Prudential
Investment Portfolios, Inc. 15
STATEMENT
OF ADDITIONAL INFORMATION | October 30, 2024
This Statement of
Additional Information (“SAI”) of PGIM High Yield Fund and PGIM Short Duration
High Yield Income Fund (each a “Fund” and together, the “Funds”), each a series
of Prudential Investment Portfolios Inc., 15 (“PIP 15”), is not a prospectus and
should be read in conjunction with the Prospectus of each Fund, respectively,
each dated October 30, 2024, as supplemented and amended from time to time. This
SAI has been incorporated by reference into each Fund’s Prospectus. The
Prospectuses can be obtained, without charge, by calling (800) 225-1852 or by
writing to Prudential Mutual Fund Services LLC at P.O. Box 534432, Pittsburgh,
PA 15253-4432.
In
addition to the Funds, PIP 15 has the following other series: PGIM ESG High
Yield Fund, which is offered in a separate prospectus and
SAI.
The Funds’ audited
financial statements are incorporated into this SAI by reference to each Fund’s
2024 Annual Report (File No. 811-02896). You may request a copy of the Annual
Report at no charge by calling (800) 225-1852.
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PGIM
HIGH YIELD FUND | ||||||
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A:
PBHAX |
C:
PRHCX |
R:
JDYRX |
Z:
PHYZX |
R2:
PHYEX |
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R4:
PHYGX |
R6:
PHYQX |
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PGIM
SHORT DURATION HIGH YIELD INCOME FUND | ||||||
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A:
HYSAX |
C:
HYSCX |
Z:
HYSZX |
R6:
HYSQX |
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To
enroll in e-delivery, go to pgim.com/investments/resource/edelivery
MF110B
PART
I
INTRODUCTION
This SAI sets forth information
about the Funds. It provides information about certain of the securities,
instruments, policies and strategies that are used by each Fund in seeking to
achieve its objective. This SAI provides additional information about PIP 15’s
Board of Directors (hereafter referred to as “Board Members”), the advisory
services provided to and the management fees paid by the Funds, information
about other fees paid by and services provided to each Fund, and other
information.
Before reading the
SAI, you should consult the Glossary below, which defines certain of the terms
used in the SAI:
GLOSSARY
|
Term |
Definition |
|
1933
Act |
Securities
Act of 1933, as amended |
|
1934
Act |
Securities
Exchange Act of 1934, as amended |
|
1940
Act |
Investment
Company Act of 1940, as amended |
|
1940
Act Laws, Interpretations and Exemptions |
1940
Act, Exemptive order, SEC release, no-action letter or similar relief or
interpretations, collectively |
|
ADR |
American
Depositary Receipt |
|
ADS |
American
Depositary Share |
|
Board |
Fund’s
Board of Directors or Trustees |
|
Board
Member |
A
trustee or director of the Fund’s Board |
|
CEA |
Commodity
Exchange Act, as amended |
|
CFTC |
U.S.
Commodity Futures Trading Commission |
|
Code |
Internal
Revenue Code of 1986, as amended |
|
CMO |
Collateralized
Mortgage Obligation |
|
ETF |
Exchange-Traded
Fund |
|
EDR |
European
Depositary Receipt |
|
Fannie
Mae |
Federal
National Mortgage Association |
|
FDIC |
Federal
Deposit Insurance Corporation |
|
Fitch |
Fitch
Ratings, Inc. |
|
Freddie
Mac |
Federal
Home Loan Mortgage Corporation |
|
GDR |
Global
Depositary Receipt |
|
Ginnie
Mae |
Government
National Mortgage Association |
|
IPO |
Initial
Public Offering |
|
IRS |
Internal
Revenue Service |
|
LIBOR |
London
Interbank Offered Rate |
|
Manager
or PGIM Investments |
PGIM
Investments LLC |
|
Moody’s |
Moody’s
Investors Service, Inc. |
|
NASDAQ |
National
Association of Securities Dealers Automated
Quotations |
|
NAV |
Net
Asset Value |
|
NRSRO |
Nationally
Recognized Statistical Rating Organization |
|
NYSE |
New
York Stock Exchange |
|
OTC |
Over
the Counter |
|
Prudential |
Prudential
Financial, Inc. |
|
PMFS |
Prudential
Mutual Fund Services LLC |
|
QPTP |
“Qualified
publicly traded partnership” as the term is used in the Internal Revenue
Code of 1986, as amended |
|
REIT |
Real
Estate Investment Trust |
|
RIC |
Regulated
Investment Company, as the term is used in the Internal Revenue Code of
1986, as amended |
|
S&P |
S&P
Global Ratings
|
3
|
Term |
Definition |
|
SEC |
U.S.
Securities and Exchange Commission |
|
SOFR |
Secured
Overnight Financing Rate |
|
World
Bank |
International
Bank for Reconstruction and
Development |
FUND
CLASSIFICATION, INVESTMENT Objectives & POLICIES
PIP 15 is an
open-end management investment company. Each Fund is classified as a diversified
fund.
The primary
investment objective of each Fund is to maximize current income. As a secondary
investment objective, PGIM High Yield Fund will seek capital appreciation but
only when consistent with its primary objective.
INVESTMENTS,
INVESTMENT STRATEGIES AND RISKS
The principal
investment policies and strategies of each Fund are described in each Fund's
Prospectus. In addition, each Fund may from time to time use the securities,
instruments, policies and strategies that are further identified below in
seeking to achieve its objectives. Unless otherwise stated, the use of the term
the “Fund” in the following section refers to each of the Funds.
Set forth below
are descriptions of some of the types of investments and investment strategies
that the Fund may use and the risks and considerations associated with
those investments and investment strategies. The order of the below investments,
investment strategies and risks does not indicate the significance of any
particular investment, investment strategy or risk. Each Fund also may
invest from time to time in certain types of investments and investment
strategies that are not discussed below. Please also see the Prospectus of each
Fund and the “Fund Classification, Investment Objective & Policies” section
of this SAI.
ASSET-BACKED
SECURITIES. Asset-backed
securities directly or indirectly represent a participation interest in, or are
secured by and payable from, a stream of payments generated by particular assets
such as motor vehicle or credit card receivables. Payments of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit issued by a financial institution unaffiliated with the
entities issuing the securities. Asset-backed securities may be classified as
pass-through certificates or collateralized obligations.
Pass-through
certificates are asset-backed securities which represent an undivided fractional
ownership interest in an underlying pool of assets. Pass-through certificates
usually provide for payments of principal and interest received to be passed
through to their holders, usually after deduction for certain costs and expenses
incurred in administering the pool. Because pass-through certificates represent
an ownership interest in the underlying assets, the holders thereof bear
directly the risk of any defaults by the obligors on the underlying assets not
covered by any credit support.
Credit quality of
an asset-backed security depends primarily on the quality of the underlying
asset, the level of credit support, if any, provided by the structure or by a
third-party insurance wrap, and the credit quality of the swap counterparty, if
any. The value of an asset-backed security can change because of actual or
perceived changes in creditworthiness of the individual borrowers, the
originator, the servicing agent, the financial institution providing credit
support or the swap counterparty.
Asset-backed
securities issued in the form of debt instruments include collateralized bond
obligations (“CBOs”), collateralized loan obligations (“CLOs”) and other
similarly structured securities. A CBO is a trust that is often backed by a
diversified pool of high risk, below investment grade fixed income securities.
The collateral can be from many different types of fixed income securities such
as high yield debt, residential privately issued mortgage-related securities,
commercial privately issued mortgage-related securities, trust preferred
securities and emerging market debt. A CLO is a trust typically collateralized
by a pool of loans, which may include, among others, domestic and foreign senior
secured loans, senior unsecured loans, and subordinate corporate loans,
including loans that may be rated below investment grade or equivalent unrated
loans. CBOs and CLOs may charge management fees and administrative
expenses.
For CBOs and CLOs,
the cash flows from the trust are split into two or more portions, called
tranches, varying in risk and yield. The riskiest portion is the “equity”
tranche which bears the bulk of defaults from the bonds or loans in the trust
and serves to protect the other, more senior tranches from default in all but
the most severe circumstances. Since they are partially protected from defaults,
senior tranches from a CBO trust or CLO trust typically have higher ratings and
lower yields than their underlying securities, and can be rated investment
grade. Despite the protection from the equity tranche, CBO or CLO tranches can
experience substantial losses due to actual defaults, increased sensitivity to
defaults due to collateral default and disappearance of protecting tranches,
market anticipation of defaults, as well as aversion to CBO or CLO securities as
a class.
Prudential
Investment Portfolios, Inc. 15 4
The risks of an
investment in a CBO or CLO depend largely on the type of the collateral
securities and the class of the instrument in which a Fund invests. Normally,
CBOs and CLOs are privately offered and sold, and thus, are not registered under
the securities laws. As a result, investments in CBOs and CLOs may be
characterized by a Fund as illiquid investments; however, an active dealer
market may exist for CBOs and CLOs, allowing them to qualify for Rule 144A
transactions. In addition to the normal risks associated with fixed income
securities discussed elsewhere in this SAI and a Fund’s Prospectus (e.g.,
interest rate risk and default risk), CBOs and CLOs carry additional risks
including, but not limited to: (i) the possibility that distributions from
collateral securities will not be adequate to make interest or other payments;
(ii) the possibility that the quality of the collateral may decline in value or
default; (iii) the risk that a Fund may invest in CBOs or CLOs that are
subordinate to other classes; and (iv) the risk that the complex structure of
the security may not be fully understood at the time of investment and may
produce disputes with the issuer or unexpected investment results.
BORROWING
AND LEVERAGE. Unless noted
otherwise, a Fund may borrow up to 33 1∕3% of the value of
its total assets (calculated at the time of the borrowing). A Fund may pledge up
to 33 1∕3% of its total
assets to secure these borrowings. If a Fund’s asset coverage for borrowings
falls below 300%, a Fund will take prompt action to reduce borrowings. If a Fund
borrows to invest in securities, any investment gains made on the securities in
excess of interest paid on the borrowing will cause the NAV of the shares to
rise faster than would otherwise be the case. On the other hand, if the
investment performance of the additional securities purchased fails to cover
their cost (including any interest paid on the money borrowed) to a Fund, the
NAV of a Fund’s shares will decrease faster than would otherwise be the case.
This is the speculative factor known as “leverage.” In addition, a Fund may use
certain investment management techniques (collectively, “effective leverage”),
such as certain derivatives, that may provide leverage and are not subject to
the borrowing limitation noted above.
A Fund may borrow
from time to time, at the discretion of the subadviser, to take advantage of
investment opportunities, when yields on available investments exceed interest
rates and other expenses of related borrowing, or when, in the subadviser's
opinion, unusual market conditions otherwise make it advantageous for a Fund to
increase its investment capacity. A Fund will only borrow when there is an
expectation that it will benefit a Fund after taking into account considerations
such as interest income and possible losses upon liquidation. Borrowing by a
Fund creates an opportunity for increased net income but, at the same time,
creates risks, including the fact that leverage may exaggerate changes in the
NAV of Fund shares and in the yield on a Fund. Unless otherwise stated, a Fund
may borrow through forward rolls, dollar rolls or reverse repurchase
agreements.
CERTIFICATES
OF DEPOSIT. The FDIC, an
independent agency of the U.S. Government, provides deposit insurance on all
types of deposits, including certificates of deposit, received at an
FDIC-insured bank or savings association (“insured depository institutions”) up
to applicable limits. The standard deposit insurance amount is $250,000 per
depositor (including principal and accrued interest) for each insurable capacity
of such depositor, per insured depository institution, which is backed by the
full faith and credit of the U.S. Government. All of a depositor’s deposits in
the same insurable capacity at the same insured depository institution are
aggregated for purposes of the $250,000 insurance limit, including deposits held
directly in the depositor’s name and for the depositor’s benefit by
intermediaries. Any amounts each Fund invests in certificates of deposit in
excess of the $250,000 deposit insurance limit will be uninsured. An investor’s
investment in each Fund is subject to risk of loss, and is not insured or
guaranteed by the FDIC or any other governmental agency.
CONVERTIBLE
SECURITIES. A Fund may invest
in convertible securities. Convertible securities entitle the holder to receive
interest payments paid on corporate debt securities or the dividend preference
on a preferred stock until such time as the convertible security matures or is
redeemed or until the holder elects to exercise the conversion
privilege.
The
characteristics of convertible securities make them appropriate investments for
an investment company seeking long-term capital appreciation and/or total
return. These characteristics include the potential for capital appreciation as
the value of the underlying common stock increases, the relatively high yield
received from dividend or interest payments as compared to common stock
dividends and decreased risks of decline in value relative to the underlying
common stock due to their fixed income nature. As a result of the conversion
feature, however, the interest rate or dividend preference on a convertible
security is generally less than would be the case if the securities were issued
in nonconvertible form.
In analyzing
convertible securities, the subadviser will consider both the yield on the
convertible security relative to its credit quality and the potential capital
appreciation that is offered by the underlying common stock, among other
things.
Convertible
securities are issued and traded in a number of securities markets. Even in
cases where a substantial portion of the convertible securities held by a Fund
are denominated in U.S. dollars, the underlying equity securities may be quoted
in the currency of the country where the issuer is domiciled. With respect to
convertible securities denominated in a currency different from that of the
underlying equity securities, the conversion price may be based on a fixed
exchange rate established at the time the security is issued.
5
As a result,
fluctuations in the exchange rate between the currency in which the debt
security is denominated and the currency in which the share price is quoted will
affect the value of the convertible security. As described below, a Fund is
authorized to enter into foreign currency hedging transactions in which a Fund
may seek to reduce the effect of such fluctuations.
Apart from
currency considerations, the value of convertible securities is influenced by
both the yield of nonconvertible securities of comparable issuers and by the
value of the underlying common stock. The value of a convertible security viewed
without regard to its conversion feature (i.e., strictly on the basis of its
yield) is sometimes referred to as its “investment value.” To the extent
interest rates change, the investment value of the convertible security
typically will fluctuate. However, at the same time, the value of the
convertible security will be influenced by its “conversion value,” which is the
market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price of the
common stock, the conversion value is substantially below the investment value
of the convertible security, the price of the convertible security is governed
principally by its investment value.
To the extent the
conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the price of the convertible
security will be influenced principally by its conversion value. A convertible
security will sell at a premium over the conversion value to the extent
investors place value on the right to acquire the underlying common stock while
holding a fixed income security. The yield and conversion premium of convertible
securities issued in Japan and the Euromarket are frequently determined at
levels that cause the conversion value to affect their market value more than
the securities' investment value.
Holders of
convertible securities generally have a claim on the assets of the issuer prior
to the common stockholders but may be subordinated to other debt securities of
the same issuer. A convertible security may be subject to redemption at the
option of the issuer at a price established in the charter provision, indenture
or other governing instrument pursuant to which the convertible security was
issued. If a convertible security held by a Fund is called for redemption, a
Fund will be required to redeem the security, convert it into the underlying
common stock or sell it to a third party. Certain convertible debt securities
may provide a put option to the holder, which entitles the holder to cause the
security to be redeemed by the issuer at a premium over the stated principal
amount of the debt security under certain circumstances.
Synthetic
convertible securities may be either (i) a debt security or preferred stock that
may be convertible only under certain contingent circumstances or that may pay
the holder a cash amount based on the value of shares of underlying common stock
partly or wholly in lieu of a conversion right (a “Cash-Settled Convertible”),
(ii) a combination of separate securities chosen by the subadviser in order to
create the economic characteristics of a convertible security, i.e., a fixed
income security paired with a security with equity conversion features, such as
an option or warrant (a “Manufactured Convertible”) or (iii) a synthetic
security manufactured by another party.
Synthetic
convertible securities may include either Cash-Settled Convertibles or
Manufactured Convertibles. Cash-Settled Convertibles are instruments that are
created by the issuer and have the economic characteristics of traditional
convertible securities but may not actually permit conversion into the
underlying equity securities in all circumstances. As an example, a private
company may issue a Cash-Settled Convertible that is convertible into common
stock only if the company successfully completes a public offering of its common
stock prior to maturity and otherwise pays a cash amount to reflect any equity
appreciation. Manufactured Convertibles are created by the subadviser by
combining separate securities that possess one of the two principal
characteristics of a convertible security, i.e., fixed income (“fixed income
component”) or a right to acquire equity securities (“convertibility
component”). The fixed income component is achieved by investing in
nonconvertible fixed income securities, such as nonconvertible bonds, preferred
stocks and money market instruments. The convertibility component is achieved by
investing in call options, warrants, or other securities with equity conversion
features (“equity features”) granting the holder the right to purchase a
specified quantity of the underlying stocks within a specified period of time at
a specified price or, in the case of a stock index option, the right to receive
a cash payment based on the value of the underlying stock index.
A Manufactured
Convertible differs from traditional convertible securities in several respects.
Unlike a traditional convertible security, which is a single security having a
unitary market value, a Manufactured Convertible is comprised of two or more
separate securities, each with its own market value. Therefore, the total
“market value” of such a Manufactured Convertible is the sum of the values of
its fixed income component and its convertibility component.
More flexibility
is possible in the creation of a Manufactured Convertible than in the purchase
of a traditional convertible security. Because many corporations have not issued
convertible securities, the subadviser may combine a fixed income instrument and
an equity feature with respect to the stock of the issuer of the fixed income
instrument to create a synthetic convertible security otherwise unavailable in
the market. The subadviser may also combine a fixed income instrument of an
issuer with an equity feature with respect to the stock of a different issuer
when the subadviser believes such a Manufactured Convertible would better
promote a Fund’s objective(s) than alternate investments. For example, the
subadviser may combine an equity feature with respect to an issuer's stock with
a fixed income security of a different issuer in the same industry to diversify
a Fund’s credit exposure, or with a U.S. Treasury
Prudential
Investment Portfolios, Inc. 15 6
instrument to
create a Manufactured Convertible with a higher credit profile than a
traditional convertible security issued by that issuer. A Manufactured
Convertible also is a more flexible investment in that its two components may be
purchased separately and, upon purchasing the separate securities, “combined” to
create a Manufactured Convertible. For example, a Fund may purchase a warrant
for eventual inclusion in a Manufactured Convertible while postponing the
purchase of a suitable bond to pair with the warrant pending development of more
favorable market conditions.
The value of a
Manufactured Convertible may respond differently to certain market fluctuations
than would a traditional convertible security with similar characteristics. For
example, in the event a Fund created a Manufactured Convertible by combining a
short-term U.S. Treasury instrument and a call option on a stock, the
Manufactured Convertible would likely outperform a traditional convertible of
similar maturity that is convertible into that stock during periods when
Treasury instruments outperform corporate fixed income securities and
underperform during periods when corporate fixed income securities outperform
Treasury instruments.
CORPORATE/BANK
LOANS. Commercial
banks and other financial institutions make loans to companies. These loans may
be variously referred to as corporate loans, bank loans, leveraged loans, or
bank floating rate loans (“corporate loans”). Borrowers generally pay interest
on corporate loans at rates that change in response to changes in market
interest rates such as the SOFR or the prime rate of U.S. banks. As a result,
the value of corporate loan investments is generally responsive to shifts in
market interest rates. Borrowers frequently provide collateral to secure
repayment of these obligations. Leading financial institutions often act as
agent for a broader group of lenders, generally referred to as a “syndicate.”
The syndicate's agent arranges the corporate loans, holds collateral and accepts
payments of principal and interest. If the agent develops financial problems, a
Fund may not recover its investment, or there might be a delay in the Fund’s
recovery. By investing in a corporate loan, a Fund becomes a member of the
syndicate.
In market
conditions where short-term interest rates are particularly low, certain
floating rate loans may be issued with a feature that prevents the relevant
benchmark rate from adjusting below a specified minimum level. This is achieved
by defining a “floor” to the benchmark rate, so that if downward market
movements of the benchmark rate would, absent this feature, cause the benchmark
rate to fall below the floor, with this feature, the benchmark rates of these
floating rate loans become fixed at the applicable minimum floor level until
short-term interest rates (and therefore the benchmark rate) rise above that
level. Although this feature is intended to result in these floating rate loans
yielding more than they otherwise would when short-term interest rates are low,
the feature might also result in the secondary market prices of these floating
rate loans becoming more sensitive to changes in interest rates should
short-term interest rates rise.
As in the case of
junk bonds, the corporate loans in which a Fund may invest can be expected to
provide higher yields than higher-rated fixed income securities but may be
subject to greater risk of loss of principal and interest. There are, however,
some significant differences between corporate loans and junk bonds. Corporate
loans are frequently secured by pledges of liens and security interests in the
assets of the borrower, and the holders of corporate loans are frequently the
beneficiaries of debt service subordination provisions imposed on the borrower's
bondholders. These arrangements are designed to give corporate loan investors
preferential treatment over junk bond investors in the event of a deterioration
in the credit quality of the issuer. Even when these arrangements exist,
however, there can be no assurance that the principal and interest owed on the
corporate loans will be repaid in full. Corporate loans generally bear interest
at rates set at a margin above a generally recognized base lending rate that may
fluctuate on a day-to-day basis, in the case of the prime rate of a U.S. bank,
or that may be adjusted on set dates, typically 30 days but generally not more
than one year, in the case of SOFR. Consequently, the value of corporate loans
held by a Fund may be expected to fluctuate significantly less than the value of
fixed rate junk bond instruments as a result of changes in the interest rate
environment.
A Fund may acquire
interests in corporate loans by means of a novation, assignment or
participation. In a novation, a Fund would succeed to all the rights and
obligations of the assigning institution and become a contracting party under
the credit agreement with respect to the debt obligation. As an alternative, a
Fund may purchase an assignment, in which case the Fund may be required to rely
on the assigning institution to demand payment and enforce its rights against
the borrower but would otherwise typically be entitled to all of such assigning
institution's rights under the credit agreement. Participation interests in a
portion of a debt obligation typically result in a contractual relationship only
with the institution selling the participation interest and not with the
borrower. In purchasing a loan participation, a Fund generally will have no
right to enforce compliance by the borrower with the terms of the loan
agreement, nor any rights of set-off against the borrower, and a Fund may not
directly benefit from the collateral supporting the debt obligation in which it
has purchased the participation. As a result, a Fund will assume the credit risk
of both the borrower and the institution selling the participation to the
Fund.
A Fund’s ability
to receive payments of principal and interest and other amounts in connection
with loans (whether through participations, assignments or otherwise) will
depend primarily on the financial condition of the borrower. The failure by a
Fund to receive scheduled interest or principal payments on a loan because of a
default, bankruptcy or any other reason would adversely affect the income of the
Fund and would likely reduce the value of its assets. Even with loans secured by
collateral, there is the risk that the value of the collateral may decline, may
be insufficient to meet the obligations of the borrower, or be difficult to
liquidate. In the event of
7
a default, a Fund
may have difficulty collecting on any collateral and would not have the ability
to collect on any collateral for an uncollateralized loan. Further, a Fund’s
access to collateral, if any, may be limited by bankruptcy laws. Due to the
nature of the private syndication of senior loans, including, for example, lack
of publicly-available information, some senior loans are not as easily purchased
or sold as publicly-traded securities. In addition, loan participations
generally are subject to restrictions on transfer, and only limited
opportunities may exist to sell loan participations in secondary markets. As a
result, it may be difficult for a Fund to value loans or sell loans at an
acceptable price when it wants to sell them. Loans trade in an over-the-counter
market, and confirmation and settlement, which are effected through standardized
procedures and documentation, may take significantly longer than seven days to
complete. Floating rate loans are especially subject to liquidity and settlement
risk due to the fact that they can take more than seven days to settle. Extended
trade settlement periods may, in unusual market conditions with a high volume of
shareholder redemptions, present a risk to shareholders regarding a Fund’s
ability to pay redemption proceeds within the allowable time periods stated in
the Prospectus. In some instances, loans and loan participations are not rated
by independent credit rating agencies; in such instances, a decision by a Fund
to invest in a particular loan or loan participation could depend exclusively on
the subadviser’s credit analysis of the borrower, or in the case of a loan
participation, of the intermediary holding the portion of the loan that a Fund
has purchased. To the extent a Fund invests in loans of non-U.S. issuers, the
risks of investing in non-U.S. issuers are applicable.
Loans may not be
considered to be “securities” and as a result may not benefit from the
protections of the federal securities laws, including anti-fraud protections and
those with respect to the use of material non-public information, so that
purchasers, such as the Fund, may not have the benefit of these protections. If
a Fund is in possession of material non-public information about a borrower as a
result of its investment in such borrower’s loan, the Fund may not be able to
enter into a transaction with respect to a publicly-traded security of the
borrower when it would otherwise be advantageous to do so.
CREDIT
DEFAULT SWAP AGREEMENTS AND SIMILAR INSTRUMENTS. A Fund may enter
into credit default swap agreements and similar agreements. The credit default
swap agreement or similar instrument may have as reference obligations one or
more securities that are not currently held by a Fund. The protection “buyer” in
a credit default contract may be obligated to pay the protection “seller” an
up-front or a periodic stream of payments over the term of the contract provided
generally that no credit event on a reference obligation has occurred. If a
credit event occurs, the seller generally must pay the buyer the “par value”
(full notional value) of the swap in exchange for an equal face amount of
deliverable obligations of the reference entity described in the swap, or the
seller may be required to deliver the related net cash amount, if the swap is
cash settled. A Fund may be either the buyer or seller in the transaction. If a
Fund is a buyer and no credit event occurs, a Fund recovers nothing if the swap
is held through its termination date. However, if a credit event occurs, the
buyer may elect to receive the full notional value of the swap in exchange for
an equal face amount of deliverable obligations of the reference entity that may
have little or no value. As a seller, a Fund generally receives an up-front
payment or a fixed rate of income throughout the term of the swap provided that
there is no credit event. If a credit event occurs, generally the seller must
pay the buyer the full notional value of the swap in exchange for an equal face
amount of deliverable obligations of the reference entity that may have little
or no value.
Credit default
swaps and similar instruments involve greater risks than if a Fund had invested
in the reference obligation directly, since, in addition to general market
risks, they are subject to illiquidity risk, counterparty risk and credit risk.
A Fund will enter into credit default swap agreements and similar instruments
only with counterparties that are rated investment grade quality by at least one
credit rating agency at the time of entering into such transaction or whose
creditworthiness is believed by the subadviser to be equivalent to such rating.
If a credit event were to occur, the value of any deliverable obligation
received by the seller, coupled with the up-front or periodic payments
previously received, may be less than the full notional value it pays to the
buyer, resulting in a loss of value to a Fund. When acting as a seller of a
credit default swap or a similar instrument, a Fund is exposed to many of the
same risks of leverage since, if a credit event occurs, the seller may be
required to pay the buyer the full notional value of the contract net of any
amounts owed by the buyer related to its delivery of deliverable
obligations.
Certain index
credit default swaps are required to be executed in regulated markets and
submitted for clearing to regulated clearinghouses. Other single-name credit
default swaps and index credit default swaps are permitted, although not
required, to be cleared through regulated clearinghouses. The Fund will clear
credit default swaps that are subject to mandatory clearing and may voluntarily
clear some, but not all, of the other credit default swaps not subject to
mandatory clearing. The Fund will face counterparty risk with respect to the
clearinghouse when entering into cleared credit default swaps. The Fund will
face significant counterparty risk with respect to counterparties to non-cleared
credit default swaps and similar instruments. A Fund typically will enter into
non-cleared credit default swaps and similar instruments with swap dealers and
creditworthy entities that have substantial capital or have provided a Fund with
a third-party guaranty or other credit support.
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Investment Portfolios, Inc. 15 8
CREDIT-LINKED
SECURITIES. Among the income
producing securities in which a Fund may invest are credit-linked securities,
which are issued by a limited purpose trust or other vehicle that, in turn,
invests in a derivative instrument or basket of derivative instruments, such as
credit default swaps, interest rate swaps and other securities, in order to
provide exposure to certain fixed income markets. For instance, a Fund may
invest in credit-linked securities as a cash management tool in order to gain
exposure to a certain market and/or to remain fully invested when more
traditional income producing securities are not available.
Like an investment
in a bond, investments in these credit-linked securities represent the right to
receive periodic income payments (in the form of distributions) and payment of
principal at the end of the term of the security. However, these payments are
conditioned on the issuer's receipt of payments from, and the issuer's potential
obligations to, the counterparties to the derivative instruments and other
securities in which the issuer invests. For instance, the issuer may sell one or
more credit default swaps, under which the issuer would receive a stream of
payments over the term of the swap agreements provided that no event of default
has occurred with respect to the referenced debt obligation upon which the swap
is based. If a default occurs, the stream of payments may stop and the issuer
would be obligated to pay the counterparty the par (or other agreed upon value)
of the referenced debt obligation. This, in turn, would reduce the amount of
income and principal that a Fund would receive. A Fund’s investments in these
instruments are indirectly subject to the risks associated with derivative
instruments, including, among others, credit risk, default or similar event
risk, counterparty risk, interest rate risk, leverage risk and management risk.
It is also expected that the securities will be exempt from registration under
the 1933 Act.
CURRENCY
FUTURES. A Fund may seek
to enhance returns or hedge against the decline in the value of a currency
through use of currency futures or options thereon. Currency futures are similar
to forward foreign exchange transactions except that futures are standardized,
exchange-traded contracts. See the sub-section entitled “Futures.” Currency
futures involve substantial currency risk, and also involve leverage
risk.
CURRENCY
OPTIONS. A Fund may seek
to enhance returns or hedge against the decline in the value of a currency
against the U.S. dollar through the use of currency options. Currency options
are similar to options on securities, but in consideration for an option premium
the writer of a currency option is obligated to sell (in the case of a call
option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. A Fund may engage in transactions in options on currencies
either on exchanges or OTC markets. See “Types of Options” and “Additional Risk
Factors of OTC Transactions; Limitations on the Use of OTC Derivatives” in this
SAI. Currency options involve substantial currency risk, and may also involve
credit, leverage or liquidity risk.
CYBER
SECURITY RISK. A Fund is
susceptible to operational, information security and other risks related to the
use of technology, computer systems and the Internet to conduct business. These
risks, which are often collectively referred to as “cyber security” risks, may
include deliberate or malicious attacks, as well as unintentional events and
occurrences. Cyber security is generally defined as the technology, operations
and related protocol surrounding and protecting a user’s computer hardware,
network, systems and applications and the data transmitted and stored therewith.
These measures ensure the reliability of a user’s systems, as well as the
security, availability, integrity, and confidentiality of data
assets.
Deliberate cyber
attacks can include, but are not limited to, gaining unauthorized access to
computer systems in order to misappropriate and/or disclose sensitive or
confidential information; deleting, corrupting or modifying data; and causing
operational disruptions. Cyber attacks may also be carried out in a manner that
does not require gaining unauthorized access, such as causing denial-of-service
attacks on websites (in order to prevent access to computer networks). In
addition to deliberate breaches engineered by external actors, cyber security
risks can also result from the conduct of malicious, exploited or careless
insiders, whose actions may result in the destruction, release or disclosure of
confidential or proprietary information stored on an organization’s
systems.
Cyber security
failures or breaches, whether deliberate or unintentional, arising from a Fund’s
third-party service providers (e.g., custodians, financial intermediaries,
transfer agents), subadviser, shareholder usage of unsecure systems to access
personal accounts, as well as breaches suffered by the issuers of securities in
which a Fund invests, may cause significant disruptions in the business
operations of a Fund. Potential impacts may include, but are not limited to,
potential financial losses for a Fund and the issuers’ securities, the inability
of shareholders to conduct transactions with a Fund, an inability of a Fund to
calculate NAV, and disclosures of personal or confidential shareholder
information.
In addition to
direct impacts on Fund shareholders, cyber security failures by a Fund and/or
its service providers and others may result in regulatory inquiries, regulatory
proceedings, regulatory and/or legal and litigation costs to a Fund, and
reputational damage. A Fund may incur reimbursement and other expenses,
including the costs of litigation and litigation settlements and additional
compliance costs. A Fund may also incur considerable expenses in enhancing and
upgrading computer systems and systems security following a cyber security
failure.
9
The rapid
proliferation of technologies, as well as the increased sophistication and
activities of organized crime, hackers, terrorists, and others continue to pose
new and significant cyber security threats. Although a Fund and its service
providers and subadviser may have established business continuity plans and risk
management systems to mitigate cyber security risks, there can be no guarantee
or assurance that such plans or systems will be effective, or that all risks
that exist, or may develop in the future, have been completely anticipated and
identified or can be protected against. Furthermore, a Fund cannot control or
assure the efficacy of the cyber security plans and systems implemented by
third-party service providers, the subadviser, and the issuers in which a Fund
invests.
DEBT
SECURITIES. A Fund may invest
in debt securities, such as bonds, that involve credit risk. This is the risk
that the issuer will not make timely payments of principal and interest. The
degree of credit risk depends on the issuer's financial condition and on the
terms of the bonds. Changes in an issuer's credit rating or the market's
perception of an issuer's creditworthiness may also affect the value of a Fund’s
investment in that issuer. Credit risk is reduced to the extent a Fund invests
its assets in U.S. Government securities. Certain debt securities, however, may
be subject to interest rate risk. This is the risk that the value of the
security may fall when interest rates rise. In general, the market price of debt
securities with longer maturities will go up or down more in response to changes
in interest rates than the market price of shorter-term securities. A Fund may
lose money if short-term or long-term interest rates rise sharply or in a manner
not anticipated by the subadviser.
DEPOSITARY
RECEIPTS. A Fund may invest
in the securities of foreign issuers in the form of Depositary Receipts or other
securities convertible into securities of foreign issuers. Depositary Receipts
may not necessarily be denominated in the same currency as the underlying
securities into which they may be converted. ADRs and ADSs are receipts or
shares typically issued by an American bank or trust company that evidence
ownership of underlying securities issued by a foreign corporation. EDRs are
receipts issued in Europe that evidence a similar ownership arrangement. GDRs
are receipts issued throughout the world that evidence a similar arrangement.
Generally, ADRs and ADSs, in registered form, are designed for use in the U.S.
securities markets, and EDRs, in bearer form, are designed for use in European
securities markets. GDRs are tradable both in the United States and in Europe
and are designed for use throughout the world. International Depositary Receipts
(“IDRs”) are the non-U.S. equivalent of an ADR.
A Fund may invest
in unsponsored Depositary Receipts. The issuers of unsponsored Depositary
Receipts are not obligated to disclose material information in the United
States, and, therefore, there may be less information available regarding such
issuers and there may not be a correlation between such information and the
market value of the Depositary Receipts. Depositary Receipts are generally
subject to the same risks as the foreign securities that they evidence or into
which they may be converted or exchanged.
DERIVATIVES. A Fund may use
instruments referred to as derivatives. Derivatives are financial instruments
the value of which is derived from another security, a commodity (such as gold
or oil), a currency or an index (a measure of value or rates, such as the
S&P 500 Index or the prime lending rate). Derivatives allow a Fund to
increase or decrease the level of risk to which a Fund is exposed more quickly
and efficiently than transactions in other types of instruments. A Fund may use
derivatives for hedging purposes. A Fund may also use derivatives to seek to
enhance returns. The use of a derivative is speculative if a Fund is primarily
seeking to achieve gains, rather than offset the risk of other positions. When a
Fund invests in a derivative for speculative purposes, a Fund will be fully
exposed to the risks of loss of that derivative, which may sometimes be greater
than the derivative's cost. A Fund may not use any derivative to gain exposure
to an asset or class of assets that a Fund would be prohibited by its investment
restrictions from purchasing directly. A Fund’s use of derivatives may be
limited by the 1940 Act and the rules thereunder, as discussed in more detail
below under Regulatory
Risk.
Risk
Factors Involving Derivatives. Derivatives are
volatile and involve significant risks, including:
Correlation
Risk — the risk that
changes in the value of a derivative will not match the changes in the value of
the portfolio holdings that are being hedged or of the particular market or
security to which a Fund seeks exposure.
Counterparty
Risk—the risk that the
counterparty on a derivative transaction will be unable to honor its financial
obligation to a Fund. In particular, derivatives traded in OTC markets are not
guaranteed by an exchange or clearing firm and often do not require payment of
margin. A Fund is at risk to the extent that the Fund has unrealized gains or
has deposited collateral with a counterparty and the counterparty becomes
bankrupt or otherwise fails to honor its obligations.
Currency
Risk—the risk that
changes in the exchange rate between two currencies will adversely affect the
value (in U.S. dollar terms) of an investment.
Illiquidity
Risk— the risk that
certain securities or instruments may be difficult or impossible to sell at the
time that the seller would like or at the price that the seller believes the
security is currently worth. Illiquidity risk is substantial for certain OTC
derivatives, including swaps and OTC options. There can be no assurance that a
Fund will be able to unwind or offset a derivative at its desired price, in a
secondary market or otherwise.
Index
Risk—a derivative
linked to the performance of an index will be subject to the risks associated
with changes in that index.
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Investment Portfolios, Inc. 15 10
Legal
Risk—the risk of
insufficient documentation, the lack of capacity or authority of a counterparty
to execute or settle a transaction, and the legality and enforceability of a
derivatives contract.
Leverage
Risk—the risk that a
Fund’s derivatives transactions can magnify a Fund’s gains and losses.
Relatively small market movements may result in large changes in the value of a
derivatives position. Certain investments or trading strategies that involve
leverage can result in losses that greatly exceed the amount originally
invested.
Market
Risk
— the risk that changes in the value of one or more markets or changes with
respect to the value of the underlying asset will adversely affect the value of
a derivative. In the event of an adverse movement, a Fund may be required to pay
substantial additional margin to maintain its position.
Operational
Risk — the risk related
to potential operational issues, including documentation issues, settlement
issues, systems failures, inadequate controls and human error.
Regulatory
Risk—the risk that new
regulation of derivatives may make them more costly, may limit their
availability, or may otherwise affect their value or performance. Derivative
contracts, including, without limitation, swaps, currency forwards, and
non-deliverable forwards (“NDFs”), are subject to regulation under the
Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) in
the United States and under comparable regimes in Europe, Asia and other
non-U.S. jurisdictions. Swaps, NDFs and certain other derivatives traded in the
OTC market are subject to variation margin requirements. Implementation of the
margining and other provisions of the Dodd-Frank Act regarding clearing,
mandatory trading, reporting and documentation of swaps and other derivatives
have impacted and may continue to impact the costs to a Fund of trading these
instruments and, as a result, may affect returns to investors in a
Fund.
Rule 18f-4 under
the 1940 Act permits a Fund to enter into derivatives transactions and certain
other transactions notwithstanding restrictions on the issuance of “senior
securities” in the 1940 Act. Derivatives transactions as defined by Rule 18f-4
include, among other things, swaps, futures, forwards, options, short sale
borrowings, reverse repurchase agreements and other financing transactions (if a
Fund elects to treat such financing transactions as securities), when-issued and
forward-settling securities in some circumstances, or any instrument for which a
Fund is required to make any payment or delivery of an asset during the life of
the instrument or at maturity, whether as margin, settlement payment or
otherwise. Rule 18f-4 requires that, among other things, a Fund establish and
maintain a derivatives risk management program and appoint a derivatives risk
manager, who is appointed by the Board, including a majority of Independent
Board Members and periodically reviews the program and reports to the Board. In
addition, a Fund must comply with a relative or absolute limit on leverage risk
calculated based on value-at-risk.
Rule 18f-4 excepts
from some of the requirements, including establishing a derivatives risk
management program and calculating value-at-risk, a fund whose derivatives
exposure is limited to 10% of its net assets and which has adopted policies and
procedures designed to manage derivatives risks.
The use of
derivatives for hedging purposes involves additional correlation risk. If the
value of the derivative moves more or less than the value of the hedged
instruments, a Fund will experience a gain or loss that will not be completely
offset by movements in the value of the hedged instruments.
