to close, the Fund would be required to maintain margin deposits on the
futures contract or option and to make variation margin payments until the
contract is closed.
LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS, OPTIONS ON
FUTURES CONTRACTS AND FOREIGN CURRENCY FORWARD CONTRACTS
The Fund will engage in transactions in interest rate foreign currency
futures contracts and options thereon only to reduce certain risks of its
investments and to attempt to enhance return in each case in accordance with the
rules and regulations of the CFTC, and not for speculation.
In accordance with CFTC regulations, the Fund may not purchase or sell
futures contracts or options thereon if the initial margin and premium therefor
exceed 5% of the market value of the Fund's total assets after taking into
account unrealized profits and unrealized losses on such contracts; provided,
however, that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The above restriction does not apply to the purchase and sale of
futures contracts and options there on BONA FIDE hedging purposes within the
meaning of the CFTC regulations. In instances involving the purchase of futures
contracts or call options thereon or the writing of put options thereon by the
Fund, an amount of cash or other liquid assets equal to the market value of the
futures contracts and options thereon (less any related margin deposits), will
be deposited in a segregated account with the Custodian to cover the position,
or alternative cover will be employed thereby insuring that the use of such
futures contracts and options is unleveraged.
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CFTC regulations may impose limitations on the Fund' ability to engage in
certain yield enhancement and risk management strategies. These are no
limitations on the Fund's use of futures contracts and options on futures
contracts beyond the restrictions set forth above.
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 foreign currency forward 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. Also 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, they also tend to
limit any potential gain which might result should the value of such currency
increase. The Fund's ability to enter into foreign currency forward 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.
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WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund's Custodian 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 against-the-box which is a short sale in
which the Fund owns an equal amount of the securities sold short or owns
securities convertible into or exchangeable without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Fund's money is invested in the
repurchase agreement. The Fund's repurchase agreements will at all times be
fully collateralized by cash and liquid securities 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 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 the Manager pursuant to an order of the 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 up to 20% of the value of its total assets (calculated
when the loan is made) from banks for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20% of
its total assets to secure these borrowings. If the Fund borrows to invest in
securities, any investment gains made on the securities in excess of interest
paid on the borrowing will cause the net asset value of the shares to rise
faster than would otherwise be the case. On the other hand, if the investment
performance of the additional securities purchased fails to cover their cost
(including any interest paid on the money borrowed) to the Fund, the net asset
value of the Fund's shares will decrease faster than would otherwise be the
case. This is the speculative factor known as "leverage." If the Fund's asset
coverage for borrowings falls below 300%, the Fund will take prompt action to
reduce its borrowings. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell portfolio
securities to reduce the debt and restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. The Fund will not purchase portfolio securities when borrowings
exceed 5% of the value of its total assets.
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
B-13
<PAGE>
the loaned securities. 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 or 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 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
The Fund will segregate with its Custodian, State Street Bank and Trust
Company (State Street), cash, U.S. Government securities, equity securities
(including foreign securities), debt securities or other liquid, unencumbered
assets equal in value to its obligations in respect of potentially leveraged
transactions. These include forward contracts, when-issued and delayed delivery
securities, futures contracts, written options and options on futures contracts
(unless otherwise covered). If collateralized or otherwise covered, in
accordance with Commission guidelines, these will not be deemed to be senior
securities. The assets segregated will be 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. 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 of 1933, as amended (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
B-14
<PAGE>
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 privately placed, commercial paper for which there is a
readily available market are treated as liquid only when deemed liquid under
procedures established by the Directors. The investment adviser will monitor the
liquidity of such restricted securities subject to the supervision of the
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. In
reaching liquidity decisions, the investment adviser will consider, inter alia,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the
marketplace trades (for example, 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.
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." The Fund will also treat non-U.S. Government
interest-only and principal-only mortgage backed security strips as illiquid so
long as the staff of the Commission maintains its position that such securities
are illiquid.
(C) DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in securities denominated in U.S. dollars or U.S. Treasury
securities or hold cash.
(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 40% 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."
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.
(2) Make short sales of securities or maintain a short position, except
short sales "against-the-box."
B-15
<PAGE>
(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 AND ADDRESS** (AGE) WITH FUND DURING PAST FIVE YEARS
- --------------------------- -------------------- ------------------------------------------------------------------
<S> <C> <C>
Edward D. Beach (74) 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 44 funds within the Prudential Mutual Funds.
Delayne Dedrick Gold (60) Director Marketing and Management Consultant and Director or Trustee of
44 funds within the Prudential Mutual Funds.
* Robert F. Gunia (52) 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 44 funds within the Prudential Mutual Funds.
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) WITH FUND DURING PAST FIVE YEARS
- ------------------------------ ----------- -------------------------------------------------------------------
<S> <C> <C>
Douglas H. McCorkindale (59) 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 22 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 49 funds within
the Prudential Mutual Funds.
Thomas T. Mooney (57) 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 Director or
Trustee of 34 funds within the Prudential Mutual Funds.
Stephen P. Munn (56) 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 18 funds within the
Prudential Mutual Funds.
* Richard A. Redeker (55) Director Employee of Prudential Investments; formerly President, Chief
Executive Officer and Director (October 1993-September 1996)
of Prudential Mutual Fund Management, Inc.; Executive Vice
President, Director and Member of Operating Committee
(October 1993-September 1996) of Prudential
Securities, Director (October 1993-September
1996) of Prudential Securities Group, Inc.;
Executive Vice President (January 1994-September
1996) of The Prudential Investment Corporation;
Director of Prudential Mutual Fund Distributors,
Inc. and Prudential Mutual Fund Services, Inc.,
and Senior Executive Vice President and Director
(September 1978- September 1993) of Kemper
Financial Services, Inc.; Director or Trustee of
30 funds within the Prudential Mutual Funds.
Robin B. Smith (59) Director Chairman and Chief Executive Officer (since August 1996) of
Publishers Clearing House; 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 32 funds within the Prudential Mutual
Funds.
</TABLE>
B-17
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) WITH FUND DURING PAST FIVE YEARS
- --------------------------- --------------------- ----------------------------------------------------------------
<S> <C> <C>
*Brian M. Storms (44) President and President (since October 1998) of Prudential Investments;
Director President (September 1996-October 1998) of Prudential Mutual
Funds, Annuities and Investment Management
Services; Managing Director (July 1991-September
1996) of Fidelity Investment[s] Institutional
Services Company, Inc.; President (October
1989-September 1991) of J.K. Schofield; Senior
Vice President (September 1982-October 1989) of
INVEST Financial Corporation and Director or
Trustee of 48 funds within the Prudential Mutual Funds.
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 30 funds within the
Prudential Mutual Funds.
Clay T. Whitehead (60) Director President (since May 1983) of National Exchange Inc. (new
business development firm) and Director or Trustee of 18 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 (45) Assistant Tax Director (since March 1996) of Prudential Investments;
Treasurer 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.
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 currently 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. The amount of annual compensation
paid to each Director may change as a result of the introduction of additional
Funds on the Boards of which the Directors may be asked to serve.
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.
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, 1998.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL 1998 COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME OF DIRECTOR FROM FUND EXPENSES RETIREMENT TRUSTEES
- ---------------------------- -------------- ------------------ ------------------ ------------------------
<S> <C> <C> <C> <C>
Edward D. Beach $2,250 None N/A $ ( )*
Delayne D. Gold $2,250 None N/A $ ( )*
Robert F. Gunia+ - None None None
Donald D. Lennox (retired) $ 625 $90,000 (26,52)*
Douglas H. McCorkindale** $2,250 None N/A $ ( )*
Mendel A. Melzer+ - None None None
Thomas T. Mooney** $2,250 None N/A $ ( )*
Stephen P. Munn $2,250 None N/A $ ( )*
Richard A. Redeker+ - None None None
Robin B. Smith** $2,250 None N/A $ ( )*
Brian M. Storms+ - None None None
Louis A. Weil, III $2,250 None N/A $ ( )*
Clay T. Whitehead $2,250 None N/A $ ( )*
</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, 1998, includes amounts deferred at the election of
Directors under the funds' deferred compensation plans. Including accrued
interest, total compensation amounted to $ , $ and $ for Messrs. McCorkindale
and Mooney and Ms. Smith, respectively.
+ 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 contingent deferred
sales charge to a limited group of investors.
As of December 11, 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, for Classes A, B and C. For Class Z shares, Douglas
McCorkindale owned 207 shares and Robin B. Smith owned 589 shares, comprising a
combined total of approximately 12.7% of the outstanding Class Z shares of
beneficial interest.
B-19
<PAGE>
As of December 11, 1998, the entities owning more than 5% of the
outstanding voting securities of the classes indicated are listed on: Appendix
IV.
As of December 11, 1998, Prudential Securities was record holder of
6,441,058 Class A shares (or 79% of the outstanding Class A shares), 121,771
Class B shares (or 74% of the outstanding Class B shares), 5,191 Class C shares
(or 76% of the outstanding Class C shares) and 5,425 Class Z shares (or 87% 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.
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 $69 billion. According to the
Investment Company Institute, as of November 30, 1998, the Prudential Mutual
Funds were the 18th 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).
B-20
<PAGE>
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the Manager
or the Subadviser, (c) the fees and certain expenses of the Custodian and
Transfer Agent, including the cost of providing records to the Manager in
connection with its obligation of maintaining required records of the Fund and
of pricing the Fund's shares, (d) the charges and expenses of legal counsel and
independent accountants for the Fund, (e) brokerage commissions and any issue or
transfer taxes chargeable to the Fund in connection with its securities
transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade associations of which the Fund
may be a member, (h) the cost of 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, ,(k) allocable communications expenses with
respect to investor services and all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders in the amount necessary for distribution to the
shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees.
The Management Agreement provides that the Manager will not be liable for
any error of judgment or for any loss suffered by the Fund in connection with
the matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. The Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act.
For the fiscal years ended October 31, 1998, 1997 and 1996, the Manager
received management fees of $419,960, $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 PI 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. In turn, PRICOA is
reimbursed by the Subadviser for its reasonable costs and expenses incurred in
furnishing advisory services. Between October 1 and October 31, 1997 and the
fiscal year ended October 31, 1998, PRICOA was paid $ and $ , respectively.
The PI 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 PI 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 PI Subadvisory Agreement
provides that it will continue in effect for a period of more than two years
from its execution only so long as such continuance is specifically approved at
least annually in accordance with the requirements of the Investment Company
Act. The PRICOA Subadvisory Agreement provides that PRICOA can terminate it on
60 days' written notice and that the Subadviser can terminate it any time and
the termination would take effect immediately. The PRICOA Subadvisory Agreement
also provides that it will terminate automatically in the event of its
assignment (as defined in the Investment Company Act).
(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.
B-21
<PAGE>
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 and/or the
maintenance 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 $42,891 and, $67,888 respectively,
under the Class A Plan and spent approximately $38,000 and $60,500,
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 $800 and
$1,600, 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 has voluntarily limited its distribution related fees payable under
both the Class B and Class C Plans to .75 of 1% of average daily net assets.
This voluntary waiver may be terminated at any time without notice. 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 $5,554 and $12,425, respectively, from the
Fund under the Class B Plan and spent approximately $2,570 and $7,067,
respectively, in distributing the Fund's Class B shares. It is estimated that of
the amount spent approximately 0%, 16.8% ($0, $1,185) was spent on printing and
mailing of prospectuses to other than current shareholders; 25.0%, 12.3% ($643,
$872) 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 20.0%, 52.0% ($1,927, $5,010) on the aggregate of (1) payments
of commissions and account servicing fees to financial advisers (16.2%, 40.3% or
$1,557, $3,888) and (2) an allocation of overhead and other branch office
distribution-related expenses for payments of related expenses (3.8%, 28.9% or
$370, $1,122). The term "overhead and other branch office distribution-related
expenses" represents (a) the expenses of operating Prudential Securities' and
Pruco 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
$4,800 and $2,100, respectively, in contingent deferred sales charges
attributable to Class B shares.
B-22
<PAGE>
CLASS C PLAN. For the fiscal year ended October 31, 1998, the Distributor
and Prudential Securities received $193 and $284, respectively, under the Class
C Plan and spent approximately $191 and $294, respectively, in distributing
Class C shares. It is estimated that of the $477, approximately 0%, 11.2% ($0,
$33) was spent on printing and mailing of prospectuses to other than current
shareholders; 0%, 0% ($0, $0) 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 39.4%, 53.8% ($191, $261) on the aggregate of (1) payments of
commissions and account servicing fees to financial advisers (28.2%, 36.5% or
$137, $177) and (2) an allocation of overhead and other branch office
distribution-related expenses for payments of related expenses (11.1%, 17.3% or
$54, $84).
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 $0
and $600, 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.
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 to dealers (including Prudential Securities) and other persons
which distribute shares of the Fund (including Class Z shares). Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.
FEE WAIVERS/SUBSIDIES
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has waived a portion of its distribution fees as described
above. These voluntary waivers may be terminated at any time. Fee waivers and
subsidies will increase the Fund's total return.
(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
B-23
<PAGE>
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 $13.00 per shareholder account, a new
account set-up fee of $2.00 for each manually established account and a monthly
inactive zero balance account fee of $0.20 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 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
B-24
<PAGE>
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 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, 1998, 1997 and 1996, the Fund did
not pay any brokerage commissions, including none to Prudential Securities.
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 no
such securities.
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.
B-25
<PAGE>
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon 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 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 "How to Buy, Sell and Exchange Your Shares of the
Fund" in the Prospectus.
Each class of shares represents an interest in the same assets of the Fund
and is identical in all respects except that (i) each class is subject to
different 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 "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) are approved by the Fund's investment adviser.
B-26
<PAGE>
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:
<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share ................. $ 7.80
Maximum sales charge (3% of offering price) ............................ .24
-------
Maximum offering price to public ....................................... $ 8.04
=======
CLASS B
Net asset value, redemption price and offering price per Class B share* $ 7.85
=======
CLASS C
Net asset value and redemption price per Class C share* ................ $ 7.85
Sales Charge (1% of offering price) .................................... .08
-------
Offering price to public ............................................... $ 7.93
=======
CLASS Z
Net asset value, redemption price and offering price per Class Z share . $ 7.84
=======
</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 for more than 2 years, but less than
3 years, you may consider purchasing Class B or Class C shares because: (1) the
contingent-deferred sales load plus the cumulative annual distribution-related
fee on Class B shares; and (ii) the maximum 1% initial sales charge plus the
cumulative annual distribution-related fee on Class C shares would be lower than
the maximum 3% initial sales charge plus the cumulative annual
distribution-related fee on Class A shares. 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 intend to hold your investment for more than 3 years, but less than
4 years, you may consider purchasing Class A shares because the maximum 3%
initial sales charge plus the cumulative annual distribution-related fee on
Class A shares would be lower than: (i) the contingent-deferred sales charge
plus the cumulative annual distribution-related fee on Class B shares; and (ii)
the maximum 1% initial sales charge plus the cumulative annual
distribution-related fee on Class C shares.
If you intend to hold your investment for more than 4 years, but less than
5 years, you may consider purchasing Class A or Class B shares because the
maximum 3% initial sales charge plus the cumulative annual distribution-related
fee on Class A shares and the cumulative annual distribution-related fee on
Class B shares would be less than the maximum 1% initial sales charge plus the
cumulative annual distribution-related fee on Class C shares.
If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than the cumulative
annual distribution-related fee on Class B shares and less than the initial
sales charge plus the cumulative annual distribution-related fee on Class C
shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless or how long you intend to hold you 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 your
purchase Class C shares, you would have to hold your investment for more than 3
years for the higher cumulative annual distribution-related fee on the Class C
shares plus the 1% initial sales charge to exceed the initial sales charge plus
cumulative annual distribution-related fee on Class A shares. This does not take
into account the time value of money, which further reduces the impact of the
higher Class C distribution-related fee on the investment, fluctuations in NAV,
the effect of the return on the investment over this period of time or
redemptions when the CDSC is applicable.
B-27
<PAGE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGE-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 401(a), 457 and 403(b)(7) of the
Internal Revenue Code, "rabbi" trusts and non-qualified deferred compensation
plans that are sponsored by any employer that has a tax qualified plan with
Prudential (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.
