<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1994
REGISTRATION NO. 33-53151
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 / /
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 1 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
PRUDENTIAL EUROPE GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250
------------------------
S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the Registration Statement.
------------------------
REGISTRANT HEREBY ELECTS, PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT
COMPANY ACT OF 1940, TO REGISTER AN INDEFINITE NUMBER OF SHARES BY THIS
REGISTRATION STATEMENT. IN ACCORDANCE WITH RULE 24F-2, A REGISTRATION FEE, IN
THE AMOUNT OF $500, HAS PREVIOUSLY BEEN PAID.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page......................................... Cover Page
Item 2. Synopsis........................................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information.................... Fund Expenses; How the Fund Calculates Performance
Item 4. General Description of Registrant.................. Cover Page; Fund Highlights; How the Fund Invests;
General Information
Item 5. Management of the Fund............................. How the Fund is Managed
Item 5A. Management's Discussion of Fund Performance........ Not Applicable
Item 6. Capital Stock and Other Securities................. Taxes, Dividends and Distributions; General
Information
Item 7. Purchase of Securities Being Offered............... Shareholder Guide; How the Fund Values its Shares
Item 8. Redemption or Repurchase........................... Shareholder Guide; How the Fund Values its Shares
Item 9. Pending Legal Proceedings.......................... Not Applicable
PART B
Item 10. Cover Page......................................... Cover Page
Item 11. Table of Contents.................................. Table of Contents
Item 12. General Information and History.................... General Information
Item 13. Investment Objectives and Policies................. Investment Objective and Policies; Investment
Restrictions
Item 14. Management of the Fund............................. Directors and Officers; Manager; Distributor
Item 15. Control Persons and Principal Holders of
Securities....................................... Not Applicable
Item 16. Investment Advisory and Other Services............. Manager; Distributor; Custodian, Transfer and
Dividend Disbursing Agent and Independent
Accountants
Item 17. Brokerage Allocation and Other Practices........... Portfolio Transactions
Item 18. Capital Stock and Other Securities................. Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered.................................... Purchase and Redemption of Fund Shares; Shareholder
Investment Account; Net Asset Value
Item 20. Tax Status......................................... Taxes
Item 21. Underwriters....................................... Distributor
Item 22. Calculation of Performance Data.................... Performance Information
Item 23. Financial Statements............................... Financial Statements
<CAPTION>
PART C
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in
Part C to this amendment to the Registration Statement.
</TABLE>
<PAGE>
Prudential Europe Growth Fund, Inc.
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PROSPECTUS DATED , 1994
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Prudential Europe Growth Fund, Inc. (the Fund) is an open-end, diversified
management investment company whose investment objective is long-term growth of
capital. The Fund seeks 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. Under normal circumstances,
the Fund intends to invest at least 65% of its total assets in such securities.
The Fund may also invest in equity securities of other companies and in
non-convertible debt securities, options on stocks, stock indices, foreign
currencies, futures contracts on foreign currencies and foreign currency
exchange contracts and may purchase and sell futures contracts on foreign
currencies and groups of currencies and on financial or stock indices to hedge
its portfolio and to attempt to enhance income. There can be no assurance that
the Fund's investment objective will be achieved. See 'How the Fund
Invests--Investment Objective and Policies.' The Fund's address is One Seaport
Plaza, New York, New York 10292, and its telephone number is (800) 225-1852.
The Fund is not intended to constitute a complete investment program. Because of
its investment objective and policies, including its European orientation, the
Fund is subject to greater investment risks than certain other mutual funds. See
'How the Fund Invests--Risk Factors and Special Considerations of Investing in
Foreign Securities.'
The Fund offers three classes of shares, which may be purchased at the next
determined net asset value per share plus a sales charge which, at the election
of the investor, may be imposed either (i) at the time of purchase (the Class A
shares) or (ii) on a deferred basis (the Class B or Class C shares). Class A
shares are subject to an initial sales charge of up to 5% and an annual
distribution and service fee which is currently being charged at the rate of .25
of 1% of the average daily net asset value of the Class A shares. Class B shares
are subject to a contingent deferred sales charge or CDSC (declining from 5% to
zero) which will be imposed on certain redemptions made within six years of
purchase and an annual distribution and service fee of 1% of the average daily
net asset value of the Class B shares. Class C shares are subject to a CDSC of
1% on redemptions made within one year of purchase and an annual distribution
and service fee of 1% of the average daily net asset value of the Class C
shares.
See 'Shareholder Guide--How to Buy Shares of the Fund.'
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated , 1994, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
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Investors are advised to read the Prospectus and retain it for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
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FUND HIGHLIGHTS
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The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL EUROPE GROWTH FUND, INC.?
Prudential Europe Growth Fund, Inc. is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed
to achieve its investment objective. Technically, the Fund is an open-end,
diversified management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term growth of capital. It
seeks 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. See 'How the Fund
Invests -- Investment Objective and Policies' at page 5.
RISK FACTORS AND SPECIAL CHARACTERISTICS
Under normal circumstances, the Fund anticipates that at least 65% of
its total assets will consist of European equity securities, primarily
common stock and other securities convertible into common stock. See 'How
the Fund Invests -- Investment Objective and Policies' at page 5. The Fund
intends to invest in developing countries, and in countries with new or
developing capital markets such as companies domiciled in Eastern and
Central Europe. Investing in securities of foreign companies and countries
involves certain risks and considerations not typically associated with
investments in domestic companies. See 'How the Fund Invests -- Risk
Factors and Special Considerations of Investing in Foreign Securities' at
page 7. The Fund is permitted to invest up to 25% of its total assets in
lower quality foreign convertible debt securities provided that such
securities have a minimum rating of at least B as determined by a
nationally recognized securities rating organization (NRSRO), such as
Standard & Poor's Ratings Group or another NRSRO or, if unrated, are of
equivalent quality. Lower rated securities are subject to a greater risk
of loss of principal and interest. See 'How the Fund Invests -- Risk
Factors Relating to Investing in Foreign Debt Securities Rated Below
Investment Grade (Junk Bonds)' at page 8. The Fund may also engage in
various hedging and income enhancement strategies. See 'How the Fund
Invests--Hedging and Income Enhancement Strategies -- Risks of Hedging and
Income Enhancement Strategies.'
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager), is the
manager of the Fund and is compensated for its services at an annual rate
of .75 of 1% of the Fund's average daily net assets. As of May 31, 1994,
PMF served as manager or administrator to 66 investment companies,
including 37 mutual funds, with aggregate assets of approximately $48.5
billion. The Prudential Investment Corporation (PIC or the Subadviser)
furnishes investment advisory services in connection with the management
of the Fund under a Subadvisory Agreement with PMF. See 'How the Fund is
Managed -- Manager' at page 14. The management fee is higher than that
paid by most other investment companies.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the
Distributor of the Fund's Class A shares and is paid an annual
distribution and service fee which is currently being charged at the rate
of .25 of 1% of the average daily net assets of the Class A shares.
2
<PAGE>
Prudential Securities Incorporated (Prudential Securities or PSI), a
major securities underwriter and securities and commodities broker, acts
as the Distributor of the Fund's Class B and Class C shares and is paid
for its services at an annual rate of 1% of the average daily net assets
of each of the Class B and Class C shares.
See 'How the Fund is Managed -- Distributor' at page 15.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 per class for Class A and
Class B shares and $5,000 for Class C shares. The minimum subsequent
investment is $100 for all classes. There is no minimum investment
requirement for certain retirement and employee savings plans or custodial
accounts for the benefit of minors. For purchases made through the
Automatic Savings Accumulation Plan, the minimum initial and subsequent
investment is $50. See 'Shareholder Guide -- How to Buy Shares of the
Fund' at page 20 and 'Shareholder Guide -- Shareholder Services' at page
29.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities,
Pruco Securities Corporation (Prusec) or directly from the Fund, through
its transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the
Transfer Agent), at the net asset value per share (NAV) next determined
after receipt of your purchase order by the Transfer Agent or Prudential
Securities plus a sales charge which may be imposed either (i) at the time
of purchase (Class A shares) or (ii) on a deferred basis (Class B or Class
C shares). See 'How the Fund Values its Shares' at page 16 and
'Shareholder Guide -- How to Buy Shares of the Fund' at page 20.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers three classes of shares:
o Class A Shares: Sold with an initial sales charge of up to 5% of
the offering price.
o Class B Shares: Sold without an initial sales charge but are
subject to a contingent deferred sales charge or
CDSC (declining from 5% to zero of the lower of the
amount invested or the redemption proceeds) which
will be imposed on certain redemptions made within
six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related
expenses than Class A shares, Class B shares will
automatically convert to Class A shares (which are
subject to lower ongoing expenses) approximately
seven years after purchase.
o Class C Shares: Sold without an initial sales charge but, for one
year after purchase, are subject to a CDSC of 1% on
redemptions. Like Class B shares, Class C shares
are subject to higher ongoing distribution-related
expenses than Class A shares but do not convert to
another class.
See 'Shareholder Guide -- Alternative Purchase Plan' at page 22.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell
order. However, the proceeds of redemptions of Class B and Class C shares
may be subject to a CDSC. See 'Shareholder Guide -- How to Sell Your
Shares' at page 24.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income and net
capital gains at least annually. Dividends and distributions will be
automatically reinvested in additional shares of the Fund at NAV without a
sales charge unless you request that they be paid to you in cash. See
'Taxes, Dividends and Distributions' at page 18.
3
<PAGE>
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FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------------- -------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).... 5% None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends........ None None None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, whichever is lower).......... None 5% during the first year, 1% on redemptions made
decreasing by 1% annually within one year of
to 1% in the fifth and purchase
the sixth years and 0% in
the seventh year*
Redemption Fees.......................... None None None
Exchange Fees............................ None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Management Fees.......................... .75% .75% .75%
12b-1 Fees............................... .25%++ 1.00% 1.00%
Other Expenses........................... .95% .95% .95%
---- ---- ----
Total Fund Operating Expenses............ 1.95% 2.70% 2.70%
---- ---- ----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ----------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period:
Class A.................................. $69 $108
Class B.................................. $77 $114
Class C.................................. $37 $ 84
You would pay the following expenses on the
same investment, assuming no redemption:
Class A.................................. $69 $108
Class B.................................. $27 $ 84
Class C.................................. $27 $ 84
</TABLE>
The above example is based on data for the Fund's fiscal year ending April
30, 1995. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist an investor in understanding the
various types of costs and expenses that an investor in the Fund will
bear, whether directly or indirectly. For more complete descriptions of
the various costs and expenses, see 'How the Fund is Managed.' 'Other
Expenses' include estimated operating expenses of the Fund, such as
Directors' and professional fees, registration fees, reports to
shareholders, transfer agency and custodian (domestic and foreign) fees
(but excludes foreign withholding taxes).
---------------
*Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See 'Shareholder
Guide -- Conversion Feature -- Class B Shares.'
+Pursuant to rules of the National Association of Securities Dealers,
Inc., the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation
is imposed on the Fund rather than on a per shareholder basis.
Therefore, long-term Class B and Class C shareholders of the Fund may
pay more in total sales charges than the economic equivalent of 6.25% of
such shareholders' investment in such shares. See 'How the Fund is
Managed -- Distributor.'
++Although the Class A Distribution and Service Plan provides that the
Fund may pay up to an annual rate of .30 of 1% of the average daily net
assets of the Class A shares, the Distributor has agreed to limit its
distribution fees with respect to Class A shares of the Fund so as not
to exceed .25 of 1% of the average daily net assets of the Class A
shares for the fiscal year ending April 30, 1995. See 'How the Fund is
Managed -- Distributor.'
4
<PAGE>
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HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND
SEEKS TO ACHIEVE THIS OBJECTIVE BY INVESTING PRIMARILY IN EQUITY SECURITIES OF
COMPANIES DOMICILED IN EUROPE, INCLUDING, BUT NOT LIMITED TO, AUSTRIA, BELGIUM,
THE CZECH REPUBLIC, DENMARK, FINLAND, FRANCE, GERMANY, GREECE, HUNGARY, IRELAND,
ITALY, LUXEMBOURG, THE NETHERLANDS, NORWAY, POLAND, PORTUGAL, SLOVAKIA, SPAIN,
SWEDEN, SWITZERLAND, TURKEY AND THE UNITED KINGDOM. The Fund may invest in the
equity securities of companies domiciled in any country within Europe that the
investment adviser believes to be stable. Equity securities in which the Fund
may invest include common stock, preferred stock and common stock equivalents,
such as warrants and convertible debt securities (rated investment grade or
below investment grade, or non-rated, as described below). Current income from
dividends and interest will not be an important consideration in selecting
portfolio securities. THE FUND ANTICIPATES THAT, UNDER NORMAL MARKET CONDITIONS,
AT LEAST 65% OF ITS TOTAL ASSETS WILL CONSIST OF EQUITY SECURITIES OF EUROPEAN
COMPANIES. THERE IS NO LIMIT ON THE PERCENTAGE OF FUND ASSETS THAT MAY BE
INVESTED IN ANY SINGLE COUNTRY. UNDER NORMAL CIRCUMSTANCES, THE FUND MAY INVEST
THE REMAINDER OF ITS ASSETS IN SECURITIES OF ISSUERS DOMICILED OUTSIDE OF
EUROPE, DEBT OBLIGATIONS, REPURCHASE AGREEMENTS AND MAY HOLD CASH, SUBJECT TO
THE LIMITATIONS DESCRIBED ABOVE. The Fund reserves the right as a defensive
measure to hold temporarily other types of securities without limit, including
commercial paper, bankers' acceptances, non-convertible debt securities
(corporate and government) or government and high quality money market
securities of United States and non-United States issuers, or cash (foreign
currencies or United States dollars), in such proportions as, in the opinion of
the Fund's investment adviser, prevailing market, economic or political
conditions warrant. The Fund may also temporarily hold cash and invest in high
quality foreign or domestic money market instruments pending investment of
proceeds from new sales of Fund shares or to meet ordinary daily cash needs.
THERE CAN BE NO ASSURANCE THAT THE FUND'S OBJECTIVE WILL BE ACHIEVED. See
'Investment Objective and Policies' in the Statement of Additional Information.
THE FUND INTENDS TO INVEST IN DEVELOPING COUNTRIES, AND IN COUNTRIES WITH
NEW OR DEVELOPING CAPITAL MARKETS, SUCH AS THOSE IN EASTERN AND CENTRAL EUROPE.
These countries may have relatively unstable governments, economies based on
only a few industries and securities markets that trade a limited number of
securities. Securities of issuers located in these countries tend to have
volatile prices and offer the potential for substantial loss as well as gain. In
addition, these securities may be less liquid than investments in more
established markets as a result of inadequate trading volume or restrictions on
trading imposed by the governments of such countries. See 'Risk Factors and
Special Considerations of Investing in Foreign Securities' below.
UNDER NORMAL CIRCUMSTANCES, THE FUND MAY INVEST UP TO 35% OF ITS TOTAL
ASSETS IN THE SECURITIES OF ISSUERS DOMICILED OUTSIDE OF EUROPE. Such
investments may include (i) securities of companies in countries which are
linked by tradition, economic markets, cultural similarities or geography to
Europe and (ii) securities of companies which have operations in Europe or which
stand to benefit from political and economic events in Europe. For example, the
Fund may invest in a company outside of Europe when the Fund's investment
adviser believes at the time of investment that the value of the company's
securities may be enhanced by conditions or developments in Europe even though
the company's production facilities are located outside of Europe.
UNDER NORMAL CONDITIONS, THE FUND MAY ALSO INVEST UP TO 35% OF ITS TOTAL
ASSETS IN DEBT OBLIGATIONS, INCLUDING OBLIGATIONS ISSUED OR GUARANTEED BY THE
U.S. GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES, OR BY FOREIGN GOVERNMENTS OR
SUPRANATIONAL ORGANIZATIONS, OBLIGATIONS ISSUED BY BANKS AND CORPORATIONS AND
OTHER
5
<PAGE>
DEBT OBLIGATIONS. These obligations may be denominated in U.S. dollars or in
foreign currencies. The issuers of such securities may or may not be domiciled
in Europe. Supranational organizations include entities such as the World Bank,
which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization engaged
in cooperative economic activities; the European Coal and Steel Community, which
is an economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions.
The Fund will purchase 'investment grade' debt obligations. Investment
grade debt obligations are bonds rated within the four highest quality grades as
determined by Moody's Investors Service (Moody's) (currently Aaa, Aa, A and Baa
for bonds, MIG 1, MIG 2, MIG 3 and MIG 4 for notes and P-1 for commercial
paper), or Standard & Poor's Ratings Group (S&P) (currently AAA, AA, A and BBB
for bonds, SP-1 and SP-2 for notes and A-1 for commercial paper), or by another
nationally recognized statistical rating organization (NRSRO) or, in unrated
securities of equivalent quality. See the 'Description of Securities Ratings' in
the Appendix to the Prospectus. The Fund is permitted to invest up to 25% of its
net assets in lower quality, foreign convertible debt securities provided that
such securities have a minimum rating of at least B as determined by one NRSRO
or, if unrated, are deemed by the investment adviser to be of comparable
quality. Securities rated Baa by Moody's or BBB by S&P, although considered to
be investment grade, lack outstanding investment characteristics and, in fact,
have speculative characteristics. Lower rated securities are subject to a
greater risk of loss of principal and interest. See 'Risk Factors Relating to
Investing in Foreign Debt Securities Rated Below Investment Grade (Junk Bonds)'
below.
THE FUND MAY INVEST IN SECURITIES NOT LISTED ON SECURITIES EXCHANGES. THESE
SECURITIES WILL GENERALLY HAVE AN ESTABLISHED MARKET (SUCH AS THE
OVER-THE-COUNTER MARKET), THE DEPTH AND LIQUIDITY OF WHICH MAY VARY FROM TIME TO
TIME AND FROM SECURITY TO SECURITY. See 'Other Investments and
Policies -- Illiquid Securities' below.
In addition to analyzing the companies in which investments are made, the
investment adviser also considers such factors as prospects for economic growth
for each foreign country; expected levels of inflation and interest rates;
government policies influencing business conditions; the range of individual
investment opportunities available to international investors; and other
pertinent financial, tax, social, political and national factors -- all in
relation to the prevailing prices of securities in each country.
IN ADDITION TO PURCHASING EQUITY SECURITIES OF EUROPEAN ISSUERS, THE FUND
MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS (ADRS), EUROPEAN DEPOSITARY RECEIPTS
(EDRS) OR OTHER SECURITIES CONVERTIBLE INTO SECURITIES OF CORPORATIONS DOMICILED
IN EUROPE. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in the United States securities markets
and EDRs, in bearer form, are designed for use in European securities markets.
The Fund may invest in ADRs and EDRs through both sponsored and unsponsored
arrangements. In a sponsored ADR or EDR arrangement, the foreign issuer assumes
the obligation to pay some or all of the depository's transaction fees, whereas
in an unsponsored arrangement the foreign issuer assumes no obligations and the
depository's transaction fees are paid by the ADR or EDR holders. Foreign
issuers in respect of whose securities unsponsored ADRs or EDRs have been issued
are not necessarily obligated to disclose material information in the markets in
which the unsponsored ADRs or EDRs are traded and, therefore, there may not be a
correlation between such information and the market value of such securities.
THE FUND MAY INVEST UP TO 5% OF ITS NET ASSETS IN WARRANTS. A warrant gives
the holder thereof the right to subscribe by a specified date to a stated number
of shares of stock of the issuer at a fixed price. Warrants tend to be more
volatile than the underlying stock, and if at a warrant's expiration date the
stock is trading at a price below the price set in the warrant, the warrant will
expire worthless. Conversely, if at the expiration date the underlying
6
<PAGE>
stock is trading at a price higher than the price set in the warrant, the Fund
can acquire the stock at a price below its market value.
AS INDICATED ABOVE, WHEN CONDITIONS DICTATE A DEFENSIVE STRATEGY, THE FUND
MAY INVEST TEMPORARILY, WITHOUT LIMIT, IN HIGH QUALITY MONEY MARKET INSTRUMENTS
OF UNITED STATES AND NON-UNITED STATES ISSUERS (INCLUDING, WITH RESPECT TO
UNITED STATES ISSUERS, REPURCHASE AGREEMENTS MATURING IN SEVEN DAYS OR LESS).
The Fund will only invest in money market instruments that have short term
ratings in at least the second highest category by at least one NRSRO or are
issued by companies that have outstanding debt securities rated at least
investment grade by an NRSRO or in unrated securities of issuers that the Fund's
investment adviser has determined to be of comparable quality. Subsequent to its
purchase by the Fund, a security may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Fund should continue to hold the security in its portfolio.
Securities rated Baa by Moody's or BBB by S&P, for example, although considered
to be investment grade, lack outstanding investment characteristics and, in
fact, have speculative characteristics. See 'Description of Security Ratings' in
the Appendix.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND MAY NOT BE
CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT.
INVESTMENT POLICIES THAT ARE NOT FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF
DIRECTORS.
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES
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 there is a possibility of expropriation,
confiscatory taxation or diplomatic developments which could affect investment.
ALTHOUGH THE FUND INTENDS TO INVEST PRIMARILY IN EQUITY SECURITIES, IT MAY
INVEST IN DEBT SECURITIES OF FOREIGN ISSUERS. In many instances, foreign debt
securities may provide higher yields than securities of domestic issuers which
have similar maturities and quality. These investments, however, may be less
liquid than the securities of U.S. corporations. In the event of default of any
such foreign debt obligations, it may be more difficult for the Fund to obtain
or enforce a judgment against the issuers of such securities.
ADDITIONAL COSTS COULD BE INCURRED IN CONNECTION WITH THE FUND'S
INTERNATIONAL INVESTMENT ACTIVITIES. Foreign brokerage commissions are generally
higher than United States brokerage commissions. Increased custodian costs as
well as administrative difficulties (such as the applicability of foreign laws
to foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.
If the security is denominated in a foreign currency, it will be affected
by changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund
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will be required to compute and distribute its income in U.S. dollars.
Therefore, if the exchange rate for any such currency declines 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,
particularly in instances in which the amount of income the Fund is required to
distribute is not immediately reduced by the decline in such currency.
Similarly, if an exchange rate declines 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 in any such
currency of such expenses at the time they were incurred. The Fund may, but need
not, enter into forward foreign currency exchange contracts, options on foreign
currencies and futures contracts on foreign currencies and related options, for
hedging purposes, including: locking-in the U.S. dollar price of the purchase or
sale of securities denominated in a foreign currency; locking-in the U.S. dollar
equivalent of interest or dividends to be paid on such securities which are held
by the Fund; and protecting the U.S. dollar value of such securities which are
held by the Fund.
SHAREHOLDERS SHOULD BE AWARE THAT INVESTING IN THE EQUITY AND FIXED-INCOME
MARKETS OF DEVELOPING COUNTRIES (I.E., EASTERN EUROPE) 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.
RISK FACTORS RELATING TO INVESTING IN FOREIGN DEBT SECURITIES RATED BELOW
INVESTMENT GRADE (JUNK BONDS)
Fixed-income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Lower rated or unrated (i.e., high yield or high
risk) securities, commonly referred to as 'junk' bonds, are more likely to react
to developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The investment adviser considers both credit risk and market risk in
making investment decisions for the Fund. Investors should carefully consider
the relative risks of investing in high yield securities and understand that
such securities are not generally meant for short-term trading.
Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. Under adverse
market or economic conditions, the secondary market for high yield securities
could contract further, independent of any specific adverse changes in the
condition of a particular issuer. As a result, the investment adviser could find
it more difficult to sell these securities or may be able to sell the securities
only at prices lower than if such securities were widely traded. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices in calculating the Fund's net asset
value.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the debt portion of the Fund's
portfolio and increasing the exposure of the Fund to the risks of high yield
securities.
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CONVERTIBLE SECURITIES
A CONVERTIBLE SECURITY IS A BOND OR PREFERRED STOCK WHICH MAY BE CONVERTED
AT A STATED PRICE WITHIN A SPECIFIED PERIOD OF TIME INTO A CERTAIN QUANTITY OF
THE COMMON STOCK OF THE SAME OR A DIFFERENT ISSUER. Convertible securities are
senior to common stocks in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a common
stock but lower than that afforded by a similar nonconvertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation dependent upon a
market price advance in the convertible security's underlying common stock. The
Fund may invest up to 25% of its net assets in foreign convertible securities
rated below investment grade. See 'Risk Factors Relating to Investing in Foreign
Debt Securities Rated Below Investment Grade (Junk Bonds).'
In general, the market value of a convertible security is at least the
higher of its 'investment value' (i.e., its value as a fixed-income security) or
its 'conversion value' (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
HEDGING AND INCOME ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE INCOME. These strategies
currently include the use of options, forward currency exchange contracts and
futures contracts and options thereon. The Fund's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See 'Investment Objective and Policies' and 'Taxes' in the Statement of
Additional Information. New financial products and risk management techniques
continue to be developed and the Fund may use these new investments and
techniques to the extent consistent with its investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES AND CURRENCIES THAT ARE TRADED ON U.S. OR FOREIGN SECURITIES
EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ENHANCE INCOME OR TO HEDGE THE
FUND'S PORTFOLIO. These options will be on equity securities, financial indices
(e.g., S&P 500) and foreign currencies. 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 securities (or currencies) that
it owns against a decline in market value and purchase options in an effort to
protect against an increase in the price of securities (or currencies) it
intends to purchase. The Fund may also purchase put and call options to offset
previously written put and call options of the same series. See 'Investment
Objective and Policies -- Options on Securities' in the Statement of Additional
Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY
SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE).
The writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential
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<PAGE>
for gain on the underlying securities or currency in excess of the exercise
price of the option during the period that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
THE FUND WILL WRITE ONLY 'COVERED' OPTIONS. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or currency or maintains cash, U.S. Government
securities or other liquid high-grade debt obligations with a value sufficient
at all times to cover its obligations in a segregated account. See 'Investment
Objective and Policies -- Options on Securities' in the Statement of Additional
Information. There is no limitation on the amount of call options the Fund may
write. The Fund has undertaken with certain state securities commissions that,
so long as shares of the Fund are registered in those states, it will not (a)
write puts having aggregate exercise prices greater than 25% of total net
assets, or (b) purchase (i) put options on stocks not held in the Fund's
portfolio, (ii) put options on stock indices or foreign currencies or (iii) call
options on stock, stock indices or foreign currencies if, after any such
purchase, the aggregate premiums paid for such options would exceed 10% of the
Fund's net assets; provided, however, that the Fund may purchase put options
on stocks held by the Fund if after such purchase the aggregate premiums paid
for such options do not exceed 20% of the Fund's total assets. The aggregate
value of the obligations underlying put options will not exceed 50% of the
Fund's assets.
FORWARD CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS ASSETS AGAINST FUTURE CHANGES IN THE LEVEL OF CURRENCY
EXCHANGE RATES. The Fund may enter into such contracts on a spot, i.e., cash,
basis at the rate then prevailing in the currency exchange market or on a
forward basis, by entering into a forward contract to purchase or sell currency.
A forward contract on foreign currency is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days agreed
upon by the parties from the date of the contract at a price set on the date of
the contract.
THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross hedge). Although there
are no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge (including cross hedges) with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of forward currency) of the
securities being hedged. See 'Investment Objective and Policies -- Risks Related
to Forward Currency Exchange Contracts' in the Statement of Additional
Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR CERTAIN
HEDGING, RETURN ENHANCEMENT AND RISK MANAGEMENT PURPOSES IN ACCORDANCE WITH
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. These futures contracts
and related options will be on financial indices and foreign currencies or
groups of foreign currencies such as the European Currency Unit. A European
Currency Unit is a basket of specified amounts of the currencies of
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<PAGE>
certain member states of the European Economic Community, a European economic
cooperative organization including France, Germany, The Netherlands and the
United Kingdom. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities or currencies at a set price for delivery in the
future.
The Fund may not purchase or sell futures contracts and related options for
return enhancement or risk management purposes, if immediately thereafter the
sum of the amount of initial margin deposits on the Fund's existing futures and
options on futures and premiums paid for such related options would exceed 5% of
the liquidation value of the Fund's total assets. The Fund may purchase and sell
futures contracts and related options, without limitation, for bona fide hedging
purposes. The value of all futures contracts sold will not exceed the total
market value of the Fund's portfolio.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the movements in the index or price of the
currencies being hedged is imperfect and there is a risk that the value of the
indices or currencies being hedged may increase or decrease at a greater rate
than the related futures contracts resulting in losses to the Fund. Certain
futures exchanges or boards of trade have established daily limits on the amount
that the price of futures contracts or related options may vary, either up or
down, from the previous day's settlement price. These daily limits may restrict
the Fund's ability to purchase or sell certain futures contracts or related
options on any particular day.
The Fund's ability to enter into futures contracts and options thereon is
limited by the requirements of the Internal Revenue Code for qualification as a
regulated investment company. See 'Taxes' in the Statement of Additional
Information.
RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the investment
adviser's predictions of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to
the 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
investment adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; (5) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain 'cover' or to
segregate securities in connection with hedging transactions. See 'Taxes' in the
Statement of Additional Information.
The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if management believes that the
other party to options will continue to make a market for such options. However,
there can be no assurance that a liquid secondary market will continue to exist
or that the other party will continue to make a market. Thus, it may not be
possible to close an options or futures transaction. The inability to close
options and futures positions also could have an adverse impact on the Fund's
ability to effectively hedge its portfolio. There is also the risk of loss by
the Fund of margin deposits or collateral in the event of bankruptcy of a broker
with whom the Fund has an open position in an option, a futures contract or
related option.
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OTHER INVESTMENTS AND POLICIES
REPURCHASE AGREEMENTS
The Fund will 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
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the purchase price of the underlying securities
(including accrued interest earned thereon). In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss. The Fund participates in a joint repurchase account with
other investment companies managed by Prudential Mutual Fund Management, Inc.
pursuant to an order of the Securities and Exchange Commission (SEC). See
'Investment Objective and Policies -- Repurchase Agreements' in the Statement of
Additional Information.
BORROWING
The Fund may borrow an amount equal to no more than 33 1/3% 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 33 1/3% of its total assets to secure these borrowings. If
the Fund's asset coverage for borrowings falls below 300%, the Fund will take
prompt action to reduce its borrowings.
ILLIQUID SECURITIES
The Fund may invest up to 5% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act) and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. Repurchase agreements subject
to demand are deemed to have a maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased OTC options and
the assets used as 'cover' for written OTC options are illiquid securities.
However, the Fund may treat the securities it uses as 'cover' for written OTC
options on U.S. Government securities as liquid provided it follows a specified
procedure. The Fund may sell OTC options on U.S. Government securities only to
qualified dealers who agree that the Fund may repurchase options it writes for a
maximum price to be calculated by a predetermined formula. In such cases, OTC
options would be considered liquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
See 'Investment Objective and Policies -- Illiquid Securities' in the Statement
of Additional Information.
PORTFOLIO TURNOVER
As a result of the Fund's investment policies, its portfolio turnover rate
may exceed 100%, although the rate is not expected to exceed 150%. High
portfolio turnover (over 100%) may involve correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. See 'Portfolio Transactions and Brokerage' in the Statement of Additional
Information. In addition, high portfolio turnover may result in increased
short-term capital gains, which, when distributed to shareholders, are treated
as ordinary income. See 'Taxes, Dividends and Distributions.'
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<PAGE>
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 a month or more in the future in order to secure what is considered to be
an advantageous price and yield to the Fund at the time of entering into the
transaction. While the Fund will only purchase securities on a when-issued or
delayed delivery basis with the intention of acquiring the securities, the Fund
may sell the securities before the settlement date, if it is deemed advisable.
At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Fund. At the time of delivery of the securities, the value
may be more or less than the purchase price. The Fund's Custodian will maintain,
in a segregated account of the Fund, cash, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
Fund's purchase commitments; the Custodian will likewise segregate securities
sold on a delayed delivery basis. Subject to this requirement, the Fund may
purchase securities on such basis without limit. See 'Investment Objective and
Policies -- When-Issued and Delayed Delivery Securities' in the Statement of
Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Fund in an amount equal to at least 100%,
determined daily, of the market value of the securities loaned which are
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As 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. As a matter of fundamental policy, the Fund cannot lend more than
30% of the value of its total assets. See 'Investment Objective and
Policies -- Lending of Securities' in the Statement of Additional Information.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales against-the-box for the purpose of deferring
realization of gain or loss for federal income tax purposes. A short sale
'against-the-box' is a short sale in which the Fund owns an equal amount of the
securities sold short or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same issue as,
and equal in amount to, the securities sold short.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
See 'Investment Restrictions' in the Statement of Additional Information.
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HOW THE FUND IS MANAGED
- --------------------------------------------------------------------------------
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON MATTERS
OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.
The Fund is responsible for the payment of certain fees and expenses
including, among others, the following: (i) management and distribution fees;
(ii) the fees of unaffiliated Directors; (iii) the fees of the Fund's Custodian
and Transfer and Dividend Disbursing Agent; (iv) the fees of the Fund's legal
counsel and independent accountants; (v) brokerage commissions incurred in
connection with portfolio transactions; (vi) all taxes and charges of
governmental agencies; (vii) the reimbursement of organization expenses; and
(viii) expenses related to shareholder communications including all expenses of
shareholders' and Board of Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses to shareholders.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .75 OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS. IT WAS INCORPORATED IN MAY 1987 UNDER THE LAWS OF THE STATE OF DELAWARE.
SEE 'MANAGER' IN THE STATEMENT OF ADDITIONAL INFORMATION.
As of May 31, 1994, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 29 closed-end investment companies with aggregate assets of
approximately $48.5 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. SEE
'MANAGER' IN THE STATEMENT OF ADDITIONAL INFORMATION.
UNDER THE SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services. The Fund is
managed under the supervision of Daniel J. Duane, a Managing Director and Chief
Investment Officer for Global Equity Investments of Prudential Investment
Advisors, a unit of PIC. Mr. Duane has supervised the management of the Fund's
portfolio since its inception and has been employed by PIC as a portfolio
manager since 1990. He was formerly with First Investors Asset Management from
1986 to 1990 as a senior portfolio manager and head of global equity
investments. Mr. Duane is a Chartered Financial Analyst. Mr. Duane also serves
as the portfolio manager of the Prudential Series Fund (Global Equity
Portfolio), Prudential Global Fund, Prudential Global Genesis Fund and
Prudential Pacific Growth Fund.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
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DISTRIBUTOR
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD), ONE SEAPORT PLAZA, NEW
YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF
DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A SHARES OF THE FUND. IT IS
A WHOLLY-OWNED SUBSIDIARY OF PMF.
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS B AND
CLASS C SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS
B PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION AGREEMENTS
(THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES (COLLECTIVELY, THE
DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND
CLASS C SHARES. These expenses include commissions and account servicing fees
paid to, or on account of, financial advisers of Prudential Securities and Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions and
account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) which have entered into
agreements with the Distributor, advertising expenses, the cost of printing and
mailing prospectuses to potential investors and indirect and overhead costs of
Prudential and Prusec associated with the sale of Fund shares, including lease,
utility, communications and sales promotion expenses. The State of Texas
requires that shares of the Fund may be sold in that state only by dealers or
other financial institutions which are registered there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PMFD FOR ITS DISTRIBUTION-RELATED
EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO .30 OF 1% OF
THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The Class A Plan provides
that (i) up to .25 of 1% of the average daily net assets of the Class A shares
may be used to pay for personal service and/or the maintenance of shareholder
accounts (service fee) and (ii) total distribution fees (including the service
fee of .25 of 1%) may not exceed .30 of 1% of the average daily net assets of
the Class A shares. PMFD has agreed to limit its distribution-related fees
payable under the Class A Plan to .25 of 1% of the average daily net assets of
the Class A shares for the fiscal year ending April 30, 1995.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B
AND CLASS C SHARES. The Class B and Class C Plans provide for the payment to
Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of the Class B and Class C shares, respectively, and
(ii) a service fee of .25 of 1% of the average daily net assets of each of the
Class B and Class C shares. The service fee is used to pay for personal service
and/or the maintenance of shareholder accounts. Prudential Securities also
receives contingent deferred sales charges from certain redeeming shareholders.