A Fund generally
intends to enter into transactions involving derivatives only if there appears
to be a liquid market for such instruments. However, there can be no assurance
that, at any specific time, either a liquid market will exist for a derivative
or a Fund will otherwise be able to sell such instrument at an acceptable price.
It may therefore not be possible to close a position in a derivative without
incurring substantial losses, if at all.
Additional
Risk Factors Of OTC Transactions; Limitations On The Use Of OTC
Derivatives. Certain
derivatives traded in OTC markets, including indexed securities, certain swaps
and OTC options, involve substantial liquidity risk. The absence of liquidity
may make it difficult or impossible for a Fund to sell such instruments promptly
at an acceptable price. The absence of liquidity may also make it more difficult
for a Fund to ascertain a market value for such instruments.
Because
derivatives traded in OTC markets are not guaranteed by an exchange or clearing
corporation and generally do not require payment of margin, to the extent that a
Fund has unrealized gains in such instruments or has deposited collateral with
its counterparties, a Fund is at risk that its counterparties will become
bankrupt or otherwise fail to honor their obligations. A Fund will attempt to
minimize the risk that a counterparty will become bankrupt or otherwise fail to
honor its obligations by engaging in transactions in derivatives traded in OTC
markets only with financial institutions that appear to have substantial capital
or that have provided a Fund with a third-party guaranty or other credit
enhancement.
11
DISTRESSED
SECURITIES. A Fund may invest
in securities, including corporate loans purchased in the secondary market,
which are the subject of bankruptcy proceedings or otherwise in default as to
the repayment of principal and/or interest at the time of acquisition by a Fund
or are rated in the lower rating categories (generally, Ca or lower by Moody's
and CC or lower by S&P or Fitch) or which, if unrated, are in the judgment
of the subadviser of equivalent quality (“Distressed Securities”). Investing in
Distressed Securities is speculative and involves significant risks. Distressed
Securities frequently do not produce income while they are outstanding and may
require a Fund to bear certain extraordinary expenses in order to protect and
recover its investment.
EMERGING
MARKETS INVESTMENTS. Each Fund may
invest in the securities of issuers domiciled in various countries with emerging
capital markets. Specifically, a country with an emerging capital market is any
country that the World Bank, the International Finance Corporation, the United
Nations or its authorities has determined to have a low or middle income
economy. Countries with emerging markets can be found in regions such as Asia,
Latin America, Eastern Europe and Africa.
Investments in the
securities of issuers domiciled in countries with emerging capital markets
involve certain additional risks not involved in investments in securities of
issuers in more developed capital markets, such as (i) low or non-existent
trading volume, resulting in a lack of liquidity and increased volatility in
prices for such securities, as compared to securities of comparable issuers in
more developed capital markets, (ii) uncertain national policies and social,
political and economic instability, increasing the potential for expropriation
of assets, confiscatory taxation, high rates of inflation or unfavorable
diplomatic developments, (iii) fluctuations in exchange rates, differing legal
systems and the existence or possible imposition of exchange controls, custodial
restrictions or other non-U.S. or U.S.
governmental laws or restrictions applicable to such investments, (iv) national policies that may limit each Fund’s investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests, (v) the lack or relatively early development of legal structures governing private and non-U.S. investments and private property, (vi) substantial difficulties U.S. governmental entities may have in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, and (vii) the difficulty of bringing shareholder claims to pursue as a matter of law or practicality in certain emerging markets. In addition to withholding taxes on investment income, some countries with emerging markets may impose differential capital gains taxes on non-U.S. investors.
governmental laws or restrictions applicable to such investments, (iv) national policies that may limit each Fund’s investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests, (v) the lack or relatively early development of legal structures governing private and non-U.S. investments and private property, (vi) substantial difficulties U.S. governmental entities may have in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, and (vii) the difficulty of bringing shareholder claims to pursue as a matter of law or practicality in certain emerging markets. In addition to withholding taxes on investment income, some countries with emerging markets may impose differential capital gains taxes on non-U.S. investors.
Such capital
markets are emerging in a dynamic political and economic environment brought
about by events over recent years that have reshaped political boundaries and
traditional ideologies. In such a dynamic environment, there can be no assurance
that these capital markets will continue to present viable investment
opportunities for each Fund. In the past, governments of such nations have
expropriated substantial amounts of private property, and most claims of the
property owners have never been fully settled. There is no assurance that such
expropriations will not reoccur. In such an event, it is possible that each Fund
could lose the entire value of its investments in the affected
markets.
Also, there may be
less publicly available information about issuers in emerging markets than would
be available about issuers in more developed capital markets, and such issuers
may not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those governing U.S. companies. In certain countries
with emerging capital markets, reporting standards vary widely. As a result,
traditional investment measurements used in the United States, such as
price/earnings ratios, may not be applicable. Emerging market securities may be
substantially less liquid and more volatile than those of mature markets, and
companies may be held by a limited number of persons. This may adversely affect
the timing and pricing of each Fund’s acquisition or disposal of
securities.
Practices in
relation to settlement of securities transactions in emerging markets involve
higher risks than those in developed markets, in part because each Fund will
need to use brokers and counterparties that are less well capitalized, and
custody and registration of assets in some countries may be unreliable. The
possibility of fraud, negligence, undue influence being exerted by the issuer or
refusal to recognize ownership exists in some emerging markets, and, along with
other factors, could result in ownership registration being completely lost.
Each Fund would absorb any loss resulting from such registration problems and
may have no successful claim for compensation.
ENVIRONMENTAL,
SOCIAL AND GOVERNANCE (“ESG”) INTEGRATION. Although a Fund
does not seek to implement a specific ESG, impact or sustainability strategy
unless specifically disclosed in its Prospectus, consideration of ESG factors
that the subadviser deems financially material are embedded in various stages of
the subadviser’s investment research processes for a Fund. In particular, where
the subadviser believes an ESG factor or factors are likely to be financially
material for an investment position over the relevant investment horizon, it
will incorporate consideration of those factors into its overall credit
assessment, alongside other relevant credit considerations. However, the ESG
factors that the subadviser believes to be financially material can vary for
each investment depending on the issuer’s activities and unique circumstances
and may change over time. Further, ESG factors are not the sole considerations
when making investment decisions for a Fund, and may be given more or less
weight than other factors in the investment process. In some cases the
subadviser may conclude that ESG factors are not likely to materially affect the
financial value of an investment over its relevant investment horizon, or
conclude that it believes that the investment adequately compensates investors
for any material ESG
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Investment Portfolios, Inc. 15 12
risks that are
present. The subadviser’s ESG integration processes are expected to evolve over
time, so it is possible that the ESG factors being considered in the future may
be different from those considered today. There can be no guarantee that the
subadviser will correctly identify and evaluate all relevant ESG factors. It is
also possible that the subadviser’s opinion of which ESG factors are likely to
be financially material for an investment position could differ from those of
other investors. Although the subadviser considers ESG factors as part of its
investment process, there are no specific ESG criteria that must be considered
in determining whether to include, maintain or exclude any potential investment
for a Fund.
EUROPE
RECENT EVENTS RISK. A number of
countries in Europe have experienced severe economic and financial difficulties.
Many non-governmental issuers, and even certain governments, have defaulted on,
or been forced to restructure, their debts; many other issuers have faced
difficulties obtaining credit or refinancing existing obligations; financial
institutions have in many cases required government or central bank support,
have needed to raise capital, and/or have been impaired in their ability to
extend credit; and financial markets in Europe and elsewhere have experienced
extreme volatility and declines in asset values and liquidity. These
difficulties may continue, worsen or spread within and beyond Europe. Responses
to the financial problems by European governments, central banks and others,
including austerity measures and reforms, may not work, may result in social
unrest and may limit future growth and economic recovery or have other
unintended consequences. Further defaults or restructurings by governments and
others of their debt could have additional adverse effects on economies,
financial markets and asset valuations around the world.
In addition,
Russia launched a large-scale invasion of Ukraine on February 24, 2022,
significantly amplifying already existing geopolitical tensions. The United
States and many other countries have instituted various economic sanctions
against Russian individuals and entities (including corporate and banking). The
extent and duration of the military action, sanctions imposed and other punitive
action taken and resulting future market disruptions in Europe and globally
cannot be easily predicted, but could be significant and have a severe adverse
effect on Russia and Europe in general, including significant negative impacts
on the economy, sovereign debt and the markets for certain securities and
commodities, such as oil and natural gas. This conflict may expand and military
attacks could occur elsewhere in Europe. The potential for wider conflict may
increase financial market volatility and could have severe adverse effects on
regional and global economic markets. Europe has also been struggling with mass
migration. The impact of these actions, especially if they occur in a disorderly
fashion, is not clear but could be significant and far-reaching. Whether or not
the Fund invests in securities of issuers located in Europe or with significant
exposure to European issuers or countries, these events could negatively affect
the value and relative liquidity of the Fund’s investments. Further, due to
closures of certain markets and restrictions on trading certain securities, the
value of certain securities held by the Fund could be significantly impacted,
which could lead to such securities being valued at zero. The occurrence of
terrorist incidents throughout Europe could also impact financial markets
globally.
EXCHANGE-TRADED
FUNDS. Each Fund may
invest in ETFs, which may be unit investment trusts or open-end management
investment companies. ETFs may hold portfolios of securities designed to track
the performance of various broad securities indices or sectors of such indices
or ETFs may be actively managed. ETFs provide another means, in addition to
futures and options on indices, of including exposure to global equities, global
bonds, commodities and currencies markets in each Fund’s investment portfolio.
Each Fund will indirectly bear its proportionate share of any management fees
and other expenses paid by such ETF.
FOREIGN
EXCHANGE TRANSACTIONS. Each Fund may
engage in spot and forward foreign exchange transactions and currency swaps,
purchase and sell options on currencies and purchase and sell currency futures
and related options thereon (collectively, “Currency Instruments”) for purposes
of hedging against the decline in the value of currencies in which its portfolio
holdings are denominated against the U.S. dollar or to seek to enhance returns.
Such transactions could be effected with respect to hedges on non-U.S. dollar
denominated securities owned by each Fund, sold by each Fund but not yet
delivered, or committed or anticipated to be purchased by each Fund.
As an
illustration, each Fund may use such techniques to hedge the stated value in
U.S. dollars of an investment in a yen-denominated security. In such
circumstances, for example, each Fund may purchase a foreign currency put option
enabling each Fund to sell a specified amount of yen for dollars at a specified
price by a future date. To the extent the hedge is successful, a loss in the
value of the yen relative to the dollar will tend to be offset by an increase in
the value of the put option. To offset, in whole or in part, the cost of
acquiring such a put option, each Fund may also sell a call option which, if
exercised, requires each Fund to sell a specified amount of yen for dollars at a
specified price by a future date (a technique called a “straddle”). By selling
such a call option in this illustration, each Fund gives up the opportunity to
profit without limit from increases in the relative value of the yen to the
dollar. Straddles of the type that may be used by each Fund are considered to
constitute hedging transactions and are consistent with the policies described
above. Each Fund will not attempt to hedge all of its foreign portfolio
positions.
Forward
Foreign Exchange Transactions. Forward foreign
exchange transactions are OTC contracts to purchase or sell a specified amount
of a specified currency or multinational currency unit at a price and specified
future date set at the time of the contract. Spot foreign exchange transactions
are similar but require current, rather than future, settlement. A Fund will
enter into foreign exchange
13
transactions for
purposes of hedging either a specific transaction or a portfolio position, or to
seek to enhance returns. A Fund may enter into a foreign exchange transaction
for purposes of hedging a specific transaction by, for example, purchasing a
currency needed to settle a security transaction or selling a currency in which
a Fund has received or anticipates receiving a dividend or
distribution.
A Fund may enter
into a foreign exchange transaction for purposes of hedging a portfolio position
by selling forward a currency in which a portfolio position of a Fund is
denominated or by purchasing a currency in which a Fund anticipates acquiring a
portfolio position in the near future. A Fund may also hedge portfolio positions
through currency swaps, which are transactions in which one currency is
simultaneously bought for a second currency on a spot basis and sold for the
second currency on a forward basis. Forward foreign exchange transactions
involve substantial currency risk, and also involve credit and liquidity
risk.
FOREIGN
INVESTMENTS. A Fund may invest
in foreign equity and/or debt securities. Foreign debt securities include
certain foreign bank obligations and U.S. dollar or foreign currency-denominated
obligations of foreign governments or their subdivisions, agencies and
instrumentalities, international agencies and supranational
entities.
Certain
Risks of Holding Fund Assets Outside the United States. A Fund generally
holds its foreign securities and cash in foreign banks and securities
depositories. Some foreign banks and securities depositories may be recently
organized or new to the foreign custody business. In addition, there may be
limited or no regulatory oversight over their operations. Also, the laws of
certain countries may put limits on a Fund’s ability to recover its assets if a
foreign bank or depository or issuer of a security or any of their agents goes
bankrupt. In addition, it is often more expensive for a Fund to buy, sell and
hold securities in certain foreign markets than in the United States. The
increased expense of investing in foreign markets reduces the amount a Fund can
earn on its investments and typically results in a higher operating expense
ratio for a Fund as compared to investment companies that invest only in the
United States.
Currency
Risk and Exchange Risk. Securities in
which a Fund invests may be denominated or quoted in currencies other than the
U.S. dollar. Changes in foreign currency exchange rates will affect the value of
a Fund’s portfolio. Generally, when the U.S. dollar rises in value against a
foreign currency, a security denominated in that currency loses value because
the currency is worth fewer U.S. dollars. Conversely, when the U.S. dollar
decreases in value against a foreign currency, a security denominated in that
currency gains value because the currency is worth more U.S. dollars. This risk,
generally known as “currency risk,” means that a stronger U.S. dollar will
reduce returns on foreign currency dominated securities for U.S. investors while
a weak U.S. dollar will increase those returns.
Foreign
Economy Risk. The economies of
certain foreign markets often do not compare favorably with that of the United
States with respect to such issues as growth of gross national product,
reinvestment of capital, resources, and balance of payments position. Certain
such economies may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, changes in international
trading patterns, trade barriers, and other protectionist or retaliatory
measures. Investments in foreign markets may also be adversely affected by
governmental actions such as the imposition of capital controls, nationalization
of companies or industries, expropriation of assets, or the imposition of
punitive taxes. In addition, the governments of certain countries may prohibit
or impose substantial restrictions on foreign investing in their capital markets
or in certain industries. Any of these actions could severely affect security
prices, impair a Fund’s ability to purchase or sell foreign securities or
transfer a Fund’s assets or income back into the United States, or otherwise
adversely affect a Fund’s operations. Other foreign market risks include foreign
exchange controls, difficulties in pricing securities, defaults on foreign
government securities, difficulties in enforcing favorable legal judgments in
foreign courts, and political and social instability. Legal remedies available
to investors in certain foreign countries may be less extensive than those
available to investors in the United States or other foreign
countries.
Foreign
Market Risk. Foreign
securities offer the potential for more diversification than if a Fund invests
only in the United States because securities traded on foreign markets have
often (though not always) performed differently from securities in the United
States. However, such investments involve special risks not present in U.S.
investments that can increase the chances that a Fund will lose money. In
particular, a Fund is subject to the risk that, because there are generally
fewer investors on foreign exchanges and a smaller number of shares traded each
day, it may be difficult for a Fund to buy and sell securities on those
exchanges. In addition, prices of foreign securities may fluctuate more than
prices of securities traded in the United States.
Governmental
Supervision and Regulation/Accounting Standards. Many foreign
governments supervise and regulate stock exchanges, brokers and the sale of
securities less rigorously than the United States. Some countries may not have
laws to protect investors comparable to the U.S. securities laws. For example,
some foreign countries may have no laws or rules against insider trading.
Insider trading occurs when a person buys or sells a company's securities based
on nonpublic information about that company. Accounting standards in other
countries are not necessarily the same as in the United States and auditors may
not be subject to the same level of oversight. If the accounting standards in
another country do not require as much detail as U.S. accounting standards, it
may be harder for Fund management to completely and accurately determine a
company's financial condition.
Prudential
Investment Portfolios, Inc. 15 14
Settlement
Risk.
Settlement and clearance procedures in certain foreign markets differ
significantly from those in the United States. Foreign settlement procedures and
trade regulations also may involve certain risks (such as delays in payment for
or delivery of securities) not typically generated by the settlement of U.S.
investments. Communications between the United States and emerging market
countries may be unreliable, increasing the risk of delayed settlements or
losses of security certificates. Settlements in certain foreign countries at
times have not kept pace with the number of securities transactions; these
problems may make it difficult for a Fund to carry out transactions. If a Fund
cannot settle or there is a delay in settling a purchase of securities, a Fund
may miss attractive investment opportunities and certain assets may be
uninvested with no return earned thereon for some period. If a Fund cannot
settle or there is a delay in settling a sale of securities, a Fund may lose
money if the value of the security then declines or, if there is a contract to
sell the security to another party, a Fund could be liable to that party for any
losses incurred.
Dividends or
interest on, or proceeds from the sale of, foreign securities may be subject to
foreign withholding taxes, thereby reducing the amount available for
distribution to shareholders.
FUTURES. A Fund may engage
in transactions in futures and options thereon. Futures are standardized,
exchange-traded contracts which obligate a purchaser to take delivery, and a
seller to make delivery, of a specific amount of an asset at a specified future
date at a specified price. No price is paid upon entering into a futures
contract. Rather, upon purchasing or selling a futures contract a Fund is
required to deposit collateral (“margin”) equal to a percentage (generally less
than 10%) of the contract value. Each day thereafter until the futures position
is closed, a Fund will pay additional margin representing any loss experienced
as a result of the futures position the prior day or be entitled to a payment
representing any profit experienced as a result of the futures position the
prior day. Futures involve substantial leverage risk.
The sale of a futures contract may
limit a Fund’s risk of loss through a decline in the market value of portfolio
holdings correlated with the futures contract prior to the futures contract's
expiration date. In the event the market value of the portfolio holdings
correlated with the futures contract increases rather than decreases, however, a
Fund will realize a loss on the futures position and a lower return on the
portfolio holdings than would have been realized without the purchase of the
futures contract.
The purchase of a
futures contract may protect a Fund from having to pay more for securities as a
consequence of increases in the market value for such securities during a period
when a Fund was attempting to identify specific securities in which to invest in
a market a Fund believes to be attractive. In the event that such securities
decline in value or a Fund determines not to complete an anticipatory hedge
transaction relating to a futures contract, however, a Fund may realize a loss
relating to the futures position.
A Fund is also
authorized to purchase or sell call and put options on futures contracts
including financial futures and stock indices in connection with its hedging
activities. Generally, these strategies would be used under the same market and
market sector conditions (i.e., conditions relating to specific types of
investments) in which a Fund entered into futures transactions. A Fund may
purchase put options or write (i.e., sell) call options on futures contracts and
stock indices rather than selling the underlying futures contract in
anticipation of a decrease in the market value of its securities. Similarly, a
Fund can purchase call options, or write put options on futures contracts and
stock indices, as a substitute for the purchase of such futures to hedge against
the increased cost resulting from an increase in the market value of securities
which a Fund intends to purchase.
A Fund may only
write “covered” put and call options on futures contracts. A Fund will be
considered “covered” with respect to a call option written on a futures contract
if a Fund owns the assets that are deliverable under the futures contract or an
option to purchase that futures contract having a strike price equal to or less
than the strike price of the “covered” option and having an expiration date not
earlier than the expiration date of the “covered” option or if it holds
segregated in an account with its custodian for the term of the option cash or
other relatively liquid assets at all times equal in value to the mark-to-market
value of the futures contract on which the option was written. A Fund will be
considered “covered” with respect to a put option written on a futures contract
if a Fund owns an option to sell that futures contract having a strike price
equal to or greater than the strike price of the “covered” option or if a Fund
holds segregated in an account with its custodian for the term of the option
cash or other relatively liquid assets at all times equal in value to the
exercise price of the put (less any initial margin deposited by a Fund with its
futures custody manager or as otherwise permitted by applicable law with respect
to such option). There is no limitation on the amount of a Fund’s assets that
can be segregated. Segregation requirements may impair a Fund’s ability to sell
a portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require a Fund to sell a portfolio security or close out
a derivatives position at a disadvantageous time or price.
The Manager has
filed a notice of exclusion from registration as a “commodity pool operator”
with respect to a Fund under CFTC Rule 4.5 and, therefore, is not subject to
registration or regulation with respect to a Fund under the CEA. In order for
the Manager to claim exclusion from registration as a “commodity pool operator”
under the CEA with respect to a Fund, a Fund is limited in its ability to trade
instruments subject to the CFTC’s jurisdiction, including commodity futures
(which include futures on broad-based securities indices, interest rate futures
and currency futures), options on commodity futures, certain swaps or other
investments (whether directly or indirectly through investments in other
investment vehicles). Under this exclusion, a Fund must satisfy one of the
following two trading
15
limitations
whenever it enters into a new commodity trading position: (1) the aggregate
initial margin and premiums required to establish a Fund’s positions in
CFTC-regulated instruments may not exceed 5% of the liquidation value of a
Fund’s portfolio (after accounting for unrealized profits and unrealized losses
on any such investments); or (2) the aggregate net notional value of such
instruments, determined at the time the most recent position was established,
may not exceed 100% of the liquidation value of a Fund’s portfolio (after
accounting for unrealized profits and unrealized losses on any such positions).
A Fund would not be required to consider its exposure to such instruments if
they were held for “bona fide hedging” purposes, as such term is defined in the
rules of the CFTC. In addition to meeting one of the foregoing trading
limitations, a Fund may not market itself as a commodity pool or otherwise as a
vehicle for trading in the markets for CFTC-regulated instruments.
HEDGING. Hedging is a
strategy in which a derivative or security is used to offset the risks
associated with other Fund holdings. Losses on the other investment may be
substantially reduced by gains on a derivative that reacts in an opposite manner
to market movements. While hedging can reduce losses, it can also reduce or
eliminate gains or cause losses if the market moves in a different manner than
anticipated by a Fund or if the cost of the derivative outweighs the benefit of
the hedge. Hedging also involves the risk that changes in the value of the
derivative will not match those of the holdings being hedged as expected by a
Fund, in which case any losses on the holdings being hedged may not be reduced
or may be increased. The inability to close options and futures positions also
could have an adverse impact on a Fund’s ability to hedge effectively its
portfolio. There is also a risk of loss by a Fund of margin deposits or
collateral in the event of bankruptcy of a broker with whom a Fund has an open
position in an option, a futures contract or a related option.
There can be no
assurance that a Fund’s hedging strategies will be effective or that hedging
transactions will be available to a Fund. A Fund is not required to engage in
hedging transactions and a Fund may choose not to do so from time to
time.
Currency
Hedging. The Fund may use
currency hedging instruments to seek to enhance returns. However, the Fund will
not hedge a currency in excess of the aggregate market value of the securities
that it owns (including receivables for unsettled securities sales), or has
committed to or anticipates purchasing, which are denominated in such currency.
This limitation does not prohibit the Fund from obtaining long or short exposure
to a currency for non-hedging purposes. The Fund may, however, hedge a currency
by entering into a transaction in a Currency Instrument denominated in a
currency other than the currency being hedged (a “cross-hedge”). The Fund will
only enter into a cross-hedge if the subadviser believes that (i) there is a
demonstrable high correlation between the currency in which the cross-hedge is
denominated and the currency being hedged, and (ii) executing a cross-hedge
through the currency in which the cross-hedge is denominated will be
significantly more cost-effective or provide substantially greater liquidity
than executing a similar hedging transaction by means of the currency being
hedged.
Risk
Factors In Hedging Foreign Currency. Hedging
transactions involving Currency Instruments have substantial risks, including
correlation risk. While a Fund’s use of Currency Instruments to effect hedging
strategies is intended to reduce the volatility of the NAV of a Fund’s shares,
the NAV of a Fund’s shares will fluctuate. Moreover, although Currency
Instruments will be used with the intention of hedging against adverse currency
movements, transactions in Currency Instruments involve the risk that
anticipated currency movements will not be accurately predicted and that a
Fund’s hedging strategies will be ineffective. To the extent that a Fund hedges
against anticipated currency movements that do not occur, a Fund may realize
losses and decrease its total return as the result of its hedging transactions.
Furthermore, a Fund will only engage in hedging activities from time to time and
may not be engaging in hedging activities when movements in currency exchange
rates occur.
In connection with
its trading in forward foreign currency contracts, a Fund will contract with a
foreign or domestic bank, or a foreign or domestic securities dealer, to make or
take future delivery of a specified amount of a particular currency. There are
no limitations on daily price moves in such forward contracts, and banks and
dealers are not required to continue to make markets in such contracts. There
have been periods during which certain banks or dealers have refused to quote
prices for such forward contracts or have quoted prices with an unusually wide
spread between the price at which the bank or dealer is prepared to buy and that
at which it is prepared to sell. Governmental imposition of credit controls
might limit any such forward contract trading. With respect to its trading of
forward contracts, if any, a Fund will be subject to the risk of bank or dealer
failure and the inability of, or refusal by, a bank or dealer to perform with
respect to such contracts. Any such default would deprive a Fund of any profit
potential or force a Fund to cover its commitments for resale, if any, at the
then market price and could result in a loss to a Fund.
It may not be
possible for a Fund to hedge against currency exchange rate movements, even if
correctly anticipated, in the event that (i) the currency exchange rate movement
is so generally anticipated that a Fund is not able to enter into a hedging
transaction at an effective price, or (ii) the currency exchange rate movement
relates to a market with respect to which Currency Instruments are not available
and it is not possible to engage in effective foreign currency hedging. The cost
to a Fund of engaging in foreign currency transactions varies with such factors
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Since transactions in foreign currency exchange
usually are conducted on a principal basis, no fees or commissions are
involved.
Prudential
Investment Portfolios, Inc. 15 16
HIGH
YIELD BONDS (commonly known as “JUNK BONDS”). Junk bonds are
debt securities that are rated below investment grade by a NRSRO or are unrated
securities that the subadviser believes are of comparable quality. Although junk
bonds generally pay higher rates of interest than investment grade bonds, they
are high risk investments that may cause income and principal losses for a Fund.
The major risks of junk bond investments include the following:
■
Junk bonds are
issued by less creditworthy issuers. These securities are vulnerable to adverse
changes in the issuer's economic condition and to general economic conditions.
Issuers of junk bonds may be unable to meet their interest or principal payment
obligations because of an economic downturn, specific issuer developments or the
unavailability of additional financing.
■
The issuers of
junk bonds may have a larger amount of outstanding debt relative to their assets
than issuers of investment grade bonds. If the issuer experiences financial
stress, it may be unable to meet its debt obligations.
■
Junk bonds are
frequently ranked junior to claims by other creditors. If the issuer cannot meet
its obligations, the senior obligations are generally paid off before the junior
obligations.
■
Junk bonds
frequently have redemption features that permit an issuer to repurchase the
security from a Fund before it matures. If an issuer redeems the junk bonds, a
Fund may have to invest the proceeds in bonds with lower yields and may lose
income.
■
Prices of junk
bonds are subject to extreme price fluctuations. Negative economic developments
may have a greater impact on the prices of junk bonds than on other higher rated
fixed income securities.
■
Junk bonds may be
more illiquid than higher rated fixed income securities even under normal
economic conditions. There are fewer dealers in the junk bond market, and there
may be significant differences in the prices quoted for junk bonds by the
dealers. Because they are less liquid, judgment may play a greater role in
valuing certain of a Fund’s portfolio securities than in the case of securities
trading in a more liquid market.
■
A Fund may incur
expenses to the extent necessary to seek recovery upon default or to negotiate
new terms with a defaulting issuer.
ILLIQUID
INVESTMENTS OR RESTRICTED SECURITIES. Pursuant to Rule
22e-4 under the 1940 Act, a Fund has adopted a Board approved Liquidity Risk
Management Program (“LRMP”) that requires, among other things that a Fund limit
its illiquid investments to no more than 15% of its net assets. Illiquid
investments are those that, because of the absence of a readily available market
or due to legal or contractual restrictions on resale, may not reasonably be
expected to be sold or disposed of in current market conditions in seven
calendar days or less without the sale or disposition significantly changing the
market value of the investment. Liquidity risk is the risk that a Fund could not
meet requests to redeem shares issued by a Fund without significant dilution of
remaining investors' interests in a Fund. Investment of a Fund’s assets in
illiquid investments may restrict the ability of a Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where a Fund’s operations require cash, such as when
a Fund redeems shares or pays dividends, and could result in a Fund borrowing to
meet short-term cash requirements or incurring capital losses on the sale of
illiquid investments.
A Fund may invest
in securities that are not registered (restricted securities) under the 1933
Act. Restricted securities may be sold in private placement transactions between
issuers and their purchasers and may be neither listed on an exchange nor traded
in other established markets. In many cases, privately placed securities may not
be freely transferable under the laws of the applicable jurisdiction or due to
contractual restrictions on resale. As a result of the absence of a public
trading market, privately placed securities may be less liquid and more
difficult to value than publicly traded securities. To the extent that privately
placed securities may be resold in privately negotiated transactions, the prices
realized from the sales, due to illiquidity, could be less than those originally
paid by a Fund or less than their fair market value. In addition, issuers whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements that may be applicable if their
securities were publicly traded. If any privately placed securities held by a
Fund are required to be registered under the securities laws of one or more
jurisdictions before being resold, a Fund may be required to bear the expenses
of registration. Certain of a Fund’s investments in private placements may
consist of direct investments and may include investments in smaller, less
seasoned issuers, which may involve greater risks. These issuers may have
limited product lines, markets or financial resources or they may be dependent
on a limited management group. In making investments in such securities, a Fund
may obtain access to material nonpublic information, which may restrict a Fund’s
ability to conduct portfolio transactions in such securities.
A Fund may
purchase restricted securities that can be offered and sold to “qualified
institutional buyers” under Rule 144A under the 1933 Act. Restricted securities
that would otherwise be considered illiquid investments pursuant to a Fund’s
LRMP because of legal restrictions on resale to the general public may be traded
among qualified institutional buyers under Rule 144A. Therefore, these
securities, as well as commercial paper that is sold in private placements under
Section 4(a)(2) of the 1933 Act, may be classified higher than “illiquid” under
the LRMP (i.e., “moderately liquid” or “less liquid” investments). However, the
liquidity of a Fund’s investments in restricted securities could be impaired if
trading does not develop or declines.
INDEXED
AND INVERSE SECURITIES. A Fund may invest
in securities the potential return of which is based on an index or interest
rate. As an illustration, a Fund may invest in a security whose value is based
on changes in a specific index or that pays interest based on the current value
of an interest rate index, such as the prime rate. A Fund may also invest in a
debt security that returns principal at maturity based on the level of a
securities index or a basket of securities, or based on the relative changes of
two indices. In addition, the Fund
17
may invest in
securities the potential return of which is based inversely on the change in an
index or interest rate (that is, a security the value of which will move in the
opposite direction of changes to an index or interest rate). For example, a Fund
may invest in securities that pay a higher rate of interest when a particular
index decreases and pay a lower rate of interest (or do not fully return
principal) when the value of the index increases. Investing in such securities
may subject a Fund to reduced or eliminated interest payments or loss of
principal in the event of an adverse movement in the relevant interest rate,
index or indices. Indexed and inverse securities may involve credit risk, and
certain indexed and inverse securities may involve leverage risk, liquidity risk
and currency risk. A Fund may invest in indexed and inverse securities for
hedging purposes or to seek to increase returns. When used for hedging purposes,
indexed and inverse securities involve correlation risk. Furthermore, where such
a security includes a contingent liability, in the event of such an adverse
movement, the Fund may be required to pay substantial additional margin to
maintain the position.
INITIAL
PUBLIC OFFERINGS. A Fund may invest
in securities sold in IPOs. An IPO is the first sale of stock by a private
company to the public. IPOs are often issued by smaller, younger companies
seeking capital to expand, but can also be done by large privately owned
companies looking to become publicly traded.
In an IPO, the
issuer obtains the assistance of an underwriting firm, which helps it determine
what type of security to issue (common or preferred), best offering price and
time to bring it to market. The volume of IPOs and the levels at which the newly
issued stocks trade in the secondary market are affected by the performance of
the stock market overall. If IPOs are brought to the market, availability may be
limited and a Fund may not be able to buy any shares at the offering price, or
if a Fund is able to buy shares, a Fund may not be able to buy as many shares at
the offering price as a Fund would like.
Investing in IPOs
entails risks. Importantly, the prices of securities involved in IPOs are often
subject to greater and more unpredictable price changes than more established
stocks. It is difficult to predict what the stock will do on its initial day of
trading and in the near future since there is often little historical data with
which to analyze the company. Also, most IPOs are of companies going through a
transitory growth period, and they are therefore subject to additional
uncertainty regarding their future value.
INVESTMENT
IN OTHER INVESTMENT COMPANIES. A Fund may invest
in securities of other investment companies (including ETFs), subject to
applicable regulatory limits.
Investing in
another investment company involves risks similar to those of investing directly
in the investment company’s portfolio securities, including the risk that the
values of the portfolio securities may fluctuate due to changes in the financial
condition of the securities’ issuers and other market factors. An investment
company may not achieve its investment objective or execute its investment
strategy effectively, which may adversely affect a Fund’s
performance.
A Fund will
indirectly bear its pro rata share of the fees and expenses incurred by an
investment company, including investment companies managed by the Manager,
subadviser(s) or an affiliate, in which it invests, including advisory fees (to
the extent not offset by the Manager, subadviser(s) or an affiliate through
waivers). In addition, a Fund could incur a sales charge in connection with
purchasing an investment company security or a redemption fee upon the
redemption of such security.
MARKET
DISRUPTION AND GEOPOLITICAL RISKS. Market disruption can be caused
by economic, financial or political events and factors, including but not
limited to, international wars or conflicts (including Russia’s military
invasion of Ukraine and the Israel-Hamas war), geopolitical developments
(including trading and tariff arrangements, sanctions and cybersecurity
attacks), instability in regions such as Asia, Eastern Europe and the Middle
East, terrorism, natural disasters and public health epidemics (including the
outbreak of COVID-19 globally).
The extent and duration of such
events and resulting market disruptions cannot be predicted, but could be
substantial and could magnify the impact of other risks to the Fund. These and
other similar events could adversely affect the U.S. and foreign financial
markets and lead to increased market volatility, reduced liquidity in the
securities markets, significant negative impacts on issuers and the markets for
certain securities and commodities and/or government intervention. They may also
cause short- or long-term economic uncertainties in the United States and
worldwide. As a result, whether or not the Fund invests in securities of issuers
located in or with significant exposure to the countries directly affected, the
value and liquidity of the Fund’s investments may be negatively impacted.
Further, due to closures of certain markets and restrictions on trading certain
securities, the value of certain securities held by the Fund could be
significantly impacted, which could lead to such securities being valued at
zero.
Global economies
and financial markets have become increasingly interconnected, which increases
the possibility that economic, financial or political events and factors in one
country or region might adversely impact issuers in a different country or
region or worldwide.
Prudential
Investment Portfolios, Inc. 15 18
MONEY
MARKET INSTRUMENTS. A Fund may invest
in money market instruments. Money market instruments include cash equivalents
and short-term obligations of U.S. banks, non-U.S. government securities,
certificates of deposit and short-term obligations issued or guaranteed by the
U.S. Government or its agencies. Money market instruments also include bankers'
acceptances, commercial paper, certificates of deposit and Eurodollar
obligations issued or guaranteed by bank holding companies in the U.S., their
subsidiaries and non-U.S. branches, by non-U.S. banking institutions, and by the
World Bank and other multinational instrumentalities, as well as commercial
paper and other short-term obligations of, and variable amount master demand
notes, variable rate notes and funding agreements issued by, U.S. and non-U.S.
corporations.
MORTGAGE-BACKED
SECURITIES. Investing in
mortgage-backed securities involves certain unique risks in addition to those
generally associated with investing in fixed income securities and in the real
estate industry in general. These unique risks include the failure of a party to
meet its commitments under the related operative documents, adverse interest
rate changes and the effects of prepayments on mortgage cash flows.
Mortgage-backed securities are “pass-through” securities, meaning that principal
and interest payments made by the borrower on the underlying mortgages are
passed through to each Fund. The value of mortgage-backed securities, like that
of traditional fixed income securities, typically increases when interest rates
fall and decreases when interest rates rise. However, mortgage-backed securities
differ from traditional fixed income securities because of their potential for
prepayment without penalty. The price paid by each Fund for its mortgage-backed
securities, the yield each Fund expects to receive from such securities and the
average life of the securities are based on a number of factors, including the
anticipated rate of prepayment of the underlying mortgages. In a period of
declining interest rates, borrowers may prepay the underlying mortgages more
quickly than anticipated, thereby reducing the yield to maturity and the average
life of the mortgage-backed securities. Moreover, when each Fund reinvests the
proceeds of a prepayment in these circumstances, the likely rate of interest
received will be lower than the rate on the security that was
prepaid.
Mortgage-backed
securities, including CMOs, can be collateralized by either fixed-rate mortgages
or adjustable rate mortgages. Fixed-rate mortgage securities are collateralized
by fixed-rate mortgages and tend to have high prepayment rates when the level of
prevailing interest rates declines significantly below the interest rates on the
mortgages. Thus, under those circumstances, the securities are generally less
sensitive to interest rate movements than lower coupon fixed-rate mortgages.
CMOs may be collateralized by whole mortgage loans or private mortgage
pass-through securities, but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by Ginnie Mae, Freddie Mac or Fannie
Mae.
Generally,
adjustable rate mortgage securities (“ARMs”) have a specified maturity date and
amortize principal over their life. In periods of declining interest rates,
there is a reasonable likelihood that ARMs will experience increased rates of
prepayment of principal. However, the major difference between ARMs and
fixed-rate mortgage securities (“FRMs”) is that the interest rate and the rate
of amortization of principal of ARMs can and do change in accordance with
movements in a particular, pre-specified, published interest rate index. The
amount of interest on an ARM is calculated by adding a specified amount, the
“margin,” to the index, subject to limitations on the maximum and minimum
interest that is charged during the life of the mortgage or to maximum and
minimum changes to that interest rate during a given period.
The underlying
mortgages which collateralize the ARMs in which each Fund invests will
frequently have caps and floors which limit the maximum amount by which the loan
rate to the residential borrower may change up or down (1) per reset or
adjustment interval and (2) over the life of the loan. Some residential mortgage
loans restrict periodic adjustments by limiting changes in the borrower's
monthly principal and interest payments rather than limiting interest rate
changes. These payment caps may result in negative amortization.
To the extent that
each Fund purchases mortgage-backed securities at a premium, mortgage
foreclosures and principal prepayments may result in a loss to the extent of the
premium paid. If each Fund buys such securities at a discount, both scheduled
payments of principal and unscheduled prepayments will increase current and
total returns and will accelerate the recognition of income which, when
distributed to shareholders, will be taxable as ordinary income. In a period of
rising interest rates, prepayments of the underlying mortgages may occur at a
slower than expected rate, creating maturity extension risk. This particular
risk may effectively change a security that was considered short- or
intermediate-term at the time of purchase into a long-term security. Since
long-term securities generally fluctuate more widely in response to changes in
interest rates than shorter-term securities, maturity extension risk could
increase the inherent volatility of each Fund. Under certain interest rate and
prepayment scenarios, each Fund may fail to recoup fully its investment in
mortgage-backed securities notwithstanding any direct or indirect governmental
or agency guarantee.
Most
mortgage-backed securities are issued by federal government agencies such as
Ginnie Mae, or by government sponsored enterprises such as Freddie Mac and
Fannie Mae. Principal and interest payments on mortgage-backed securities issued
by the federal government and some federal agencies, such as Ginnie Mae, are
guaranteed by the federal government and backed by the full faith and credit of
the United States. Mortgage-backed securities issued by other government
agencies or government sponsored enterprises are backed only by the credit of
the government agency or enterprise and are not backed by the full faith and
credit of the United States. Fannie Mae and Freddie Mac are authorized to borrow
from the U.S. Treasury to meet their obligations. Private mortgage-backed
securities are issued by private corporations rather than government agencies
and are subject to credit risk and interest rate risk.