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 provides
administrative or recordkeeping services, 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 or
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 Benefit Plans of a company (or affiliated companies under
common control) for which Prudential serves as plan administrator or
recordkeeper are aggregated in meeting the $1 million threshold, provided that
Prudential has been notified in advance of the entitlement to the waiver of the
sales charge based on the aggregated assets. 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 Investment Account (GIA), a group annuity insurance product issued by
Prudential, the Guaranteed Insulated Separate Account, a separate account
operated by Prudential, and units of The Stable Value Fund (SVF), an
unaffiliated bank collective fund. Class A shares may also be purchased at NAV
by plans that have monies invested in GIA and SVF, provided (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 a 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,
B-28
<PAGE>
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
(1) 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, (2) 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 (3) 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 in a directed rollover to such Individual Retirement Account or with
the proceeds of a tax-free rollover of assets from a Benefit Plan for
which Prudential provides administrative or recordkeeping services and
further provided that such purchase is made within 60 days of receipt of
the Benefit Plan distribution,
o orders placed by broker-dealers, investment advisers or financial
planners who have entered into an agreement with the Distributor, who
place trades for their own accounts or the accounts of their clients and
who charge a management, consulting or other fee for their services (for
example mutual fund "wrap" or asset allocation programs and
o orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the accounts
are linked to the master account of such broker-dealer, investment
adviser or financial planner and the broker-dealer, investment adviser or
financial planner charges its clients a separate fee for its services
(for example mutual fund "supermarket programs").
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 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-How to
Buy Shares-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).
B-29
<PAGE>
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. 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, 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
B-30
<PAGE>
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 2% of the purchase
price at the time of the sale.
WAIVER OF INITIAL SALES CHARGE-CLASS C SHARES
BENEFITS PLANS. Class C Shares may be purchased at NAV, without payment of
an initial sales charge, by Benefits Plans (as defined above). In the case of
Benefits 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 Benefits Plans) and
Benefits Plans sponsored by Prudential, Prudential Securities or its
subsidiaries (Prudential Securities or Subsidiary Prototype Benefits Plans),
Class C shares may be purchased at NAV by participants who are repaying the
loans made from such plans to the participant.
PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived with
respect to purchases of Class C shares by qualified and non-qualified retirement
and deferred compensation plans participating in a PruArray Plan and other
plans for which Prudential provides administrative or recordkeeping services.
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Class C shares at NAV, without the initial sales charge,
with the proceeds from the redemption of shares of any unaffiliated registered
investment company which were not held through an account with any Prudential
affiliate. Such purchases must be made within 60 days of the redemption.
Investors eligible for this waiver include: (1) investors purchasing shares
through an account at Prudential Securities; (2) investors purchasing shares
through an Advantage Account or an Investor Account with PruSec; and (3)
Investors purchasing shares through other brokers. This waiver is not available
to investors who purchase shares directly from the Transfer Agent. You must
notify the Transfer Agent directly or through your broker if you are entitled to
this waiver and provide the Transfer Agent with such supporting documents as it
may deem appropriate.
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 or trust program sponsored by an
affiliate of the Distributor 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 an affiliate of the Distributor for whom Class Z
shares of the Prudential Mutual Funds are an available investment
option;
o Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and as of September 20, 1996,
(1) were Class Z shareholders of the Prudential Mutual Funds or (2)
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, 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.
B-31
<PAGE>
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.
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, the Distributor or the investor's
broker. 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, and your shares
are held directly with the Transfer Agent 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 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.
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
B-32
<PAGE>
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 (one
year for Class C Shares purchased before November 2, 1998). 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 four 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.
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
for Class B shares and 18 months for Class C shares (one year for Class C shares
purchased before November 2, 1998); 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.
B-33
<PAGE>
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 59-1/2 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 59-1/2; 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.
Finally, the CDSC will be waived to the extent that the proceeds from
shares redeemed are invested in Prudential Mutual Funds. The Guaranteed
Investment Account, the Guaranteed Insulated Separate Account, or units of the
Stable Value Fund.
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 their broker, 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)
or mental impairment which can be expected to result in is permanently disabled. The letter must also indicate the
death or to be of long-continued and indefinite duration. date of disability.
</TABLE>
B-34
<PAGE>
<TABLE>
<S> <C>
Distribution from an IRA or 403(b) Custodial Account A copy of the distribution form from the custodial firm
indicating (i) the date of birth of the shareholder and
(ii) that the shareholder is over age 59 1/2 and is
taking a normal distribution-signed by the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the plan
administrator/trustee on company letterhead indicating
the amount of the excess and whether or not taxes have
been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
QUANTITY DISCOUNT-SHARES PURCHASED PRIOR TO AUGUST 1, 1994
While a quantity discount is not available for Class B shares of the Fund,
a quantity discount may apply to Class B shares of another Prudential Mutual
Fund acquired pursuant to the exchange of Class B shares of the Fund. The
applicable quantity discount, if any, will be that applicable to the shares
acquired as a result of the exchange of Class B shares of the Fund.
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 that
participate in the PruArray Plan and other plans for which Prudential provides
administrative or recordkeeping services. The CDSC will also be waived on
redemptions from Benefit Plans sponsored by Prudential and its affiliates to the
extent that the redemption proceeds are invested in The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account and units of The Stable Value
Fund.
OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit
Plans holding shares through a Dealer not affiliated with Prudential and for
which the broker provides administrative or recordkeeping services.
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
B-35
<PAGE>
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.
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 broker. 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.
B-36
<PAGE>
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, shares of Prudential
Government Securities Trust (Short-Intermediate Term Series) and shares of the
money market funds specified below. No fee or sales load will be imposed upon
the exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the exchange privilege only to acquire Class
A shares of the Prudential Mutual Funds participating in the exchange privilege.
The following money market funds participate in the Class A exchange
privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B
and Class C shares of the Fund for Class B and Class C shares, respectively, of
certain other Prudential Mutual Funds and shares of Prudential Special Money
Market Fund, Inc. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of 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
B-37
<PAGE>
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.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value. Similarly, participants in Prudential Securities' 401(k) Plan for which
the Fund's Class Z shares is an available option and who wish to transfer their
Class Z shares out of the Prudential Securities 401(k) Plan following separation
from service (i.e., voluntary or involtuntary termination of employment or
retirement) will have their Class Z share exchanged for Class A shares at NAV.
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
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
25 Years ............... $ 110 $ 165 $ 220 $ 275
20 Years ............... 176 264 352 440
15 Years ............... 296 444 592 740
10 Years ............... 555 833 1,110 1,388
5 Years ................ 1,371 2,057 2,742 3,428
See "Automatic Investment Plan."
</TABLE>
- ----------
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.
B-38
<PAGE>
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.
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 the Distributor 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.
B-39
<PAGE>
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
a traditional 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, such as to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as part of
a program. Since the allocation of portfolios included in the program may not be
appropriate for all investors, individuals should consult their financial
adviser 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
B-40
<PAGE>
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 foreign currency forward
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 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 capital gains of the Fund (I.E., the excess of net long-term capital gains
over net short-term capital losses) to be treated as long-term capital gains of
the shareholders, regardless of how long shareholders have held their shares in
the Fund. Net capital gains of the Fund which are available for distribution to
shareholders will be computed by taking into account any capital loss
carryforward of the Fund. For federal income tax purposes, the Fund had a
capital loss carryforward as of October 31, 1998, of approximately $52,716,100
of which $4,207,200 expires in 2000, $32,949,600 expires in 2001, $12,011,000
expires in 2002, $1,565,600 expires in 2003, $326,200 expires in 2004 and
$1,656,500 expires in 2006. Accordingly, no capital gains distributions are
expected to be paid to shareholders until future net gains have been realized in
excess of such carryforward.
Qualification of the Fund 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
B-41
<PAGE>
capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize short-term capital
gain or loss. If securities are sold by the Fund pursuant to the exercise of a
call option written by it, the Fund will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. Certain of the Fund's transactions may be subject to wash
sale, short sale, constructive sale, anti-conversion and straddle 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.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and foreign currency forward contracts in which the Fund may
invest. See "Description of the Fund, Its Investments and Risks." These
investments will generally constitute Section 1256 contracts and will be
required to be "marked to market" for federal income tax purposes at the end of
the Fund's taxable year; that is, treated as having been sold at market value.
Except with respect to certain foreign currency forward 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 stock
and 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" will be subject to certain
wash sale, short sale and constructive sale provisions of the Internal Revenue
Code. In the case of a straddle, 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 foreign currency
forward 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 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.
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.
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder.
B-42
<PAGE>
Net capital gain distributions paid to a foreign shareholder are generally not
subject to withholding tax. A foreign shareholder will, however, be required
to pay U.S. income tax on any dividends and capital gain distributions which are
effectively connected with a U.S. trade or business of the foreign shareholder.
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent a Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to foreign corporations, interest income, capital and
currency gain, gain or loss from Section 1256 contracts (described above) and
income from certain other sources will not constitute qualified dividends.
Individual shareholders are not eligible for the dividends-received deduction.
The Fund is required 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 all 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 that, in general meet either
of the following tests: (a) at least 75% of its gross income is passive or (b)
an average of at least 50% of its assets produce, or are held for the production
of, passive income. If the Fund acquires and holds stock in a PFIC beyond the
end of the year of its acquisition, the Fund will be subject to federal income
tax on a portion of any "excess distribution" received on the stock or of any
gain from disposition of the stock (collectively, PFIC income), plus interest
thereon, even if the Fund distributes the PFIC income as a taxable dividend to
its shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. The Fund may make a
"mark-to-market" election with respect to any marketable stock it holds of a
PFIC. If the election is in effect, at the end of the Fund's taxable year, the
Fund will recognize the amount of gains, if any, as ordinary income with respect
to PFIC stock. No loss will be recognized on PFIC stock, except to the extent of
gains recognized in prior years. Alternatively, the Fund, if it meets certain
requirements, may elect to treat any PFIC in which it invests as a "qualified
electing fund," in which case, in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its PRO
RATA share of the qualified electing fund's annual ordinary earnings and net
capital gain, even if they are not distributed to the Fund; those amounts would
be subject to the distribution requirements applicable to the Fund described
above.
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 will vary. The Fund does not expect
to meet the requirements of the Internal Revenue Code for "passing-through" to
its shareholders any foreign income taxes paid.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
Dividends and distributions may also be subject to state and local taxes.
B-43
<PAGE>
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).
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
(.08)%, 3.97% and 4.75%, 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 (.52)%, 4.03% and 4.44%, 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 1.48% and 5.60%,
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 3.28% and 3.89%, 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
(or fractional portion thereof) of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total returns for Class A shares for the one year, five year
and since inception periods ended on October 31, 1998 were 3.01%, 25.27% and
49.38%, 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
2.48%, 21.85% and 41.57%, respectively. The aggregate total returns for Class C
shares for the one year and since inception periods ended October 31, 1998 were
2.48% and 26.07%, respectively. The aggregate total returns for the Class Z
shares for the one year and since inception periods ended October 31, 1998 were
3.28% and 6.93%, 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.
B-44
<PAGE>
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 7.64%,
7.26%, 7.27% and 8.02% for the Class A, Class B, Class C and Class Z shares,
respectively.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.(1)
--------------------
A LOOK AT PERFORMANCE
OVER THE LONG-TERM
AVERAGE ANNUAL RETURNS
1/1/26 - 12/31/97
--------------------
[GRAPHIC OMITTED]
(1) SOURCE: IBBOTSON ASSOCIATES. 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>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PORTFOLIO OF INVESTMENTS AS OF
OCTOBER 31, 1998
=============================================================
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--85.0%
- ------------------------------------------------------------
AUSTRALIA--10.1%
A$ 3,750 Federal National Mortgage
Association,
6.375%, 8/15/07 $ 2,477,437
6,000 Queensland Treasury Corporation,
8.00%, 5/14/03 4,202,212
-----------
6,679,649
- ------------------------------------------------------------
CANADA--4.7%
C$ 2,000 British Columbia Municipal Fin.
Auth.,
6.75%, 4/24/07 1,386,734
2,500 Province of Quebec,
6.50%, 10/1/07 1,697,052
-----------
3,083,786
- ------------------------------------------------------------
DENMARK--6.8%
DKr 25,000 Danish Government Bonds,
7.00%, 12/15/04 4,511,015
- ------------------------------------------------------------
GERMANY--14.6%
DM 7,000 Deutsche Bundesrepublik Principal
Strip,
Zero Coupon, 7/4/07 2,936,999
4,250 German Government Bonds,
6.00%, 1/5/06 2,863,698
3,000 Republic of Columbia,
7.25%, 12/21/00 1,763,321
3,000 Tokyo Gas Co. Ltd.,
7.00%, 7/27/05 2,085,035
-----------
9,649,053
- ------------------------------------------------------------
GREECE--3.0%
Hellenic Republic,
GRD 200,000 11.00%, 11/26/99 695,278
40,000 9.20%, 3/21/02 141,329
325,000 12.70%, 12/31/03, FRN 1,151,189
-----------
1,987,796
HUNGARY--0.4%
HUF 50,000 Hungarian Government Bonds,
16.00%, 4/12/00 $ 228,985
- ------------------------------------------------------------
NETHERLANDS--2.2%
NLG 2,500 Dutch Government Bonds,
6.50%, 4/15/03 1,486,414
- ------------------------------------------------------------
NEW ZEALAND--4.5%
NZ$ 2,800 Federal National Mortgage
Association,
7.25%, 6/20/02 1,534,829
1,400 Int'l. Bank Recon. & Dev.,
7.25%, 5/27/03 768,895
1,200 New Zealand Government Bonds,
8.00%, 4/15/04 713,948
-----------
3,017,672
- ------------------------------------------------------------
RUSSIA--0.1%
European Bank Recon. & Dev.,
Rub 2,200 31.00%, 5/5/00 13,174
3,500 Zero Coupon, 5/28/02 7,335
-----------
20,509
- ------------------------------------------------------------
SPAIN--5.5%
Spanish Government Bonds,
Pts 200,000 10.30%, 6/15/02 1,731,629
225,000 8.00%, 5/30/04 1,909,745
-----------
3,641,374
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-46
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PORTFOLIO OF INVESTMENTS AS OF
OCTOBER 31, 1998
=============================================================
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
SWEDEN--2.7%
SEK 13,000 Swedish Government Bonds,
6.00%, 2/9/05 $ 1,809,068
- ------------------------------------------------------------
UNITED KINGDOM--3.5%
BP 447 Banco Central Del Uruguay, FRN,
8.875%, 2/19/07 642,026
900 Powergen PLC,
8.875%, 3/26/03 1,639,056
-----------
2,281,082
- ------------------------------------------------------------
UNITED STATES--26.9%
CENTRAL BANKS--1.1%
US$ 750 Banco del Estado Chile,
8.39%, 8/1/01 746,295
- ------------------------------------------------------------
SOVEREIGN BONDS--5.6%
500 Jamaican Government Bonds,
9.625%, 7/2/02 400,000
Ministry of Finance (Russia),
600 9.25%, 11/27/01 172,800
1,000 10.00%, 6/26/07 241,250
1,466 Republic of Croatia, FRN,
6.5625%, 7/31/06 1,069,989
400 Republic of Lithuania,
7.125%, 7/22/02 360,000
500 Sultan of Oman,
7.125%, 3/20/02 505,000
1,015 Trinidad & Tobago Republic,
9.75%, 11/3/00 982,013
-----------
3,731,052
SUPRANATIONAL BONDS--0.7%
US$ 500 Corporacion Andina de Formento,
6.1625%, 4/3/01 $ 490,000
- ------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--19.5%
United States Treasury Bonds,
4,750 6.125%, 9/30/00 4,904,375
1,000 7.875%, 11/15/04 1,175,780
1,000 5/15/05, P/O 739,330
5,500 6.25%, 2/15/07 6,099,830
-----------
12,919,315
-----------
17,886,662
-----------
Total long-term investments
(cost US$57,978,825) 56,283,065
-----------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--13.2%
- ------------------------------------------------------------
HUNGARY--1.4%
Hungarian Government Bonds,
HUF 65,000 16.50%, 4/12/99 298,800
130,000 16.50%, 7/24/99 598,188
-----------
896,988
- ------------------------------------------------------------
NETHERLANDS--1.6%
NLG 2,000 Republic of Argentina,
7.625%, 7/5/99 1,027,975
- ------------------------------------------------------------
POLAND--1.3%
Polish Treasury Bills,
PLN 1,700 15.30%, 2/17/99 469,788
600 15.25%, 3/3/99 164,755
900 15.25%, 4/28/99 240,374
-----------
874,917
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-47
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PORTFOLIO OF INVESTMENTS AS OF
OCTOBER 31, 1998
=============================================================
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
UNITED STATES--2.9%
US$ 1,000 Cadbury Schweppes, PLC,
6.25%, 10/4/99 $ 1,009,500
1,000 Petroleas Mexicano, FRN,
6.59375%, 3/8/99 987,000
-----------
1,996,500
- ------------------------------------------------------------
REPURCHASE AGREEMENT--6.0%
3,956 Joint Repurchase Agreement
Account,
5.40%, 11/2/98, (Note 5) 3,956,000
-----------
Total short-term investments
(cost US$8,923,920) 8,752,380
-----------
- ------------------------------------------------------------
TOTAL INVESTMENTS--98.2%
(cost US$66,902,745; Note 4) 65,035,445
Other assets in excess of
liabilities--1.8% 1,163,701
-----------
Net Assets--100% $66,199,146
===========
</TABLE>
- ---------------
Portfolio securities are classified by country according to the security's
currency denomination.