See 'Shareholder Guide -- How to Sell Your Shares -- Contingent Deferred Sales
Charges.'
Distribution expenses attributable to the sale of shares of the Fund will
be allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Fund other than expenses 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.
15
<PAGE>
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not 'interested persons' of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the Fund.
The Fund will not be obligated to pay expenses incurred under any Plan if it is
terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers and other persons which distribute shares of the Fund.
Such payments may be calculated by reference to the net asset value of shares
sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See 'Distributor' in
the Statement of Additional Information.
FEE WAIVERS AND SUBSIDY
PMF 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. Fee waivers
and expense subsidies will increase the Fund's total return. See 'Performance
Information' in the Statement of Additional Information and 'Fund Expenses.'
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Fund provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See 'Portfolio Transactions and Brokerage' in
the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, serves as Custodian for the Fund's portfolio securities and cash and, in
that capacity, maintains certain financial and accounting books and records
pursuant to an agreement with the Fund.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
- --------------------------------------------------------------------------------
HOW THE FUND VALUES ITS SHARES
- --------------------------------------------------------------------------------
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15
P.M., NEW YORK TIME.
16
<PAGE>
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See 'Net Asset Value' in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. See 'Net Asset Value' in the Statement of
Additional Information.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class 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. It is
expected, however, that the NAV of the three classes will tend to converge
immediately after the recording of dividends, which will differ by approximately
the amount of distribution-related expense accrual differential among the
classes.
- --------------------------------------------------------------------------------
HOW THE FUND CALCULATES PERFORMANCE
- --------------------------------------------------------------------------------
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
'AVERAGE ANNUAL' TOTAL RETURN AND 'AGGREGATE' TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. These figures are based on
historical earnings and are not intended to indicate future performance. The
'total return' shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (i.e., one, five, or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The 'aggregate' total return reflects actual performance
over a stated period of time. 'Average annual' total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return if performance had been constant over the entire period.
'Average annual' total return smooths out variations in performance and takes
into account any applicable initial or contingent deferred sales charges.
Neither 'average annual' total return nor 'aggregate' total return takes into
account any federal or state income taxes which may be payable upon redemption.
The 'yield' refers to the income generated by an investment in the Fund over a
one-month or 30-day period. This income is then 'annualized;' that is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as a
percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing the
Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., and other industry
publications, business periodicals and market indices. See 'Performance
Information' in the Statement of Additional Information. The Fund will include
performance data for each class of shares of the Fund in any advertisement or
information including performance data of the Fund. Further performance
information will be contained in the Fund's annual and semi-annual reports to
shareholders, which will be available without charge. See 'Shareholder Guide --
Shareholder Services -- Reports to Shareholders.'
17
<PAGE>
- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
TAXATION OF THE FUND
THE FUND INTENDS TO ELECT TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT TO
FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF ANY,
THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Fund. See 'Taxes' in the Statement of Additional
Information.
In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts). At
the end of each year, such investments held by the Fund will be required to be
'marked to market' for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any gain or loss recognized on these
'deemed sales' and on actual dispositions may be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss. See 'Taxes' in the Statement of Additional Information.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition are treated
as ordinary gain or loss. These gains or losses increase or decrease the amount
of the Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If currency fluctuation losses exceed other
investment company taxable income during a taxable year, distributions made by
the Fund during the year would be characterized as a return of capital to
shareholders, reducing the shareholder's basis in his or her Fund shares.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net long-term capital gains
distributed to shareholders will be taxable as such to the shareholder, whether
or not reinvested and regardless of the length of time a shareholder has owned
his or her shares. The maximum long-term capital gains rate for corporate
shareholders is currently the same as the maximum tax rate for ordinary income.
The maximum long-term capital gains rate for individual shareholders is
currently 28% and the maximum tax rate for ordinary income is 39.6%.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders. See
'Taxes' in the Statement of Additional Information.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, on shares
that are held for six months or less, will be treated as a long-term capital
loss to the extent of any capital gain distributions received by the
shareholder.
The Fund has obtained an opinion of counsel to the effect that conversion
of Class B shares into Class A shares does not constitute a taxable event for
federal income tax purposes. However, such opinion is not binding on the
Internal Revenue Service.
18
<PAGE>
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds, payable on the accounts of those shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of
certain foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See 'Taxes' in the Statement of
Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, AND
MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL
LOSSES ON AN ANNUAL BASIS. Dividends paid by the Fund with respect to each class
of shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount except
that each class will bear its own distribution charges, generally resulting in
lower dividends for Class B and Class C shares. Distribution of net capital
gains, if any, will be paid in the same amount for each class of shares. See
'How the Fund Values its Shares.'
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES, BASED
ON THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attn: Account Maintenance Unit, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
advisor to elect to receive dividends and distributions in cash.
WHEN THE FUND GOES 'EX-DIVIDEND,' ITS NAV IS REDUCED BY THE AMOUNT OF THE
DIVIDEND OR DISTRIBUTION. IF YOU BUY SHARES JUST PRIOR TO THE EX-DIVIDEND DATE
(WHICH GENERALLY OCCURS FOUR BUSINESS DAYS PRIOR TO THE RECORD DATE), THE PRICE
YOU PAY WILL INCLUDE THE DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR
INVESTMENT WILL BE RETURNED TO YOU AS A TAXABLE DISTRIBUTION. YOU SHOULD,
THEREFORE, CONSIDER THE TIMING OF DIVIDENDS WHEN MAKING YOUR PURCHASES.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON MARCH 18, 1994. THE FUND IS
AUTHORIZED TO ISSUE 2 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE,
DIVIDED INTO THREE CLASSES, DESIGNATED CLASS A, CLASS B AND CLASS C COMMON
STOCK. OF THE AUTHORIZED SHARES OF COMMON STOCK, 1 BILLION SHARES CONSIST OF
CLASS A COMMON STOCK, 500 MILLION SHARES CONSIST OF CLASS B COMMON STOCK AND 500
MILLION SHARES CONSIST OF CLASS C COMMON STOCK. Each class of common stock
represents an interest in the same assets of the Fund and is identical in all
respects except that (i) each class bears different distribution expenses, (ii)
each class has exclusive voting rights with respect to its distribution and
service plan (except that the Fund has agreed with the SEC in connection with
the offering of a conversion feature on Class B shares to submit any amendment
of the Class A distribution and service plan to both Class A and Class B
shareholders, (iii) each class has a different exchange privilege and (iv) only
Class B shares have a conversion feature. See 'How the Fund is
Managed -- Distributor.' Pursuant to an
19
<PAGE>
order of the SEC, the Fund is permitted to issue and sell multiple classes of
common stock. Currently, the Fund is offering three classes, designated Class A,
Class B and Class C shares. In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series of common stock and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board may
determine.
The Board of Directors may increase or decrease the number of authorized
shares. Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under 'Shareholder Guide -- How to Sell Your Shares.' Each share of each class
of common stock is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. Except for the conversion feature applicable to the Class B shares,
there are no conversion, preemptive or other subscription rights. In the event
of liquidation, each share of common stock of the Fund is entitled to its
portion of all of the Fund's assets after all debts and expenses of the Fund
have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OR MORE
OF THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities, Prusec
or directly from the Fund, through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The offering price is the
NAV next determined following receipt of an order by the Transfer Agent or
Prudential Securities plus a sales charge which, at your option, may be imposed
either (i) at the time of purchase (Class A shares) or (ii) on a deferred basis
(Class B or Class C shares). See 'Alternative Purchase Plan' below. See also
'How the Fund Values its Shares.'
20
<PAGE>
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates.
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases through the Automatic Savings Accumulation Plan the
minimum initial and subsequent investment is $50. See 'Shareholder Services.'
The Fund reserves the right to reject any purchase order (including an
exchange) or to suspend or modify the continuous offering of its shares. See
'How to Sell Your Shares.'
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to Brown Brothers Harriman & Co. (Brown
Brothers), Boston, Massachusetts, Attention: Manager, Securities Department,
Prudential Europe Growth Fund, Inc., specifying on the wire the account number
assigned by PMFS and your name and identifying the sales charge alternative
(Class A, Class B or Class C shares).
If you arrange for receipt by Brown Brothers of federal funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire Brown
Brothers directly and should be sure that the wire specifies Prudential Europe
Growth Fund, Inc., Class A, Class B or Class C shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing federal funds. The minimum amount which may be
invested by wire is $1,000.
21
<PAGE>
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C
SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH
OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
SALES CHARGE DAILY NET ASSETS) OTHER INFORMATION
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge .30 of 1% (currently being
of 5% of the public charged at a rate Initial sales charge waived or
offering price of .25 of 1%) reduced for certain purchases
Class B Maximum contingent deferred 1%
sales charge or CDSC of 5% of
the lesser of the amount
invested or the redemption
proceeds; declines Shares convert to Class A
to zero after shares approximately seven
six years years after purchase
Class C Maximum CDSC of 1% of the 1%
lesser of the amount invested
or the redemption proceeds on
redemptions made
within one year Shares do not convert to
of purchase. another class
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading 'General Information -- Description of Common Stock')
and (iii) only Class B shares have a conversion feature. The three classes also
have separate exchange privileges. See 'How to Exchange Your Shares' below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see 'How to
Exchange Your Shares' below) and (5) the fact that Class B shares automatically
convert to Class A shares approximately seven years after purchase (see
'Conversion Feature -- Class B Shares' below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund.
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
22
<PAGE>
subject to a CDSC of 5% which declines to zero over a 6-year period, you should
consider purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for 7 years or more and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and because all
of your money would be invested initially in the case of Class B shares, you
should consider purchasing Class A or Class B shares over Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during which the CDSC is
applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES. SEE 'REDUCTION AND WAIVER OF INITIAL SALES CHARGES' BELOW.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
OFFERING PRICE INVESTED AMOUNT OFFERING PRICE
----------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $25,000........................................ 5.00% 5.26% 4.75
$25,000 to $49,999....................................... 4.50 4.71 4.25
$50,000 to $99,999....................................... 4.00 4.17 3.75
$100,000 to $249,999..................................... 3.25 3.36 3.00
$250,000 to $499,999..................................... 2.50 2.56 2.40
$500,000 to $999,999..................................... 2.00 2.04 1.90
$1,000,000 and above..................................... None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined
in the Securities Act.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Sales charges are reduced
under Rights of Accumulation and Letters of Intent. Class A shares may be
purchased at NAV, without payment of an initial sales charge, by pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 and 403(b)(7) of the Internal Revenue Code (Benefit Plans),
provided that the plan has existing assets of at least $1 million invested in
shares of Prudential Mutual Funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) or 1,000 eligible employees or
members. In the case of Benefit Plans whose accounts are held directly with the
Transfer
23
<PAGE>
Agent and for which the Transfer Agent does individual account record keeping
(Direct Account Benefit Plans) and Benefit Plans sponsored by PSI or its
subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares may be
purchased at NAV by participants who are repaying loans made from such plans to
the participant. Additional information concerning the reduction and waiver of
initial sales charges is set forth in the Statement of Additional Information.
In addition, Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by the following persons: (a) Directors and
officers of the Fund and other Prudential Mutual Funds, (b) employees of
Prudential Securities and PMF and their subsidiaries and members of the families
of such persons who maintain an 'employee related' account at Prudential
Securities or the Transfer Agent, (c) employees and special agents of Prudential
and its subsidiaries and all persons who have retired directly from active
service with Prudential or one of its subsidiaries, (d) registered
representatives and employees of dealers who have entered into a selected dealer
agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares of
any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service fee
of .25 of 1% or less) on which no deferred sales load, fee or other charge was
imposed on redemption and (iii) the financial adviser served as the client's
broker on the previous purchases.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See 'Purchase
and Redemption of Fund Shares -- Reduction and Waiver of Initial Sales
Charges -- Class A Shares' in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, Prudential Securities or Prusec.
Although there is no sales charge imposed at the time of purchase, redemption of
Class B and Class C shares may be subject to a CDSC. See 'How to Sell Your
Shares -- Contingent Deferred Sales Charges.'
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER SHARE
NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. See 'How the Fund Values its Shares.'
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable contingent deferred sales charge, as described below. See
'Contingent Deferred Sales Charges' below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION
REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION,
PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE
TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All
correspondence and documents concerning redemptions should be sent
24
<PAGE>
to the Fund in care of its Transfer Agent, Prudential Mutual Fund Services,
Inc., Attention: Redemption Services, P.O. Box 15010, New Brunswick, New Jersey
08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
'eligible guarantor institution.' An 'eligible guarantor institution' includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. Such payment may be postponed or the right of
redemption suspended at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on such Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the SEC, by order, so permits;
provided that applicable rules and regulations of the SEC shall govern as to
whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as a regular redemption. See 'How the Fund Values its Shares.' If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund has, however, elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during the 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
any such shareholder 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No contingent deferred
sales charge will be imposed on any involuntary redemption.
30-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 30 days after the
date of redemption. No sales charge will apply to such repurchases. You will
receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B shares. You must notify the Fund's
Transfer Agent, either directly or through Prudential Securities or Prusec, at
the time the repurchase privilege is exercised that you are entitled to credit
for the contingent deferred sales charge previously paid. Exercise of the
repurchase privilege will not affect
25
<PAGE>
the federal income tax treatment of any gain realized upon redemption. If the
redemption resulted in a loss, some or all of the loss, depending on the amount
reinvested, will not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid to
you. The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and one year, in the case of Class C shares. A CDSC will
be applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
purchased through reinvestment of dividends or distributions are not subject to
CDSC. The amount of any contingent deferred sales charge will be paid to and
retained by the Distributor. See 'How the Fund is Managed -- Distributor' and
'Waiver of the Contingent Deferred Sales Charges' below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your 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 following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
- --------------------------------------------- ---------------------------
<S> <C>
First........................................ 5.0%
Second....................................... 4.0%
Third........................................ 3.0%
Fourth....................................... 2.0%
Fifth........................................ 1.0%
Sixth........................................ 1.0%
Seventh...................................... None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results generally in the lowest
possible rate. It will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value
above the total amount of payments for the purchase of Fund shares made during
the preceding six years; then of amounts representing the cost of shares held
beyond the applicable CDSC period; and finally, of amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided to
redeem $500 of your investment. Assuming at the time of the redemption the 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 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
26
<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), or a trust, at the time of death or initial
determination or disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include a lump-sum or other distribution
after retirement, or for an IRA or Section 403(b) custodial account, after
attaining age 59 1/2, 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. In the case of Direct Account and PSI or
Subsidiary Prototype Benefit Plans, the CDSC will be waived on redemptions which
represent borrowings from such plans. Shares purchased with amounts used to
repay a loan from such plans on which a CDSC was not previously deducted will
thereafter be subject to a CDSC without regard to the time such amounts were
previously invested. In the case of a 401(k) plan, the CDSC will also be waived
upon the redemption of shares purchased with amounts used to repay loans made
from the account to the participant and from which a CDSC was previously
deducted.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC. The waiver will be granted subject to confirmation of your
entitlement.
CONVERSION FEATURE -- CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will occur during
the month following each calendar quarter and will be effected at relative net
asset value without the imposition of any additional sales charge. It is
currently anticipated that conversions will occur on the first Friday or next
business day of the month following each calendar quarter.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares then 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 seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at
27
<PAGE>
$11 per share (for a total of $1,100), 95.24 shares would convert approximately
seven years from the initial purchase (i.e., $1,000 divided by $2,100 or 47.62%
multiplied by 200 shares or 95.24 shares). The Manager reserves the right to
modify the formula for determining the number of Eligible Shares in the future
as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus, although
the aggregate dollar value will be the same, you may receive fewer Class A
shares than Class B shares converted. See 'How the Fund Values its Shares.'
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. It is
currently anticipated that the first conversion of Class B shares will occur in
or about January, 1995. At that time, all amounts representing Class B shares
then outstanding beyond the applicable conversion period will automatically
convert to Class A shares, together with all shares or amounts representing
Class B shares acquired through the automatic reinvestment of dividends and
distributions then held in your account.
The conversion feature is subject to the continuing availability of
opinions of counsel (i) that the dividends and other distributions paid on Class
A, Class B, and Class C shares will not constitute 'preferential dividends'
under the Internal Revenue Code and (ii) that the conversion of shares does not
constitute a taxable event.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A,
CLASS B AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B AND CLASS C
SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. Any
applicable CDSC payable upon the redemption of shares exchanged will be that
imposed by the fund in which shares are initially purchased and will be
calculated from the first day of the month after the initial purchase, excluding
the time shares were held in a money market fund. Class B and Class C shares may
not be exchanged into money market funds other than Prudential Special Money
Market Fund. For purposes of calculating the holding period applicable to the
Class B conversion feature, the time period during which Class B shares were
held in a money market fund will be excluded. See 'Conversion Feature -- Class B
Shares' above. If your investment in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) reach $1 million and you then hold Class B and/or Class C shares of
the Fund which are free of CDSC, you will be so notified and offered the
opportunity to exchange those shares for Class A shares of the Fund without the
imposition of any sales charge. In the case of tax-exempt shareholders, if no
response is received within 60 days of the mailing of such notice, eligible
Class B and/or Class C shares will be automatically exchanged for Class A
shares. All other shareholders must affirmatively elect to have their eligible
Class B and/or Class C shares exchanged for Class A shares. An exchange will be
treated as a redemption and purchase for tax purposes. See 'Shareholder
Investment Account -- Exchange Privilege' in the Statement of Additional
Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter,
28
<PAGE>
you may call the Fund at (800) 225-1852 to execute a telephone exchange of
shares, on weekdays, except holidays, between the hours of 8:00 A.M. and 6:00
P.M., New York time. For your protection and to prevent fraudulent exchanges,
your telephone call will be recorded and you will be asked to provide your
personal identification number. A written confirmation of the exchange
transaction will be sent to you. Neither the Fund nor its agents will be liable
for any loss, liability or cost which results from acting upon instructions
reasonably believed to be genuine under the foregoing procedures. All exchanges
will be made on the basis of the relative NAV of the two funds next determined
after the request is received in good order. The exchange privilege is available
only in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE 'HOW TO SELL YOUR SHARES' ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
The exchange privilege may be modified or terminated at any time on sixty
days' notice.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you
can take advantage of the following additional services and privileges:
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTION WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
o AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including a
Command Account). For additional information about this service, you may contact
your Prudential Securities financial adviser, Prusec registered representative
or the Transfer Agent directly.
o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
'tax-sheltered accounts' under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See 'How to
29
<PAGE>
Sell Your Shares -- Contingent Deferred Sales Charges.' See also 'Shareholder
Investment Account -- Systematic Withdrawal Plan' in the Statement of Additional
Information.
o REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.
o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A. at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see 'Shareholder Investment Account' in the Statement of Additional
Information.
30
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
DESCRIPTION OF SECURITY RATINGS
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE
AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
P-1: The designation 'Prime-1' or 'P-1' indicates the highest quality
repayment capacity of the rated issue.
P-2: The designation 'Prime-2' or 'P-2' indicates a strong capacity for
repayment.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC: Debt rated BB, B, CCC, and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt having an original maturity of no more than
270 days.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is very strong.
A-2: Capacity for timely payment on issues with the designation A-2 is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-2
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Funds at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
-------------------------------
TAXABLE BOND FUNDS
-------------------------------
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund
Prudential Government Plus Fund
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund
Prudential Structured Maturity Fund
Income Portfolio
Prudential U.S. Government Fund
The Black Rock Government Income Trust
-------------------------------
TAX-EXEMPT BOND FUNDS
-------------------------------
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund
-------------------------------
GLOBAL FUNDS
-------------------------------
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund
Prudential Global Natural Resources Fund
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
-------------------------------
EQUITY FUNDS
-------------------------------
Prudential Equity Fund
Prudential Equity Income Fund
Prudential FlexiFund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Growth Fund, Inc.
Prudential Growth Opportunity Fund
Prudential IncomeVertible(Registered) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
-------------------------------
MONEY MARKET FUNDS
-------------------------------
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
B-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus
does not constitute an offer by the Fund or by the Distributor to sell
or a solicitation of any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
- ------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----------
FUND HIGHLIGHTS............................... 2
Risk Factors and Special
Characteristics........................ 2
FUND EXPENSES................................. 4
HOW THE FUND INVESTS.......................... 5
Investment Objective and Policies........ 5
Risk Factors and Special Considerations
of Investing in Foreign Securities..... 7
Risk Factors Relating to Investing in
Foreign Debt Securities Rated Below
Investment Grade (Junk Bonds).......... 8
Hedging and Income Enhancement
Strategies............................. 9
Other Investments and Policies........... 12
Investment Restrictions.................. 13
HOW THE FUND IS MANAGED....................... 14
Manager.................................. 14
Distributor.............................. 15
Fee Waivers and Subsidy.................. 16
Portfolio Transactions................... 16
Custodian and Transfer and Dividend
Disbursing Agent....................... 16
HOW THE FUND VALUES ITS SHARES................ 16
HOW THE FUND CALCULATES PERFORMANCE........... 17
TAXES, DIVIDENDS AND DISTRIBUTIONS............ 18
GENERAL INFORMATION........................... 19
Description of Common Stock.............. 19
Additional Information................... 20
SHAREHOLDER GUIDE............................. 20
How to Buy Shares of the Fund............ 20
Alternative Purchase Plan................ 22
How to Sell Your Shares.................. 24
Conversion Feature -- Class B Shares..... 27
How to Exchange Your Shares.............. 28
Shareholder Services..................... 29
DESCRIPTION OF SECURITY RATINGS............... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY............. B-1
</TABLE>
- ------------------------------------------------------
Class A:
CUSIP No.: Class B:
Class C:
- ------------------------------------------------------
P
R
PRUDENTIAL O
EUROPE GROWTH S
FUND, INC P
- ------------------------------------------------------ E
C
T
U
S
1
9
9
4
PRUDENTIAL MUTUAL FUNDS
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH (SERVICE MARK)
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Additional Information
dated , 1994
Prudential Europe Growth Fund, Inc. (the Fund) is an open-end, diversified
management investment company whose investment objective is long-term growth of
capital. The Fund seeks 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. Under normal circumstances,
the Fund intends to invest at least 65% of its total assets in such securities.
The Fund may also invest in equity securities of other companies and in
non-convertible debt securities, options on stocks, stock indices, foreign
currencies and futures contracts on foreign currencies and may purchase and sell
futures contracts on foreign currencies and groups of currencies and on
financial or stock indices to hedge its portfolio and to attempt to enhance
income. There can be no assurance that the Fund's investment objective will be
achieved. See 'Investment Objective and Policies.'
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated , 1994, a copy
of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
----------- -----------------
<S> <C> <C>
Investment Objective and Policies.......................................................... B-2
Investment Restrictions.................................................................... B-11
Directors and Officers..................................................................... B-12
Manager.................................................................................... B-13
Distributor................................................................................ B-15
Portfolio Transactions and Brokerage....................................................... B-16
Purchase and Redemption of Fund Shares..................................................... B-17
Shareholder Investment Account............................................................. B-18
Net Asset Value............................................................................ B-21
Taxes...................................................................................... B-22
Performance Information.................................................................... B-24
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants.............. B-26
Independent Auditors' Report............................................................... B-27
Financial Statements....................................................................... B-28
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity securities, common
stocks, common stock equivalents (including warrants and convertible debt
securities) and other equity securities of companies domiciled in Europe.
Companies domiciled in Europe include (i) companies organized under the laws of
a European country, (ii) companies for which the principal securities trading
market is in Europe, (iii) companies which derive at least 50% of their revenues
or profits from goods produced or sold, investments made or services performed
in Europe or (iv) companies which have at least 50% of their assets situated in
Europe. See 'How the Fund Invests--Investment Objective and Policies' in the
Prospectus.
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. The Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the 'full faith and credit' of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in securities issued by agencies of the
U.S. Government or instrumentalities of the U.S. Government. These obligations,
including those which are guaranteed by Federal agencies or instrumentalities,
may or may not be backed by the full faith and credit of the United States.
Obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Small Business Administration are backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Fund must look principally
to the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations such as those issued by the Federal Home Loan Bank the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Student Loan Marketing Association, Resolution Funding
Corporation and the Tennessee Valley Authority, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. FHLMC investments may include
collateralized mortgage obligations. See 'Other Investments and Investment
Techniques' below.
Obligations issued or guaranteed as to principal and interest by the United
States Government may be acquired by the Fund in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain United States Treasury notes or bonds. Such notes and bonds are held
in custody by a bank on behalf of the owners. These custodial receipts are
commonly referred to as Treasury strips.
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in mortgage-backed securities, including
those which represent undivided ownership interests in pools of mortgages. The
U.S. Government or the issuing agency or instrumentality guarantees the payment
of interest on and principal of these securities. However, the guarantees do not
extend to the yield or value of the securities nor do the guarantees extend to
the yield or value of the Fund's shares. These securities are in most cases
'pass-through' instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees. Because the prepayment characteristics of the underlying
mortgages vary, it is not possible to predict accurately the average life of a
particular issue of pass-through certificates. Mortgage-backed securities are
often subject to more rapid repayment than their maturity date would indicate
as a result of the pass-through of prepayments of principal on the underlying
mortgage obligations. During periods of declining interest rates, prepayment
of mortgages underlying mortgage-backed securities can be expected to
accelerate. The Fund's ability to invest in high-yielding mortgage-backed
securities will be adversely affected to the extent that prepayments of
mortgages must be reinvested in securities which have lower yields than the
prepaid mortgages. Moreover, prepayments of mortgages which underlie
securities purchased at a premium could result in capital losses.
The Fund will invest in both Adjustable Rate Mortgage Securities (ARMs),
which are pass-through mortgage securities collateralized by adjustable rate
mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are collateralized
by fixed-rate mortgages.
The values of U.S. Government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods of
falling U.S. interest rates, the values of U.S. Government securities generally
rise and, conversely, during periods of rising interest rates, the values of
such securities generally decline. The magnitude of these fluctuations will
generally be greater for securities with longer-term maturities.
B-2
<PAGE>
FOREIGN DEBT SECURITIES
The Fund is permitted to invest in foreign corporate and government
securities. 'Foreign Government securities' include debt securities issued or
guaranteed, as to payment of principal and interest, by governments,
quasi-governmental entities, governmental agencies, supranational entities and
other governmental entities (collectively, Government Entities) of foreign
countries denominated in the currencies of such countries or in U.S. dollars
(including debt securities of a Government Entity in any such country
denominated in the currency of another such country).
A 'supranational entity' is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of 'quasi-governmental entities' are
issued by entities owned by a national, state, or equivalent government or are
obligations of a political unit that are not backed by the national government's
'full faith and credit' and general taxing powers. Examples of quasi-government
issuers include, among others, the Province of Ontario and the City of
Stockholm. 'Foreign government securities' shall also include debt securities of
Government Entities denominated in European Currency Units. A European Currency
Unit represents specified amounts of the currencies of certain of the twelve
member states of the European Community. Foreign government securities shall
also include mortgage-backed securities issued by foreign Government Entities
including quasi-governmental entities.
OPTIONS ON SECURITIES
The Fund may purchase and write (i.e., sell) put and call options on
securities that are traded on U.S. or foreign securities exchanges or that are
traded in the over-the-counter markets. A call option is a short-term contract
pursuant to which the purchaser, in return for a premium paid, has the right
to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract which gives the purchaser, in return for a premium,
the right to sell the underlying security at a specified price during the term
of the option. The writer of the put, who receives the premium, has the
obligation to buy the underlying security upon exercise at the exercise price.
The Fund will generally write put options when its investment adviser desires to
invest in the underlying security. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.
A call option written by the Fund is 'covered' if the Fund owns the
security underlying the option or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds on a share-for-share basis a call on the same security
as the call written where the exercise price of the call held is equal to or
less than the exercise price of the call written or greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
U.S. Government securities or other liquid high-grade debt obligations in a
segregated account with its Custodian. A put option written by the Fund is
'covered' if the Fund maintains cash, U.S. Government securities or other liquid
high-grade debt obligations with a value equal to the exercise price in a
segregated account with its Custodian, or else holds on a share-for-share basis
a put of the same security as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written.
If the writer of an option wishes to terminate the obligation, he or she
may effect a 'closing purchase transaction.' This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she had been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a 'closing sale transaction.' This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is generally required to pledge
for the benefit of the broker the underlying security or other assets in
accordance with the rules of the relevant exchange or clearinghouse, such as The
Options Clearing Corporation (OCC), an institution created to interpose itself
between buyers and sellers of options in the United States. Technically, the
clearinghouse assumes the other side of every purchase and sale transaction on
an exchange and, by doing so, guarantees the transaction.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option may be offset in whole or in
part if the Fund holds the underlying security by appreciation of the underlying
security owned by the Fund.
B-3
<PAGE>
The Fund may also purchase a 'protective put,' i.e., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value. The
loss to the Fund is limited to the premium paid for, and transaction costs
in connection with, the put plus the initial excess, if any, of the market price
of the underlying security over the exercise price. However, if the market price
of the security underlying the put rises, the profit the Fund realizes on the
sale of the security will be reduced by the premium paid for the put option less
any amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on stock indices, as described below.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
Fund may also purchase and sell put and call options on securities indices
traded on U.S. or foreign securities exchanges or traded in the over-the-counter
markets. Options on securities indices are similar to options on securities
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the multiplier). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. All
settlements on options on indices are in cash, and gain or loss depends on price
movements in the securities market generally (or in a particular industry or
segment of the market) rather than price movements in individual securities.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers. Because exercises of index options are settled in cash, a
call writer cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. In addition, unless the Fund has other liquid assets
which are sufficient to satisfy the exercise of a call, the Fund would be
required to liquidate portfolio securities or borrow in order to satisfy the
exercise.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of security prices in the market generally or in an
industry or market segment rather than movements in the price of a particular
security. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the securities market generally or of a particular industry.
This requires different skills and techniques than predicting changes in the
price of individual stocks. The investment adviser currently uses such
techniques in conjunction with the management of other mutual funds.
RISKS OF TRANSACTIONS IN OPTIONS
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying securities acquired through the
exercise of call options or upon the purchase of underlying securities for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers
the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders. The Fund intends to purchase and sell only those options which are
cleared by clearinghouses whose facilities are considered to be adequate to
handle the volume of options transactions.
B-4
<PAGE>
RISKS OF OPTIONS ON INDICES
The Fund's purchase and sale of options on indices will be subject to risks
described above under 'Risks of Transactions in Options.' In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the Fund's policy to purchase or
write options only on indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities in
the index.
SPECIAL RISKS OF WRITING CALLS ON INDICES
Because exercises of index options are settled in cash, a call writer such
as the Fund cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, the Fund will write call options on indices
only under the circumstances described below under 'Limitations on Purchase
and Sale of Stock Options and Options on Stock Indices, Foreign Currencies and
Futures Contracts on Foreign Currencies.'
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience a loss on
the call which is not offset by an increase in the value of its portfolio and
might also experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 33 1/3% of
the Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the price of such investments might decline before they can be sold.
This timing risk makes certain strategies involving more than one option
substantially more risky with index options than with stock options. For
example, even if an index call which the Fund has written is 'covered' by an
index call held by the Fund with the same strike price, the Fund will bear the
risk that the level of the index may decline between the close of trading on the
date the exercise notice is filed with the clearing corporation and the close of
trading on the date the Fund exercises the call it holds or the time the Fund
sells the call which, in either case, would occur no earlier than the day
following the day the exercise notice was filed.
If the Fund holds an index option and exercises it before final
determination of the closing index value for that day, it runs the risk that the
level of the underlying index may change before closing. If such a change causes
the exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option of the option (times the applicable multiplier) to the assigned writer.
Although the Fund may be able to minimize this risk by withholding exercise
instructions until just before the daily cutoff time or by selling rather than
exercising an option when the index level is close to the exercise price, it may
not be possible to eliminate this risk entirely because the cutoff times for
index options may be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.
RISKS OF OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies involve the currencies of two nations and
therefore, developments in either or both countries affect the values of options
on foreign currencies. Risks include those described in the Prospectus under
'How the Fund Invests--Risk Factors and Special Considerations of Investing in
Foreign Securities,' including government actions affecting currency valuation
and the
B-5
<PAGE>
movements of currencies from one country to another. The quantity of currency
underlying option contracts represent odd lots in a market dominated by
transactions between banks; this can mean extra transaction costs upon exercise.
Option markets may be closed while round-the-clock interbank currency markets
are open, and this can create price and rate discrepancies.
RISKS RELATED TO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to 'lock-in' the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund 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 foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the 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's Custodian will
place cash or liquid securities into a segregated account of the Fund in an
amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency exchange contracts. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts.
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 forward contract.
Accordingly, if a decision is made to sell the security and make delivery of the
foreign currency and if the market value of the security is less than the amount
of foreign currency that the Fund is obligated to deliver, then it would be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase).
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract 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 contract 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 dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. Of course, the Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities. It also should be recognized that this method
of protecting the value of the Fund's portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities which are unrelated to exchange rates. Additionally, although
such contracts tend to minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
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.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures contracts as
a hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move
B-6
<PAGE>
more or less than the price of the currencies being hedged. In the case of
futures contracts on securities indices, the correlation between the price
of the futures contract and the movements in the index may not be perfect.
Therefore, a correct forecast of currency rates, market trends or international
political trends by the investment adviser may still not result in a
successful hedging transaction.
Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance that
it will be possible, at any particular time, to close a futures position. In the
event the Fund could not close a futures position and the value of such position
declined, the Fund would be required to continue to make daily cash payments of
variation margin. There is no guarantee that the price movements of the
portfolio securities denominated in foreign currencies will, in fact, correlate
with the price movements in the futures contract and thus provide an offset to
losses on a futures contract. Currently, currency futures contracts are
available on various foreign currencies including the Australian Dollar, British
Pound, Canadian Dollar, Japanese Yen, Swiss Franc, German Mark and Eurodollars.
Index futures contracts are available on various U.S. and foreign securities
indices.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the Investment
Company Act), are exempt from the definition of 'commodity pool operator,'
subject to compliance with certain conditions. The exemption is conditioned upon
a requirement that all of the Fund's futures or options transactions constitute
bona fide hedging transactions within the meaning of the regulations of the
Commodity Futures Trading Commission (CFTC). The Fund will use currency futures
and options on futures or commodity options contracts in a manner consistent
with this requirement. The Fund may also enter into futures or related options
contracts for income enhancement and risk management purposes if the aggregate
initial margin and option premiums do not exceed 5% of the liquidation value of
the Fund's total assets, after taking into account unrealized profits and
unrealized losses on any such contracts, provided, however, that in the case of
an option that is in-the-money, the in-the-money amount may be excluded in
computing such 5%. The above restriction does not apply to the purchase and sale
of futures and related options contracts for bona fide hedging purchases.
Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of markets and other factors affecting currencies or the securities
market generally. For example, if the Fund had hedged against the possibility of
an increase in currency rates which would adversely affect the price of
securities in its portfolio and the price of such securities increases instead,
the Fund will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash to meet daily
variation margin requirements, it may need to sell securities to meet such
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.
OPTIONS ON FUTURES CONTRACTS
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. Currency options can
be purchased or written with respect to futures contracts on various foreign
currencies, including the Australian Dollar, British Pound, Canadian Dollar,
Japanese Yen, Swiss Franc, German Mark and Eurodollars. With respect to stock
indices, options are traded on futures contracts for various U.S. and foreign
stock indices including the S&P 500 Stock Index and the NYSE Composite Index.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.
LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS AND OPTIONS ON STOCK INDICES,
FOREIGN CURRENCIES AND FUTURES CONTRACTS ON FOREIGN CURRENCIES
The Fund may write put and call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. The Fund will write put options on stock indices and foreign currencies
and futures contracts on foreign currencies only if they are covered by
segregating with the Fund's Custodian an amount of cash, U.S. Government
securities, or liquid assets equal to the aggregate exercise price of the puts.
The Fund has undertaken with certain state securities commissions that, so long
B-7
<PAGE>
as shares of the Fund are registered in those states, it will not (a) write puts
having aggregate exercise prices greater than 25% of total net assets; or (b)
purchase (i) put options on stocks not held in the Fund's portfolio, (ii) put
options on stock indices, foreign currencies or futures contracts on foreign
currencies or (iii) call options on stocks, stock indices or foreign currencies
if, after any such purchase, the aggregate premiums paid for such options would
exceed 10% of the Fund's total net assets; provided, however, that the Fund may
purchase put options on stocks held by the Fund if after such purchase the
aggregate premiums paid for such options do not exceed 20% of the Fund's net
assets. In addition, the Fund will not enter into futures contracts or related
options if the aggregate initial margin and premiums exceed 5% of the
liquidation value of the Fund's total assets, taking into account unrealized
profits and losses on such contracts, provided, however, that in the case of an
option that is in-the-money, the in-the-money amount may be excluded in
computing such 5%. The above restriction does not apply to the purchase or sale
of futures contracts and related options for bona fide hedging purposes. The
Fund does not intend to purchase options on equity securities or securities
indices if the aggregate premiums paid for such outstanding options would exceed
10% of the Fund's total assets.
Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, cash, U.S. Government securities, liquid high-grade
debt securities or at least one 'qualified security' with a market value at the
time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts.
If the Fund has written an option on an industry or market segment index,
it will segregate or put into escrow with its Custodian, or pledge to a broker
as collateral for the option, at least ten 'qualified securities,' all of which
are stocks of issuers in such industry or market segment, with a market value at
the time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts. Such stocks will include
stocks which represent at least 50% of the weighting of the industry or market
segment index and will represent at least 50% of the Fund's holdings in that
industry or market segment. No individual security will represent more than 15%
of the amount so segregated, pledged or escrowed in the case of broadly-based
stock market index options or 25% of such amount in the case of industry or
market segment index options. If at the close of business on any day the market
value of such qualified securities so segregated, escrowed or pledged falls
below 100% of the current index value times the multiplier times the number of
contracts, the Fund will so segregate, escrow or pledge an amount in cash, U.S.
Government securities or other high-grade short-term debt obligations equal in
value to the difference. In addition, when the Fund writes a call on an index
which is in-the-money at the time the call is written, the Fund will segregate
with its Custodian or pledge to the broker as collateral cash, U.S. Government
securities or other high-grade short-term debt obligations equal in value to the
amount by which the call is in-the-money times the multiplier times the number
of contracts. Any amount segregated pursuant to the foregoing sentence may be
applied to the Fund's obligation to segregate additional amounts in the event
that the market value of the qualified securities falls below 100% of the
current index value times the multiplier times the number of contracts. A
'qualified security' is an equity security which is listed on a national
securities exchange or listed on NASDAQ against which the Fund has not written
a stock call option and which has not been hedged by the Fund by the sale of
stock index futures. However, if the Fund holds a call on the same index as
the call written where the exercise price of the call held is equal to or
less than the exercise price of the call written or greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
Treasury bills or other high-grade short-term obligations in a segregated
account with its Custodian, it will not be subject to the requirements
described in this paragraph.
The Fund may engage in futures contracts and options on futures
transactions as a hedge against changes, resulting from market or political
conditions, in the value of the currencies to which the Fund is subject or to
which the Fund expects to be subject in connection with future purchases. The
Fund may engage in such transactions when they are economically appropriate for
the reduction of risks inherent in the ongoing management of the Fund. The Fund
may write options on futures contracts to realize through the receipt of premium
income a greater return than would be realized in the Fund's portfolio
securities alone.
POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which the Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.
DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may temporarily
invest in money market instruments, including commercial paper of corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks, obligations issued or guaranteed by the U.S. Government, its
agencies or its instrumentalities and repurchase agreements (described
B-8
<PAGE>
more fully below). Such investments may be subject to certain risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, the seizure or nationalization of foreign
deposits and foreign exchange controls or other restrictions.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Fund may
purchase or sell securities on a when-issued or delayed delivery basis, that is,
delivery and payment can take place a month or more after the date of the
transaction. The Fund will limit such purchases to those in which the date for
delivery and payment falls within 120 days of the date of the commitment. The
Fund will make commitments for such when-issued transactions only with the
intention of actually acquiring the securities. The Fund's Custodian will
maintain, in a separate account of the Fund, cash, U.S. Government securities or
other liquid high-grade debt obligations having a value equal to or greater than
such commitments. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with the disposition
of any other portfolio security, incur a gain or loss due to market
fluctuations.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for an equal amount of the
securities of the same issuer as the securities sold short (a short sale
against-the-box), and that not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such sales. Short
sales will be made primarily to defer realization of gain or loss for federal
tax purposes. As a matter of current operating policy, the Fund will not engage
in short-sales other than short-sales against-the-box.
REPURCHASE AGREEMENTS
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Board of Directors.
The Fund's investment adviser will monitor the creditworthiness of such parties,
under the general supervision of the Board of Directors. In the event of a
default or bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss.
[The Fund participates in a joint repurchase agreement account with other
investment companies managed by Prudential Mutual Fund Management, Inc. (PMF or
the Manager) pursuant to an order of the Securities and Exchange Commission
(SEC). On a daily basis, any uninvested cash balances of the Fund may be
aggregated with those of such 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.]
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 provided that such loans are callable at any time by the
Fund and are at all times secured by cash or equivalent collateral that is equal
to at least the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive payments in lieu
of the interest and dividends of the loaned securities, while at the same time
earning interest either directly from the borrower or on the collateral which
will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice or by
the Fund at any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates, and the Fund could 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 Board of 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.
B-9
<PAGE>
ILLIQUID SECURITIES
The Fund may not invest more than 5% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market (either within or outside of the United States) or
legal or contractual restrictions on resale. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (Securities Act), securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a 'safe harbor' from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security and (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer). In addition, in order for commercial paper that is issued in reliance
on Section 4(2) of the Securities Act to be considered liquid, (i) it must be
rated in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations (NRSRO), or if only one NRSRO rates
the securities, by that NRSRO, or, if unrated be of comparable quality in the
view of the investment adviser; and (ii) it must not be 'traded flat' (i.e.,
without accrued interest) or in default as to principal or interest. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, the Fund does not intend to invest in such
securities. If the Fund does invest in securities of other investment companies,
shareholders of the Fund may be subject to duplicate management and advisory
fees.
PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions, but the Fund's portfolio
turnover rate is not expected to exceed 150%. 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 portfolio. High portfolio turnover (over 100%) 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 'Portfolio Transactions
and Brokerage' and 'Taxes.'
B-10
<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A 'majority of the Fund's
outstanding voting securities,' when used in this Statement of Additional
Information, means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are present in person or
represented by proxy or (ii) more than 50% of the outstanding shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a security
on margin.
2. Make short sales of securities or maintain a short position if, when
added together, more than 25% of the value of the Fund's net assets would be (i)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales and (ii) allocated to segregated accounts in connection with
short sales. Short sales 'against-the-box' are not subject to this limitation.
3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks up to 33 1/3% 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 33 1/3%
of the value of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a when-issued or delayed
delivery basis, forward foreign currency exchange contracts and collateral
arrangements relating thereto, and collateral arrangements with respect to
futures contracts and options thereon and with respect to the writing of options
and obligations of the Fund to Directors pursuant to deferred compensation
arrangements are not deemed to be a pledge of assets or the issuance of a senior
security.
4. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (i) with respect to 75% of
the Fund's total assets, more than 5% of the Fund's total assets (determined at
the time of investment) would then be invested in securities of a single issuer,
or (ii) 25% or more of the Fund's total assets (determined at the time of the
investment) would be invested in a single industry.
5. Purchase any security if as a result the Fund would then have more than
5% of its total assets (determined at the time of investment) invested in
securities of companies (including predecessors) less than three years old,
except that the Fund may invest in the securities of any U.S. Government agency
or instrumentality, and in any security guaranteed by such an agency or
instrumentality.
6. Buy or sell real estate or interests in real estate, except that the
Fund may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Fund may not purchase interests
in real estate limited partnerships which are not readily marketable.
7. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon. (For purposes
of this restriction, futures contracts on currencies and on securities indices
and forward foreign currency exchange contracts are not deemed to be commodities
or commodity contracts.)
8. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws. The Fund has not adopted a fundamental
investment policy with respect to investments in restricted securities. See
'Illiquid Securities.'
9. Make investments for the purpose of exercising control or management.
10. Invest in securities of other investment companies, except by purchases
in the open market involving only customary brokerage commissions and as a
result of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5% of
its total assets in any one investment company and will not have invested more
than 10% of its total assets (determined at the time of investment) in such
securities of one or more investment companies, or except as part of a merger,
consolidation or other acquisition.
11. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
12. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 30% of the Fund's total assets.
13. Purchase more than 10% of all outstanding voting securities of any one
issuer.
B-11
<PAGE>
In order to comply with certain 'blue sky' restrictions, the Fund will not
as a matter of operating policy:
1. Invest in oil, gas and mineral leases.
2. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or Director of the Fund or the Fund's Manager or
Subadviser (as defined below) owns more than 1/2 of 1% of the outstanding
securities of such issuer, and such officers and directors who own more
than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer.
3. Purchase warrants if as a result the Fund would then have more than
5% of its assets (determined at the time of investment) invested in
warrants. Warrants will be valued at the lower of cost or market and
investment in warrants which are not listed on the New York Stock Exchange
or American Stock Exchange or a major foreign exchange will be limited to
2% of the Fund's net assets (determined at the time of investment). For
purposes of this limitation, warrants acquired in units or attached to
securities are deemed to be without value.
4. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 15% of its total assets would be invested in such securities. This
restriction shall not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
5. Invest more than 10% of its total assets in securities of real
estate investment trusts.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST 5 YEARS
- ------------------------------ -------------- -----------------------------------------------------------------
<S> <C> <C>
Thomas R. Anderson Director Retired. Until July 1991, Chairman, President and Chief Executive
c/o Prudential Mutual Officer of Kemper Financial Companies, Inc.; Executive Vice
Fund Management, Inc. President and Director of Kemper Corporation; Chairman and
One Seaport Plaza Chief Executive Officer of Kemper Financial Services, Inc.; and
New York, NY Kemper Investors Life Insurance Company. Until 1994, Trustee/
Director of Kemper Mutual Funds and Kemper Closed-End Funds.
Director of Hinsdale Financial Corporation, Hinsdale Federal
Bank for Savings, The Real Exchange Corporation and Specialty
Equipment Companies, Inc.
Eugene C. Dorsey Director Retired President, Chief Executive Officer and Trustee of the
c/o Prudential Mutual Gannett Foundation (now Freedom Forum); former Publisher of
Fund Management, Inc. four Gannett newspapers and Vice President of Gannett Company;
One Seaport Plaza past Chairman, Independent Sector (national coalition of
New York, NY philanthropic organizations); former Chairman of the American
Council for the Arts; Director of the Advisory Board of Chase
Manhattan Bank of Rochester.
*Lawrence C. McQuade President and Vice Chairman of PMF (since 1988) and Managing Director,
One Seaport Plaza Director Investment Banking of Prudential Securities (1988-1991);
New York, NY Director, Quixote Corporation (since February 1992); Director,
BUNZL, P.L.C. (since June 1991); formerly Director of Crazy
Eddie Inc. (1987-1990) of Kaiser Tech., Ltd., Kaiser Aluminum
and Chemical Corp. (March 1987-November 1988); formerly
Executive Vice President and Director of W. R. Grace & Co.
(1975-1987); President and Director of The High Yield Income
Fund, Inc., The Global Yield Fund, Inc. and The Global
Government Plus Fund, Inc.
Stephen P. Munn Director Chairman (since January 1994), Director and President (since
c/o Prudential Mutual Fund 1988) and Chief Executive Officer (1988-December 1993) of
Management, Inc. Carlisle Companies Incorporated.
One Seaport Plaza
New York, NY
*Richard A. Redeker Director President, Chief Executive Officer and Director (since October
One Seaport Plaza 1993), PMF; Executive Vice President, Director
New York, NY and Member of the Operating Committee (since
October 1993), Prudential Securities; Director
(since October 1993) of Prudential Securities Group,
Inc.; formerly Senior Executive Vice President and Director
of Kemper Financial Services, Inc. (September 1978-September 1993);
Director of The Global Government Plus Fund, Inc. and
The High Yield Income Fund, Inc.
Robin B. Smith Director President (since September 1981) and Chief Executive Officer
c/o Prudential Mutual Fund (since January 1988), Publishers Clearing House; Director of
Management, Inc. The Omnicom Group, Inc., Texaco Inc., Spring Industries Inc.,
One Seaport Plaza First Financial Fund, Inc., Huffy Corporation, The Global Yield
New York, NY Fund, Inc., The High Yield Income Fund, Inc. and The High Yield
Plus Fund, Inc.
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST 5 YEARS
- ------------------------------ -------------- -----------------------------------------------------------------
<S> <C> <C>
Robert F. Gunia Vice President Director (since January 1989), Chief Administrative Officer
One Seaport Plaza (since July 1990) and Executive Vice President, Treasurer and
New York, NY Chief Financial Officer (since June 1987) of PMF; Senior Vice
President (since March 1987) of Prudential Securities; Vice
President and Director of The Asia Pacific Fund, Inc. (since
May 1989).
S. Jane Rose Secretary Senior Vice President (since January 1991), Senior Counsel (since
One Seaport Plaza June 1987) and First Vice President (June 1987-December 1990)
New York, NY of PMF; Senior Vice President and Senior Counsel of Prudential
Securities (since July 1992); formerly Vice President and
Associate General Counsel of Prudential Securities.
Susan C. Cote Treasurer and Senior Vice President of PMF; Senior Vice President (since
One Seaport Plaza Principal January 1992) and Vice President (January 1986-December 1991)
New York, NY Financial and of Prudential Securities.
Accounting
Officer
Domenick Pugliese Assistant Vice President (since June 1992) and Associate General Counsel
One Seaport Plaza Secretary (since March 1992) of PMF; Vice President and Associate General
New York, NY Counsel of Prudential Securities (since July 1992); prior
thereto, associated with the law firm of Battle Fowler.
</TABLE>
- ---------------
* 'Interested' director, as defined in the Investment Company Act, by reason of
his or her affiliation with Prudential Securities or PMF.
Prior to the Fund's offering of shares, the initial Directors will be
replaced and new directors will be elected.
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities or PMFD.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
'Manager' and 'Distributor,' oversee such actions and decide on general policy.
Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
The Fund pays each of its Directors who is not an affiliated person of PMF
or The Prudential Investment Corporation (PIC) or the Subadviser annual
compensation of $7,500, in addition to certain out-of-pocket expenses.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees in installments 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 an SEC exemptive
order, at the daily rate of return of the Fund (the Fund rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund.
As of June 23, 1994, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Fund, comprise
the Prudential Mutual Funds. See 'How the Fund is Managed--Manager' in the
Prospectus. As of May 31, 1994, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately
$48.5 billion. According to the Investment Company Institute, as of
December 31, 1993, the Prudential Mutual Funds were the 12th largest family of
mutual funds in the United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities and other assets. In
connection therewith, PMF is obligated to keep certain books and records of the
Fund. PMF also administers the Fund's corporate affairs
B-13
<PAGE>
and, in connection therewith, furnishes the Fund with office facilities,
together with those ordinary clerical and bookkeeping services which are not
being furnished by Brown Brothers Harriman & Co., the Fund's custodian (the
Custodian), and Prudential Mutual Fund Services, Inc. (PMFS or the Transfer
Agent), the Fund's transfer and dividend disbursing agent. The management
services of PMF for the Fund are not exclusive under the terms of the Management
Agreement and PMF is free to, and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .75 of 1% of the Fund's average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that, in the event the expenses of the Fund (including the fees of PMF, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PMF will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PMF will be paid by PMF to the Fund. Currently, the Fund
believes that the most restrictive expense limitation of state securities
commissions is 2 1/2% of the Fund's average daily net assets up to $30 million,
2% of the next $70 million of such assets and 1 1/2% of such assets in excess of
$100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of Directors who are not affiliated persons of
PMF or the Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those
assumed by the Fund as described below; and
(c) the costs and expenses payable to PIC pursuant to the Subadvisory
Agreement between PMF and PIC (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the Manager
or the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the Fund may be a member, (h) the cost of stock
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) certain organization expenses of the Fund and the fees
and expenses involved in registering and maintaining registration of the Fund
and of its shares with the SEC, 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 and prospectuses for such pur-
poses, (k) allocable communications expenses with respect to investor services
and all expenses of shareholders' and Directors' meetings and of preparing,
printing and mailing reports, proxy statements and prospectuses to shareholders
in the amount necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was approved by the Board of Directors of the Fund, including all of the
Directors who are not parties to the contract or interested persons of any such
party, as defined in the Investment Company Act, on June 23, 1994, and by the
initial shareholder of the Fund on , 1994.
PMF has entered into the Subadvisory Agreement with PIC, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PIC will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PMF continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PIC's
performance of such services. PIC is reimbursed by PMF for the reasonable costs
and expenses incurred by PIC in furnishing those services.
The Subadvisory Agreement was approved by the Board of Directors, including
a majority of the Directors who are not parties to the contract or interested
persons of any such party, as defined in the Investment Company Act, on June 23,
1994, and by the initial shareholder of the Fund on , 1994.
B-14
<PAGE>
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less than 30
days', written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the Investment Company Act.
The Manager and the Subadviser are subsidiaries of The Prudential which, as
of December 31, 1993, was the largest insurance company in the United States and
the second largest insurance company in the world. Prudential has been engaged
in the insurance business since 1875. In July 1993, Institutional Investor
ranked The Prudential the third largest institutional money manager of the 300
largest money management organizations in the United States as of December 31,
1992.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities Incorporated (Prudential Securities), One Seaport Plaza,
New York, New York 10292, acts as the distributor of the Class B and Class C
shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), PMFD and Prudential Securities
(collectively, the Distributor) incur the expenses of distributing the Fund's
Class A, Class B and Class C shares. See 'How the Fund is Managed--Distributor'
in the Prospectus.
On June 23, 1994, the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Class A, Class B or Class C
Plan or in any agreement related to the Plans (the Rule 12b-1 Directors), at a
meeting called for the purpose of voting on each Plan, adopted the Class A Plan,
the Class B Plan and the Class C Plan. The Class A Plan provides that (i) .25 of
1% of the average daily net assets of the Class A shares may be used to pay for
personal service and the maintenance of shareholder accounts (service fee) and
(ii) total distribution fees (including the service fee of .25 of 1%) may not
exceed .30 of 1%. The Class B and Class C Plans provide that (i) .25 of 1% of
the average daily net assets of the Class B and Class C shares, respectively,
may be paid as a service fee and (ii) .75 of 1% (not including the service fee)
may be paid for distribution-related expenses with respect to the Class B and
Class C shares, respectively (asset-based sales charge). The Plans were each
approved by the sole shareholder of the Class A, Class B and Class C shares on
, 1994.
CLASS A PLAN. PMFD receives the proceeds of initial sales charges upon the
purchase of Class A shares.
CLASS B PLAN. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by holders of Class B shares upon certain
redemptions of Class B shares. See 'Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges' in the Prospectus.
CLASS C PLAN. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class C
shares. See 'Shareholder Guide--How to Sell Your Shares-- Contingent Deferred
Sales Charges' in the Prospectus.
The Class A, Class B and Class C Plans will continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class on not more than
60 days', nor less than 30 days' written notice to any other party to the Plans.
The Plans may not be amended to increase materially the amounts to be spent for
the services described therein without approval by the shareholders of the
applicable class, and all material amendments are required to be approved by the
Board of Directors in the manner described above. Each Plan will automatically
terminate in the event of its assignment. The Fund will not be obligated to pay
expenses incurred under any Plan if it is terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
each class of shares of the Fund by the Distributor. The report will include an
itemization of the distribution expenses and the purposes of such expenditures.
In addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act.
B-15
<PAGE>
NASD MAXIMUM SALES CHARGE RULE.
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. In the case of
Class B shares, interest charges equal to the prime rate plus one percent per
annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not required to be included in the calculation
of the 6.25% limitation. The annual asset-based sales charge with respect to
Class B and Class C shares of the Fund may not exceed .75 of 1%. The 6.25%
limitation applies to the Fund rather than on a per shareholder basis. If
aggregate sales charges were to exceed 6.25% of total gross sales of any class,
all sales charges on shares of that class would be suspended.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities,
futures 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. The term 'Manager' as used in
this section includes the Subadviser. Broker-dealers may receive negotiated
brokerage commissions on Fund portfolio transactions, including options and the
purchase and sale of underlying securities upon the exercise of options. On
foreign securities exchanges, commissions may be fixed. 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.
Equity securities traded in the over-the-counter market and bonds,
including convertible bonds, 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. Thus, it will not deal
with Prudential Securities acting as market maker, and it will not execute a
negotiated trade with Prudential Securities if execution involves Prudential
Securities' acting as principal with respect to any part of the Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities, or an affiliate, during the existence
of the syndicate, is a principal underwriter (as defined in the Investment
Company Act), except in accordance with rules of the SEC. This limitation, in
the opinion of the Fund, will not significantly affect the Fund's ability to
pursue its present investment objective. However, in the future in other
circumstances, the Fund may be at a disadvantage because of this limitation in
comparison to other funds with similar objectives but not subject to such
limitations.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of the Fund, the Manager or the Manager's other clients. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by the
Manager in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for the Fund
may be used in managing other investment accounts. Conversely, brokers, dealers
or futures commission merchants furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than the Fund's, and the services furnished by such brokers, dealers or
futures commission merchants may be used by the Manager in providing investment
management for the Fund. Commission rates are established pursuant to
negotiations with the broker, dealer or futures commission merchant based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The Manager's policy is to pay higher commissions
to brokers, other than Prudential Securities, for particular transactions than
might be charged if a different broker had been selected, on occasions when, in
the Manager's opinion, this policy furthers the objective of obtaining best
price and execution. In addition, the Manager is authorized to pay higher
commissions on brokerage transactions for the Fund to brokers other than
Prudential Securities (or any affiliate) in order to secure research and
investment services described above, subject to review by the Fund's Board of
Directors from time to time as to the extent and continuation of this practice.
The allocation or orders among brokers and the commission rates paid are
reviewed periodically by the Fund's Board of Directors. The Fund will not pay up
for research in principal transactions.
Subject to the above considerations, Prudential Securities (or any
affiliate) 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 brokers or
futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
during a comparable period of time. This
B-16
<PAGE>
standard would allow Prudential Securities (or any affiliate) to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker or futures commission merchant in a commensurate arm's-
length transaction. Furthermore, the Board of Directors of the Fund, including
a majority of the Directors who are not 'interested' persons, has adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to Prudential Securities (or any affiliate) are
consistent with the foregoing standard. In accordance with Section 11(a) under
the Securities Exchange Act of 1934, Prudential Securities may not retain com-
pensation for effecting transactions on a national securities exchange for the
Fund unless the Fund has expressly authorized the retention of such compensa-
tion. Prudential Securities must furnish to the Fund at least annually a state-
ment 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 are also
subject to such fiduciary standards as may be imposed by applicable law.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). See 'Shareholder
Guide--How to Buy Shares of the Fund' in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan, (except
that the Fund has agreed with the SEC in connection with the offering of a
conversion feature on Class B shares to submit any amendment of the Class A
distribution and service plan to both Class A and Class B shareholders) and
(iii) only Class B shares have a conversion feature. See 'Distributor.' Each
class also has separate exchange privileges. See 'Shareholder Investment
Account--Exchange Privilege.'
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold with a maximum sales charge of 5% and Class
B* and Class C* shares are sold at net asset value. Using the Fund's net asset
value at June 15, 1994, 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....................................... $11.40
Maximum sales charge (5% of offering price).................................................. $ .60
------
Offering price to public..................................................................... $12.00
------
------
CLASS B
Net asset value, redemption price and offering price to public per Class B share*............ $11.40
------
------
CLASS C
Net asset value, redemption price and offering price to public per Class C share*............ $11.40
------
------
</TABLE>
- ---------------
*Class B and Class C shares are subject to a contingent deferred sales charge on
certain redemptions. See 'Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges' in the Prospectus.
REDUCTION OR WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under 'Shareholder
Guide--Alternative Purchase Plan' in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or
group that holds 25% or more of the outstanding voting securities of a
company will be deemed to control the company, and a partnership will be
deemed to be controlled by each of its general partners);
B-17
<PAGE>
(e) a trust created by the individual, the beneficiaries of which are
the individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
account created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
[In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).]
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in
pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code and deferred compensation and annuity
plans under Sections 457 and 403(b)(7) of the Internal Revenue Code.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under 'Combined Purchase and Cumulative Purchase
Privilege,' may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the Exchange Privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering or price (net asset value plus maximum sales charge)
as of the previous business day. See 'How the Fund Values Its Shares' in the
Prospectus. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges will
be granted subject to confirmation of the investor's holdings. Rights of
Accumulation are not available to individual participants in any retirement or
group plans.
LETTERS OF INTENT. Reduced sales charges are available to investors or an
eligible group of related investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of the
Fund and shares of other Prudential Mutual Funds. All shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the Exchange Privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the Transfer
Agent or through Prudential Securities. The Distributor must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charges will be granted subject to confirmation of the investor's
holdings. Letters of Intent are not available to individual participants in any
retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed 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. The
effective date of a Letter of Intent may be back-dated up to 90 days, in order
that any investments made during this 90-day period, valued at the purchaser's
cost, can be applied to the fulfillment of the Letter of Intent goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualified for a lower sales charge, a price adjustment is made
by refunding to the purchaser the amount of excess sales charge, if any, paid
during the thirteen-month period. Investors electing to purchase shares of the
Fund pursuant to a Letter of Intent should carefully read such Letter of Intent.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND 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 or distributions sent in cash rather than
reinvested. In the case of
B-18
<PAGE>
recently purchased shares for which registration instructions have not been
received on the record date, cash payment will be made directly to the dealer.
Any shareholder who receives a cash payment representing a dividend or
distribution may reinvest such dividend or distribution at net asset value by
returning the check or the proceeds to the Transfer Agent within 30 days after
the payment date. Such investment will be made at the net asset value per share
next determined after receipt of the check or proceeds by the Transfer Agent.
EXCHANGE PRIVILEGE. The Fund makes available to its shareholders the
privilege of exchanging their shares of the Fund for shares of certain other
Prudential Mutual Funds, including one or more specified money market funds,
subject in each case to the minimum investment requirements of such funds.
Shares of such other Prudential Mutual Funds may also be exchanged for shares of
the Fund. All exchanges are made on the basis of relative net asset value next
determined after receipt of an order in proper form. An exchange will be treated
as a redemption and purchase for tax purposes. Shares may be exchanged for
shares of another fund only if shares of such fund may legally be sold under
applicable state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those funds
eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Intermediate Term Series) and shares of the money
market funds specified below. No fee or sales load will be imposed upon the
exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire Class
A shares of the Prudential Mutual Funds participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B
and Class C shares for Class B and Class C shares, respectively, of certain
other Prudential Mutual Funds and shares of Prudential Special Money Market
Fund, a money market fund. No CDSC will be payable upon such exchange, but a
CDSC may be payable upon the redemption of the Class B and Class C shares
acquired as a result of the exchange. The applicable sales charge will be that
imposed by the fund in which shares were initially purchased and the purchase
date will be deemed to be the date of the initial purchase, rather than the date
of the exchange.
Class B and Class C shares of the Fund may also be exchanged for Class B
and Class C shares, respectively, 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.
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
B-19
<PAGE>
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.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on 60 days' notice, and any fund, including the Fund, or
the Distributor, has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $4,800 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2007, the cost of four years at a private
college could reach $163,000 and over $97,000 at a public university.(1)
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY
INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- ------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 Years.................................................... $ 110 $ 165 $ 220 $ 275
20 Years.................................................... 176 264 352 440
15 Years.................................................... 296 444 592 740
10 Years.................................................... 555 833 1,110 1,388
5 Years..................................................... 1,371 2,057 2,742 3,428
</TABLE>
See 'Automatic Savings Accumulation Plan.'
- ------------------------
(1) Source information concerning the costs of education at public universities
is available from The College Board Annual Survey of Colleges, 1992.
Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics;
and the U.S. Department of Education. Average costs for private institutions
include tuition, fees, room and board.
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund.
The investment return and principal value of an investment will fluctuate so
that an investor's shares when redeemed may be worth more or less than their
original cost.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, an investor may
arrange to have a fixed amount automatically invested in shares of the Fund
monthly by authorizing his or her bank account or Prudential Securities Account
(including a Command Account) to be debited to invest specified dollar amounts
in shares of the Fund. The investor's bank must be a member of the Automatic
Clearing House System. Stock certificates are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Withdrawals of Class B or Class C shares be subject to a CDSC. See 'Shareholder
Guide-- How to Sell Your Shares--Contingent Deferred Sales Charges' in the
Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See 'Shareholder Investment
Account--Automatic Reinvestment of Dividends and/or Distributions.'
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
B-20
<PAGE>
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the plan, particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS. Various qualified 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 of
1986, as amended (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, and the administration, custodial fees an other
details are available fom Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- --------------------------------------------------------------- ---------- ----------
<S> <C> <C>
10 years....................................................... $ 26,165 $ 31,291
15 years....................................................... 44,676 58,649
20 years....................................................... 68,109 98,846
25 years....................................................... 97,780 157,909
30 years....................................................... 135,346 244,692
</TABLE>
- ------------------------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange is provided by a pricing service and
is based on the last sales prices on that exchange prior to the time assets are
valued or, if there was no sale on such day, the mean between the last bid and
asked prices quoted on such day. NASDAQ National Market System securities are
valued at the last sales price in the day of valuation, or, if there was no sale
on such day, the mean between the last bid and asked prices on such day, as
provided by a pricing service. Corporate bonds (other than convertible debt
securities) and U.S. Government securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued on the basis
of valuations provided by a pricing service which uses information with respect
to transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, are valued at the mean
between the last reported bid and asked prices provided by principal market
makers or independent pricing agents. Options traded on an exchange or board of
trade are valued at the average of the quoted bid and asked prices as of the
close of the respective exchange and futures contracts and options thereon are
valued at their last sales prices as of the close of the commodities exchange or
board of trade. Should an extraordinary event, which is likely to affect the
value of the security, occur after the close of an exchange on which a portfolio
security is traded, such security will be valued at fair value considering
factors determined in good faith by the investment adviser under procedures
established by and under the general supervision of the Fund's Board of
Directors.
B-21
<PAGE>
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with interest
accrued or discount amortized to the date of maturity, if their original
maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of 60 days or more, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
net asset value at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Fund shares have been received or days on which changes in the value
of the Fund's portfolio securities do not affect net asset value.
Net asset value is calculated separately for each class. The net asset
value of Class B and Class C shares will generally be lower than the net asset
value of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares are subject. It is expected, however, that the
net asset value per share of each class will tend to converge immediately after
the recording of dividends which will differ by approximately the amount of the
distribution expense accrual differential among the classes.
TAXES
The Fund intends to qualify and to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. This
relieves the Fund (but not its shareholders) from paying federal income tax on
income which is distributed to shareholders and permits net long-term capital
gains of the Fund (i.e., the excess of net long-term capital gains over net
short-term capital losses) to be treated as long-term capital gains of the
shareholders, regardless of how long shareholders have held their shares in the
Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans, and
gains from the sale or other disposition of securities or options thereon or
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) the Fund derive less than 30% of
its gross income from gains (without reduction for losses) from the sale or
other disposition of securities, options thereon, futures contracts, options
thereon, forward contracts and foreign currencies held for less than three
months (except for foreign currencies directly related to the Fund's business of
investing in foreign securities) (the short-short rule); (c) the Fund diversify
its holdings so that, at the end of each quarter of the taxable year (i) at
least 50% of the market value of the Fund's assets is represented by cash, U.S.
Government securities and other securities limited in respect of any one issuer
to an amount not greater than 5% of the market 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 (d) the Fund distribute to its
shareholders at least 90% of its net investment income (including short-term
capital gains) other than long-term capital gains 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 makes a short sale against-the-box. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will generally be treated as gains and losses from the sale of
securities (assuming they do not qualify as Section 1256 contracts). If an
option written by the Fund on securities lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will generally realize capital gain or loss. If securities are
sold by the Fund pursuant to the exercise of a call option written by it, the
Fund will include the premium received in the sale proceeds of the securities
delivered in determining the amount of gain or loss on the sale. Certain of the
Fund's transactions may be subject to wash sale, short sale and straddle
provisions of the Internal Revenue Code. In addition, debt securities acquired
by the Fund may be subject to original issue discount and market discount rules.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. See 'Investment Objective and Policies.' These investments will
generally constitute Section 1256 contracts and will be required to be 'marked
to market' for federal income tax purposes at the end of the Fund's taxable
year; that is, treated as having been sold at market value. Except with respect
to forward foreign currency exchange contracts, 60% of any gain or loss
recognized on such deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss.
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 upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain wash
sale and short 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.
B-22
<PAGE>
The Fund's ability to hold foreign currencies or engage in hedging
activities may be limited by the 30% short-short rule discussed above.