19
Fannie Mae and
Freddie Mac are stockholder-owned companies chartered by Congress. Fannie Mae
and Freddie Mac guarantee the securities they issue as to timely payment of
principal and interest, but such guarantee is not backed by the full faith and
credit of the United States. In September 2008, Fannie Mae and Freddie Mac were
placed into conservatorship by their regulator, the Federal Housing Finance
Agency. The conservatorship has no specified end date. There can be no assurance
as to when or how the conservatorship will be terminated or whether Fannie Mae
or Freddie Mac will continue to exist following the conservatorship or what
their respective business structures will be during or following the
conservatorship. Although the U.S. Government has provided financial support to
Fannie Mae and Freddie Mac, there can be no assurance that it will support these
or other government-sponsored enterprises (“GSEs”) in the future.
Each Fund may
purchase certain mortgage-backed securities, the underlying investments of which
consist of loans issued and/or serviced by an affiliated
entity.
OPERATIONAL
AND TRADING RISK. Systemic
failures in the programs and systems employed by the subadviser, brokers and/or
counterparties, exchanges and similar clearance and settlement facilities and
other parties could result in mistakes made in the confirmation or settlement of
transactions, or in transactions not being properly booked, evaluated or
accounted for. The subadviser may not be in a position to verify the risks or
reliability of third-party systems. These and other similar disruptions in the
subadviser's operations may cause material losses to the Fund.
The subadviser
makes extensive use of computer hardware, systems and software and its
activities are exposed to risks caused by failures of IT infrastructure and
data. Outright failure of the underlying hardware, operating system, software or
network, may leave the subadviser unable to trade either generally or in certain
of its strategies, and this may expose it to risk should the outage coincide
with turbulent market conditions. To ameliorate this risk, backup and disaster
recovery plans have been put in place by the subadviser.
OPTIONS
ON SECURITIES AND SECURITIES INDICES.
TYPES
OF OPTIONS.
A
Fund may engage in transactions in options on individual securities, baskets of
securities or securities indices, or particular measurements of value or rate
(an “index”), such as an index of the price of treasury securities or an index
representative of short term interest rates. Such investments may be made on
exchanges and in OTC markets. In general, exchange-traded options have
standardized exercise prices and expiration dates and require the parties to
post margin against their obligations, and the performance of the parties'
obligations in connection with such options is guaranteed by the exchange or a
related clearing corporation. OTC options have more flexible terms negotiated
between the buyer and the seller, but generally do not require the parties to
post margin and are subject to greater credit risk. OTC options also involve
greater liquidity risk. See “Additional Risk Factors of OTC Transactions;
Limitations on the Use of OTC Derivatives.”
CALL
OPTIONS. A Fund may
purchase call options on any of the types of securities or instruments in which
it may invest. A call option gives a Fund the right to buy, and obligates the
seller to sell, the underlying security at the exercise price at any time during
the option period. A Fund also may purchase and sell call options on indices.
Index options are similar to options on securities except that, rather than
taking or making delivery of securities underlying the option at a specified
price upon exercise, an index option gives the holder the right to receive cash
upon exercise of the option if the level of the index upon which the option is
based is greater than the exercise price of the option.
A Fund may only
write (i.e., sell) covered call options on the securities or instruments in
which it may invest and enter into closing purchase transactions with respect to
certain of such options, provided such options are “covered,” as defined
herein. A covered call option is an option in which a Fund owns the
underlying security or has an absolute and immediate right to acquire that
security, without additional consideration or for additional consideration held
in a segregated account by its custodian, upon conversion or exchange of other
securities currently held in its portfolio or with respect to which a Fund holds
cash or other relatively liquid assets segregated within a Fund’s account at the
custodian or in a separate segregation account at the custodian. The principal
reason for writing call options is the attempt to realize, through the receipt
of premiums, a greater return than would be realized on the securities alone. By
writing covered call options, a Fund gives up the opportunity, while the option
is in effect, to profit from any price increase in the underlying security above
the option exercise price. In addition, a Fund’s ability to sell the underlying
security will be limited while the option is in effect unless a Fund enters into
a closing purchase transaction. A closing purchase transaction cancels out a
Fund’s position as the writer of an option by means of an offsetting purchase of
an identical option prior to the expiration of the option it has written.
Covered call options also serve as a partial hedge to the extent of the premium
received against a decline in the price of the underlying security. Also, with
respect to call options written by a Fund that are covered only by segregated
portfolio securities, a Fund is exposed to the risk of loss equal to the amount
by which the price of the underlying securities rises above the exercise
price.
PUT
OPTIONS. A Fund may
purchase put options to seek to hedge against a decline in the value of its
securities or to enhance its return. By buying a put option, a Fund acquires a
right to sell such underlying securities or instruments at the exercise price,
thus limiting a Fund’s risk of loss through a decline in the market value of the
securities or instruments until the put option expires. The
Prudential
Investment Portfolios, Inc. 15 20
amount of any
appreciation in the value of the underlying securities or instruments will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out a Fund’s position as the purchaser of an option by means of an offsetting
sale of an identical option prior to the expiration of the option it has
purchased. A Fund also may purchase uncovered put options.
A Fund may write
(i.e., sell) put options on the types of securities or instruments that may be
held by a Fund, provided that such put options are covered (as described above,
covered options are secured by cash or other relatively liquid assets held in a
segregated account or the referenced security). A Fund will receive a premium
for writing a put option, which increases a Fund’s return.
REAL
ESTATE INVESTMENT TRUSTS (“REITs”). Investing in
REITs involves certain unique risks in addition to those risks associated with
investing in the real estate industry in general. Equity REITs may be affected
by changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of any credit extended. REITs are
dependent upon management skills, may not be diversified geographically or by
property type, and are subject to heavy cash flow dependency, default by
borrowers and self-liquidation. REITs must also meet certain requirements under
the Code to avoid entity level tax and be eligible to pass-through certain tax
attributes of their income to shareholders. REITs are consequently subject to
the risk of failing to meet these requirements for favorable tax treatment and
of failing to maintain their exemptions from registration under the 1940 Act.
REITs are also subject to the risks of changes in the Code affecting their tax
status.
In addition,
between 2018 and 2025, a direct REIT shareholder may claim a 20% “qualified
business income” deduction for ordinary REIT dividends, and a RIC may pass
through to its shareholders the special character of this income. Ordinary
dividends received by each Fund from a REIT will generally not constitute
qualified dividend income, which would be eligible for tax at a reduced
rate.
REITs (especially
mortgage REITs) are also subject to interest rate risks. When interest rates
decline, the value of a REIT's investment in fixed rate obligations can be
expected to rise. Conversely, when interest rates rise, the value of a REIT's
investment in fixed rate obligations can be expected to decline. In contrast, as
interest rates on adjustable rate mortgage loans are reset periodically, yields
on a REIT's investments in such loans will gradually align themselves to reflect
changes in market interest rates, causing the value of such investments to
fluctuate less dramatically in response to interest rate fluctuations than would
investments in fixed rate obligations.
Investing in
certain REITs involves risks similar to those associated with investing in small
capitalization companies. These REITs may have limited financial resources, may
trade less frequently and in limited volume and may be subject to more abrupt or
erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P 500 Index. The management
of a REIT may be subject to conflicts of interest with respect to the operation
of the business of the REIT and may be involved in real estate activities
competitive with the REIT. REITs may own properties through joint ventures or in
other circumstances in which the REIT may not have control over its investments.
REITs may incur significant amounts of leverage. A Fund’s investments in REITs
may subject the Fund to duplicate management and/or advisory
fees.
REAL
ESTATE RELATED SECURITIES. Although a Fund
may not invest directly in real estate, a Fund may invest in securities of
issuers that are principally engaged in the real estate industry. Therefore, an
investment by a Fund is subject to certain risks associated with the ownership
of real estate and with the real estate industry in general. These risks
include, among others: possible declines in the value of real estate; risks
related to general and local economic conditions; possible lack of availability
of mortgage funds or other limitations on access to capital; overbuilding; risks
associated with leverage; market illiquidity; extended vacancies of properties;
increase in competition, property taxes, capital expenditures and operating
expenses; changes in zoning laws or other governmental regulation; costs
resulting from the clean-up of, and liability to third parties for damages
resulting from, environmental problems; tenant bankruptcies or other credit
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in rents,
including decreases in market rates for rents; investment in developments that
are not completed or that are subject to delays in completion; and unfavorable
changes in interest rates. To the extent that assets underlying a Fund’s
investments are concentrated geographically, by property type or in certain
other respects, a Fund may be subject to certain of the foregoing risks to a
greater extent.
Investments by a
Fund in securities of companies providing mortgage servicing will be subject to
the risks associated with refinancings and their impact on servicing rights. In
addition, if a Fund receives rental income or income from the disposition of
real property acquired as a result of a default on securities a Fund owns, the
receipt of such income may adversely affect a Fund’s ability to retain its
federal income tax status as a RIC because of certain income source requirements
applicable to regulated investment companies under the Code.
21
REFERENCE
RATE RISK. The Fund may be
exposed to financial instruments that recently transitioned from using LIBOR or
continue to use synthetic LIBOR to determine payment obligations, financing
terms, hedging strategies or investment value.
The United
Kingdom's Financial Conduct Authority (the “FCA”) announced a phase out of LIBOR
such that after June 30, 2023, the overnight, 1-month, 3-month, 6-month and
12-month U.S. dollar LIBOR settings ceased to be published or are no longer
representative. All other LIBOR settings and certain other interbank offered
rates, such as the Euro Overnight Index Average (“EONIA”), ceased to be
published after December 31, 2021. SOFR is a broad measure of the cost of
borrowing cash overnight collateralized by U.S. Treasury securities in the
repurchase agreement (“repo”) market and has been used increasingly on a
voluntary basis in new instruments and transactions. On March 15, 2022, the
Adjustable Interest Rate Act was signed into law, providing a statutory fallback
mechanism to replace LIBOR with a benchmark rate that is selected by the Federal
Reserve Board and based on SOFR for certain contracts that reference LIBOR
without adequate fallback provisions. On December 16, 2022, the Federal Reserve
Board adopted regulations implementing the Adjustable Interest Rate Act by
identifying benchmark rates based on SOFR that replaced LIBOR in different
categories of financial contracts after June 30, 2023. These regulations apply
only to contracts governed by U.S. law, among other
limitations.
Neither the effect
of the LIBOR transition process nor its ultimate success can yet be known. Not
all existing LIBOR-based instruments may have alternative rate-setting
provisions and there remains uncertainty regarding the willingness and ability
of issuers to add alternative rate-setting provisions in certain existing
instruments. Parties to contracts, securities or other instruments using LIBOR
may disagree on transition rates or the application of applicable transition
regulation, potentially resulting in uncertainty of performance and the
possibility of litigation. The Fund may have instruments linked to other
interbank offered rates that may also cease to be published in the
future.
REPURCHASE
AGREEMENTS. A Fund may invest
in securities pursuant to repurchase agreements. A Fund will enter into
repurchase agreements only with parties meeting creditworthiness standards as
set forth in a Fund’s repurchase agreement procedures.
Under such
agreements, the other party agrees, upon entering into the contract with a Fund,
to repurchase the security at a mutually agreed-upon time and price in a
specified currency, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations during such period, although such return may be affected by
currency fluctuations. In the case of repurchase agreements, the prices at which
the trades are conducted do not reflect accrued interest on the underlying
obligation. Repurchase agreements may be construed to be collateralized loans by
the purchaser to the seller secured by the securities transferred to the
purchaser.
In the case of a
repurchase agreement, as a purchaser, a Fund will require all repurchase
agreements to be fully collateralized at all times by cash or other relatively
liquid assets in an amount at least equal to the resale price. The seller is
required to provide additional collateral if the market value of the securities
falls below the repurchase price at any time during the term of the repurchase
agreement. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by a Fund but only constitute collateral for the seller's obligation to pay the
repurchase price. Therefore, a Fund may suffer time delays and incur costs or
possible losses in connection with disposition of the collateral.
A Fund may
participate in a joint repurchase agreement account with other investment
companies managed by the Manager pursuant to an order of the SEC. On a daily
basis, any uninvested cash balances of a Fund may be aggregated with those of
such investment companies and invested in one or more repurchase agreements. A
Fund participates in the income earned or accrued in the joint account based on
the percentage of its investment.
REVERSE
REPURCHASE AGREEMENTS AND DOLLAR ROLLS. A Fund may enter
into reverse repurchase agreements. A reverse repurchase agreement involves the
sale of a portfolio-eligible security by a Fund, coupled with its agreement to
repurchase the instrument at a specified time and price. See “Repurchase
Agreements.”
A Fund may enter
into dollar rolls. In a dollar roll, a Fund sells securities for delivery in the
current month and simultaneously contracts to repurchase substantially similar
(same type and coupon) securities on a specified future date from the same
party. During the roll period, a Fund forgoes principal and interest paid on the
securities. A Fund is compensated by the difference between the current sale
price and the forward price for the future purchase (often referred to as the
drop) as well as by the interest earned on the cash proceeds of the initial
sale.
Dollar rolls
involve the risk that the market value of the securities retained by a Fund may
decline below the price of the securities sold by a Fund but which a Fund is
obligated to repurchase under the agreement. In the event the buyer of
securities under a dollar roll files for bankruptcy or becomes insolvent, a
Fund’s use of the proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
a Fund’s obligation to repurchase the securities. Cash proceeds from dollar
rolls may be invested in cash or other liquid assets.
Prudential
Investment Portfolios, Inc. 15 22
SECURITIES
LENDING. Unless
otherwise noted, a Fund may lend its portfolio securities to brokers, dealers
and other financial institutions subject to applicable regulatory requirements
and guidance, including the requirements that: (1) the aggregate market value of
securities loaned will not at any time exceed 33 1∕3% of the total assets of a Fund;
(2) the borrower pledge and maintain with a Fund collateral consisting of cash
having at all times a value of not less than 102% (or 105% for foreign
securities) of the value of the securities lent; and (3) the loan be made
subject to termination by a Fund at any time. Goldman Sachs Bank
USA,
d/b/a Goldman Sachs
Agency Lending (“GSAL”) serves as securities lending agent for each Fund, and in
that role administers a Fund’s securities lending program. As compensation for
these services, GSAL receives a portion of any amounts earned by a Fund through
lending securities.
On termination of
the loan, the borrower is required to return the securities to a Fund, and any
gain or loss in the market price during the loan would inure to a Fund. If the
borrower defaults on its obligation to return the securities lent because of
insolvency or other reasons, a Fund could experience delays and costs in
recovering the securities lent or in gaining access to the collateral. In such
situations, a Fund may sell the collateral and purchase a replacement investment
in the market. There is a risk that the value of the collateral could decrease
below the value of the replacement investment by the time the replacement
investment is purchased.
During the time
portfolio securities are on loan, the borrower will pay a Fund an amount
equivalent to any dividend or interest paid on such securities. Voting or
consent rights which accompany loaned securities pass to the borrower. However,
all loans may be terminated at any time to facilitate the exercise of voting or
other consent rights with respect to matters considered to be material. A Fund
bears the risk that there may be a delay in the return of the securities which
may impair a Fund’s ability to exercise such rights.
SHORT
SALES AND SHORT SALES AGAINST-THE-BOX. A Fund may make
short sales of securities, either as a hedge against potential declines in value
of a portfolio security or to realize appreciation when a security that a Fund
does not own declines in value. Because making short sales in securities not
owned by a Fund exposes a Fund to the risks associated with those securities,
such short sales involve speculative exposure risk. As a result, if a Fund makes
short sales in securities that increase in value, a Fund will likely
underperform similar mutual funds that do not make short sales in securities
they do not own. A Fund will incur a loss as a result of a short sale if the
price of the security increases between the date of the short sale and the date
on which a Fund replaces the borrowed security. A Fund will realize a gain if
the security declines in price between those dates. There can be no assurance
that a Fund will be able to close out a short sale position at any particular
time or at a desired price. Although a Fund’s gain is limited to the price at
which a Fund sold the security short, its potential loss is limited only by the
maximum attainable price of the security, less the price at which the security
was sold and may, theoretically, be unlimited. There is also a risk that a
borrowed security will need to be returned to the broker/dealer on short notice.
If the request for the return of a security occurs at a time when other short
sellers of the security are receiving similar requests, a “short squeeze” can
occur, meaning that a Fund might be compelled, at the most disadvantageous time,
to replace the borrowed security with a security purchased on the open market,
possibly at prices significantly in excess of the proceeds received
earlier.
A Fund has a short
position in the securities sold short until it delivers to the broker/dealer the
securities sold, at which time a Fund receives the proceeds of the sale. In
addition, a Fund is required to pay to the broker/dealer the amount of any
dividends or interest paid on shares sold short. A Fund will normally close out
a short position by purchasing on the open market and delivering to the
broker/dealer an equal amount of the securities sold short.
A Fund may also
make short sales against-the-box. A short sale against-the-box is a short sale
in which a Fund owns an equal amount of the securities sold short, or securities
convertible or exchangeable for, with or without payment of any further
consideration, such securities.
SMALLER
OR EMERGING GROWTH COMPANIES. Investment in
smaller or emerging growth companies involves greater risk than is customarily
associated with investments in more established companies. The securities of
smaller or emerging growth companies may be subject to more abrupt or erratic
market movements than larger, more established companies or the market average
in general. These companies may have limited product lines, markets or financial
resources, or they may be dependent on a limited management group.
While smaller or
emerging growth company issuers may offer greater opportunities for capital
appreciation than large cap issuers, investments in smaller or emerging growth
companies may involve greater risks and thus may be considered speculative. The
subadviser believes that properly selected companies of this type have the
potential to increase their earnings or market valuation at a rate substantially
in excess of the general growth of the economy. Full development of these
companies and trends frequently takes time.
23
Small
capitalization and emerging growth securities will often be traded only in the
OTC market or on a regional securities exchange and may not be traded every day
or in the volume typical of trading on a national securities exchange. As a
result, the disposition by a Fund of portfolio securities to meet redemptions or
otherwise may require a Fund to make many small sales over a lengthy period of
time, or to sell these securities at a discount from market prices or during
periods when, in the subadviser's judgment, such disposition is not
desirable.
While the process
of selection and continuous supervision by the subadviser does not, of course,
guarantee successful investment results, it does provide access to an asset
class not available to the average individual due to the time and cost involved.
Careful initial selection is particularly important in this area as many new
enterprises have promise but lack certain of the fundamental factors necessary
to prosper. Investing in small capitalization and emerging growth companies
requires specialized research and analysis. In addition, many investors cannot
invest sufficient assets in such companies to provide wide
diversification.
Small companies
are generally little known to most individual investors although some may be
dominant in their respective industries. The subadviser believes that relatively
small companies will continue to have the opportunity to develop into
significant business enterprises. A Fund may invest in securities of small
issuers in the relatively early stages of business development that have a new
technology, a unique or proprietary product or service, or a favorable market
position. Such companies may not be counted upon to develop into major
industrial companies, but Fund management believes that eventual recognition of
their special value characteristics by the investment community can provide
above-average long-term growth to the portfolio.
Equity securities
of specific small capitalization issuers may present different opportunities for
long-term capital appreciation during varying portions of economic or securities
markets cycles, as well as during varying stages of their business development.
The market valuation of small capitalization issuers tends to fluctuate during
economic or market cycles, presenting attractive investment opportunities at
various points during these cycles. Smaller companies, due to the size and kinds
of markets that they serve, may be less susceptible than large companies to
intervention from the federal government by means of price controls, regulations
or litigation.
SOVEREIGN
DEBT.
Investment in sovereign debt can involve a high degree of risk. The governmental
entity that controls the repayment of sovereign debt may not be able or willing
to repay the principal and/or interest when due in accordance with the terms of
such debt. A governmental entity's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the governmental entity's
policy towards the International Monetary Fund and the political constraints to
which a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on the implementation of economic
reforms and/or economic performance and the timely service of such debtor's
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds to the
governmental entity, which may further impair such debtor's ability or
willingness to timely service its debts. Consequently, governmental entities may
default on their sovereign debt. Holders of sovereign debt may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. In the event of a default by a governmental entity, there
may be few or no effective legal remedies for collecting on such
debt.
STRUCTURED
NOTES / STRUCTURED SECURITIES. The Fund may
invest in structured notes and other types of structured securities, including
participation notes, structured notes, low exercise price warrants and other
related instruments. These securities are generally privately negotiated debt
obligations where the principal and/or interest or value of the structured
security is determined by reference to the performance of a specific asset,
benchmark asset, market or interest rate (“reference instrument”). Issuers
of structured securities include corporations and banks. The interest rate or
the principal amount payable upon maturity or redemption may increase or
decrease, depending upon changes in the value of the reference instrument. The
terms of a structured security may provide that, in certain circumstances, no
principal is due at maturity and, therefore, may result in a loss of invested
capital by the Fund. Receipt of the reference instrument is also, in
certain circumstances, exchanged upon maturity of the security.
A structured
security may be positively, negatively, or both positively and negatively
indexed; that is, its value or interest rate may increase or decrease if the
value of the reference instrument increases. Similarly, its value or interest
rate may increase or decrease if the value of the reference instrument
decreases. Further, the change in the principal amount payable with respect to,
or the interest rate of, a structured security may be calculated as a multiple
of the percentage change (positive or negative) in the value of the underlying
reference instrument(s); therefore, the value of such structured security may be
very volatile. Additionally, caps can be placed on the amount of appreciation
with regard to the reference instrument.
Prudential
Investment Portfolios, Inc. 15 24
Structured
securities may entail a greater degree of market risk than other types of debt
securities because the investor bears the risk of the reference instrument.
Structured securities may also be more volatile, less liquid, and more difficult
to accurately price than less complex securities or more traditional debt
securities. The secondary market for structured securities could be illiquid,
making them difficult to sell when the Fund determines to sell them. The
possible lack of a liquid secondary market for structured securities and the
resulting inability of the Fund to sell a structured security could expose the
Fund to losses and could make structured securities more difficult for the Fund
to value accurately.
In addition,
because structured securities generally are traded over-the-counter, structured
securities are subject to the creditworthiness of the counterparty of the
structured security, and their values may decline substantially if the
counterparty's creditworthiness deteriorates.
SUPRANATIONAL
ENTITIES. Each Fund may
invest in debt securities of supranational entities. Examples include the World
Bank, the European Steel and Coal Community, the Asian Development Bank and the
Inter-American Development Bank. The government members, or “stockholders,”
usually make initial capital contributions to the supranational entity and in
many cases are committed to make additional capital contributions if the
supranational entity is unable to repay its borrowings. There is no guaranty
that stockholders will continue to make any necessary additional capital
contributions. If such contributions are not made, the entity may be unable to
pay interest or repay principal on its debt securities, and each Fund may lose
money on such investments.
SWAP
AGREEMENTS. Each Fund may
enter into swap transactions, including, but not limited to, equity, interest
rate, index, credit default, total return and, to the extent that it invests in
foreign currency-denominated securities, currency exchange rate swap agreements.
In addition, each Fund may enter into options on swap agreements (“swap
options”). These swap transactions are entered into in an attempt to obtain a
particular return when it is considered desirable to do so, possibly at a lower
cost to each Fund than if each Fund had invested directly in an instrument that
yielded that desired return. Swap transactions are a type of derivative.
Derivatives are further discussed in the sub-sections entitled “Derivatives” and
“Risk Factors Involving Derivatives.”
Swap agreements
are two party contracts entered into primarily by institutional investors. In a
standard “swap” transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on or calculated with
respect to particular predetermined investments or instruments, which may be
adjusted for an interest factor. The gross returns to be exchanged or “swapped”
between the parties are generally calculated with respect to a “notional
amount,” that is, the return on or increase in value of a particular dollar
amount invested at a particular interest rate or in a “basket” of securities
representing a particular index or other investments or instruments. Most swap
agreements entered into by each Fund would calculate the obligations of the
parties to the agreement on a “net basis.” Consequently each Fund’s current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the “net amount”).
Each Fund’s current obligations under a swap agreement will be accrued daily
(offset against any amounts owed to each Fund).
If there is a
default by the other party to such a transaction, each Fund will have
contractual remedies pursuant to the agreement related to the transaction. Since
swaps are individually negotiated, each Fund expects to achieve an acceptable
degree of correlation between its rights to receive a return on its portfolio
securities and its rights and obligations to receive and pay a return pursuant
to swaps. Each Fund will enter into swaps only with counterparties meeting
certain creditworthiness standards (generally, such counterparties would have to
be eligible counterparties under the terms of each Fund’s repurchase agreement
guidelines approved by the Board).
Certain swaps are
required to be executed through a centralized exchange or regulated facility and
be cleared through a regulated clearinghouse. Although this clearing mechanism
is generally expected to reduce counterparty credit risk, it may disrupt or
limit the swap market and may not result in swaps being easier to trade or
value. As swaps become more standardized, each Fund may not be able to enter
into swaps that meet its investment needs. Each Fund also may not be able to
find a clearinghouse willing to accept a swap for clearing. In a cleared swap, a
central clearing organization will be the counterparty to the transaction. Each
Fund will assume the risk that the clearinghouse may be unable to perform its
obligations. Each Fund will be required to maintain its positions with a
clearing organization through one or more clearing brokers. The clearing
organization will require each Fund to post margin and the broker may require
each Fund to post additional margin to secure each Fund’s obligations. The
amount of margin required may change from time to time. In addition, cleared
transactions may be more expensive to maintain than OTC transactions and may
require each Fund to deposit larger amounts of margin. Each Fund may not be able
to recover margin amounts if the broker has financial difficulties. Also, the
broker may require each Fund to terminate a derivatives position under certain
circumstances. This may cause each Fund to lose money.
TEMPORARY
DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS. A Fund may
temporarily invest without limit in money market instruments, including
commercial paper of U.S. corporations, certificates of deposit, bankers'
acceptances and other obligations of domestic banks, and obligations issued or
guaranteed by the U.S. Government, its agencies or its instrumentalities, as
part of a temporary defensive strategy.
25
A Fund may invest
in money market instruments to maintain appropriate liquidity to meet
anticipated redemptions. Money market instruments typically have a maturity of
one year or less as measured from the date of purchase. A Fund also may
temporarily hold cash or invest in money market instruments pending investment
of proceeds from new sales of Fund shares or during periods of portfolio
restructuring.
TOTAL
RETURN SWAP AGREEMENTS. A Fund may enter
into total return swap agreements. Total return swap agreements are contracts in
which one party agrees to make periodic payments based on the change in market
value of the underlying assets, which may include a specified security, basket
of securities or securities indices during the specified period, in return for
periodic payments based on a fixed or variable interest rate or the total return
from other underlying assets. Total return swap agreements may be used to obtain
exposure to a security or market without owning or taking physical custody of
such security or market. Total return swap agreements may effectively add
leverage to a Fund’s portfolio because, in addition to its total net assets, a
Fund would be subject to investment exposure on the notional amount of the swap.
Total return swap agreements entail the risk that a party will default on its
payment obligations to a Fund thereunder. Swap agreements also bear the risk
that a Fund will not be able to meet its obligation to the
counterparty.
U.S.
GOVERNMENT AND AGENCY SECURITIES. A Fund may invest
in adjustable rate and fixed rate U.S. Government securities. U.S. Government
securities are instruments issued or guaranteed by the U.S. Treasury or by an
agency or instrumentality of the U.S. Government. U.S. Government guarantees do
not extend to the yield or value of the securities or a Fund’s shares. Not all
U.S. Government securities are backed by the full faith and credit of the United
States. Some are supported only by the credit of the issuing agency.
U.S. Treasury
securities include 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
by agencies of the U.S. Government or instrumentalities of the U.S. Government,
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 Ginnie Mae, 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, a 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.
A Fund may also
invest in component parts of U.S. Government securities, namely either the
corpus (principal) of such obligations or one or more of the interest payments
scheduled to be paid on such obligations. These obligations may take the form of
(1) obligations
from
which the interest coupons have been stripped; (2) the interest coupons that are
stripped; (3) book-entries at a Federal Reserve member bank representing
ownership of obligation components; or (4) receipts evidencing the component
parts (corpus or coupons) of U.S. Government obligations that have not actually
been stripped. Such receipts evidence ownership of component parts of U.S.
Government obligations (corpus or coupons) purchased by a third party (typically
an investment banking firm) and held on behalf of the third party in physical or
book-entry form by a major commercial bank or trust company pursuant to a
custody agreement with the third party. A Fund may also invest in custodial
receipts held by a third party that are not U.S. Government
securities.
WARRANTS
AND RIGHTS. Warrants and
rights are securities permitting, but not obligating, the warrant holder to
subscribe for other securities. Buying a warrant does not make a Fund a
shareholder of the underlying stock. The warrant holder has no right to
dividends or votes on the underlying stock. A warrant does not carry any right
to assets of the issuer, and for this reason investment in warrants may be more
speculative than other equity-based investments.
WHEN-ISSUED
SECURITIES, DELAYED-DELIVERY SECURITIES AND FORWARD COMMITMENTS. A Fund may
purchase or sell securities that a Fund is entitled to receive on a when-issued
basis. A Fund may also purchase or sell securities on a delayed-delivery basis
or through a forward commitment. When delayed-delivery securities are purchased,
the price and interest rate are fixed at the time of purchase. When-issued,
delayed-delivery and forward commitment transactions all involve the purchase or
sale of securities with payment and delivery taking place in the future. A Fund
enters into these transactions to obtain what is considered an advantageous
price to a Fund at the time of entering into the transaction. A Fund has not
established any limit on the percentage of its assets that may be committed in
connection with these transactions.
There can be no
assurance that a security purchased on a when-issued basis will be issued or
that a security purchased or sold through a forward commitment will be
delivered. The value of securities in these transactions on the delivery date
may be more or less than a Fund’s purchase price. A Fund may bear the risk of a
decline in the value of the security in these transactions and may not benefit
from an appreciation in the value of the security during the commitment
period.
Prudential
Investment Portfolios, Inc. 15 26
ZERO
COUPON SECURITIES, PAY-IN-KIND SECURITIES AND DEFERRED PAYMENT
SECURITIES. A Fund may invest
in zero coupon securities. Zero coupon securities are securities that are sold
at a discount to par value and on which interest payments are not made during
the life of the security. The discount approximates the total amount of interest
the security will accrue and compound over the period until maturity on the
particular interest payment date at a rate of interest reflecting the market
rate of the security at the time of issuance. Upon maturity, the holder is
entitled to receive the par value of the security. While interest payments are
not made on such securities, holders of such securities are deemed to have
received income (“phantom income”) annually, notwithstanding that cash may not
be received currently. To the extent a distribution is paid, there may be
uncertainty about the source of the distribution. The effect of owning
instruments that do not make current interest payments is that a fixed yield is
earned not only on the original investment but also, in effect, on all discount
accretion during the life of the obligations. This implicit reinvestment of
earnings at the same rate eliminates the risk of being unable to invest
distributions at a rate as high as the implicit yield on the zero coupon bond,
but at the same time eliminates the holder's ability to reinvest at higher rates
in the future. For this reason, some of these securities may be subject to
substantially greater price fluctuations during periods of changing market
interest rates than are comparable securities that pay interest currently, which
fluctuation increases the longer the period to maturity. These investments
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of cash. Because these securities do not pay current cash income,
their price can be volatile when interest rates fluctuate and an investment in
these securities generally has a greater potential for complete loss of
principal and/or return than an investment in debt securities that make periodic
interest payments. Such investments are more vulnerable to the creditworthiness
of the issuer and any other parties upon which performance relies. If the issuer
defaults, a Fund may not obtain any return on its investment. These securities
may be subject to less liquidity in the event of adverse market conditions than
comparably rated securities that pay cash interest at regular intervals. A Fund
accrues income with respect to these securities for federal income tax and
accounting purposes prior to the receipt of cash payments.
Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. Deferred payment securities are securities that remain
a zero coupon security until a predetermined date, at which time the stated
coupon rate becomes effective and interest becomes payable at regular intervals.
Pay-in-kind and deferred payment securities may be subject to greater
fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparable rated securities paying cash interest at regular
intervals.
In addition to the
above described risks, there are certain other risks related to investing in
zero coupon, pay-in-kind and deferred payment securities. During a period of
severe market conditions, the market for such securities may become even less
liquid. In addition, as these securities do not pay cash interest, a Fund’s
investment exposure to these securities and their risks, including credit risk,
will increase during the time these securities are held in a Fund’s portfolio.
Further, to maintain its qualification for pass-through treatment under the
federal tax laws, a Fund is required to distribute income to its shareholders
and, consequently, may have to dispose of its portfolio securities under
disadvantageous circumstances to generate the cash, or may have to leverage
itself by borrowing the cash to satisfy these distributions, as they relate to
the distribution of phantom income and the value of the paid-in-kind interest.
The required distributions will result in an increase in a Fund’s exposure to
such securities.
INVESTMENT
RESTRICTIONS
The Funds have
each adopted the restrictions listed below as fundamental policies. Under the
1940 Act, a fundamental policy is one that cannot be changed without the
approval of the holders of a majority of each Fund’s outstanding voting
securities. A “majority of each Fund’s outstanding voting securities,” when used
in this SAI, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
27
1. The Funds may
not purchase the securities of any issuer if, as a result, the Funds would fail
to be a diversified company within the meaning of the 1940 Act, and the rules
and regulations promulgated thereunder, as each may be amended from time to
time, except to the extent that the Funds may be permitted to do so by exemptive
order, SEC release, no-action letter or similar relief or interpretations
(collectively, the “1940 Act Laws, Interpretations and Exemptions”).
2. The Funds may
not issue senior securities or borrow money or pledge its assets, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions. For purposes of
this restriction, the purchase or sale of securities on a when-issued or
delayed-delivery basis, reverse repurchase agreements, dollar rolls, short
sales, derivative and hedging transactions such as interest rate swap
transactions, and collateral arrangements with respect thereto, and transactions
similar to any of the foregoing and collateral arrangements with respect
thereto, and obligations of the Funds to Directors pursuant to deferred
compensation arrangements are not deemed to be a pledge of assets or the
issuance of a senior security.
3. The Funds may
not buy or sell real estate, except that investment in securities of issuers
that invest in real estate and investments in mortgage-backed securities,
mortgage participations or other instruments supported or secured by interests
in real estate are not subject to this limitation, and except that the Funds may
exercise rights relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly
manner.
4. The Funds may
not buy or sell physical commodities or contracts involving physical
commodities. The Funds may purchase and sell (i) derivative, hedging and similar
instruments such as financial futures contracts and options thereon, and (ii)
securities or instruments backed by, or the return from which is linked to,
physical commodities or currencies, such as forward currency exchange contracts,
and the Funds may exercise rights relating to such instruments, including the
right to enforce security interests and to hold physical commodities and
contracts involving physical commodities acquired as a result of the Funds'
ownership of instruments supported or secured thereby until they can be
liquidated in an orderly manner.
5. The Funds may
not engage in the underwriting of securities except insofar as the Funds may be
deemed an underwriter under the 1933 Act in disposing of a portfolio
security.
6. The Funds may
not purchase any security if as a result 25% or more of the Funds' total assets
would be invested in the securities of issuers having their principal business
activities in the same industry or group of industries, except for temporary
defensive purposes, and except that this limitation does not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
7. The Funds may
make loans, including loans of assets of the Funds, repurchase agreements, trade
claims, loan participations or similar investments, or as permitted by the 1940
Act Laws, Interpretations and Exemptions. The acquisition of bonds, debentures,
other debt securities or instruments, or participations or other interests
therein and investments in government obligations, commercial paper,
certificates of deposit, bankers' acceptances or instruments similar to any of
the foregoing will not be considered the making of a loan, and is permitted if
consistent with the Funds’ investment objective.
Whenever
any fundamental investment policy or investment restriction states a maximum
percentage of the Funds' 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 asset values will not be considered a
violation of such policy. However, if the Fund's asset coverage for borrowings
permitted by Investment Restriction 2 falls below 300%, the Funds will, within
three days (not including Sundays and holidays), reduce its borrowings to
satisfy the 300% asset coverage requirement, as required by the 1940 Act Laws,
Interpretations and Exemptions.
For
purposes of Investment Restriction 1, the Funds will currently not purchase any
security (other than obligations of the U.S. Government, its agencies or
instrumentalities) if as a result, with respect to 75% of the Funds’ total
assets, (i) more than 5% of the Funds’ total assets (determined at the time of
investment) would be invested in securities of a single issuer and (ii) the
Funds would own more than 10% of the outstanding voting securities of any single
issuer. With respect to the remaining 25% of its total assets, the Funds
can invest more than 5% of its assets in one issuer. Under the 1940 Act, the
Funds cannot change its classification from diversified to non-diversified
without shareholder approval.
With
respect to Investment Restriction 2 above, the 1940 Act permits the Funds to
borrow money in amounts of up to one-third of the Funds’ total assets from banks
for any purpose, and to borrow up to 5% of the Funds’ total assets from banks or
other lenders for temporary purposes. (A Fund’s total assets include the amounts
being borrowed.) To limit the risks attendant to borrowing, the 1940 Act
requires the Funds to maintain an “asset coverage” of at least 300% of the
amount of its borrowings, provided that in the event that the Funds’ asset
coverage falls below 300%, the Funds is required to reduce the amount of its
borrowings so that it meets the 300% asset coverage threshold within three days
(not including Sundays and holidays). Asset coverage means the ratio that the
value of the Funds’ total assets (including amounts borrowed), minus liabilities
other than borrowings, bears to the aggregate amount of all borrowings.
Borrowing money to increase portfolio holdings is known as “leveraging.”
Borrowing, especially when used for leverage, may cause the
Prudential
Investment Portfolios, Inc. 15 28
value
of the Funds’ shares to be more volatile than if the Funds did not borrow. This
is because borrowing tends to magnify the effect of any increase or decrease in
the value of the Funds’ portfolio holdings. Borrowed money thus creates an
opportunity for greater gains, but also greater losses. To repay borrowings, the
Funds may have to sell securities at a time and at a price that is unfavorable
to the Funds. There also are costs associated with borrowing money, and these
costs would offset and could eliminate the Funds’ net investment income in any
given period. Investment Restriction 2 will be interpreted to permit the Funds
to engage in trading practices and investments that may be considered to be
borrowing to the extent permitted by the 1940 Act and the rules thereunder.
Notwithstanding the exclusion of derivatives from the limitations of Investment
Restriction 2, certain trading practices and investments, such as derivatives
transactions, may be treated as senior securities under the 1940 Act. Rule 18f-4
under the 1940 Act provides an exemption from certain limitations on the
issuance of senior securities for transactions in derivatives instruments where
the Funds comply with the requirements of the rule. Practices and investments
that may involve leverage but are not considered to be borrowings or senior
securities are not subject to the policy. In addition, Investment
Restriction 2 will be interpreted not to prevent collateral arrangements with
respect to investments in derivatives or any collateral arrangements associated
therewith or the Funds’ deferred compensation arrangements with the
Directors.
Investment
Restriction 3 prohibits the Funds from buying or selling real estate. The
Funds may invest in real estate-related companies, companies whose businesses
consist in whole or in part of investing in real estate, instruments (like
mortgages and mortgage participations) that are secured by real estate or
interests therein, or REIT securities. The Funds may exercise rights
relating to real estate securities, including the right to enforce security
interests and to hold real estate acquired by reason of such enforcement until
that real estate can be liquidated in an orderly manner.