FRN--Floating Rate Note.
P/O--Principal Only.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-48
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Statement of Assets and Liabilities LIMITED MATURITY PORTFOLIO
================================================================================
<TABLE>
<CAPTION>
ASSETS OCTOBER 31, 1998
-----------------
<S> <C>
Investments, at value (cost $66,902,745)............................$65,035,445
Foreign currency, at value (cost $693).............................. 725
Cash................................................................ 918
Interest receivable.................................................. 1,706,869
Forward currency contracts--net amount receivable from counterparties. 33,575
Other assets.......................................................... 2,346
----------------
Total assets..................................................... 66,779,878
----------------
LIABILITIES
Accrued expenses....................................................... 211,379
Payable for Fund shares reacquired..................................... 147,287
Dividends payable...................................................... 119,982
Forward currency contracts - net amount payable to counterparties...... 60,939
Management fee payable................................................. 31,222
Distribution fee payable............................................... 9,324
Withholding taxes payable.............................................. 599
----------------
Total liabilities................................................... 580,732
----------------
Net Assets.................................................. $ 66,199,146
================
Net assets were comprised of:
Common stock, at par.......................................... $ 8,481
Paid-in capital in excess of par.............................. 120,850,582
---------------
120,859,063
Distributions in excess of net investment income................ (93,217)
Accumulated net realized loss on investments.................... (52,716,140)
Net unrealized depreciation on investments and
foreign currencies........................................... (1,850,560)
----------------
Net assets, October 31, 1998..................................... $ 66,199,146
================
Class A:
Net asset value and redemption price per share
($64,537,552 / 8,269,780 shares of common stock issued and
outstanding)............................................................. $7.80
Maximum sales charge (3.00% of offering price.......................... .24
----------------
Maximum offering price to public...................................... $8.04
================
Class B:
Netasset value, offering price and redemption price per share ($1,561,964 /
198,916 shares of common stock issued
and outstanding)................................................. $7.85
================
Class C:
Netasset value, offering price and redemption price per share ($50,932 /
6,486 shares of common stock issued
and outstanding)................................................. $7.85
================
Class Z:
Net asset value, offering price and redemption price per share ($48,698 /
6,212 shares of common stock issued
and outstanding)................................................. $7.84
================
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-49
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
STATEMENT OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED
NET INVESTMENT INCOME OCTOBER 31, 1998
----------------
<S> <C>
Income
Interest (net of foreign withholding tax of
$564) .................................. $ 6,122,897
----------------
Expenses
Management fee............................. 419,960
Distribution fee--Class A.................. 110,779
Distribution fee--Class B.................. 17,979
Distribution fee--Class C.................. 477
Custodian's fees and expenses.............. 150,000
Transfer agent's fees and expenses......... 136,000
Reports to shareholders.................... 96,000
Registration fees.......................... 55,000
Audit fees and expenses.................... 30,000
Directors' fees and expenses............... 19,000
Legal fees and expenses.................... 15,000
Miscellaneous.............................. 7,247
----------------
Total expenses.......................... 1,057,442
----------------
Net investment income......................... 5,065,455
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS Net realized gain (loss) on:
Investment transactions.................... (3,154,390)
Foreign currency transactions.............. (589,791)
----------------
(3,744,181)
----------------
Net change in unrealized appreciation (depreciation) of:
Investments................................ 608,777
Foreign currencies......................... 601,701
----------------
1,210,478
----------------
Net loss on investments and foreign
currencies................................. (2,533,703)
----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................... $ 2,531,752
================
</TABLE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
INCREASE (DECREASE) YEAR ENDED OCTOBER 31,
-----------------------
IN NET ASSETS 1998 1997
-----------------------
<S> <C> <C>
Operations
Net investment income......... $ 5,065,455 $ 6,948,119
Net realized gain (loss) on
investment and foreign
currency transactions...... (3,744,181) 3,939,377
Net change in unrealized
appreciation (depreciation)
of investments and foreign
currencies................. 1,210,478 (5,664,378)
---------------- ------------
Net increase in net assets
resulting from operations..... 2,531,752 5,223,118
---------------- ------------
Dividends and distributions (Note
1):
Dividends from net investment income
Class A.................... (4,900,891) (5,803,256)
Class B.................... (157,098) (1,137,460)
Class C.................... (4,724) (7,370)
Class Z.................... (2,742) (33)
---------------- ------------
(5,065,455) (6,948,119)
---------------- ------------
Distributions in excess of net
investment income
Class A.................... (2,132,264) (2,383,691)
Class B.................... (68,349) (802,612)
Class C.................... (2,055) (1,338)
Class Z.................... (1,193) (4)
---------------- ------------
(2,203,861) (3,187,645)
---------------- ------------
Tax return of capital
distributions
Class A.................... (964,282) --
Class B.................... (30,910) --
Class C.................... (929) --
Class Z.................... (539) --
---------------- ------------
(996,660) --
---------------- ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
sold....................... 910,000 15,362,799
Net asset value of shares
issued in reinvestment of
dividends and
distributions.............. 4,998,800 5,830,223
Cost of shares reacquired..... (23,133,758) (41,030,001)
---------------- ------------
Net decrease in net assets from
Fund share transactions....... (17,224,958) (19,836,979)
---------------- ------------
Total decrease................... (22,959,182) (24,749,625)
NET ASSETS
Beginning of year................ 89,158,328 113,907,953
---------------- ------------
End of year(a)................... $ 66,199,146 $ 89,158,328
================ ============
- ---------------
(a) Includes undistributed net
investment income of: $ -- $ 4,198,301
---------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-50
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS LIMITED MATURITY PORTFOLIO
================================================================================
Prudential Global Limited Maturity Fund, Inc. (the 'Fund') is registered under
the Investment Company Act of 1940 as a nondiversified, open-end, management
investment company. The Fund was incorporated in Maryland on February 21, 1990.
The Limited Maturity Portfolio (the 'Portfolio') commenced investment operations
on November 1, 1990. The investment objective of the Portfolio is to maximize
total return, the components of which are current income and capital
appreciation, by investing primarily in a portfolio of investment grade debt
securities. The ability of the issuers of the debt securities held by the Fund
to meet their obligations may be affected by economic developments in a specific
country or industry.
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITIES VALUATION: In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current currency value. Government securities for which quotations are
available will be based on prices provided by an independent pricing service or
broker-dealer. Other portfolio securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, will be valued at the average of the
quoted bid and asked prices provided by an independent pricing service or by
principal market makers. Any security for which the primary market is on an
exchange is valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, at the mean between the last bid
and asked prices on such day or at the bid price on such day in the absence of
an asked price. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at the
closing daily rate of exchange;
(ii) purchases and sales of investment securities, income and expenses--at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the fiscal period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at the end of the fiscal period. Similarly, the Fund
does not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term debt
securities sold during the fiscal period. Accordingly, such realized foreign
currency gains and losses are included in the reported net realized gains
(losses) on investment transactions.
Net realized gain on foreign currency transactions represents net foreign
exchange gains or losses from sales and maturities of short-term securities,
holding of foreign currencies, currency gains or losses realized between the
trade and settlement dates on security transactions, and the difference between
the amounts of interest and foreign taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
currency gains and losses from valuing foreign currency denominated assets and
liabilities at fiscal period end exchange rates are reflected as a component of
net unrealized appreciation/depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. companies as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
FORWARD CURRENCY CONTRACTS: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its
- --------------------------------------------------------------------------------
B-51
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS LIMITED MATURITY PORTFOLIO
================================================================================
foreign portfolio holdings or on specific receivables and payables denominated
in a foreign currency. The contracts are valued daily at current exchange rates
and any unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments and foreign currencies. Gain or loss is realized on
the settlement date of the contract equal to the difference between the
settlement value of the original and renegotiated forward contracts. This gain
or loss, if any, is included in net realized gain (loss) on foreign currency
transactions. Risks may arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
SECURITIES TRANSACTIONS and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from security and currency
transactions are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. The Fund amortizes discounts on purchases of debt
securities as adjustments to income. Expenses are recorded on the accrual basis
which may require the use of certain estimates by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
DIVIDENDS AND DISTRIBUTIONS: The Fund declares daily and pays dividends from
book basis net investment income monthly and makes distributions at least
annually of any net capital gains. Dividends and distributions are recorded on
the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Portfolio accounts and reports for
distributions to shareholders in accordance with American Institute of Certified
Public Accountants (AICPA) Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease undistributed net investment income by
$1,090,997, decrease accumulated net realized losses by $2,087,657 and decrease
paid-in capital in excess of par by $996,660. This was primarily the result of
net foreign currency losses and an overdistribution of taxable income for the
year ended October 31, 1998. Net investment income, net realized gains and net
assets were not affected by this change.
FEDERAL INCOME TAXES: It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.
- --------------------------------------------------------------------------------
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC, through an agreement with PRICOA Asset
Management Ltd. ('PRICOA'), furnishes investment advisory services in connection
with the management of the Fund. PIFM pays for the services of PIC, the cost of
compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. PIC pays for the services of PRICOA. The Fund
bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an annual
rate of .55 of 1% of the average daily net assets of the Portfolio.
The Fund had a distribution agreement with Prudential Securities Incorporated
('PSI'), which acted as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential Investment
Management Services LLC ('PIMS') became the distributor of the Fund effective
June 1, 1998 and is serving the Fund under the same terms and conditions as
under the arrangement with PSI. The Fund compensated PSI and PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of distribution (the 'Class A, B and C Plans'), regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly. No distribution or service fees were paid to PSI or PIMS as
distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensated PSI and PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1%, and
1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .15 of 1%, .75 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the year ended October 31, 1998.
PSI and PIMS have advised the Fund that they received approximately $2,400 in
front-end sales charges resulting from sales of Class A shares during the year
ended October 31, 1998. From these fees, PSI and PIMS
- --------------------------------------------------------------------------------
B-52
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI and PIMS have advised the Fund that for the year ended October 31, 1998,
they received approximately $6,900 and $600 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
The Fund, along with other affiliated registered investment companies (the
'Funds'), has a credit agreement (the 'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund did not borrow any amounts pursuant to the Agreement for the year ended
October 31, 1998. The Funds pay a commitment fee at an annual rate of .055 of 1%
on the unused portion of the credit facility. The commitment fee is accrued and
paid quarterly on a pro rata basis by the Funds. The Agreement expired on
December 30, 1997 and has been extended through December 29, 1998 under the same
terms.
PSI, PIFM, PIC, PIMS and PRICOA are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended October 31, 1998,
the Portfolio incurred fees of approximately $118,000 for the services of PMFS.
As of October 31, 1998, approximately $8,000 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
- --------------------------------------------------------------------------------
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 1998 aggregated $27,944,541 and $49,294,551,
respectively.
The United States federal income tax basis of the Portfolio's investments at
October 31, 1998 was substantially the same as for financial reporting purposes
and, accordingly, net unrealized depreciation of investments was $1,867,300
(gross unrealized appreciation--$2,062,528; gross unrealized
depreciation--$3,929,828).
For federal income tax purposes, the Portfolio had a capital loss carryforward
as of October 31, 1998, of approximately $52,716,100 of which $4,207,200 expires
in 2000, $32,949,600 expires in 2001, $12,011,000 expires in 2002, $1,565,600
expires in 2003, $326,200 expires in 2004 and $1,656,500 expires in 2006.
Accordingly, no capital gains distributions are expected to be paid to
shareholders until future net gains have been realized in excess of such
carryforward.
At October 31, 1998, the Portfolio had outstanding forward currency contracts to
sell foreign currencies as follows:
<TABLE>
<CAPTION>
VALUE AT
FORWARD CURRENCY SETTLEMENT DATE CURRENT APPRECIATION
SALE CONTRACTS RECEIVABLE VALUE (DEPRECIATION)
- ------------------------- --------------- ----------- -------------
<S> <C> <C> <C>
Australian Dollars,
expiring 11/25/98...... $ 9,521,535 $ 9,569,245 $(47,710)
Canadian Dollars,
expiring 11/25/98...... 2,868,793 2,865,538 3,255
French Francs,
expiring 11/25/98...... 3,834,724 3,822,747 11,977
Japanese Yen,
expiring 11/25/98...... 848,293 861,522 (13,229)
Swiss Francs,
expiring 11/25/98...... 5,282,738 5,264,395 18,343
--------------- ----------- -------------
$22,356,083 $22,383,447 $(27,364)
============= =========== =============
</TABLE>
- --------------------------------------------------------------------------------
NOTE 5. JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolio, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or Federal agency obligations. As of October 31,
1998, the Portfolio has a 0.4% undivided interest in the repurchase agreements
in the joint account. The undivided interest for the Portfolio represents
$3,956,000 in principal amount. As of such date, each repurchase agreement in
the joint account and the value of the collateral therefor were as follows:
Bear, Stearns & Co., Inc., 5.40%, in the principal amount of $260,000,000,
repurchase price $260,117,000, due 11/2/98. The value of the collateral
including accrued interest was $265,935,719.
Deutsche Bank Securities, Inc., 5.41%, in the principal amount of $260,000,000,
repurchase price $260,117,217, due 11/2/98. The value of the collateral
including accrued interest was $265,200,735.
- --------------------------------------------------------------------------------
B-53
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Notes to Financial Statements LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
Salomon Smith Barney Inc., 5.40%, in the principal amount of $260,000,000,
repurchase price $260,117,000, due 11/2/98. The value of the collateral
including accrued interest was $265,365,298.
Warburg Dillon Read LLC, 5.38%, in the principal amount of $160,825,000,
repurchase price $160,897,103, due 11/2/98. The value of the collateral
including accrued interest was $164,045,205.
- --------------------------------------------------------------------------------
NOTE 6. CAPITAL
The Portfolio offers Class A, Class B, Class C and Class Z shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 3% to zero
depending on the period of time the shares are held. Prior to November 2, 1998,
Class C shares were sold with a contingent deferred sales charge of 1% during
the first year. Effective November 2, 1998, Class C shares are sold with a
front-end sales charge of 1% and a contingent deferred sales charge of 1% during
the first 18 months. Class B shares will automatically convert to Class A shares
on a quarterly basis approximately five years after purchase. A special exchange
privilege is also available for shareholders who qualified to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors. The Portfolio has authorized 2 billion shares of common stock at
$.001 par value per share equally divided into Class A, B, C and Z shares.
Transactions in shares of common stock for the fiscal years ended October 31,
1998 and 1997 were as follows.