A 'passive foreign investment company' (PFIC) is a foreign corporation
that, in general, meets either of the following tests: (a) at least 75% of its
gross income is passive or (b) an average of at least 50% of its assets produce,
or are held for the production of, passive income. If the Fund acquires and
holds stock in a PFIC beyond the end of the year of its acquisition, the Fund
will be subject to federal income tax on a portion of any 'excess distribution'
received on the stock or of any gain from disposition of the stock
(collectively, PFIC income), plus interest thereon, even if the Fund distributes
the PFIC income as a taxable dividend to its shareholders. The balance of the
PFIC income will be included in the Fund's investment company taxable income
and, accordingly, will not be taxable to it to the extent that income is
distributed to its shareholders. Proposed Treasury regulations provide that the
Fund may make a 'mark-to-market' election with respect to any stock it holds of
a PFIC. If the election is in effect, at the end of the Fund's taxable year, the
Fund will recognize the amount of gains, if any, with respect to PFIC stock. No
loss will be recognized on PFIC stock. Alternatively, the Fund may elect to
treat any PFIC in which it invests as a 'qualified electing fund,' in which
case, in lieu of the foregoing tax and interest obligation, the Fund will be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain, even if they are
not distributed to the Fund; those amounts would be subject to the distribution
requirements applicable to the Fund described above. It may be very
difficult, if not impossible, to make this election because of certain
requirements thereof. Proposed legislation in Congress could dramatically change
the manner in which U.S. shareholders of foreign corporations are taxed. There
can be no assurance that any such legislation will become law, or if so, what
its impact on U.S. shareholders of foreign corporations will be.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or ordinary
loss. Similarly, gains or losses on forward foreign currency exchange contracts
or dispositions of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition also are treated
as ordinary gain or loss. These gains, referred to under the Internal Revenue
Code as 'Section 988' gains or losses, increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If Section 988 losses exceed other investment
company taxable income during a taxable year, the Fund would not be able to make
any 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.
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
12 months ending on October 31 of such calendar year, as well as 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 year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a nondeductible 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.
Any dividends 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. Furthermore, such dividends, 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, including 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.
The per share dividends on Class B and Class C shares will generally be
lower than the per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share capital gains distributions will be paid in the same amounts for Class A,
Class B and Class C shares. See 'Net Asset Value.'
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business
conducted by the foreign shareholder. Capital gain dividends paid
to a foreign shareholder are
B-23
<PAGE>
generally not subject to withholding tax. A foreign shareholder will, however,
be required to pay U.S. income tax on any dividends and capital gain
distributions which are effectively connected with a U.S. trade
or business of the foreign shareholder.
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Interest income, capital gain net income, gain or loss from Section 1256
contracts (described above), dividend income from foreign corporations and
income from other sources will not constitute qualified dividends. Since the
Fund is likely to have a substantial portion of its assets invested in
securities of foreign issuers, the amount of the Fund's dividends eligible for
the corporate dividends-received deduction will be minimal. Individual
shareholders are not eligible for the dividends-received deduction.
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.
If the Fund is liable for foreign income taxes, the Fund expects to meet
the requirements of the Internal Revenue Code for 'passing-through' to its
shareholders foreign income taxes paid, but there can be no assurance that the
Fund will be able to, or will elect to do so. Shareholders would be required to:
(i) include in gross income (in addition to taxable dividends actually received)
their pro rata share of the foreign income taxes paid by the Fund; and (ii)
treat their pro rata share of foreign income taxes as paid by them. Shareholders
are then permitted either to deduct their pro rata share of foreign income taxes
in computing their taxable income or use it as a foreign tax credit against U.S.
income taxes. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions. Foreign shareholders may not deduct or claim a
credit for foreign tax unless the dividends paid to them by the Fund are
effectively connected with a U.S. trade or business.
Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund will 'pass
through' for that year and, if so, such notification will designate (a) the
shareholder's portion of the foreign taxes paid by the Fund and (b) the portion
of the dividend which represents income derived from foreign sources. The tax
consequences to a foreign shareholder entitled to claim the benefits of an
applicable tax treaty may be different from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
The amount of foreign taxes for which a shareholder may claim a credit in
any year will generally be subject to a separate limitation for 'passive
income,' which includes, among other things, dividends, interest and certain
foreign currency gains. Gain or loss from the sale of a security or from a
Section 988 transaction which is treated as ordinary income or loss (or would
have been so treated absent an election by the Fund) will be treated as derived
from sources within the United States, potentially reducing the amount allowable
as a credit under the limitation.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See 'How the Fund Calculates
Performance' in the Prospectus.
Average annual total return is computed according to the following formula:
n
P ( 1 + T ) = 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
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B and
Class C shares. See 'How the Fund Calculates Performance' in the Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV - P
-------
P
<PAGE>
Where: P = a hypothetical initial payment of $1,000.
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).
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.
YIELD. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B and
Class C shares. This yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
a-b
-------- 6
YIELD = 2[( +1) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. Yields for the Fund will vary based on a number of factors
including changes in net asset value, market conditions, the level of interest
rates and the level of Fund income and expenses.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of inflation.(1)
(CHART)
- ------------------------
(1) Source: Ibbotson Associates, 'Stocks, Bonds, Bills and Inflation--1993
Yearbook', (annually updates the work of Roger G. Ibbotson and Rex
A. Sinquefield). Common stock returns are based on the Standard &
Poor's 500 Stock Index, a market-weighted, unmanaged index of 500
common stocks in a variety of industry sectors. It is a commonly
used indicator of broad stock price movements. This chart is for
illustrative purposes only, and is not intended to represent the
performance of any particular investment or fund.
B-25
<PAGE>
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND INDEPENDENT ACCOUNTANTS
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, serves as Custodian for the Fund's portfolio securities and cash and in
that capacity maintains certain financial and accounting books and records
pursuant to an agreement with the Fund. Subcustodians provide custodial services
for the Fund's foreign assets held outside the United States. See 'How the Fund
is Managed--Custodian and Transfer and Dividend Disbursing Agent' in the
Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Fund. PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and related
functions. For these services, PMFS receives an annual fee of $9.00 per
shareholder account, a new account set-up fee of $ for each manually
established account and a monthly inactive zero balance account fee of $
per shareholder account. PMFS is also reimbursed for its out-of-pocket expenses,
including but not limited to postage, stationery, printing, allocable
communication expenses and other costs.
Deloitte & Touche, 1633 Broadway, New York, New York 10019, serves as the
Fund's independent accountants, and in that capacity audits the Fund's annual
reports.
B-26
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Prudential Europe Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Prudential Europe Growth Fund, Inc. as of June 15, 1994. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Prudential Europe Growth
Fund, Inc. as of June 15, 1994, in conformity with generally accepted accounting
principles.
Deloitte & Touche
New York, New York
June 15, 1994
B-27
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 15, 1994
-------------
<S> <C>
ASSETS
Cash............................................................................................. $ 100,000
Deferred organization costs (Note 1)............................................................. 250,000
-------------
Total assets................................................................................ 350,000
-------------
LIABILITIES
Deferred organization costs payable (Note 1)..................................................... 250,000
-------------
Net Assets (Note 1)
Applicable to 8,772 shares of common stock..................................................... $ 100,000
-------------
-------------
Calculation of Offering Price
Class A:
Net asset value and redemption price per Class A share......................................... $ 11.40
Maximum sales charge (5.0% of offering price).................................................. .60
-------------
Offering price to public....................................................................... $ 12.00
-------------
-------------
Class B:
Net asset value, offering price and redemption price per Class B share......................... $ 11.40
-------------
-------------
Class C:
Net asset value, offering price and redemption price per Class C share......................... $ 11.40
-------------
-------------
</TABLE>
See notes to Financial Statements.
B-28
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL EUROPE GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1.
Prudential Europe Growth Fund, Inc. ('the Fund'), which was incorporated in
Maryland on March 18, 1994, is an open-end, diversified management investment
company. The Fund has had no significant operations other than the issuance of
2,924 shares each of Class A, Class B and Class C common stock for $100,000 on
June 15, 1994 to Prudential Mutual Fund Management, Inc. (PMF). There are 2
billion shares of $.001 par value common stock authorized divided into three
classes, designated Class A, Class B and Class C, each of which consists of 1
billion, 500 million and 500 million authorized shares, respectively.
Costs incurred and expected to be incurred in connection with the
organization and initial registration of the Fund will be paid initially by PMF
and will be repaid to PMF upon commencement of investment operations. These
costs will be deferred and amortized over the period of benefit not to exceed 60
months from the date the Fund commences investment operations. If any of the
initial shares of the Fund are redeemed by any holder thereof during the period
of amortization of organization expenses, the redemption proceeds will be
reduced by the pro-rata amount of unamortized organization expenses based on the
number of initial shares being redeemed to the number of the initial shares
outstanding.
NOTE 2. AGREEMENTS
The Fund has entered into a management agreement with PMF. PMF is an
indirect wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).
The management fee paid PMF will be computed daily and payable monthly, at
an annual rate of .75 of 1% of the average daily net assets of the Fund.
Pursuant to a subadvisory agreement between PMF and The Prudential
Investment Corporation (PIC), a wholly-owned subsidiary of Prudential, PIC
furnishes investment advisory services in connection with the management of the
Fund. PMF continues to have responsibility for all investment advisory services
pursuant to the management agreement and supervises PIC's performance of such
services. PMF pays for the services of PIC, the cost of compensation of officers
and employees of the Fund, occupancy and certain clerical and accounting costs
of the Fund. The Fund bears all other costs and expenses.
PMF has agreed that, in any fiscal year, it will reimburse the Fund for
expenses (including the fees of PMF but excluding interest, taxes, brokerage
commissions, distribution fees, litigation and indemnification expenses and
other extraordinary expenses) in excess of the most restrictive expense
limitation imposed by state securities commissions. If the excess expenses
exceed the amount of the fees to PMF, then PMF will reimburse the Fund the
amount of such excess. The most restrictive expense limitation is presently
believed to be 2 1/2% of the Fund's average daily net assets up to $30 million,
2% of the next $70 million of such assets and 1 1/2% of such assets in excess of
$100 million. Such expense reimbursement, if any, will be estimated and accrued
daily and payable monthly.
The Fund has entered into distribution agreements with Prudential Mutual
Fund Distributors, Inc. (PMFD), a wholly-owned subsidiary of PMF, for
distribution of the Fund's Class A shares and with Prudential Securities
Incorporated (PSI) for distribution of the Fund's Class B and C shares.
Pursuant to separate Plans of Distribution (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 of 1940, PMFD and PSI (collectively
the 'Distributor') incur the expenses of distributing the Fund's Class A, Class
B and Class C shares, respectively. These expenses include commissions and
account servicing fees paid to, or on account of financial advisors of PSI and
Pruco Securities Corporation (Prusec), an affiliated broker-dealer, commissions
paid to, or on account of, other broker-dealers or certain 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 PSI and Prusec associated with the
sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
Pursuant to the Class A Plan, the Fund will compensate PMFD for its
expenses with respect to Class A shares at an annual rate of up to .30 of 1% of
the average daily net asset value of the Class A shares. PMFD has agreed to
limit its distribution-related fees payable under the Class A Plan to .25 of 1%
of the average daily net asset value of the Class A shares for the fiscal year
ended April 30, 1995.
Pursuant to the Class B and C Plans, the Fund compensates PSI for its
distribution-related expenses with respect to the Class B and C shares at an
annual rate of 1% of the average daily net assets of the Class B and C shares.
B-29
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
(1) Financial Statements included in the Prospectus constituting Part
A of this Registration Statement:
None.
(2) Financial Statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Statement of Assets and Liabilities as of June 15, 1994.
Independent Auditors' Report.
(B) EXHIBITS:
<TABLE>
<S> <C> <C>
1. Articles of Incorporation, incorporated by reference to Exhibit 1 to the Registration Statement on Form
N-1A (File No. 33-53131) filed on April 15, 1994).
2. By-Laws, incorporated by reference to Exhibit 2 to the Registration Statement on Form N-1A (File No.
33-53131) filed on April 15, 1994).
3. Not Applicable.
4. Instruments defining rights of shareholders, incorporated by reference to Exhibit 4 to the Registration
Statement on Form N-1A (File No. 33-53131) filed on April 15, 1994).
5. (a) Form of Management Agreement between the Registrant and Prudential Mutual Fund Management,
Inc.**
(b) Form of Subadvisory Agreement between Prudential Mutual Fund Management, Inc. and The Prudential
Investment Corporation.**
6. (a) Form of Distribution Agreement between the Registrant and Prudential Mutual Fund Distributors,
Inc. (Class A Shares).**
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C> <C>
(b) Form of Distribution Agreement between the Registrant and Prudential Securities Incorporated
(Class B shares).**
(c) Form of Distribution Agreement between the Registrant and Prudential Securities Incorporated
(Class C shares).**
(d) Form of Subscription Offering Agreement among the Registrant, Prudential Securities Incorporated
and Prudential Mutual Fund Distributors, Inc.**
(e) Form of Selected Dealer Agreement.**
7. Not Applicable.
8. Form of Custodian Contract between the Registrant and Brown Brothers Harriman & Co.**
9. Form of Transfer Agency and Service Agreement between the Registrant and Prudential Mutual Fund Services,
Inc.**
10. Opinion of Shereff, Friedman, Hoffman & Goodman.**
11. Consent of Independent Accountants.**
12. Not Applicable.
13. Form of Purchase Agreement.**
14. Not Applicable.
15. (a) Form of Distribution and Service Plan for Class A Shares.**
(b) Form of Distribution and Service Plan for Class B Shares.**
(c) Form of Distribution and Service Plan for Class C Shares.**
16. Schedule of Computation of Performance Quotations.*
17. Copies of Powers of Attorney for Directors:*
</TABLE>
- ------------------
* To be filed by Amendment.
** Filed herewith.
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Not Applicable.
ITEM 27. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any shareholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of the Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of each Distribution Agreement (Exhibit 6 to
the Registration Statement), each Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.
C-3
<PAGE>
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
Under Section 17(h) of the 1940 Act, it is the position of the staff of the
Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of one's office, no indemnification will be permitted unless an
independent legal counsel (not including a counsel who does work for either the
Registrant, its investment adviser, its principal underwriter or persons
affiliated with these persons) determines, based upon a review of the
facts, that the person in question was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Under its Articles of Incorporation, the Registrant may advance funds to
provide for indemnification. Pursuant to the Securities and Exchange Commission
staff's position on Section 17(h) advances will be limited in the following
respect:
(1) Any advances must be limited to amounts used, or to be used, for the
preparation and/or presentation of a defense to the action (including cost
connected with preparation of a settlement);
(2) Any advances must be accompanied by a written promise by, or on behalf
of, the recipient to repay that amount of the advance
C-4
<PAGE>
which exceeds the amount to which it is ultimately determined that he is
entitled to receive from the Registrant by reason of indemnification;
(3) Such promise must be secured by a surety bond or other suitable
insurance; and
(4) Such surety bond or other insurance must be paid for by the recipient
of such advance.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Mutual Fund Management, Inc.
See 'Management of the Fund-Manager' in the Prospectus constituting Part A
of this Registration Statement and 'Manager' in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on November 13, 1987).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATION
- ---------------------------- --------------------------- ------------------------------------------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice President, Executive Vice President, PMF; Senior Vice President,
Director of Marketing Prudential Securities Incorporated (Prudential
Securities)
John D. Brookmeyer, Jr. Director Senior Vice President, The Prudential Insurance
Two Gateway Center Company of America (Prudential)
Newark, NJ 07102
Susan C. Cote Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities
Fred A. Fiandaca Executive Vice President, Executive Vice President, Chief Operating Officer and
Raritan Plaza One Chief Operating Officer Director, PMF; Chief Executive Officer and Director,
Edison, NJ 08847 and Director Prudential Mutual Fund Services, Inc.
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATION
- ---------------------------- --------------------------- ------------------------------------------------------
<S> <C> <C>
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities
Frank W. Giordano Executive Vice President, Executive Vice President, General Counsel and
General Counsel and Secretary, PMF; Senior Vice President, Prudential
Secretary Securities
Robert F. Gunia Executive Vice President, Executive Vice President, Chief Financial and
Chief Financial and Administrative Officer, Treasurer and Director, PMF;
Administrative Officer, Senior Vice President, Prudential Securities
Treasurer and Director
Eugene B. Heimberg Director Senior Vice President, Prudential; President, Director
Prudential Plaza and Chief Investment Officer, PIC
Newark, NJ 07102
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Leland B. Paton Director Executive Vice President and Director, Prudential
Securities; Director, PSG
Richard A. Redeker President, Chief President Chief Executive Officer and Director, PMF;
Executive Officer Executive Vice President, Director and Member of the
and Director Operating Committee, Prudential Securities;
Director, PSG
S. Jane Rose Senior Vice President, Senior Vice President, Senior Counsel and Assistant
Senior Counsel and Secretary, PMF; Senior Vice President and Senior
Assistant Secretary Counsel, Prudential Securities
Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG
213 Washington Street
Newark, NJ 07102
</TABLE>
(b) Prudential Investment Corporation
See 'Management of the Fund--Subadviser' in the Prospectus constituting
Part A of this Registration Statement and 'Subadviser' in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
C-6
<PAGE>
each person is Prudential Plaza, Newark, NJ 07101.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATION
- ---------------------------- --------------------------- ------------------------------------------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice President, Senior Vice President, Chief Financial and Compliance
Chief Financial and Officer, PIC; Vice President, Prudential
Compliance Officer
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice
Two Gateway Center President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Vice
Two Gateway Center President, PIC
Newark, NJ 07102
Eugene B. Heimberg President, Director and President, Director, and Chief Investment Advisor,
Chief Investment Officer PIC; Senior Vice President, Prudential
Garnett L. Keith, Jr. Director Vice Chairman and Director, Prudential; Director, PIC
William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice
Four Gateway Center President, PIC
Newark, NJ 07102
James W. Stevens Executive Vice President Executive Vice President, Prudential; Director, PSG
Four Gateway Center
Newark, NJ 07102
Robert C. Winters Director Chairman of the Board and Chief Executive Officer,
Prudential; Director, PIC; Chairman of the Board and
Director, PSG
Claude J. Zinngrabe, Jr. Executive Vice President Vice President, Prudential; Executive Vice President,
PIC
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a)(i) Prudential Securities Incorporated
Prudential Securities Incorporated is distributor for Prudential Government
Securities Trust (Intermediate Term Series), The Target Portfolio Trust, for
Class D shares of Prudential Municipal Series Fund (Florida Series) and for
Class B shares of The BlackRock Government Income Trust, Global Utility Fund,
Inc., Nicholas Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Adjustable Rate Securities Fund, Inc., Prudential
C-7
<PAGE>
California Municipal Fund (California Income Series and California Series),
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential
FlexiFund, Prudential Global Fund, Inc., Prudential-Bache Global Genesis Fund,
Inc. (d/b/a Prudential Global Genesis Fund), Prudential-Bache Global Natural
Resources Fund, Inc. (d/b/a Prudential Global Natural Resources Fund),
Prudential-Bache GNMA Fund, Inc. (d/b/a Prudential GNMA Fund), Prudential-Bache
Government Plus Fund, Inc. (d/b/a Prudential Government Plus Fund), Prudential
Growth Fund, Inc., Prudential-Bache Growth Opportunity Fund, Inc. (d/b/a
Prudential Growth Opportunity Fund), Prudential-Bache High Yield Fund, Inc.
(d/b/a Prudential High Yield Fund), Prudential IncomeVertible Fund, Inc.
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (except
Connecticut Money Market Series, Massachusetts Money Market Series, New York
Money Market Series, New Jersey Money Market Series and Florida Series),
Prudential-Bache National Municipals Fund, Inc. (d/b/a Prudential National
Municipals Fund), Prudential Pacific Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Inc., Prudential-Bache Structured Maturity Fund (d/b/a
Prudential Structured Maturity Fund), Prudential U.S. Government Fund, and
Prudential-Bache Utility Fund, Inc. (d/b/a Prudential Utility Fund). Prudential
Securities is also a depositor for the following unit investment trusts:
The Corporate Income Fund
Corporate Investment Trust Fund
Equity Income Fund
Government Securities Income Fund
International Bond Fund
Municipal Investment Trust
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(a)(ii) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series) Prudential Government
Securities Trust (Money Market Series and U.S. Treasury Money Market Series),
Prudential Institutional Liquidity Portfolio,Inc., Prudential-Bache MoneyMart
Assets Inc. (d/b/a Prudential MoneyMart Assets), Prudential Municipal Series
Fund (Connecticut Money Market Series, Massachusetts Money Market Series, New
York Money Market Series, and New Jersey Money Market Series), Prudential-Bache
Special Money Market Fund, Inc. (d/b/a Prudential Special Money Market Fund),
Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential Tax-Free Money
Fund), and for Class A shares of The BlackRock Government Income Trust, Global
Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth
Equity Fund) Prudential Adjustable Rate Securities Fund, Inc., Prudential
California Municipal Fund (California Income Series and California Series),
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential
FlexiFund, Prudential Global Fund, Inc., Prudential-Bache Global Genesis Fund,
Inc. (d/b/a Prudential Global Genesis
C-8
<PAGE>
Fund), Prudential-Bache Global Natural Resources Fund, Inc. (d/b/a Prudential
Global Natural Resources Fund), Prudential-Bache GNMA Fund, Inc. (d/b/a
Prudential GNMA Fund), Prudential-Bache Government Plus Fund, Inc. (d/b/a
Prudential Government Plus Fund), Prudential Growth Fund, Inc., Prudential-Bache
Growth Opportunity Fund, Inc. (d/b/a Prudential Growth Opportunity Fund),
Prudential-Bache High Yield Fund, Inc. (d/b/a Prudential High Yield Fund),
Prudential IncomeVertible(R) Fund, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund (Class A shares of all other Series not
mentioned above), Prudential-Bache National Municipals Fund, Inc. (d/b/a
Prudential National Municipals Fund), Prudential Pacific Growth Fund, Inc.,
Prudential Short-Term Global Income Fund, Inc., Prudential-Bache Structured
Maturity Fund (d/b/a Prudential Structured Maturity Fund), Prudential U.S.
Government Fund, and Prudential-Bache Utility Fund, Inc. (d/b/a Prudential
Utility Fund).
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------------------------------------------------ ---------------------------------------------- ---------------
<S> <C> <C>
Alan D. Hogan................................... Executive Vice President, Chief Administrative None
Officer and Director
Howard A. Knight................................ Executive Vice President, Director, Corporate None
Strategy and New Business Development
George A. Murray................................ Executive Vice President and Director None
John P. Murray.................................. Executive Vice President and Director of Risk None
Management
Leland B. Paton................................. Executive Vice President and Director None
Richard A. Redeker.............................. Director Director
Hardwick Simmons................................ Chief Executive Officer, President and None
Director
Lee B. Spencer Jr............................... General Counsel, Executive Vice President and None
Director
</TABLE>
C-9
<PAGE>
(b)(ii) Information concerning the directors and officers of Prudential
Mutual Fund Distributors, Inc. is set forth below:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------------------------------------------------ ---------------------------------------------- ---------------
<S> <C> <C>
Joanne Accurso-Soto............................. Vice President None
Dennis Annarumma................................ Vice President, Assistant Treasurer and None
Assistant Comptroller
Phyllis J. Berman............................... Vice President None
Fred A. Fiandaca ............................... President, Chief Executive Officer and None
Raritan Plaza One Director
Edison, NJ 08847
Stephen P. Fisher............................... Vice President None
Frank W. Giordano............................... Executive Vice President, General Counsel, None
Secretary and Director
Robert F. Gunia................................. Executive Vice President, Treasurer, Vice President
Comptroller and Director
Andrew J. Varley................................ Vice President None
Anita L. Whelan................................. Vice President and Assistant Secretary None
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated person of
the Registrant.
- ------------------
(1) The address of each person named is One Seaport Plaza, New York, New York
10292 unless otherwise indicated.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of Brown Brothers Harriman
C-10
<PAGE>
& Co. 40 Water Street, Boston, Massachusetts 02109, The Prudential Investment
Corporation, Prudential Plaza, 745 Broad Street, Newark, New Jersey, the
Registrant, One Seaport Plaza, New York, New York, and Prudential Mutual Fund
Services, Inc., Raritan Plaza One, Edison, New Jersey. Documents required by
Rules 31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Two
Gateway Center, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at
One Seaport Plaza and the remaining accounts, books and other documents required
by such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by Brown Brothers Harriman & Co. and Prudential Mutual
Fund Services, Inc.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions 'Management of the
Fund--Manager' and 'Management of the Fund--Distributor' in the Prospectus and
the captions 'Manager' and 'Distributor' in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
Registrant makes the following undertaking:
To file a post-effective amendment, using financial statements which may
not be certified, within four to six months from the effective date of this
Registration Statement.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused
this Pre-Effective Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of New York, and State of New York, on the 23rd day of
June, 1994.
PRUDENTIAL EUROPE GROWTH FUND, INC.
By /s/ Lawrence C. McQuade
Lawrence C. McQuade
President
Pursuant to the requirements of the Securities Act of 1933,
this Pre-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/ Lawrence C. McQuade President and June 23, 1994
Lawrence C. McQuade Director
/s/ Thomas R. Anderson Director June 23, 1994
Thomas R. Anderson
/s/ Eugene C. Dorsey Director June 23, 1994
Eugene C. Dorsey
/s/ Stephen P. Munn Director June 23, 1994
Stephen P. Munn
/s/ Richard A. Redeker Director June 23, 1994
Richard A. Redeker
/s/ Robin B. Smith Director June 23, 1994
Robin B. Smith
/s/ Susan C. Cote Treasurer and June 23, 1994
Susan C. Cote Principal
Financial and
Accounting Officer
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Exhibit Index
1 Articles of Incorporation, incorporated by reference to Exhibit 1
to the Registration Statement on Form N-1A (File No. 33-53131)
filed on April 15, 1994).
2 By-Laws, incorporated by reference to Exhibit 2 to the Registration
Statement on Form N-1A (File No. 33-53131) filed on April 15,
1994).
4 Instrument Defining Rights of Shareholders, incorporated by
reference to Exhibit 4 to the Registration Statement on Form N-1A
(File No. 33-53131) filed on April 15, 1994).
5(a) Form of Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc.
5(b) Form of Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation.
6(a) Form of Distribution Agreement between the Registrant and
Prudential Mutual Fund Distributors, Inc. (Class A Shares).
6(b) Form of Distribution Agreement between the Registrant and
Prudential Securities Incorporated (Class B Shares).
6(c) Form of Distribution Agreement between the Registrant and
Prudential Securities Incorporated (Class C Shares).
6(d) Forms of Selected Dealer Agreement.
6(e) Form of Subscription Agreement among the Registrant, Prudential
Securities Incorporated and Prudential Mutual Fund Distributors,
Inc.
8 Form of Custodian Contract between the Registrant and Brown
Brothers Harriman & Co.
9 Form of Transfer Agency and Service Agreement between Registrant
and Prudential Mutual Fund Services, Inc.
10 Opinion of Shereff, Friedman, Hoffman & Goodman
11 Consent of Deloitte & Touche
13 Form of Purchase Agreement
15(a) Plan of Distribution pursuant to Rule 12b-1 (Class A Shares).
15(b) Plan of Distribution pursuant to Rule 12b-1 (Class B Shares).
15(c) Plan of Distribution pursuant to Rule 12b-1 (Class C Shares).
PRUDENTIAL EUROPE GROWTH FUND, INC.
Management Agreement
Agreement made this __th day of ______, 1994 between
Prudential Europe Growth 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 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 is
authorized to enter into an agreement with The Prudential
Investment Corporation (PIC) pursuant to which PIC shall furnish
to the Fund the investment advisory services in connection with the
<PAGE>
management of the Fund (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
all other applicable federal and state laws and regulations.
2
<PAGE>
(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 Securities
Incorporated) 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 Securities Incorporated 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 the Fund than may result when
3
<PAGE>
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.
(d) The Manager shall maintain all books and records with
respect to the Fund's portfolio transactions and shall render
4
<PAGE>
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");
(c) Certified resolutions of the Board of Directors of
the Fund authorizing the appointment of the Manager and
approving the form of this agreement;
5
<PAGE>
(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-8A 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
that the Manager may retain a copy of such records. The Manager
further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be
6
<PAGE>
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
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
7
<PAGE>
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,
(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
8
<PAGE>
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
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
9
<PAGE>
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 .75 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
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
10
<PAGE>
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,
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
11
<PAGE>
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.
17. The Fund may use the name "Prudential Europe Growth
Fund, Inc." or any name including the word "Prudential" only for so
long as this Agreement or any extension, renewal or amendment
12
<PAGE>
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 Europe Growth
Fund, Inc." or any name including the word "Prudential" 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 EUROPE GROWTH FUND, INC.
By____________________________________
Lawrence C. McQuade
President
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By____________________________________
Richard A. Redeker
President
13
PRUDENTIAL EUROPE GROWTH FUND, INC.
Subadvisory Agreement
Agreement made as of this __th day of ________, 1994 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 ___________ __, 1994 (the Management Agreement), with
Prudential Europe Growth Fund, Inc. (the Fund), a Maryland
corporation and a 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 Securities
Incorporated) 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 Securities
Incorporated 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 Board of
Directors such periodic and special reports as the
Directors 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 investment 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
1(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'
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) 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 _______________________________________
Richard A. Redeker
President
THE PRUDENTIAL INVESTMENT CORPORATION
BY _______________________________________
Harry E. Knapp, Jr.
Vice President
5
Draft 3/28/94
PRUDENTIAL EUROPE GROWTH FUND, INC.
Distribution Agreement
(Class A Shares)
Agreement made as of _____________ 1994, between
Prudential Europe Growth Fund, Inc., a Maryland corporation (the
Fund), and Prudential Mutual Fund Distributors, Inc., a Delaware
corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the Investment Company Act), as a
diversified, open-end, management investment company and it is in
the interest of the Fund to offer its Class A shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and is
engaged in the business of selling shares of registered investment
companies either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into
an agreement with each other, with respect to the continuous
offering of the Fund's Class A shares from and after the date
hereof in order to promote the growth of the Fund and facilitate
the distribution of its Class A shares; and
WHEREAS, upon approval by the Class A shareholders of the
Fund it is contemplated that the Fund will adopt a plan of
distribution pursuant to Rule 12b-1 under the Investment Company
Act (the Plan) authorizing payments by the Fund to the Distributor
with respect to the distribution of Class A shares of the Fund and
the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Class A shares of the Fund to
sell Class A shares to the public and the Distributor hereby
accepts such appointment and agrees to act hereunder. The Fund
hereby agrees during the term of this Agreement to sell Class A
shares of the Fund to the Distributor on the terms and conditions
set forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of
the Fund to act as principal underwriter and distributor of the
Fund's Class A shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class A shares from the Fund shall not apply to Class A
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding shares
of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A
shares issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
2.3 Such exclusive rights shall not apply to Class A
shares issued by the Fund pursuant to the reinstatement privilege
afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases
made through the Fund's transfer and dividend disbursing agent in
the manner set forth in the currently effective Prospectus of the
Fund. The term "Prospectus" shall mean the Prospectus and
Statement of Additional Information included as part of the Fund's
Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to
time, and the term "Registration Statement" shall mean the
Registration Statement filed by the Fund with the Securities and
Exchange Commission and effective under the Securities Act of 1933,
as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class A Shares from the Fund
3.1 The Distributor shall have the right to buy from the
Fund the Class A shares needed, but not more than the Class A
shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class A shares placed with the Distributor
by investors or registered and qualified securities dealers and
other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class A shares so purchased from
the Fund shall be the net asset value, determined as set forth in
the Prospectus.
3.2 The Class A shares are to be resold by the
Distributor or selected dealers, as described in Section 6.4
2
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hereof, to investors at the offering price as set forth in the
Prospectus.
3.3 The Fund shall have the right to suspend the sale of
its Class A shares at times when redemption is suspended pursuant
to the conditions in Section 4.3 hereof or at such other times as
may be determined by the Board of Directors. The Fund shall also
have the right to suspend the sale of its Class A shares if a
banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class A shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class A shares. The Fund (or
its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts for such
Class A shares pursuant to the instructions of the Distributor.
Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Class A Shares by the Fund
4.1 Any of the outstanding Class A shares may be
tendered for redemption at any time, and the Fund agrees to
repurchase or redeem the Class A shares so tendered in accordance
with its Articles of Incorporation as amended from time to time,
and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class A shares
shall be equal to the net asset value determined as set forth in
the Prospectus. All payments by the Fund hereunder shall be made
in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh calendar
day subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Class A shares
shall be paid by the Fund to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions
of the Prospectus.
4.3 Redemption of Class A shares or payment may be
suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on said
Exchange is restricted, when an emergency exists as a result of
3
<PAGE>
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order,
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of
Class A shares as provided herein, the Fund agrees to sell its
Class A shares so long as it has Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class A shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of
copies of its Prospectus and annual and interim reports as the
Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject
to the necessary approval of the Board of Directors and the
shareholders, all necessary action to fix the number of authorized
Class A shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time
to time such amendments, reports and other documents as may be
necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, or necessary in order
that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements
therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
A shares for sales under the securities laws of such states as the
Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Class A shares in
any state from the terms set forth in its Registration Statement,
to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims
arising out of the offering of its Class A shares. Any such
qualification may be withheld, terminated or withdrawn by the Fund
at any time in its discretion. As provided in Section 9.1 hereof,
the expense of qualification and maintenance of qualification shall
be borne by the Fund. The Distributor shall furnish such
4
<PAGE>
information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and
effort to effect sales of Class A shares of the Fund, but shall not
be obligated to sell any specific number of Class A shares. Sales
of the Class A shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with
other investment companies. The Distributor shall compensate the
selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall
use its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of
such securities. Neither the Distributor nor any selected dealer
nor any other person is authorized by the Fund to give any
information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales
literature approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and selected dealers,
the collection of amounts payable by investors and selected dealers
on such sales and the cancellation of unsettled transactions, as
may be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities
dealers and other financial institutions of its choice for the sale
of Class A shares, provided that the Fund shall approve the forms
of such agreements. Within the United States, the Distributor
shall offer and sell Class A shares only to such selected dealers
as are members in good standing of the NASD. Class A shares sold
to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on sales of Class A
shares and not reallocated to selected dealers as set forth in the
Prospectus, subject to the limitations of Article III, Section 26
of the NASD Rules of Fair Practice. Payment of these amounts to
the Distributor is not contingent upon the adoption or continuation
of the Plan.
5
<PAGE>
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as
compensation for services under the Distribution and Service Plan
and this Agreement a fee of .30 of 1% (including an asset-based
sales charge of .05 of 1% and a service fee of .25 of 1%) per annum
of the average daily net assets of the Class A shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid
monthly or at such other intervals as the Board of Directors may
determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of the
commissions and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any
amendment thereto) is in effect, at the request of the Board of
Directors or any agent or representative of the Fund, the
Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such
activities.
8.3 Expenses of distribution with respect to the Class
A shares of the Fund include, among others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account of,
account executives and indirect and overhead
costs associated with distribution activities,
including central office and branch expenses;
(b) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class A
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(c) sales commissions and trailer commissions paid
to, or on account of, broker-dealers and
financial institutions (other than Prudential
6
<PAGE>
Securities and Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class A shares of
the Fund.
(d) amounts paid to, or an account of, account
executives of Prudential Securities, Prusec,
or of other broker-dealers or financial
institutions for personal service and/or the
maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (a)
and (b) of the foregoing sentence include (i) lease expenses, (ii)
salaries and benefits of personnel including operations and sales
support personnel, (iii) utility expenses, (iv) communications
expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class A shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class
A shares, so long as the Plan is in effect.
7
<PAGE>
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and directors and any person who controls
the Distributor within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person
may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, director, trustee or controlling
person unless a court of competent jurisdiction shall determine in
a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of directors or
trustees who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in
a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors or trustees and any such
controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the
Distributor, its officers or directors or trustees, or any such
controlling person, such notification to be given by letter or
telegram addressed to the Fund at its principal business office.
The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or directors in connection with the issue and sale of
any Class A shares.