Investment
Restriction 4 prohibits the Funds from buying or selling physical commodities
(such as oil or grains) or contracts involving physical commodities. The
Funds may purchase and sell derivative, hedging and similar instruments such as
financial futures contracts and options thereon (such as futures or options on
market indexes, currencies, interest rates or some other benchmark, and swap
agreements) and securities or instruments backed by, or the return from which is
linked to, physical commodities or currencies, such as forward currency exchange
contracts. In addition, the Funds may exercise rights relating to such
instruments, including the right to enforce security interests and to hold
physical commodities and contracts involving physical commodities acquired as a
result of the Funds’ ownership of instruments supported or secured thereby until
they can be liquidated in an orderly manner.
Investment
Restriction 5 prohibits the Funds from acting 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. A
fund engaging in transactions involving disposition of portfolio securities may
be considered to be an underwriter under the 1933 Act. Under the 1933 Act, an
underwriter may be liable for material omissions or misstatements in an issuer’s
registration statement or prospectus. Securities purchased from an issuer and
not registered for sale under the 1933 Act are considered restricted securities.
There may be a limited market for these securities. If these securities are
registered under the 1933 Act, they may then be eligible for sale but
participating in the sale may subject the seller to underwriter liability. These
risks could apply to each fund investing in restricted securities. The Funds may
purchase restricted securities without limit (except to the extent that
restricted securities are subject to the limitation on investment in illiquid
investments).
With respect
to Investment Restriction 6 relating to concentration, the 1940 Act does not
define what constitutes “concentration” in an industry. The SEC staff has taken
the position that investment of 25% or more of a fund’s total assets in one or
more issuers conducting their principal business activities in the same industry
constitutes concentration. It is possible that interpretations of concentration
could change in the future. The policy in Investment Restriction 6 will be
interpreted to refer to concentration as that term may be interpreted from time
to time by the SEC staff. Investment without limit in securities of the U.S.
Government and its agencies or instrumentalities is permitted by the
restriction. Accordingly, issuers of the foregoing securities will not be
considered to be members of any industry. In addition, although the Funds does
not concentrate its investments in a particular industry, it may, for temporary
defensive purposes, do so. If this occurs, the Funds would, on a temporary
basis, be subject to risks that may be unique or pronounced relating to a
particular industry.
For
purposes of Investment Restriction 7, the Funds may currently lend up to
33 1∕3%
of the value of its total assets.
With
respect to Investment Restriction 7, the 1940 Act does not prohibit a fund from
making loans; however, SEC staff interpretations currently prohibit funds from
lending more than one-third of their total assets, except through the purchase
of debt obligations or the use of repurchase agreements. (A repurchase agreement
is an agreement to purchase a security, coupled with an agreement to sell that
security back to the original seller on an agreed-upon date at a price that
reflects current interest rates. The SEC frequently treats repurchase agreements
as loans.) Investment Restriction 7 permits the Funds to lend its portfolio
securities. While lending securities may be a source of income to the Funds, as
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the underlying securities should the borrower fail
financially. Additionally, losses could result from the reinvestment of
collateral received
29
on
loaned securities in investments that decline in value, default, or do not
perform as well as expected. Investment Restriction 7 also permits the Funds to
make loans of money, including loans of money to other PGIM Funds pursuant to an
SEC order for exemptive relief. Investment Restriction 7 will be
interpreted not to prevent the Funds from purchasing or investing in debt
obligations and loans.
Whenever
any fundamental investment policy or investment restriction states a maximum
percentage of the Funds' 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 asset values will not be considered a
violation of such policy.
The
Funds’ fundamental investment restrictions will be interpreted broadly. For
example, the policies will be interpreted to refer to the 1940 Act and the
related rules as they are in effect from time to time, and to interpretations
and modifications of or relating to the 1940 Act by the SEC and others as they
are given from time to time. When a restriction provides that an investment
practice may be conducted as permitted by the 1940 Act, the restriction will be
interpreted to mean either that the 1940 Act expressly permits the practice or
that the 1940 Act does not prohibit the practice.
The
High Yield Fund’s investment objectives are fundamental policies that cannot be
changed without shareholder approval.
Non-Fundamental
Investment Policies
The Funds’
non-fundamental investment policies are as follows:
1. The Funds may
not invest in other registered open-end management investment companies and
registered unit investment trusts in reliance upon the provisions of
subparagraphs (G) or (F) of Section 12(d)(1) of the 1940 Act. The foregoing
investment policy does not restrict the Funds from (i) acquiring securities of
other registered investment companies in connection with a merger,
consolidation, reorganization, or acquisition of assets, or (ii) purchasing the
securities of registered investment companies, to the extent otherwise
permissible under Section 12(d)(1) of the 1940 Act, or Rule 12d1-4 or 1940 Act
Laws, Interpretations and Exemptions.
2. The Funds may
not purchase or otherwise acquire any security if immediately after the
acquisition the value of illiquid investments held by the Funds would exceed 15%
of the Funds’ net assets. The Funds monitors the portion of the Funds’ net
assets that is invested in illiquid investments on an ongoing basis, not only at
the time of investment in such securities.
3. The Funds will provide 60 days'
written notice of a change in its policy to invest, under normal circumstances,
at least 80% of its investable assets in the type of securities indicated by its
name.
4. The Short Duration High Yield
Income Fund's investment objective is a non-fundamental policy.
5. The PGIM High Yield Fund may
not invest more than 20% of the market or other fair value of its total assets
in United States currency-denominated issues of foreign governments and other
foreign issuers; or invest more than 10% of the market or other fair value of
its total assets in securities which are payable in currencies other than United
States dollars.
Diversification
Each Fund is currently classified
as a “diversified” fund under the 1940 Act. In general, this means that the Fund
may not purchase securities of an issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
securities of other investment companies) if, with respect to 75% of its total
assets, (a) more than 5% of the Fund’s total assets would be invested in
securities of that issuer or (b) the Fund would hold more than 10% of the
outstanding voting securities of that issuer. With respect to the remaining 25%
of its total assets, the Fund can invest more than 5% of its assets in one
issuer. Under the 1940 Act, the Fund cannot change its classification from
diversified to non-diversified without shareholder approval.
INFORMATION
ABOUT BOARD MEMBERS AND OFFICERS
Information about
Board Members and Officers of the Funds is set forth below. Board Members who
are not deemed to be “interested persons” of the Funds, as defined in the 1940
Act, are referred to as “Independent Board Members.” Board Members who are
deemed to be “interested persons” of the Funds are referred to as “Interested
Board Members.” The Board Members are responsible for the overall supervision of
the operations of the Funds and perform the various duties imposed on the
directors of investment companies by the 1940 Act. The Board in turn elects the
Officers, who are responsible for administering the day-to-day operations of the
Funds.
Prudential
Investment Portfolios, Inc. 15 30
|
Independent
Board Members |
|
| |
|
Name
Year
of Birth
Position(s)
Portfolios
Overseen |
Principal
Occupation(s)
During
Past Five Years |
Other
Directorships
Held
During
Past
Five Years |
Length
of
Board
Service |
|
Ellen
S. Alberding
1958
Board
Member
Portfolios
Overseen: 103 |
Formerly,
Chief Executive Officer and President,
The
Joyce Foundation (charitable foundation)
(2002-2024);
formerly Vice Chair, City Colleges
of
Chicago (community college system)
(2011-2015);
formerly Trustee, National Park
Foundation
(charitable foundation for national
park
system) (2009-2018); formerly Trustee,
Economic
Club of Chicago (2009-2016);
Trustee,
Loyola University (since 2018). |
None. |
Since
September 2013 |
|
Kevin
J. Bannon
1952
Board
Member
Portfolios
Overseen: 104 |
Retired;
formerly Managing Director (April
2008-May
2015) and Chief Investment Officer
(October
2008-November 2013) of Highmount
Capital
LLC (registered investment adviser);
formerly
Executive Vice President and Chief
Investment
Officer (April 1993-August 2007) of
Bank
of New York Company; formerly President
(May
2003-May 2007) of BNY Hamilton Family
of
Mutual Funds. |
Director
of Urstadt Biddle Properties (equity real
estate
investment trust) (September
2008-August
2023). |
Since
July 2008 |
|
Linda
W. Bynoe
1952
Board
Member
Portfolios
Overseen: 101 |
President
and Chief Executive Officer (since
March
1995) and formerly Chief Operating
Officer
(December 1989-February 1995) of
Telemat
Limited LLC
(formerly
Telemat
Ltd)
(management
consulting); formerly Vice
President
(January 1985-June 1989) at Morgan
Stanley
& Co. (broker-dealer). |
Trustee
of Equity Residential (residential real
estate)
(since December 2009); Director of
Northern
Trust Corporation (financial services)
(since
April 2006); formerly Director of Anixter
International,
Inc. (communication products
distributor)
(January 2006-June 2020). |
Since
March 2005 |
|
Barry
H. Evans
1960
Board
Member
Portfolios
Overseen: 104 |
Retired;
formerly President (2005-2016), Global
Chief
Operating Officer (2014-2016), Chief
Investment
Officer - Global Head of Fixed
Income
(1998-2014), and various portfolio
manager
roles (1986-2006), Manulife Asset
Management
(asset management). |
Formerly
Director, Manulife Trust Company
(2011-2018);
formerly Director, Manulife Asset
Management
Limited (2015-2017); formerly
Chairman
of the Board of Directors of Manulife
Asset
Management U.S. (2005-2016); formerly
Chairman
of the Board, Declaration Investment
Management
and Research (2008-2016). |
Since
September 2017 |
|
Keith
F. Hartstein
1956
Board
Member &
Independent
Chair
Portfolios
Overseen: 104 |
Retired;
formerly Member (November
2014-September
2022) of the Governing Council
of the
Independent Directors Council (IDC)
(organization
of independent mutual fund
directors);
formerly Executive Committee of the
IDC
Board of Governors (October
2019-December
2021); formerly President and
Chief
Executive Officer (2005-2012), Senior Vice
President
(2004-2005), Senior Vice President of
Sales
and Marketing (1997-2004), and various
executive
management positions (1990-1997),
John
Hancock Funds, LLC (asset management);
formerly
Chairman, Investment Company
Institute’s
Sales Force Marketing Committee
(2003-2008). |
None. |
Since
September 2013 |
|
Laurie
Simon Hodrick
1962
Board
Member
Portfolios
Overseen: 101 |
A.
Barton Hepburn Professor Emerita of
Economics
in the Faculty of Business, Columbia
Business
School (since 2018); Visiting Fellow at
the
Hoover Institution, Stanford University
(since
2015); Sole Member, ReidCourt LLC
(since
2008) (a consulting firm); formerly
Visiting
Professor of Law, Stanford Law School
(2015-2021);
formerly A. Barton Hepburn
Professor
of Economics in the Faculty of
Business,
Columbia Business School
(1996-2017);
formerly Managing Director,
Global
Head of Alternative Investment
Strategies,
Deutsche Bank (2006-2008). |
Independent
Director, Roku (since December
2020)
(communication services); formerly
Independent
Director, Andela (2022-2024)
(global
talent network); formerly Independent
Director,
Synnex Corporation (2019-2021)
(information
technology); formerly Independent
Director,
Kabbage, Inc. (2018-2020) (financial
services);
formerly Independent Director,
Corporate
Capital Trust (2017-2018) (a
business
development company). |
Since
September 2017
|
31
|
Independent
Board Members |
|
| |
|
Name
Year
of Birth
Position(s)
Portfolios
Overseen |
Principal
Occupation(s)
During
Past Five Years |
Other
Directorships
Held
During
Past
Five Years |
Length
of
Board
Service |
|
Brian
K. Reid
1961
Board
Member
Portfolios
Overseen: 104 |
Retired;
formerly Chief Economist for the
Investment
Company Institute (ICI)
(2005-2017);
formerly Senior Economist and
Director
of Industry and Financial Analysis at
the
ICI (1998-2004); formerly Senior Economist,
Industry
and Financial Analysis at the ICI
(1996-1998);
formerly Staff Economist at the
Federal
Reserve Board (1989-1996); formerly
Director,
ICI Mutual Insurance Company
(2012-2017). |
None. |
Since
March 2018 |
|
Grace
C. Torres
1959
Board
Member
Portfolios
Overseen: 104 |
Retired;
formerly Treasurer and Principal
Financial
and Accounting Officer of the PGIM
Funds,
Target Funds, Advanced Series Trust,
Prudential
Variable Contract Accounts and The
Prudential
Series Fund (1998-June 2014);
Assistant
Treasurer (March 1999-June 2014)
and
Senior Vice President (September
1999-June
2014) of PGIM Investments LLC;
Assistant
Treasurer (May 2003-June 2014) and
Vice
President (June 2005-June 2014) of AST
Investment
Services, Inc.; Senior Vice President
and
Assistant Treasurer (May 2003-June 2014)
of
Prudential Annuities Advisory Services, Inc. |
Director
(since January 2018) of OceanFirst
Financial
Corp. and OceanFirst Bank; formerly
Director
(July 2015-January 2018) of Sun
Bancorp,
Inc. N.A. and Sun National Bank. |
Since
November 2014 |
|
Interested
Board Members | |||
|
Name
Year
of Birth
Position(s)
Portfolios
Overseen |
Principal
Occupation(s)
During
Past Five Years |
Other
Directorships
Held
During
Past
Five Years |
Length
of
Board
Service |
|
Stuart
S. Parker
1962
Board
Member,
President
& Principal
Executive
Officer
Portfolios
Overseen: 104 |
President,
Chief Executive Officer and Officer in
Charge
(since January 2012) of PGIM
Investments
LLC; President and Principal
Executive
Officer (since March 2022) of the
PGIM
Alternatives Funds and (since January
2012)
of the PGIM Retail Funds; formerly Chief
Operating
Officer for PGIM Investments LLC
(January
2012 - January 2024); formerly
Executive
Vice President of Jennison Associates
LLC
and Head of Retail Distribution of PGIM
Investments
LLC (June 2005-December 2011);
Investment
Company Institute - Board of
Governors
(since May 2012). |
None. |
Since
January 2012 |
|
Scott
E. Benjamin
1973
Board
Member & Vice
President
Portfolios
Overseen: 150 |
Executive
Vice President (since May 2009) of
PGIM
Investments LLC; Vice President (since
June
2012) of Prudential Investment
Management
Services LLC; Executive Vice
President
(since September 2009) of AST
Investment
Services, Inc.; Senior Vice President,
Global
Product Management and Marketing
(since
February 2006) of PGIM Investments LLC;
Vice
President (since March 2022) of the PGIM
Alternatives
Funds and (since March 2010) of
the
PGIM Retail Funds; formerly Vice President
of
Product Development and Product
Management,
PGIM Investments LLC
(2003-2006). |
None. |
Since
March 2010 |
Prudential
Investment Portfolios, Inc. 15 32
|
Fund
Officers
(a) |
|
|
|
Name
Year
of Birth
Fund
Position |
Principal
Occupation(s) During Past Five Years |
Length
of
Service
as Fund Officer |
|
Claudia
DiGiacomo
1974
Chief
Legal Officer |
Chief
Legal Officer, Executive Vice President and Secretary (since August 2020)
of PGIM Investments LLC; Chief
Legal
Officer (since January 2024) of PGIM DC Solutions LLC, (since July 2022)
of the PGIM Alternatives Funds
and
(since August 2020) of the PGIM Retail Funds, Prudential Annuities Funds,
Prudential Mutual Fund
Services
LLC, and PIFM Holdco, LLC; Vice President and Corporate Counsel (since
January 2005) of Prudential;
and
Corporate Counsel (since August 2020) of AST Investment Services, Inc.;
formerly Vice President and
Assistant
Secretary of PGIM Investments LLC (2005-2020); formerly Associate at
Sidley Austin Brown & Wood
LLP
(1999-2004). |
Since
December 2005 |
|
Dino
Capasso
1974
Chief
Compliance Officer |
Vice
President (since June 2024) of PGIM Investments LLC; Chief Compliance
Officer (since July 2024) of the
PGIM
Retail Funds, Prudential Annuities Funds and PGIM Alternatives Funds;
formerly Chief Compliance Officer
and
Vice President (May 2022 - May 2024) of T. Rowe Price Associates, Inc., T.
Rowe Price Investment
Management,
Inc., and the T. Rowe Price mutual fund complex; formerly Chief Compliance
Officer (September
2019 -
April 2022) of PGIM Investments LLC and AST Investment Services, Inc.
(ASTIS); formerly Chief
Compliance
Officer (July 2019 – April 2022) of the PGIM Retail Funds and Prudential
Annuities Funds and
(March
2022 – April 2022) of PGIM Private Real Estate Fund, Inc.; formerly Vice
President and Deputy Chief
Compliance
Officer (June 2017 - September 2019) of PGIM Investments LLC and
ASTIS. |
Since
July 2024 |
|
Andrew
R. French
1962
Secretary |
Vice
President and Assistant Secretary (since January 2007) of PGIM Investments
LLC; Secretary (since March
2022)
of the PGIM Alternatives Funds and (since December 2018) of the PGIM
Retail Funds and Prudential
Annuities
Funds; Vice President and Assistant Secretary (since January 2007) of
Prudential Mutual Fund
Services
LLC; formerly Vice President and Corporate Counsel (2010-2018) of
Prudential; formerly Director and
Corporate
Counsel (2006-2010) of Prudential. |
Since
October 2006 |
|
Melissa
Gonzalez
1980
Assistant
Secretary |
Vice
President and Corporate Counsel (since September 2018) of Prudential; Vice
President and Assistant
Secretary
(since August 2020) of PGIM Investments LLC; Assistant Secretary (since
March 2022) of the PGIM
Alternatives
Funds, (since March 2020) of the PGIM Retail Funds and (since March 2019)
of the Prudential
Annuities
Funds; formerly Director and Corporate Counsel (March 2014-September 2018)
of Prudential. |
Since
March 2020 |
|
Patrick
E. McGuinness
1986
Assistant
Secretary |
Director
and Corporate Counsel (since February 2017) of Prudential; Vice President
and Assistant Secretary
(since
August 2020) of PGIM Investments LLC; Assistant Secretary (since March
2022) of the PGIM Alternatives
Funds
and (since June 2020) of the PGIM Retail Funds and Prudential Annuities
Funds. |
Since
June 2020 |
|
Debra
Rubano
1975
Assistant
Secretary |
Vice
President and Corporate Counsel (since November 2020) of Prudential;
Assistant Secretary (since March
2022)
of the PGIM Alternatives Funds and (since December 2020) of the PGIM
Retail Funds and (since
November
2020) of the Prudential Annuities Funds; formerly Director and Senior
Counsel of Allianz Global
Investors
U.S. Holdings LLC (2010-2020) and Assistant Secretary of numerous funds in
the Allianz fund
complex
(2015-2020). |
Since
December 2020 |
|
George
Hoyt
1965
Assistant
Secretary |
Vice
President and Corporate Counsel (since September 2023) of Prudential;
Assistant Secretary (since March
2024)
of the Prudential Annuities Funds, (since December 2023) of the PGIM
Retail Funds, and (since
September
2023) of the PGIM Alternatives Funds; formerly Associate General Counsel
of Franklin Templeton
and
Secretary and Chief Legal Officer of certain funds in the Franklin
Templeton complex (2020-2023) and
Managing
Director (2016-2020) and Associate General Counsel for Legg Mason, Inc.
and its predecessors
(2004-2020). |
Since
December 2023 |
|
Devan
Goolsby
1991
Assistant
Secretary |
Vice
President and Corporate Counsel (since May 2023) of Prudential; Assistant
Secretary (since March 2024)
of the
Prudential Annuities Funds, (since December 2023) of the PGIM Retail Funds
and (since September
2023)
of the PGIM Alternatives Funds; formerly Associate at Eversheds Sutherland
(US) LLP (2021-2023);
Compliance
Officer at Bloomberg LP (2019-2021); and an Examiner at the Financial
Industry Regulatory
Authority
(2015-2019). |
Since
December 2023 |
|
Kelly
A. Coyne
1968
Assistant
Secretary |
Director,
Investment Operations (since 2010) of Prudential Mutual Fund Services LLC;
Assistant Secretary
(since
March 2022) of the PGIM Alternatives Funds and (since March 2015) of the
PGIM Retail Funds. |
Since
March 2015 |
|
Christian
J. Kelly
1975
Chief
Financial Officer |
Vice
President, Global Head of Fund Administration and Operations (since
November 2018) of PGIM
Investments
LLC; Chief Financial Officer (since March 2023) of the PGIM Retail Funds
and Prudential Annuities
Funds
and (since July 2022) of the PGIM Alternatives Funds; formerly Treasurer
and Principal Financial Officer
(January
2019 - March 2023) of the PGIM Retail Funds and Prudential Annuities
Funds; formerly Treasurer and
Principal
Financial Officer (March 2022 – July 2022) of the PGIM Private Real Estate
Fund, Inc.; formerly
Director
of Fund Administration of Lord Abbett & Co. LLC (2009-2018), Treasurer
and Principal Accounting
Officer
of the Lord Abbett Family of Funds (2017-2018); Director of Accounting,
Avenue Capital Group
(2008-2009);
Senior Manager, Investment Management Practice of Deloitte & Touche
LLP (1998-2007). |
Since
January 2019
|
33
|
Fund
Officers(a)
|
|
|
|
Name
Year
of Birth
Fund
Position |
Principal
Occupation(s) During Past Five Years |
Length
of
Service
as Fund Officer |
|
Russ
Shupak
1973
Treasurer
and Principal Accounting
Officer |
Vice
President (since 2017) within PGIM Investments Fund Administration;
Treasurer and Principal Accounting
Officer
(since September 2023) of the PGIM Credit Income Fund, (since March 2023)
of the PGIM Retail Funds,
and
(since July 2022) of the PGIM Private Real Estate Fund, Inc.; Assistant
Treasurer (since September 2023)
of the
PGIM Rock ETF Trust, (since September 2022) of the PGIM Private Credit
Fund and (since October 2019)
of the
Prudential Annuities Funds; formerly Assistant Treasurer (March 2022 –
July 2022) of the PGIM Private
Real
Estate Fund, Inc.; formerly Director (2013-2017) within PGIM Investments
Fund Administration. |
Since
October 2019 |
|
Lana
Lomuti
1967
Assistant
Treasurer |
Vice
President (since 2007) within PGIM Investments Fund Administration;
Assistant Secretary (since April
2014)
of the PGIM Retail Funds and Prudential Annuities Funds; formerly
Assistant Treasurer (December 2007-
February
2014) of The Greater China Fund, Inc.; formerly Director (2005-2007)
within PGIM Investments Fund
Administration. |
Since
April 2014 |
|
Deborah
Conway
1969
Assistant
Treasurer |
Vice
President (since 2017) within PGIM Investments Fund Administration;
Assistant Secretary (since October
2019)
of the PGIM Retail Funds and Prudential Annuities Funds; formerly Director
(2007-2017) within PGIM
Investments
Fund Administration. |
Since
October
2019 |
|
Elyse
M. McLaughlin
1974
Assistant
Treasurer |
Vice
President (since 2017) within PGIM Investments Fund Administration;
Treasurer and Principal Accounting
Officer
(since September 2023) of the PGIM Rock ETF Trust, (since March 2023) of
the Prudential Annuities
Funds,
and (since September 2022) of the PGIM Private Credit Fund; Assistant
Treasurer (since September
2023)
of the PGIM Credit Income Fund, (since March 2022) of the PGIM Private
Real Estate Fund, Inc., and
(since
October 2019) of the PGIM Retail Funds; formerly Director (2011-2017)
within PGIM Investments Fund
Administration. |
Since
October 2019 |
|
Robert
W. McCormack
1973
Assistant
Treasurer |
Vice
President (since 2019) within PGIM Investments Fund Administration;
Assistant Treasurer (since March
2023)
of the PGIM Retail Funds and Prudential Annuities Funds and (since March
2022) of the PGIM
Alternatives
Funds; formerly Director (2016-2019) within PGIM Investments Fund
Administration; formerly Vice
President
within Goldman, Sachs & Co. Investment Management Controllers
(2008-2016), Assistant Treasurer
of
Goldman Sachs Family of Funds (2015-2016). |
Since
March 2023 |
|
Kelly
Florio
1978
Anti-Money
Laundering Compliance
Officer |
Vice
President, Corporate Compliance, Global Compliance Programs and Compliance
Risk Management (since
December
2021) of Prudential; formerly Head of Fraud Risk Management (October
2019-December 2021) at
New
York Life Insurance Company; formerly Head of Key Risk Area Operations
(November 2018-October 2019),
Director
of the US Anti-Money Laundering Compliance Unit (2009-2018) and Bank Loss
Prevention Associate
(2006-2009)
at MetLife. |
Since
June 2022 |
(a) Excludes Mr.
Parker and Mr. Benjamin, interested Board Members who also serve as President
and Vice President, respectively.
Explanatory
Notes to Tables:
■
Board Members
are deemed to be “Interested,” as defined in the 1940 Act, by reason of their
affiliation with PGIM Investments LLC and/or an affiliate of PGIM Investments
LLC.
■
Unless
otherwise noted, the address of all Board Members and Officers is c/o PGIM
Investments LLC, 655 Broad Street, Newark, New Jersey 07102-4410.
■
There is no
set term of office for Board Members or Officers. The Board Members have adopted
a retirement policy, which calls for the retirement of Board Members on December
31 of the year in which they reach the age of 75.
■
“Other
Directorships Held” includes all directorships of companies required to register
or file reports with the SEC under the 1934 Act (that is, “public companies”) or
other investment companies registered under the 1940 Act.
■
“Portfolios Overseen” includes
such applicable investment companies managed by PGIM Investments LLC and
overseen by the Board Member. The investment companies for which PGIM
Investments LLC serves as manager
include:
■
The “PGIM Retail Funds”
(currently consisting of the PGIM Retail Mutual Funds, PGIM ETF Trust, PGIM High
Yield Bond Fund, Inc., PGIM Global High Yield Fund, Inc. and PGIM Short Duration
High Yield Opportunities Fund);
■
The “Prudential Annuities
Funds” (currently consisting of The Prudential Series Fund, Prudential's
Gibraltar Fund, Inc. and the Advanced Series Trust); and
■
The “PGIM Alternatives Funds”
(currently consisting of PGIM Rock ETF Trust, PGIM Private Real Estate Fund,
Inc., PGIM Private Credit Fund, and PGIM Credit Income Fund).
■
As used in the
Fund Officers table “Prudential” means The Prudential Insurance Company of
America.
COMPENSATION
OF BOARD MEMBERS AND OFFICERS. Pursuant to a
management agreement with PIP 15 on behalf of the Funds, the Manager pays all
compensation of Fund Officers and employees as well as the fees and expenses of
all Interested Board Members.
The Funds pay each
Independent Board Member annual compensation in addition to certain
out-of-pocket expenses. Independent Board Members who serve on Board Committees
may receive additional compensation. The amount of annual compensation paid to
each Independent Board Member may change as a result of the introduction of
additional funds on whose Boards the Board Member may be asked to
serve.
Independent Board
Members may defer receipt of their fees pursuant to a deferred fee agreement
with the Funds. Under the terms of the agreement, the Funds accrue deferred
Board Members' fees daily which, in turn, accrue interest at a rate equivalent
to the prevailing rate of 90-day U.S. Treasury Bills at the beginning of each
calendar quarter or at the daily rate of return of any mutual fund
Prudential
Investment Portfolios, Inc. 15 34
managed by PGIM
Investments chosen by the Board Member. Payment of the interest so accrued is
also deferred and becomes payable at the option of the Board Member. The
obligation to make payments of deferred Board Members' fees, together with
interest thereon, is a general obligation of the Funds. The Funds do not have a
retirement or pension plan for Board Members.
The following
table sets forth the aggregate compensation paid by the Funds for the most
recently completed fiscal year to the Independent Board Members for service on
the Board, and the Board of any other investment company in the Fund Complex for
the most recently completed calendar year. Board Members and officers who are
“interested persons” of the Funds (as defined in the 1940 Act) do not receive
compensation from PGIM Investments-managed funds and therefore are not shown in
the following table.
|
Name |
Aggregate
Fiscal Year
Compensation
from the Funds |
Pension
or Retirement Benefits
Accrued
as Part of Fund Expenses |
Estimated
Annual Benefits
Upon
Retirement |
Total
Compensation from Funds
and
Fund Complex for Most
Recent
Calendar Year |
|
Compensation
Received by Independent Board Members | ||||
|
Ellen
S. Alberding*** |
$35,243 |
None |
None |
$314,000*
(30/100)** |
|
Kevin
J. Bannon |
$38,483 |
None |
None |
$336,000*
(31/101)** |
|
Linda
W. Bynoe |
$36,200 |
None |
None |
$316,000*
(29/98)** |
|
Barry
Evans*** |
$44,780 |
None |
None |
$375,000*
(31/101)** |
|
Keith
F. Hartstein |
$50,883 |
None |
None |
$413,000*
(31/101)** |
|
Laurie
Simon Hodrick*** |
$39,607 |
None |
None |
$337,000*
(29/98)** |
|
Brian
Reid |
$44,940 |
None |
None |
$376,000*
(31/101)** |
|
Grace
C. Torres |
$44,280 |
None |
None |
$372,000*
(31/101)** |
Explanatory
Notes to Board Member Compensation Tables
* Compensation relates to
portfolios that were in existence for any period during 2023.
** Number of
funds and portfolios represent those in existence as of December 31,
2023, and
excludes funds that have merged or liquidated during the year. Additionally, the
number of funds and
portfolios includes those which are approved as of December 31, 2023, however, may commence
operations after that date. No compensation is paid out from such
funds/portfolios.
*** Under the
deferred fee agreement for the PGIM Investments-managed funds, certain Board
Members have elected to defer all or part of their total compensation. The
amount of compensation deferred during the calendar year ended December 31,
2023, amounted to
$290,950, $347,010, and $316,660 for Ms. Alberding, Mr. Evans, and Ms. Hodrick,
respectively. Under the deferred fee arrangement, these amounts are deposited
into a trust held for the benefit of participating Board Members and are not
continuing obligations of the Fund.
BOARD
COMMITTEES. The Board has
established four standing committees in connection with Fund governance—Audit,
Nominating and Governance, Investment, and Compliance. Information on the
membership of each standing committee and its functions is set forth
below.
Audit
Committee: The Board has
determined that each member of the Audit Committee is not an “interested person”
as defined in the 1940 Act. The responsibilities of the Audit Committee are to
assist the Board in overseeing the Funds' independent registered public
accounting firm, accounting policies and procedures and other areas relating to
the Funds' auditing processes. The Audit Committee is responsible for
pre-approving all audit services and any permitted non-audit services to be
provided by the independent registered public accounting firm directly to the
Funds. The Audit Committee is also responsible for pre-approving permitted
services to be provided by the independent registered public accounting firm to
(1) the Manager and (2) any entity in a control relationship with the Manager
that provides ongoing services to the Funds, provided that the engagement of the
independent registered public accounting firm relates directly to the operation
and financial reporting of the Funds. The scope of the Audit Committee's
responsibilities is oversight. It is management's responsibility to maintain
appropriate systems for accounting and internal control and the independent
registered public accounting firm's responsibility to plan and carry out an
audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). The number of Audit Committee meetings held
during the Funds' most recently completed fiscal year is set forth in the table
below.
The membership of the Audit
Committee is set forth below:
Grace Torres (Chair)
Linda Bynoe
Barry Evans
Keith Hartstein (ex-officio)
Brian Reid
Grace Torres (Chair)
Linda Bynoe
Barry Evans
Keith Hartstein (ex-officio)
Brian Reid
Nominating
and Governance Committee: The Nominating and
Governance Committee of the Board is responsible for nominating Board Members
and making recommendations to the Board concerning Board composition, committee
structure and governance, director education, and governance practices. The
Board has determined that each member of the Nominating and Governance Committee
is
35
not an “interested
person” as defined in the 1940 Act. The number of Nominating and Governance
Committee meetings held during the Funds' most recently completed fiscal year is
set forth in the table below. The Nominating and Governance Committee Charter is
available on the Funds' website.
The membership of the Nominating
and Governance Committee is set forth below:
Kevin Bannon (Chair)
Ellen Alberding
Keith Hartstein (ex-officio)
Laurie Simon Hodrick
Kevin Bannon (Chair)
Ellen Alberding
Keith Hartstein (ex-officio)
Laurie Simon Hodrick
Investment
Committees: The Board
of each fund in the PGIM retail funds complex has formed joint committees to
review the performance of each fund in the Fund Complex. The Gibraltar
Investment Committee reviews the performance of each fund that is subadvised by
Jennison Associates LLC
and PGIM Quantitative
Solutions LLC (single managed funds). The Dryden Investment Committee reviews
the performance of each fund that is subadvised by PGIM Fixed Income, PGIM Real
Estate (each of which is a business unit of PGIM, Inc.), PGIM
Limited,
PGIM Real Estate (UK)
Limited, PGIM Quantitative Solutions LLC (asset allocation funds) and PGIM DC
Solutions LLC. In addition, the Dryden Investment Committee reviews the
performance of the closed-end funds. Each committee meets at least four times
per year and reports the results of its review to the full Board of each fund at
each regularly scheduled Board meeting. Every Independent Board Member sits on
one of the two Investment
Committees.
The number of
Gibraltar Investment Committee or Dryden Investment Committee meetings, as
applicable, held during the Fund's most recently completed fiscal year is set
forth in the table below.
The membership of the Gibraltar
Investment Committee and the Dryden Investment Committee is set forth
below:
Gibraltar Investment Committee
Laurie Simon Hodrick (Chair)
Linda Bynoe
Keith Hartstein (ex-officio)
Grace Torres
Gibraltar Investment Committee
Laurie Simon Hodrick (Chair)
Linda Bynoe
Keith Hartstein (ex-officio)
Grace Torres
Dryden
Investment Committee
Barry Evans (Chair)
Ellen Alberding
Kevin Bannon
Keith Hartstein (ex-officio)
Brian Reid
Barry Evans (Chair)
Ellen Alberding
Kevin Bannon
Keith Hartstein (ex-officio)
Brian Reid
Compliance
Committee. The Compliance
Committee serves as the liaison between the Board and the Funds' Chief
Compliance Officer (“CCO”). In its role as liaison, the Compliance Committee
assists the Board in overseeing compliance matters and administration. The
Compliance Committee's responsibilities include, among other matters,
considering any material compliance matter reported by the CCO between meetings
of the Board and receiving reports on any investigations into matters within the
Committee's scope of responsibilities.
The number of
Compliance Committee meetings held during the Funds' most recently completed
fiscal year is set forth in the table below.
The membership of
the Compliance Committee is set forth below:
Brian Reid (Chair)
Barry Evans
Keith Hartstein (ex-officio)
Grace Torres
Brian Reid (Chair)
Barry Evans
Keith Hartstein (ex-officio)
Grace Torres
|
Board
Committee Meetings (for most recently completed fiscal
year) | |||
|
Audit
Committee |
Nominating
& Governance Committee |
Dryden
& Gibraltar Investment
Committees |
Compliance
Committee |
|
4 |
3 |
4 |
4 |
LEADERSHIP
STRUCTURE AND QUALIFICATIONS OF BOARD MEMBERS. The Board is
responsible for oversight of the Funds. The Funds have engaged the Manager to
manage the Funds on a day-to-day basis. The Board oversees the Manager and
certain other principal service providers in the operations of the Funds. The
Board is currently composed of ten members, eight of whom are Independent
Prudential
Investment Portfolios, Inc. 15 36
Board Members. The
Board meets in-person at regularly scheduled meetings four times throughout the
year. In addition, the Board Members may meet in-person or by telephone at
special meetings or on an informal basis at other times. As described above, the
Board has established four standing committees—Audit, Nominating and Governance,
Investment and Compliance—and may establish ad hoc committees or working groups
from time to time, to assist the Board in fulfilling its oversight
responsibilities. The Independent Board Members have also engaged independent
legal counsel to assist them in fulfilling their responsibilities.
The Board is
chaired by an Independent Board Member. As Chair, this Independent Board Member
leads the Board in its activities. Also, the Chair acts as a member or as an
ex-officio member of each standing committee and any ad hoc committee of the
Board. The Board Members have determined that the Board's leadership and
committee structure is appropriate because the Board believes it sets the proper
tone to the relationships between the Funds, on the one hand, and the Manager,
the subadviser(s) and certain other principal service providers, on the other,
and facilitates the exercise of the Board's independent judgment in evaluating
and managing the relationships. In addition, the structure efficiently allocates
responsibility among committees.
The Board has concluded that,
based on each Board Member's experience, qualifications, attributes or skills on
an individual basis and in combination with those of the other Board Members,
each Board Member should serve as a Board Member. Among other attributes common
to all Board Members are their ability to review critically, evaluate, question
and discuss information provided to them, to interact effectively with the
various service providers to the Funds, and to exercise reasonable business
judgment in the performance of their duties as Board Members. In addition, the
Board has taken into account the actual service and commitment of the Board
Members during their tenure in concluding that each should continue to serve. A
Board Member's ability to perform his or her duties effectively may have been
attained through a Board Member's educational background or professional
training; business, consulting, public service or academic positions; experience
from service as a Board Member of the Funds, other funds in the Fund Complex,
public companies, or non-profit entities or other organizations; or other
experiences or a combination of the foregoing. Set forth below is a brief
discussion of the specific experience, qualifications, attributes or skills of
each Board Member that led the Board to conclude that he or she should serve as
a Board Member.
Ellen
S. Alberding. Ms. Alberding
joined the Board of the Funds and other funds in the Fund Complex in 2013. Ms.
Alberding has over 30 years of experience in the non-profit sector, including
over 20 years as the president of a charitable foundation, where she oversees
multiple investment managers. Ms. Alberding also served as a Trustee of the Aon
Funds from 2000 to 2003.
Kevin
J. Bannon. Mr. Bannon joined
the Board of the Funds and other funds in the Fund Complex in 2008. Mr. Bannon
has held senior executive positions in the financial services industry,
including serving as a senior executive of asset management firms, for over 25
years.
Linda
W. Bynoe. Ms. Bynoe has
been a Board Member of the Funds and other funds in the Fund Complex since 2005,
having served on the boards of other mutual fund complexes since 1993. She has
worked in the financial services industry over 20 years, has over 30 years of
experience as a management consultant and serves as a Director of financial
services and other complex global corporations.
Barry
H. Evans. Mr. Evans joined
the Board of the Funds and other funds in the Fund Complex in 2017. Mr. Evans
has held senior executive positions and various portfolio manager roles in an
asset management firm for 30 years.
Keith
F. Hartstein. Mr. Hartstein
joined the Board of the Funds and other funds in the Fund Complex in 2013. Mr.
Hartstein has worked in the asset management industry for 30 years and served as
a senior executive in an asset management firm.
Laurie
Simon Hodrick. Ms. Hodrick
joined the Board of the Funds and other funds in the Fund Complex in 2017. Ms.
Hodrick brings more than 30 years of experience as a finance academic,
practitioner, and consultant.
Brian
K. Reid. Mr. Reid joined
the Board of the Funds and the other funds in the Fund Complex in 2018.
Mr. Reid has more than 30 years of experience in economics and related fields,
including serving as Chief Economist for the Investment Company Institute
(“ICI”) for 13 years.
Grace
C. Torres. Ms. Torres joined
the Board of the Funds and other funds in the Fund Complex in 2014. Ms. Torres
formerly served as Treasurer and Principal Financial and Accounting Officer for
the Funds and other funds in the Fund Complex for 16 years and held senior
positions with the Manager from 1999 to 2014. In addition, Ms. Torres is a
certified public accountant (“CPA”).
Stuart S.
Parker. Mr. Parker,
who has served as an Interested Board Member and President of the Funds and the
other funds in the Fund Complex since 2012, is President, Chief Executive
Officer and Officer in Charge of PGIM Investments and several of its affiliates
that provide services to the Fund and has held senior positions in PGIM
Investments since 2005.
37
Scott E.
Benjamin. Mr.