<TABLE>
<CAPTION>
Class A Shares Amount
- -------- ---------- ------------
<S> <C> <C>
Year ended October 31, 1998:
Shares sold......................... 60,910 $ 492,071
Shares issued in reinvestment of
dividends and distributions....... 595,087 4,814,179
Shares reacquired................... (2,675,177) (21,698,873)
---------- ------------
Net decrease in shares outstanding
before conversion................. (2,019,180) (16,392,623)
Shares issued upon conversion from
Class B........................... 165,902 1,366,795
---------- ------------
Net decrease in shares
outstanding....................... (1,853,278) $(15,025,828)
========== ============
<CAPTION>
Class A Shares Amount
- -------- ---------- ------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold......................... 1,677,463 $ 14,801,446
Shares issued in reinvestment of
dividends and distributions....... 550,154 4,710,600
Shares reacquired................... (2,618,160) (22,399,789)
---------- ------------
Net decrease in shares outstanding
before conversion................. (390,543) (2,887,743)
Shares issued upon conversion from
Class B........................... 2,682,675 22,909,615
---------- ------------
Net increase in shares
outstanding....................... 2,292,132 $ 20,021,872
========== =============
<CAPTION>
Class B
- --------
<S> <C> <C>
Year ended October 31, 1998:
Shares sold......................... 42,084 $ 342,479
Shares issued in reinvestment of
dividends and distributions....... 21,298 173,540
Shares reacquired................... (165,425) (1,347,329)
---------- ------------
Net decrease in shares outstanding
before conversion................. (102,043) (831,310)
Shares reacquired upon conversion
into Class A...................... (165,049) (1,366,795)
---------- ------------
Net decrease in shares
outstanding....................... (267,092) $ (2,198,105)
========== =============
Year ended October 31, 1997:
Shares sold......................... 53,550 $ 462,980
Shares issued in reinvestment of
dividends and distributions....... 128,673 1,112,119
Shares reacquired................... (2,106,270) (18,586,016)
---------- ------------
Net decrease in shares outstanding
before conversion................. (1,924,047) (17,010,917)
Shares reacquired upon conversion
into Class A...................... (2,672,625) (22,909,615)
---------- ------------
Net decrease in shares
outstanding....................... (4,596,672) $(39,920,532)
========== =============
<CAPTION>
Class C
- --------
<S> <C> <C>
Year ended October 31, 1998:
Shares sold......................... 3,889 $ 32,000
Shares issued in reinvestment of
dividends and distributions....... 820 6,683
Shares reacquired................... (10,850) (87,472)
---------- ------------
Net decrease in shares
outstanding....................... (6,141) $ (48,789)
========== =============
</TABLE>
- --------------------------------------------------------------------------------
B-54
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- -------- ---------- ------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold......................... 10,910 $ 94,072
Shares issued in reinvestment of
dividends and distributions....... 872 7,480
Shares reacquired................... (5,205) (44,196)
---------- ------------
Net increase in shares
outstanding....................... 6,577 $ 57,356
========== ============
<CAPTION>
Class Z
- --------
<S> <C> <C>
Year ended October 31, 1998:
Shares sold......................... 5,175 $ 43,450
Shares issued in reinvestment of
dividends and distributions....... 543 4,398
Shares reacquired................... (11) (84)
---------- ------------
Net increase in shares
outstanding....................... 5,707 $ 47,764
========== =============
January 27, 1997(a) through October 31, 1997:
Shares sold......................... 502 $ 4,301
Shares issued in reinvestment of
dividends and distributions....... 3 24
---------- ------------
Increase in shares outstanding...... 505 $ 4,325
========== =============
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
B-55
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
FINANCIAL HIGHLIGHTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1998(b) 1997(b) 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 8.41 $ 8.82 $ 8.39 $ 8.56 $ 9.29
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... .54 .60 .60 .61 .70
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.29) (.16) .40 (.21) (.86)
------- ------- ------- ------- -------
Total from investment operations........... .25 .44 1.00 .40 (.16)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income.......... (.54) (.60) (.57) (.48) --
Distributions in excess of net investment
income..................................... (.22) (.25) -- -- --
Tax return of capital distributions........... (.10) -- -- (.09) (.57)
------- ------- ------- ------- -------
Total distributions........................ (.86) (.85) (.57) (.57) (.57)
------- ------- ------- ------- -------
Net asset value, end of year.................. $ 7.80 $ 8.41 $ 8.82 $ 8.39 $ 8.56
======= ======= ======= ======= =======
TOTAL RETURN(a):.............................. 3.01% 5.14% 12.35% 4.92% (1.89)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $64,538 $85,109 $69,051 $18,216 $28,841
Average net assets (000)...................... $73,853 $83,590 $53,284 $20,153 $38,000
Ratios to average net assets:
Expenses, including distribution fees...... 1.36% 1.35% 1.32% 1.21% 1.17%
Expenses, excluding distribution fees...... 1.21% 1.20% 1.17% 1.06% 1.02%
Net investment income...................... 6.65% 6.94% 7.12% 7.25% 7.67%
For Class A, B, C and Z shares:
Portfolio turnover rate.................... 40% 53% 101% 199% 232%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Calculated based upon average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-56
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
FINANCIAL HIGHLIGHTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1998(b) 1997(b) 1996 1995 1994
--------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 8.45 $ 8.85 $ 8.42 $ 8.56 $ 9.29
--------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... .51 .55 .55 .56 .62
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.31) (.16) .40 (.19) (.86)
--------- ------- ------- -------- --------
Total from investment operations........... .20 .39 .95 .37 (.24)
--------- ------- ------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income.......... (.51) (.55) (.52) (.43) --
Distributions in excess of net investment
income..................................... (.19) (.24) -- -- --
Tax return of capital distributions........... (.10) -- -- (.08) (.49)
--------- ------- ------- -------- --------
Total distributions........................ (.80) (.79) (.52) (.51) (.49)
--------- ------- ------- -------- --------
Net asset value, end of year.................. $ 7.85 $ 8.45 $ 8.85 $ 8.42 $ 8.56
========= ======= ======= ======== ========
TOTAL RETURN(a):.............................. 2.48% 4.59% 11.61% 4.60% (2.62)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $ 1,562 $ 2,397 $44,804 $108,454 $188,966
Average net assets (000)...................... $ 2,397 $17,941 $70,794 $139,248 $281,143
Ratios to average net assets:
Expenses, including distribution fees...... 1.96% 1.95% 1.92% 1.83% 1.97%
Expenses, excluding distribution fees...... 1.21% 1.20% 1.17% 1.08% 1.02%
Net investment income...................... 6.03% 6.34% 6.51% 6.61% 6.82%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Calculated based upon average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-57
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Financial Highlights LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------------
AUGUST 1,
1994(C)
YEAR ENDED OCTOBER 31, THROUGH
------------------------------------------------------- OCTOBER 31,
1998(f) 1997(f) 1996 1995 1994
--------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 8.45 $ 8.85 $ 8.42 $ 8.56 $ 8.61
--------- --------- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... .50 .55 .55 .54 .14
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.30) (.16) .40 (.17) (.06)
--------- --------- ----- ----- -----
Total from investment operations........... .20 .39 .95 .37 .08
--------- --------- ----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income.......... (.50) (.55) (.52) (.43) --
Distributions in excess of net investment
income..................................... (.20) (.24) -- -- --
Tax return of capital distributions........... (.10) -- -- (.08) (.13)
--------- --------- ----- ----- -----
Total distributions........................ (.80) (.79) (.52) (.51) (.13)
--------- --------- ----- ----- -----
Net asset value, end of period................ $ 7.85 $ 8.45 $ 8.85 $ 8.42 $ 8.56
========= ========= ======= ======= =======
TOTAL RETURN(a):.............................. 2.48% 4.59% 11.61% 4.60% 0.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 51 $ 107 $ 54 $ 755(e) $ 200(e)
Average net assets (000)...................... $ 64 $ 116 $ 4 $ 1,461(e) $ 199(e)
Ratios to average net assets:
Expenses, including distribution fees...... 1.96% 1.95% 1.92% 1.70% .93%(b)
Expenses, excluding distribution fees...... 1.21% 1.20% 1.17% .95% .18%(b)
Net investment income...................... 6.07% 6.36% 6.35% 6.43% 7.02%(b)
<CAPTION>
CLASS Z
---------------------------
JANUARY 27,
1997(d)
YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31,
1998(f) 1997(f)
<S> <C> <C>
----------- -----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 8.44 $ 8.57
----------- -----
Income from investment operations
Net investment income......................... .55 .43
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.28) (.11)
----------- -----
Total from investment operations........... .27 .32
----------- -----
LESS DISTRIBUTIONS
Dividends from net investment income.......... (.55) (.43)
Distributions in excess of net investment
income..................................... (.22) (.02)
Tax return of capital distributions........... (.10) --
----------- -----
Total distributions........................ (.87) (.45)
----------- -----
Net asset value, end of period................ $ 7.84 $ 8.44
=========== =======
TOTAL RETURN(a):.............................. 3.28% 3.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 49 $ 4
Average net assets (000)...................... $ 43 $ 308(e)
Ratios to average net assets:
Expenses, including distribution fees...... 1.21% 1.20%(b)
Expenses, excluding distribution fees...... 1.21% 1.20%(b)
Net investment income...................... 6.83% 14.07%(b)
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Annualized.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
(e) Figures are actual and not rounded to the nearest thousand.
(f) Calculated based upon average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-58
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Global Limited Maturity
Fund, Inc., Limited Maturity Portfolio (the 'Fund') at October 31, 1998, the
results of its operations for the year then ended, and the changes in its net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the three periods in the period ended October 31, 1996 were audited by other
independent accountants, whose opinion dated December 12, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 21, 1998
- --------------------------------------------------------------------------------
B-59
<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.
[GRAPHIC OMITTED]
Source: Ibbotson Associates. 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 "Risk/Return Summary-Fees and 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.
[GRAPHIC OMITTED]
- ----------
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. Data retrieved from Lipper, Inc.
5 SALOMON SMITH BARNEY 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 12/31/85 through 12/31/98. It does not represent the performance of
any Prudential Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS 12/31/85-12/31/98 (IN
U.S. DOLLARS)
[GRAPHIC OMITTED]
Source: Morgan Stanley Capital International (MSCI) and Lipper 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.
[GRAPHIC OMITTED]
Source: Lipper, Inc. 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.
[GRAPHIC OMITTED]
----------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL: $12.5 TRILLION
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)
[GRAPHIC OMITTED]
- ----------------------------------------
Source: Ibbotson Associates. 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.
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,2 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. In Institutional Investor, July 1998, Prudential was ranked
eigth in terms of total assets under management as of December 31, 1997.
REAL ESTATE. The Prudential Real Estate Affiliates is one of the leading
real estate residential and commercial brokerage networks in North America, and
has more than 37,000 real estate brokers and agents with over 1,400 offices
across the United States.3
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.2
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 31, 1997 Prudential Investments Fund Management is the
eighteenth largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.
- ----------
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 On December 10, 1998, Prudential announced its intention to sell Prudential
Health Care to Aetna, Inc. for $1 billion
3 As of December 31, 1997.
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.4 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.5 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.6 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.7
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.
- ----------
4 As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
5 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.
6 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.
7 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, 1998, assets held by Prudential Securities for its
clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities.8
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 and financial
planning areas.
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.
- ----------
8 As of December 31, 1998.
III-3
<PAGE>
APPENDIX IV
FIVE PERCENT SHAREHOLDER REPORT
As of December 11, 1998 each of the following entities owned more than 5%
of the outstanding voting securities of each of the classes indicated:
NAME NUMBER OF SHARES/CLASS % OWNERSHIP OF CLASS
Susan M Nuttall 2,387/C 34.93%
14 Bayberry Ln
Absecon NJ 08201-1303
Dino Battistini 1,285/C 18.81%
Eleanor Battistini TEN ENT
4803 SE Sunset CT Apt 608
Cape Coral FL 33904
Mr Clarence A Kruezer 1,423/C 20.83%
Mrs Lynn A Loy JT TEN
237 Elm St SW
Grand Rapids MI 49507-2414
Prudential Securities C/F 1,381/C 20.21%
C/F Ms Ethel Eiseman
IRA DTD 11/20/95
4739 Willis Ave Apt 101
Sherman Oaks CA 91403-2670
Prudential Securities C/F 4,899/Z 78.40%
Audrey H Maclean
IRA Rollover DTD 06/05/95
77 Spruce Ridge Dr
Fishkill NY 12524-1544
Prudential Global LTD 589/Z 9.43%
Maturity
For The Account Of
Robin B Smith
Deferred Compensation
1105 Park Ave #10D
New York NY 10128
First Church Of Christ 526/Z 8.42%
Scientist
Attn: Delsie Carden
1800 N Roxboro Rd
Durham NC 27701-1351
IV-1
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) (1) Amended and Restated Articles of Incorporation(2)
(2) Articles of Amendment to the Articles of Incorporation effective
October 3, 1995.(3)
(3) Articles of Amendment to the Articles of Incorporation effective
October 17, 1995.(3)
(4) Articles Supplementary.(4)
(5) Articles Supplementary (Class C Change).*
(b) Amended By-Laws.*
(c) Instruments defining rights of shareholders.(1)
(d) (1) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc.*
(2) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation.*
(3) Form of Sub-Investment Management Agreement between the Prudential
Investment Corporation and PRICOA Asset Management Limited*
(e) (1) Distribution Agreement.(5)
(2) Form of Selected Dealer Agreement.(5)
(g) (1) Custodian Contract between the Registrant and State Street Bank and
Trust Company.*
(2) Form of Amendment to Custodian Contract between the Registrant and
State Street Bank and Trust Company.(3)
(h) Transfer Agency and Dividend Disbursing Agreement between the
Registrant and Prudential Mutual Fund Services, Inc.*
(j) Accountants Consent*
(m) 1 Amended and Restated Distribution and Service Plan for Class A
shares(5)
2 Amended and Restated Distribution and Service Plan for Class B
shares(5)
3 Amended and Restated Distribution and Service Plan for Class C
shares(5)
(n) Financial Data Schedules, filed as Exhibit 27 for electronic purposes*
(o) Amended and Restated Rule 18f-3 Plan*
- ---------
1. Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 33-33479) filed on December
30, 1993.
2. Incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-33479) filed on January 3,
1995.
3. Incorporated by reference to the Registration Statement on Form N-14 (File
No. 33-63625) filed on October 24, 1995.
4. Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-33479) filed on December
27, 1996.
5. Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A (File No. 33-33479) filed on November
2, 1998.
* Filed herewith.
ITEM 24 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with the Registrant.
ITEM 25. 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 (a) 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
C-1
<PAGE>
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 (e) 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 policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant intends to purchase an insurance policy insuring its
officers and directors against certain liabilities, and certain costs of
defending claims against such officers and directors, to the extent such
officers and directors are not found to have committed conduct constituting
willful misfeasance, bad faith, gross negligence or reckless disregard of their
duties. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit (d)(1) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d) (2) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management, LLC (PIFM) 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 26. 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 "Investment Advisory and Other Services" 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 M. Storms Officer-in-Charge, President, Prudential Mutual Funds & Annuities (PMF&A); President,
President, Chief Chief Executive Officer and Chief Operating Officer, PIFM
Executive Officer and
Chief Operating
Officer
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; Executive
President 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-Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory and
Other Services" in the Statement of Additional Information constituting Part B
of this Registration Statement.
C-2
<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>
Mendel A. Melzer, CFA Senior Vice President Chief Investment Officer of Prudential Investments
Gateway Center Two and Director
100 Mulberry Street
Newark, NJ 07102
John R. Strangfeld, Jr. Chairman of the Board, Senior Vice President, Prudential; Chief Executive Officer, Prudential
President and Chief Global Asset Management; Chairman of the Board, President and Chief
Executive Officer Executive Officer and Director, PIC
and Director
Bernard B. Winograd Senior Vice President Chief Executive Officer of Prudential Real Estate Investors (PREI);
and Director Senior Vice President and Director, PIC
</TABLE>
(c) PRICOA Asset Management Ltd. (PRICOA)
See "How the Fund is Managed-Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory and
Other Services" in the Statement of Additional Information constituting Part B
of this Registration Statement.
The business and other connections of PRICOA's directors and officers are
as set forth below. The address of each person is 115 Houndsditch, London,
England EC3A 7BU
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PRICOA PRINCIPAL OCCUPATIONS
- ------------------- ----------------------- --------------------------------------------------------------------
<S> <C> <C>
Simon J. Wells CEO and Director CEO and Director, PRICOA; Employee of PIC and Prudential-Bache
Securities (U.K.) Inc.
J. Gabriel Irwin Chairman and Director Chairman and Director, PRICOA; Employee of PIC and Prudential-Bache
Securities (U.K.) Inc.
Peter G. Spenser Financial Compliance Financial Compliance Officer and Director, PRICOA
Officer and Director,
Stephen Auth Director Director, PRICOA
Jean-Yves Chereau Director Director, PRICOA
Paul Lowenstein Director Director, PRICOA
William N. Jones Secretary Secretary, PRICOA
</TABLE>
ITEM 27. 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 Structured 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.
C-3
<PAGE>
(b) Information concerning the officers and directors of PIMS is set forth
below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- --------------------------------- ------------------------------------------- --------------
<S> <C> <C>
Mark R. Fetting ................. Executive Vice President None
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Mendel A. Melzer, CFA ........... Executive Vice President Director
Gateway Center Two
100 Mulberry Street
Newark, NJ 07102
Jean D. Hamilton ................ Executive Vice President None
Ronald P. Joelson ............... Executive Vice President None
Brian M. Storms ................. President President
Gateway Center Three and Director
100 Mulberry Street
Newark, New Jersey 07102
John R. Strangfeld, Jr. ......... Executive Vice President None
Brian Henderson ................. Senior Vice President and Chief Operating None
Gateway Center Three Officer
100 Mulberry Street
Newark, New Jersey 07102
William V. Healey ............... Senior Vice President, Secretary and None
Chief Legal Officer
Margaret M. Deverell ........... Vice President, Comptroller and Chief None
Gateway Center Three Financial Officer
100 Mulberry Street
Newark, New Jersey 07102
C. Edward Chaplin ............... Treasurer None
Kevin B. Frawley ................ Senior Vice President,
213 Washington St. Chief Executive Officer
Newark, NJ 07102
</TABLE>
- -----------
Except as otherwise indicated the address of each person named is 751 Broad
Street, Newark, New Jersey 07102.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORD
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171. 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 29. MANAGEMENT SERVICES
Other than as set forth under the caption "How the Fund is Managed" in the
Prospectus and the caption "Investment Advisory and Other Services" 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 30. UNDERTAKING
Not Applicable.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant certifies that it meets all the requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the City of Newark, and State of
New Jersey, on the 11th day of January, 1999.