10.2 The Distributor agrees to indemnify, defend and
hold the Fund, its officers and Directors and any person who
controls the Fund, if any, within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
8
<PAGE>
claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers and Directors or any such controlling
person may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to
the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state
a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors and any such
controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against
the Fund, its officers and Directors or any such controlling
person, such notification being given to the Distributor at its
principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from
the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such parties
and who have no direct or indirect financial interest in this
Agreement or in the operation of the Fund's Plan or in any
agreement related thereto (Rule 12b-1 Directors), cast in person at
a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time,
without the payment of any penalty, by a majority of the Rule 12b-1
Directors or by vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities", when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act.
9
<PAGE>
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of
the Fund, or by the vote of a majority of the outstanding voting
securities of the Class A shares of the Fund, and (b) by the vote
of a majority of the Rule 12b-1 Directors cast in person at a
meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as
at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: ________________________
_______________________
(Title)
Prudential Europe Growth Fund, Inc.
By: _______________________
(Name)
(Title)
10
Draft 3/28/94
PRUDENTIAL EUROPE GROWTH FUND, INC.
Distribution Agreement
(Class B Shares)
Agreement made as of ______ __, 1994, between Prudential
Europe Growth Fund, Inc. a Maryland corporation (the Fund), and
Prudential Securities Incorporated, a Delaware corporation (the
Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the Investment Company Act), as a
diversified, open-end, management investment company and it is in
the interest of the Fund to offer its Class B shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and is
engaged in the business of selling shares of registered investment
companies either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into
an agreement with each other, with respect to the continuous
offering of the Fund's Class B shares from and after the date
hereof in order to promote the growth of the Fund and facilitate
the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service
plan pursuant to Rule 12b-1 under the Investment Company Act (the
Plan) authorizing payments by the Fund to the Distributor with
respect to the distribution of Class B shares of the Fund and the
maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Class B shares of the Fund to
sell Class B shares to the public and the Distributor hereby
accepts such appointment and agrees to act hereunder. The Fund
hereby agrees during the term of this Agreement to sell Class B
shares of the Fund to the Distributor on the terms and conditions
set forth below.
1
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of
the Fund to act as principal underwriter and distributor of the
Fund's Class B shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class B shares from the Fund shall not apply to Class B
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding shares
of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B
shares issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B
shares issued by the Fund pursuant to the reinstatement privilege
afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases
made through the Fund's transfer and dividend disbursing agent in
the manner set forth in the currently effective Prospectus of the
Fund. The term "Prospectus" shall mean the Prospectus and
Statement of Additional Information included as part of the Fund's
Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to
time, and the term "Registration Statement" shall mean the
Registration Statement filed by the Fund with the Securities and
Exchange Commission and effective under the Securities Act of 1933,
as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class B Shares from the Fund
3.1 The Distributor shall have the right to buy from the
Fund the Class B shares needed, but not more than the Class B
shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class B shares placed with the Distributor
by investors or registered and qualified securities dealers and
other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class B shares so purchased from
the Fund shall be the net asset value, determined as set forth in
the Prospectus.
3.2 The Class B shares are to be resold by the
Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the
Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of
its Class B shares at times when redemption is suspended pursuant
to the conditions in Section 4.3 hereof or at such other times as
may be determined by the Board of Directors. The Fund shall also
have the right to suspend the sale of its Class B shares if a
banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class B shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class B shares. The Fund (or
its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts for such
Class B shares pursuant to the instructions of the Distributor.
Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Class B Shares by the Fund
4.1 Any of the outstanding Class B shares may be
tendered for redemption at any time, and the Fund agrees to
repurchase or redeem the Class B shares so tendered in accordance
with its Articles of Incorporation as amended from time to time,
and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class B shares
shall be equal to the net asset value determined as set forth in
the Prospectus. All payments by the Fund hereunder shall be made
in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh day
subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable
contingent deferred sales charge shall be paid to the Distributor
and (b) the balance shall be paid to or for the account of the
redeeming shareholder, in each case in accordance with applicable
provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be
suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
3
<PAGE>
reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order,
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of
Class B shares as provided herein, the Fund agrees to sell its
Class B shares so long as it has Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class B shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of
copies of its Prospectus and annual and interim reports as the
Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject
to the necessary approval of the Board of Directors and the
shareholders, all necessary action to fix the number of authorized
Class B shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be
available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time
to time such amendments, reports and other documents as may be
necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, or necessary in order
that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements
therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
B shares for sales under the securities laws of such states as the
Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Class B shares in
any state from the terms set forth in its Registration Statement,
to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims
arising out of the offering of its Class B shares. Any such
qualification may be withheld, terminated or withdrawn by the Fund
at any time in its discretion. As provided in Section 9.1 hereof,
the expense of qualification and maintenance of qualification shall
be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and
4
<PAGE>
activities as may be required by the Fund in connection with such
qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and
effort to effect sales of Class B shares of the Fund, but shall not
be obligated to sell any specific number of Class B shares. Sales
of the Class B shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with
other investment companies. The Distributor shall compensate the
selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall
use its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of
such securities. Neither the Distributor nor any selected dealer
nor any other person is authorized by the Fund to give any
information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales
literature approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and selected dealers,
the collection of amounts payable by investors and selected dealers
on such sales and the cancellation of unsettled transactions, as
may be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities
dealers and other financial institutions of its choice for the sale
of Class B shares, provided that the Fund shall approve the forms
of such agreements. Within the United States, the Distributor
shall offer and sell Class B shares only to such selected dealers
as are members in good standing of the NASD. Class B shares sold
to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
The Distributor shall receive and may retain any
contingent deferred sales charge which is imposed with respect to
repurchases and redemptions of Class B shares as set forth in the
Prospectus, subject to the limitations of Article III, Section 26
of the NASD Rules of Fair Practice. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of
the Plan.
5
<PAGE>
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as
compensation for services under the Distribution and Service Plan
and this Agreement a fee of 1% (including an asset-based sales
charge of .75 of 1% and a service fee of .25 of 1%) per annum of
the average daily net assets of the Class B shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid
monthly or at such other intervals as the Board of Directors may
determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
8.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of the
commissions (including trailer commissions) and account servicing
fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which
have selected dealer agreements with the Distributor. So long as
the Plan (or any amendment thereto) is in effect, at the request of
the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such
activities.
8.3 Expenses of distribution with respect to the Class
B shares of the Fund include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of distribution
activities, including central office and
branch expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class B
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
6
<PAGE>
selected dealer agreements with the
Distributor with respect to Class B shares of
the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
broker-dealers or financial institutions for
personal service and/or the maintenance of
shareholder accounts; and
(f) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b)
and (c) of the foregoing sentence include (i) lease expenses, (ii)
salaries and benefits of personnel including operations and sales
support personnel, (iii) utility expenses, (iv) communications
expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
Section 9. Allocation of Expenses
9.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class B shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class
B shares, so long as the Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and Directors and any person who controls
7
<PAGE>
the Distributor within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the
Distributor, its officers, Directors or any such controlling person
may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, Director or controlling person
unless a court of competent jurisdiction shall determine in a final
decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of Directors who
are neither "interested persons" of the Fund as defined in Section
2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its
officers and Directors and any such controlling person as aforesaid
is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or
Directors, or any such controlling person, such notification to be
given in writing addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or Directors in connection with the issue and sale of
any Class B shares.
10.2 The Distributor agrees to indemnify, defend and
hold the Fund, its officers and Directors and any person who
controls the Fund, if any, within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers and Directors or any such controlling
person may incur under the Securities Act or under common law or
8
<PAGE>
otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to
the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state
a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors and any such
controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against
the Fund, its officers and Directors or any such controlling
person, such notification to be given to the Distributor in writing
at its principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the
date first above written and shall remain in force for two years
from the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such parties
and who have no direct or indirect financial interest in this
Agreement or in the operation of the Fund's Plan or in any
agreement related thereto (Rule 12b-1 Directors), cast in person at
a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time,
without the payment of any penalty, by a majority of the Rule 12b-1
Directors or by vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act.
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of
the Fund, or by the vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, and (b) by the vote
9
<PAGE>
of a majority of the Rule 12b-1 Board of Directors cast in person
at a meeting called for the purpose of voting on such amendment.
Section 13. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as
at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential Europe Growth Fund, Inc.
By: _______________________
(Name)
(Title)
10
Draft 3/28/94
PRUDENTIAL EUROPE GROWTH FUND, INC.
Distribution Agreement
(Class C Shares)
Agreement made as of ______ __, 1994, between Prudential
Europe Growth Fund, Inc., a Maryland corporation (the Fund), and
Prudential Securities Incorporated, a Delaware corporation (the
Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the Investment Company Act), as a
diversified, open-end, management investment company and it is in
the interest of the Fund to offer its Class C shares for sale
continuously;
WHEREAS, the Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and is
engaged in the business of selling shares of registered investment
companies either directly or through other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into
an agreement with each other, with respect to the continuous
offering of the Fund's Class C shares from and after the date
hereof in order to promote the growth of the Fund and facilitate
the distribution of its Class C shares; and
WHEREAS, upon approval by the Class C shareholders of the
Fund, it is contemplated that the Fund will adopt a distribution
and service plan pursuant to Rule 12b-1 under the Investment
Company Act (the Plan) authorizing payments by the Fund to the
Distributor with respect to the distribution of Class C shares of
the Fund and the maintenance of Class C shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal
underwriter and distributor of the Class C shares of the Fund to
sell Class C shares to the public and the Distributor hereby
accepts such appointment and agrees to act hereunder. The Fund
hereby agrees during the term of this Agreement to sell Class C
shares of the Fund to the Distributor on the terms and conditions
set forth below.
<PAGE>
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of
the Fund to act as principal underwriter and distributor of the
Fund's Class C shares, except that:
2.1 The exclusive rights granted to the Distributor to
purchase Class C shares from the Fund shall not apply to Class C
shares of the Fund issued in connection with the merger or
consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding shares
of any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class C
shares issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
2.3 Such exclusive rights shall not apply to Class C
shares issued by the Fund pursuant to the reinstatement privilege
afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases
made through the Fund's transfer and dividend disbursing agent in
the manner set forth in the currently effective Prospectus of the
Fund. The term "Prospectus" shall mean the Prospectus and
Statement of Additional Information included as part of the Fund's
Registration Statement, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to
time, and the term "Registration Statement" shall mean the
Registration Statement filed by the Fund with the Securities and
Exchange Commission and effective under the Securities Act of 1933,
as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Class C Shares from the Fund
3.1 The Distributor shall have the right to buy from the
Fund the Class C shares needed, but not more than the Class C
shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class C shares placed with the Distributor
by investors or registered and qualified securities dealers and
other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class C shares so purchased from
the Fund shall be the net asset value, determined as set forth in
the Prospectus.
3.2 The Class C shares are to be resold by the
Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the
Prospectus.
2
<PAGE>
3.3 The Fund shall have the right to suspend the sale of
its Class C shares at times when redemption is suspended pursuant
to the conditions in Section 4.3 hereof or at such other times as
may be determined by the Board of Directors. The Fund shall also
have the right to suspend the sale of its Class C shares if a
banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class C shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class C shares. The Fund (or
its agent) will confirm orders upon their receipt, will make
appropriate book entries and upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts for such
Class C shares pursuant to the instructions of the Distributor.
Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Class C Shares by the
Fund
4.1 Any of the outstanding Class C shares may be
tendered for redemption at any time, and the Fund agrees to
repurchase or redeem the Class C shares so tendered in accordance
with its Articles of Incorporation, as amended from time to time,
and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class C shares
shall be equal to the net asset value determined as set forth in
the Prospectus. All payments by the Fund hereunder shall be made
in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the
redemption price as defined in the above paragraph pursuant to the
instructions of the Distributor on or before the seventh day
subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of Class C shares
shall be paid by the Fund to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions
of the Prospectus.
4.3 Redemption of Class C shares or payment may be
suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the
3
<PAGE>
Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order,
so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of
Class C shares as provided herein, the Fund agrees to sell its
Class C shares so long as it has Class C shares available.
5.2 The Fund shall furnish the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class C shares, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of
copies of its Prospectus and annual and interim reports as the
Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject
to the necessary approval of the Board of Directors and the
shareholders, all necessary action to fix the number of authorized
Class C shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be
available for sale such number of Class C shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time
to time such amendments, reports and other documents as may be
necessary in order that there will be no untrue statement of a
material fact in the Registration Statement, or necessary in order
that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements
therein misleading.
5.4 The Fund shall use its best efforts to qualify and
maintain the qualification of any appropriate number of its Class
C shares for sales under the securities laws of such states as the
Distributor and the Fund may approve; provided that the Fund shall
not be required to amend its Articles of Incorporation or By-Laws
to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Class C shares in
any state from the terms set forth in its Registration Statement,
to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims
arising out of the offering of its Class C shares. Any such
qualification may be withheld, terminated or withdrawn by the Fund
at any time in its discretion. As provided in Section 8.1 hereof,
the expense of qualification and maintenance of qualification shall
be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and
4
<PAGE>
activities as may be required by the Fund in connection with such
qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and
effort to effect sales of Class C shares of the Fund, but shall not
be obligated to sell any specific number of Class C shares. Sales
of the Class C shares shall be on the terms described in the
Prospectus. The Distributor may enter into like arrangements with
other investment companies. The Distributor shall compensate the
selected dealers as set forth in the Prospectus.
6.2 In selling the Class C shares, the Distributor shall
use its best efforts in all respects duly to conform with the
requirements of all federal and state laws relating to the sale of
such securities. Neither the Distributor nor any selected dealer
nor any other person is authorized by the Fund to give any
information or to make any representations, other than those
contained in the Registration Statement or Prospectus and any sales
literature approved by appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and selected dealers,
the collection of amounts payable by investors and selected dealers
on such sales and the cancellation of unsettled transactions, as
may be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into
selected dealer agreements with registered and qualified securities
dealers and other financial institutions of its choice for the sale
of Class C shares, provided that the Fund shall approve the forms
of such agreements. Within the United States, the Distributor
shall offer and sell Class C shares only to such selected dealers
as are members in good standing of the NASD. Class C shares sold
to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. Payment of the Distributor under the Plan
7.1 The Fund shall pay to the Distributor as
compensation for services under the Distribution and Service Plan
and this Agreement a fee of 1% (including an asset-based sales
charge of .75 of 1% and a service fee of .25 of 1%) per annum of
the average daily net assets of the Class C shares of the Fund.
Amounts payable under the Plan shall be accrued daily and paid
monthly or at such other intervals as the Board of Directors may
determine. Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
5
<PAGE>
7.2 So long as the Plan or any amendment thereto is in
effect, the Distributor shall inform the Board of Directors of the
commissions (including trailer commissions) and account servicing
fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which
have selected dealer agreements with the Distributor. So long as
the Plan (or any amendment thereto) is in effect, at the request of
the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such
activities.
7.3 Expenses of distribution with respect to the Class
C shares of the Fund include, among others:
(a) sales commissions (including trailer
commissions) paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of distribution
activities, including central office and
branch expenses;
(c) amounts paid to Prusec for performing services
under a selected dealer agreement between
Prusec and the Distributor for sale of Class C
shares of the Fund, including sales
commissions and trailer commissions paid to,
or on account of, agents and indirect and
overhead costs associated with distribution
activities;
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prusec) which have entered into
selected dealer agreements with the
Distributor with respect to Class C shares of
the Fund;
(e) amounts paid to, or an account of, account
executives of the Distributor or of other
broker-dealers or financial institutions for
personal service and/or the maintenance of
shareholder accounts; and
(f) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
6
<PAGE>
Prospectuses, and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clauses (b)
and (c) of the foregoing sentence include (i) lease expenses, (ii)
salaries and benefits of personnel including operations and sales
support personnel, (iii) utility expenses, (iv) communications
expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
Section 8. Allocation of Expenses
8.1 The Fund shall bear all costs and expenses of the
continuous offering of its Class C shares, including fees and
disbursements of its counsel and auditors, in connection with the
preparation and filing of any required Registration Statements
and/or Prospectuses under the Investment Company Act or the
Securities Act, and preparing and mailing annual and periodic
reports and proxy materials to shareholders (including but not
limited to the expense of setting in type any such Registration
Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of
qualification of the Class C shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 7 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to Class
C shares, so long as the Plan is in effect.
Section 9. Indemnification
9.1 The Fund agrees to indemnify, defend and hold the
Distributor, its officers and Directors and any person who controls
the Distributor within the meaning of Section 15 of the Securities
Act, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the
Distributor, its officers, Directors or any such controlling person
may incur under the Securities Act, or under common law or
otherwise, arising out of or based upon any untrue statement of a
material fact contained in the Registration Statement or Prospectus
or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary
to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out
7
<PAGE>
of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, Director or controlling person
unless a court of competent jurisdiction shall determine in a final
decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of Directors who
are neither "interested persons" of the Fund as defined in Section
2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its
officers and Directors and any such controlling person as aforesaid
is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or
Directors, or any such controlling person, such notification to be
given in writing addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or Directors in connection with the issue and sale of
any Class C shares.
9.2 The Distributor agrees to indemnify, defend and hold
the Fund, its officers and Directors and any person who controls
the Fund, if any, within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers and Directors or any such controlling
person may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability or expense
incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to
the Fund for use in the Registration Statement or Prospectus or
shall arise out of or be based upon any alleged omission to state
a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors and any such
controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against
8
<PAGE>
the Fund, its officers and Directors or any such controlling
person, such notification to be given to the Distributor in writing
at its principal business office.
Section 10. Duration and Termination of this Agreement
10.1 This Agreement shall become effective as of the date
first above written and shall remain in force for two years from
the date hereof and thereafter, but only so long as such
continuance is specifically approved at least annually by (a) the
Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such parties
and who have no direct or indirect financial interest in this
Agreement or in the operation of the Fund's Plan or in any
agreement related thereto (Rule 12b-1 Directors), cast in person at
a meeting called for the purpose of voting upon such approval.
10.2 This Agreement may be terminated at any time,
without the payment of any penalty, by a majority of the Rule 12b-1
Directors or by vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
10.3 The terms "affiliated person," "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act.
Section 11. Amendments to this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (a) the Board of Directors of
the Fund, or by the vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, and (b) by the vote
of a majority of the Rule 12b-1 Board of Directors cast in person
at a meeting called for the purpose of voting on such amendment.
Section 12. Governing Law
The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as
at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of
the State of New York, or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the
latter shall control.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
Prudential Securities Incorporated
By: ______________________________
(Name)
______________________________
(Title)
Prudential Europe Growth Fund, Inc.
By: ______________________________
(Name)
______________________________
(Title)
10
PRUDENTIAL EUROPE GROWTH FUND, INC.
Subscription Offering Agreement
AGREEMENT made as of the __th day of _____, 1994, between
PRUDENTIAL EUROPE GROWTH FUND, INC., a Maryland corporation (the
Fund), PRUDENTIAL SECURITIES INCORPORATED, a Delaware corporation
(Prudential Securities), and PRUDENTIAL MUTUAL FUND DISTRIBUTORS,
INC., a Delaware corporation (PMFD and, together with Prudential
Securities, the Subscription Agents).
W I T N E S S E T H:
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as a diversified, open-end
management investment company and it is in the interest of the Fund
to offer its shares for sale to the public; and
WHEREAS, the Fund and the Subscription Agents wish to enter
into an agreement with each other with respect to the initial
offering of the Fund's shares of Common Stock, $.001 par value, of
Class A, Class B and Class C (Common Stock).
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Subscription Agents. The Fund
hereby appoints the Subscription Agents its exclusive agents to
solicit, and to arrange for the solicitation of, subscriptions for
shares of its Common Stock, on the terms and for the period set
forth in this Agreement, and the Subscription Agents hereby accept
such appointment and agree to act hereunder. PMFD is hereby
appointed the Subscription Agent with respect to the Fund's Class A
Common Stock. Prudential Securities is hereby appointed the
Subscription Agent with respect to the Fund's Class B and Class C
<PAGE>
Common Stock.
Section 2. Services and Duties of the Subscription Agents.
(a) The Subscription Agents agree to solicit, as agents
for the Fund, during the Subscription Period (as defined herein),
subscriptions for shares of the Fund's Common Stock upon the terms
described in the Prospectus. As used in this Agreement, the term
"Prospectus" shall mean the prospectus and statement of additional
information included as part of the Fund's Registration Statement,
as such prospectus may be amended or supplemented from time to
time, and the term "Registration Statement" shall mean the
Registration Statement most recently filed from time to time by the
Fund with the Securities and Exchange Commission and effective
under the Securities Act of 1933, as amended (the 1933 Act), and
the 1940 Act, as such Registration Statement is amended by any
amendments thereto at the time in effect.
(b) The Subscription Period shall commence on ______,
1994 and shall end on _______, 1994 provided, however, that any
party hereto may change the commencement or termination date by not
less than two days' written notice to the other parties and any
such change shall not be deemed an amendment for purposes of
Section 9 hereof. During the Subscription Period, each
Subscription Agent will hold itself available to receive
subscriptions, satisfactory to the Subscription Agent, for the
purchase of the Fund's Common Stock and will accept such
subscriptions on behalf of the Fund.
(c) Each Subscription Agent may in its discretion enter
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into agreements with such registered and qualified retail dealers
as it may select authorizing such dealers to solicit subscriptions
for shares of Common Stock. In making agreements with such
dealers, the Subscription Agent shall act only as principal and not
as agent for the Fund.
(d) The maximum public offering price of Class A shares
of Common Stock subscribed for during the Subscription Period shall
be [$10.55] per share and the public offering price of shares of
Class B and Class C Common Stock subscribed for during the
Subscription Period shall be [$10.00] per share, or such other
price or prices as the Fund shall specify by written notice to each
Subscription Agent prior to the commencement of the Subscription
Period. Shares of Class A Common Stock subscribed for during the
Subscription Period shall be issued with a maximum sales charge of
5.00%, and the Subscription Agents shall be entitled to payments
pursuant to any Plan of Distribution adopted by the Fund pursuant
to Rule 12b-1 under the 1940 Act which provides for such payments
with respect to such shares of Common Stock.
(e) The Subscription Agents shall not be obligated to
solicit subscriptions for any certain number of shares of Common
Stock, and nothing herein contained shall prevent each Subscription
Agent from entering into like distribution or solicitation
arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby.
Section 3. Notification Time; Closing Date; Payment for and
Issuance of Shares.
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<PAGE>
(a) Each Subscription Agent shall, on the first business
day subsequent to the last day of the Subscription Period (the
Notification Time), advise the Fund by written notice of the number
of shares of Common Stock for which it has received subscriptions,
including the number of shares of Common Stock which have been
subscribed for through dealers with whom the Subscription Agent has
entered into agreements pursuant to Section 2(c) hereof. Such
shares of Common Stock are hereinafter referred to as the "Closing
Shares."
(b) The "Closing Date" shall be the fifth business day
subsequent to the last day of the Subscription Period, or such
other date as shall be agreed in writing between the Subscription
Agents and the Fund. Each Subscription Agent shall use its best
efforts to obtain payment from subscribers for the Closing Shares
on or prior to the Closing Date. In the event that a Subscription
Agent has not received payment for any portion of the Closing
Shares on or prior to the Closing Date, the Subscription Agent may
at its option cancel the subscription or subscriptions to which the
unpaid Closing Shares relate and advise the Fund by written notice
on the Closing Date of the resulting reduction of the number of
Closing Shares.
(c) The Fund shall cause its transfer and dividend
disbursing agent to register shares of Common Stock evidencing the
Closing Shares in such names and amounts as the Subscription Agents
shall have requested in writing, against payment of the purchase
price therefor by wire transfer of federal funds to the account of
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<PAGE>
the Fund at State Street Bank and Trust Company by the close of
business on the next business day following the Closing Date.
Section 4. Duties of the Fund.
(a) The Fund shall keep the Subscription Agents fully
informed with regard to its affairs and shall furnish to the
Subscription Agents copies of all information, financial statements
and other papers which the Subscription Agents may reasonably
request for use in connection with the solicitation of
subscriptions for shares of Common Stock of the Fund, including one
certified copy, upon request by a Subscription Agent, of all
financial statements prepared for the Fund by independent
accountants and such reasonable number of copies of its most
current Prospectus as each Subscription Agent may request, and the
Fund shall cooperate fully in the efforts of the Subscription
Agents to solicit and arrange for the solicitation of the
subscriptions for shares of the Fund's Common Stock and in the
performance of the Subscription Agents under this Agreement.
(b) The Fund shall take, from time to time, all
necessary action to fix the number of authorized shares and such
steps, including payment of the related filing fee, as may be
necessary to register the same under the 1933 Act to the end that
there will be available for sale such number of shares of Common
Stock as to which the Subscription Agents may be expected to
solicit subscriptions. The Fund agrees to file from time to time
such amendments, reports and other documents as may be necessary in
order that there will be no untrue statement of a material fact
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<PAGE>
in the Registration Statement or Prospectus, or necessary in order
that there will be no omission to state a material fact in the
Registration Statement or Prospectus which omission would make the
statements therein misleading.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its shares
of Common Stock for sale under the securities laws of such states
as the Subscription Agents and the Fund may approve and, if
necessary or appropriate in connection therewith, to qualify and
maintain the qualification of the Fund as a broker or dealer in
such states; provided that the Fund shall not be required to amend
its Articles of Incorporation or By-Laws to comply with the laws of
any state, to maintain an office in any state, to change the
terms of the offering of its shares of Common Stock in any state
from the terms set forth in its Registration Statement and
Prospectus, to qualify as a foreign corporation in any state or to
consent to service of process in any state other than with respect
to claims arising out of the offering of its Common Stock. Each
Subscription Agent shall furnish such information and other
material relating to its affairs and activities as may be required
by the Fund in connection with such qualifications.
Section 5. Expenses.
(a) The Fund shall bear all costs and expenses of the
initial offering of its shares in connection with: (i) fees and
disbursements of its counsel and independent accountants, (ii) the
preparation, filing and printing of any registration statements
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<PAGE>
and/or prospectuses required by and under the federal securities
laws and (iii) the qualifications of shares of Common Stock for
sale and of the Fund as a broker or dealer under the securities
laws of such states or other jurisdictions as shall be selected by
the Fund and the Subscription Agents pursuant to Section 4(c)
hereof and the cost and expenses payable to each such state for
continuing qualification therein.
(b) Each Subscription Agent shall bear (i) the costs and
expenses of preparing, printing and distributing any materials not
prepared by the Fund and other materials used by the Subscription
Agent in connection with its solicitation of subscriptions for
shares of Common Stock from the public, including the additional
cost of printing copies of the Prospectus other than copies thereof
required for filing with any federal securities authorities,
(ii) any expenses of advertising incurred by the Subscription Agent
in connection with such solicitation, (iii) the expenses of
registration or qualification of the Subscription Agent as a dealer
or broker under federal or state laws and the expenses of
continuing such registration or qualification and (iv) the expenses
of any sales commissions for sale of the Fund's shares (except such
expenses as are specifically undertaken herein by the Fund or are
paid by a purchaser of the Fund's shares). It is understood and
agreed that, so long as the Fund's Plans of Distribution pursuant
to Rule 12b-1 under the 1940 Act continue in effect, any expenses
incurred by a Subscription Agent hereunder may be paid from amounts
received by it from the Fund under such Plans.
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<PAGE>
Section 6. Indemnification. The Fund agrees to indemnify,
defend and hold each Subscription Agent, its officers and directors
and any person who controls the Subscription Agent within the
meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection
therewith) which the Subscription Agent, its officers, directors or
any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any untrue
statement of a material fact contained in the Registration
Statement or Prospectus or arising out of or based upon any alleged
omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in
writing by the Subscription Agent to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this
indemnity agreement shall not inure to the benefit of such officer,
director or controlling person unless a court of competent
jurisdiction shall determine, in a final decision on the merits,
that the person to be indemnified was not liable, by reason of
willful misfeasance, bad faith or gross negligence in the
performance of his duties, or by reason of his reckless disregard
8
<PAGE>
of his obligations under this Agreement (disabling conduct), or, in
the absence of such a decision, a reasonable determination, based
upon a review of the facts, that the indemnified person was
not liable by reason of disabling conduct by (a) the vote of a
majority of a quorum of directors who are neither "interested
persons" of the Fund as defined in Section 2(a)(19) of the 1940 Act
nor parties to the proceeding or (b) an independent legal counsel
in a written opinion. The Fund's agreement to indemnify each
Subscription Agent, its officers and directors and any such
controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the
Subscription Agent, its officers or directors, or any such
controlling person, such notification to be given by letter or
telegram addressed to the Fund at its principal business office.
The Fund agrees promptly to notify each Subscription Agent of the
commencement of any litigation or proceedings against it or any of
its officers or directors in connection with the issue and sale of
any shares of its Common Stock.
Each Subscription Agent agrees to indemnify, defend and hold
the Fund, its officers and directors and any person who controls
the Fund, if any, within the meaning of Section 15 of the 1933 Act,
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its
directors or officers or any such controlling person may incur
9
<PAGE>
under the 1933 Act or under common law or otherwise, but only to
the extent that such liability or expense incurred by the Fund, its
directors or officers or such controlling person resulting from
such claims or demands shall arise out of or be based upon any
alleged untrue statement of a material fact contained in
information furnished in writing by the Subscription Agent to the
Fund for use in the Registration Statement or Prospectus or shall
arise out of or be based upon any alleged omission to state a
material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to
make such information not misleading. Each Subscription Agent's
agreement to indemnify the Fund, its directors and officers and any
such controlling person as aforesaid is expressly conditioned upon
the Subscription Agent's being promptly notified of any action
brought against the Fund, its officers or directors or any such
controlling person, such notification being given to the
Subscription Agent at its principal business office.
Section 7. Compliance with Securities Laws. The Fund
represents that it is registered as a diversified, open-end
management investment company under the 1940 Act, and agrees that
it will comply with all of the provisions of the 1940 Act and of
the rules and regulations thereunder. The Fund and each
Subscription Agent each agree to comply with all of the applicable
terms and provisions of the 1940 Act, the 1933 Act and, subject to
the provisions of Section 4(c) hereof, all applicable state "Blue
Sky" laws. Each Subscription Agent agrees to comply with all of
10
<PAGE>
the applicable provisions of the Securities Exchange Act of 1934.
Section 8. Effective Date of Agreement; Termination. This
Agreement shall become effective at 9:00 a.m., New York time, on
______, 1994 or on such other commencement date established
pursuant to Section 2(b) hereof.
The Fund may at any time prior to the Closing Date elect to
terminate the initial offering of the Common Stock. In such event,
this Agreement will be terminated, without payment of any penalty,
and the Subscription Agents shall return to subscribers, without
interest or deduction, any amounts paid by such subscribers
pursuant to Section 3 hereof.
This Agreement may be terminated at any time without the
payment of any penalty by the Board of Directors of the Fund, by
a majority of the directors of the Fund who are not interested
persons of the Fund and who have no direct or indirect financial
interest in this Agreement or in any agreement related to the
Fund's Plans of Distribution pursuant to Rule 12b-1 under the 1940
Act, or by vote of a majority of the outstanding voting securities
of the Fund, or by a Subscription Agent, on not more than sixty
days' nor less than thirty days' written notice to the other
parties. This Agreement shall automatically terminate in the event
of its assignment.
Section 9. Amendments of this Agreement. This Agreement may
be amended by the parties only if such amendment is specifically
approved by (i) the Board of Directors of the Fund, or by the vote
11
<PAGE>
of a majority of outstanding voting securities of the Fund, and
(ii) a majority of those directors of the Fund who are not parties
to this Agreement or interested persons of any such party and who
have no direct or indirect financial interest in this Agreement or
in any Agreement related to the Fund's Plans of Distribution
pursuant to Rule 12b-1 under the 1940 Act, cast in person at a
meeting called for the purpose of voting on such approval.
Section 10. Notices. Any notice required to be given
pursuant to this Agreement shall be deemed duly given if delivered
or mailed by registered mail, postage prepaid, (i) to the
Subscription Agents at One Seaport Plaza, New York, New York 10292,
Attention: Prudential Mutual Fund Distributors, Inc. or Prudential
Securities Incorporated, or (ii) to the Fund at One Seaport Plaza,
New York, New York 10292, Attention: President.
Section 11. Entire Agreement. This Agreement contains the
entire agreement between the parties hereto and supersedes all
prior agreements with respect to the subject matter hereof.
Section 12. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
York.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
PRUDENTIAL EUROPE GROWTH FUND, INC.
By:___________________________
Title: President
PRUDENTIAL MUTUAL FUND
DISTRIBUTORS, INC.
By:____________________________
Title: Vice President
PRUDENTIAL SECURITIES
INCORPORATED
By:____________________________
Title:_________________________
13
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC.
One Seaport Plaza
New York, New York 10292
THE PRUDENTIAL EUROPE GROWTH FUND, INC.
Form of Selected Dealer Agreement
(Date)
Name & Address of Selected Dealer
Dear ____________:
As the principal distributor of the front end sales load
shares (to be known as Class A and hereinafter referred to as such)
of The Prudential Europe Growth Fund, Inc. managed by Prudential
Mutual Fund Management, Inc., we invite you to participate as a
selected dealer in the distribution of Class A shares of The
Prudential Europe Growth Fund, Inc. upon the following terms and
conditions:
1. You are to offer and sell such shares only at the public
offering prices which shall be currently in effect, in accordance
with the terms of the then current prospectus of the Fund. You
agree to act only as principal in such transactions and shall not
have authority to act as agent for the Fund, for us, or for any
other dealer in any respect. All orders are subject to acceptance
by us and become effective only upon confirmation by us.
2. On each purchase of shares by you from us, the total sales
charges and discount, if any, to selected dealers shall be as
stated in the attached Schedule A, as may be amended from time to
time.
Such sales charges and discount to selected dealers are
subject to reductions under a variety of circumstances as described
in the Fund's then current prospectus. To obtain these reductions,
we must be notified when the sale takes place which would qualify
for the reduced charge.
There is no sales charge or discount to selected dealers on
the reinvestment of dividends.
3. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for its Class A shares to be
resold by us to you subject to the applicable terms and conditions
governing the placement of orders by us set forth in the
Distribution Agreement between the Fund and us and subject to the
applicable compensation provisions set forth in the Fund's then
current prospectus and (ii) to tender shares directly to the Fund
or its agent for redemption subject to the applicable terms and
conditions set forth in the Distribution Agreement.
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<PAGE>
4. Repurchases of shares will be made at the net asset value
of such shares in accordance with the then current prospectus of
the Fund.
5. You represent that you are a member of the National
Association of Securities Dealers, Inc. and that you agree to abide
by the Rules of Fair Practice of such Association.
6. This Agreement is in all respects subject to Section 26 of
the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. which shall control any provisions to the
contrary in this Agreement.
7. You agree:
(a) To purchase shares only from us or only from your
customers.
(b) To purchase shares from us only for the purpose of
covering purchase orders already received or for
your own bona fide investment.
(c) That you will not purchase any shares from your
customers at prices lower than the redemption or
repurchase prices then quoted by the Fund. You
shall, however, be permitted to sell shares for the
account of their record owners to the Fund at the
repurchase prices currently established for such
shares and may charge the owner a fair commission
for handling the transaction.
(d) That you will not withhold placing customers'
orders for shares so as to profit yourself as a
result of such withholding.
(e) That if any shares confirmed to you hereunder are
redeemed or repurchased by the Fund within seven
days after such confirmation of your original
order, you shall forthwith refund to us the full
discount, if any, allowed to you on such sales.