Benjamin, an Interested Board Member of the Funds and other funds in the Fund
Complex since 2010, serves as Executive Vice President of the Funds and other
funds in the Fund Complex and has held senior positions in PGIM Investments
since 2003.
Specific details
about each Board Member's professional experience appear in the professional
biography tables, above.
Risk
Oversight. Investing in
general and the operation of a mutual fund involve a variety of risks, such as
investment risk, illiquidity risk, compliance risk, and operational risk, among
others. The Board oversees risk as part of its oversight of the Funds. Risk
oversight is addressed as part of various regular Board and committee
activities. The Board, directly or through its committees, reviews reports from
among others, the Manager, subadvisers, the Funds' Chief Compliance Officer, the
Funds' independent registered public accounting firm, counsel, and internal
auditors of the Manager or its affiliates, as appropriate, regarding risks faced
by the Funds and the risk management programs of the Manager and certain service
providers. The actual day-to-day risk management with respect to the Funds
resides with the Manager and other service providers to the Funds. Although the
risk management policies of the Manager and the service providers are designed
to be effective, those policies and their implementation vary among service
providers and over time, and there is no guarantee that they will be effective.
Not all risks that may affect the Funds can be identified or processes and
controls developed to eliminate or mitigate their occurrence or effects, and
some risks are simply beyond any control of the Funds or the Manager, its
affiliates or other service providers.
Selection of
Board Member Nominees. The Nominating and Governance
Committee is responsible for considering nominees for Board Members at such
times as it considers electing new members to the Board. The Nominating and
Governance Committee may consider recommendations by business and personal
contacts of current Board Members, and by executive search firms which the
Committee may engage from time to time and will also consider shareholder
recommendations. The Nominating and Governance Committee has not established
specific, minimum qualifications that it believes must be met by a nominee. In
evaluating nominees, the Nominating and Governance Committee considers, among
other things, an individual's background, skills, and experience; whether the
individual is an “interested person” as defined in the 1940 Act; and whether the
individual would be deemed an “audit committee financial expert”
within the meaning of
applicable SEC rules. The Nominating and Governance Committee also considers
whether the individual's background, skills, and experience will complement the
background, skills, and experience of other nominees and Board Members and will
contribute to the diversity of the Board. There are no differences in the manner
in which the Nominating and Governance Committee evaluates nominees for the
Board based on whether the nominee is recommended by a shareholder.
A shareholder who
wishes to recommend a board member for nomination should submit his or her
recommendation in writing to the Chair of the Board or the Chair of the
Nominating and Governance Committee, in either case in care of the specified
Fund(s), at 655 Broad Street, 6th Floor, Newark,
New Jersey 07102-4410. At a minimum, the recommendation should include: the
name, address and business, educational and/or other pertinent background of the
person being recommended; a statement concerning whether the person is an
“interested person” as defined in the 1940 Act; any other information that the
Funds would be required to include in a proxy statement concerning the person if
he or she was nominated; and the name and address of the person submitting the
recommendation, together with the number of Fund shares held by such person and
the period for which the shares have been held. The recommendation also can
include any additional information which the person submitting it believes would
assist the Nominating and Governance Committee in evaluating the
recommendation.
Shareholders
should note that a person who owns securities issued by Prudential (the parent
company of the Funds' Manager) would be deemed an “interested person” under the
1940 Act. In addition, certain other relationships with Prudential or its
subsidiaries, with registered broker-dealers, or with the Funds' outside legal
counsel may cause a person to be deemed an “interested person.” Before the
Nominating and Governance Committee decides to nominate an individual to the
Board, Committee members and other Board Members customarily interview the
individual in person. In addition, the individual customarily is asked to
complete a detailed questionnaire which is designed to elicit information which
must be disclosed under SEC and stock exchange rules and to determine whether
the individual is subject to any statutory disqualification from serving on the
board of a registered investment company.
Share
Ownership. Information
relating to each Board Member's Fund share ownership and in all registered funds
in the PGIM Investments-advised funds that are overseen by the respective Board
Member as of the most recently completed calendar year is set forth in the chart
below.
|
Name |
Dollar
Range of Equity Securities in each Fund |
Aggregate
Dollar Range of Equity Securities in All Registered Investment
Companies
Overseen by Board Member in Fund Complex |
|
Board
Member Share Ownership: Independent Board Members | ||
|
Ellen
S. Alberding |
None |
Over
$100,000 |
|
Kevin
J. Bannon |
PGIM
Short Duration High Yield Income Fund: Over $100,000 |
Over
$100,000
|
Prudential
Investment Portfolios, Inc. 15 38
|
Name |
Dollar
Range of Equity Securities in each Fund |
Aggregate
Dollar Range of Equity Securities in All Registered Investment
Companies
Overseen by Board Member in Fund Complex |
|
Board
Member Share Ownership: Independent Board Members | ||
|
Linda
W. Bynoe |
None |
Over
$100,000 |
|
Barry
H. Evans |
None |
Over
$100,000 |
|
Keith
F. Hartstein |
None |
Over
$100,000 |
|
Laurie
Simon Hodrick |
PGIM
High Yield Fund: Over $100,000 |
Over
$100,000 |
|
Brian
K. Reid |
None |
Over
$100,000 |
|
Grace
C. Torres |
PGIM
High Yield Fund: $50,001-$100,000
PGIM
Short Duration High Yield Income Fund:
$50,001-$100,000 |
Over
$100,000 |
|
Board
Member Share Ownership: Interested Board Members | ||
|
Stuart
S. Parker |
None |
Over
$100,000 |
|
Scott
E. Benjamin |
PGIM
High Yield Fund: $1-$10,000 |
Over
$100,000 |
None of the
Independent Board Members, or any member of his/her immediate family, owned
beneficially or of record any securities in an investment adviser or principal
underwriter of a Fund or a person (other than a registered investment company)
directly or indirectly controlling, controlled by, or under common control with
an investment adviser or principal underwriter of a Fund as of the most recently
completed calendar year.
Shareholder
Communications with Board Members. Shareholders can
communicate directly with Board Members by writing to the Chair of the Board,
c/o the Funds, 655 Broad Street, 6th Floor, Newark,
New Jersey 07102-4410. Shareholders can communicate directly with an individual
Board Member by writing to that Board Member, c/o the Funds, 655 Broad Street,
6th Floor, Newark,
New Jersey 07102-4410. Such communications to the Board or individual Board
Members are not screened before being delivered to the
addressee.
MANAGEMENT
& ADVISORY ARRANGEMENTS
MANAGER. The Manager’s address is 655
Broad Street, Newark, New Jersey 07102-4410. The Manager serves as manager to
all of the other investment companies that, together with the Funds, comprise
the PGIM Funds. See the Prospectuses for more information about PGIM Investments
LLC (“PGIM Investments”). As of August 31, 2024, the Manager served as the
investment manager to all of the Prudential US and offshore open-end investment
companies, and as administrator to closed-end investment companies, with
aggregate assets of approximately $315.5 billion.
The Manager is a
wholly-owned subsidiary of PIFM Holdco LLC, which is a wholly-owned subsidiary
of PGIM Holding Company LLC, which is a wholly-owned subsidiary of Prudential.
PMFS, an affiliate of PGIM Investments, serves as the transfer agent and
dividend distribution agent for the PGIM Funds and, in addition, provides
customer service, record keeping and management and administrative services to
qualified plans.
Pursuant to
management agreements with the PIP 15 on behalf of each Fund and PGIM
Investments (each, a Management Agreement, and together, the Management
Agreements), PGIM Investments, subject to the supervision of the Funds' Board
and in conformity with the stated policies of the Funds, manages both the
investment operations of the Funds and the composition of the Funds' portfolios,
including the purchase, retention, disposition and loan of securities and other
assets. In connection therewith, the Manager is obligated to keep certain books
and records of the Funds. The Manager is authorized to enter into subadvisory
agreements for investment advisory services in connection with the management of
the Funds. The Manager will continue to have responsibility for all investment
advisory services performed pursuant to any such subadvisory agreements. PGIM
Investments will review the performance of the subadviser(s) and make
recommendations to the Board with respect to the retention of subadvisers and
the renewal of contracts. The Manager also administers the Funds' corporate
affairs and, in connection therewith, furnishes the Funds with office
facilities, together with those ordinary clerical and bookkeeping services which
are not being furnished by the Funds' custodian (the Custodian) and PMFS. The
management services of PGIM Investments to the Funds are not exclusive under the
terms of the Management Agreements and PGIM Investments is free to, and does,
render management services to others.
PGIM Investments
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 Funds. Fee waivers and
subsidies will increase the Funds' total return. These voluntary waivers may be
terminated at any time without notice. To the extent that PGIM Investments
agrees to waive its fee or subsidize the Funds' expenses, it may enter into a
relationship agreement with the subadviser to share the economic impact of the
fee waiver or expense subsidy.
39
In connection with
its management of the corporate affairs of the Funds, PGIM Investments bears the
following expenses:
■
the salaries and
expenses of all of its and the Funds' personnel except the fees and expenses of
Independent Board Members;
■
all expenses
incurred by the Manager or the Funds in connection with managing the ordinary
course of a Fund’s business, other than those assumed by the Funds as described
below; and
■
the fees, costs
and expenses payable to any subadviser pursuant to a subadvisory agreement
between PGIM Investments and such subadviser.
Under the terms of
the Management Agreements, the Funds are responsible for the payment of the
following expenses:
■
the fees and
expenses incurred by the Funds in connection with the management of the
investment and reinvestment of the Funds' assets payable to the
Manager;
■
the fees and
expenses of Independent Board Members;
■
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 Funds and of pricing the
Funds' shares;
■
the charges and
expenses of the Funds' legal counsel and independent auditors and of legal
counsel to the Independent Board Members;
■
brokerage
commissions and any issue or transfer taxes chargeable to the Funds in
connection with securities (and futures, if applicable)
transactions;
■
all taxes and
corporate fees payable by the Funds to governmental agencies;
■
the fees of any
trade associations of which the Funds may be a member;
■
the cost of share
certificates representing, and/or non-negotiable share deposit receipts
evidencing, shares of the Funds;
■
the cost of
fidelity, directors and officers and errors and omissions insurance;
■
the fees and
expenses involved in registering and maintaining registration of the Funds and
of Fund shares with the SEC and paying notice filing fees under state securities
laws, including the preparation and printing of the Funds' registration
statements and prospectuses for such purposes; allocable communications expenses
with respect to investor services and all expenses of shareholders' and Board
meetings and of preparing, printing and mailing reports and notices to
shareholders; and
■
litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Funds' business and distribution and service (12b-1)
fees.
Each Management
Agreement provides that PGIM Investments will not be liable for any error of
judgment by PGIM Investments or for any loss suffered by the Funds in connection
with the matters to which the Management 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 or
reckless disregard of duties. Each Management Agreement provides that it will
terminate automatically if assigned (as defined in the 1940 Act), and that it
may be terminated without penalty by either PGIM Investments or the Funds by the
Board or vote of a majority of the outstanding voting securities of the Funds
(as defined in the 1940 Act) upon not more than 60 days', nor less than 30
days', written notice. Each 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 accordance with the
requirements of the 1940 Act.
Fees payable under
each Management Agreement are computed daily and paid monthly. The applicable
fee rate and the management fees received by PGIM Investments from the Funds for
the indicated fiscal years are set forth below.
Management
Fee Rate: PGIM High Yield Fund
0.50% of average
daily net assets up to and including $250 million;
0.475% on next $500 million of average daily net assets;
0.45% of next $750 million of average daily net assets;
0.425% on next $500 million of average daily net assets;
0.40% of on next $500 million of average daily net assets;
0.375% on next $500 million of average daily net assets;
0.35% on average daily net assets over $3 billion.
0.475% on next $500 million of average daily net assets;
0.45% of next $750 million of average daily net assets;
0.425% on next $500 million of average daily net assets;
0.40% of on next $500 million of average daily net assets;
0.375% on next $500 million of average daily net assets;
0.35% on average daily net assets over $3 billion.
Prudential
Investment Portfolios, Inc. 15 40
Management
Fee Rate: PGIM Short Duration High Yield Income Fund
Effective
July 1, 2022
0.700% of average
daily net assets up to and including $2 billion
0.675% on next $3 billion of average daily net assets
0.655% on average daily net assets over $5 billion.
0.675% on next $3 billion of average daily net assets
0.655% on average daily net assets over $5 billion.
Prior
to July 1, 2022
0.70% of average
daily net assets to $2 billion;
0.675% of average daily net assets over $2 billion.
0.675% of average daily net assets over $2 billion.
|
Management
Fees Received by PGIM Investments from PGIM High Yield
Fund |
2024 |
2023 |
2022 |
|
Gross
Fee |
$65,904,982 |
$66,040,734 |
$81,188,853 |
|
Amount
Waived/ Reimbursed by PGIM Investments* |
$(31,704) |
$(8,332) |
$(12,952) |
|
Net
Fee |
$65,873,278 |
$66,032,402 |
$81,175,901 |
|
Management
Fees Received by PGIM Investments from PGIM Short Duration High Yield
Income Fund |
2024 |
2023 |
2022 |
|
Gross
Fee |
$32,489,162 |
$32,213,641 |
$33,974,267 |
|
Amount
Waived/ Reimbursed by PGIM Investments* |
$(2,809,287) |
$(2,374,455) |
$(2,376,446) |
|
Net
Fee |
$29,679,875 |
$29,839,186 |
$31,597,821 |
Note:
For the fiscal years shown above, PGIM Investments contractually agreed to waive
fees and/or reimburse certain expenses. The “gross fee”
shown above is the fee amount that PGIM Investments
earned from the Fund without reflecting the impact of the contractual fee
waiver/reimbursement arrangement. The “net fee”
reflects the impact of the contractual fee waiver and is the actual fee amount
paid by the Fund, if any, to PGIM Investments.
*PGIM
Investments has contractually agreed that to the extent each Fund invests in an
ETF advised by PGIM Investments (“PGIM ETF”),
PGIM Investments will waive any management fees it
receives from such Fund in an amount equal to the unitary management fee
received by PGIM Investments from the PGIM ETF attributable to the Fund’s
investment in such PGIM ETF. This waiver will be effective at any time a Fund is
invested in the PGIM ETF and will remain in effect for so long as the Fund is
invested in the PGIM ETF, unless earlier terminated by agreement of the Board
of the Fund.
SUBADVISORY
ARRANGEMENTS. The Manager has
entered into subadvisory agreements (“Subadvisory Agreements”) with the Funds'
subadviser. Each Subadvisory Agreement provides that the subadviser will furnish
investment advisory services in connection with the management of the Funds. In
connection therewith, the subadviser is obligated to keep certain books and
records of the Funds. Under the Subadvisory Agreements, the subadviser, subject
to the supervision of PGIM Investments, is responsible for managing the assets
of the Funds in accordance with the Funds' respective investment objectives,
investment program and policies. The subadviser determines what securities and
other instruments are purchased and sold for the Funds and is responsible for
obtaining and evaluating financial data relevant to the Funds. PGIM Investments
continues to have responsibility for all investment advisory services pursuant
to the Management Agreement and supervises the subadviser's performance of such
services.
As discussed in
the Prospectuses, PGIM Investments employs the subadviser under a “manager of
managers” structure that allows PGIM Investments to replace the subadviser or
amend a Subadvisory Agreement without seeking shareholder approval. The
Subadvisory Agreements provide that they will terminate in the event of their
assignment (as defined in the 1940 Act) or upon the termination of the
Management Agreement. Each Subadvisory Agreement may be terminated by the Funds,
PGIM Investments, or the subadviser upon not more than 60 days’ nor less than 30
days’ written notice. Each Subadvisory Agreement provides that it will continue
in effect for a period of not 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 1940 Act. Any new subadvisory agreement
or amendment to a Fund’s Management Agreement or Subadvisory Agreement that
directly or indirectly results in an increase in the aggregate management fee
rate payable by a Fund will be submitted to the Fund’s shareholders for their
approval. PGIM Investments does not currently intend to retain unaffiliated
subadvisers.
The applicable fee
rate and the subadvisory fees paid by PGIM Investments for the indicated fiscal
years are set forth below. Subadvisory fees are based on the average daily net
assets of each Fund, calculated and paid on a monthly basis, at the fee rate as
set forth in each Subadvisory Agreement. Subadvisory fees are paid by PGIM
Investments out of the management fee that it receives from the
Funds.
41
Subadvisory
Fee Rate: PGIM High Yield Fund
0.250% on average
daily net assets up to and including $250 million;
0.238% on the next $500 million of average daily net assets;
0.225% on the next $750 million of average daily net assets;
0.213% on the next $500 million of average daily net assets;
0.200% on the next $500 million of average daily net assets;
0.188% on the next $500 million of average daily net assets;
0.175% on average daily net assets exceeding $3 billion.
0.238% on the next $500 million of average daily net assets;
0.225% on the next $750 million of average daily net assets;
0.213% on the next $500 million of average daily net assets;
0.200% on the next $500 million of average daily net assets;
0.188% on the next $500 million of average daily net assets;
0.175% on average daily net assets exceeding $3 billion.
Subadvisory
Fee Rate: PGIM Short Duration High Yield Income Fund
0.40% of average
daily net assets up to $300 million;
0.35% of average daily net assets over $300 million.
0.35% of average daily net assets over $300 million.
|
Subadvisory
Fees Paid by PGIM Investments: PGIM High Yield
Fund | |||
|
|
2024 |
2023 |
2022 |
|
PGIM
Fixed Income/PGIM Limited** |
$32,949,403 |
$33,027,867 |
$40,601,926 |
|
Subadvisory
Fees Paid by PGIM Investments: PGIM Short Duration High Yield Income
Fund* | |||
|
|
2024 |
2023 |
2022 |
|
PGIM
Fixed Income** |
$16,724,376 |
$16,594,110 |
$17,507,027 |
*PGIM Limited
(PGIML) serves as a sub-subadviser to the PGIM Short Duration High Yield
Income Fund pursuant to a sub-subadvisory agreement with PGIM. PGIML, an
indirect, wholly-owned subsidiary of
PGIM, provides investment advisory services with respect to securities in
certain foreign markets. The fee for PGIML’s services is paid by PGIM, not the
Short Duration High Yield Income Fund or the
Manager.
**
The Manager has entered into contractual waiver agreement with the subadvisers
whereby the fees received by the subadvisers may be waived to the extent that
either Fund invests in a PGIM ETF
subadvised by such subadviser.
THE
FUNDS’ PORTFOLIO MANAGERS: INFORMATION ABOUT OTHER ACCOUNTS MANAGED
The table below
identifies the number and total assets of other registered investment companies
and other types of investment accounts managed by each portfolio manager. For
each category, the number of investment accounts and total assets in the
investment accounts whose fees are based on performance, if any, is indicated in
italics typeface. Information shown below is as of the Fund’s most recently
completed fiscal year, unless noted otherwise.
|
Other
Funds and Investment Accounts Managed by the Portfolio
Managers | |||||
|
Fund |
Subadviser |
Portfolio
Managers |
Registered
Investment
Companies/Total
Assets |
Other
Pooled
Investment
Vehicles/
Total
Assets |
Other
Accounts/
Total
Assets |
|
PGIM
High Yield Fund |
PGIM
Fixed Income*
PGIM
Limited |
Robert
Cignarella, CFA |
13/$11,649,214,283 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
|
|
|
Robert
Spano, CFA, CPA |
12/$9,581,911,595 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
|
|
|
Ryan
Kelly, CFA |
12/$9,581,911,595 |
8/$6,888,585,794
2/$329,949,319 |
40/$14,467,874,254
4/$1,243,050,877 |
|
|
|
Brian
Clapp, CFA |
12/$9,581,911,595 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
|
|
|
Michael
Gormally |
12/$9,581,911,595 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
|
|
|
Brian
Lalli |
12/$9,581,911,595 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
|
PGIM
Short Duration High Yield Income Fund |
PGIM
Fixed Income |
Robert
Cignarella, CFA |
13/$25,846,015,306 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
|
|
|
Robert
Spano, CFA, CPA |
12/$23,778,712,619 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
|
|
|
Ryan
Kelly, CFA |
12/$23,778,712,619 |
8/$6,888,585,794
2/$329,949,319 |
40/$14,467,874,254
4/$1,243,050,877
|
Prudential
Investment Portfolios, Inc. 15 42
|
Other
Funds and Investment Accounts Managed by the Portfolio
Managers | |||||
|
Fund |
Subadviser |
Portfolio
Managers |
Registered
Investment
Companies/Total
Assets |
Other
Pooled
Investment
Vehicles/
Total
Assets |
Other
Accounts/
Total
Assets |
|
|
|
Brian
Clapp, CFA |
12/$23,778,712,619 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
|
|
|
Michael
Gormally |
12/$23,778,712,619 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
|
|
|
Brian
Lalli |
12/$23,778,712,619 |
8/$6,888,585,794
1/$257,555,547 |
40/$14,467,874,254
4/$1,243,050,877 |
*Accounts
are managed on a team basis. If a portfolio manager is a member of a team, any
account managed by that team is included in the number of accounts and total
assets for such portfolio
manager (even if such portfolio manager is not primarily involved in the
day-to-day management of the account).
THE
FUNDS’ PORTFOLIO MANAGERS: PERSONAL INVESTMENTS AND FINANCIAL
INTERESTS
The table below
identifies the dollar value (in ranges) of investments beneficially held by, and
financial interests awarded to, each portfolio manager, if any, in the Funds and
in other investment accounts managed by, or which have an individual portion or
sleeve managed by, each portfolio manager that utilize investment strategies,
objectives and policies similar to the Funds. Information shown below is as of
each Fund’s most recently completed fiscal year, unless noted
otherwise.
|
Personal
Investments and Financial Interests of the Portfolio
Managers | ||
|
Subadviser |
Portfolio
Managers |
Investments
and Other Financial Interests in the Funds and Similar
Strategies* |
|
PGIM
Fixed Income |
Robert
Cignarella, CFA |
Over
$1,000,000 |
|
|
Robert
Spano, CFA, CPA |
$100,001
- $500,000 |
|
|
Ryan
Kelly, CFA |
$50,001
- $100,000 |
|
|
Brian
Clapp, CFA |
$100,001
- $500,000 |
|
|
Michael
Gormally |
None |
|
|
Brian
Lalli |
$50,001
- $100,000 |
*“Investments
and Other Financial Interests in the Funds and Similar Strategies” include direct investment in
the Funds and investment in all other investment accounts which are managed
by the same
portfolio manager that utilize investment strategies, investment objectives and
policies that are similar to those of the Funds. “Other financial interests”
are interests related to awards
under a targeted long-term incentive plan, the value of which is subject to
increase or decrease based on the performance of the Funds. “Other Investment Accounts” in
similar strategies
include other PGIM funds, insurance company separate accounts, and collective
and commingled trusts. The dollar range of each Portfolio Manager’s direct
investment in the Funds is as follows: Robert Cignarella: PGIM High Yield Fund –
$500,001-
$1,000,000, PGIM
Short Duration High Yield Income Fund - $100,001 - $500,000; Robert Spano: PGIM
High Yield Fund -
$100,001 - $500,000; PGIM Short Duration High Yield Income Fund - None; Ryan
Kelly: PGIM High Yield Fund - $10,001 - $50,000, PGIM Short Duration High Yield
Income Fund - None; Brian Clapp: PGIM High Yield Fund - $100,001 - $500,000,
PGIM Short Duration High Yield Income Fund- $50,001 - $100,000; Michael
Gormally: PGIM High Yield Fund – None, PGIM Short Duration High Yield
Income Fund: None; Brian Lalli: PGIM High Yield Fund - $10,001 - $50,000; PGIM
Short Duration High Yield Income Fund - $10,001 - $50,000.
ADDITIONAL
INFORMATION ABOUT THE PORTFOLIO MANAGERS—COMPENSATION AND CONFLICTS OF
INTEREST. Set forth below
is an explanation of the structure of, and methods used to determine, portfolio
manager compensation. Also set forth below is an explanation of any material
conflicts of interest that may arise between a portfolio manager's management of
the Fund's investments and investments in other accounts.
PGIM,
Inc.
COMPENSATION.
The base salary of an
investment professional in the PGIM Fixed Income unit of PGIM
is primarily based on
market data relative to similar positions as well as the past performance, years
of experience and scope of responsibility of the individual. PGIM Fixed Income
is allocated an overall incentive pool based on the investment and financial
performance of the business. Incentive compensation for investment
professionals, including the annual cash bonus, the long-term equity grant and
grants under PGIM Fixed Income’s long-term incentive plans, is primarily based
on such person’s contribution to PGIM Fixed Income’s goal of providing
investment performance to clients consistent with portfolio objectives,
guidelines, risk parameters, and its compliance risk management and other
policies, as well as market-based data such as compensation trends and levels of
overall compensation for similar positions in the asset management industry. In
addition, an investment professional’s qualitative contributions to the
organization and its commercial success are considered in determining incentive
compensation. Incentive compensation is not solely based on the performance of,
or value of assets in, any single account or group of client
accounts.
43
The PGIM Fixed
Income unit within PGIM Limited (“PGIM Fixed Income (U.K.)”) has adopted a
remuneration policy in relation to activities conducted through the entities
authorized and regulated by the FCA in the United Kingdom. The remuneration
policy is intended to be compliant with the United Kingdom’s Investment Firms
Prudential Regime (“IFPR”) and governs the remuneration of PGIM Fixed Income
(U.K.) staff and “material risk takers” of PGIM Fixed Income (U.K.) including
those that are based outside the United Kingdom.
An investment
professional’s annual cash bonus is paid from an annual incentive pool. The pool
is developed as a percentage of PGIM Fixed Income’s operating income and the
percentage used to calculate the pool may be refined by factors such
as:
■
business
initiatives;
■
the number of
investment professionals receiving a bonus and related peer group
compensation;
■
financial metrics
of the business relative to those of appropriate peer groups; and
■
investment
performance of portfolios: relative to appropriate peer groups; and/or as
measured against relevant investment indices.
Long-term compensation consists of
Prudential Financial, Inc. restricted stock and grants under the long-term
incentive plan and targeted long-term incentive plan. The long-term incentive
plan is intended to align compensation with investment performance. The targeted
long-term incentive plan is intended to align the interests of certain of PGIM
Fixed Income’s investment professionals with the performance of the particular
alternative investment strategies or commingled investment vehicles they manage.
Grants under the long-term incentive plan and targeted long-term incentive plan
are participation interests in notional accounts with a beginning value of a
specified dollar amount. For the long-term incentive plan, the value attributed
to these notional accounts increases or decreases over a defined period of time
based on the performance of investment composites representing a number of PGIM
Fixed Income’s investment strategies. With respect to targeted long-term
incentive awards, the value attributed to the notional accounts increases or
decreases over a defined period of time based (as applicable) on the performance
of either a composite of particular alternative investment strategies or a
commingled investment vehicle. An investment composite is an aggregation of
accounts with similar investment strategies. The CEO of PGIM Fixed Income also
receives performance shares which represent the right to receive shares of
Prudential Financial, Inc. common stock conditioned upon, and subject to, the
achievement of specified financial performance goals by Prudential Financial,
Inc. Each of the restricted stock, grants under the long-term incentive plans,
and performance shares is subject to vesting requirements.
CONFLICTS
OF INTEREST. Like other
investment advisers, PGIM Fixed Income is subject to various conflicts of
interest in the ordinary course of its business. PGIM Fixed Income strives to
identify potential risks, including conflicts of interest, that are inherent in
its business, and PGIM Fixed Income conducts annual conflict of interest
reviews. However, it is not possible to identify every potential conflict that
can arise. When actual or potential conflicts of interest are identified, PGIM
Fixed Income seeks to address such conflicts through one or more of the
following methods:
■
elimination of the
conflict;
■
disclosure of the
conflict; or
■
management of the
conflict through the adoption of appropriate policies, procedures or other
mitigants.
PGIM Fixed Income
follows the policies of Prudential Financial, Inc. on business ethics, personal
securities trading, and information barriers. PGIM Fixed Income has adopted a
code of ethics, allocation policies and conflicts of interest policies, among
others, and has adopted supervisory procedures to monitor compliance with its
policies. PGIM Fixed Income cannot guarantee, however, that its policies and
procedures will detect and prevent, or result in the disclosure of, each and
every situation in which a conflict arises or could potentially
arise.
Side-by-Side
Management of Accounts and Related Conflicts of Interest. PGIM Fixed
Income’s side-by-side management of multiple accounts can create conflicts of
interest. Examples are detailed below, followed by a discussion of how PGIM
Fixed Income addresses these conflicts.
■
Performance
Fees
– PGIM Fixed Income
manages accounts with asset-based fees alongside accounts with performance-based
fees. This side-by-side management creates an incentive for PGIM Fixed Income
and its investment professionals to favor one account over another.
Specifically, PGIM Fixed Income or its affiliates have an incentive to favor
accounts for which PGIM Fixed Income or an affiliate receives performance fees,
and possibly take greater investment risks in those accounts, in order to
bolster performance and increase its fees.
■
Affiliated
accounts
– PGIM Fixed Income
manages accounts on behalf of its affiliates as well as unaffiliated accounts.
PGIM Fixed Income has an incentive to favor accounts of affiliates over others.
Additionally, at times, PGIM Fixed Income’s affiliates provide initial funding
or otherwise invest in vehicles managed by it, for example by providing “seed
capital” for a fund or account. Managing “seeded” accounts alongside
“non-seeded” accounts creates an incentive to favor the “seeded” accounts to
establish a track record for a new strategy or product and possibly earn a
higher return for an affiliate. Additionally, PGIM Fixed Income’s affiliated
investment advisers from time to time allocate their asset allocation clients’
assets to PGIM Fixed Income. PGIM Fixed Income has an incentive to favor
accounts used by its affiliates for their asset allocation clients to receive
more assets from its affiliates.
Prudential
Investment Portfolios, Inc. 15 44
■
Larger
accounts/higher fee strategies
– larger accounts and
clients typically generate more revenue than do smaller accounts or clients and
certain of PGIM Fixed Income’s strategies have higher fees than others. As a
result, a portfolio manager could have an incentive when allocating scarce
investment opportunities to favor accounts that pay a higher fee or generate
more income for PGIM Fixed Income (or which it believes would generate more
revenue in the future).
■
Long only and
long/short accounts
– PGIM Fixed Income
manages accounts that only allow it to hold securities long as well as accounts
that permit short selling. As a result, there are times when PGIM Fixed Income
sells a security short in some client accounts while holding the same security
long in other client accounts. These short sales could reduce the value of the
securities held in the long only accounts. Conversely, purchases for long only
accounts could have a negative impact on the short positions in long/short
accounts. Consequently, PGIM Fixed Income has conflicts of interest in
determining the timing and direction of investments.
■
Securities of
the same kind or class
– PGIM Fixed Income
sometimes buys or sells, or direct or recommend that a client buy or sell,
securities of the same kind or class that are purchased or sold for another
client at prices that may be different. Although such pricing differences could
appear as preferences for one client over another, PGIM Fixed Income’s trade
execution in each case is driven by its consideration of a variety of factors
consistent with its duty to seek best execution. There are times when PGIM Fixed
Income executes trades in securities of the same kind or class in one direction
for an account and in the opposite direction for another account, or it
determines not to trade securities in one or more accounts while trading for
others. While such trades (or a decision not to trade) could appear inconsistent
in how PGIM Fixed Income views or treats a security for one client versus
another, they generally result from differences in investment strategy,
portfolio composition or client direction.
■
Investment at
different levels of an issuer’s capital structure
– There are times
when PGIM Fixed Income invests client assets in the same issuer, but at
different levels in the issuer’s capital structure. This could occur, for
instance, when a client holds private securities or loans of an issuer and other
clients hold publicly traded securities of the same issuer. In addition, there
are times when PGIM Fixed Income invests client assets in a class or tranche of
securities of a securitized finance vehicle (such as a collateralized loan
obligation, asset-backed security or mortgage-backed security) and also, at the
same or different time, invests the assets of another client (including
affiliated clients) in a different class or tranche of securities of the same
vehicle. These different securities can have different voting rights, dividend
or repayment priorities, rights in bankruptcy or other features that conflict
with one another. For some of these securities or other investments
(particularly private securitized product investments for which clients own all
or a significant portion of the outstanding securities or obligations), PGIM
Fixed Income has had, input regarding the characteristics and the relative
rights and priorities of the various classes or tranches.
■
When PGIM Fixed
Income invests client assets in different levels of an issuer’s capital
structure, it is permitted to take actions with respect to the assets held by
one client (including affiliated clients) that are potentially adverse to other
clients, for example, by foreclosing on loans or by putting an issuer into
default. In negotiating the terms and conditions of any such investments, or any
subsequent amendments or waivers, PGIM Fixed Income could find that the
interests of a client and the interests of one or more other clients (including
affiliated clients) could conflict. In these situations, decisions over proxy
voting, corporate reorganizations, how to exit an investment, bankruptcy matters
(including, for example, whether to trigger an event of default or the terms of
any workout) or other actions or inactions can result in conflicts of interest.
Similarly, if an issuer in which a client and one or more other clients directly
or indirectly hold different classes of securities encounters financial
problems, decisions over the terms of any workout will raise conflicts of
interest (including potential conflicts over proposed waivers and amendments to
debt covenants). For example, a senior bond holder or lender might prefer a
liquidation of the issuer in which it could be paid in full, whereas an equity
or junior bond holder might prefer a reorganization that holds the potential to
create value for the equity holders or junior bond holders. There will be times
where PGIM Fixed Income refrains from taking certain actions (including
participating in workouts and restructurings) or making investments on behalf of
certain clients or where PGIM Fixed Income determine to sell investments for
certain clients, in each case in order to mitigate conflicts of interest or
legal, regulatory or other risks to PGIM Fixed Income This could potentially
disadvantage the clients on whose behalf the actions are not taken, investments
are not made, or investments are sold. Conversely, in other cases, PGIM Fixed
Income will not refrain from taking such actions or making investments on behalf
of some clients (including affiliated clients), which could potentially
disadvantage other clients. Any of the foregoing (or similar) conflicts of
interest will be resolved or managed on a case-by-case basis (including, where
determined to be required, by escalating matters to, and seeking direction and
guidance from, senior management). Any such resolution will take into
consideration the interests of the relevant clients, the circumstances giving
rise to the conflict and applicable laws.
■
Financial
interests of investment professionals
– PGIM Fixed Income
investment professionals from time to time invest in certain investment vehicles
that it manages, including exchanged-traded funds (“ETFs”), mutual funds and
(through a retirement plan) collective investment trusts. Also, certain of these
investment vehicles are options under the 401(k) and deferred compensation plans
offered by Prudential Financial, Inc. In addition, the value of grants under
PGIM Fixed Income’s long-term incentive plan and targeted long-term incentive
plan is affected by the performance of certain client accounts. As a result,
PGIM Fixed Income investment professionals have financial interests in accounts
managed by PGIM Fixed Income and/or that are related to the performance of
certain client accounts.
■
Non-discretionary/limited
discretion accounts
– PGIM Fixed Income
provides non-discretionary and limited discretion investment advice to some
clients and manages others on a fully discretionary basis. Trades in
non-discretionary accounts or accounts where discretion is limited could occur
before, in concert with, or after PGIM Fixed Income executes similar trades in
its discretionary accounts. The non-discretionary/limited discretion clients may
be disadvantaged if PGIM Fixed Income delivers investment advice to them after
it initiates trading for the discretionary clients, or vice versa. Furthermore,
a non-discretionary/limited discretion client may not be able to participate in
trades if there is a delay in receiving such client’s direction or consent. In
some cases, when such a client requests additional information prior to giving
its direction or consent, PGIM Fixed Income is prohibited from sharing
information because, for example, the information is non-public.
45
How
PGIM Fixed Income Addresses These Conflicts of Interest. PGIM Fixed Income
has developed policies and procedures reasonably designed to address the
conflicts of interest with respect to its different types of side-by-side
management described above.
■
Each quarter, one or both of PGIM
Fixed Income’s co-chief investment officers hold a series of meetings with the
senior portfolio manager and team responsible for the management of each of PGIM
Fixed Income’s investment strategies. During these meetings, they review and
discuss the investment performance and performance attribution for client
accounts managed in the strategy. These meetings generally are also attended by
the CEO of PGIM Fixed Income, the head of quantitative analysis and risk
management or his designee and a member of the compliance group, among
others.
■
In keeping with PGIM Fixed
Income’s fiduciary obligations, its policy with respect to trade allocation is
to treat all of its client accounts fairly and equitably over time. PGIM Fixed
Income’s trade management oversight committee, which generally meets quarterly,
is responsible for providing oversight with respect to trade aggregation and
allocation. Its compliance group periodically reviews a sampling of new issue
allocations and related documentation to confirm compliance with the trade
allocation policy. In addition, the compliance and investment risk management
groups review forensic reports regarding new issue and secondary trade activity
on a quarterly basis. This forensic analysis includes such data as the: number
of new issues allocated in the strategy; size of new issue allocations to each
portfolio in the strategy; profitability of new issue transactions; portfolio
turnover; and metrics related to large trade activity, which includes block
trades. The results of these analyses are reviewed and discussed at PGIM Fixed
Income’s trade management oversight committee meetings. The procedures above are
designed to detect patterns and anomalies in PGIM Fixed Income’s side-by-side
management and trading so that it may assess and improve its
processes.
■
PGIM Fixed Income has procedures
that specifically address conflicts related to its side-by-side management of
certain long/short and long only portfolios. These procedures address potential
conflicts that could arise from differing positions between long/short and long
only portfolios. In addition, lending opportunities with respect to securities
for which the market is demanding a slight premium rate over normal market rates
are allocated to long only accounts prior to allocating the opportunities to
long/short accounts.
Conflicts
Related to PGIM Fixed Income’s Affiliations. As a business unit
of PGIM, Inc., an indirect wholly-owned subsidiary of Prudential Financial,
Inc., PGIM Fixed Income is part of a diversified, global financial services
organization. PGIM Fixed Income is affiliated with many types of U.S. and
non-U.S. financial service providers, including insurance companies,
broker-dealers, commodity trading advisors, commodity pool operators and other
investment advisers. Some of its employees are officers of and/or provide
services to some of these affiliates.
■
Conflicts
Related to Investment of Client Assets in Affiliated Funds. PGIM Fixed Income invests client
assets in funds that it manages or sub-advises for one or more affiliates. In
choosing to invest client assets in such affiliated funds, PGIM Fixed Income
could be considered to have a financial incentive to prefer investing client
assets in such funds instead of in funds, investments or products managed or
sponsored by parties that are not affiliated with PGIM Fixed Income. Investments
in affiliated funds may, for example, benefit PGIM Fixed Income and/or its
affiliates through increasing assets under management and/or fees. Under certain
conditions, PGIM Fixed Income may offset, rebate or otherwise reduce its fees or
other compensation with respect to investments in affiliated funds; however,
this offset, reduction or rebate, if available, will not necessarily eliminate
conflicts, as PGIM Fixed Income could nevertheless be considered to have a
financial incentive to favor investing client assets in affiliated funds
(because, for example, the fee applicable to the affiliated fund is higher than
the amount of any fee waiver, investing in such funds would increase assets
under management of such funds or could be viewed as being undertaken solely for
the purposes of supporting the commercial growth of PGIM Fixed Income or its
affiliates’ funds, products or lines of business). Further, if PGIM Fixed
Income’s affiliates provide initial funding to or otherwise invest in affiliated
funds, PGIM Fixed Income is incentivized to invest client assets in such funds
in order to facilitate the redemption of all or part of its affiliates’ interest
in such affiliated fund. PGIM Fixed Income also invests cash collateral from
securities lending transactions in some of these funds. These investments
benefit PGIM Fixed Income and/or its affiliate through increasing assets under
management and/or fees.