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
/s/ Brian M. Storms
----------------------------
(Brian M. Storms, President)
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ ------------------------ ------------------
/s/ Grace C. Torres Treasurer and January 11, 1999
- ---------------------------- Principal Financial and
Grace C. Torres Accounting Officer
/s/ Edward D. Beach Director January 11, 1999
- ----------------------------
Edward D. Beach
/s/ Delayne Dedrick Gold Director January 11, 1999
- ----------------------------
Delayne Dedrick Gold
/s/ Robert F. Gunia Director January 11, 1999
- ----------------------------
Robert F. Gunia
/s/ Douglas McCorkindale Director January 11, 1999
- ----------------------------
Douglas McCorkindale
/s/ Mendel A. Melzer Director January 11, 1999
- ----------------------------
Mendel A. Melzer
/s/ Thomas T. Mooney Director January 11, 1999
- ----------------------------
Thomas T. Mooney
/s/ Stephen P. Munn Director January 11, 1999
- ----------------------------
Stephen P. Munn
/s/ Richard A. Redeker Director January 11, 1999
- ----------------------------
Richard A. Redeker
/s/ Robin B. Smith Director January 11, 1999
- ----------------------------
Robin B. Smith
/s/ Brian M. Storms President and Director January 11, 1999
- ----------------------------
Brian M. Storms
/s/ Louis A. Weil, III Director January 11, 1999
- ----------------------------
Louis A. Weil, III
/s/ Clay T. Whitehead Director January 11, 1999
- ----------------------------
Clay T. Whitehead
C-5
<PAGE>
EXHIBIT INDEX
(a) (1) Amended and Restated Articles of Incorporation(2)
(2) Articles of Amendment to the Articles of Incorporation effective
October 3, 1995.(3)
(3) Articles of Amendment to the Articles of Incorporation effective
October 17, 1995.(3)
(4) Articles Supplementary.(4)
(5) Articles Supplementary (Class C Change).*
(b) Amended By-Laws.*
(c) Instruments defining rights of shareholders.(1)
(d) (1) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc.*
(2) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation.*
(3) Form of Sub-Investment Management Agreement between the Prudential
Investment Corporation and PRICOA Asset Management Limited*
(e) (1) Distribution Agreement.(5)
(2) Form of Selected Dealer Agreement.(5)
(g) (1) Custodian Contract between the Registrant and State Street Bank and
Trust Company.*
(2) Form of Amendment to Custodian Contract between the Registrant and
State Street Bank and Trust Company.(3)
(h) Transfer Agency and Dividend Disbursing Agreement between the
Registrant and Prudential Mutual Fund Services, Inc.*
(j) Accountants Consent*
(m) (1) Amended and Restated Distribution and Service Plan for Class A
shares(5)
(2) Amended and Restated Distribution and Service Plan for Class B shares
(5)
(3) Amended and Restated Distribution and Service Plan for Class C
shares(5)
(n) Financial Data Schedules, filed as Exhibit 27 for electronic purposes*
(o) Amended and Restated Rule 18f-3 Plan*
- ---------
1. Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 33-33479) filed on December
30, 1993.
2. Incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-33479) filed on January 3,
1995.
3. Incorporated by reference to the Registration Statement on Form N-14 (File
No. 33-63625) filed on October 24, 1995.
4. Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-33479) filed on December
27, 1996.
5. Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A (File No. 33-33479) filed on November
2, 1998.
* To be filed herewith.
C-6
ARTICLES SUPPLEMENTARY
of
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Prudential Global Limited Maturity Fund, Inc., a Maryland corporation
having its principal office in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: In accordance with Article IV of the Charter of the Corporation
and the Maryland General Corporation Law, the Board of Directors has
reclassified the unissued shares of its Class C Common Stock (par value $.001
per share) by changing certain terms and conditions as follows:
Effective November 2, 1998, all newly-issued Class C Shares of Common
Stock shall be subject to a front-end sales charge, a contingent deferred sales
charge, and a Rule 12b-1 distribution fee as determined by the Board of
Directors from time to time in accordance with the Investment Company Act of
1940, as amended, and as disclosed in the current prospectus for such shares.
IN WITNESS WHEREOF, Prudential Global Limited Maturity Fund, Inc. has
caused these presents to be signed in its name and on its behalf by its Vice
President and witnessed by its Assistant Secretary on October 30, 1998.
WITNESS: PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
/s/MARGUERITE E. H. MORRISON, By: /s/ROBERT F. GUNIA
- ---------------------------- -------------------------------
Marguerite E. H. Morrison, Robert F. Gunia, Vice President
Assistant Secretary
THE UNDERSIGNED, Vice President of Prudential Global Limited Maturity
Fund, Inc., who executed on behalf of the Corporation Articles Supplementary of
which this Certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be in the
corporate act of said Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.
/s/ROBERT F. GUNIA
----------------------------------
Robert F. Gunia, Vice President
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
AMENDED BY-LAWS
(December 6, 1991)
ARTICLE I.
STOCKHOLDERS
Section 1. PLACE OF MEETING. All meetings of the stockholders shall be
held at the principal office of the Corporation in the State of Maryland or at
such other place within the United States as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting.
Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders of
the Corporation shall be held on a date and at such hour as may from time to
time be designated by the Board of Directors and stated in the notice of such
meeting, within the month ending four months after the end of the Corporation's
fiscal year, for the transaction of such business as may properly be brought
before the meeting; PROVIDED, however, that an annual meeting shall not be
required to be held in any year in which the election of directors is not
required to be acted on by stockholders under the Investment Company Act of
1940.
Section 3. MEETINGS. Meetings of the stockholders for any purpose or
purposes may be called by the Chairman of the Board, the President or a majority
of the Board of Directors, and shall be called by the Secretary upon receipt of
the request in writing signed by stockholders holding not less than 10% of the
common stock issued and outstanding and entitled to vote thereat. Such request
shall state the purpose or purposes of the proposed
1
<PAGE>
meeting. The Secretary shall inform such stockholders of the reasonably
estimated costs of preparing and mailing such notice of meeting and upon payment
to the Corporation of such costs, the Secretary shall give notice stating the
purpose or purposes of the meeting as required in this Article and by-law to all
stockholders entitled to notice of such meeting. No meeting need be called upon
the request of the holders of shares entitled to cast less than a majority of
all votes entitled to be cast at such meeting to consider any matter which is
substantially the same as a matter voted upon at any meeting of stockholders
held during the preceding twelve months.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof and the general nature of the
business proposed to be transacted thereat, shall be given to each stockholder
entitled to vote thereat by leaving the same with such stockholder or at such
stockholder's residence or usual place of business or by mailing it, postage
prepaid, and addressed to such stockholder at such stockholder's address as it
appears upon the books of the Corporation. If mailed, notice shall be deemed to
be given when deposited in the United States mail addressed to the stockholder
as aforesaid.
No notice of the time, place or purpose of any meeting of stockholders
need be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and
2
<PAGE>
filed with the records of the meeting, either before or after the holding
thereof, waives such notice.
Section 5. RECORD DATES. The Board of Directors may fix, in advance, a
date not exceeding ninety days preceding the date of any meeting of
stockholders, any dividend payment date or any date for the allotment of rights,
as a record date for the determination of the stockholders entitled to notice of
and to vote at such meeting or entitled to receive such dividends or rights, as
the case may be; and only stockholders of record on such date shall be entitled
to notice of and to vote at such meeting or to receive such dividends or rights,
as the case may be. In the case of a meeting of stockholders, such date shall
not be less than ten days prior to the date fixed for such meeting.
Section. 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in person or
by proxy of the holders of record of one-third of the shares of the common stock
of the Corporation issued and outstanding and entitled to vote thereat shall
constitute a quorum at all meetings of the stockholders except as otherwise
provided in the Articles of Incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the holders of a
majority of the stock present in person or by proxy shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until stockholders owning the requisite amount of stock entitled to
vote at such meeting shall be present. At such adjourned meeting at which
stockholders owning the requisite amount of stock entitled
3
<PAGE>
to vote thereat shall be represented, any business may be transacted which might
have been transacted at the meeting as originally notified.
Section 7. VOTING AND INSPECTORS. At all meetings, stockholders of
record entitled to vote thereat shall have one vote for each share of common
stock standing in his name on the books of the Corporation (and such
stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled to vote at such meeting, either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney.
All elections shall be had and all questions decided by a majority of
the votes cast at a duly constituted meeting, except as otherwise provided by
statute or by the Articles of Incorporation or by these By-Laws.
At any election of directors, the Chairman of the meeting may, and upon
the request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of director shall be appointed such
inspector.
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Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he or
she is not present, by the President, or if he or she is not present, by a
Vice-President, or if none of them is present, by a Chairman to be elected at
the meeting. The Secretary of the Corporation, if present, shall act as a
Secretary of such meetings, or if he .or she is not present, an Assistant
Secretary shall so act; if neither the Secretary nor the Assistant Secretary is
present, then the meeting shall elect its Secretary.
Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every
meeting of the stockholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the Secretary of the
meeting, who shall decide all questions concerning the qualification of voters,
the validity of the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of the meeting,
in which event such inspectors of election shall decide all such questions.
ARTICLE II.
BOARD OF DIRECTORS
Section 1. NUMBER AND TENURE OF OFFICE. The business and affairs of the
Corporation shall be conducted and managed by a Board of Directors of not less
than three nor more than twelve directors, as may be determined from time to
time by vote of a majority of the directors then in office, provided that if
there is no stock outstanding the number of directors may be less than
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three but not less than one. Directors need not be stockholders.
Section 2. VACANCIES. In case of any vacancy in the Board of Directors
through death, resignation or other cause, other than an increase in the number
of directors, a majority of the remaining directors, although a majority is less
than a quorum, by an affirmative vote, may elect a successor to hold office
until the next meeting of stockholders or until his successor is chosen and
qualifies.
Section 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of directors and may elect directors to fill the vacancies created by any
such increase in the number of directors until the next meeting of stockholders
or until their successors are duly chosen and qualified. The Board of Directors,
by the vote of a majority of the entire Board, may likewise decrease the number
of directors to a number not less than three.
Section 4. PLACE OF MEETING. The directors may hold their meetings,
have one or more offices, and keep the books of the Corporation, outside the
State of Maryland, at any office or offices of the Corporation or at any other
place as they may from time to time by resolution determine, or in the case of
meetings, as they may from time to time by resolution determine or as shall be
specified or fixed in the respective notices or waivers of notice thereof.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and on such notice as the
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directors may from time to time determine.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board, the
President, the Secretary or two or more of the directors, by oral or telegraphic
or written notice duly served on or sent or mailed to each director not less
than one day before such meeting. No notice need be given to any director who
attends in person or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Such notice or waiver of notice need not state the purpose or purposes
of such meeting.
Section 7. QUORUM. One-third of the directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the directors present at any meeting at which there
is a quorum shall be the act of the directors, except as may be otherwise
specifically provided by statute or by the Articles of Incorporation or by these
By-Laws.
Section 8. EXECUTIVE COMMITTEE. The Board of Directors may, by the
affirmative vote of a majority of the whole Board, appoint from the directors an
Executive Committee to consist of such number of directors (not less than three)
as the Board may from time to time determine. The Chairman of the Committee
shall be elected by
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the Board of Directors. The Board of Directors by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the directors. When the Board of
Directors is not in session, to the extent permitted by law, the Executive
Committee shall have and may exercise any or all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation. The
Executive Committee may fix its own rules of procedure, and may meet when and as
provided by such rules or by resolution of the Board of Directors, but in every
case the presence of a majority shall be necessary to constitute a quorum.
During the absence of a member of the Executive Committee, the remaining members
may appoint a member of the Board of Directors to act in his place.
Section 9. OTHER COMMITTEES. The Board of Directors, by the affirmative
vote of a majority of the whole Board, may appoint from the directors other
committees which shall in each case consist of such number of directors (not
less than two) and shall have and may exercise such powers as the Board may
determine in the resolution appointing them. A majority of all the members of
any such committee may determine its action and fix the time and place of its
meetings, unless the Board of Directors shall otherwise provide. The Board of
Directors shall have power at any time to change the members and powers of any
such committee, to fill vacancies and to discharge any such committee.
Section 10. TELEPHONE MEETINGS. Members of the Board of Directors or a
committee of the Board of Directors may participate
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in a meeting by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by these means constitutes presence in
person at the meeting unless otherwise provided by the Investment Company Act of
1940.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting, if a written consent to such action is signed by
all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board or
such committee, unless otherwise provided by the Investment Company Act of 1940.
Section 12. COMPENSATION OF DIRECTORS. No director shall receive any
stated salary or fees from the Corporation for his services as such if such
director is, other than by reason of being such director, an interested person
(as such term is defined by the Investment Company Act of 1940) of the
Corporation or of its investment adviser, administrator or principal
underwriter. Except as provided in the preceding sentence, directors shall be
entitled to receive such compensation from the Corporation for their services as
may from time to time be voted by the Board of Directors.
Section 13. REMOVAL OF DIRECTORS. No director shall continue to hold
office after the holders of record of not less than
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two-thirds of the Corporation's outstanding common stock of all series have
declared that that director be removed from office either by declaration in
writing filed with the Corporation's secretary or by votes cast in person or by
proxy at a meeting called for the purpose. The directors shall promptly call a
meeting of stockholders for the purpose of voting upon the question of removal
of any director or directors when requested in writing to do so by the record
holders of not less than 10 percent of the Corporation's outstanding common
stock of all series.
ARTICLE III.
OFFICERS
Section 1. EXECUTIVE OFFICERS. The executive officers of the
Corporation shall be chosen by the Board of Directors. These may include a
Chairman of the Board of Directors (who shall be a director) and shall include a
President (who shall be a director), one or more Vice-Presidents (the number
thereof to be determined by the Board of Directors), a Secretary and a
Treasurer. The Board of Directors or the Executive Committee may also in its
discretion appoint Assistant Secretaries, Assistant Treasurers and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these
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By-Laws to be executed, acknowledged or verified by two or more officers.
Section 2. TERM OF OFFICE. The term of office of all officers shall be
one year and until their respective successors are chosen and qualified. Any
officer may be removed from office at any time with or without cause by the vote
of a majority of the whole Board of Directors.
Section 3. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties as generally pertain to their respective offices, as
well as such powers and duties as may from time to time be conferred by the
Board of Directors or the Executive Committee.
ARTICLE IV.
CAPITAL STOCK
Section 1. CERTIFICATES FOR SHARES. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of stock
of the Corporation owned by him in such form as the Board from time to time
prescribe.
Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require; in the case of shares not
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represented by certificates, the same or similar requirements may be imposed by
the Board of Directors.
Section 3. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal office of the
Corporation or, if the Corporation employs a Transfer Agent, at the office of
the Transfer Agent of the Corporation.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors or the Executive Committee may determine the conditions upon which a
new certificate of stock of the Corporation of any class may be issued in place
of a certificate which is alleged to have been lost, stolen or destroyed; and
may, in its discretion, require the owner of such certificate or such owner's
legal representative to give bond, with sufficient surety, to the Corporation
and each Transfer Agent, if any, to indemnify it and each such Transfer Agent
against any and all loss or claims which may arise by reason of the issue of a
new certificate in the place of the one so lost, stolen or destroyed.
ARTICLE V.
CORPORATE SEAL
The Board of Directors may provide for a suitable corporate seal, in
such form and bearing such inscriptions as it may determine.
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ARTICLE VI.
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII.
INDEMNIFICATION
Directors, officers, employees and agents of the Corporation shall not
be liable to the Corporation, any stockholder, officer, director, employee or
other person for any action or failure to act except for willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office. The Corporation shall indemnify directors, officers,
employees and agents of the Corporation against judgments, fines, settlements
and expenses to the fullest extent authorized and in the manner permitted by
applicable federal and state law. The Corporation may purchase insurance to
protect itself and its directors, officers, employees and agents against
judgments, fines, settlements and expenses to the fullest extent authorized and
in the manner permitted by applicable federal and state law. Nothing contained
in this Article VII shall be construed to indemnify directors, officers,
employees and agents of the Corporation against, nor to permit the Corporation
to purchase insurance that purports to protect against, any liability to the
Corporation or any stockholder, officer, director, employee, agent or other
person to whom he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
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the duties involved in the conduct of his or her office.
ARTICLE VIII.
CUSTODIAN
Section 1. The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, each having a capital, surplus
and undivided profits aggregating not less than fifty million dollars
($50,000,000), and, to the extent required by the Investment Company Act of
1940, the funds and securities held by the Corporation shall be kept in the
custody of one or more such custodians, provided such custodian or custodians
can be found ready and willing to act, and further provided that the
Corporation may use as subcustodians, for the purpose of holding any foreign
securities and related funds of the Corporation, such foreign banks as the Board
of Directors may approve and as shall be permitted by law.