We shall forthwith pay to the Fund our share of the
sales charge, if any, on the original sale, and
shall also pay to the Fund the refund from you as
herein provided. Termination or cancellation of
this Agreement shall not relieve you or us from the
requirements of this subparagraph.
2
<PAGE>
8. We shall not accept from you any conditional orders for
shares. Delivery of certificates, if any, for shares purchased
shall be made by the Fund only against receipt of the purchase
price, subject to deduction for the discount reallowed to you and
our portion of the sales charge on such sale, if any. If payment
for the shares purchased is not received within the time customary
for such payments, the sale may be cancelled forthwith without any
responsibility or liability on our part or on the part of the Fund
(in which case you will be responsible for any loss, including loss
of profit, suffered by the Fund resulting from your failure to make
payments as aforesaid), or, at our option, we may sell the shares
ordered back to the Fund (in which case we may hold you responsible
for any loss, including loss of profit suffered by us resulting
from your failure to make payment as aforesaid).
9. You will not offer or sell any of the shares except under
circumstances that will result in compliance with the applicable
Federal and state securities laws and in connection with sales and
offers to sell shares you will furnish to each person to whom any
such sale or offer is made a copy of the applicable then current
prospectus. We shall be under no liability to you except for lack
of good faith and for obligations expressly assumed by us herein.
Nothing herein contained, however, shall be deemed to be a
condition, stipulation or provision binding any persons acquiring
any security to waive compliance with any provision of the
Securities Act of 1933, or of the Rules and Regulations of the
Securities and Exchange Commission or to relieve the parties hereto
from any liability arising under the Securities Act of 1933.
10. From time to time during the term of this Agreement we may
(but are not hereby obliged to) make payments to you pursuant to
the distribution plan adopted by the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act"), in
consideration of your furnishing distribution services hereunder
with respect to the Fund. Any such payments made pursuant to this
Section 10 shall be subject to the following terms and conditions:
(a) Any such payments shall be in such amounts as we
may from time to time advise you in writing but in
any event not in excess of the amounts permitted by
the plan in effect with respect to the Fund. Any
such payments shall be in addition to the selling
concession, if any, allowed to you pursuant to this
Agreement.
(b) The provisions of this Section 10 relate to the
plan adopted by the Fund pursuant to Rule 12b-1.
In accordance with Rule 12b-1, any person
authorized to direct the disposition of monies paid
or payable by a Fund pursuant to this Section 10
shall provide the Fund's Board of Directors or
Trustees, and the Directors or Trustees shall
review, at least quarterly, a written report of the
amounts so expended and the purposes for which such
expenditures were made.
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<PAGE>
(c) The provisions of this Section 10 applicable to the
Fund shall remain in effect for not more than a
year and thereafter for successive annual periods
only so long as such continuance is specifically
approved at least annually in conformity with Rule
12b-1 and the Act. The provisions of this Section
10 shall automatically terminate with respect to a
particular plan in the event of the assignment (as
defined by the Act) of this Agreement, in the event
such plan terminates or is not continued or in the
event this Agreement terminates or ceases to remain
in effect. In addition, the provisions of this
Section 10 may be terminated at any time, without
penalty, by either party with respect to any
particular plan on not more than 60 days' nor less
than 30 days' written notice delivered or mailed by
registered mail, postage prepaid, to the other
party.
11. No person is authorized to make any representations
concerning shares of the Fund except those contained in the current
prospectus and printed information issued by the Fund or by us as
information supplemental to each prospectus. We shall supply
prospectuses, reasonable quantities of supplemental sales
literature, sales bulletins, and additional information as issued.
You agree not to use other advertising or sales material relating
to the Fund, unless approved in writing by us in advance of such
use. Any printed information furnished by us other than the then
current prospectus and statement of additional information for the
Fund, periodic reports and proxy solicitation materials are our
sole responsibility and not the responsibility of the Fund, and you
agree that the Fund shall have no liability or responsibility to
you in these respects unless expressly assumed in connection
therewith.
12. Either party to this Agreement may cancel this Agreement
by giving written notice to the other. Such notice shall be deemed
to have been given on the date on which it was either delivered
personally to the other party or any officer or partner thereof, or
was mailed postpaid or delivered to a telegraph office for
transmission to the other party at his or its address as shown
below. This Agreement may be amended by us at any time and your
placing of an order after the effective date of any such amendment
shall constitute your acceptance thereof.
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13. This Agreement shall be construed in accordance with the
laws of the State of New York and shall be binding upon both
parties hereto when signed by us and accepted by you in the space
provided below.
Very truly yours,
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC.
By: _______________________ DATE: _____________________
Firm Name __________________________________________________________
Address __________________________________________________________
City ___________________ State _______ Zip Code _________
ACCEPTED BY (signature) ____________________________________________
Name (print) ____________________________________________
Title ____________________________________________
Date __________________________ 199___ Phone #______________________
Please return two signed copies of this Agreement
(one of which will be signed above by us and
thereafter returned to you) in the accompanying
return envelope to:
Prudential Mutual Fund Distributors, Inc.
One Seaport Plaza, 25th Floor
New York, New York 10292
Attention: P.J. Berman
BGITF93
5
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THE PRUDENTIAL EUROPE GROWTH FUND, INC.
Schedule A
Sales Charge Dealer
Sales Charge as Percentage of Concession as
Amount of as Percentage of Net Amount Percentage of
Purchase Offering Price Invested Offering Price
- -------------- ---------------- ---------------- --------------
Less than 5.00% 5.26% 4.75%
$ 25,000
$ 25,000 to 4.50% 4.71% 4.25%
$ 49,999
$ 50,000 to 4.00% 4.17% 3.75%
$ 99,999
$ 100,000 to 3.25% 3.36% 3.00%
$ 249,999
$ 250,000 to 2.50% 2.56% 2.40%
$ 499,999
$ 500,000 to 2.00% 2.04% 1.90%
$ 999,999
$1,000,000 and None None None
above
BGITF93
6
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PRUDENTIAL SECURITIES INCORPORATED
One Seaport Plaza
New York, NY 10292
Form of Selected Dealer Agreement
Date
Name of Correspondent Broker
Address
Attn:
Dear Sirs:
As the principal distributor of shares of certain investment
companies presently or hereafter managed by Prudential Mutual Fund
Management, Inc., shares of which companies are distributed by us
and/or Prudential Mutual Fund Distributors, Inc., ("PMFD") an
affiliate thereof, at their respective net asset values plus sales
charges, if any, pursuant to Distribution Agreements among us,
and/or PMFD with such companies (the "Funds"), we invite you to
participate as a selected dealer in the distribution of shares of
any and all of the Funds as set forth at Schedule A, upon the
following terms and conditions:
1. You are to offer and sell such shares only at the public
offering prices which shall be currently in effect, in accordance
with the terms of the then current prospectus of each Fund. You
agree to act only as principal in such transactions and shall not
have authority to act as agent for the Fund, for us, or for any
other dealer in any respect. All orders are subject to acceptance
by us and become effective only upon confirmation by us.
2. On each purchase of shares of a Fund by you from us, the
total sales charges and discount, if any, to selected dealers shall
be as stated in each Fund's then current prospectus.
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(a) With respect to Class A shares and shares of other Funds
that are sold with an initial sales charge, the sales charge
and pay out to selected dealer shall be as stated in the
attached Schedule B, as may be amended from time to time.
With respect to Class A shares and other Funds that are sold
with a front-end sales charge, such sales charges and
discounts to selected dealers are subject to reductions under
a variety of circumstances (e.g. Letters of Intent and Rights
of Accumulation) as described in each Fund's then current
prospectus. To obtain these reductions, the Funds' transfer
agent must be notified when the sale takes place which would
qualify for the reduced sales charge. The foregoing shall be
payable only upon the purchase of shares of the Funds and
shall not be paid for shares acquired through dividend/or
capital gains distribution reinvestment or shares acquired in
exchange for shares of another Fund.
(b) Subject to other provisions of this agreement, from time
to time as set forth at Schedule B an account servicing fee
shall be paid to selected dealers with respect to money market
funds, Class A shares and on shares of other funds that are
sold with an initial sales charge. Such fees shall be payable
only on accounts for which selected dealer provides personal
service and/or maintenance services for shareholder accounts.
(c) With respect to Class B shares, you shall be paid a sales
commission as set forth at Schedule C based upon the net asset
value of all Class B shares purchased by customers of the
selected dealer. The foregoing is payable only upon the
purchase of shares of the Funds and shall not be paid for
shares acquired through dividend/capital gains distribution
reinvestment or shares acquired in exchange for shares of
another Fund.
(d) Subject to other provisions of this agreement, from time
to time as set forth at Schedule C an account servicing fee
shall be paid to selected dealer for Class B shares. Such fee
shall be payable only on accounts for which selected dealer
provides personal service and/or maintenance services for
shareholder accounts.
(e) With respect to payment of the fees as set forth at (b)
and (d) above, we may, from time to time establish a minimum
quarterly account balance for each Fund in order for you to be
entitled to such fees. We reserve the right to not pay any
such fees as prescribed in the aforementioned (b) and (d) if
the quarterly account balance does not reach a certain level
as may be determined by us from time to time.
2
<PAGE>
3. As a selected dealer, you are hereby authorized to: (i)
place orders with Prudential Securities Incorporated ("PSI") for
shares of the Funds to be resold by us to you subject to the
applicable terms and conditions governing the placement of orders
by us set forth in the Distribution Agreement between each Fund and
us and/or PMFD and subject to the applicable compensation
provisions set forth in each Fund's then current prospectus; and
(ii) to tender shares directly to the Fund or its agent for
redemption subject to the applicable terms and conditions set forth
in each Distribution Agreement.
4. Repurchases of shares will be made at the net asset value
of such shares in accordance with the then current prospectus of
each Fund.
5. You represent and warrant that:
(a) You are a registered broker dealer with the
Securities and Exchange Commission and a member of the
National Association of Securities Dealers, Inc. and that you
agree to abide by the Rules of Fair Practice of such
Association,
(b) You are a corporation duly organized and existing
and in good standing under the laws of ______________ and that
you are duly registered or exempt from registration as a
broker-dealer in all fifty states, Puerto Rico and other
territories and that you will not offer shares of any Fund for
sale in any state where they are not qualified for sale under
the Blue Sky laws and regulations of such states or where you
are not qualified to act as a dealer.
(c) You are empowered under applicable laws and by your
charter and by-laws to enter into and perform this Agreement
and that there are no impediments, prior or existing,
regulatory, self regulatory, administrative, civil or criminal
matters affecting your ability to perform under this
Agreement,
(d) All requisite corporate proceedings have been taken
to authorize you to enter into and perform this Agreement,
(e) You agree to keep in force appropriate broker's
blanket bond insurance policies covering any and all acts of
3
<PAGE>
your employees, officers and directors adequate to reasonably
protect and indemnify PSI, PMFD and the Funds against any loss
which any party may suffer or incur, directly or indirectly,
as a result of any action by you, or your employees, officers
and directors.
6. This Agreement is in all respects subject to Section 26 of
the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. which shall control any provisions to the
contrary in this Agreement.
7. You further agree:
(a) To purchase shares only from us or only from your
customers.
(b) To purchase shares from us only for the purpose of
covering purchase orders already received or for
your own bona fide investment.
(c) That you will not purchase any shares from your
customers at prices lower than the redemption or
repurchase prices then quoted by the Funds.
(d) That you will not withhold placing customers'
orders for shares so as to profit yourself as a
result of such withholding.
(e) That if any shares confirmed to you hereunder are
redeemed or repurchased by the Funds within seven
days after such confirmation of your original
order, you shall forthwith refund to us the full
discount, if any, allowed to you on such sales.
We shall forthwith pay to the Fund our share of the
sales charge, if any, on the original sale, and
shall also pay to the Fund the refund from you as
herein provided. Termination or cancellation of
this Agreement shall not relieve you or us from the
requirements of this subparagraph.
(f) As a condition of the receipt of an account
servicing fee as described at Sections 2(b) and
2(d) you agree to provide to shareholders of the
4
<PAGE>
Fund(s) personal service and/or maintenance
services with respect to shareholder accounts.
(g) At your own expense to defend any suit, claim,
action or other proceeding brought by any party
against the Funds, Prudential Mutual Fund Services,
Inc. ("PMFS") the Funds' transfer agent, PSI or
PMFD and indemnify and hold harmless PMFD, PMFS,
PSI and the Funds, their officers, directors,
employees, agents and assigns, from and against any
and all direct or indirect losses, claims, demands,
damages, (including consequential damages),
liabilities, attorneys' fees, interest and other
costs, all expenses of litigation or arbitration
and any amounts agreed upon in settlement, that may
be assessed against, suffered or incurred by any
one or more of the above parties (whether pursuant
to this Agreement or otherwise) as a result of or
arising out of, directly or indirectly any sale of
the Funds, breach of representations or warranties
herein; or as a result of or arising out of,
directly or indirectly of your failure to comply
with the terms of this Agreement; or as a result of
or arising out of, directly or indirectly, any
error or omission in any event whether such action,
failure, error, omission, misconduct or breach is
committed by you or by your employees or agents,
whether or not authorized or acting within the
scope of their employment, pursuant to this
Agreement, including that which may arise out of
the malfunction of equipment, systems and programs;
or as a result, directly or indirectly, not
obtaining sufficient authorization of all
customers' communications and actions regarding
such customers' accounts, including all transfers;
or as a result, directly or indirectly, of any
refusal by PSI to accept a purchase from a
customer. Your obligations under this sub-section
(g) shall survive the termination of this
Agreement.
8. We shall not accept from you any conditional orders for
shares. Delivery of certificates, if any, for shares purchased
shall be made by the Fund only against receipt of the purchase
price, subject to deduction for the discount reallowed to you and
our portion of the sales charge on such sale, if any. If payment
for the shares purchased is not received within the time customary
for such payments, the sale may be canceled forthwith without any
responsibility or liability on our part or on the part of the Funds
(in which case you will be responsible for any loss, including loss
5
<PAGE>
of profit, suffered by the Funds resulting from your failure to
make payments as aforesaid), or, at our option, we may sell the
shares ordered back to the Funds (in which case we may hold you
responsible for any loss, including loss of profit suffered by us
resulting from your failure to make payment as aforesaid).
9. Shares of the Funds are qualified for sale or exempt from
qualification in all 50 states, the District of Columbia and Puerto
Rico. Qualification of shares of the Funds in the various states,
including the filing in any state of further notices respecting
such shares, is our responsibility or the responsibility of the
Funds.
10. You will not offer or sell any of the shares except under
circumstances that will result in compliance with the applicable
Federal and state securities laws and in connection with sales and
offers to sell shares you will furnish to each person to whom any
such sale or offer is made a copy of the applicable then current
prospectus. All out-of-pocket expenses incurred in connection with
your activities under this agreement will be borne by you.
11. We shall be under no obligation to you except for
obligations expressly assumed by us herein. Nothing herein
contained, however, shall be deemed to be a condition, stipulation
or provision binding any persons acquiring any security to waive
compliance with any provision of the Securities Act of 1933, or of
the Rules and Regulations of the Securities and Exchange Commission
or to relieve the parties hereto from any liability arising under
the Securities Act of 1933.
12. Notwithstanding anything to the contrary contained herein,
from time to time during the term of this Agreement PSI may (but is
not hereby obliged to) make payments to you, in consideration of
your furnishing personal service and/or maintenance services for
shareholder accounts with respect to the Funds. Any such payments
made pursuant to this Section 12 shall be subject to the following
terms and conditions:
(a) Any such payments shall be in such amounts as we may from
time to time advise you in writing but in any event not
in excess of the amounts permitted, if any, by each
Fund's Plan of Distribution in effect. Any such payments
shall be in addition to the selling concession, if any,
allowed to you pursuant to this Agreement.
6
<PAGE>
(b) The provisions of this Section 12 relate to each Plan of
Distribution adopted by the Fund pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "Act").
(c) The provisions of this Section 12 and any other related
provisions applicable to a Fund shall remain in effect
for not more than a year and thereafter for successive
annual periods only so long as such continuance is
specifically approved at least annually in conformity
with Rule 12b-1 under the Act. The provisions of this
Section 12 shall automatically terminate with respect to
a particular Plan in the event of the assignment (as
defined by the Act) of this Agreement or in the event
such Plan terminates or is not continued or in the event
this Agreement terminates or ceases to remain in effect.
In addition, the provisions of this Section 12 may be
terminated at any time, without penalty, by either party
with respect to any particular Plan on not more than 60
days' nor less than 30 days' written notice delivered or
mailed by registered mail, postage prepaid, to the other
party.
13. No person is authorized to make any representations
concerning shares of the Funds except those contained in the
current prospectuses, statements of additional information ("SAI")
or printed information issued by each Fund or by us as information
supplemental to each prospectus. We shall supply prospectuses,
reasonable quantities of supplemental sales literature, sales
bulletins, and additional information as issued and/or requested by
you. You agree not to use other advertising or sales material
relating to the Funds, unless forwarded to PSI's Marketing Review
Department for review prior to use and approved in writing by us in
advance of such use. Any printed information furnished by us other
than the then current prospectuses and SAIs for the Funds, periodic
reports and proxy solicitation materials is our sole responsibility
and not the responsibility of the Funds, and you agree that the
Funds shall have no liability or responsibility to you in these
respects unless expressly assumed in connection therewith.
14. Either party to this Agreement may terminate the
Agreement by giving 30 days written notice to the other. Such
notice shall be deemed to have been given on the date on which it
was either delivered personally to the other party or any officer
or partner thereof, or was mailed postpaid or delivered to a
telegraph office for transmission to the other party at his or its
address as shown below. This Agreement may be amended by us at any
time and your placing of an order after the effective date of any
such amendment shall constitute your acceptance thereof.
7
<PAGE>
15. This Agreement shall be construed in accordance with the
laws of the State of New York and shall be binding upon both
parties hereto when signed by us and accepted by you in the space
provided below.
16. This Agreement is in full force and effect as of the date
hereof and supersedes all previous agreements.
Very truly yours,
PRUDENTIAL SECURITIES
INCORPORATED
By: _______________________
Title:
Firm Name __________________________________________________________
Address ____________________________________________________________
City ____________________________ State _______ Zip Code _________
ACCEPTED BY (signature) ____________________________________________
Name (print) ______________________________ Title _________________
Date __________________________ 199___ Phone #______________________
Please return two signed copies of this Agreement
(one of which will be signed above by us and
thereafter returned to you) in the accompanying
return envelope to:
Prudential Securities,Incorporated
Attention:
National Sales & Marketing Department
New York, NY 10292
8
<PAGE>
SCHEDULE A
Class A Shares and Funds Sold With a Front End Sales Load
PMFD- Distributor
1. BlackRock Government Income Trust
2. Global Utility Fund, Inc.
3. Nicholas-Applegate Growth Equity Fund, Inc.
4. Prudential Adjustable Rate Securities Fund, Inc.
5. Prudential California Municipal Fund
- California Income Series
- California Series
6. Prudential Equity Fund, Inc.
7. Prudential Equity Income Fund
8. Prudential FlexiFund
- Conservatively Managed Portfolio
- Strategy Portfolio
9. Prudential Global Fund, Inc.
10. Prudential Global Genesis Fund, Inc.
11. Prudential Global Natural Resources Fund, Inc.
12. Prudential GNMA Fund, Inc.
13. Prudential Government Plus Fund, Inc.
14. Prudential Growth Fund, Inc.
15. Prudential Growth Opportunity Fund, Inc.
16. Prudential High Yield Fund, Inc.
17. Prudential Incomevertible Fund, Inc.
18. Prudential Intermediate Global Income Fund, Inc.
19. Prudential Multi-Sector Fund, Inc.
20. Prudential Municipal Bond Fund
- High Yield Series
1
<PAGE>
- Insured Series
- Modified Term Series
21. Prudential Municipal Series Fund
- Arizona Series
- Florida Series
- Georgia Series
- Maryland Series
- Massachusetts Series
- Michigan Series
- Minnesota Series
- New Jersey Series
- New York Series
- North Carolina Series
- Ohio Series
- Pennsylvannia Series
22. Prudential National Municipals Fund, Inc.
23. Prudential Pacific Growth Fund, Inc.
24. Prudential Short-Term Global Income Fund, Inc.
- Global Assets Portfolio
- Short-Term Global Income Portfolio
25. Prudential Structured Maturity Fund, Inc.
26. Prudential US Government Fund
27. Prudential Utility Fund, Inc.
Class B Shares and Funds Sold Without a Front End Sales Load
1. Class B Shares:
PSI- Distributor
BlackRock Government Income Trust
Global Utility Fund, Inc.
Nicholas-Applegate Growth Equity Fund, Inc.
Prudential Adjustable Rate Securities Fund, Inc.
Prudential California Municipal Fund
- California Income Series
- California Series
2
<PAGE>
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Class B Shares continued:
Prudential FlexiFund
- Conservatively Managed Portfolio
- Strategy Portfolio
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Plus Fund, Inc.
Prudential Growth Fund, Inc.
Prudential Growth Opportunity Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential IncomeVertible Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Municipal Bond Fund
- High Yield Series
- Insured Series
- Modified Term Series
Prudential Municipal Series Fund
- Arizona Series
- Georgia Series
- Maryland Series
- Massachusetts Series
- Michigan Series
- Minnesota Series
- New Jersey Series
- New York Series
- North Carolina Series
- Ohio Series
- Pennsylvannia Series
Prudential National Municipals Fund, Inc.
3
<PAGE>
Prudential Pacific Growth Fund, Inc.
Class B Shares continued:
Prudential Short-Term Global Income Fund, Inc.
- Global Assets Portfolio
- Short-Term Global Income Portfolio
Prudential Structured Maturity Fund, Inc.
Prudential US Government Fund
Prudential Utility Fund, Inc.
2. Money Market Funds:
PMFD- Distributor
Prudential California Municipal Series
- California Money Market Series
Prudential Government Securities Trust
- Money Market Series
- US Treasury Money Market Series
Prudential Institutional Liquidity Portfolio
- Money Market Portfolio
Prudential MoneyMart Assets
Prudential Municipal Series Fund
- Connecticut Money Market Series
- Massachusetts Money Market Series
- New Jersey Money Market Series
- New York Money Market Series
Prudential Special Money Market Fund
- Money Market Series
Prudential Tax-Free Money Fund
Prudential Securities Command Account
- Command Money Fund
- Command Tax-Free Fund
- Command Government Fund
3. Funds Sold Without a Front-end Sales Load and Not Subject to
a Contingent Deferred Sales Load.
Prudential Government Securities Trust
- Intermediate Term Series
4
<PAGE>
Schedule B
1. Class A Shares And Funds Sold With A Front End Sales Charge
PRUDENTIAL ADJUSTABLE RATE SECURITIES FUND, INC.
(Class A Shares)
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- -------------------------------------------------------------------------------
Less than $100,000 1.00% 1.00% 1.00%
$100,000 and above 0% 0% 0%
30 basis point trailer fee.
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
California Income Series
California Series (Class A)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- -------------------------------------------------------------------------------
Less than $ 50,000 4.50% 4.71% 4.25%
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
10 basis point trailer fee
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- ------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL GLOBAL FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL GLOBAL NATURAL RESOURCES FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- -------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL GNMA FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 50,000 4.50% 4.71% 4.25%
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
10 basis point trailer fee.
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL HIGH YIELD FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 50,000 4.50% 4.71% 4.25%
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
10 basis point trailer fee.
<PAGE>
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 100,000 3.0% 3.09% 2.75%
$ 100,000 but
less than 500,000 2.5 2.56 2.25
$ 500,000 but
less than 1,000,000 2.0 2.04 1.75
$ 1,000,000 but
less than 3,000,000 1.5 1.52 1.30
$ 3,000,000 but
less than 5,000,000 1.0 1.01 0.90
$ 5,000,000 and above 0.0 0.00 0.00
10 basis point trailer fee.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
The High Yield Series
The Insured Series
The Modified Term Series
(Class A Shares)
Schedule A
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 50,000 4.50% 4.71% 4.25%
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
10 basis point net trailer fee.
<PAGE>
NICHOLAS-APPLEGATE GROWTH EQUITY FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL PACIFIC GROWTH FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
Short-Term Global Income Portfolio
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 100,000 3.0% 3.09% 2.75%
$ 100,000 but
less than 500,000 2.5 2.56 2.25
$ 500,000 but
less than 1,000,000 2.0 2.04 1.75
$ 1,000,000 but
less than 3,000,000 1.5 1.52 1.30
$ 3,000,000 and above 0.0 0.00 0.00
10 basis point trailer fee.
<PAGE>
PRUDENTIAL US GOVERNMENT FUND
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 50,000 4.50% 4.71% 4.25%
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
10 basis point trailer fee.
<PAGE>
THE BLACKROCK GOVERNMENT INCOME TRUST
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
$ 0 to 49,999 3.00% 3.09% 2.90%
$ 50,000 to 99,999 2.50 2.56 2.40
$ 100,000 to 249,999 2.00 2.04 1.90
$ 250,000 to 499,999 1.50 1.52 1.45
$ 500,000 to 999,999 1.00 1.01 0.95
$ 1,000,000 to 2,499,999 0.50 0.50 0.45
Over $ 2,500,000 0.25 0.20 0.20
10 basis point trailer fee.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL FLEXIFUND
The Conservatively Managed Portfolio (Class A Shares)
The Strategy Portfolio (Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
GLOBAL UTILITY FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL GROWTH FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL GOVERNMENT PLUS FUND
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 50,000 4.50% 4.71% 4.25%
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
10 basis point trailer fee.
<PAGE>
PRUDENTIAL INCOMEVERTIBLE FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Arizona Series (Class A Shares)
Florida Series
Georgia Series (Class A Shares)
Maryland Series (Class A Shares)
Massachusetts Series (Class A Shares)
Michigan Series (Class A Shares)
Minnesota Series (Class A Shares)
New Jersey Series (Class A Shares)
New York Series (Class A Shares)
North Carolina Series (Class A Shares)
Ohio Series (Class A Shares)
Pennsylvannia Series (Class A Shares)
SCHEDULE B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 50,000 4.50% 4.71% 4.25%
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
10 basis point trailer fee.
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 50,000 4.50% 4.71% 4.25%
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
10 basis point trailer fee.
<PAGE>
PRUDENTIAL SHORT-TERM GLOBAL INCOME FUND, INC.
Global Assets Portfolio
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $1,000,000 0.99% 1.0% 0.99%
$1,000,000 and above 0.0 0.0 0.0
30 basis point trailer fee.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 100,000 3.25% 3.36% 3.00%
$ 100,000 to 249,999 2.75 2.83 2.50
$ 250,000 to 499,999 2.25 2.30 2.00
$ 500,000 to 999,999 1.75 1.78 0.80
$ 1,000,000 to 2,499,999 1.00 1.01 0.80
$ 2,500,000 and above 0.50 0.50 0.40
10 basis point trailer fee.
<PAGE>
PRUDENTIAL UTILITY FUND, INC.
(Class A Shares)
Schedule B
Dealer
Sales Charge Sales Charge Concession
as Percentage as Percentage as Percentage
Amount of Purchase of Offering Price of Amount Invested of Offering Price
- --------------------------------------------------------------------------------
Less than $ 25,000 5.25% 5.54% 5.00%
$ 25,000 to 49,999 4.50 4.71 4.25
$ 50,000 to 99,999 4.00 4.17 3.75
$ 100,000 to 249,999 3.50 3.63 3.25
$ 250,000 to 499,999 3.00 3.09 2.90
$ 500,000 to 999,999 2.00 2.04 1.90
$ 1,000,000 to 2,499,999 1.00 1.01 0.95
$ 2,500,000 and above 0.50 0.50 0.45
15 basis point trailer fee.
<PAGE>
Schedule C
Prudential Mutual Funds
Schedule of
Gross Commission Credits ("Gross CC")
and Trailer Fees For Class B Shares
1. Equity and Bond Funds
Dollar Amount Invested Gross CC
-------------------------------- --------
$0 - $500,000 4%
$500,000 to $1,000,000 2%
Over $1,000,000 1%
Global Utility Fund
Nicholas Applegate Growth Equity Fund
Prudential Equity Fund
Prudential Equity Income Fund
Prudential FlexiFund
-Conservatively Managed Portfolio
-Strategy Portfolio
Prudential Global Fund, Inc.
Prudential Global Genesis Fund
Prudential Global Natural Resources Fund
Prudential GNMA Fund
Prudential Government Plus Fund
Prudential Growth Fund, Inc.
Prudential Growth Opportunity Fund
Prudential High Yield Fund
Prudential IncomeVertible Fund
Prudential Multi-Sector Fund
Prudential Pacific Growth Fund
Prudential Utility Fund
Prudential U.S. Government Fund
o 10 basis point trailer fee will be paid on Class B shares
held for 12 months or longer.
1
<PAGE>
2. Municipal Bond Funds
Dollar Amount Invested Gross CC
-------------------------------- --------
$0 to $500,000 4%
$500,000 to $1,000,000 2%
Over $1,000,000 1%
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund
A 10 basis point trailer fee will be paid on all existing
Class B shares held for 12 months or longer.
3. Gross CC
--------
Prudential Short-Term Global
Income Fund
Short-Term Global Income 3.20%
Portfolio
Prudential Short-Term Global
Income Fund
Global Assets Portfolio 1%
Prudential Intermediate Global 3.20%
Income Fund
Except for Global Assets Portfolio, a 10 basis point trailer
fee will be paid on Class B shares held for 12 months or
longer.
4. Gross CC
--------
Prudential Adjustable Rate Fund 1%
(No Trailer Fee on Class B Shares)
5. BlackRock Government Income Trust 1%
2
<PAGE>
A 95 basis point trailer fee will be paid on Class B shares
held for 12 months or longer.
6. Prudential Structured Maturity Fund
Gross CC: 3%
A 10 basis point trailer fee will be paid on Class B shares
held for 12 months or longer.
3
AGREEMENT BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
____________________________
TABLE OF CONTENTS
Page
1. Employment of Custodian . . . . . . . . . . . . . . . . . 1
2. Powers and Duties of the Custodian with respect to
Property of the Fund held by the Custodian. . . . . . . . 1
2.1 Safekeeping. . . . . . . . . . . . . . . . . . . . . 2
2.2 Manner of Holding Securities . . . . . . . . . . . . 2
2.3 Registration . . . . . . . . . . . . . . . . . . . . 2
2.4 Purchases. . . . . . . . . . . . . . . . . . . . . . 2
2.5 Exchanges. . . . . . . . . . . . . . . . . . . . . . 4
2.6 Sales of Securities. . . . . . . . . . . . . . . . . 4
2.7 Depositary Receipts. . . . . . . . . . . . . . . . . 5
2.8 Exercise of Rights; Tender Offers. . . . . . . . . . 6
2.9 Stock Dividends, Rights, Etc.. . . . . . . . . . . . 6
2.10 Options. . . . . . . . . . . . . . . . . . . . . . . 6
2.11 Borrowings . . . . . . . . . . . . . . . . . . . . . 7
2.12 Demand Deposit Bank Accounts . . . . . . . . . . . . 8
2.13 Interest Bearing Call or Time Deposits . . . . . . . 9
2.14 Futures Contracts. . . . . . . . . . . . . . . . . . 10
2.15 Foreign Exchange Transactions. . . . . . . . . . . . 11
2.16 Stock Loans. . . . . . . . . . . . . . . . . . . . . 13
2.17 Collections. . . . . . . . . . . . . . . . . . . . . 13
2.18 Dividends, Distributions and Redemptions . . . . . . 14
2.19 Proxies, Notices, Etc. . . . . . . . . . . . . . . . 15
2.20 Nondiscretionary Details . . . . . . . . . . . . . . 15
2.21 Bills. . . . . . . . . . . . . . . . . . . . . . . . 16
2.22 Deposit of Fund Assets in Securities Systems . . . . 16
2.23 Other Transfers. . . . . . . . . . . . . . . . . . . 18
2.24 Investment Limitations . . . . . . . . . . . . . . . 19
2.25 Custodian Advances . . . . . . . . . . . . . . . . . 19
2.26 Restricted Securities. . . . . . . . . . . . . . . . 20
2.27 Proper Instructions. . . . . . . . . . . . . . . . . 22
2.28 Segregated Account . . . . . . . . . . . . . . . . . 23
3. Powers and Duties of the Custodian with Respect to the
Appointment of Subcustodians. . . . . . . . . . . . . . . 24
4. Assistance by the Custodian as to Certain Matters . . . . 28
5. Powers and Duties of the Custodian with Respect to its
Role as Recordkeeping Agent . . . . . . . . . . . . . . . 28
5.1 Records. . . . . . . . . . . . . . . . . . . . . . . 29
5.2 Accounts . . . . . . . . . . . . . . . . . . . . . . 29
5.3 Access to Records. . . . . . . . . . . . . . . . . . 29
5.4 Calculation of Net Asset Value . . . . . . . . . . . 29
i
<PAGE>
6. Standard of Care and Related Matters. . . . . . . . . . . 34
6.1 Liability of the Custodian with Respect to Proper
Instructions; Evidence of Authority; Etc.. . . . . . 34
6.2 Liability of the Custodian with Respect to Use of
Securities Systems and Foreign Depositories. . . . . 35
6.3 Standard of Care; Liability; Indemnification . . . . 36
6.4 Reimbursement of Disbursements, Etc. . . . . . . . . 38
6.5 Security for Obligations to Custodian. . . . . . . . 38
6.6 Appointment of Agents. . . . . . . . . . . . . . . . 39
6.7 Powers of Attorney . . . . . . . . . . . . . . . . . 39
7. Compensation of the Custodian . . . . . . . . . . . . . . 39
8. Termination; Successor Custodian. . . . . . . . . . . . . 40
9. Amendment . . . . . . . . . . . . . . . . . . . . . . . . 40
10. Governing Law . . . . . . . . . . . . . . . . . . . . . . 41
11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 41
12. Binding Effect. . . . . . . . . . . . . . . . . . . . . . 42
13. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 42
ii
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made this _____ day of ______________________
1994, between _____________________________ (the "Fund") and
Brown Brothers Harriman & Co. (the "Custodian");
WITNESSETH: That in consideration of the mutual covenants
and agreements herein contained, the parties hereto agree as
follows:
1. Employment of Custodian: The Fund hereby employs and
appoints the Custodian as a custodian for the term and subject to
the provisions of this Agreement. The Custodian shall not be
under any duty or obligation to require the Fund to deliver to it
any securities or funds owned by the Fund and shall have no
responsibility or liability for or on account of securities or
funds not so delivered. The Fund will deposit with the Custodian
copies of the Declaration of Trust or Certificate of
Incorporation and By-Laws (or comparable documents) of the Fund
and all amendments thereto, and copies of such votes and other
proceedings of the Fund as may be necessary for or convenient to
the Custodian in the performance of its duties.
2. Powers and Duties of the Custodian with respect to
Property of the Fund held by the Custodian: Except for
securities and funds held by any Subcustodians appointed pursuant
to the provisions of Section 3 hereof or held by any Foreign
Depositories (as said term is defined in Section 3) utilized by a
1
<PAGE>
Subcustodian, the Custodian shall have and perform the following
powers and duties:
2.1 Safekeeping - To keep safely the securities and other
assets of the Fund that have been delivered to the Custodian and,
on behalf of the Fund, from time to time to receive delivery of
securities for safekeeping.
2.2 Manner of Holding Securities - To hold securities of
the Fund (1) by physical possession of the share certificates or
other instruments representing such securities in registered or
bearer form, or (2) in book-entry form by a Securities System (as
said term is defined in Section 2.22) or a Foreign Depository.