■
Conflicts
Related to Referral Fees to Affiliates. From time to
time, PGIM Fixed Income has arrangements where PGIM Fixed Income compensates
affiliated parties for client referrals. PGIM Fixed Income also has arrangements
with an affiliated entity which provide for payments to an affiliate if certain
investments by others are made in certain of PGIM Fixed Income’s products or if
PGIM Fixed Income establishes certain other advisory relationships. These
investments benefit both PGIM Fixed Income and its affiliates through increasing
assets under management and fees.
■
Conflicts
Related to Co-investment by Affiliates. PGIM Fixed
Income affiliates provide initial funding to or otherwise invest in certain
vehicles it manages. When certain of its affiliates provide “seed capital” or
other capital for a fund, they generally do so with the intention of redeeming
all or part of their interest at a future point in time or when they deem that
sufficient additional capital has been invested in that fund.
■
The timing of a
redemption by an affiliate could benefit the affiliate. For example, the fund
may be more liquid at the time of the affiliate’s redemption than it is at times
when other investors may wish to withdraw all or part of their
interests.
■
In addition, a
consequence of any withdrawal of a significant amount, including by an
affiliate, is that investors remaining in the fund will bear a proportionately
higher share of fund expenses following the redemption.
■
PGIM Fixed Income
could also face a conflict if the interests of an affiliated investor in a fund
it manages diverge from those of the fund or other investors. For example, PGIM
Fixed Income affiliates, from time to time, hedge some or all of the risks
associated with their investments in certain funds PGIM Fixed Income manages.
PGIM Fixed Income may provide assistance in connection with this hedging
activity.
■
Insurance
Affiliate General Accounts. Because of the
substantial size of the general accounts of PGIM Fixed Income’s affiliated
insurance companies (the “Insurance Affiliates”), trading by these general
accounts, including PGIM Fixed Income’s trades on behalf
Prudential
Investment Portfolios, Inc. 15 46
of the accounts,
may affect the market prices or limit the availability of the securities or
instruments transacted. Although PGIM Fixed Income does not expect that the
general accounts of affiliated insurers will execute transactions that will move
a market frequently, and generally only in response to unusual market or issuer
events, the execution of these transactions could have an adverse effect on
transactions for or positions held by other clients.
PGIM Fixed Income
believes that the conflicts related to its affiliations described above are
mitigated by its allocation policies and procedures, its supervisory review of
accounts and its procedures with respect to side-by-side management, including
of long only and long/short accounts.
Conflicts
Related to Financial Interests and the Financial Interests of
Affiliates
Prudential
Financial, the general accounts of the Insurance Affiliates, PGIM Fixed Income
and other affiliates of PGIM at times have financial interests in, or
relationships with, companies whose securities or related instruments PGIM Fixed
Income holds, purchases or sells in its client accounts. Certain of these
interests and relationships are material to PGIM Fixed Income or to the
Prudential enterprise. At any time, these interests and relationships could be
inconsistent or in potential or actual conflict with positions held or actions
taken by PGIM Fixed Income on behalf of PGIM Fixed Income’s client accounts. For
example:
■
PGIM Fixed Income
invests in the securities of one or more clients for the accounts of other
clients.
■
PGIM Fixed
Income’s affiliates sell various products and/or services to certain companies
whose securities PGIM Fixed Income purchases and sells for PGIM Fixed Income
clients.
■
PGIM Fixed Income
invests in the debt securities of companies whose equity is held by its
affiliates.
■
PGIM Fixed
Income’s affiliates hold public and private debt and equity securities of a
large number of issuers. PGIM Fixed Income invests in some of the same issuers
for other client accounts. For example:
■
Affiliated
accounts have held and can in the future hold the senior debt of an issuer whose
subordinated debt is held by PGIM Fixed Income’s clients or hold secured debt of
an issuer whose public unsecured debt is held in client accounts. See
“Investment at different levels of an issuer’s capital structure” above for
additional information regarding conflicts of interest resulting from investment
at different levels of an issuer’s capital structure.
■
To the extent
permitted by applicable law, PGIM Fixed Income can also invest client assets in
offerings of securities the proceeds of which are used to repay debt obligations
held in affiliated accounts or other client accounts. PGIM Fixed Income’s
interest in having the debt repaid creates a conflict of interest. PGIM Fixed
Income has adopted a refinancing policy to address this conflict.
■
Certain of PGIM
Fixed Income’s affiliates’ directors or officers are directors or officers of
issuers in which PGIM Fixed Income invests from time to time. These issuers
could also be service providers to PGIM Fixed Income or its
affiliates.
■
In addition, PGIM
Fixed Income can invest client assets in securities backed by commercial
mortgage loans that were originated or are serviced by an affiliate.
In general,
conflicts related to the financial interests described above are addressed by
the fact that PGIM Fixed Income makes investment decisions for each client
independently considering the best economic interests of such client, under the
circumstances.
Conflicts
Arising Out of Legal and Regulatory Restrictions.
■
At times, PGIM
Fixed Income is restricted by
law,
regulation, executive order, contract or other constraints as to how much, if
any, of a particular security it can purchase or sell on behalf of a client, and
as to the timing of such purchase or sale. Sometimes these restrictions apply as
a result of its relationship with Prudential Financial and other affiliates. For
example, PGIM Fixed Income does not purchase securities issued by Prudential
Financial or other affiliates for client accounts.
■
In certain instances, PGIM Fixed
Income’s ability to buy or sell or transact for one or more client accounts will
be constrained as a result of its voluntary or involuntary receipt of material
non-public information (“MNPI”), various insider trading laws and related legal
requirements. For example, PGIM Fixed Income would generally be unable to invest
in, divest securities of or share investment analyses regarding companies for
which it possesses MNPI, and such inability (which could last for an uncertain
period of time until the information is no longer deemed material or non-public)
can result in it being unable to buy, sell or transact for one or more client
accounts or to take other actions that would otherwise be to the benefit of one
or more clients.
■
PGIM Fixed Income faces conflicts
of interest in determining whether to accept MNPI. For example, PGIM Fixed
Income has sought with respect to the management of investments in certain loans
for clients, to retain the ability to purchase and sell other securities in the
borrower’s capital structure by remaining “public” on the loan. In such cases,
PGIM Fixed Income will seek to avoid receiving MNPI
about the borrowers
to which an account can or expects to lend or has lent (through assignments,
participations or otherwise), which could place an account at an information
disadvantage relative to other accounts and lenders. Conversely, PGIM Fixed
Income has chosen to receive MNPI
about certain
borrowers/issuers for its clients that invest in bank loans or private debt
instruments, which has restricted its ability to trade in other securities of
the borrowers/issuers for its clients that invest in corporate bonds or other
public
securities.
■
PGIM Fixed
Income’s holdings of a security on behalf of its clients are required, under
certain regulations, to be aggregated with the holdings of that security by
other Prudential Financial affiliates. These holdings could, on an aggregate
basis, exceed certain reporting
47
or ownership
thresholds. These aggregated holdings are centrally tracked and PGIM Fixed
Income or Prudential Financial can choose to restrict purchases, sell existing
positions, or otherwise restrict, forgo, or limit the exercise of rights to
avoid crossing such thresholds because of the potential consequences to PGIM
Fixed Income or Prudential Financial if such thresholds are
exceeded.
Conflicts
Related to Investment Consultants. Many of PGIM Fixed
Income’s clients and prospective clients retain investment consultants
(including discretionary investment managers and OCIO providers) to advise them
on the selection and review of investment managers (including with respect to
the selection of investment funds). PGIM Fixed Income has dealings with these
investment consultants in their roles as discretionary managers or
non-discretionary advisers to their clients. PGIM Fixed Income also has
independent business relationships with investment consultants.
PGIM Fixed Income
provides investment consultants with information about accounts that it manages
for the consultant’s clients (and similarly, PGIM Fixed Income provides
information about funds in which such clients are invested), in each case
pursuant to authorization from the clients. PGIM Fixed Income also provides
information regarding its investment strategies to investment consultants, who
use that information in connection with searches that they conduct for their
clients. PGIM Fixed Income often responds to requests for proposals in
connection with those searches.
Other interactions
PGIM Fixed Income has with investment consultants include the
following:
■
it provides
advisory services to the proprietary accounts of investment consultants and/or
their affiliates, and advisory services to funds offered by investment
consultants and/or their affiliates;
■
it invites
investment consultants to events or other entertainment hosted by PGIM Fixed
Income;
■
it purchases
software applications, market data, access to databases, technology services and
other products or services from certain investment consultants; and
■
it sometimes pays
for the opportunity to participate in conferences organized by investment
consultants.
PGIM Fixed Income
will provide clients with information about its relationship with the client’s
investment consultant upon request. In general, PGIM Fixed Income relies on the
investment consultant to make the appropriate disclosure to its clients of any
conflict that the investment consultant believes to exist due to its business
relationships with PGIM Fixed Income.
A client’s
relationship with an investment consultant could result in restrictions in the
eligible securities or trading counterparties for the client’s account. For
example, accounts of certain clients (including clients that are subject to
ERISA) can be restricted from investing in securities issued by the client’s
consultant or its affiliates and from trading with, or participating in
transactions involving, counterparties that are affiliated with the investment
consultant. In some cases, these restrictions could have a material impact on
account performance.
Conflicts
Related to Service Providers. PGIM Fixed Income retains third
party advisors and other service providers to provide various services for PGIM
Fixed Income as well as for funds that PGIM Fixed Income manages or sub-advises.
Some service providers provide services to PGIM Fixed Income or one of PGIM
Fixed Income’s funds while also providing services to other PGIM units, other
PGIM-advised funds, or affiliates of PGIM, and negotiate rates in the context of
the overall relationship. PGIM Fixed Income can benefit from negotiated fee
rates offered to its funds and vice versa. There is no assurance, however, that
PGIM Fixed Income will be able to obtain or maintain advantageous fee rates from
a given service provider negotiated by its affiliates based on their
relationship with the service provider, or that PGIM Fixed Income will know of
such negotiated fee rates.
Conflicts
Related to Valuation and Fees.
When client accounts
hold illiquid or difficult to value investments, PGIM Fixed Income faces a
conflict of interest when it makes recommendations regarding the value of such
investments since its fees are generally based on the value of assets under
management. PGIM Fixed Income could be viewed as having an incentive to value
investments at higher valuations. PGIM Fixed Income has valuation policies and
procedures that it believes mitigate this conflict effectively and enable it to
value client assets fairly and in a manner that is consistent with the client’s
best interests. This conflict
generally does not
exist and
is further mitigated
or eliminated in circumstances where fees are calculated from custodian and/or
administrator pricing and not PGIM Fixed Income’s internal
valuations.
Conflicts
Related to Securities Lending and Reverse Repurchase Fees.
In certain cases,
when PGIM Fixed Income manages a client account and also serves as securities
lending agent and/or engages in reverse repurchase transactions for the account,
PGIM Fixed Income is compensated for its securities lending and reverse
repurchase services by receiving a portion of the proceeds generated from the
securities lending and reverse repurchase activities of the account. In cases
where PGIM Fixed Income is compensated in this manner, it
could be considered
to have an incentive to invest in securities that would generate higher
securities lending and reverse repurchase returns, even if these investments
were not otherwise in the best interest of the client account. In addition, if
PGIM Fixed Income is acting as securities lending agent and providing reverse
repurchase services for the same client, PGIM Fixed Income may be incented to
select the option that generates higher proceeds for
itself.
Prudential
Investment Portfolios, Inc. 15 48
Conflicts
Related to Long-Term Compensation.
As a result of the
long-term incentive plan and targeted long-term incentive plan, PGIM Fixed
Income’s portfolio managers from time to time have financial interests related
to the investment performance of some, but not all, of the accounts they manage.
For example, the performance of some client accounts is not reflected in the
calculation of changes in the value of participation interests under PGIM Fixed
Income’s long-term incentive plan. This may be because the composite
representing the strategy in which the account is managed is not one of the
composites included in the calculation or because the account is excluded from a
specified composite due to guideline restrictions or other factors. In addition,
the performance of only a small number of its investment strategies is covered
under PGIM Fixed Income’s targeted long-term incentive plan. Further, for
certain PGIM Fixed Income investment professionals, participation interests in
the targeted long-term incentive plan constitute a significant percentage of
their total long-term compensation. To address potential conflicts related to
these financial interests, PGIM Fixed Income has procedures, including trade
allocation and supervisory review procedures, designed to confirm that each of
its client accounts is managed in a manner that is consistent with PGIM Fixed
Income’s fiduciary obligations, as well as with the account’s investment
objectives, investment strategies and restrictions. For example, one or both of
PGIM Fixed Income’s co-chief investment officers review
performance among
similarly managed accounts on a quarterly basis during a series of meetings with
the senior portfolio manager and team responsible for the management of each
investment strategy. These quarterly investment strategy review meetings
generally are also attended by the CEO of PGIM Fixed Income, the head of
quantitative analysis and risk management or his designee and a member of the
compliance group, among others.
Conflicts
Related to the Offer and Sale of Securities. Certain of PGIM Fixed Income’s
employees offer and sell securities of, and interests in, commingled funds that
it manages. Employees offer and sell securities in connection with their roles
as registered representatives of an affiliated broker-dealer, officers of an
affiliated trust company, agents of the Insurance Affiliates, approved persons
of an affiliated investment adviser or other roles related to such commingled
funds. There is an incentive for PGIM Fixed Income’s employees to offer these
securities to investors regardless of whether the investment is appropriate for
such investor since increased assets in these vehicles will result in increased
advisory fees to it. In addition, such sales could result in increased
compensation to the employee.
Conflicts
Related to Employee/Investment Professional Trading. Personal trading
by PGIM Fixed Income employees creates a conflict when they are trading the same
securities or types of securities as PGIM Fixed Income trades on behalf of its
clients. This conflict is mitigated by PGIM Fixed Income’s personal trading
standards and procedures.
Conflicts
Related to Outside Business Activity. From time to
time, certain of PGIM Fixed Income employees or officers engage in outside
business activity, including outside directorships. Any outside business
activity is subject to prior approval pursuant to PGIM Fixed Income’s personal
conflicts of interest and outside business activities policy. Actual and
potential conflicts of interest are analyzed during such approval process. PGIM
Fixed Income could be restricted in trading the securities of certain issuers in
client portfolios in the unlikely event that an employee or officer, as a result
of outside business activity, obtains material, non-public information regarding
an issuer.
OTHER
SERVICE PROVIDERS
CUSTODIAN. The Bank of New York Mellon
Corporation (“BNY”), 240 Greenwich Street, New York, New York 10286, serves as
Custodian for each Fund’s portfolio securities and cash, and in that capacity,
maintains certain financial accounting books and records pursuant to an
agreement with each Fund. Subcustodians provide custodial services for any
non-U.S. assets held outside the United States.
SECURITIES
LENDING ACTIVITIES.
Effective August 8,
2024,
Goldman Sachs Bank
USA, d/b/a Goldman Sachs Agency Lending (“GSAL”) serves as securities lending
agent for each Fund and in that role administers each Fund’s securities lending
program pursuant to the terms of a securities lending agency
agreement.
Prior to this
date,
Securities Finance
Trust Company
(“eSecLending”)
served as securities
lending agent, and subsequent to this date may continue to engage in
transactions in order to facilitate a
transition.
As securities lending agent, GSAL
is responsible for marketing to approved borrowers available securities from
each Fund’s
portfolio.
GSAL is responsible for the
administration and management of each Fund’s securities lending program,
including the preparation and execution of a participant agreement with each
borrower governing the terms and conditions of any securities loan, ensuring
that securities loans are properly coordinated and documented with each Fund’s
custodian, ensuring that loaned securities are daily valued and that the
corresponding required cash collateral is delivered by the borrower(s), and
arranging for the investment of cash collateral received from
borrowers.
GSAL receives as compensation for
its services a portion of the amount earned by each Fund for lending
securities.
49
The table below sets forth, for
each Fund’s most recently completed fiscal year, each Fund’s gross income
received from securities lending activities, the fees and/or other compensation
paid by each Fund for securities lending activities, and the net income earned
by each Fund for securities lending activities. The table below also discloses
any other fees or payments incurred by each Fund resulting from lending
securities as well as any fees paid to eSeclending, each Fund’s former
securities lending agent, during the
period.
|
Securities
Lending Activities | ||
|
|
PGIM
High Yield Fund |
PGIM
Short Duration High Yield Income Fund |
|
Gross
Income from securities lending activities |
$100,298,371 |
$18,011,216 |
|
Fees
and/or compensation for securities lending activities and related
services |
|
|
|
Fees
paid to securities lending agent from a revenue
split |
$(585,140) |
$(106,042) |
|
Fees
paid for any cash collateral management service
(including
fees deducted from a pooled cash collateral investment
vehicle) |
$— |
$— |
|
Administrative
fees not included in revenue split |
$— |
$— |
|
Indemnification
fee not included in revenue split |
$— |
$— |
|
Rebate
(paid to borrower) |
$(94,414,856) |
$(16,944,139) |
|
Other
fees not included in revenue split (specify) |
$— |
$— |
|
Aggregate
fees/compensation for securities lending activities |
$(94,999,996) |
$(17,050,181) |
|
Net
Income from securities lending activities |
$5,298,375 |
$961,035 |
TRANSFER
AGENT. PMFS, 655 Broad
Street, Newark, New Jersey 07102, serves as the transfer and dividend disbursing
agent of each Fund. PMFS is an affiliate of the Manager. PMFS provides customary
transfer agency services to the Funds, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions, and
related functions. For these services, PMFS receives compensation from the Funds
and is reimbursed for its transfer agent expenses which include an annual fee
and certain out-of-pocket expenses including, but not limited to, postage,
stationery, printing, allocable communication expenses and other
costs.
BNY Mellon Asset
Servicing (US) Inc. (“BNYAS”), 301 Bellevue Parkway, Wilmington, Delaware 19809,
serves as sub-transfer agent to each Fund. PMFS has contracted with BNYAS to
provide certain administrative functions to PMFS. PMFS will compensate BNYAS for
such services.
For the most
recently completed fiscal year, the Funds incurred the following amount of fees
for services provided by PMFS:
|
Fees
Paid to PMFS |
|
|
Fund
Name |
Amount |
|
PGIM
High Yield Fund |
$798,564 |
|
PGIM
Short Duration High Yield Income Fund |
$80,029 |
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM.
PricewaterhouseCoopers LLP (“PwC”), 300 Madison Avenue, New York, New York
10017-6204 serves as the independent registered public accounting firm for the
Fund.
DISTRIBUTION
OF FUND SHARES
DISTRIBUTOR. Prudential
Investment Management Services LLC (“PIMS” or the “Distributor”), 655 Broad
Street, Newark, New Jersey 07102-4410, acts as the distributor of all of the
shares of the Funds. The Distributor is a subsidiary of Prudential.
The Distributor
incurs the expenses of distributing each of the Funds' share classes pursuant to
separate Distribution and Service (12b-1) Plans or Distribution Plans, as
applicable, for each share class (collectively, “the Plans”) adopted by the
Funds pursuant to Rule 12b-1 under the 1940 Act and a distribution agreement
(the “Distribution Agreement”). PIMS also incurs the expenses of distributing
any share class offered by the Funds which is not subject to a Distribution and
Service (12b-1) Plan, and none of the expenses incurred by PIMS in distributing
such share classes are reimbursed or paid for by the Funds.
The expenses
incurred under the Plans include commissions and account servicing fees paid to,
or on account of, brokers or financial institutions which have entered into
agreements with the Distributor, as applicable, advertising expenses, the cost
of printing and mailing prospectuses to potential investors and indirect and
overhead costs of the Distributor associated with the sale of Fund shares,
including sales promotion expenses.
Prudential
Investment Portfolios, Inc. 15 50
Under the Plans,
the Funds are obligated to pay distribution and/or service fees to the
Distributor, as applicable, 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 (12b-1) fees, the
Funds will not be obligated to pay any additional expenses. If the Distributor’s
expenses are less than such distribution and service (12b-1) fees, then it will
retain its full fees and realize a profit.
The distribution
and/or service fees may also be used by the Distributor to compensate on a
continuing basis brokers in consideration for the distribution, marketing,
administrative and other services and activities provided by brokers with
respect to the promotion of the sale of Fund shares and the maintenance of
related shareholder accounts.
Distribution
expenses attributable to the sale of each share class are allocated to each such
class based upon the ratio of sales of each such class to the combined sales of
all classes of the Funds, 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 or another fund.
Each Plan
continues in effect from year to year, provided that each such continuance is
approved at least annually by a vote of the Board, including a majority vote of
the Board Members who are not interested persons of the Funds and who have no
direct or indirect financial interest in any of the Plans or in any agreement
related to the Plans (the “Rule 12b-1 Board Members”), cast in person at a
meeting called for the purpose of voting on such continuance. A Plan may be
terminated at any time, without penalty, by the vote of a majority of the Rule
12b-1 Board Members or by the vote of the holders of a majority of the
outstanding shares of the applicable class of the Funds. 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 in the
manner described above. The Funds will not be contractually obligated to pay
expenses incurred under any Plan if it is terminated or not
continued.
Pursuant to each
Plan, the Board will review at least quarterly a written report of the
distribution expenses incurred on behalf of each class of shares of the Funds 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 Board Members
shall be committed to the Rule 12b-1 Board Members.
Pursuant to the
Distribution Agreement, the Funds have agreed to indemnify the Distributor to
the extent permitted by applicable law against certain liabilities under federal
securities laws. In addition to distribution and service (12b-1) fees paid by
the Funds under the Plans, the Manager (or one of its affiliates) may make
payments out of its own resources to dealers and other persons which distribute
shares of the Funds. Such payments may be calculated by reference to the NAV of
shares sold by such persons or otherwise.
CLASS
A SALES CHARGE AND DISTRIBUTION EXPENSE INFORMATION. Under the Class A
Plan, the Funds may pay the Distributor for its distribution-related activities
with respect to Class A shares at an annual rate of 0.25% of the average daily
net assets of the Class A shares. The Class A Plan provides that (1) 0.25% of
the average daily net assets of the Class A shares may be used to pay for
personal service and/or the maintenance of shareholder accounts (service fee)
and (2) total distribution fees (including the service fee of 0.25%) may not
exceed 0.25% of the average daily net assets of the Class A shares. The
Prospectuses discuss any contractual or voluntary fee waivers that may be in
effect. In addition, if you purchase $500,000 or more of Class A shares, you are
subject to a CDSC of 1.00% (defined below) for shares redeemed within 12 months
of purchase. The CDSC is waived for certain retirement and/or benefit
plans.
For the most
recently completed fiscal year, the Distributor received payments under the
Class A Plan of the Fund. These amounts were expended primarily for payments of
account servicing fees to financial advisers and other persons who sell Class A
shares. For the most recently completed fiscal year, the Distributor also
received initial sales charges and proceeds of contingent deferred sales charges
paid by shareholders upon certain redemptions of Class A shares. The payments
received and amounts spent by the Distributor during the most recently completed
fiscal year are detailed in the tables below.
CLASS
C SALES CHARGE AND DISTRIBUTION EXPENSE INFORMATION. Under the Class C
Plan, a Fund may pay the Distributor for its distribution-related activities
with respect to Class C shares at an annual rate of 1.00% of the average daily
net assets of the Class C shares. The Class C Plan provides that (1) 0.25% of
the average daily net assets of the shares may be paid as a service fee and (2)
0.75% (not including the service fee) of the average daily net assets of the
shares (asset based sales charge) may be paid for distribution-related expenses
with respect to the Class C shares. The service fee (0.25% of average daily net
assets) is used to pay for personal service and/or the maintenance of
shareholder accounts. The Prospectuses discuss any voluntary or contractual fee
waivers that may be in effect. The Distributor also receives contingent deferred
sales charges from certain redeeming shareholders.
51
For the most
recently completed fiscal year, the Distributor received payments under the
Class C Plan. These amounts were expended primarily for payments of account
servicing fees to financial advisers and other persons who sell Class C shares.
For the most recently completed fiscal year, the Distributor also received the
proceeds of contingent deferred sales charges paid by shareholders upon certain
redemptions of Class C shares. The payments received and amounts spent by the
Distributor during the most recently completed fiscal year are detailed in the
tables below.
CLASS
R SALES CHARGE AND DISTRIBUTION EXPENSE INFORMATION: PGIM HIGH YIELD FUND.
Under
the Class R Plan, the Fund may pay the Distributor for its distribution-related
expenses with respect to Class R shares at an annual rate of up to 0.75% of the
average daily net assets of the Class R shares. The Class R Plan provides that
(1) up to 0.25% of the average daily net assets of the Class R shares may be
used as a service fee and (2) total distribution fees (including the service fee
of 0.25%) may not exceed 0.75% of the average daily net assets of the Class R
shares. There is no CDSC for the redemption of Class R shares. The Prospectuses
discuss any contractual or voluntary fee waivers that may be in effect. For the
most recently completed fiscal year, the Distributor received payments under the
Class R Plan. These amounts were expended primarily for payments of account
servicing fees to financial advisors and other persons who sell Class R shares.
The payments received and amounts spent by the Distributor during the most
recently completed fiscal year are detailed in the tables
below.
CLASS
R2 SALES CHARGE AND DISTRIBUTION EXPENSE INFORMATION: PGIM HIGH YIELD
FUND.
Under the Class R2 Plan, the PGIM High Yield Fund may pay the Distributor for
its distribution-related expenses with respect to Class R2 shares at an annual
rate of up to 0.25% of the average daily net assets of the Class R2 shares. The
Class R2 Plan does not include service fees in the Plan. Class R2 shares have a
separate Shareholder Services Plan, described below. There is no CDSC for the
redemption of Class R2 shares. The Prospectus discusses any contractual or
voluntary fee waivers that may be in effect. For the most recently completed
fiscal year, the Distributor did not receive payments under the distribution
plan for Class R2 shares, because Class R2 shares are new.
The expenses
incurred under the Class R2 Plan include commissions and account servicing fees
paid to, or on account of, brokers or financial institutions which have entered
into agreements with the Distributor, as applicable, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of the Distributor associated with the sale of Fund shares,
including sales promotion expenses.
|
Payments
Received by the Distributor: PGIM High Yield Fund |
|
|
CLASS
A CONTINGENT DEFERRED SALES CHARGES (CDSC) |
$1,869 |
|
CLASS
A DISTRIBUTION AND SERVICE (12B-1) FEES |
$3,475,056 |
|
CLASS
A INITIAL SALES CHARGES |
$1,004,014 |
|
CLASS
C CONTINGENT DEFERRED SALES CHARGES (CDSC) |
$16,325 |
|
CLASS
C DISTRIBUTION AND SERVICE (12B-1) FEES |
$1,957,483 |
|
CLASS
R DISTRIBUTION AND SERVICE (12B-1) FEES |
$314,019 |
|
CLASS
R2 DISTRIBUTION (12B-1) FEES |
$60,900 |
|
Payments
Received by the Distributor: PGIM Short Duration High Yield Income
Fund |
|
|
CLASS
A CONTINGENT DEFERRED SALES CHARGES (CDSC) |
$17,005 |
|
CLASS
A DISTRIBUTION AND SERVICE (12B-1) FEES |
$974,569 |
|
CLASS
A INITIAL SALES CHARGES |
$291,796 |
|
CLASS
C CONTINGENT DEFERRED SALES CHARGES (CDSC) |
$10,768 |
|
CLASS
C DISTRIBUTION AND SERVICE (12B-1) FEES |
$1,653,182 |
|
Amounts
Spent by Distributor: PGIM High Yield Fund | ||||
|
Share
Class |
Printing
& Mailing
Prospectuses
to Other than
Current
Shareholders |
Compensation
to Broker/Dealers for
Commissions
to Representatives and
Other
Expenses* |
Overhead
Costs** |
Total
Amount
Spent
by Distributor |
|
Class
A |
$- |
$3,002,465 |
$325,266 |
$3,327,731 |
|
Class
C |
$- |
$1,684,355 |
$23,173 |
$1,707,528 |
|
Class
R |
$- |
$279,652 |
$10,982 |
$290,634 |
|
Class
R2 |
$- |
$62,464 |
$11,262 |
$73,726 |
|
Class
R4 |
$- |
$- |
$9,681 |
$9,681 |
Prudential
Investment Portfolios, Inc. 15 52
|
Amounts
Spent by Distributor: PGIM Short Duration High Yield Income
Fund | ||||
|
Share
Class |
Printing
& Mailing
Prospectuses
to Other than
Current
Shareholders |
Compensation
to Broker/Dealers for
Commissions
to Representatives and
Other
Expenses* |
Overhead
Costs** |
Total
Amount
Spent
by Distributor |
|
Class
A |
$- |
$770,679 |
$167,053 |
$937,732 |
|
Class
C |
$- |
$1,515,545 |
$27,063 |
$1,542,608 |
* Includes
amounts paid to affiliated broker/dealers.
** Including sales promotion expenses.
** Including sales promotion expenses.
SHAREHOLDER
SERVICES PLAN: PGIM HIGH YIELD FUND. The PGIM High
Yield Fund has adopted a Shareholder Services Plan with respect to Class R2 and
Class R4 shares. Under the terms of the Shareholder Services Plan, the Fund's
Class R2 and Class R4 shares are authorized to pay to PMFS, its affiliates or
independent third-party service providers, as compensation for services rendered
to the shareholders of such Class R2 or Class R4 shares, a shareholder service
fee at an annual rate of 0.10% of the Fund’s average daily net assets
attributable to the Class R2 or Class R4 shares of the Fund, as
applicable.
Pursuant to the
Shareholder Services Plan, the Fund's Class R2 or Class R4 shares may pay for
personal shareholder services and/or account maintenance services, including
responding to beneficial owner inquiries, providing information regarding
beneficial owner investments, other similar personal services and/or services
related to the maintenance of shareholder accounts as contemplated by Financial
Industry Regulatory Authority, Inc. Rule 2341 or any successor thereto. Because
service fees are ongoing, over time they will increase the cost of an investment
in the Fund. With respect to the Class R2 shares, these services are in addition
to those services that may be provided under the Class R2 Plan available. R2
Shares and R4 shares are new, and therefore, no shareholder service fees have
been paid as of the date of this SAI.
FEE
WAIVERS AND SUBSIDIES. PGIM Investments
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 Funds. In addition, the
Distributor may from time to time waive a portion of the distribution (12b-1)
fees as described in the Prospectuses. Fee waivers and subsidies will increase
the Funds' total return.
PAYMENTS
TO FINANCIAL SERVICES FIRMS. As described in
the Funds' Prospectuses, the Manager or certain of its affiliates (but not the
Distributor) have entered into revenue sharing or other similar arrangements
with financial services firms, including affiliates of the Manager. These
revenue sharing arrangements are intended to promote the sale of Fund shares or
to compensate the financial services firms for marketing or marketing support
activities in connection with the sale of Fund shares.
The list below includes the names
of the firms (or their affiliated broker/dealers) that received from the
Manager, and/or certain of its affiliates, revenue sharing payments of more than
$10,000 in calendar year 2023 for marketing and product support of the Funds and
other PGIM Funds as described above.
■
Ameriprise
Financial, Inc.
■
Charles Schwab
& Co, Inc.
■
Wells Fargo Advisors,
LLC
■
Empower Retirement
■
Morgan
Stanley
■
Raymond James
Financial
■
LPL Financial LLC
■
Edward Jones
■
UBS
■
National Financial
Services
■
Commonwealth Financial
Network
■
Merrill Lynch
Pierce Fenner & Smith Inc.
■
Cetera Advisor
Networks
■
PNC
■
Principal
Securities Inc.
■
Osaic
■
MSCS Financial
Services
■
Northwestern Mutual
■
Voya
Financial
■
TIAA
■
John Hancock
53
■
ADP Broker Dealer,
Inc.
■
Securities America,
Inc.
■
Standard Insurance
Company
■
Nationwide
Investment Services Co.
■
Ascensus,
LLC.
■
American United Life
Insurance
Co.
■
RBC Capital Markets,
LLC
■
Cambridge Investment
Research
■
Midatlantic Capital
Group
■
The Vanguard Group,
Inc.
■
Talcott Resolution
Life
■
Alight Solutions
LLC
■
Massachusetts
Mutual
■
Citigroup Inc.
■
Lincoln Financial
Group
■
T. Rowe
Price
■
Security
Benefit
■
Reliance Trust Company
■
Janney Montgomery Scott ,
LLC
■
Sammons Retirement
Solutions
■
Valic Financial
Advisors Inc.
■
J.P. Morgan
Securities LLC
COMPUTATION
OF OFFERING PRICE PER SHARE
Using the NAV at August 31, 2024,
the offering prices of Fund shares were as follows:
|
Offering
Price Per Share | ||
|
|
PGIM
High Yield Fund |
PGIM
Short Duration High Yield Income Fund |
|
Class
A |
|
|
|
NAV
and redemption price per Class A share |
$4.81 |
$8.46 |
|
Maximum
initial sales charge (3.25% and 2.25% of the public offering
price) |
$0.16 |
$0.19 |
|
Maximum
offering price to public |
$4.97 |
$8.65 |
|
Class
C |
|
|
|
NAV
and redemption price per Class C share |
$4.81 |
$8.46 |
|
Class
R |
|
|
|
NAV
and redemption price per Class R share |
$4.81 |
N/A |
|
Class
Z |
|
|
|
NAV
and redemption price per Class Z share |
$4.82 |
$8.46 |
|
Class
R6 |
|
|
|
NAV
and redemption price per Class R6 share |
$4.81 |
$8.46 |
|
Class
R2 |
|
|
|
NAV
and redemption price per Class R2 share |
$4.82 |
N/A |
|
Class
R4 |
|
|
|
NAV
and redemption price per Class R4 share |
$4.82 |
N/A |
Explanatory
Notes to Table:
Class A and Class C shares are subject to a contingent deferred sales charge (“CDSC”) on certain redemptions. See “How to Buy, Sell and Exchange Fund Shares—How to Sell Your Shares—Contingent Deferred Sales Charge (“CDSC”) in the Prospectus.
Class A and Class C shares are subject to a contingent deferred sales charge (“CDSC”) on certain redemptions. See “How to Buy, Sell and Exchange Fund Shares—How to Sell Your Shares—Contingent Deferred Sales Charge (“CDSC”) in the Prospectus.
PORTFOLIO
TRANSACTIONS & BROKERAGE
The Funds have
adopted a policy pursuant to which the Funds and their Manager, subadviser and
principal underwriter are prohibited from directly or indirectly compensating a
broker-dealer for promoting or selling Fund shares by directing brokerage
transactions to that broker. The Funds have adopted procedures for the purpose
of deterring and detecting any violations of the policy. The policy permits
Prudential
Investment Portfolios, Inc. 15 54
the Funds, the
Manager and the subadviser to use selling brokers to execute transactions in
portfolio securities so long as the selection of such selling brokers is the
result of a decision that executing such transactions is in the best interest of
the Funds and is not influenced by considerations about the sale of Fund shares.
For purposes of this section, the term “Manager” includes the
subadviser.
The Manager is
responsible for decisions to buy and sell securities, futures contracts and
options on such securities and futures for the Funds, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. On a national securities exchange,
broker-dealers may receive negotiated brokerage commissions on Fund portfolio
transactions, including options, futures, and options on futures transactions
and the purchase and sale of underlying securities upon the exercise of options.
On a non-U.S. securities exchange, 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 laws, one of the Manager's affiliates
(an affiliated broker). Brokerage commissions on U.S. securities, options and
futures exchanges or boards of trade are subject to negotiation between the
Manager and the broker or futures commission merchant.
In the OTC market,
securities are generally traded on a “net” basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. The Funds will not deal with an
affiliated broker in any transaction in which an affiliated broker acts as
principal except in accordance with the rules of the SEC.
In placing orders
for portfolio securities of the Funds, the Manager's overriding objective is to
obtain the best possible combination of favorable price and efficient execution.
The Manager seeks to effect such transaction at a price and commission that
provides the most favorable total cost of proceeds reasonably attainable in the
circumstances. The factors that the Manager may consider in selecting a
particular broker, dealer or futures commission merchant (firms) are the
Manager's knowledge of negotiated commission rates currently available and other
current transaction costs; the nature of the portfolio transaction; the size of
the transaction; the desired timing of the trade; the activity existing and
expected in the market for the particular transaction; confidentiality; the
execution, clearance and settlement capabilities of the firms; the availability
of research and research-related services provided through such firms; the
Manager's knowledge of the financial stability of the firms; the Manager's
knowledge of actual or apparent operational problems of firms; and the amount of
capital, if any, that would be contributed by firms executing the transaction.
Given these factors, the Funds may pay transaction costs in excess of that which
another firm might have charged for effecting the same transaction.
When the Manager
selects a firm that executes orders or is a party to portfolio transactions,
relevant factors taken into consideration are whether that firm has furnished
research and research-related products and/or services, such as research
reports, research compilations, statistical and economic data, computer
databases, quotation equipment and services, research-oriented computer software
and services, reports concerning the performance of accounts, valuations of
securities, investment-related periodicals, investment seminars and other
economic services and consultations. Such services are used in connection with
some or all of the Manager's investment activities; some of such services,
obtained in connection with the execution of transactions for one investment
account, may be used in managing other accounts, and not all of these services
may be used in connection with the Funds. The Manager maintains an internal
allocation procedure to identify those firms who have provided it with research
and research-related products and/or services, and the amount that was provided,
and to endeavor to direct sufficient commissions to them to ensure the continued
receipt of those services that the Manager believes provide a benefit to the
Funds and their other clients. The Manager makes a good faith determination that
the research and/or service is reasonable in light of the type of service
provided and the price and execution of the related portfolio
transactions.
When the Manager
deems the purchase or sale of equities to be in the best interests of the Funds
or their other clients, including Prudential, the Manager may, but is under no
obligation to, aggregate the transactions in order to obtain the most favorable
price or lower brokerage commissions and efficient execution. In such event,
allocation of the transactions, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner it considers to be most
equitable and consistent with its fiduciary obligations to its clients. The
allocation of orders among firms and the commission rates paid are reviewed
periodically by the Funds' Board. Portfolio securities may not be purchased from
any underwriting or selling syndicate of which any affiliate, during the
existence of the syndicate, is a principal underwriter (as defined in the 1940
Act), except in accordance with rules of the SEC. This limitation, in the
opinion of the Funds, will not significantly affect the Funds' ability to pursue
their present investment objectives. However, in the future in other
circumstances, the Funds may be at a disadvantage because of this limitation in
comparison to other funds with similar objectives but not subject to such
limitations.
Subject to the
above considerations, an affiliate may act as a broker or futures commission
merchant for the Funds. In order for an affiliate of the Manager to effect any
portfolio transactions for the Funds, the commissions, fees or other
remuneration received by the affiliated broker must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other firms in
connection
55
with comparable
transactions involving similar securities or futures being purchased or sold on
an exchange or board of trade during a comparable period of time. This standard
would allow the affiliated broker to receive no more than the remuneration which
would be expected to be received by an unaffiliated firm in a commensurate
arm's-length transaction. Furthermore, the Board, including a majority of the
Independent Board Members, has adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid to the
affiliated broker (or any affiliate) are consistent with the foregoing standard.
In accordance with Section 11(a) of the 1934 Act, an affiliate may not retain
compensation for effecting transactions on a national securities exchange for
the Funds unless the Funds have expressly authorized the retention of such
compensation. The affiliate must furnish to the Funds at least annually a
statement setting forth the total amount of all compensation retained by the
affiliate from transactions effected for the Funds during the applicable period.
Brokerage transactions with an affiliated broker are also subject to such
fiduciary standards as may be imposed upon the affiliate by applicable law.
Transactions in options by the Funds will be subject to limitations established
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options are written or held on the same or different
exchanges or are written or held in one or more accounts or through one or more
brokers. Thus, the number of options which the Funds may write or hold may be
affected by options written or held by the Manager and other investment advisory
clients of the Manager. An exchange may order the liquidation of positions found
to be in excess of these limits, and it may impose certain other
sanctions.