Section 2. The Corporation shall upon the resignation or inability to
serve of its custodian or upon change of the custodian:
(a) in case of such resignation or inability to serve, use its
best efforts to obtain a successor custodian;
(b) require that the cash and securities owned by the
Corporation be delivered directly to the successor custodian; and
(c) in the event that no successor custodian can be found,
submit to the stockholders before permitting delivery of the cash and
securities owned by the Corporation otherwise
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than to a successor custodian, the question whether or not this
Corporation shall be liquidated or shall function without a custodian.
ARTICLE IX.
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors; but any such alteration, amendment, addition or repeal of the By-Laws
by action of the Board of Directors may be altered or repealed by stockholders.
15
PRUDENTIAL-BACHE SHORT-TERM GLOBAL INCOME FUND, INC.
MANAGEMENT AGREEMENT
Agreement made this 25th day of October, 1990 between Prudential-Bache
Short-Term Global Income Fund, Inc., a Maryland corporation (the "Fund"), and
Prudential Mutual Fund Management, Inc., a Delaware corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Fund is a non-diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Manager to render or contract
to obtain as hereinafter provided investment advisory services to the Fund and
the Fund also desires to avail itself of the facilities available to the Manager
with respect to the administration of its day to day corporate affairs, and the
Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the Fund
and administrator of its corporate affairs for the period and on the terms set
forth in this Agreement. The Manager accepts such appointment and agrees to
render the services herein described, for the compensation herein provided. The
Manager will enter into an agreement, dated the date hereof, with The Prudential
Investment Corporation ("PIC") pursuant to which PIC shall furnish to the Fund
the investment advisory services specified therein in connection with the
management of the Fund. Such
<PAGE>
agreement in the form attached as Exhibit A is hereinafter referred to as the
"Subadvisory Agreement." The Manager will continue to have responsibility for
all investment advisory services furnished pursuant to the Subadvisory
Agreement.
2. Subject to the supervision of the Board of Directors of the Fund, the Manager
shall administer the Fund's corporate affairs and, in connection therewith,
shall furnish the Fund with office facilities and with clerical, bookkeeping and
recordkeeping services at such office facilities and, subject to Section 1
hereof and the Subadvisory Agreement, the Manager shall manage the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention and disposition thereof, in accordance with the Fund's
investment objectives, policies and restrictions as stated in the Prospectus
(hereinafter defined) and subject to the following understandings:
(a) The Manager shall provide supervision of the Fund's investments
and determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Fund, and what portion of the assets
will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Articles of Incorporation,
By-Laws and Prospectus (hereinafter defined) of the Fund and with the
instructions and directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act and
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<PAGE>
all other applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts to be
purchased or sold by the Fund and will place orders pursuant to its
determinations with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential-Bache Securities
Inc.) in conformity with the policy with respect to brokerage as set forth in
the Fund's Registration Statement and Prospectus (hereinafter defined) or as the
Board of Directors may direct from time to time. In providing the Fund with
investment supervision, it is recognized that the Manager will give primary
consideration to securing the most favorable price and efficient execution.
Consistent with this policy, the Manager may consider the financial
responsibility, research and investment information and other services provided
by brokers, dealers or futures commission merchants who may effect or be a party
to any such transaction or other transactions to which other clients of the
Manager may be a party. It is understood that Prudential-Bache Securities Inc.
may be used as principal broker for securities transactions but that no formula
has been adopted for allocation of the Fund's investment transaction business.
It is also understood that it is desirable for the Fund that the Manager have
access to supplemental investment and market research and security and economic
analysis provided by brokers or futures commission merchants and that such
brokers may execute brokerage transactions at a higher cost to
3
<PAGE>
the Fund than may result when allocating brokerage to other brokers or futures
commission merchants on the basis of seeking the most favorable price and
efficient execution. Therefore, the Manager is authorized to pay higher
brokerage commissions for the purchase and sale of securities and futures
contracts for the Fund to brokers or futures commission merchants who provide
such research and analysis, subject to review by the Fund's Board of Directors
from time to time with respect to the extent and continuation of this practice.
It is understood that the services provided by such broker or futures commission
merchant may be useful to the Manager in connection with its services to other
clients.
On occasions when the Manager deems the purchase or sale of a security or a
futures contract to be in the best interest of the Fund as well as other clients
of the Manager or the Subadviser, the Manager, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities or futures contracts to be so sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities or futures
contracts so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to the Fund and to
such other clients.
4
<PAGE>
(d) The Manager shall maintain all books and records with
respect to the Fund's portfolio transactions and shall render to the
Fund's Board of Directors such periodic and special reports as the
Board may reasonably request.
(e) The Manager shall be responsible for the financial and
accounting records to be maintained by the Fund (including those being
maintained by the Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each
business day with information relating to all transactions concerning
the Fund's assets.
(g) The investment management services of the Manager to the
Fund under this Agreement are not to be deemed exclusive, and the
Manager shall be free to render similar services to others.
3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, as filed with the
Secretary of State of Maryland (such Articles of Incorporation, as in
effect on the date hereof and as amended from time to time, are herein
called the "Articles of Incorporation";
(b) By-laws of the Fund (such By-Laws, as in effect on the
date hereof and as amended from time to time, are herein called the
"By-Laws");
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(c) Certified resolutions of the Board of Directors of the
Fund authorizing the appointment of the Manager and approving the form
of this agreement;
(d) Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A (the "Registration
Statement"), as filed with the Securities and Exchange Commission (the
"Commission") relating to the Fund and shares of the Fund's Common
Stock and all amendments thereto;
(e) Notification of Registration of the Fund under the 1940
Act on Form N-SA as filed with the Commission and all amendments
thereto; and
(f) Prospectus of the Fund (such Prospectus and Statement of
Additional Information, as currently in effect and as amended or
supplemented from time to time, being herein called the "Prospectus").
4. The Manager shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the Fund
to serve in the capacities in which they are elected. All services to be
furnished by the Manager under this Agreement may be furnished through the
medium of any such directors, officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any such records upon the Fund's request,
provided however
6
<PAGE>
that the Manager may retain a copy of such records. The Manager further agrees
to preserve for the periods prescribed bV Rule 31a-2 under the 1940 Act any such
records as are required to be maintained by the Manager pursuant to Paragraph 2
hereof.
6. During the term of this Agreement, the Manager shall pay the
following expenses:
(i) the salaries and expenses of all personnel of the
Fund and the Manager except the fees and expenses of directors
who are not affiliated persons of the Manager or the Fund's
investment adviser,
(ii) 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 herein,
and
(iii) the costs and expenses payable to PIC pursuant
to the Subadvisory Agreement.
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Fund in
connection with the management of the investment and
reinvestment of the Fund's assets,
(b) the fees and expenses of directors who are not
affiliated persons of the Manager or the Fund's investment
adviser,
(c) the fees and expenses of the Custodian that
relate to (i) the custodial function and the recordkeeping
connected therewith, (ii) preparing and maintaining the
general accounting records of the Fund and the providing of
any such
7
<PAGE>
records to the Manager useful to the Manager in connection
with the Manager's responsibility for the accounting records
of the Fund pursuant to Section 31 of the 1940 Act and the
rules promulgated thereunder, (iii) the pricing of the shares
of the Fund, including the cost of any pricing service or
services which may be retained pursuant to the authorization
of the Board of Directors of the Fund, and (iv) for both mail
and wire orders, the cashiering function in connection with
the issuance and redemption of the Fund's securities,
(d) the fees and expenses of the Fund's Transfer and
Dividend Disbursing Agent, which may be the Custodian, that
relate to the maintenance of each shareholder account,
(e) the charges and expenses of legal counsel and
independent accountants for the Fund,
(f) brokers' commissions and any issue or transfer
taxes chargeable to the Fund in connection with its securities
and futures transactions,
(g) all taxes and corporate fees payable by the Fund
to federal, state or other governmental agencies,
(h) the fees of any trade associations of which the
Fund may be a member,
(i) the cost of stock certificates representing,
and/or non-negotiable share deposit receipts evidencing,
shares of the Fund,
(j) the cost of fidelity, directors and officers and
errors and omissions insurance,
8
<PAGE>
(k) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with
the Securities and Exchange Commission, registering the Fund
as a broker or dealer and qualifying its shares under state
securities laws, including the preparation and printing of the
Fund's registration statements, prospectuses and statements of
additional information for filing under federal and state
securities laws for such purposes,
(l) allocable communications expenses with respect to
investor services and all expenses of shareholders' and
directors' meetings and of preparing, printing and mailing
reports to shareholders in the amount necessary for
distribution to the shareholders,
(m) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of
the Fund's business, and
(n) any expenses assumed by the Fund pursuant to a
Plan of Distribution adopted in conformity with Rule 12b-1
under the 1940 Act.
7. In the event the expenses of the Fund for any fiscal year (including
the fees payable to 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) exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statute or regulations of
9
<PAGE>
any jurisdictions in which shares of the Fund are then qualified for offer and
sale, the compensation due the Manager will be reduced by the amount of such
excess, or, if such reduction exceeds the compensation payable to the Manager,
the Manager will pay to the Fund the amount of such reduction which exceeds the
amount of such compensation.
8. For the services provided and the expenses assumed pursuant to this
Agreement, the Fund will pay to the Manager as full compensation therefor a fee
at an annual rate of .55 of 1% of the Fund's average daily net assets. This fee
will be computed daily and will be paid to the Manager monthly. Any reduction in
the fee payable and any payment by the Manager to the Fund pursuant to paragraph
7 shall be made monthly. Any such reductions or payments are subject to
readjustment during the year.
9. The Manager shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such
10
<PAGE>
continuance is specifically approved at least annually in conformity with the
requirements of the 1940 Act; provided, however, that this Agreement may be
terminated by the Fund at any time, without the payment of any penalty, by the
Board of Directors of the Fund or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund, or by the Manager at
any time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other party. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a director, officer
or employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
12. Except as otherwise provided herein or authorized by the Board of
Directors of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
13. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses,
11
<PAGE>
proxy statements, reports to shareholders, sales literature, or other material
prepared for distribution to shareholders of the Fund or the public, which refer
in any way to the Manager, prior to use thereof and not to use such material if
the Manager reasonably objects in writing within five business days (or such
other time as may be mutually agreed) after receipt thereof. In the event of
termination of this Agreement, the Fund will continue to furnish to the Manager
copies of any of the above mentioned materials which refer in any way to the
Manager. Sales literature may be furnished to the Manager hereunder by
first-class or overnight mail, facsimile transmission equipment or hand
delivery. The Fund shall furnish or otherwise make available to the Manager such
other information relating to the business affairs of the Fund as the Manager at
any time, or from time to time, reasonably requests in order to discharge its
obligations hereunder.
14. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the 1940 Act.
15. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Manager at One Seaport Plaza, New York, N.Y.
10292, Attention: Secretary; or (2) to the Fund at One Seaport Plaza, New York,
N.Y. 10292, Attention: President.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
12
<PAGE>
17. The Fund may use the name "Prudential-Bache Short Term Global
Income Fund, Inc." or any name including the words "Prudential" or "Bache" only
for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization which
shall have succeeded to the Manager's business as Manager or any extension,
renewal or amendment thereof remain in effect. At such time as such an agreement
shall no longer be in effect, the Fund will (to the extent that it lawfully can)
cease to use such a name or any other name indicating that it is advised by,
managed by or otherwise connected with the Manager, or any organization which
shall have so succeeded to such businesses. In no event shall the Fund use the
name "Prudential-Bache Short-Term Global Income Fund, Inc." or any name
including the word "Prudential" or "Bache" if the Manager's function is
transferred or assigned to a company of which The Prudential Insurance Company
of America does not have control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL-BACHE SHORT-TERM
GLOBAL INCOME FUND, INC.
By /s/LAWRENCE C. McQUADE
-----------------------------------
Lawrence C. McQuade
President
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ROBERT F. GUNIA
-----------------------------------
Robert F. Gunia
Executive Vice President
13
PRUDENTIAL-BACHE SHORT-TERM GLOBAL INCOME FUND, INC.
SUBADVISORY AGREEMENT
Agreement made as of this 25th day of October, 1990 between
Prudential Mutual Fund Management Inc., a Delaware Corporation ( "PMF" or the
"Manager" ), and The Prudential Investment Corporation, a New Jersey corporation
(the "Subadviser").
WHEREAS, the Manager has entered into a Management Agreement,
dated October 25, 1990 (the "Management Agreement"), with Prudential-Bache
Short-Term Global Income Fund, Inc. (the "Fund"), a Maryland corporation and a
non-diversified open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"), pursuant to which PMF will act
as Manager of the Fund.
WHEREAS, PMF desires to retain the Subadviser to provide
investment advisory services to the Fund in connection with the management of
the Fund and the Subadviser is willing to render such investment advisory
services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board
of Directors of the Fund, the Subadviser shall manage the
investment operations of the Fund and the composition of the
Fund's portfolio, including the purchase, retention and
disposition thereof, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Prospectus,
(such Prospectus and Statement of Additional Information as
currently in effect and as amended or supplemented from time to
time, being herein called the "Prospectus"), and subject to the
following understandings:
(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by the
Fund, and what portion of the assets will be invested or held
uninvested as cash.
(ii) In the performance of its duties and obligations under
this Agreement, the Subadviser shall act in conformity with the
Articles of Incorporation, By-Laws and Prospectus of the Fund and
with the instructions and directions of the Manager and of the
Board of Directors of the Fund and will conform to and comply with
the requirements of the 1940 Act, the Internal Revenue Code of
1986 and all other applicable federal and state laws and
regulations.
<PAGE>
(iii) The Subadviser shall determine the securities and
futures contracts to be purchased or sold by the Fund and will
place orders with or through such persons, brokers, dealers or
futures commission merchants (including but not limited to
Prudential-Bache Securities Inc.) to carry out the policy with
respect to brokerage as set forth in the Fund's Registration
Statement and Prospectus or as the Board of Directors may direct
from time to time. In providing the Fund with investment
supervision, it is recognized that the Subadviser will give
primary consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
Subadviser may consider the financial responsibility, research and
investment information and other services provided by brokers,
dealers or futures commission merchants who may effect or be a
party to any such transaction or other transactions to which the
Subadviser's other clients may be a party. It is understood that
Prudential-Bache Securities Inc. may be used as principal broker
for securities transactions but that no formula has been adopted
for allocation of the Fund's investment transaction business. It
is also understood that it is desirable for the Fund that the
Subadviser have access to supplemental investment and market
research and security and economic analysis provided by brokers or
futures commission merchants who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, the
Subadviser is authorized to place orders for the purchase and sale
of securities and futures contracts for the Fund with such brokers
or futures commission merchants, subject to review by the Fund's
Board of Directors from time to time with respect to the extent
and continuation of this practice. It is understood that the
services provided by such brokers or futures commission merchants
may be useful to the Subadviser in connection with the
Subadviser's services to other clients.
On occasions when the Subadviser deems the purchase or sale of a
security or futures contract to be in the best interest of the
Fund as well as other clients of the Subadviser, the Subadviser,
to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities or
futures contracts to be sold or purchased in order to obtain the
most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities or futures
contracts so purchased or sold, as well as the expenses incurred
2
<PAGE>
in the transaction, will be made by the Subadviser in the manner
the Subadviser considers to be the most equitable and consistent
with its fiduciary obligations to the Fund and to such other
clients.
(iv) The Subadviser shall maintain all books and records with
respect to the Fund's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph
(f) of Rule 31a-1 under the 1940 Act and shall render to the
Fund's Trustees such periodic and special reports as the Trustees
may reasonably request.
(v) The Subadviser shall provide the Fund's Custodian on each
business day with information relating to all transactions
concerning the Fund's assets and shall provide the Manager with
such information upon request of the Manager.
(vi) The investanent management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its
directors, officers and employees who may be elected as directors
or officers of the Fund to serve in the capacities in which they
are elected. Services to be furnished by the Subadviser under this
Agreement may be furnished through the medium of any of such
directors, officers or employees.
(c) The Subadviser shall keep the Fund's books and records
required to be maintained by the Subadviser pursuant to paragraph
1(a) hereof and shall timely furnish to the Manager all
information relating to the Subadviser's services hereunder needed
by the Manager to keep the other books and records of the Fund
required by Rule 31a-1 under the 1940 Act. The Subadviser agrees
that all records which it maintains for the Fund are the property
of the Fund and the Subadviser will surrender promptly to the Fund
any of such records upon the Fund's request, provided however that
the Subadviser may retain a copy of such records. The Subadviser
further agrees to preserve for the periods prescribed by Rule
31a-2 of the Commission under the 1940 Act any such records as
are required to be maintained by it pursuant to paragraph l(a)
hereof.
2. The Manager shall continue to have responsibility for all
services to be provided to the Fund pursuant to the Management
Agreement and shall oversee and review the Subadviser's
performance of its duties under this Agreement.