2.3 Registration - To hold registered securities of the
Fund, with or without any indication of fiduciary capacity,
provided that securities are held in an account of the Custodian
containing only assets of the Fund or only assets held as
fiduciary or custodian for customers.
2.4 Purchases - Upon receipt of proper instructions, as
defined in Section 2.27, insofar as funds are available for the
purpose, to pay for and receive securities purchased for the
account of the Fund, payment being made only upon receipt of the
securities (1) by the Custodian, or (2) by a clearing corporation
of a national securities exchange of which the Custodian is a
member, or (3) by a Securities System or a Foreign Depository.
However, (i) in the case of repurchase agreements entered into by
the Fund, the Custodian (as well as an Agent) may release funds
to a Securities System, a Foreign Depository or a Subcustodian
2
<PAGE>
prior to the receipt of advice from the Securities System,
Foreign Depository or Subcustodian that the securities underlying
such repurchase agreement have been transferred by book entry
into the Account (as defined in Section 2.22) of the Custodian
(or such Agent) maintained with such Securities System or to the
Foreign Depository or Subcustodian, so long as such payment
instructions to the Securities System, Foreign Depository or
Subcustodian include a requirement that delivery is only against
payment for securities, (ii) in the case of foreign exchange
contracts, options, time deposits, call account deposits,
currency deposits, and other deposits, contracts or options
pursuant to Sections 2.10, 2.12, 2.13, 2.14 and 2.15, the
Custodian may make payment therefor without receiving an
instrument evidencing said deposit, contract or option so long as
such payment instructions detail specific securities to be
acquired, and (iii) in the case of securities as to which payment
for the security and receipt of the instrument evidencing the
security are under generally accepted trade practice or the terms
of the instrument representing the security expected to take
place in different locations or through separate parties, such as
commercial paper which is indexed to foreign currency exchange
rates, derivatives and similar securities, the Custodian may make
payment for such securities prior to receipt thereof in
accordance with such generally accepted trade practice or the
terms of the instrument representing such security.
3
<PAGE>
2.5 Exchanges - Upon receipt of proper instructions, to
exchange securities held by it for the account of the Fund for
other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value,
conversion or other event relating to the securities or the
issuer of such securities and to deposit any such securities in
accordance with the terms of any reorganization or protective
plan. Without proper instructions, the Custodian may surrender
securities in temporary form for definitive securities, may
surrender securities for transfer into an account as permitted in
Section 2.3, and may surrender securities for a different number
of certificates or instruments representing the same number of
shares or same principal amount of indebtedness, provided the
securities to be issued are to be delivered to the Custodian.
2.6 Sales of Securities - Upon receipt of proper
instructions, to make delivery of securities which have been sold
for the account of the Fund, but only against payment therefor
(1) in cash, by a certified check, bank cashier's check, bank
credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a national
securities exchange of which the Custodian is a member, or (3) by
credit to the account of the Custodian or an Agent of the
Custodian with a Securities System or a Foreign Depository;
provided, however, that (i) in the case of delivery of physical
certificates or instruments representing securities, the
Custodian may make delivery to the broker buying the securities,
4
<PAGE>
against receipt therefor, for examination in accordance with
"street delivery" custom, provided that the payment therefor is
to be made to the Custodian (which payment may be made by a
broker's check) or that such securities are to be returned to the
Custodian, and (ii) in the case of securities referred to in
clause (iii) of the last sentence of Section 2.4, the Custodian
may make settlement, including with respect to the form of
payment, in accordance with generally accepted trade practice
relating to such securities or the terms of the instrument
representing said security.
2.7 Depositary Receipts - Upon receipt of proper
instructions, to instruct a Subcustodian or an Agent to surrender
securities to the depositary used by an issuer of American
Depositary Receipts or International Depositary Receipts
(hereinafter collectively referred to as "ADRs") for such
securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to
the Subcustodian or Agent that the depositary has acknowledged
receipt of instructions to issue with respect to such securities
ADRs in the name of the Custodian, or a nominee of the Custodian,
for delivery to the Custodian in Boston, Massachusetts, or at
such other place as the Custodian may from time to time
designate.
Upon receipt of proper instructions, to surrender ADRs to
the issuer thereof against a written receipt therefor adequately
describing the ADRs surrendered and written evidence satisfactory
5
<PAGE>
to the Custodian that the issuer of the ADRs has acknowledged
receipt of instructions to cause its depositary to deliver the
securities underlying such ADRs to a Subcustodian or an Agent.
2.8 Exercise of Rights; Tender Offers - Upon timely receipt
of proper instructions, to deliver to the issuer or trustee
thereof, or to the agent of either, warrants, puts, calls, rights
or similar securities for the purpose of being exercised or sold,
provided that the new securities and cash, if any, acquired by
such action are to be delivered to the Custodian, and, upon
receipt of proper instructions, to deposit securities upon
invitations for tenders of securities, provided that the
consideration is to be paid or delivered or the tendered
securities are to be returned to the Custodian.
2.9 Stock Dividends, Rights, Etc. - To receive and collect
all stock dividends, rights and other items of like nature; and
to deal with the same pursuant to proper instructions relative
thereto.
2.10 Options - Upon receipt of proper instructions or upon
receipt of instructions given pursuant to any agreement relating
to an option or as otherwise provided in any such agreement to
(i) receive and retain, to the extent provided to the Custodian,
confirmations or other documents evidencing the purchase, sale or
writing of an option of any type on or in respect of a security,
securities index or similar form of property by the Fund; (ii)
deposit and maintain in a segregated account, either physically
or by book-entry in a Securities System or Foreign Depository or
6
<PAGE>
with a broker, dealer or other entity, securities, cash or other
assets in connection with options transactions entered into by
the Fund; (iii) transfer securities, cash or other assets to a
Securities System, Foreign Depository, broker, dealer or other
entity, as margin (including variation margin) or other security
for the Fund's obligations in respect of any option; and (iv)
pay, release and/or transfer such securities, cash or other
assets in accordance with a notice or other communication
evidencing the expiration, termination or exercise of or default
under any such option furnished by The Options Clearing
Corporation, by the securities or options exchange on which such
option is traded or by such broker, dealer or other entity as may
be responsible for handling such options transaction or have
authority to give such notice or communication. The Custodian
shall not be responsible for the sufficiency of assets held in
any segregated account established in compliance with applicable
margin maintenance requirements or the performance of the other
terms of any agreement relating to an option. Notwithstanding
the foregoing, options on futures contracts and options to
purchase and sell foreign currencies shall be governed by
Sections 2.14 and 2.15.
2.11 Borrowings - Upon receipt of proper instructions, to
deliver securities of the Fund to lenders or their agents as
collateral for borrowings effected by the Fund, provided that
such borrowed money is payable to or upon the Custodian's order
as Custodian for the Fund.
7
<PAGE>
2.12 Demand Deposit Bank Accounts - To open and operate an
account or accounts in the name of the Fund, subject only to
draft or order by the Custodian, and to hold in such account or
accounts as a deposit accepted on the Custodian's books cash,
including foreign currency, received for the account of the Fund
other than cash held as deposits with Banking Institutions in
accordance with the following paragraph. The responsibilities of
the Custodian for cash, including foreign currency, of the Fund
accepted on the Custodian's books as a deposit shall be that of a
U.S. bank for a similar deposit.
If and when authorized by proper instructions, the Custodian
may open and operate an additional account(s) in such other banks
or trust companies as may be designated by the Fund in such
instructions (any such bank or trust company so designated by the
Fund being referred to hereafter as a "Banking Institution"), and
may deposit cash, including foreign currency, of the Fund in such
account or accounts, provided that such account(s) (hereinafter
collectively referred to as "demand deposit bank accounts") shall
be in the name of the Custodian or a nominee of the Custodian for
the account of the Fund or for the account of the Custodian's
customers generally and shall be subject only to the Custodian's
draft or order; provided that any such demand deposit bank
account shall contain only assets held by the Custodian as a
fiduciary or custodian for the Fund and/or other customers and
that the records of the Custodian shall indicate at all times the
Fund and/or other customers for which such funds are held in such
8
<PAGE>
account and the respective interests therein. Such demand
deposit accounts may be opened with Banking Institutions in the
United States and in other countries and may be denominated in
either U.S. Dollars or other currencies as the Fund may
determine. The records for each such account will be maintained
by the Custodian but the deposits in any such account shall not
constitute a deposit liability of the Custodian. All such
deposits, including with Subcustodians, shall be deemed to be
portfolio securities of the Fund and accordingly the
responsibility of the Custodian therefor shall be the same as and
no greater than the Custodian's responsibility in respect of
other portfolio securities of the Fund. The authorization by the
Fund to appoint a Subcustodian as such shall also constitute a
proper instruction to open a demand deposit bank account subject
to the provisions of this paragraph with such Subcustodian.
2.13 Interest Bearing Call or Time Deposits - To place
interest bearing fixed term and call deposits with such banks and
in such amounts as the Fund may authorize pursuant to proper
instructions. Such deposits may be placed with the Custodian or
with Subcustodians or other Banking Institutions as the Fund may
determine, in the name of the Custodian or a nominee of the
Custodian for the account of the Fund or the account of the
Custodian's customers generally and subject only to the
Custodian's draft or order; provided that any such deposit shall
be held in an account containing only assets held by the
Custodian as a fiduciary or custodian for the Fund and/or other
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<PAGE>
customers and that the records of the Custodian shall indicate at
all times the Fund and/or other customers for which such funds
are held in such account and the respective interests therein.
Deposits may be denominated in U.S. Dollars or other currencies
and need not be evidenced by the issuance or delivery of a
certificate to the Custodian, provided that the Custodian shall
include in its records with respect to the assets of the Fund
appropriate notation as to the amount and currency of each such
deposit, the accepting Banking Institution and other appropriate
details, and shall retain such forms of advice or receipt
evidencing the deposit, if any, as may be forwarded to the
Custodian by the Banking Institution. Funds, other than those
accepted on the Custodian's books as a deposit, but including
those placed with Subcustodians, shall be deemed portfolio
securities of the Fund and the responsibilities of the Custodian
therefor shall be the same as those for demand deposit bank
accounts placed with other banks, as described in the second
paragraph of Section 2.12 of this Agreement. The responsibility
of the Custodian for funds accepted on the Custodian's books as a
deposit shall be that of a U.S. bank for a similar deposit.
2.14 Futures Contracts Upon receipt of proper instructions
or upon receipt of instructions given pursuant to any agreement
relating to a futures contract or an option thereon or as
otherwise provided in any such agreement, to (i) receive and
retain, to the extent provided to the Custodian, confirmations or
other documents evidencing the purchase or sale of a futures
10
<PAGE>
contract or an option on a futures contract by the Fund; (ii)
deposit and maintain in a segregated account, either physically
or by book-entry in a Securities System or Foreign Depository,
for the benefit of any futures commission merchant, or pay to
such futures commission merchant, securities, cash or other
assets designated by the Fund as initial, maintenance or
variation "margin" deposits intended to secure the Fund's
performance of its obligations under any futures contract
purchased or sold or any option on a futures contract written,
purchased or sold by the Fund, in accordance with the provisions
of any agreement relating thereto or the rules of the Commodity
Futures Trading Commission and/or any contract market or any
similar organization on which such contract or option is traded;
and (iii) pay, release and/or transfer securities, cash or other
assets into or out of such margin accounts only in accordance
with any such agreement or rules. The Custodian shall not be
responsible for the sufficiency of assets held in any segregated
account established in compliance with applicable margin
maintenance requirements or the performance of the other terms of
any agreement relating to a futures contract or an option
thereon.
2.15 Foreign Exchange Transactions - Pursuant to proper
instructions, to settle foreign exchange contracts or options to
purchase and sell foreign currencies for spot and future delivery
on behalf and for the account of the Fund with such currency
brokers or Banking Institutions, including Subcustodians, as the
11
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Fund may direct pursuant to proper instructions. The Custodian
shall be responsible for the transmission of cash and
instructions to and from the currency broker or Banking
Institution with which the contract or option is made, the
safekeeping of all certificates and other documents and
agreements evidencing or relating to such foreign exchange
transactions as the Custodian may receive and the maintenance of
proper records as set forth in Section 5.1. In connection with
such transactions, the Custodian is authorized to make free
outgoing payments of cash in the form of U. S. Dollars or foreign
currency without receiving confirmation of a foreign exchange
contract or option or confirmation that the countervalue currency
completing the foreign exchange contract has been delivered or
received or that the option has been delivered or received. The
Fund accepts full responsibility for its use of third-party
foreign exchange dealers and for execution of said foreign
exchange contracts and options and understands that the Fund
shall be responsible for any and all costs and interest charges
which may be incurred by the Fund or the Custodian as a result of
the failure or delay of third parties to deliver foreign
exchange.
Alternatively, such transactions may be undertaken by the
Custodian as principal, if instructed by the Fund.
Foreign exchange contracts and options, other than those
executed with the Custodian as principal, but including those
executed with Subcustodians, shall be deemed to be portfolio
12
<PAGE>
securities of the Fund and the responsibility of the Custodian
therefor shall be the same as and no greater than the Custodian's
responsibility in respect of other portfolio securities of the
Fund. The responsibility of the Custodian with respect to
foreign exchange contracts and options executed with the
Custodian as principal shall be that of a U.S. bank with respect
to a similar contract or option.
2.16 Stock Loans - Upon receipt of proper instructions, to
deliver securities of the Fund, in connection with loans of
securities by the Fund, to the borrower thereof prior to receipt
of the collateral, if any, for such borrowing, provided that for
stock loans secured by cash collateral the Custodian's
instructions to any Securities System holding such securities
require that the Securities System may deliver the securities to
the borrower thereof only upon receipt of the collateral for such
borrowing.
2.17 Collections - (i) To collect and receive all income,
payments of principal and other payments with respect to the
securities held hereunder, and in connection therewith to deliver
the certificates or other instruments representing the securities
to the issuer thereof or its agent when securities are called,
redeemed, retired or otherwise become payable; provided, that the
payment is to be made in such form and manner and at such time,
which may be after delivery by the Custodian of the instrument
representing the security, as is in accordance with the terms of
the instrument representing the security, or such proper
13
<PAGE>
instructions as the Custodian may receive, or governmental
regulations, the rules of Securities Systems, Foreign
Depositories or other U.S. or foreign securities depositories and
clearing agencies or, with respect to securities referred to in
clause (iii) of the last sentence of Section 2.4, in accordance
with generally accepted trade practice; (ii) to execute ownership
and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income, principal or
other payments with respect to securities of the Fund or in
connection with transfer of securities; and (iii) pursuant to
proper instructions to take such other actions with respect to
collection or receipt of funds or transfer of securities which
involve an investment decision.
2.18 Dividends, Distributions and Redemptions - Upon receipt
of proper instructions from the Fund, or upon receipt of
instructions from the Fund's shareholder servicing agent or agent
with comparable duties (the "Shareholder Servicing Agent") (given
by such person or persons and in such manner on behalf of the
Shareholder Servicing Agent as the Fund shall have authorized),
the Custodian shall release funds or securities to the
Shareholder Servicing Agent or otherwise apply funds or
securities, insofar as available, for the payment of dividends or
other distributions to Fund shareholders. Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from
the Shareholder Servicing Agent (given by such person or persons
and in such manner on behalf of the Shareholder Servicing Agent
14
<PAGE>
as the Fund shall have authorized), the Custodian shall release
funds or securities, insofar as available, to the Shareholder
Servicing Agent or as such Agent shall otherwise instruct for
payment to Fund shareholders who have delivered to such Agent a
request for repurchase or redemption of their shares of the Fund.
2.19 Proxies, Notices, Etc. - Promptly to deliver or mail to
the Fund all forms of proxies and all notices of meetings and any
other notices or announcements affecting or relating to
securities owned by the Fund that are received by the Custodian,
and upon receipt of proper instructions, to execute and deliver
or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor its
nominee shall vote upon any of such securities or execute any
proxy to vote thereon or give any consent or take any other
action with respect thereto (except as otherwise herein provided)
unless ordered to do so by proper instructions.
2.20 Nondiscretionary Details - Without the necessity of
express authorization from the Fund, (1) to attend to all
nondiscretionary details in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with
securities, funds or other property of the Fund held by the
Custodian except as otherwise directed from time to time by the
Directors or Trustees of the Fund, and (2) to make payments to
itself or others for minor expenses of handling securities or
other similar items relating to the Custodian's duties under this
15
<PAGE>
Agreement, provided that all such payments shall be accounted for
to the Fund.
2.21 Bills - Upon receipt of proper instructions, to pay or
cause to be paid, insofar as funds are available for the purpose,
bills, statements and other obligations of the Fund (including
but not limited to interest charges, taxes, management fees,
compensation to Fund officers and employees, and other operating
expenses of the Fund).
2.22 Deposit of Fund Assets in Securities Systems - The
Custodian may deposit and/or maintain securities owned by the
Fund in (i) The Depository Trust Company, (ii) the Participants
Trust Company, (iii) any book-entry system as provided in Subpart
O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR
Part 350, or the book-entry regulations of federal agencies
substantially in the form of Subpart O, or (iv) any other
domestic 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 and whose use
the Fund has previously approved in writing (each of the
foregoing being referred to in this Agreement as a "Securities
System"). Utilization of a Securities System shall be 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 deposit and/or maintain Fund
securities, either directly or through one or more Agents
16
<PAGE>
appointed by the Custodian (provided that any such agent shall be
qualified to act as a custodian of the Fund pursuant to the
Investment Company Act of 1940 and the rules and regulations
thereunder), in a Securities System provided that such securities
are represented in an account ("Account") of the Custodian or
such Agent in the Securities System which shall not include any
assets of the Custodian or Agent other than assets held as a
fiduciary, custodian, or otherwise for customers;
(2) The records of the Custodian with respect to 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 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 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 of all advices from the
Securities System of transfers of securities for the account of
the Fund shall identify the Fund, be maintained for the Fund by
the Custodian or an Agent as referred to above, and be provided
to the Fund at its request. The Custodian shall furnish the Fund
17
<PAGE>
confirmation of each transfer to or from the account of the Fund
in the form of a written advice or notice and shall furnish to
the Fund copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of the Fund
on the next business day;
(4) The Custodian shall provide the Fund with any report
obtained by the Custodian or any Agent as referred to above on
the Securities System's accounting system, internal accounting
control and procedures for safeguarding securities deposited in
the Securities System; and the Custodian and such Agents shall
send to the Fund such reports on their own systems of internal
accounting control as the Fund may reasonably request from time
to time.
(5) At the written request of the Fund, the Custodian will
terminate the use of any such Securities System on behalf of the
Fund as promptly as practicable.
2.23 Other Transfers - To deliver securities, funds and
other property of the Fund to a Subcustodian or another custodian
as necessary to effect transactions authorized by proper
instructions and upon receipt of proper instructions, to deliver
securities, funds and other property of the Fund to a
Subcustodian or another custodian of the Fund; and, upon receipt
of proper instructions, to make such other disposition of
securities, funds or other property of the Fund in a manner other
than or for purposes other than as enumerated elsewhere in this
Agreement, provided that the instructions relating to such
18
<PAGE>
disposition shall state the amount of securities to be delivered
and the name of the person or persons to whom delivery is to be
made.
2.24 Investment Limitations - In performing its duties
generally, and more particularly in connection with the purchase,
sale and exchange of securities made by or for the Fund, the
Custodian may assume unless and until notified in writing to the
contrary that proper instructions received by it are not in
conflict with or in any way contrary to any provisions of the
Fund's Declaration of Trust or Certificate of Incorporation or
By-Laws (or comparable documents) or votes or proceedings of the
shareholders or Trustees or Directors of the Fund. The Custodian
shall in no event be liable to the Fund and shall be indemnified
by the Fund for any violation which occurs in the course of
carrying out instructions given by the Fund of any investment
limitations to which the Fund is subject or other limitations
with respect to the Fund's powers to make expenditures, encumber
securities, borrow or take similar actions affecting the Fund.
2.25 Custodian Advances - In the event that the custodian is
directed by proper instructions to make any payment or transfer
of funds on behalf of the Fund for which there would be, at the
close of business on the date of such payment or transfer,
insufficient funds held by the Custodian on behalf of the Fund,
the Custodian may, in its discretion without further proper
instructions, provide an advance ("Advance") to the Fund in an
amount sufficient to allow the completion of the transaction by
19
<PAGE>
reason of which such payment or transfer of funds is to be made.
In addition, in the event the Custodian is directed by proper
instructions to make any payment or transfer of funds on behalf
of the Fund as to which it is subsequently determined that the
Fund has overdrawn its cash account with the Custodian as of the
close of business on the date of such payment or transfer, said
overdraft shall constitute an Advance. Any Advance shall be
payable on demand by Custodian, unless otherwise agreed by the
Fund and the Custodian, and shall accrue interest from the date
of the Advance to the date of payment by the Fund at a rate
agreed upon from time to time by the Custodian and the Fund. It
is understood that any transaction in respect of which the
Custodian shall have made an Advance, including but not limited
to a foreign exchange contract or transaction in respect of which
the Custodian is not acting as a principal, is for the account of
and at the risk of the Fund, and not, by reason of such Advance,
deemed to be a transaction undertaken by the Custodian for its
own account and risk. The Custodian and the Fund acknowledge
that the purpose of Advances is to finance temporarily the
purchase or sale of securities for prompt delivery in accordance
with the settlement terms of such transactions or to meet
emergency expenses not reasonably foreseeable by the Fund.
2.26 Restricted Securities - In the case of a "restricted
security," the Fund shall have the responsibility to provide to
or obtain for the Custodian, the issuer of the security or other
appropriate third party any necessary documentation, including
20
<PAGE>
without limitation, legal opinions or consents, and to take any
necessary actions required in connection with the registration of
restricted securities in the manner provided in Section 2.3 upon
acquisition thereof by the Fund or required in connection with
any sale or other disposition thereof by the Fund. Upon
acquisition and until so registered, the Custodian shall have no
duty to service such restricted securities, including without
limitation, the receipt and collection of cash and stock
dividends, rights and other items of like nature, nor shall the
Custodian have responsibility for the inability of the Fund to
exercise in a timely manner any right in respect of any
restricted security or to take any action in a timely manner in
respect of any other type of corporate action relating to a
restricted security. Similarly, the Custodian shall not have
responsibility for the inability of the Fund to sell or otherwise
transfer in a timely manner any restricted security in the
absence of any such documentation or action to be provided,
obtained or taken by the Fund. At such time as the Custodian
shall receive any restricted security, regardless of when it
shall be registered as aforesaid, the Fund shall also deliver to
the Custodian a term sheet summarizing those rights, restrictions
or other matters of which the Custodian should have knowledge,
such as exercise periods, expiration dates and payment dates, in
order to assist the Custodian in servicing such securities. As
used herein, the term "restricted security" shall mean a security
which is subject to restrictions on transfer, whether by reason
21
<PAGE>
of contractual restrictions or federal, state or foreign
securities or similar laws, or a security which has special
rights or contractual features which do not apply to
publicly-traded shares of, or comparable interests representing,
such security.
2.27 Proper Instructions - Proper instructions shall mean a
tested telex from the Fund or a written request, direction,
instruction or certification signed or initialled on behalf of
the Fund by one or more person or persons as the Board of
Trustees or Directors of the Fund shall have from time to time
authorized, provided, however, that no such instructions
directing the delivery of securities or the payment of funds to
an authorized signatory of the Fund shall be signed by such
person. Those persons authorized to give proper instructions may
be identified by the Board of Trustees or Directors by name,
title or position and will include at least one officer empowered
by the Board to name other individuals who are authorized to give
proper instructions on behalf of the Fund. Telephonic or other
oral instructions or instructions given by facsimile transmission
may be given by any one of the above persons and 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. Oral
instructions will be confirmed by tested telex or in writing in
the manner set forth above but the lack of such confirmation
shall in no way affect any action taken by the Custodian in
22
<PAGE>
reliance upon such oral instructions. The Fund authorizes the
Custodian to tape record any and all telephonic or other oral
instructions given to the Custodian by or on behalf of the Fund
(including any of its officers, Directors, Trustees, employees or
agents or any investment manager or adviser or person or entity
with similar responsibilities which is authorized to give proper
instructions on behalf of the Fund to the Custodian). Proper
instructions may relate to specific transactions or to types or
classes of transactions, and may be in the form of standing
instructions.
Proper instructions may include communications effected
directly between electro-mechanical or electronic devices or
systems, in addition to tested telex, provided that the Fund and
the Custodian agree to the use of such device or system.
2.28 Segregated Account - The Custodian shall upon receipt
of proper instructions establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund,
into which account or accounts may be transferred cash and/or
securities of the Fund, including securities maintained by the
Custodian pursuant to Section 2.22 hereof, (i) 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 and a member of the National Association of Securities
Dealers, Inc. (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
23
<PAGE>
national securities exchange (or the Commodity Futures Trading
commission or any registered contract market), or any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii)
for purposes of segregating cash or securities 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 relating to the maintenance of segregated
accounts by registered investment companies, and (iv) as mutually
agreed from time to time between the Fund and the Custodian.
3. Powers and Duties of the Custodian with Respect to the
Appointment of Subcustodians: The Fund hereby authorizes and
instructs the Custodian to hold securities, funds and other
property of the Fund which are maintained outside the United
States at subcustodians appointed pursuant to the provisions of
this Section 3 (a "Subcustodian"). The Fund shall approve in
writing (1) the appointment of each Subcustodian and the
subcustodian agreement to be entered into between such
Subcustodian and the Custodian, and (2) if the Subcustodian is
organized under the laws of a country other than the United
States, the country or countries in which the Subcustodian is
authorized to hold securities, cash and other property of the
Fund. The Fund hereby further authorizes and instructs the
24
<PAGE>
Custodian and any Subcustodian to utilize such securities
depositories located outside the United States which are approved
in writing by the Fund to hold securities, cash and other
property of the Fund (a "Foreign Depository"). Upon such
approval by the Fund, the Custodian is authorized on behalf of
the Fund to notify each Subcustodian of its appointment as such.
Those Subcustodians, and the countries where and the Foreign
Depositories through which they or the Custodian may hold
securities, cash and other property of the Fund which the Fund
has approved to date are set forth on Appendix A hereto. Such
Appendix shall be amended from time to time as Subcustodians,
and/or countries and/or Foreign Depositories are changed, added
or deleted. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which
is to be held in a country not listed on Appendix A, in order
that there shall be sufficient time for the Fund to give the
approval required by the preceding paragraph and for the
Custodian to put the appropriate arrangements in place with such
Subcustodian, including negotiation of a subcustodian agreement
and submission of such subcustodian agreement to the Fund for
approval.
If the Fund shall have invested in a security to be held in
a country before the foregoing procedures have been completed,
such security shall be held by such agent as the Custodian may
appoint. In any event, the Custodian shall be liable to the Fund
for the actions of such agent if and only to the extent the
25
<PAGE>
Custodian shall have recovered from such agent for any damages
caused the Fund by such agent. At the request of the Fund,
Custodian agrees to remove any securities held on behalf of the
Fund by such agent, if practical, to an approved Subcustodian.
Under such circumstances the Custodian will collect income and
respond to corporate actions on a best efforts basis.
With respect to securities and funds held by a Subcustodian,
either directly or indirectly (including by a Foreign Depository
or foreign clearing agency) or by a Foreign Depository or foreign
clearing agency utilized by the Custodian, notwithstanding any
provision of this Agreement to the contrary, payment for
securities purchased and delivery of securities sold may be made
prior to receipt of the securities or payment, respectively, and
securities or payment may be received in a form, in accordance
with governmental regulations, rules of Foreign Depositories and
foreign clearing agencies, or generally accepted trade practice
in the applicable local market.
With respect to the securities and funds held by a
Subcustodian, either directly or indirectly (including by a
Foreign Depository or a foreign clearing agency), including
demand and interest bearing deposits, currencies or other
deposits and foreign exchange contracts as referred to in
Sections 2.12, 2.13, 2.14 and 2.15, the Custodian shall be liable
to the Fund if and only to the extent that such Subcustodian is
liable to the Custodian and the Custodian recovers under the
applicable subcustodian agreement. The Custodian shall
26
<PAGE>
nevertheless be liable to the Fund for its own negligence in
transmitting to any such Subcustodian any instructions received
by it from the Fund and for its own negligence in connection with
the delivery of any securities or funds held by it to any such
Subcustodian.
In the event that any Subcustodian appointed pursuant to the
provisions of this Section 3 fails to perform any of its
obligations under the terms and conditions of the applicable
subcustodian agreement, the Custodian shall use its best efforts
to cause such Subcustodian to perform such obligations. In the
event that the Custodian is unable to cause such Subcustodian to
perform fully its obligations thereunder, the Custodian shall
forthwith upon the Fund's request terminate such Subcustodian in
accordance with the termination provisions under the applicable
subcustodian agreement and, if necessary or desirable, appoint
another subcustodian in accordance with the provisions of this
Section 3. At the election of the Fund, it shall have the right
to enforce, to the extent permitted by the subcustodian agreement
and applicable law, the Custodian's rights against any such
Subcustodian for loss or damage caused the Fund by such
Subcustodian.
The Custodian will not amend any subcustodian agreement or
agree to change or permit any changes thereunder except upon the
prior written approval of the Fund.
The Custodian may, at any time in its discretion upon
notification to the Fund, terminate any Subcustodian of the Fund
27
<PAGE>
in accordance with the termination provisions under the
applicable Subcustodian Agreement, and at the written request of
the Fund, the Custodian will terminate any Subcustodian in
accordance with the termination provisions under the applicable
Subcustodian Agreement.
If necessary or desirable, the Custodian may appoint another
subcustodian to replace a Subcustodian terminated pursuant to the
foregoing provisions of this Section 3, such appointment to be
made upon approval of the successor subcustodian by the Fund's
Board of Directors or Trustees in accordance with the provisions
of this Section 3.
In the event the Custodian receives a claim from a
Subcustodian under the indemnification provisions of any
subcustodian agreement, the Custodian shall promptly give written
notice to the Fund of such claim. No more than thirty days after
written notice to the Fund of the Custodian's intention to make
such payment, the Fund will reimburse the Custodian the amount of
such payment except in respect of any negligence or misconduct of
the Custodian.
4. Assistance by the Custodian as to Certain Matters: The
Custodian may assist generally in the preparation of reports to
Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature.
5. Powers and Duties of the Custodian with Respect to its
Role as Recordkeeping Agent: The Custodian shall have and
perform the following duties with respect to recordkeeping:
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5.1 Records - To create, maintain and retain such records
relating to its activities and obligations under this Agreement
as are required under the Investment Company Act of 1940 and the
rules and regulations thereunder (including Section 31 thereof
and Rules 3la-1 and 3la-2 thereunder) and under applicable
Federal and State tax laws. All such records will be the
property of the Fund and in the event of termination of this
Agreement shall be delivered to the successor custodian.
5.2 Accounts - To keep books of account and render
statements, including interim monthly and complete quarterly
financial statements, or copies thereof, from time to time as
reasonably requested by proper instructions.
5.3 Access to Records - The books and records maintained by
the Custodian pursuant to Sections 5.1 and 5.2 shall at all times
during the Custodian's regular business hours be open to
inspection and audit by officers of, attorneys for and auditors
employed by the Fund and by employees and agents of the
Securities and Exchange Commission, provided that all such
individuals shall observe all security requirements of the
Custodian applicable to its own employees having access to
similar records within the Custodian and such regulations as may
be reasonably imposed by the Custodian.
5.4 Calculation of Net Asset Value - To compute and
determine the net asset value per share of the Fund as of the
close of business on the New York Stock Exchange on each day on
which such Exchange is open, unless otherwise directed by proper
29
<PAGE>
instructions. Such computation and determination shall be made
in accordance with (1) the provisions of the Fund's Declaration
of Trust or Certificate of Incorporation and By-Laws, as they may
from time to time be amended and delivered to the Custodian, (2)
the votes of the Board of Trustees or Directors of the Fund at
the time in force and applicable, as they may from time to time
be delivered to the Custodian, and (3) proper instructions from
such officers of the Fund or other persons as are from time to
time authorized by the Board of Trustees or Directors of the Fund
to give instructions with respect to computation and
determination of the net asset value. On each day that the
Custodian shall compute the net asset value per share of the
Fund, the Custodian shall provide the Fund with written reports
which permit the Fund to verify that portfolio transactions have
been recorded in accordance with the Fund's instructions and are
reconciled with the Fund's trading records.
In computing the net asset value, the Custodian may rely
upon any information furnished by proper instructions, including
without limitation any information (1) as to accrual of
liabilities of the Fund and as to liabilities of the Fund not
appearing on the books of account kept by the Custodian, (2) as
to the existence, status and proper treatment of reserves, if
any, authorized by the Fund, (3) as to the sources of quotations
to be used in computing the net asset value, including those
listed in Appendix B, (4) as to the fair value to be assigned to
any securities or other property for which price quotations are
30
<PAGE>
not readily available, and (5) as to the sources of information
with respect to "corporate actions" affecting portfolio
securities of the Fund, including those listed in Appendix B.
(Information as to "corporate actions" shall include information
as to dividends, distributions, stock splits, stock dividends,
rights offerings, conversions, exchanges, recapitalizations,
mergers, redemptions, calls, maturity dates and similar
transactions, including the ex- and record dates and the amounts
or other terms thereof.)
In like manner, the Custodian shall compute and determine
the net asset value as of such other times as the Board of
Trustees or Directors of the Fund from time to time may
reasonably request.
Notwithstanding any other provisions of this Agreement,
including Section 6.3, the following provisions shall apply with
respect to the Custodian's foregoing responsibilities in this
Section 5.4: The Custodian shall be held to the exercise of
reasonable care in computing and determining net asset value as
provided in this Section 5.4, but shall not be held accountable
or liable for any losses, damages or expenses the Fund or any
shareholder or former shareholder of the Fund or any other person
may suffer or incur arising from or based upon errors or delays
in the determination of such net asset value unless such error or
delay was due to the Custodian's negligence, gross negligence or
reckless or willful misconduct in determination of such net asset
value. (The parties hereto acknowledge, however, that the
31
<PAGE>
Custodian's causing an error or delay in the determination of net
asset value may, but does not in and of itself, constitute
negligence, gross negligence or reckless or willful misconduct.)
In no event shall the Custodian be liable or responsible to the
Fund, any present or former shareholder of the Fund or any other
person for any error or delay which continued or was undetected
after the date of an audit performed by the certified public
accountants employed by the Fund if, in the exercise of
reasonable care in accordance with generally accepted accounting
standards, such accountants should have become aware of such
error or delay in the course of performing such audit. The
Custodian's liability for any such negligence, gross negligence
or reckless or willful misconduct which results in an error in
determination of such net asset value shall be limited to the
direct, out-of-pocket loss the Fund, shareholder or former
shareholder shall actually incur, measured by the difference
between the actual and the erroneously computed net asset value,
and any expenses the Fund shall incur in connection with
correcting the records of the Fund affected by such error
(including charges made by the Fund's registrar and transfer
agent for making such corrections) or communicating with
shareholders or former shareholders of the Fund affected by such
error.