The Fund may participate in a
voluntary commission recapture program available through Capital Institutional
Services, Inc. (CAPIS). A subadviser participating in the program retains the
responsibility to seek best execution and is under no obligation to place any
specific trades with a broker available through the program (each, a designated
broker). A portion of commissions on trades executed through designated brokers
is rebated to the Fund as a credit that can be used by the Fund to pay expenses
of the Fund.
Set forth below is
information concerning the payment of commissions by the Funds, including the
amount of such commissions paid to an affiliate, if any, for the indicated
fiscal years or periods:
|
Brokerage
Commissions Paid by the Funds | |||
|
|
2024 |
2023 |
2022 |
|
PGIM
High Yield Fund |
|
|
|
|
Total
brokerage commissions paid by the Fund |
$303,474 |
$313,937 |
$353,152 |
|
Total
brokerage commissions paid to affiliated brokers |
None |
None |
None |
|
Percentage
of total brokerage commissions paid to affiliated
brokers |
None |
None |
None |
|
Percentage
of the aggregate dollar amount of portfolio transactions involving the
payment of commissions to affiliated brokers |
None |
None |
None |
|
PGIM
Short Duration High Yield Income Fund |
|
|
|
|
Total
brokerage commissions paid by the Fund |
$127,979 |
$95,721 |
$81,593 |
|
Total
brokerage commissions paid to affiliated brokers |
None |
None |
None |
|
Percentage
of total brokerage commissions paid to affiliated
brokers |
None |
None |
None |
|
Percentage
of the aggregate dollar amount of portfolio transactions involving the
payment of commissions to affiliated brokers |
None |
None |
None |
The Funds are
required to disclose their holdings of securities of their regular brokers and
dealers (as defined under Rule 10b-1 under the 1940 Act) and their parents as of
the most recently completed fiscal year. As of the most recently completed
fiscal year, the Funds held the following securities of their regular brokers
and dealers.
|
Broker-Dealer
Securities Holdings | |||
|
Fund
Name |
Broker-Dealer |
Equity
or Debt |
Amount |
|
PGIM
High Yield Fund |
Citigroup Global
Markets, Inc. |
Debt |
$39,985,336 |
|
|
Wells Fargo Securities
LLC |
Debt |
$8,789,306 |
|
PGIM
Short Duration High Yield Income Fund |
None |
None |
None |
The below table
shows the Fund's portfolio turnover rates over the two most recently
completed fiscal years:
|
Portfolio
Turnover Rate |
|
|
|
Fund
Name |
2024 |
2023 |
|
PGIM
High Yield Fund |
42% |
22% |
|
PGIM
Short Duration High Yield Income Fund |
61% |
32% |
Prudential
Investment Portfolios, Inc. 15 56
ADDITIONAL
INFORMATION
FUND
HISTORY. PIP 15 was
incorporated in Maryland on January 5, 1979. Effective February 16, 2010, the
Board authorized a change of PIP 15’s name from Dryden High Yield Fund, Inc. to
Prudential High Yield Fund, Inc. Effective August 1, 2012, PIP 15’s name changed
to Prudential Investment Portfolios, Inc. 15 and the designation of shares of
all classes and series of stock which PIP 15 had prior to such date was changed
to the Prudential High Yield Fund. The Prudential High Yield Fund commenced
operations in March 1979. A second series of PIP 15, Prudential Short Duration
High Yield Income Fund, was established on August 1, 2012 and commenced
operations in October 2012.
Effective as of
June 11, 2018 the name of Prudential High Yield Fund was changed to PGIM High
Yield Fund, and the name of Prudential Short Duration High Yield Income Fund was
changed to PGIM Short Duration High Yield Income Fund.
A third series of
PIP 15, PGIM ESG High Yield Fund, was established in September 2021 and
commenced operations on December 8, 2021.
DESCRIPTION
OF SHARES AND ORGANIZATION. PIP 15 is
authorized to issue 96,525,000,000 shares of common stock, $.01 par value per
share, classified and designated as follows:
|
PGIM
Short Duration High Yield Income Fund |
|
|
Class
A Common Stock |
800,000,000 |
|
Class
C Common Stock |
700,000,000 |
|
Class
R6 Common Stock |
1,500,000,000 |
|
Class
T Common Stock |
75,000,000 |
|
Class
Z Common Stock |
5,500,000,000 |
|
PGIM
High Yield Fund |
|
|
Class
A Common Stock |
6,000,000,000 |
|
Class
B Common Stock |
50,000,000 |
|
Class
C Common Stock |
1,000,000,000 |
|
Class
R Common Stock |
500,000,000 |
|
Class
R2 Common Stock |
300,000,000 |
|
Class
R4 Common Stock |
300,000,000 |
|
Class
R6 Common Stock |
37,000,000,000 |
|
Class
T Common Stock |
300,000,000 |
|
Class
Z Common Stock |
41,000,000,000 |
|
PGIM
ESG High Yield Fund |
|
|
Class
A Common Stock |
200,000,000 |
|
Class
C Common Stock |
300,000,000 |
|
Class
R6 Common Stock |
400,000,000 |
|
Class
Z Common Stock |
600,000,000 |
Note: As of the
date of this SAI no Class T and Class B shares are currently outstanding or
issued for any Fund.
Each class of
common stock of each Fund represents an interest in the same assets of the Fund
and is identical in all respects except that (1) each class is subject to
different (or no) sales charges and distribution and/or service fees (except
Class R6 shares and Class Z shares and Class R4 shares, which are not subject to
any sales charges and distribution and/or service fees), which may affect net
asset value, dividends and liquidation rights, (2) each class has exclusive
voting rights on any matter submitted to shareholders that relate solely to its
distribution arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests on
any other class, (3) each class has a different exchange privilege, (4) only
Class C shares have a conversion feature, and (5) Class R6, Class Z, Class R,
Class R2 and Class R4 shares are offered exclusively for sale to a limited group
of investors. In accordance with the Fund’s Articles of Incorporation, the Board
may authorize the creation of additional series of common stock and classes
within such series, with such preferences, rights, privileges, limitations and
voting and dividend rights as the Board may determine.
57
The Board may
increase or decrease the number of authorized shares without the approval of
shareholders. Shares of each 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 each Fund. 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
(with the exception of Class Z and Class R6 shares, which are not subject to any
distribution and/or service fees). Except for the conversion feature applicable
to the Class C shares, there are no conversion, preemptive or other subscription
rights. In the event of liquidation, each share of common stock of a Fund is
entitled to its portion of all of such Fund's assets after all debts and
expenses of the Fund have been paid. Since Class C shares generally bear higher
distribution expenses than Class A, Class R and Class R2 shares, the liquidation
proceeds to shareholders of those classes are likely to be lower than to Class
A, Class R and Class R2 shareholders, and to Class Z shareholders, Class R6
shareholders and Class R4 shareholders, whose shares are not subject to any
distribution and/or service fees (Class R4 shares are subject to a shareholder
service fee). Each Fund's shares do not have cumulative voting rights for the
election of Board Members.
The Funds do not
intend to hold annual meetings of shareholders unless otherwise required by law.
The Funds will not be required to hold meetings of shareholders unless, for
example, the election of Board Members is required to be acted on by
shareholders under the 1940 Act. Shareholders have certain rights, including the
right to call a meeting upon the written request of stockholders entitled to
cast at least a majority of all votes entitled to be cast at the
meeting.
PRINCIPAL
SHAREHOLDERS AND CONTROL PERSONS
Set forth below
are the name and address of any person (a “principal shareholder”) who owned of
record or beneficially 5% or more of any class of outstanding shares of the
Funds and their percentage of ownership. Also set forth below are the name and
address of any person (a “control person”) who owned of record or beneficially
either directly or through controlled companies more than 25% of the voting
securities of the Funds or who acknowledges or asserts the existence of control.
Control persons may be able to determine or significantly influence the outcome
of matters submitted to a shareholder vote.
|
Principal
Fund Shareholders (as of October 9, 2024) | |||
|
Fund
Name and Share Class |
Shareholder
Name and Address |
No.
of Shares |
%
of Class |
|
PGIM
High Yield Class A |
EDWARD
D JONES & CO
ATTN:
MUTUAL FUND SHAREHOLDER
ACCOUNTING
201
PROGRESS PKWY
MARYLAND
HTS MO 63043-3003 |
52,901,031.428 |
17.65% |
|
PGIM
High Yield Class A |
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENEFIT OF
OUR
CUSTOMERS
ATTN
MUTUAL FUNDS DEPT - 4TH FLOOR
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310 |
47,545,784.038 |
15.86% |
|
PGIM
High Yield Class A |
WELLS
FARGO CLEARING SVCS LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
32,157,307.713 |
10.73% |
|
PGIM
High Yield Class C |
WELLS
FARGO CLEARING SVCS LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
6,686,430.514 |
16.40% |
|
PGIM
High Yield Class C |
LPL
FINANCIAL
A/C
1000-0005
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
5,777,064.738 |
14.17% |
|
PGIM
High Yield Class C |
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENEFIT OF
OUR
CUSTOMERS
ATTN
MUTUAL FUNDS DEPT - 4TH FLOOR
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310 |
4,725,116.172 |
11.59% |
|
PGIM
High Yield Class C |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
4,349,258.032 |
10.67%
|
Prudential
Investment Portfolios, Inc. 15 58
|
Principal
Fund Shareholders (as of October 9, 2024) | |||
|
Fund
Name and Share Class |
Shareholder
Name and Address |
No.
of Shares |
%
of Class |
|
PGIM
High Yield Class C |
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE BENEFIT OF ITS
CUSTOMERS
1 NEW
YORK PLAZA FL 12
NEW
YORK NY 10004-1901 |
4,216,821.534 |
10.35% |
|
PGIM
High Yield Class C |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105 |
4,015,612.135 |
9.85% |
|
PGIM
High Yield Class C |
AMERICAN
ENTERPRISE INVESTMENT SVC
(FBO)
41999970
707
2ND AVE SOUTH
MINNEAPOLIS
MN 55402-2405 |
3,542,892.249 |
8.69% |
|
PGIM
High Yield Class C |
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM 92500015
ATTN
COURTNEY WALLER
880
CARILLON PARKWAY
ST
PETERSBURG FL 33716 |
2,107,392.748 |
5.17% |
|
PGIM
High Yield Class R |
VOYA
INSTITUTIONAL TRUST COMPANY
ONE
ORANGE WAY
WINDSOR
CT 06095-4774 |
7,108,760.223 |
52.52% |
|
PGIM
High Yield Class R |
STATE
STREET BANK AND TRUST TTEE
AND/OR
CUSTODIAN
(FBO)
ADP ACCESS PRODUCT
1
LINCOLN ST
BOSTON
MA 02111-2901 |
2,288,666.791 |
16.91% |
|
PGIM
High Yield Class R |
DCGT
AS TTEE AND/OR CUST
FBO
PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN
NPIO TRADE DESK
711
HIGH STREET
DES
MOINES, IA 50392 |
1,276,977.846 |
9.43% |
|
PGIM
High Yield Class R |
EMPOWER
TRUST FBO
GREAT
WEST IRA ADVANTAGE
C/O
FASCORE LLC
8515 E
ORCHARD RD 2T2
GREENWOOD
VILLAGE CO 80111 |
1,172,140.694 |
8.66% |
|
PGIM
High Yield Class Z |
CHARLES
SCHWAB CO
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
426,032,337.669 |
25.37% |
|
PGIM
High Yield Class Z |
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM 92500015
ATTN
COURTNEY WALLER
880
CARILLON PARKWAY
ST
PETERSBURG FL 33716 |
223,362,770.068 |
13.30% |
|
PGIM
High Yield Class Z |
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENEFIT OF
OUR
CUSTOMERS
ATTN
MUTUAL FUNDS DEPT 4TH FLOOR
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310 |
176,846,350.659 |
10.53% |
|
PGIM
High Yield Class Z |
AMERICAN
ENTERPRISE INVESTMENT SVC
(FBO)
41999970
707
2ND AVE SOUTH
MINNEAPOLIS
MN 55402-2405 |
174,165,225.639 |
10.37%
|
59
|
Principal
Fund Shareholders (as of October 9, 2024) | |||
|
Fund
Name and Share Class |
Shareholder
Name and Address |
No.
of Shares |
%
of Class |
|
PGIM
High Yield Class Z |
WELLS
FARGO CLEARING SVCS LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
154,821,176.329 |
9.22% |
|
PGIM
High Yield Class Z |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
92,071,559.903 |
5.48% |
|
PGIM
High Yield Class Z |
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE BENEFIT OF ITS
CUSTOMERS
1 NEW
YORK PLAZA FL 12
NEW
YORK NY 10004-1901 |
89,163,851.966 |
5.31% |
|
PGIM
High Yield Class R6 |
EDWARD
D JONES & CO
ATTN:
MUTUAL FUND SHAREHOLDER
ACCOUNTING
201
PROGRESS PKWY
MARYLAND
HTS MO 63043-3003 |
574,578,550.978 |
28.89% |
|
PGIM
High Yield Class R6 |
J P
MORGAN SECURITIES LLC
OMNIBUS
ACCOUNT FOR THE EXCLUSIVE
BENEFIT
OF CUSTOMERS
4
CHASE METROTECH CENTER
3RD
FLOOR MUTUAL FUND DEPARTMENT
BROOKLYN
NY 11245 |
429,878,642.002 |
21.61% |
|
PGIM
High Yield Class R6 |
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENEFIT OF
OUR
CUSTOMERS
ATTN
MUTUAL FUNDS DEPT 4TH FLOOR
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310 |
216,785,111.277 |
10.90% |
|
PGIM
High Yield Class R2 |
DCGT
AS TTEE AND/OR CUST
FBO
PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN
NPIO TRADE DESK
711
HIGH STREET
DES
MOINES, IA 50392 |
1,368,034.430 |
24.85% |
|
PGIM
High Yield Class R2 |
STATE
STREET BANK AND TRUST TTEE
AND/OR
CUSTODIAN
(FBO)
ADP ACCESS PRODUCT
1
LINCOLN ST
BOSTON
MA 02111-2901 |
1,277,921.029 |
23.21% |
|
PGIM
High Yield Class R2 |
EMPOWER
TRUST FBO
EMPLOYEE
BENEFITS CLIENTS 401K
8515 E
ORCHARD RD 2T2
GREENWOOD
VILLAGE CO 80111 |
401,614.310 |
7.30% |
|
PGIM
High Yield Class R2 |
WEBCOR
CONSTRUCTION LP
FBO
WEBCOR DEF COMP PLAN
ATTN
PLAN TRUSTEE
1751
HARBOR BAY PKWY S200
ALAMEDA,
CA 94502 |
313,326.598 |
5.69% |
|
PGIM
High Yield Class R2 |
WACHOVIA
BANK, NATIONAL ASSOCIATION
FBO
DEF COMP. PLAN OF CED INC (PS
DEF)
ATTN
PLAN TRUSTEE
ONE
WEST FOURTH STREET
WINSTON-SALEM,
NC 27101 |
290,971.745 |
5.29% |
|
PGIM
High Yield Class R4 |
MERRILL
LYNC,PIERC,FENNER&SMITH
FOR
THE SOLE BENEFIT OF ITS CUST
4800
DEER LAKE DR E
JACKSONVILLE
FL 32246-6484 |
1,841,050.005 |
23.64%
|
Prudential
Investment Portfolios, Inc. 15 60
|
Principal
Fund Shareholders (as of October 9, 2024) | |||
|
Fund
Name and Share Class |
Shareholder
Name and Address |
No.
of Shares |
%
of Class |
|
PGIM
High Yield Class R4 |
STATE
STREET BANK AND TRUST TTEE
AND/OR
CUSTODIAN
(FBO)
ADP ACCESS PRODUCT
1
LINCOLN ST
BOSTON
MA 02111-2901 |
1,215,664.395 |
15.61% |
|
PGIM
High Yield Class R4 |
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY, NJ 07310 |
945,010.715 |
12.13% |
|
PGIM
High Yield Class R4 |
EMPOWER
TRUST FBO
EMPLOYEE
BENEFIT CLIENTS 401K
8515 E
ORCHARD RD 2T2
GREENWOOD
VILLAGE CO 80111 |
910,039.019 |
11.68% |
|
PGIM
High Yield Class R4 |
DCGT
AS TTEE AND/OR CUST
FBO
PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN
NPIO TRADE DESK
711
HIGH STREET
DES
MOINES, IA 50392 |
559,324.969 |
7.18% |
|
PGIM
Short Duration High Yield Inc. Class A |
EDWARD
D JONES & CO
ATTN:
MUTUAL FUND SHAREHOLDER
ACCOUNTING
201
PROGRESS PKWY
MARYLAND
HTS MO 63043-3003 |
8,571,154.009 |
17.28% |
|
PGIM
Short Duration High Yield Inc. Class A |
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE BENEFIT OF ITS
CUSTOMERS
1 NEW
YORK PLAZA FL 12
NEW
YORK NY 10004-1901 |
7,296,987.027 |
14.71% |
|
PGIM
Short Duration High Yield Inc. Class A |
WELLS
FARGO CLEARING SVCS LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
7,062,222.230 |
14.24% |
|
PGIM
Short Duration High Yield Inc. Class A |
AMERICAN
ENTERPRISE INVESTMENT SVC
(FBO)
41999970
707
2ND AVE SOUTH
MINNEAPOLIS
MN 55402-2405 |
5,247,102.395 |
10.58% |
|
PGIM
Short Duration High Yield Inc. Class A |
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENEFIT OF
OUR
CUSTOMERS
ATTN
MUTUAL FUNDS DEPT - 4TH FLOOR
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310 |
5,053,512.067 |
10.19% |
|
PGIM
Short Duration High Yield Inc. Class A |
LPL
FINANCIAL
A/C
1000-0005
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
3,017,731.405 |
6.08% |
|
PGIM
Short Duration High Yield Inc. Class A |
MERRILL
LYNC,PIERC,FENNER&SMITH
FOR
THE SOLE BENEFIT OF ITS CUST
4800
DEER LAKE DR E
JACKSONVILLE
FL 32246-6484 |
2,668,466.610 |
5.38% |
|
PGIM
Short Duration High Yield Inc. Class A |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
2,620,353.446 |
5.28% |
|
PGIM
Short Duration High Yield Inc. Class C |
WELLS
FARGO CLEARING SVCS LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
4,887,575.790 |
26.48%
|
61
|
Principal
Fund Shareholders (as of October 9, 2024) | |||
|
Fund
Name and Share Class |
Shareholder
Name and Address |
No.
of Shares |
%
of Class |
|
PGIM
Short Duration High Yield Inc. Class C |
AMERICAN
ENTERPRISE INVESTMENT SVC
(FBO)
41999970
707
2ND AVE SOUTH
MINNEAPOLIS
MN 55402-2405 |
2,705,436.803 |
14.66% |
|
PGIM
Short Duration High Yield Inc. Class C |
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM 92500015
ATTN
COURTNEY WALLER
880
CARILLON PARKWAY
ST
PETERSBURG FL 33716 |
1,987,769.427 |
10.77% |
|
PGIM
Short Duration High Yield Inc. Class C |
LPL
FINANCIAL
A/C
1000-0005
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
1,706,204.469 |
9.24% |
|
PGIM
Short Duration High Yield Inc. Class C |
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE BENEFIT OF ITS
CUSTOMERS
1 NEW
YORK PLAZA FL 12
NEW
YORK NY 10004-1901 |
1,544,776.528 |
8.37% |
|
PGIM
Short Duration High Yield Inc. Class C |
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENEFIT OF
OUR
CUSTOMERS
ATTN
MUTUAL FUNDS DEPT - 4TH FLOOR
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310 |
1,291,360.486 |
7.00% |
|
PGIM
Short Duration High Yield Inc. Class C |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
1,074,897.325 |
5.82% |
|
PGIM
Short Duration High Yield Inc. Class C |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105 |
1,008,554.646 |
5.46% |
|
PGIM
Short Duration High Yield Inc. Class Z |
AMERICAN
ENTERPRISE INVESTMENT SVC
(FBO)
41999970
707
2ND AVE SOUTH
MINNEAPOLIS
MN 55402-2405 |
81,371,421.272 |
18.03% |
|
PGIM
Short Duration High Yield Inc. Class Z |
LPL
FINANCIAL
A/C
1000-0005
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
63,892,002.749 |
14.16% |
|
PGIM
Short Duration High Yield Inc. Class Z |
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE BENEFIT OF ITS
CUSTOMERS
1 NEW
YORK PLAZA FL 12
NEW
YORK NY 10004-1901 |
60,543,904.501 |
13.41% |
|
PGIM
Short Duration High Yield Inc. Class Z |
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENEFIT OF
OUR
CUSTOMERS
ATTN
MUTUAL FUNDS DEPT 4TH FLOOR
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310 |
42,064,083.556 |
9.32% |
|
PGIM
Short Duration High Yield Inc. Class Z |
CHARLES
SCHWAB CO
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
39,567,908.733 |
8.77% |
|
PGIM
Short Duration High Yield Inc. Class Z |
WELLS
FARGO CLEARING SVCS LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
34,317,050.998 |
7.60%
|
Prudential
Investment Portfolios, Inc. 15 62
|
Principal
Fund Shareholders (as of October 9, 2024) | |||
|
Fund
Name and Share Class |
Shareholder
Name and Address |
No.
of Shares |
%
of Class |
|
PGIM
Short Duration High Yield Inc. Class Z |
MERRILL
LYNC,PIERC,FENNER&SMITH
FOR
THE SOLE BENEFIT OF ITS CUST
4800
DEER LAKE DR E
JACKSONVILLE
FL 32246-6484 |
32,618,819.787 |
7.23% |
|
PGIM
Short Duration High Yield Inc. Class Z |
UBS WM
USA
0O0
11011 6100
SPEC
CDY A/C EXL BEN CUSTOMERS
OF
UBSFSI
1000
HARBOR BLVD
WEEHAWKEN,
NJ 07086 |
26,645,221.175 |
5.90% |
|
PGIM
Short Duration High Yield Inc. Class Z |
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM 92500015
ATTN
COURTNEY WALLER
880
CARILLON PARKWAY
ST
PETERSBURG FL 33716 |
26,437,662.765 |
5.86% |
|
PGIM
Short Duration High Yield Inc. Class Z |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
26,086,466.376 |
5.78% |
|
PGIM
Short Duration High Yield Inc. Class R6 |
EDWARD
D JONES & CO
ATTN:
MUTUAL FUND SHAREHOLDER
ACCOUNTING
201
PROGRESS PKWY
MARYLAND
HTS MO 63043-3003 |
27,810,960.999 |
44.36% |
|
PGIM
Short Duration High Yield Inc. Class R6 |
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENEFIT OF
OUR
CUSTOMERS
ATTN
MUTUAL FUNDS DEPT 4TH FLOOR
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310 |
13,454,776.467 |
21.46% |
|
PGIM
Short Duration High Yield Inc. Class R6 |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105 |
7,346,924.472 |
11.72% |
|
PGIM
Short Duration High Yield Inc. Class R6 |
J P
MORGAN SECURITIES LLC
OMNIBUS
ACCOUNT FOR THE EXCLUSIVE
BENEFIT
OF CUSTOMERS
4
CHASE METROTECH CENTER
3RD
FLOOR MUTUAL FUND DEPARTMENT
BROOKLYN
NY 11245 |
3,576,258.744 |
5.70% |
As of the date of
this SAI, no person was deemed to have “control” (as that term is defined in the
1940 Act) of either Fund because it owned more than 25% of the Fund’s
outstanding shares, either beneficially or by virtue of its fiduciary or trust
roles or otherwise.
As of the date of
this SAI, the Board Members and Officers of the Funds, as a group, owned less
than 1% of the outstanding shares of each Fund.
FINANCIAL
STATEMENTS
The financial statements for each
Fund for the fiscal year ended August 31, 2024, which are incorporated in this
SAI by reference to the 2024 Annual Report to shareholders (File No. 811-02896),
were audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm. You may obtain a copy of the Annual Report at no charge by
request to the Funds by calling (800) 225-1852 or by writing to Prudential
Mutual Fund Services LLC, P.O. Box 534432, Pittsburgh, PA
15253-4432.
63
PART
II
PURCHASE,
REDEMPTION AND PRICING OF FUND SHARES
SHARE
CLASSES. The Funds may
offer shares of one or more classes to investors. Not every share class
described in this SAI may be offered, and investors should consult their
Prospectuses for specific information concerning the share classes that are
available to them.
Shares of the
Funds may be purchased at a price equal to the next determined NAV per share
plus a sales charge (if applicable) which, at the election of the investor, may
be imposed either (1) at the time of purchase (Class A shares) or (2) on a
deferred basis (Class C shares or Class A shares, in certain circumstances).
Class R, Class R1, Class R2, Class R3, Class R4, Class R5, Class R6, and Class Z
shares, if offered, are offered only to a limited group of investors at NAV
without any sales charges.
Additional or
different classes of shares may also be offered, including Class R, Class R1,
Class R2, Class R3, Class R4, Class R5, and Class R6. If offered, specific
information with respect to these share classes is set forth in the Prospectuses
and SAI.
For more
information, see “How to Buy, Sell and Exchange Fund Shares—How to Buy Shares”
in the Prospectuses.
PURCHASE
BY WIRE. For an initial
purchase of shares of the Funds by wire, you must complete an application and
telephone PMFS at (800) 225-1852 (toll-free) to receive an account number. PMFS
will request the following information: your name, address, tax identification
number, Fund name, class election (if applicable), dividend distribution
election, amount being wired and wiring bank. PMFS will also furnish you with
instructions for wiring the funds from your bank to the Funds'
Custodian.
If you arrange for
receipt by the Custodian of federal funds prior to the calculation of NAV (once
each business day at the close of regular trading on the NYSE, usually 4:00 p.m.
Eastern Time), on a business day, you may purchase shares of the Funds as of
that day. In the event that regular trading on the NYSE closes before 4:00 p.m.
Eastern Time, you will receive the following day's NAV if your order to purchase
is received after the close of regular trading on the NYSE.
In making a
subsequent purchase order by wire, you should wire the Custodian directly and
should be sure that the wire specifies the Funds' name, the share class to be
purchased, your name, individual account number, Direct Deposit Account (“DDA”)
Number and the Fund's Bank Account registration. You do not need to call PMFS to
make subsequent purchase orders utilizing federal funds. The minimum amount for
subsequent purchase by wire is $100.
ISSUANCE
OF FUND SHARES FOR SECURITIES. Transactions
involving the issuance of Fund shares for securities (rather than cash) will be
limited to (1) reorganizations, (2) statutory mergers, or (3) other acquisitions
of portfolio securities that: (a) meet the investment objectives and policies of
the Funds, (b) are relatively liquid and not subject to restrictions on resale,
(c) have a value that is readily ascertainable via listing on or trading in a
recognized United States or international exchange or market, and (d) are
approved by the Funds' Manager.
MULTIPLE
ACCOUNTS. An institution
may open a single master account by filing an application with PMFS, signed by
personnel authorized to act for the institution. Individual subaccounts may be
opened at the time the master account is opened by listing them, or they may be
added at a later date by written advice. Procedures will be available to
identify subaccounts by name and number within the master account name. The
foregoing procedures would also apply to related institutional accounts (i.e.,
accounts of shareholders with a common institutional or corporate parent). The
investment minimums as set forth in the relevant Prospectus under “How to Buy
and Sell Fund Shares—How to Buy Shares” are applicable to the aggregate amounts
invested by a group, and not to the amount credited to each
subaccount.
REOPENING
AN ACCOUNT. Subject to the
minimum investment restrictions, an investor may reopen an account, without
filing a new application, at any time during the calendar year the account is
closed, provided that the information on that application is still
applicable.
RESTRICTIONS
ON SALE OF FUND SHARES. The right of
redemption may be suspended or the date of payment may be postponed for a period
of up to seven days. Suspensions or postponements may not exceed seven days
except at times (1) when the NYSE is closed for other than customary weekends
and holidays, (2) when trading on the NYSE is restricted, (3) when an emergency
exists as a result of which disposal of Fund securities is not reasonably
practicable or it is not reasonably practicable for the Funds fairly to
determine the value of their net assets, or (4) 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 (2), (3) or (4)
exist.
Prudential
Investment Portfolios, Inc. 15 64
REDEMPTION
IN KIND. The Funds may pay
the redemption price in whole or in part by a distribution in kind of securities
from the investment portfolio of the Funds, in lieu of cash, in conformity with
applicable rules of the SEC and procedures adopted by the Board. Securities will
be readily marketable and will be valued in the same manner as in a regular
redemption. If your shares are redeemed in kind, you would incur transaction
costs in converting the assets into cash, and you would bear all market risk
relating to the securities until the securities are sold. The Funds, however,
have elected to be governed by Rule 18f-1 under the 1940 Act, under which the
Funds are obligated to redeem shares solely in cash up to the lesser of $250,000
or 1.00% of the NAV of the Funds during any 90-day period for any one
shareholder.
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 under “Reducing
or Waiving Class A's Initial Sales Charge” in the Prospectus, may aggregate the
value of their existing holdings of Class A and Class C shares of the Funds and
shares of other PGIM 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 PMFS and through your
broker will not be aggregated to determine the reduced sales charge. The value
of existing holdings for purposes of determining the reduced sales charge is
calculated using the maximum offering price (NAV plus maximum sales charge). The
Distributor, your broker or PMFS must be notified at the time of purchase that
the investor is entitled to a reduced sales charge. Reduced sales charges will
be granted subject to confirmation of the investor's holdings. This does not
apply to PGIM Government Money Market Fund.
SALE
OF SHARES. You can redeem
your shares at any time for cash at the NAV next determined after the redemption
request is received in proper form (in accordance with procedures established by
PMFS in connection with investors' accounts) by PMFS or your broker or other
financial intermediary. See “Net Asset Value” below. In certain cases, however,
redemption proceeds will be reduced by the amount of any applicable contingent
deferred sales charge (“CDSC”), as described in “Contingent Deferred Sales
Charge” below. If you are redeeming your shares through a broker, your broker
must receive your sell order before the NAV is computed for that day (at the
close of regular trading on the NYSE, usually, 4:00 p.m. Eastern Time) in order
to receive that day's NAV. In the event that regular trading on the NYSE closes
before 4:00 p.m. Eastern Time, you will receive the following day's NAV if your
order to sell is received after the close of regular trading on the NYSE. Your
broker will be responsible for furnishing all necessary documentation to the
Distributor and may charge you for its services in connection with redeeming
shares of the Funds.
All correspondence
and documents concerning redemptions should be sent to the Funds in care of
PMFS, P.O. Box 534432, Pittsburgh, PA 15253-4432 or to your broker or other
financial intermediary.
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 must be received by PMFS, the Distributor or your broker in order
for the redemption request to be processed. If redemption is requested by a
corporation, partnership, trust or fiduciary, written evidence of authority
acceptable to PMFS must be submitted before such request will be accepted. All
correspondence and documents concerning redemptions should be sent to the Funds
in care of PMFS, P.O. Box 534432, Pittsburgh, PA 15253-4432, to the Distributor
or to your broker.
Payment for
redemption of recently purchased shares may be delayed until the Funds or PMFS
has been advised that the purchase check has been honored, which may take up to
7 calendar days from the time of receipt of the purchase check by PMFS. Such
delay may be avoided by purchasing shares by wire or by certified or cashier's
check.
SIGNATURE
GUARANTEE. If the proceeds
of the redemption (1) exceed $100,000, (2) are to be paid to a person other than
the record owner, (3) are to be sent to an address other than the address on
PMFS’ records, (4) are to be paid to a corporation, partnership, trust or
fiduciary, or (5) are to be paid due to the death of the shareholder or on
behalf of the shareholder, and your shares are held directly with PMFS, the
signature(s) on the redemption request or stock power must be Medallion
signature guaranteed. The Medallion signature guarantee must be obtained from an
authorized officer of a bank, broker, dealer, securities exchange or
association, clearing agency, savings association, or credit union that is
participating in one of the recognized Medallion programs (STAMP, SEMP, or NYSE
MSP), but not from a notary public. The Medallion signature guarantee must be
appropriate for the dollar amount of the transaction. The Funds may change the
signature guarantee requirements from time to time without prior notice to
shareholders. PMFS reserves the right to reject transactions where the value of
the transaction exceeds the value of the surety coverage indicated on the
Medallion imprint. PMFS also reserves the right to request additional
information from, and make reasonable inquires of, any institution that provides
a Medallion signature guarantee. In the case of redemptions from a PruArray
Plan, if the proceeds of the redemption are invested in another investment
option of the plan in the name of the record holder and at the same address as
reflected in PMFS' records, a Medallion signature guarantee is not
required.
Under normal
market conditions, payment for shares presented for redemption will be made by
check within seven days after receipt by PMFS or your broker of the written
request and certificates, if issued, except as indicated below. If you hold
shares through a broker, payment for shares presented for redemption will be
credited to your account at your broker, unless you indicate otherwise. Such
65
payment may be
postponed or the right of redemption suspended at times (1) when the NYSE is
closed for other than customary weekends and holidays, (2) when trading on the
NYSE is restricted, (3) when an emergency exists as a result of which disposal
by the Funds of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Funds fairly to determine the value of their
net assets, or (4) 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 (2), (3) or (4) exist.
EXPEDITED
REDEMPTION PRIVILEGE. By electing the
Expedited Redemption Privilege, you may arrange to have redemption proceeds sent
to your bank account. The Expedited Redemption Privilege may be used to redeem
shares in an amount of $100 or more, except if an account for which an expedited
redemption is requested has an NAV of less than $100, the entire account will be
redeemed. Redemption proceeds in the amount of $500 or more will be remitted by
wire to your bank account at a domestic commercial bank which is a member of the
Federal Reserve system. The money would generally be received by your bank
within one business day of the redemption. Redemption proceeds of less than $500
will be sent by ACH to your bank which must be a member of the Automated
Clearing House (“ACH”) system. The money would generally be received by your
bank within three business days of the redemption. Any applicable CDSC will be
deducted from the redemption proceeds. Expedited redemption requests may be made
by telephone or letter, must be received by the Transfer Agent prior to 4:00
p.m. Eastern Time to receive a redemption amount based on that day's NAV and are
subject to the terms and conditions as set forth in the Prospectuses regarding
redemption of shares. In the event that regular trading on the NYSE closes
before 4:00 p.m. Eastern Time, you will receive the following day's NAV if your
order to sell is received after the close of regular trading on the NYSE. For
more information, see “How to Buy, Sell and Exchange Fund Shares-Telephone
Redemptions or Exchanges” in the Prospectuses. The Expedited Redemption
Privilege may be modified or terminated at any time without notice. To receive
further information, shareholders should contact PMFS.
INVOLUNTARY
REDEMPTION. If the value of
your account with PMFS is less than $500 for any reason, PMFS may sell the rest
of your shares (without charging any CDSC) and close your account. The
involuntary sale provisions do not apply to: (i) an individual retirement
account (“IRA”) or other qualified or tax-deferred retirement plan or account,
(ii) Automatic Investment Plan (“AIP”) accounts, employee savings plan accounts
or payroll deduction plan accounts, (iii) accounts under the same registration
with multiple share classes in the Funds whose combined value exceeds $500, or
(iv) clients with assets more than $50,000 across the PGIM Funds. “Client” for
this purpose has the same definition as for purposes of Rights of Accumulation,
i.e., an investor and an eligible group of related investors.
PMFS has the right
to reject any purchase order (including an exchange into the Funds) or suspend
or modify the Funds' sales of its shares under certain circumstances. These
circumstances include, but are not limited to, failure by you to provide
additional information requested, such as information required to verify the
source of funds used to purchase shares, your identity or the identity of any
underlying beneficial owners of your shares. Furthermore, PMFS is required by
law to close your account if you do not provide the required identifying
information; this would result in the redemption of shares at the then-current
day's NAV and the proceeds would be remitted to you via check. PMFS will attempt
to verify your identity within a reasonable time frame (e.g., 60 days) which may
change from time to time.
ACCOUNT
MAINTENANCE FEE. In order to
offset the disproportionate effect (in basis points) of expenses associated with
servicing lower balance accounts, if the value of your Class A, Class C or Class
Z account with PMFS is less than $10,000, a $15 annual account maintenance fee
(“account maintenance fee”) will be deducted from your account. The account
maintenance fee will be assessed during the 4th calendar quarter of each year.
Any applicable CDSC on the shares redeemed to pay the account maintenance fee
will be waived. The account maintenance fee will not be charged on: (i) accounts
during the first six months from inception of the account, (ii) accounts for
which you have elected to receive your account statements, transaction
confirmations, prospectuses, and fund shareholder reports electronically rather
than by mail, (iii) omnibus accounts or other accounts for which the dealer is
responsible for recordkeeping, (iv) institutional accounts, (v) group retirement
plans (including SIMPLE IRA plans, profit-sharing plans, money purchase pension
plans, Keogh plans, defined compensation plans, defined benefit plans and 401(k)
plans), (vi) AIP accounts or employee savings plan accounts, (vii) accounts with
the same registration associated with multiple share classes within the Funds,
provided that the aggregate value of share classes with the same registration
within the Funds is $10,000 or more, or (viii) clients with assets of $50,000 or
more across the PGIM Funds. “Client” for this purpose has the same definition as
for purposes of Rights of Accumulation, i.e., an investor and an eligible group
of related investors or other financial intermediary.
90
DAY REPURCHASE PRIVILEGE. If you redeem
your shares and have not previously exercised the repurchase privilege during
the previous 12 months, you may reinvest back into your account any portion or
all of the proceeds of such redemption in shares of the Funds at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption in
Class A or Class C shares will be credited (in shares) to your account. (If less
than a full repurchase is made, the credit will be on a pro rata basis.) This
repurchase privilege can only be used once in a 12-month period. You must notify
PMFS, either directly or through the Distributor or your broker, at the time the
repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the
Prudential
Investment Portfolios, Inc. 15 66
redemption. See
“Contingent Deferred Sales Charge” below. Exercise of the repurchase privilege
will generally not affect federal tax treatment of any gain realized upon
redemption. However, if the redemption was made within a 30 day period of the
repurchase and if the redemption resulted in a loss, some or all of the loss,
depending on the amount reinvested, may not be allowed for federal income tax
purposes.
The terms of this
privilege may vary by financial intermediary. For more information, see
“Appendix A: Waivers and Discounts Available From Certain Financial
Intermediaries” in the Fund’s prospectus.
CONTINGENT
DEFERRED SALES CHARGE (“CDSC”)
Class
A.
Investors who purchase $500,000 or more of Class A shares and sell these shares
within 12 months of purchase are subject to a 1.00% CDSC.
Class
C.
Class C shares redeemed within 12 months of purchase will be subject to a CDSC
of 1.00%. The CDSC will be deducted from the redemption proceeds and reduce the
amount paid to you.
Waiver
of CDSC. The Class A or
Class C CDSC is waived if the shares are sold:
■
After a
shareholder is deceased or permanently disabled (or, in the case of a trust
account, after the death or disability of the grantor). This waiver applies to
individual shareholders as well as shares held in joint tenancy, provided the
shares were purchased before the death or permanent disability,
■
To provide for
certain distributions—made without IRS penalty—from a qualified or tax-deferred
retirement plan, benefit plan, IRA or Section 403(b) custodial account,
and
■
To withdraw excess
contributions from a qualified or tax-deferred retirement plan, IRA or Section
403(b) custodial account.
If you purchase
Class Z shares (see “Qualifying for Class Z Shares” in the Prospectus) within 5
days of redemption of your Class A shares that you had purchased directly
through the Fund's transfer agent, PMFS will credit your account with the
appropriate number of shares to reflect any CDSC you paid on the reinvested
portion of your redemption proceeds.