3
<PAGE>
3. The Manager shall reimburse the Subadviser for reasonable costs
and expenses incurred by the Subadviser determined in a manner
acceptable to the Manager in furnishing the services described in
paragraph 1 hereof.
4. The Subadviser shall not be liable for any error of judgment or
for any loss suffered by the Fund or the Manager in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence
on the Subadviser's part in the performance of its duties or from
its reckless disregard of its obligations and duties under this
Agreement.
5. This Agreement shall continue in effect for a period of more
than two years from the date hereof only so long as such
continuance is specifically approved at least annually in
conformity with the requirements of the 1940 Act; provided,
however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of
Directors of the Fund or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund, or by
the Manager or the Subadviser at any time, without the payment of
any penalty, on not more than 60 days' not less than 30 days'
written notice to the other party. This Agreement shall terminate
automatically in the event of its assignment (as defined in the
1940 Act) or upon the termination of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of
any of the Subadviser's directors, officers, or employees who may
also be a director, officer or employee of the Fund to engage in
any other business or to devote his or her time and attention in
part to the management or other aspects of any business, whether
of a similar or a dissimilar nature, nor limit or restrict the
Subadviser's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual or
association.
7. During the term of this Agreement, the Manager agrees to
furnish the Subadviser at its principal office all prospectuses,
proxy statements, reports to stockholders, sales literature or
other material prepared for distribution to stockholders of the
Fund or the public, which refer to the Subadviser in any way,
prior to use thereof and not to use material if the Subadviser
reasonably objects in writing five business days (or such other
time as may be mutually agreed) after receipt thereof. Sales
literature may be furnished to the Subadviser hereunder by
first-class or overnight mail, facsimile transmission equipment or
hand delivery.
4
<PAGE>
8. This Agreement may be amended by mutual consent, but the
consent of the Fund must be obtained in conformity with the
requirements of the 1940 Act.
9. This Agreement shall be governed by the laws of the State of
New York.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ Robert F. Gunia
-------------------------------------
Robert F. Gunia
Executive Vice President
THE PRUDENTIAL INVESTMENT CORPORATION
By /s/ [signature omitted]
------------------------------------
5
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 majority of the outstanding voting
securities on note 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
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:_______________________________________
<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
-------------- ----------
<C> <S> <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
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 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
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
PRICOA World Wide 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.
<PAGE>
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:______________________
<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 August 8, 1997 and the Fund's Statement of
Additional Information dated August 8, 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 March 4, 1998.
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.
<PAGE>
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus dated March 4, 1998 and the Fund's Statement of
Additional Information dated
March 4, 1998.
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, 1997and the Fund's Statement of
Additional Information dated December 30, 1997; both supplemented as of March
17, 1998.
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 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
<PAGE>
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.
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 $1.5 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.)
<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 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.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during initial portfolio building.
<PAGE>
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").
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
<PAGE>
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.
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
<PAGE>
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.
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
1. Employment of Custodian and Property to be
Held By It ............................................................. 1
2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States ..................................... 2
2.1 Holding Securities ............................................... 2
2.2 Delivery of Securities ........................................... 3
2.3 Registration of Securities ....................................... 8
2.4 Bank Accounts .................................................... 8
2.5 Availability of Federal Funds .................................... 9
2.6 Collection of Income ............................................. 10
2.7 Payment of Fund Monies ........................................... 10
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased....................................................... 13
2.9 Appointment of Agents............................................. 14
2.10 Deposit of Securities in Securities System ....................... 14
2.10A Fund Assets Held in the Custodian's Direct Paper System .......... 17
2.11 Segregated Account................................................ 19
2.12 Ownership Certificates for Tax Purposes .......................... 20
2.13 Proxies .......................................................... 20
2.14 Communications Relating to Fund Portfolio Securities ............. 20
2.15 Reports to Fund by Independent Public Accountants ................ 21
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States ............................................ 22
3.1 Appointment of Foreign Sub-Custodians ............................ 22
3.2 Assets to be Held . .............................................. 22
3.3 Foreign Securities Depositories .................................. 23
3.4 Segregation of Securities ........................................ 23
3.5 Agreements with Foreign Banking Institutions ..................... 24
3.6 Access of Independent Accountants of the Fund..................... 24
3.7 Reports by Custodian ............................................. 25
3.8 Transactions in Foreign Custody Account .......................... 25
3.9 Liability of Foreign Sub-Custodians .............................. 26
3.10 Liability of Custodian ........................................... 27
3.11 Reimbursement for Advances ....................................... 28
3.12 Monitoring Responsibilities ...................................... 28
3.13 Branches of U.S. Banks ......................................... 29
4. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund ................................................... 29
5. Proper Instructions ..................................................... 30
6. Actions Permitted Without Express Authority.............................. 32
7. Evidence of Authority ................................................... 32
<PAGE>
8. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and Net Income .............. 33
9. Records ................................................................. 33
10. Opinion of Fund's Independent Accountant ................................ 34
11. Compensation of Custodian ............................................... 34
12. Responsibility of Custodian ............................................. 34
13. Effective Period, Termination and Amendment ............................. 37
14. Successor Custodian ..................................................... 38
15. Interpretive and Additional Provisions .................................. 40
16. Massachusetts Law to Apply .............................................. 40
17. Prior Contracts ......................................................... 40
18. The Parties ............................................................. 40
19. Limitation of Liability ................................................. 41
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
This Contract between State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian", and each Fund listed on Appendix A which evidences its agreement to
be found hereby by executing a copy of this Contract (each such Fund
individually hereinafter referred to as the "Fund").
WlTNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its
assets, including securities it desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the Articles
of Incorporation/Declaration of Trust. The Fund agrees to deliver to the
Custodian all securities and cash owned by it, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, ("Shares") of
the Fund as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held or received by the Fund and not
delivered to the Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall from time to time employ one or more
sub-custodians located in the United States, but only in accordance with an
applicable vote by the Board of Directors/Trustees of the Fund, and provided
that the Custodian shall have the same responsibility or liability to the Fund
on account of any actions or omissions of any sub-custodian so employed as any
such sub-custodian has to the Custodian, provided that the Custodian agreement
with any such domestic sub-custodian shall impose on such sub-custodian
responsibilities and liabilities similar in nature and scope to those imposed by
this Agreement with respect to the functions to be performed by such
sub-custodian. The Custodian may employ as sub-custodians for the Fund's
Securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule "A" hereto but only in accordance
with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other
than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury,
-2-
<PAGE>
collectively referred to herein as "Securities System" and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.10A.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic
securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper
book-entry system account ("Direct Paper System") only upon receipt of
Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or
-3-
<PAGE>
otherwise become payable: provided that, in any such case, the
cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1: or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
PROVIDED that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the
-4-
<PAGE>
Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
lO) For delivery in connection with any loans of securities made by
the Fund, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund,
which may be in the form of cash or obligations issued by the
United States government, its agencies or
-5-
<PAGE>
instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
the delivery of securities owned by the Fund prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, BUT ONLY against
receipt of amounts borrowed;
l2) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund,
-6-
<PAGE>
the Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the rules
of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the Fund's currently
effective prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of Shares
for repurchase or redemption; and
15) For any other proper business purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors/Trustees or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities
to be delivered, setting forth the purpose for which such
7
<PAGE>
delivery is to be made, declaring such purpose to be a proper
business purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the Fund
or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, UNLESS
the Fund has authorized in writing the appointment of a nominee to be used
in common with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted by
the Custodian on behalf of the Fund under the terms of this Contract shall
be in "street name" or other good delivery form. However, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in
-8-
<PAGE>
the name of the Fund, subject only to draft or order by the Custodian
acting pursuant to the terms of this Contract, and shall hold in such
account or accounts. Subject to the provisions hereof, all cash received
by it from or for the account of the Fund, other than cash maintained by
the Fund in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by it to its credit as Custodian
in the Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
PROVIDED, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of 1940
and that each such bank or trust company and the funds to be deposited
with each such bank or trust company shall be approved by vote of a
majority of the Board of Directors/Trustees of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund and
the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
-9-
<PAGE>
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which the Fund
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments
with respect to bearer securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Income due the Fund on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the responsibility
of the Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such information
or data as may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Fund is properly
entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
-10-
<PAGE>
1) Upon the purchase of securities held domestically, options,
futures contracts or options on futures contracts for the account
of the Fund but only (a) against the delivery of such securities,
or evidence of title to such options, futures contracts or
options on futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the United States
or abroad which is qualified under the Investment Company Act of
1940, as amended, to act as a custodian and has been designated
by the Custodian as its agent for this purpose) registered in the
name of the Fund or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.10A; (d) in the case of repurchase agreements entered
into between the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of
the securities either in certificate form or
-11-
<PAGE>
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Fund of securities owned by
the Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected prior
to receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined in
Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as
set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the
account of the Fund: interest, taxes, management, accounting,
transfer agent and legal fees, and operating expenses of the
-12-
<PAGE>
Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Board of Directors/Trustees or of the Executive Committee
of the Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is
to be made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of securities for the account of the Fund is
made by the Custodian in advance of receipt of the securities purchased in
the absence of specific written
-13-
<PAGE>
instructions from the Fund to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as if
the securities had been received by the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
PROVIDED, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 DEPOSIT OF SECURITIES IN SECURITIES SYSTEMS. The Custodian may deposit
and/or maintain domestic securities owned by the Fund tn a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that
-14-
<PAGE>
such securities are represented in an account ("Account") of the
Custodian in the Securities System which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic securities
of the Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer domestic
securities sold for the account of the Fund upon (i) receipt of
advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Fund. Copies
-15-
<PAGE>
of all advices from the Securities System of transfers of
domestic securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian
shall furnish the Fund confirmation of each transfer to or from
the account of the Fund in the form of a written advice or notice
and shall furnish promptly to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund;
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence,
-16-
<PAGE>
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as
it may have against the Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities System
or any other person which the Custodian may have as a consequence
of any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.
2.lOA FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
l) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
-17-
<PAGE>
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to
the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt
of payment for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund copies
of daily transaction sheets reflecting each day's transaction in
the Direct Paper System for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting
-18-
<PAGE>
control as the Fund may reasonably request from time to time.
2.11 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper Instructions
establish and maintain a segregated account or accounts for and on behalf
of the Fund, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in accordance with the provisions of
any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating
cash, government securities or liquid, high-grade debt obligations in
connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii)
for the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission
-19-
<PAGE>
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, BUT ONLY, in the
case of clause (iv), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of Directors/Trustees or of the
Executive Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes
of such segregated account and declaring such purposes to be proper
corporate purposes.
2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in connection
with transfers of such securities.
2.13 PROXIES. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to
the Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.14 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. Subject to the
provisions of Section 2.3, the Custodian
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shall transmit promptly to the Fund all written information (including,
without limitation, pendency of calls and maturities of securities held
domestically and expirations of rights in connection therewith and notices
of exercise of call and put options written by the Fund and the maturity of
futures contracts purchased or sold by the Fund) received by the Custodian
from issuers of the securities being held for the Fund. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Fund all written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other
Similar transaction, the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
2.15 REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian shall
provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall
be of sufficient scope and in
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sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by
such examination, and, if there are no such inadequacies, the reports shall
so state.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE
OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a certified resolution of the
Fund's Board of Directors/Trustees, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may instruct
the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Fund's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities",
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as defined in paragraph (c)(1) of Rule 17f-5 under the Investment Company
Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to effect
the Fund's foreign securities transactions.
3.3 FOREIGN SECURITIES DEPOSITORIES. Except as say otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 SEGREGATION OF SECURITIES
The Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian. Each
agreement pursuant to which the Custodian employs a foreign banking
institution shall require that such institution establish a custody account
for the Custodian on behalf of the Fund and physically segregate in that
account, securities and other assets of the Fund, and, in the event that
such institution deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as belonging to the
Custodian, as agent for the Fund, the securities so deposited.
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3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the Fund's assets will not
be subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or administration; (b)
beneficial ownership of the Fund's assets will be freely transferable
without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained identifying the
assets as belonging to the Fund; (d) officers of or auditors employed by,
or other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for the
Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Custodian;
and (e) assets of the Fund held by the foreign sub-custodian will be
subject only to the instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to
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<PAGE>
the performance of such foreign banking institution under its agreement
with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers
of securities to or from each custodial account maintained by a foreign
banking institution for the Custodian on behalf of the Fund indicating, as
to securities acquired for the Fund, the identity of the entity having
physical possession of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and 2.7
of this Contract shall apply, in their entirety to the foreign securities
of the Fund held outside the United States by foreign sub-custodians. (b)
Notwithstanding any provision of this Contract to the contrary, settlement
and payment for securities received for the account of the Fund and
delivery of securities maintained for the account of the Fund may be
effected in accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or
market in which the transaction
-25-
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occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained in
the name of such entity's nominee to the same extent as set forth in
Section 2.3 of this Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
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3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this paragraph
3.10, in delegating custody duties to State Street London Ltd., the
Custodian shall not be relieved of any responsibility to the Fund for any
loss due to such delegation, except such loss as say result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
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<PAGE>
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to advance
cash or securities for any purpose including the purchase or sale of
foreign exchange or of contracts for foreign exchange, or in the event that
the Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the
performance of this Contract, except such as may arise from its or
its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall
be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of the Fund assets to the extent necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar
in kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will promptly
inform the Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a foreign sub-custodian or any
material loss of the assets of the Fund or in the case of any foreign
sub-custodian not the subject of an exemptive order from the Securities
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<PAGE>
and Exchange Commission is notified by such foreign sub-custodian that
there appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million {U.S. dollars or the equivalent thereof) or
that its shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting principles).
3.13 BRANCHES OF U.S. BANKS.
(a) Except as otherwise set forth in this Contract, the provisions of
Article 3 shall not apply where the custody of the Fund assets are
maintained in a foreign branch of a banking institution which is a "bank"
as defined by Section 2(a)(5) of the Investment Company Act of 1940 meeting
the qualification set forth in Section 26(a) of said Act, The appointment
of any such branch as a sub-custodian shall be governed by paragraph 1 of
this Contract. (b) Cash held for the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the direction
of the Custodian, State Street London Ltd. or both.
4. PAYMENT FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES OF THE FUND
From such funds as may be available for the purpose but subject to
the limitations of the Articles of Incorporation/Declaration of Trust and any
applicable votes of the Board of
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<PAGE>
Directors/Trustees of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. PROPER INSTRUCTIONS
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the officers of the Fund shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of
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transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
It is understood and agreed that the Board of Directors/Directors/Trustees has
authorized (i) Prudential Mutual Fund Management, Inc., as Manager of the Fund,
and (ii) The Prudential Investment Corporation (or Prudential-Bache Securities
Inc.), as Subadviser to the Fund, to deliver proper instructions with respect to
all matters for which proper instructions are required by this Article 5. The
Custodian may rely upon the certificate of an officer of the Manager or
Subadviser, as the case may be, with respect to the person or persons authorized
on behalf of the Manager and Subadviser, respectively, to sign, initial or give
proper instructions for the purpose of this Article 5. Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Fund and the Custodian are satisfied that
such procedures afford adequate safeguards for the Fund's assets. For purposes
of this Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.11.
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<PAGE>
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
PROVIDED that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Fund except as otherwise directed by the Board of
Directors/Trustees of the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors/Trustees pursuant to the Articles of
Incorporation/
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Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of written
notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors/Trustees of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the time or
times described from time to time in the Fund's currently effective prospectus.
9. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to
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Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall
be the property of the Fund an shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by the Fund and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, Form N-2 (in the case of a closed
end Fund) and Form N-SAR or other periodic reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
11. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
12. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for
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the title, validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be held
harmless in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence, It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for
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any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable lot the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement provided, however, that
prior to disposing of Fund assets hereunder, the Custodian shall give the Fund
notice of its intention to dispose
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of assets identifying such assets and the Fund shall have one business day from
receipt of such notice to notify the Custodian if the Fund wishes the Custodian
to dispose of Fund assets of equal value other than those identified in such
notice.
13. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid
to the other party, such termination to take effect not sooner than sixty (60)
days after the date of such delivery or mailing; PROVIDED, however, that the
Custodian shall not act under Section 2.10 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors/Trustees of the Fund has approved the initial use of a particular
Securities System and the receipt of an annual certificate of the Secretary or
an Assistant Secretary that the Board of Directors/Trustees has reviewed the use
by the Fund of such Securities System, as required in each case by Rule 17f-4
under the Investment Company Act of 1940, as amended and that the Custodian
shall not act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has approved the initial use of the Direct Paper System and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors/Trustees has reviewed the
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use by the Fund of the Direct Paper System; PROVIDED FURTHER, however, that the
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Articles of
Incorporation/Declaration of Trust, and further provided, that the Fund may at
any time by action of its Board of Directors/Trustees (i) substitute another
bank or trust company for the Custodian by giving notice as described above to
the Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a 1ike event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver
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at the office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations
of the Custodian shall remain in full force and effect.