Without limiting the foregoing, the Custodian shall not be
held accountable or liable to the Fund, any shareholder or former
shareholder thereof or any other person for any delays or losses,
32
<PAGE>
damages or expenses any of them may suffer or incur resulting
from (1) the Custodian's failure to receive timely and suitable
notification concerning quotations or corporate actions relating
to or affecting portfolio securities of the Fund or (2) any
errors in the computation of the net asset value based upon or
arising out of quotations or information as to corporate actions
if received by the Custodian either (i) from a source which the
Custodian was authorized pursuant to the second paragraph of this
Section 5.4 to rely upon, or (ii) from a source which in the
Custodian's reasonable judgment was as reliable a source for such
quotations or information as the sources authorized pursuant to
that paragraph. Nevertheless, the Custodian will use its best
judgment in determining whether to verify through other sources
any information it has received as to quotations or corporate
actions if the Custodian has reason to believe that any such
information might be incorrect.
In the event of any error or delay in the determination of
such net asset value for which the Custodian may be liable, the
Fund and the Custodian will consult and make good faith efforts
to reach agreement on what actions should be taken in order to
mitigate any loss suffered by the Fund or its present or former
shareholders, in order that the Custodian's exposure to liability
shall be reduced to the extent possible after taking into account
all relevant factors and alternatives. Such actions might
include the Fund or the Custodian taking reasonable steps to
collect from any shareholder or former shareholder who has
33
<PAGE>
received any overpayment upon redemption of shares such overpaid
amount or to collect from any shareholder who has underpaid upon
a purchase of shares the amount of such underpayment or to reduce
the number of shares issued to such shareholder. It is
understood that in attempting to reach agreement on the actions
to be taken or the amount of the loss which should appropriately
be borne by the Custodian, the Fund and the Custodian will
consider such relevant factors as the amount of the loss
involved, the Fund's desire to avoid loss of shareholder good
will, the fact that other persons or entities could have been
reasonably expected to have detected the error sooner than the
time it was actually discovered, the appropriateness of limiting
or eliminating the benefit which shareholders or former
shareholders might have obtained by reason of the error, and the
possibility that other parties providing services to the Fund
might be induced to absorb a portion of the loss incurred.
6. Standard of Care and Related Matters:
6.1 Liability of the Custodian with Respect to Proper
Instructions; Evidence of Authority; Etc. The Custodian shall
not be liable for any action taken or omitted in reliance upon
proper instructions believed by it to be genuine or upon any
other written notice, request, direction, instruction,
certificate or other instrument believed by it to be genuine and
signed by the proper party or parties.
The Secretary or Assistant Secretary of the Fund shall
certify to the Custodian the names, signatures and scope of
34
<PAGE>
authority of all persons authorized to give proper instructions
or any other such notice, request, direction, instruction,
certificate or instrument on behalf of the Fund, the names and
signatures of the officers of the Fund, the name and address of
the Shareholder Servicing Agent, and any resolutions, votes,
instructions or directions of the Fund's Board of Directors or
Trustees or shareholders. Such certificate may be accepted and
relied upon by the Custodian as conclusive evidence of the facts
set forth therein and may be considered in full force and effect
until receipt of a similar certificate to the contrary.
So long as and to the extent that it is in the exercise of
reasonable care, the custodian shall not be responsible for the
title, validity or genuineness of any property or evidence of
title thereto received by it or delivered by it pursuant to this
Agreement.
The Custodian shall be entitled, at the expense of the Fund,
to receive and act upon advice of (i) counsel regularly retained
by the Custodian in respect of custodian matters, (ii) counsel
for the Fund, or (iii) such other counsel as the Fund and the
Custodian may agree upon, with respect to all matters, and the
Custodian shall be without liability for any action reasonably
taken or omitted pursuant to such advice.
6.2 Liability of the Custodian with Respect to Use of
Securities Systems and Foreign Depositories - With respect to the
portfolio securities, cash and other property of the Fund held by
a Securities System or by a Foreign Depository utilized by the
35
<PAGE>
Custodian or any Subcustodian, the Custodian shall be liable to
the Fund only for any loss or damage to the Fund resulting from
use of the Securities System or Foreign Depository if caused by
any negligence, misfeasance or misconduct of the Custodian or any
of its Agents (as said term is defined in Section 6.6) or of any
of its or its Agents' employees or from any failure of the
Custodian or any such Agent to enforce effectively such rights as
it may have against the Securities System or Foreign Depository.
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, Foreign Depository or any
other person which the Custodian may have as a consequence of any
such loss or damage to the Fund if and to the extent that the
Fund has not been made whole for any such loss or damage.
6.3 Standard of Care; Liability; Indemnification - The
Custodian shall be held only to the exercise of reasonable care
and diligence in carrying out the provisions of this Agreement,
provided that the Custodian shall not thereby be required to take
any action which is in contravention of any applicable law, rule
or regulation or any order or judgment of any court of competent
jurisdiction.
The Fund agrees to indemnify and hold harmless the Custodian
and its nominees from all claims and liabilities (including
counsel fees) incurred or assessed against it or its nominees in
connection with the performance of this Agreement, except such as
may arise from its or its nominee's breach of the relevant
36
<PAGE>
standard of conduct set forth in this Agreement. Without
limiting the foregoing indemnification obligation of the Fund,
the Fund agrees to indemnify the Custodian and any nominee in
whose name portfolio securities or other property of the Fund is
registered against any liability the Custodian or such nominee
may incur by reason of taxes assessed to the Custodian or such
nominee or other costs, liability or expense incurred by the
Custodian or such nominee resulting directly or indirectly from
the fact that portfolio securities or other property of the Fund
is registered in the name of the Custodian or such nominee.
In no event shall the Custodian incur liability under this
Agreement if the Custodian or any Subcustodian, Securities
System, Foreign Depository, Banking Institution or any agent or
entity utilized by any of them is prevented, forbidden or delayed
from performing, or omits to perform, any act or thing which this
Agreement provides shall be performed or omitted to be performed,
by reason of (i) any Sovereign Risk or (ii) any provision of any
present or future law or regulation or order of the United States
of America or any state thereof, or of any foreign country or
political subdivision thereof, or of any securities depository or
clearing agency which operates a central system for handling of
securities or equivalent book-entries in a country or which
operates a transnational system for the central handling of
securities or equivalent book-entries, or (iii) any provision of
any order or judgment of any court of competent jurisdiction. A
"Sovereign Risk" shall mean nationalization, expropriation,
37
<PAGE>
devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de
facto or de jure; or enactment, promulgation, imposition or
enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges
affecting the Fund's property; or acts of war, terrorism,
insurrection or revolution; or any other act or event beyond the
Custodian's control.
6.4 Reimbursement of Disbursements, Etc. - The Custodian
shall be entitled to receive reimbursement from the Fund on
demand, in the manner provided in Section 7, for its cash
disbursements, expenses and charges (including the fees and
expenses of any Subcustodian or any Agent) in connection with
this Agreement, but excluding salaries and usual overhead
expenses.
6.5 Security for Obligations to Custodian - If the
Custodian or any nominee thereof shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement (collectively a
"Liability"), except such as may arise from its or such nominee's
breach of the relevant standard of conduct set forth in this
Agreement, or if the Custodian shall make any Advance to the
Fund, then in such event any property at any time held for the
account of the Fund by the Custodian or a Subcustodian shall be
security for such Liability or for such Advance and the interest
thereon, and if the Fund shall fail to pay such Advance or
38
<PAGE>
interest when due or shall fail to reimburse or indemnify the
Custodian promptly in respect of a Liability, the Custodian shall
be entitled to utilize available cash and to dispose of the
Fund's property, including securities, to the extent necessary to
obtain repayment, reimbursement or indemnification.
6.6 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 as its agent (an "Agent") to
carry out such of the provisions of this Agreement as the
Custodian may from time to time direct, provided, however, that
the appointment of such Agent (other than an Agent appointed
pursuant to the third paragraph of Section 3) shall not relieve
the Custodian of any of its responsibilities under this
Agreement.
6.7 Powers of Attorney - Upon request, the Fund shall
deliver to the Custodian such proxies, powers of attorney or
other instruments as may be reasonable and necessary or desirable
in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement
or any applicable subcustodian agreement.
7. Compensation of the Custodian The Fund shall pay the
Custodian a custody fee based on such fee schedule as may from
time to time be agreed upon in writing by the Custodian and the
Fund. Such fee, together with all amounts for which the
Custodian is to be reimbursed in accordance with Section 6.4,
shall be billed to the Fund and be paid in cash to the Custodian.
39
<PAGE>
8. Termination; Successor Custodian This Agreement shall
continue in full force and effect until 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 seventy-five (75) days after the date of such
delivery or mailing. In the event of termination the Custodian
shall be entitled to receive prior to delivery of the securities,
funds and other property held by it all accrued fees and
unreimbursed expenses the payment of which is contemplated by
Sections 6.4 and 7, and all Advances and Liabilities, upon
receipt by the Fund of a statement setting forth such fees,
expenses, Advances and Liabilities.
In the event of the appointment of a successor custodian, it
is agreed that the funds and securities owned by the Fund and
held by the Custodian or any Subcustodian shall be delivered to
the successor custodian, and the Custodian agrees to cooperate
with the Fund in execution of documents and performance of other
actions necessary or desirable in order to substitute the
successor custodian for the Custodian under this Agreement.
9. Amendment: This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to
the subject matter hereof. No provision of this Agreement may be
amended or terminated except by a statement in writing signed by
the party against which enforcement of the amendment or
termination is sought.
40
<PAGE>
In connection with the operation of this Agreement, the
Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the
provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this
Agreement.
The section headings in this Agreement are for the
convenience of the parties and in no way alter, amend, limit or
restrict the contractual obligations of the parties set forth in
this Agreement.
10. Governing Law: This Agreement is executed and
delivered in The Commonwealth of Massachusetts and shall be
governed by and construed according to the laws of said
Commonwealth.
11. Notices: Notices and other writings delivered or
mailed postage prepaid to the Fund addressed to the Fund at
_________________________________________________________________
_________________________________________________________________
or to such other address as the Fund may have designated to the
Custodian in writing, or to the Custodian at 40 Water Street,
Boston, Massachusetts 02109, Attention: Manager, Securities
Department, or to such other address as the Custodian may have
designated to the Fund in writing, shall be deemed to have been
41
<PAGE>
properly delivered or given hereunder to the respective
addressee.
12. Binding Effect: This Agreement shall be binding on and
shall inure to the benefit of the Fund and the Custodian and
their respective successors and assigns, provided that neither
party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the
other party.
13. Counterparts: This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original. This Agreement shall become effective when one or more
counterparts have been signed and delivered by each of the
parties.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed in its name and behalf on the day and
year first above written.
___________________________ BROWN BROTHERS HARRIMAN & CO.
By:________________________ per pro ________________________
42
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
PRUDENTIAL EUROPE GROWTH FUND
APPENDIX A
SECURITIES
DEPOSITORY/
COUNTRY SUBCUSTODIAN CLEARING AGENCY
- -------------- ----------------------------------------------- ---------------
AUSTRIA CREDITANSTALT BANKVEREIN AGMT 12/18/89# OEKB
BELGIUM MORGAN GUARANTY TRUST COMPANY OF NEW YORK, CIK
BRUSSELS BANQUE
MORGAN GUARANTY TRUST COMPANY OF NEW YORK NATIONALE DE
AGMT 02/25/86 (ACTING THROUGH ITS BRUSSELS BELGIQUE
OFFICE)
CZECH REPUBLIC CESKOSLOVENSKA OBCHODNI BANKA, A.S. SCP
AGMT 02/28/94 CNB
DENMARK DEN DANSKE BANK AGMT 01/01/89# VP
FINLAND UNION BANK OF FINLAND AGMT 02/27/89 CSR
HMMC
FRANCE MORGAN GUARANTY TRUST COMPANY OF NEW YORK, SICOVAM
PARIS BANQUE DE
MORGAN GUARANTY TRUST COMPANY OF NEW YORK FRANCE
AGMT 04/02/93 (ACTING THROUGH ITS PARIS
OFFICE)
GERMANY JP MORGAN GMBH, FRANKFURT KASSENVEREIN
JP MORGAN GMBH AGMT 04/02/93
GREECE CITIBANK N.A., ATHENS APOTHETIRIO
CITIBANK N.A., NEW YORK AGMT 07/16/81*# TITLON A.E.
HUNGARY CITIBANK BUDAPEST RT NONE
CITIBANK N.A. AGMT 07/16/81*#
CITIBANK SUBSIDIARY AMENDMENT 08/07/92
CITIBANK N.A./CITIBANK BUDAPEST AGMT
01/24/92
IRELAND ALLIED IRISH BANKS PLC AGMT 01/10/89# GILT SETTLEMENT
OFFICE
ITALY BANCA COMMERCIALE ITALIANA AGMT 05/08/89# MONTE TITOLI
BCI AMENDMENT 10/08/93 BANCA D'ITALIA
NETHERLANDS ABN - AMRO BANK AGMT 12/19/88# NECIGEF DE
NEDERLANDSCHE
BANK
NORWAY MORGAN GUARANTY TRUST COMPANY OF NEW YORK, VPS
BRUSSELS
FOR DEN NORSKE BANK
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
AGMT 02/25/86 (ACTING THROUGH ITS BRUSSELS
OFFICE)
POLAND CITIBANK POLAND S.A. CKDPW
CITIBANK N.A. AGMT 07/16/81*#
CITIBANK SUBSIDIARY AMENDMENT 08/07/92
CITIBANK N.A./CITIBANK POLAND S.A.
AGMT 11/06/92
PORTUGAL BANCO ESPIRITO SANTO E COMMERCIAL DE LISBOA INTERBOLSA
AGMT 04/26/89#
1 of 2
<PAGE>
SPAIN BANCO SANTANDER AGMT 12/14/88 SCLV
BANCO DE ESPANA
SWEDEN SKANDINAVISKA ENSKILDA BANKEN AGMT 02/20/89# VPC
SWITZERLAND SWISS BANK CORPORATION SEGA
SWISS BANK CORPORATION AGMT 03/01/94
TRANSNATIONAL BROWN BROTHERS HARRIMAN & CO. CEDEL
EUROCLEAR
TURKEY CITIBANK N.A., ISTANBUL TVS
CITIBANK N.A., NEW YORK AGMT 07/16/81*# CENTRAL BANK OF
TURKEY
UNITED KINGDOM MORGAN GUARANTY TRUST COMPANY OF NEW YORK, CGO
LONDON CMO
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
AGMT 04/02/93 (ACTING THROUGH ITS LONDON
OFFICE)
* CITIBANK N.A., NEW YORK AGREEMENT AMENDMENT DATED 08/31/90
** CENTRAL DEPOSITOR TO BE ESTABLISHED DURING 1994
# OMNIBUS AMENDMENT PROPOSED
I HEREBY CERTIFY THAT AT ITS MEETING ON ____________ __, 199_ THE BOARD
APPROVED THE COUNTRIES, SUBCUSTODIANS, AGREEMENTS, AND CENTRAL DEPOSITORIES
LISTED ON THIS APPENDIX.
__________________________________ ___________________________
(SIGNATURE) (DATE)
__________________________________
(TITLE)
2 of 2
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL EUROPE GROWTH 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 __th day of ______, 1994 by and
between PRUDENTIAL EUROPE GROWTH 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
currently effective prospectus and statement of additional
<PAGE>
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 Custodian);
(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;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges
2
<PAGE>
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
program), including but not limited to, maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing
3
<PAGE>
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.
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.
4
<PAGE>
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.
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
5
<PAGE>
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.
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
6
<PAGE>
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
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.
7
<PAGE>
(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
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
8
<PAGE>
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
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
9
<PAGE>
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
(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
10
<PAGE>
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.
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
11
<PAGE>
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
person or entity including but not limited to: (i) Prudential
Securities Incorporated (Prudential Securities), a registered
broker-dealer, (ii) The Prudential Insurance Company of America
(Prudential), (iii) Pruco Securities Corporation, a registered
broker-dealer, (iv) any Prudential Securities or Prudential
subsidiary or affiliate duly registered as a broker-dealer and/or
12
<PAGE>
a transfer agent pursuant to the 1934 Act or (vi) any other
Prudential Securities 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 Securities 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,
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
13
<PAGE>
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.
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
14
<PAGE>
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 Europe Growth 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 EUROPE GROWTH FUND, INC.
BY:_______________________________
ATTEST:
_______________________________
PRUDENTIAL MUTUAL FUND
SERVICES, INC.
BY:_______________________________
ATTEST:
_______________________________
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 EUROPE GROWTH FUND, INC.
General - Fees are based on an annual per shareholder account
charge for account maintenance plus out-of-pocket expenses. In
addition, there is a one time set-up charge per account for
manually established accounts and a monthly charge for inactive
zero balance accounts. The effective period of this fee schedule
is June , 1994 through December 31, 1994 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.
Annual Maintenance Per Account Fee $ 9.00
Other Charges
New Account Set-up Fee for Manually $ 2.00
Established Accounts
Monthly Inactive Zero Balance Account Fee $ .20
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 EUROPE PRUDENTIAL MUTUAL FUND
GROWTH FUND, INC. SERVICES, INC.
NAME: ______________________ NAME: ______________________
TITLE: Treasurer TITLE: ______________________
______________________
DATE: , 1994 DATE: , 1994
______________________ ______________________
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN
919 Third Avenue
New York, New York 10022
(212) 758-9500
June 22, 1994
Prudential Europe Growth Fund, Inc.
One Seaport Plaza
New York, New York 10292
Dear Sirs:
Prudential Europe Growth Fund, Inc. proposes to issue and sell an
indefinite number of shares (the "Shares") of its Common Stock, par
value $.001 per share (the "Common Stock"), in the manner and on the
terms set forth in its Registration Statement on Form N-1A filed with
the Securities and Exchange Commission (File No. 33-53151).
We have, as counsel, participated in various corporate and other
proceedings relating to the Fund and to the Shares. We have examined
copies, either certified or otherwise proved to our satisfaction to be
genuine, of its Articles of Incorporation and By-Laws, as currently in
effect, a certificate of good standing issued by the State Department of
Assessments and Taxation of the State of Maryland and other documents
relating to its organization and operation. We have also reviewed the
above-mentioned Registration Statement and all amendments filed as of
the date of this opinion and the documents filed as exhibits thereto.
We are generally familiar with the corporate affairs of the Fund.
Based upon the foregoing, it is our opinion that:
1. The Fund has been duly organized and is validly existing under the
laws of the State of Maryland.
2. The Fund is authorized to issue 2 billion (2,000,000,000) shares of
Common Stock. Under Maryland law, shares of Common Stock which are
issued and subsequently redeemed by the Fund will be, by virtue of such
redemption, restored to the status of authorized and unissued shares.
2
<PAGE>
3. Subject to the effectiveness of the above-mentioned Registration
Statement and compliance with applicable state securities laws, upon the
issuance of the Shares for a consideration not less than the par value
thereof as required by the laws of Maryland, and not less than the net
asset value thereof as required by the Investment Company Act of 1940
and in accordance with the terms of the Registration Statement, such
Shares will be legally issued and outstanding and fully paid and
non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of the above-mentioned Registration
Statement and with any state securities commission where such filing is
required. We also consent to the reference to our firm as counsel in
the prospectus filed as a part thereof. In giving this consent we do
not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
We are members of the Bar of the State of New York and do not hold
ourselves out as being conversant with the laws of any jurisdiction
other than those of the United States of America and the State of New
York. We note that we are not licensed to practice law in the State of
Maryland, and to the extent that any opinion expressed herein involves
the law of Maryland, such opinion should be understood to be based
solely upon our review of the good standing certificate referred to
above, the published statutes of that State and, where applicable,
published cases, rules or regulations of regulatory bodies of that
State.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman
Shereff, Friedman, Hoffman & Goodman
SFH&G:JHG:LAR:LEB
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Pre-Effective Amendment No. 1 to Registration
Statement No. 33-53151 of Prudential Europe Growth Fund, Inc. of our
report dated June 15, 1994, appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
reference to us under the heading "Custodian, Transfer and Dividend
Disbursing Agent and Independent Accountants" in the Statement of
Additional Information.
/s/ Deloitte & Touche
Deloitte & Touche
New York, New York
June 22, 1994
PURCHASE AGREEMENT
Prudential Europe Growth Fund, Inc. (the Fund), an open-end,
diversified management investment company and a Maryland Corporation,
and Prudential Mutual Fund Management, Inc., a Delaware corporation
(PMF), intending to be legally bound, hereby agree as follows:
1. In order to provide the Fund with its initial capital, the
Fund hereby sells to PMF, and PMF hereby purchases, 8,772 shares of
common stock (the Shares) of the Fund. The Shares are apportioned
as follows: 2,924 Shares of Class A, 2,924 Shares of Class B, and
2,924 Shares of Class C, each at the net asset value of $11.40 per
share. The Fund hereby acknowledges receipt from PMF of funds in
the amount of $100,000.80 in full payment for the Shares.
2. PMF represents and warrants to the Fund that the Shares
are being acquired for investment and not with a view to distribution
thereof and that PMF has no present intention to redeem and dispose
of any of the Shares.
3. PMF hereby agrees that it will not redeem any of the Shares
except in direct proportion to the amortization of organizational
expenses by the Fund. In the event that the Fund liquidates before
deferred organizational expenses are fully amortized, then the Shares
shall bear their proportionate share of such unamortized organization-
al expenses.
IN WITNESS THEREOF, the parties have executed this agreement
as of the 15 day of June, 1994.
Prudential Europe Growth Fund, Inc.
By _________________________________
Lawrence C. McQuade
President
Prudential Mutual Fund Management, Inc.
By _____________________________
Robert F. Gunia
Executive Vice President
Draft 3/29/94
PRUDENTIAL EUROPE GROWTH FUND, INC.
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below
which is designed to conform to the requirements of Rule 12b-1
under the Investment Company Act of 1940 (the Investment Company
Act) and Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. (NASD) has
been adopted by Prudential Europe Growth Fund, Inc. (the Fund)
and by Prudential Mutual Fund Distributors, Inc., the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement (the
Distribution Agreement) pursuant to which the Fund will employ
the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Distribution Agreement, the
Distributor will be entitled to receive payments from investors
of front-end sales charges with respect to the sale of Class A
shares. Under the Plan, the Fund intends to pay to the
Distributor, as compensation for its services, a distribution and
service fee with respect to Class A shares.
A majority of the Board of Directors of the Fund, including
a majority of those Directors who are not "interested persons" of
the Fund (as defined in the Investment Company Act) and who have
no direct or indirect financial interest in the operation of this
<PAGE>
Plan or any agreements related to it (the Rule 12b-1 Directors),
have determined by votes cast in person at a meeting called for
the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and
its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) are primarily intended to
result in the sale of Class A shares of the Fund within the
meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the
Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their
account executives to provide distribution assistance to their
customers who are investors in the Fund, to defray the costs and
expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other
promotional and distribution activities and to provide for the
servicing and maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A
shares of the Fund and to service shareholder accounts using all
of the facilities of the distribution networks of Prudential
Securities Incorporated (Prudential Securities) and Pruco
Securities Corporation (Prusec), including sales personnel and
branch office and central support systems, and also using such
other qualified broker-dealers and financial institutions as the
2
<PAGE>
Distributor may select. Services provided and activities
undertaken to distribute Class A shares of the Fund are referred
to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder
accounts a service fee of .25 of 1% per annum of the average
daily net assets of the Class A shares (service fee). The Fund
shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors may
determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for
its services a distribution fee, together with the service fee
(described in Section 2 hereof), of .30 of 1% per annum of the
average daily net assets of the Class A shares of the Fund for
the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares
of the Fund hereunder and shall pay such amounts monthly or at
such other intervals as the Board of Directors may determine.
Amounts payable under the Plan shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair
Practice.
Amounts paid to the Distributor by the Class A shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
3
<PAGE>
distribution expenses attributable to the Fund as a whole will be
allocated to the Class A shares according to the ratio of the
sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method
approved by the Board of Directors. The allocation of
distribution expenses among classes will be subject to the review
of the Board of Directors.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among
others:
(a) amounts paid to Prudential Securities for
performing services under a selected dealer
agreement between Prudential Securities and
the Distributor for sale of Class A shares of
the Fund, including sales commissions and
trailer commissions paid to, or on account
of, account executives and indirect and
overhead costs associated with Distribution
Activities, including central office and
branch expenses;
(b) amounts paid to Prusec for performing
services under a selected dealer agreement
between Prusec and the Distributor for sale
of Class A shares of the Fund, including
sales commissions, trailer commissions paid
to, or on account of, agents and indirect and
overhead costs associated with Distribution
Activities;
(c) advertising for the Fund in various forms
through any available medium, including the
cost of printing and mailing Fund
prospectuses, statements of additional
information and periodic financial reports
and sales literature to persons other than
current shareholders of the Fund; and
(d) sales commissions (including trailer
commissions) paid to, or on account of,
broker-dealers and financial institutions
(other than Prudential Securities and Prusec)
4
<PAGE>
which have entered into selected dealer
agreements with the Distributor with respect
to Class A shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a
written report specifying in reasonable detail the amounts
expended for Distribution Activities (including payment of the
service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors of the Fund
such additional information as the Board shall from time to time
reasonably request, including information about Distribution
Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the
Fund of the commissions and account servicing fees to be paid by
the Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have selected
dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of
the Fund.
If approved by a vote of a majority of the outstanding
voting securities of the Class A shares of the Fund, the Plan
shall, unless earlier terminated in accordance with its terms,
continue in full force and effect thereafter for so long as such
5
<PAGE>
continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of
the Rule 12b-1 Directors by votes cast in person at a meeting
called for the purpose of voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service
and distribution expenses to be paid as provided for in Sections
2 and 3 hereof so as to increase materially the amounts payable
under this Plan unless such amendment shall be approved by the
vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of
the Fund. All material amendments of the Plan shall be approved
by a majority of the Board of Directors of the Fund and a
majority of the Rule 12b-1 Directors by votes cast in person at a
meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of
the Directors shall be committed to the discretion of the
Rule 12b-1 Directors.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
6
<PAGE>
a period of not less than six years from the date of
effectiveness of the Plan, such agreements or reports, and for at
least the first two years in an easily accessible place.
Dated:
7
Draft 3/29/94
PRUDENTIAL EUROPE GROWTH FUND, INC.
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth
below which is designed to conform to the requirements of Rule 12b-
1 under the Investment Company Act of 1940 (the Investment Company
Act) and Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. (NASD) has
been adopted by Prudential Europe Growth Fund, Inc. (the Fund) and
by Prudential Securities Incorporated (Prudential Securities), the
Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement
pursuant to which the Fund will employ the Distributor to distribute
Class B shares issued by the Fund (Class B shares). Under the Plan,
the Fund wishes to pay to the Distributor, as compensation for its
services, a distribution and service fee with respect to
Class B shares.
A majority of the Board of Directors of the Fund including a
majority who are not "interested persons" of the Fund (as defined
in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of this Plan or any agreements
<PAGE>
related to it (the Rule 12b-1 Directors), have determined by votes
cast in person at a meeting called for the purpose of voting on
this Plan that there is a reasonable likelihood that adoption of
this Plan will benefit the Fund and its shareholders. Expenditures
under this Plan by the Fund for Distribution Activities (defined
below) are primarily intended to result in the sale of Class B
shares of the Fund within the meaning of paragraph (a)(2) of Rule
12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their account
executives to provide distribution assistance to their customers
who are investors in the Fund, to defray the costs and expenses
associated with the preparation, printing and distribution of
prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and
maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B
shares of the Fund and to service shareholder accounts using all of
the facilities of the Prudential Securities distribution network
including sales personnel and branch office and central support
systems, and also using such other qualified broker-dealers and
financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and
2
<PAGE>
activities undertaken to distribute Class B shares of the Fund are
referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder accounts
a service fee of .25 of 1% per annum of the average daily net
assets of the Class B shares (service fee). The Fund shall
calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its
services a distribution fee of .75 of 1% per annum of the average
daily net assets of the Class B shares of the Fund for the
performance of Distribution Activities. The Fund shall calculate
and accrue daily amounts payable by the Class B shares of the Fund
hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine. Amounts payable
under the Plan shall be subject to the limitations of Article III,
Section 26 of the NASD Rules of Fair Practice.
Amounts paid to the Distributor by the Class B shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
distribution expenses attributable to the Fund as a whole will be
allocated to the Class B shares according to the ratio of the sale
of Class B shares to the total sales of the Fund's shares over the
3
<PAGE>
Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions)
paid to, or on account of, account executives of the
Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of Distribution Activities
including central office and branch expenses;
(c) amounts paid to Prusec for performing services under
a selected dealer agreement between Prusec and the
Distributor for sale of Class B shares of the Fund,
including sales commissions and trailer commissions paid
to, or on account of, agents and indirect and overhead
costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through
any available medium, including the cost of printing and
mailing Fund prospectuses, statements of additional
information and periodic financial reports and sales
literature to persons other than current shareholders of
the Fund; and
(e) sales commissions (including trailer commissions)
paid to, or on account of, broker-dealers and other
financial institutions (other than Prusec) which have
entered into selected dealer agreements with the
Distributor with respect to Class B shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a written
report specifying in reasonable detail the amounts expended for
Distribution Activities (including payment of the service fee) and
the purposes for which such expenditures were made in compliance
with the requirements of Rule 12b-1. The Distributor will provide
4
<PAGE>
to the Board of Directors of the Fund such additional information
as they shall from time to time reasonably request, including
information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund
of the commissions and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to
broker-dealers and other financial institutions which have selected
dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the
Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class B shares of the Fund, the Plan shall,
unless earlier terminated in accordance with its terms, continue in
full force and effect thereafter for so long as such continuance is
specifically approved at least annually by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors
by votes cast in person at a meeting called for the purpose of
voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors, or by vote of a majority of the
5
<PAGE>
outstanding voting securities (as defined in the Investment Company
Act) of the Class B shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
distribution expenses to be paid as provided for in Sections 2 and
3 hereof so as to increase materially the amounts payable under
this Plan unless such amendment shall be approved by the vote of a
majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of
the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the
purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of
the Rule 12b-1 Directors shall be committed to the discretion of
the Rule 12b-1 Directors.
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of effectiveness
of the Plan, such agreements or reports, and for at least the first
two years in an easily accessible place.
Dated:
6
Draft 3/29/94
PRUDENTIAL EUROPE GROWTH FUND, INC.
Distribution and Service Plan
(Class C Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below
which is designed to conform to the requirements of Rule 12b-1
under the Investment Company Act of 1940 (the Investment Company
Act) and Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. (NASD) has
been adopted by Prudential Europe Growth Fund, Inc. (the Fund) and
by Prudential Securities Incorporated (Prudential Securities), the
Fund's distributor (the Distributor) and will become effective upon
the approval of the Plan by the sole shareholder of the Class C
shares.
The Fund has entered into a distribution agreement
pursuant to which the Fund will employ the Distributor to
distribute Class C shares issued by the Fund (Class C shares).
Under the Plan, the Fund wishes to pay to the Distributor,
as compensation for its services, a distribution and service
fee with respect to Class C shares.
A majority of the Board of Directors of the Fund, including a
majority who are not "interested persons" of the Fund (as defined
in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors), have determined by votes
<PAGE>
cast in person at a meeting called for the purpose of voting on
this Plan that there is a reasonable likelihood that adoption of
this Plan will benefit the Fund and its shareholders. Expenditures
under this Plan by the Fund for Distribution Activities (defined
below) are primarily intended to result in the sale of Class C
shares of the Fund within the meaning of paragraph (a)(2) of Rule
12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the
Distributor and/or other qualified broker-dealers and their account
executives to provide distribution assistance to their customers
who are investors in the Fund, to defray the costs and expenses
associated with the preparation, printing and distribution of
prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and
maintenance of shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C
shares of the Fund and to service shareholder accounts using all of
the facilities of the Prudential Securities distribution network
including sales personnel and branch office and central support
systems, and also using such other qualified broker-dealers and
financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and
2
<PAGE>
activities undertaken to distribute Class C shares of the Fund are
referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for
providing personal service and/or maintaining shareholder accounts
a service fee of .25 of 1% per annum of the average daily net
assets of the Class C shares (service fee). The Fund shall
calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its
services a distribution fee of .75 of 1% per annum of the average
daily net assets of the Class C shares of the Fund for the
performance of Distribution Activities. The Fund shall calculate
and accrue daily amounts payable by the Class C shares of the Fund
hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors may determine. Amounts payable
under the Plan shall be subject to the limitations of Article III,
Section 26 of the NASD Rules of Fair Practice.
Amounts paid to the Distributor by the Class C shares of the
Fund will not be used to pay the distribution expenses incurred
with respect to any other class of shares of the Fund except that
distribution expenses attributable to the Fund as a whole will be
allocated to the Class C shares according to the ratio of the sale
of Class C shares to the total sales of the Fund's shares over the
3
<PAGE>
Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors.
Payments hereunder will be applied to distribution expenses in the
order in which they are incurred, unless otherwise determined by
the Board of Directors.
The Distributor shall spend such amounts as it deems
appropriate on Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions)
paid to, or on account of, account executives of the
Distributor;
(b) indirect and overhead costs of the Distributor
associated with performance of Distribution Activities
including central office and branch expenses;
(c) amounts paid to Prusec for performing services under
a selected dealer agreement between Prusec and the
Distributor for sale of Class C shares of the Fund,
including sales commissions and trailer commissions paid
to, or on account of, agents and indirect and overhead
costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through
any available medium, including the cost of printing and
mailing Fund prospectuses, statements of additional
information and periodic financial reports and sales
literature to persons other than current shareholders of
the Fund; and
(e) sales commissions (including trailer commissions)
paid to, or on account of, broker-dealers and other
financial institutions (other than Prusec) which have
entered into selected dealer agreements with the
Distributor with respect to Class C shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Fund will provide to the Board
of Directors of the Fund for review, at least quarterly, a written
report specifying in reasonable detail the amounts expended for
4
<PAGE>
Distribution Activities (including payment of the service fee) and
the purposes for which such expenditures were made in compliance
with the requirements of Rule 12b-1. The Distributor will provide
to the Board of Directors of the Fund such additional information
as they shall from time to time reasonably request, including
information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund
of the commissions and account servicing fees to be paid by the
Distributor to account executives of the Distributor and to
broker-dealers and other financial institutions which have selected
dealer agreements with the Distributor.
5. Effectiveness; Continuation
The Plan shall not take effect until it has been approved by
a vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the
Fund.
If approved by a vote of a majority of the outstanding voting
securities of the Class C shares of the Fund, the Plan shall,
unless earlier terminated in accordance with its terms, continue in
full force and effect thereafter for so long as such continuance is
specifically approved at least annually by a majority of the Board
of Directors of the Fund and a majority of the Rule 12b-1 Directors
by votes cast in person at a meeting called for the purpose of
voting on the continuation of the Plan.
5
<PAGE>
6. Termination
This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Directors, or by vote of a majority of the
outstanding voting securities (as defined in the Investment Company
Act) of the Class C shares of the Fund.
7. Amendments
The Plan may not be amended to change the combined service and
distribution expenses to be paid as provided for in Sections 2 and
3 hereof so as to increase materially the amounts payable under
this Plan unless such amendment shall be approved by the vote of a
majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Class C shares of the Fund. All
material amendments of the Plan shall be approved by a majority of
the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the
purpose of voting on the Plan.
8. Rule 12b-1 Directors
While the Plan is in effect, the selection and nomination of
the Rule 12b-1 Directors shall be committed to the discretion of
the Rule 12b-1 Directors.
6
<PAGE>
9. Records
The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Section 4 hereof, for
a period of not less than six years from the date of effectiveness
of the Plan, such agreements or reports, and for at least the first
two years in an easily accessible place.
Dated:
7