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15. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation/Declaration of Trust of the Fund. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
16. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
17. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
18. THE PARTIES
All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Contract were between such individual Fund
and the Custodian. With respect to any Fund listed on Appendix A which is
organized as a
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Massachusetts Business Trust, references to Board of Directors and Articles of
Incorporation shall be deemed a reference to Board of Directors/Trustees and
Articles of Incorporation/Declaration of Trust respectively and reference to
shares of capital stock shall be deemed a reference to shares of beneficial
interest.
19. LIMITATION OF LIABILITY
Each Fund listed on Appendix A that is referenced as a Massachusetts
Business Trust is the designation of the Directors/Trustees under a Article of
Incorporation/Declaration of Trust, dated (see Appendix A) and all persons
dealing with the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the Directors/Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument
to be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the dates set forth on Appendix A.
ATTEST STATE STREET BANK AND TRUST COMPANY
[signature omitted] By [signature omitted]
- ---------------------------------- --------------------------------------
Assistant Secretary Vice President
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
[signature omitted] By [signature omitted]
- ---------------------------------- --------------------------------------
Secretary Vice President
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APPENDIX A
<TABLE>
<CAPTION>
EXECUTION DATE OF
FUND NAME DATE DECLARATION OF TR
- --------- --------- -----------------
(if applicable)
<S> <C> <C>
Command Government Fund July 1, 1990 August 19, 1981
Command Money Fund July 1, 1990 June 5, 1981
Command Tax-Free Fund July 1, 1990 June 5, 1981
The Global Yield Fund, Inc.
Prudential-Bache California Municipal Fund May 18, 1984
Prudential-Bache Equity Fund, Inc.
Prudential-Bache Global Fund, Inc.
Prudential-Bache GNMA Fund, Inc.
Prudential-Bache Government Plus Fund, Inc.
Prudential-Bache Government Securities Trust September 22, 1981
Prudential-Bache Growth Opportunity Fund, Inc.
Prudential-Bache High Yield Fund, Inc.
Prudential-Bache IncomeVertible Plus Fund, Inc.
Prudential-Bache MoneyMart Assets, INC.
Prudential-Bache Multi-Sector Fund, Inc. June 1, 1990
Prudential-Bache Municipal Series Fund May 18, 1994
Prudential-Bache National Municipals Fund, Inc.
Prudential-Bache Option Growth Fund, Inc.
Prudential-Bache Research Fund, Inc.
Prudential-Bache Special Money Market Fund, Inc. January 12, 1990
Prudential-Bache Structured Maturity Fund, Inc. July 25, 1989
Prudential-Bache Tax-Free Money Fund, Inc.
Prudential-Bache U.S. Government Fund September 22, 1986
Prudential-Bache Utility Fund, Inc.
Prudential-Bache Short-Term Global Income October 25, 1990
Fund, Inc.
</TABLE>
-42-
<PAGE>
SCHEDULE A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors/Trustees of Each of
the Parties Indicated on Appendix A for use as sub-custodians for the Fund's
securities and other assets:
Certified:
[signature omitted]
- -------------------------------------
Fund's Authorized Officer
Date: 10/25/90
43
<PAGE>
SCHEDULE A
Securities Depositary
or
Country Bank Clearing Agency
- ------- ---- ---------------------
Australia and None
New Zealand Banking
Group Limited
Austria Girozentrale und Oesterreichischen
Bank der Osterreichischen Kontrollbank AG-
Sparkassen AG Wertpapier-
sammelbank beider
Belgium Banque Bruxelles Caisse Interprofessionnelle
Lambert S.A./N.V de Deports et de Virements
de Titres S.A.
Canada Canada Trust Canadian Depository
Company for Securities, Ltd
Denmark Den Danska Bank Vaerdipapircentralen
Finland Kansallis-Osake- None
Pankki
France Credit Commercial de Societe
France Interprofessionell pour la
des Valeurs Mobiliees
Germany Berliner-Handels-Und Frankfurter Kassenverein
Frankfurter Bank A.G.
(Frankfurt Central
Depository)
Hong Kong The Standard Chartered None
Bank (Hong Kong)
Italy Credito Italiano Monte Titoli-SpA
Japan Sumitomo Trust & Banking None
Co. Ltd.
Luxembourg Cedel None
Malaysia The Standard Chartered None
Bank
Netherlands Bank Mees & Hope N.V.; NECIGEF
Subsidiary of Algemene (Netherlands Clearing Bank
Nederland, N.V. Institute for Giro
Securities Deliveries)
<PAGE>
Securities Depositary
or
Country Bank Clearing Agency
- ------- ---- ---------------------
New Zealand Westpac Banking The Reserve Bank
Corporation New Zealand
Norway Christiani Bank Norwegian Registry
Securities
Portugal Banco Espirito Santo None
e Commercial de Lisboa
Singapore DBS Bank Ltd; None
Subsidiary of DBS
Bank Ltd.
Spain Bank Hispano Junta Sindical
Americano
Sweden Skandinaviska None
Enskilda Banken
Switzerland Union Bank of Switzerland Schweizerische-Effekten
Giro A.G. ("SEGA")
United Kingdom State Street London The Euroclear System
Limited; Subsidiary
of State Street Boston
Corporation
Transnational The Euroclear System;
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL-BACHE SHORT-TERM GLOBAL INCOME FUND, INC.
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
------------------
Article 1 Terms of Appointment; Duties of the Agent ......................... 1
Article 2 Fees and Expenses ................................................. 7
Article 3 Representations and Warranties of the Agent ....................... 7
Article 4 Representations of Warranties of the Fund ......................... 8
Article 5 Duty of Care and Indemnification .................................. 9
Article 6 Documents and Covenants of the Fund and the Agent.................. 12
Article 7 Termination of Agreement .......................................... 14
Article 8 Assignment ........................................................ 14
Article 9 Affiliations ...................................................... 15
Article 10 Amendment ........................................................ 16
Article 11 Applicable Law ................................................... 16
Article 12 Miscellaneous .................................................... 16
Article 13 Merger of Agreement .............................................. 17
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 25th day of October, 1990 by and between
PRUDENTIAL-BACHE SHORT-TERM GLOBAL INCOME FUND, INC., a Maryland corporation,
having its principal office and place of business at One Seaport Plaza, New
York, New York 10292 (the Fund), and PRUDENTIAL MUTUAL FUND SERVICES, INC., a
New Jersey corporation, having its principal office and place of business at
Raritan Plaza One, Edison, New Jersey 08837 (the Agent or PMFS).
WHEREAS, the Fund desires to appoint PMFS as its transfer agent, dividend
disbursing agent and shareholder servicing agent in connection with certain
other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
ARTICLE 1 TERMS OF APPOINTMENT; DUTIES OF PMFS
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints PMFS to act as, and PMFS agrees to act as,
the transfer agent for the authorized and issued shares of the common stock of
each series of the Fund, $.001 par value (Shares), dividend disbursing agent and
shareholder servicing agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of the Fund or any series thereof
(Shareholders) and set out in the
1
<PAGE>
currently effective prospectus and statement of additional information
(prospectus) of the Fund, including without limitation any periodic investment
plan or periodic withdrawal program.
1.02 PMFS agrees that it will perform the following services: (a) In
accordance with procedures established from time to time by agreement between
the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and promptly
deliver payment and appropriate documentation therefor to the Custodian of the
Fund authorized pursuant to the Articles of Incorporation of the Fund (the
Custodians);
(ii) Pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption directions
and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it by
the Custodian with respect to any redemption, pay over or cause to be paid over
in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions declared
by the Fund;
2
<PAGE>
(vii) Calculate any sales charges payable by a Shareholder on purchases
and/or redemptions of Shares of the Fund as such charges may be reflected in the
prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain pursuant to
Rule 17Ad-10(e) under the Securities Exchange Act of 1934 (1934 Act) a record of
the total number of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. PMFS shall also provide
to the Fund on a regular basis the total number of Shares which are authorized,
issued and outstanding and shall notify the Fund in case any proposed issue of
Shares by the Fund would result in an overissue. In case any issue of Shares
would result in an overissue, PMFS shall refuse to issue such Shares and shall
not countersign and issue any certificates requested for such Shares. When
recording the issuance of Shares, PMFS shall have no obligation to take
cognizance of any Blue Sky laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), PMFS shall: (i) perform all of the customary
services of a transfer agent, dividend disbursing agent and, as
relevant, shareholder servicing agent in connection with
accumulation, open-account or similar plans (including without
limitation any periodic investment plan or periodic withdrawal
3
<PAGE>
program), including but not limited to, maintaining all
Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, receiving and tabulating proxies, mailing
Shareholder reports and prospectuses to current Shareholders,
withholding taxes on non-resident alien accounts, preparing and
filing appropriate forms required with respect to dividends and
distributions by federal tax authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders and providing Shareholder account information and
(ii) provide a system which will enable the Fund to monitor the
total number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of PMFS for the Fund's registration status under
the Blue Sky or securities laws of any State or other
jurisdiction is solely limited to the initial establishment of
transactions subject to Blue Sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above and
as agreed from time to time by the Fund and PMFS.
4
<PAGE>
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and PMFS.
ARTICLE 2 FEES AND EXPENSES
2.01 For performance by PMFS pursuant to this Agreement, the Fund agrees
to pay PMFS an annual maintenance fee for each Shareholder account and certain
transactional fees as set out in the fee schedule attached hereto as Schedule A.
Such fees and out-of-pocket expenses and advances identified under Section 2.02
below may be.changed from time to time subject to mutual written agreement
between the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Fund
agrees to reimburse PMFS for out-of-pocket expenses or advances incurred by PMFS
for the items set out in Schedule A attached hereto. In addition, any other
expenses incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within a
reasonable period of time following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to PMFS by the Fund upon
request prior to the mailing date of such materials.
5
<PAGE>
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PMFS
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of New Jersey and it is duly qualified to carry on its business
in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
Exchange Commission (SEC) as a Transfer Agent pursuant to the requirements of
Section 17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to PMFS that:
4.01 It is a corporation duly organized and existing and in good standing
under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of Incorporation
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
6
<PAGE>
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the 1940 Act).
4.05 A registration statement under the Securities Act of 1933 (the 1933
Act) is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
ARTICLE 5 DUTY OF CARE AND INDEMNIFICATION
5.01 PMFS shall not be responsible for, and the Fund shall indemnify and
hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or
7
<PAGE>
maintained by the Fund or any other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities or Blue Sky laws of any
State or other jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other determination or
ruling by any federal agency or any State or other jurisdiction with respect to
the offer or sale of such Shares in such State or other jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by PMFS as a result of PMFS' lack of good faith, negligence or willful
misconduct.
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents
8
<PAGE>
and subcontractors shall be protected and indemnified in acting upon any paper
or document furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. PMFS, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signature of the officers of the
Fund, and the proper countersignature of any former transfer agent or registrar,
or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for
9
<PAGE>
which either party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion, and
shall keep the other party advised with respect to all developments concerning
such claim. The party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense of such claim.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
ARTICLE 6 DOCUMENTS AND COVENANTS OF THE FUND AND PMFS
6.01 The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of PMFS and the execution and delivery of this
Agreement;
(b) A certified copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto;
(c) The current registration statements and any amendments and supplements
thereto filed with the SEC pursuant to the requirements of the 1933 Act and the
1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Directors, with a certificate of the Secretary of the
Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Fund; and
10
<PAGE>
(f) Such other certificates, documents or opinions as the Agent deems to be
appropriate or necessary for the proper performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential and shall not be voluntarily disclosed to any other person except
as may be required by law or with the prior consent of PMFS and the Fund.
11
<PAGE>
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person.
ARTICLE 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any other
reasonable fees and expenses associated with such termination.
ARTICLE 8 ASSIGNMENT
8.01 Except as provided in Section 8.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by the
Fund, subcontract, in whole or in part, for the performance of its obligations
and duties hereunder with any
12
<PAGE>
person or entity including but not limited to: (i) Prudential-Bache Securities
Inc. (Prudential-Bache), a registered broker-dealer, (ii) The Prudential
Insurance Company of America (Prudential), (iii) Pruco Securities Corporation, a
registered broker-dealer, (iv) any Prudential-Bache or Prudential subsidiary or
affiliate duly registered as a broker-dealer and/or a transfer agent pursuant to
the 1934 Act or (vi) any other Prudential-Bache or Prudential affiliate or
subsidiary; provided, however, that PMFS shall be as fully responsible to the
Fund for the acts and omissions of any agent or subcontractor as it is for its
own acts and omissions.
ARTICLE 9 AFFILIATIONS
9.01 PMFS may now or hereafter, without the consent of or notice to the
Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential-Bache
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
9.02 It is understood and agreed that the directors, officers, employees,
agents and Shareholders of the Fund, and the directors, officers, employees,
agents and shareholders of the Fund's investment adviser and/or distributor, are
or may be interested in the Agent as directors, officers, employees, agents,
shareholders or otherwise, and that the directors, officers,
13
<PAGE>
employees, agents or shareholders of the Agent may be interested in the Fund as
directors, officers, employees, agents, Shareholders or otherwise, or in the
investment adviser and/or distributor as officers, directors, employees, agents,
shareholders or otherwise.
ARTICLE 10 AMENDMENT
10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
ARTICLE 11 APPLICABLE LAW
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
ARTICLE 12 MISCELLANEOUS
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1000 or less.
14
<PAGE>
12.02 In the event that any check or other order for payment of money on
the account of any Shareholder or new investor is returned unpaid for any
reason, PMFS will (a) give prompt notification to the Fund's distributor
(Distributor) of such non-payment; and (b) take such other action, including
imposition of a reasonable processing or handling fee, as PMFS may, in its sole
discretion, deem appropriate or as the Fund and the Distributor may instruct
PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Prudential-Bache Short-Term Global Income Fund, Inc.
One Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza One
Edison, NJ 08837
Attention: President
ARTICLE 13 MERGER OF AGREEMENT
13.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
PRUDENTIAL-BACHE SHORT-TERM
GLOBAL INCOME FUND, INC.
BY: /s/ LAURENCE C. MCQUADE
--------------------------
ATTEST:
/s/ COURTNEY A. LEE
- ----------------------------------
PRUDENTIAL MUTUAL FUND
SERVICES, INC.
BY /s/ R.F. Gunia
--------------------------
ATTEST:
/s/ DEBORAH A. DOCKS
- ----------------------------------
16
<PAGE>
SCHEDULE A
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL-BACHE SHORT-TERM GLOBAL INCOME FUND, INC.
GENERAL - Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. The effective period of this fee
schedule is June 1, 1990 and shall continue thereafter from year to year, unless
otherwise amended.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Basic Annual Per Account Fee $ 13.00
New Account Set-up Fee for Manually $ 2.00
Established Accounts
INACTIVE ACCOUNT FEE - $.20 per month. A monthly fee is charged for inactive
accounts with a zero balance.
OUT-OF-POCKET EXPENSES - Out-of-pocket expenses include but are not limited to:
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
PAYMENT - An invoice will be presented to the Fund on a monthly basis assessing
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL-BACHE SHORT-TERM PRUDENTIAL MUTUAL FUND
GLOBAL INCOME FUND, INC. SERVICES, INC.
NAME: /s/ LAWRENCE C. McQUADE NAME /s/ ROBERT F.GUNIA
------------------------ ---------------------------
Lawrence C. McQuade Robert F.Gunia
TITLE: PRESIDENT TITLE: EXECUTIVE VICE PRESIDENT
--------- ------------------------
DATE: OCTOBER 25. 1990 DATE: OCTOBER 25. 1990
----------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 15 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 21, 1998, relating to the financial statements and financial highlights
of Prudential Global Limited Maturity Fund, Inc., which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Investment
Advisory and Other Services" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such Prospectus.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
January 13, 1999
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% to zero over a four-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 years
after purchase.
CLASS C SHARES: Class C shares issued before November 2,
- -------------- 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 November 2, 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.
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.
<PAGE>
INCOME AND EXPENSE ALLOCATIONS
Income and expenses not allocated to a particular class, will be
allocated to each class on the basis of relative net assets (settled
shares). "Relative net assets (settled shares)" are net assets valued in
accordance with generally accepted accounting principles but excluding
the value of subscriptions receivable in relation to the net assets of
the Fund. Any realized and unrealized capital gains and losses will be
allocated to each class on the basis of the net asset value of that
class in relation to the net asset value of the Fund.
DIVIDENDS AND DISTRIBUTIONS
d 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 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.
Effective: November 2, 1998
3
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<INVESTMENTS-AT-COST> 66,902,745
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<PER-SHARE-NII> 0.51
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