Calculation of
CDSC. The CDSC will
be imposed on any redemption that reduces the current value of your Class A or
Class C shares to an amount which is lower than the amount of all payments by
you for shares during the preceding 12 months in the case of Class A shares (as
applicable), and 12 months 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 acquired through
reinvestment of dividends or distributions are not subject to a CDSC. The amount
of any CDSC will be paid to and retained by the Distributor. If you purchased or
hold your shares through a broker, third party administrator or other authorized
entity that maintains subaccount recordkeeping, any applicable CDSC that you
will pay will be calculated and reported to PMFS by such broker, administrator
or other authorized entity.
The amount of the
CDSC, if any, will vary depending on the number of years from the time of
payment for the purchase of shares until the time of redemption of such shares.
The CDSC will be calculated from the date of the initial purchase, excluding the
time shares were held in Class C shares of a money market fund. See “Shareholder
Services—Exchange Privileges” below.
In determining whether a CDSC is
applicable to a redemption, the calculation will be made in a manner that
results in the lowest possible rate. It will be assumed that the redemption is
made first of amounts representing shares acquired pursuant to the reinvestment
of dividends and distributions; then of amounts representing the increase in NAV
above the total amount of payments for the purchase made during the preceding 12
months for Class A shares (as applicable), and 12 months for Class C shares;
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 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.
As noted above,
the CDSC will be waived in the case of a redemption following the death or
permanent disability of a shareholder or, in the case of a trust account,
following the death or permanent 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 at the time of death or initial determination
of permanent disability, provided that the shares were purchased prior to death
or permanent disability.
67
The CDSC will be
waived in the case of a total or partial redemption in connection with certain
distributions under the Code from a tax-deferred retirement plan, an IRA or
Section 403(b) custodial account. For distributions from an IRA or 403(b)
custodial account, the shareholder must submit a copy of the distribution form
from the custodial firm indicating (i) the date of birth of the shareholder and
(ii) that the shareholder reaches qualified age based on applicable IRS
regulations. The distribution form must be signed by the
shareholder.
AUTOMATIC
CONVERSION OF CLASS C SHARES. Class C shares
automatically convert into Class A shares on a monthly basis approximately eight
years after the original date of purchase (the “Conversion Date”). Conversion
will take place based on the relative NAV of the two classes, without the
imposition of any sales load, fee or other charge.
Class C shares of
the Funds acquired through automatic reinvestment of dividends or distributions
will convert to Class A shares of the Funds on the Conversion Date pro rata with
the converting Class C shares of the Funds that were not acquired through
reinvestment of dividends or distributions. All such automatic conversions of
Class C shares will constitute tax-free exchanges for federal income tax
purposes.
For shareholders
investing in Class C shares through retirement plans or omnibus accounts, and in
certain other instances, the Funds and its agents may not have transparency into
how long a shareholder has held Class C shares for purposes of determining
whether such Class C shares are eligible for automatic conversion into Class A
shares, and the relevant financial intermediary may not have the ability to
track purchases in order to credit individual shareholders’ holding periods. In
these circumstances, the Funds will not be able to automatically convert Class C
shares into Class A shares as described above. In order to determine eligibility
for conversion in these circumstances, it is the responsibility of the financial
intermediary to notify the Fund that the shareholder is eligible for the
conversion of Class C shares to Class A shares, and the financial intermediary
may be required to maintain and provide the Funds with records that substantiate
the holding period of Class C shares. It is the financial intermediary’s (and
not the Fund’s) responsibility to keep records of transactions made in accounts
it holds and to ensure that the shareholder is credited with the proper holding
period based on such records or those provided to the financial intermediary by
the shareholder. Please consult with your financial intermediary for the
applicability of this conversion feature to your shares.
Class C shares
were generally closed to investments by new group retirement plans effective on
or about June 1, 2018. Group retirement plans (and their successor, related and
affiliated plans) that have Class C shares of the Funds available to
participants on or before the Effective Date may continue to open accounts for
new participants in such share class and purchase additional shares in existing
participant accounts.
The Funds have no
responsibility for monitoring or implementing a financial intermediary’s process
for determining whether a shareholder meets the required holding period for
conversion. A financial intermediary may sponsor and/or control accounts,
programs or platforms that impose a different conversion schedule or different
eligibility requirements for the exchange of Class C shares for Class A shares,
as set forth on Appendix
A: Waivers and Discounts Available From Certain Financial
Intermediaries of the
Prospectus. In these cases, Class C shareholders may have their shares exchanged
for Class A shares under the policies of the financial intermediary. Financial
intermediaries will be responsible for making such exchanges in those
circumstances. Please consult with your financial intermediary if you have any
questions regarding your shares’ conversion from Class C shares to Class A
shares.
The conversion
feature may be subject to the continuing availability of opinions of counsel or
rulings of the IRS that the conversion of shares does not constitute a taxable
event for federal income tax purposes. The automatic conversion of Class C
shares into Class A shares may be suspended if such opinions or rulings are no
longer available. If such conversions are suspended, Class C shares of the Funds
will continue to be subject, possibly indefinitely, to their higher annual
distribution and service (12b-1) fee. Shareholders should consult their tax
advisers regarding the tax consequences of the conversion or exchange of
shares.
EXCHANGE
OF SHARE CLASSES WITHIN THE FUND. Within the
Funds, investors or their financial intermediaries may wish to exchange
investments in one share class of the Funds to another share class offered by
the same Fund. For certain exchanges, subject to the discretion of the Manager
and or its affiliates, the Funds may need to waive applicable sales charges in
the share class that the shareholder is receiving and/or waive CDSC on the
redeemed shares, as applicable.
Such exchanges may
be subject to the continuing availability of opinions of counsel or rulings of
the IRS that the exchange of shares does not constitute a taxable event for
federal income tax purposes. If such opinions or rulings are no longer
available, then the exchange may be a taxable event. Shareholders should consult
their tax advisers regarding the tax consequences of the exchange of
shares.
Please contact
PMFS at (800) 225-1852 for more details on such exchanges.
Prudential
Investment Portfolios, Inc. 15 68
NET
ASSET VALUE
The price an
investor pays for the Funds' shares is based on the share value. The share
value—known as the net asset value per share or NAV—is determined by subtracting
Fund liabilities from the value of Fund assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Funds will compute their NAV once each business day at the close of regular
trading on the NYSE, usually 4:00 p.m. Eastern Time. For purposes of computing
NAV, the Funds will value futures contracts generally 15 minutes after the close
of regular trading on the NYSE. The Funds may not compute their NAV on days on
which no orders to purchase, sell or exchange shares of the Funds have been
received or on days on which changes in the value of the Funds' portfolio
securities do not materially affect NAV. The Funds will not treat an intraday
unscheduled disruption in NYSE trading as a closure of the NYSE and will price
its shares as of 4:00 p.m. Eastern Time, if the particular disruption directly
affects only the NYSE. Please see the NYSE website (www.nyse.com) for a specific
list of the holidays on which the NYSE is closed.
The Fund’s
portfolio securities are valued based upon market quotations or, if market
quotations are not readily available, at fair value as determined in good faith
by the Manager, as the Board's valuation designee. In this capacity, the Manager
has adopted methodologies for determining the fair value of certain types of
securities and other assets held by the Fund that do not have quoted market
prices, including the use of other pricing sources, such as bid prices supplied
by a principal market maker and evaluated prices supplied by pricing vendors
that employ analytic methodologies that take into account the prices of similar
securities and other market factors. In determining a security's value, the Fund
generally uses the following methodologies. Securities included on the NASDAQ
Market are valued at the NASDAQ Official Closing Price (“NOCP”) on the day of
valuation, or if there was no NOCP, at the last sale price. NASDAQ Market
Securities for which there was no NOCP or last sale price are valued at the mean
between the last bid and asked prices on the day of valuation, or the last bid
price in the absence of an asked price. Open-end, non-exchange traded mutual
funds are valued at their net asset value as determined as of the close of the
NYSE on the date of valuation. Corporate bonds (other than convertible debt
securities) and U.S Government securities that are actively traded in the OTC
market, including listed securities for which the primary market is believed by
the Manager in consultation with the subadviser to be over-the-counter, are
valued on the basis of valuations provided by an independent pricing agent which
uses information with respect to transactions in bonds, quotations from bond
dealers, agency ratings, market transactions in comparable securities and
various relationships between securities in determining value. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed by the Manager in
consultation with the subadviser to be OTC, are valued on the day of valuation
at an evaluated bid price provided by an independent pricing agent, or, in the
absence of valuation provided by an independent pricing agent, at the bid price
provided by a principal market maker or primary market dealer.
Options on
securities and securities indices that are listed on an exchange are valued at
the last sale price on such exchange on the day of valuation or, if there was no
such sale on such day, at the mean between the most recently quoted bid and
asked prices on such exchange or at the last bid price in the absence of an
asked price. Where exchange trading has halted on exchange-traded call or put
options, the last available traded price may be used for a period of no longer
than five business days. On the sixth business day, such options may be valued
at zero in the absence of trading, when such options are “out of the money” by
more than 5% of the value of the underlying asset and expire within 14 calendar
days of the valuation date.
Futures contracts
and options thereon traded on a commodities exchange or Board of Trade shall be
valued on the day of valuation at the last sale price at the close of trading on
such exchange or Board of Trade or, if there was no sale on the applicable
exchange or Board of Trade on such date, at the mean between the most recently
quoted bid and asked prices on such exchange or Board of Trade or at the last
bid price in the absence of an asked price. Quotations of non-U.S. securities in
a non-U.S. currency are converted to U.S. dollar equivalents at the current rate
obtained from a recognized bank, dealer or independent service, and forward
currency exchange contracts are valued at the current cost of covering or
offsetting such contacts. Should an extraordinary event, which is likely to
affect the value of the security, occur after the close of an exchange on which
a portfolio security is traded, such security will be valued at fair value
considering factors determined in good faith by the Manager.
In addition, the
Funds use a service provided by a pricing vendor to fair value non-U.S.
securities, which are securities that are primarily traded in non-U.S. markets
and subject to a valuation adjustment upon the reaching of a valuation
“trigger”. The fair value prices of non-U.S. securities reflect an adjustment to
closing market prices that is intended to reflect the causal link between
movements in the U.S. market and the non-U.S. market on which the securities
trade.
The use of fair
value pricing procedures involves subjective judgments, and it is possible that
the fair value determined for a security may be materially different from the
value that could be realized upon the sale of that security. Accordingly, there
can be no assurance that the Funds could obtain the fair value assigned to a
security if the security were sold at approximately the same time at which the
NAV per share is determined.
69
Generally, futures
contracts will be valued at the close of trading for those contracts (normally
15 minutes after the close of regular trading on the NYSE). If, in the judgment
of the Manager, the closing price of a contract is materially different from the
contract price at the NYSE close, a fair value price for the contract will be
determined.
If dividends are
declared daily, the NAV of each class of shares will generally be the same. It
is expected, however, that the dividends, if any, will differ by approximately
the amount of the distribution and/or service fee expense accrual differential
among the classes.
SHAREHOLDER
SERVICES
Upon the initial
purchase of Fund shares, a Shareholder Investment Account is established for
each investor under which a record of the shares is maintained by PMFS. Share
certificates are no longer issued for shares of the Funds. The Funds furnish to
shareholders the following privileges and plans:
AUTOMATIC
REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For the
convenience of investors, all dividends and distributions are automatically
reinvested in full and fractional shares of the Funds at NAV per share. An
investor may direct PMFS in writing not less than five full business days prior
to the record date to have subsequent dividends and/or distributions sent in
cash rather than reinvested. In the case of recently purchased shares for which
registration instructions have not been received by the record date, cash
payment will be made directly to the broker. Any shareholder who receives
dividends or distributions in cash may subsequently reinvest any such dividend
or distribution at NAV by returning the check or the proceeds to PMFS within 30
days after the payment date. Such reinvestment will be made at the NAV per share
next determined after receipt of the check or the proceeds by PMFS. Shares
purchased with reinvested dividends and/or distributions will not be subject to
any CDSC upon redemption.
EXCHANGE
PRIVILEGES. The Funds furnish
to shareholders the privilege of exchanging their shares of the Funds for shares
of certain other PGIM Funds, as disclosed in each Fund’s Prospectus, including
one or more specified money market funds, subject in each case to the minimum
investment requirements of such funds. Shares of such other PGIM Funds may also
be exchanged for shares of the Funds. All exchanges are made on the basis of the
relative NAV next determined after receipt of an order in proper form. An
exchange will be treated as a redemption and purchase for federal income 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 PGIM 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 PGIM Funds, the shares of
which may be distributed by the Distributor.
In order to
exchange shares by telephone, you must authorize telephone exchanges on your
initial application form or by written notice to PMFS and hold shares in
non-certificated form. Thereafter, you may call the Funds at (800) 225-1852 to
execute a telephone exchange of shares. For your protection and to prevent
fraudulent exchanges, your telephone call will be recorded and you will be asked
to authenticate your account. A written confirmation of the exchange transaction
will be sent to you. Neither the Funds nor their agents will be liable for any
loss, liability or cost which results from acting upon instructions reasonably
believed to be genuine under the foregoing procedures. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after the
request is received in good order.
If you hold shares
through a brokerage firm, you must exchange your shares by contacting your
financial adviser.
If you hold share
certificates, the certificates must be returned in order for the shares to be
exchanged. See “Purchase, Redemption and Pricing of Fund Shares—Sale of Shares”
above.
You may also
exchange shares by mail by writing to PMFS, P.O. Box 534432, Pittsburgh, PA
15253-4432.
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 PMFS
at the address noted above.
Class
A shares: Shareholders of
the Funds may exchange their Class A shares for Class A shares of certain other
PGIM Funds and shares of the money market funds specified below. No fee or sales
load will be imposed upon the exchange. Shareholders of money market funds who
acquired such shares upon exchange of Class A shares may use the exchange
privilege only to acquire Class A shares of the PGIM Funds participating in the
exchange privilege.
The following
money market fund participates in the Class A exchange privilege: PGIM
Government Money Market Fund (Class A shares).
Prudential
Investment Portfolios, Inc. 15 70
Participants in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential, or whose programs are available
through financial intermediaries that have agreements with Prudential relating
to mutual fund “wrap” or asset allocation programs or mutual fund “supermarket”
programs, for which the Funds are an available option, may have their Class A
shares, if any, exchanged for Class Z shares of the Funds, if available as an
investment option, when they elect to have those assets become a part of the
program. Upon leaving the program (whether voluntarily or not), such Class Z
shares (and, to the extent provided for in the program, Class Z shares acquired
through participation in the program) may be exchanged for Class A shares of the
Funds at NAV if Class Z shares are not available to the shareholder as an
investment option outside the program. Contact your program sponsor or financial
intermediary with any questions.
Class
C shares: Shareholders of
the Funds may exchange their Class C shares of the Funds for Class C shares of
other PGIM Funds. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of the Class C shares acquired as a result of an
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, excluding
any time Class C shares were held in a money market fund.
Class C shares may
also be exchanged for shares of PGIM Government 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 Funds, such shares will be
subject to the CDSC calculated without regard to the time such shares were held
in the money market fund.
At any time after
acquiring shares of other funds participating in the Class C exchange privilege,
a shareholder may again exchange those shares (and any reinvested dividends and
distributions) for Class C shares of the Funds without subjecting such shares to
any CDSC. Shares of any fund participating in the Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class C shares of other funds without being subject to any
CDSC.
Shareholders who
qualify to purchase Class Z shares may have their Class C shares which are not
subject to a CDSC and their Class A shares exchanged for Class Z shares upon
notification. Eligibility for this exchange privilege will be calculated on the
business day prior to the date of the exchange. Amounts representing Class C
shares which are not subject to a CDSC include the following: (1) amounts
representing Class C shares acquired pursuant to the automatic reinvestment of
dividends and distributions, (2) amounts representing the increase in the NAV
above the total amount of payments for the purchase of Class C shares and (3)
amounts representing Class C shares held beyond the applicable CDSC period.
Class C shareholders must notify PMFS either directly or through Wells Fargo
Advisors, Pruco Securities, LLC or another broker that they are eligible for
this special exchange privilege.
Participants in
any fee-based program for which the Funds are an available option may arrange
with the Transfer Agent or their recordkeeper to have their Class A shares, if
any, exchanged for Class Z shares when they elect to have those assets become a
part of the fee-based program. Upon leaving the program (whether voluntarily or
not), the participant may arrange with the Transfer Agent or their recordkeeper
to have such Class Z shares acquired through participation in the program
exchanged for Class A shares at NAV. Similarly, participants in Wells Fargo
Advisors' 401(k) Plan for which the Funds' Class Z shares are an available
option and who wish to transfer their Class Z shares out of the Wells Fargo
Advisors 401(k) Plan following separation from service (i.e., voluntary or
involuntary termination of employment or retirement) may arrange with the
Transfer Agent or their recordkeeper to have their Class Z shares exchanged for
Class A shares at NAV.
Additional details
about the exchange privilege and prospectuses for each of the PGIM Funds are
available from PMFS, the Distributor or your broker. The special exchange
privilege may be modified, terminated or suspended on sixty days' notice, and
the Funds, or the Distributor, have the right to reject any exchange application
relating to the Funds' shares.
Class
R shares: Class R shares
may be exchanged for Class R shares of other PGIM Funds.
Class R2
shares: Class R2
shares may be exchanged for Class R2 shares of other PGIM Funds (except the PGIM
Target Date Funds).
Class R4
shares: Class R4
shares may be exchanged for Class R4 shares of other PGIM Funds (except the PGIM
Target Date Funds).
Class R6
shares: Class R6
shares may be exchanged for Class R6 shares of other PGIM Funds (except the PGIM
Target Date Funds or the PGIM 60/40 Allocation Fund).
Class
Z shares: Class Z shares
may be exchanged for Class Z shares of other PGIM Funds.
AUTOMATIC
INVESTMENT PLAN (“AIP”). Under AIP, an
investor may arrange to have a fixed amount automatically invested in shares of
the Funds by authorizing his or her bank account or brokerage account to be
debited to invest specified dollar amounts in shares of the Funds. The
investor's bank must be a member of the Automated Clearing House
System.
71
Further
information about this program and an application form can be obtained from
PMFS, the Distributor or your broker.
SYSTEMATIC
WITHDRAWAL PLAN. A Systematic
Withdrawal Plan is available to shareholders through the PMFS or your broker.
The Systematic Withdrawal Plan provides for monthly, quarterly, semi-annual or
annual redemptions in any amount, except as provided below, up to the value of
the shares in the shareholder's account. Systematic withdrawals of Class A (in
certain instances), Class C shares may be subject to a CDSC. The Systematic
Withdrawal Plan is not available to participants in certain retirement plans.
Please contact PMFS at (800) 225-1852 for more details.
PMFS, the
Distributor or your broker acts as an agent for the shareholder in redeeming
sufficient full and fractional shares to provide the amount of the systematic
withdrawal payment. The Systematic Withdrawal Plan may be terminated at any
time.
Systematic
withdrawals should not be considered as dividends, yield or income. If
systematic 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
redemption of Class A (in certain instances) and Class C shares. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the Systematic Withdrawal Plan, particularly if used in
connection with a retirement plan.
MUTUAL
FUND PROGRAMS. From time to
time, the Funds may be included in a mutual fund program with other PGIM Funds.
Under such a program, a group of portfolios will be selected and thereafter
marketed collectively. Typically, these programs are marketed with an investment
theme, such as pursuit of greater diversification, protection from interest rate
movements or access to different management styles. In the event such a program
is instituted, there may be a minimum investment requirement for the program as
a whole. The Funds may waive or reduce the minimum initial investment
requirements in connection with such a program.
The mutual funds
in the program may be purchased individually or as a part of a program. Since
the allocation of portfolios included in the program may not be appropriate for
all investors, investors should consult their financial adviser concerning the
appropriate blends of portfolios for them. If investors elect to purchase the
individual mutual funds that constitute the program in an investment ratio
different from that offered by the program, the standard minimum investment
requirements for the individual mutual funds will apply.
TAX-DEFERRED
RETIREMENT PROGRAMS. Various
tax-deferred retirement plans, including a 401(k) plan, self-directed individual
retirement accounts and “tax-deferred accounts” under Section 403(b)(7) of the
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, their administration,
custodial fees and other details is available from the Distributor or
PMFS.
Investors who are
considering the adoption of such a plan should consult with their own legal
counsel and/or tax adviser with respect to the establishment and maintenance of
any such plan.
TAXES,
DIVIDENDS AND DISTRIBUTIONS
The following is a
summary of certain tax considerations generally affecting each Fund and its
shareholders. This section is based on the Code, Treasury Regulations, published
rulings and court decisions, all as currently in effect. These laws are subject
to change, possibly on a retroactive basis. Please consult your own tax adviser
concerning the consequences of investing in a Fund in your particular
circumstances under the Code and the laws of any other taxing
jurisdiction.
QUALIFICATION
AS A REGULATED INVESTMENT COMPANY. Each Fund has
elected to be taxed as a regulated investment company under Subchapter M of the
Code and intends to meet all other requirements that are necessary for it to be
relieved of federal taxes on income and gains it distributes to shareholders. As
a regulated investment company, a Fund is not subject to federal income tax on
the portion of its net investment income (i.e., investment company taxable
income, as that term is defined in the Code, without regard to the deduction for
dividends paid) and net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) that it distributes to shareholders,
provided that it distributes at least 90% of its net tax-exempt income and
investment company taxable income for the year (the “Distribution Requirement”),
and satisfies certain other requirements of the Code that are described
below.
Net capital gains
of a Fund that are available for distribution to shareholders will be computed
by taking into account any applicable capital loss carryforward. If a Fund has a
capital loss carryforward, the amount and duration of any such capital loss
carryforward will be set forth at the end of this section.
Prudential
Investment Portfolios, Inc. 15 72
In addition to
satisfying the Distribution Requirement, each Fund must derive at least 90% of
its gross income from dividends, interest, certain payments with respect to
loans of stock and securities, gains from the sale or disposition of stock,
securities or non-U.S.
currencies and other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies and net income derived from an interest in a QPTP.
currencies and other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies and net income derived from an interest in a QPTP.
Each Fund must
also satisfy an asset diversification test on a quarterly basis. Failure to do
so may result in a Fund being subject to penalty taxes, being required to sell
certain of its positions, and may cause the Fund to fail to qualify as a
regulated investment company. Under this asset diversification test, at the
close of each quarter of a Fund’s taxable year, (1) 50% or more of the value of
the Fund’s assets must be represented by cash, United States government
securities, securities of other regulated investment companies, and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the Fund’s assets and 10% of the
outstanding voting securities of such issuer and (2) not more than 25% of the
value of the Fund’s assets may be invested in securities of (x) any one issuer
(other than United States government securities or securities of other regulated
investment companies), or two or more issuers (other than securities of other
regulated investment companies) of which the Fund owns 20% or more of the voting
stock and which are engaged in the same, similar or related trades or businesses
or (y) one or more QPTPs (as such term is defined in the Code) and commonly
referred to as “master limited partnerships.”
A Fund may be able
to cure a failure to derive at least 90% of its income from the sources
specified above or a failure to diversify its holdings in the manner described
above by paying a tax, by disposing of certain assets, or by paying a tax and
disposing of assets. If, in any taxable year, a Fund fails one of these tests
and does not timely cure the failure, the Fund will be taxed in the same manner
as an ordinary corporation and distributions to its shareholders will not be
deductible by the Fund in computing its taxable income.
Although in
general the passive loss rules of the Code do not apply to regulated investment
companies, such rules do apply to a regulated investment company with respect to
items attributable to an interest in a QPTP. A Fund’s investments in
partnerships, including in QPTPs, may result in the Fund being subject to state,
local or non-U.S. income, franchise or withholding tax liabilities.
If for any year a
Fund does not qualify as a regulated investment company, or fails to meet the
Distribution Requirement, all of its taxable income (including its net capital
gain) will be subject to tax at regular corporate rates without any deduction
for distributions to shareholders. In addition, in the event of a failure to
qualify, a Fund’s distributions, to the extent derived from the Fund’s current
or accumulated earnings and profits, including any distributions of net
long-term capital gains, will be taxable to shareholders as dividend income.
However, such dividends will be eligible (i) to be treated as qualified dividend
income in the case of shareholders taxed as individuals and (ii) for the
dividends received deduction in the case of corporate shareholders. Moreover, if
a Fund fails to qualify as a regulated investment company in any year, it must
pay out its earnings and profits accumulated in that year in order to qualify
again as a regulated investment company. If a Fund fails to qualify as a
regulated investment company for a period greater than two taxable years, the
Fund may be subject to taxation on any net built-in-gains (i.e., the excess of
the aggregate gain, including items of income, over aggregate loss that would
have been realized if the Fund had been liquidated) recognized for a period of
five years, or, under certain circumstances, may have to recognize and pay tax
on such net built-in-gain, in order to qualify as a regulated investment company
in a subsequent year.
EXCISE
TAX ON REGULATED INVESTMENT COMPANIES. A 4%
non-deductible excise tax is imposed on a regulated investment company to the
extent that it distributes income in such a way that it is taxable to
shareholders in a calendar year other than the calendar year in which a Fund
earned the income. Specifically, the excise tax will be imposed if a Fund fails
to distribute in each calendar year an amount equal to 98% of ordinary taxable
income, including qualified dividend income, for the calendar year and 98.2% of
capital gain net income for the one-year period ending on October 31 of such
calendar year (or, at the election of a regulated investment company having a
taxable year ending November 30 or December 31, for its taxable year). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed otherwise retained amounts if it is subject to income tax on those
amounts for any taxable year ending in such calendar year.
Each Fund intends
to make sufficient distributions or deemed distributions of its qualified
dividend income, ordinary income and capital gain net income prior to the end of
each calendar year to avoid liability for this excise tax. However, investors
should note that a Fund may in certain circumstances be required to borrow money
or liquidate portfolio investments to make sufficient distributions to avoid
excise tax liability.
FUND
INVESTMENTS. Each Fund may
make investments or engage in transactions that affect the character, amount and
timing of gains or losses realized by a Fund. A Fund may make investments that
produce income that is not matched by a corresponding cash receipt by a Fund.
Any such income would be treated as income earned by a Fund and therefore would
be subject to the Distribution Requirement. Such investments may require a Fund
to borrow money or dispose of other securities in order to comply with those
requirements. Each Fund may also make investments that prevent or defer the
recognition of losses or the deduction of expenses. These investments may
likewise require a Fund to borrow money or dispose of other securities in order
to comply with the Distribution
73
Requirement.
Additionally, a Fund may make investments that result in the recognition of
ordinary income rather than capital gain, or that prevent a Fund from accruing a
long-term holding period. These investments may prevent a Fund from making
capital gain distributions as described below. Each Fund intends to monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it makes any such investments
in order to mitigate the effect of these rules. The foregoing concepts are
explained in greater detail in the following paragraphs.
Gains or losses on
sales of stock or securities by a Fund generally will be treated as long-term
capital gains or losses if the stock or securities have been held by it for more
than one year, except in certain cases where a Fund acquires a put or writes a
call or otherwise holds an offsetting position, with respect to the stock or
securities. Other gains or losses on the sale of stock or securities will be
short-term capital gains or losses.
In certain
situations, a Fund may, for a taxable year, defer all or a portion of its net
capital loss realized after October (or if there is no net capital loss, then
any net long-term or short-term capital loss) and its late-year ordinary loss
(defined as the sum of the excess of post-October non-U.S. currency and passive
non-U.S. investment company (“PFIC”) losses over post-October non-U.S. currency
and PFIC gains plus the excess of post-December ordinary losses over
post-December ordinary income) until the next taxable year in computing its
investment company taxable income and net capital gain, which will defer the
recognition of such realized losses. Such deferrals and other rules regarding
gains and losses realized after October (or December) may affect the tax
character of shareholder distributions.
If an option
written by a Fund on securities lapses or is terminated through a closing
transaction, such as a repurchase by a Fund of the option from its holder, a
Fund will generally realize short-term capital gain or loss. If securities are
sold by a Fund pursuant to the exercise of a call option written by it, a 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. Gain or loss on
the sale, lapse or other termination of options acquired by a Fund on stock or
securities and on narrowly-based stock indices will be capital gain or loss and
will be long-term or short-term depending on the holding period of the
option.
Certain Fund
transactions may be subject to wash sale, short sale, constructive sale,
conversion transaction, constructive ownership transaction and straddle
provisions of the Code that may, among other things, require a Fund to defer
recognition of losses or convert long-term capital gain into ordinary income or
short-term capital gain taxable as ordinary income.
As a result of
entering into swap contracts, a Fund may make or receive periodic net payments.
A Fund may also make or receive a payment when a swap is terminated prior to
maturity through an assignment of the swap or other closing transaction.
Periodic net payments will generally constitute taxable ordinary income or
deductions, while termination of a swap will generally result in capital gain or
loss (which will be a long-term capital gain or loss if a Fund has been a party
to the swap for more than one year). With respect to certain types of swaps, a
Fund may be required to currently recognize income or loss with respect to
future payments on such swaps or may elect under certain circumstances to mark
such swaps to market annually for tax purposes as ordinary income or loss.
Periodic net payments that would otherwise constitute ordinary deductions but
are allocable under the Code to exempt-interest dividends will not be allowed as
a deduction but instead will reduce net tax-exempt income.
In general, gain
or loss on a short sale is recognized when a Fund closes the sale by delivering
the borrowed property to the lender, not when the borrowed property is sold.
Gain or loss from a short sale is generally capital gain or loss to the extent
that the property used to close the short sale constitutes a capital asset in a
Fund’s hands. Except with respect to certain situations where the property used
by a Fund to close a short sale has a long-term holding period on the date of
the short sale, special rules would generally treat the gains on short sales as
short-term capital gains. These rules may also terminate the running of the
holding period of “substantially identical property” held by a Fund. Moreover, a
loss on a short sale will be treated as a long-term capital loss if, on the date
of the short sale, “substantially identical property” has been held by a Fund
for more than one year. In general, a Fund will not be permitted to deduct
payments made to reimburse the lender of securities for dividends paid on
borrowed stock if the short sale is closed on or before the 45th day after the
short sale is entered into.
Debt securities
acquired by a Fund may be subject to original issue discount and market discount
rules which, respectively, may cause a Fund to accrue income in advance of the
receipt of cash with respect to interest or cause gains to be treated as
ordinary income subject to the Distribution Requirement referred to above.
Market discount generally is the excess, if any, of the principal amount of the
security (or, in the case of a security issued at an original issue discount,
the adjusted issue price of the security) over the price paid by a Fund for the
security. Original issue discount that accrues in a taxable year is treated as
income earned by a Fund and therefore is subject to the Distribution
Requirement. Because the original issue discount income earned by a Fund in a
taxable year may not be represented by cash income, a Fund may have to borrow
money or dispose of other securities and use the proceeds to make distributions
to satisfy the Distribution Requirement. A Fund will face a similar issue with
market discount that it elects, or is required to accrue.
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Investment Portfolios, Inc. 15 74
Certain futures
contracts and certain listed options (referred to as Section 1256 contracts)
held by the Funds will be required to be “marked to market” for federal income
tax purposes at the end of a Fund’s taxable year, that is, treated as having
been sold at the fair market value on the last business day of a Fund’s taxable
year. Except with respect to certain non-U.S. currency forward contracts, sixty
percent of any gain or loss recognized on these deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and forty
percent will be treated as short-term capital gain or loss. Any net
mark-to-market gains may be subject to the Distribution Requirement referred to
above, even though a Fund may receive no corresponding cash amounts, possibly
requiring the disposition of portfolio securities or borrowing to obtain the
necessary cash.
Gains or losses
attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a non-U.S. currency and the time a Fund actually
collects such receivables or pays such liabilities are treated as ordinary
income or loss. Similarly, gains or losses on non-U.S. currency forward
contracts or dispositions of debt securities denominated in a non-U.S. currency
that are attributable to fluctuations in the value of the
non-U.S.
currency between the date of acquisition of the security or contract and the date of disposition thereof generally also are treated as ordinary income or loss. These gains or losses, referred to under the Code as “Section 988” gains or losses, increase or decrease the amount of a Fund’s investment company taxable income available to be distributed to its shareholders as ordinary income, rather than increasing or decreasing the amount of a Fund’s net capital gain. If Section 988 losses exceed other investment company taxable income during a taxable year, a Fund would not be able to make any ordinary dividend distributions from current earnings and profits, and distributions made before the losses were realized could be recharacterized as a return of capital to shareholders, rather than as an ordinary dividend, thereby reducing each shareholder’s basis in his or her Fund shares.
currency between the date of acquisition of the security or contract and the date of disposition thereof generally also are treated as ordinary income or loss. These gains or losses, referred to under the Code as “Section 988” gains or losses, increase or decrease the amount of a Fund’s investment company taxable income available to be distributed to its shareholders as ordinary income, rather than increasing or decreasing the amount of a Fund’s net capital gain. If Section 988 losses exceed other investment company taxable income during a taxable year, a Fund would not be able to make any ordinary dividend distributions from current earnings and profits, and distributions made before the losses were realized could be recharacterized as a return of capital to shareholders, rather than as an ordinary dividend, thereby reducing each shareholder’s basis in his or her Fund shares.
If a Fund holds
(directly or indirectly) one or more “tax credit bonds” (defined below) on one
or more specified dates during a Fund’s taxable year, and a Fund satisfies the
minimum distribution requirement, a Fund may elect for U.S. federal income tax
purposes to pass through to shareholders tax credits otherwise allowable to a
Fund for that year with respect to such bonds. A tax credit bond is defined in
the Code as a “qualified tax credit bond” (which includes a qualified forestry
conservation bond, a new clean renewable energy bond, a qualified energy
conservation bond, a qualified zone academy bond, or a qualified school
construction bond, each of which must meet certain requirements specified in the
Code), a “build America bond” or certain other specified bonds. If the Fund were
to make an election, a shareholder of a Fund would be required to include in
gross income an amount equal to such shareholder’s proportionate share of the
interest income attributable to such credits and would be entitled to claim as a
tax credit an amount equal to the shareholder’s proportionate share of such
credits. Certain limitations may apply on the extent to which the credit may be
claimed.
A Fund may make
investments in equity securities of non-U.S. issuers, subject to the
requirements of its investment restrictions. If a Fund purchases shares in
PFICs, a Fund may be subject to federal income tax on a portion of any “excess
distribution” from such non-U.S. corporation, including any gain from the
disposition of such shares, even if such income is distributed by a Fund to its
shareholders. In addition, certain interest charges may be imposed on a Fund as
a result of such distributions. If a Fund were to invest in an eligible PFIC and
elected to treat the PFIC as a qualified electing fund (a “QEF”), in lieu of the
foregoing requirements, a Fund would be required to include each year in its
income and distribute to shareholders in accordance with the Distribution
Requirement, a pro rata portion of the QEF’s ordinary earnings and net capital
gain, whether or not distributed by the QEF to a Fund. A Fund may not be able to
make this election with respect to many PFICs because of certain requirements
that the PFICs would have to satisfy.
Alternatively, a
Fund generally will be permitted to “mark to market” any shares it holds in a
PFIC. If a Fund made such an election, with such election being made separately
for each PFIC owned by a Fund, a Fund would be required to include in income
each year and distribute to shareholders in accordance with the Distribution
Requirement, an amount equal to the excess, if any, of the fair market value of
the PFIC stock as of the close of the taxable year over the adjusted basis of
such stock at that time. A Fund would be allowed a deduction for the excess, if
any, of the adjusted basis of the PFIC stock over its fair market value as of
the close of the taxable year, but only to the extent of any net mark-to-market
gains with respect to the stock included by a Fund for prior taxable years. A
Fund will make appropriate basis adjustments in the PFIC stock to take into
account the mark-to-market amounts.
Notwithstanding
any election made by a Fund, dividends attributable to distributions from a
non-U.S. corporation will not be eligible for the special tax rates applicable
to qualified dividend income if the non-U.S. corporation is a PFIC either in the
taxable year of the distribution or the preceding taxable year, but instead will
be taxable at rates applicable to ordinary income.
A Fund may invest
in REITs, subject to the requirements of its investment restrictions. A Fund’s
investments in REIT equity securities may require a Fund to accrue and
distribute income not yet received. In order to generate sufficient cash to make
the requisite distributions, a Fund may be required to sell securities in its
portfolio that it otherwise would have continued to hold (including when it is
not advantageous to do so). A Fund’s investments in REIT equity securities may
at other times result in a Fund’s receipt of cash in excess of the REIT’s
earnings; if a Fund distributes such amounts, such distribution could constitute
a return of capital to Fund shareholders for federal income tax purposes. In
addition, between 2018 and 2025, a direct REIT shareholder may claim a 20%
75
“qualified
business income” deduction for ordinary REIT dividends, and a RIC may pass
through to its shareholders the special character of this income. Ordinary
dividends received by the Fund from a REIT will generally not constitute
qualified dividend income, which would be eligible for tax at a reduced
rate.
Some of the REITs
in which the Funds may invest will be permitted to hold residual interests in
real estate mortgage investment conduits (“REMICs”). Under Treasury regulations
not yet issued, but that may apply retroactively, a portion of a Fund’s income
from a REIT that is attributable to the REIT’s residual interest in a REMIC
(referred to in the Code as an “excess inclusion”) will be subject to federal
income tax in all events. These regulations are expected to provide that excess
inclusion income of a regulated investment company, such as a Fund, will be
allocated to shareholders of the regulated investment company in proportion to
the dividends received by shareholders, with the same consequences as if
shareholders held the related REMIC residual interest directly.
In general, excess
inclusion income allocated to shareholders (i) cannot be offset by net operating
losses (subject to a limited exception for certain thrift institutions), (ii)
will constitute unrelated business taxable income to entities (including a
qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh
plan or other tax-exempt entity) subject to tax on unrelated business income,
thereby potentially requiring such an entity that is allocated excess inclusion
income, and that otherwise might not be required to file a tax return, to file a
tax return and pay tax on such income, and (iii) in the case of a non-U.S.
shareholder, will not qualify for any reduction in U.S. federal withholding
tax.
Under current law,
if a charitable remainder trust (defined in Section 664 of the Code) realizes
any unrelated business taxable income for a taxable year, it will be subject to
an excise tax equal to 100% of such unrelated business taxable income. In
addition, if at any time during any taxable year a “disqualified organization”
(as defined in the Code) is a record holder of a share in a regulated investment
company, then the regulated investment company will be subject to a tax equal to
that portion of its excess inclusion income for the taxable year that is
allocable to the disqualified organization, multiplied by the highest federal
income tax rate imposed on corporations. The Funds do not intend to invest
directly in residual interests in REMICs or to invest in REITs in which a
substantial portion of the assets will consist of residual interests in
REMICs.
FUND
DISTRIBUTIONS. Each Fund
anticipates distributing substantially all of its net investment income for each
taxable year. Dividends of net investment income paid to a non-corporate U.S.
shareholder that are reported as qualified dividend income will generally be
taxable to such shareholder at capital gain income tax rates. The amount of
dividend income that may be reported by a Fund as qualified dividend income will
generally be limited to the aggregate of the eligible dividends received by a
Fund. Dividends of net investment income that are not reported as qualified
dividend income or exempt-interest dividends and dividends of net short-term
capital gains will be taxable to shareholders at ordinary income rates.
Dividends paid by a Fund with respect to a taxable year will qualify for the
dividends received deduction generally available to corporations to the extent
of the amount of dividends received by a Fund from certain domestic corporations
for the taxable year. For tax years beginning after December 31, 2017 and before
January 1, 2026, a Fund may also report dividends eligible for a 20% “qualified
business income” deduction for non-corporate U.S. shareholders to the extent a
Fund’s income is derived from ordinary REIT dividends, reduced by allocable Fund
expenses. In order for a Fund’s dividends to be eligible for treatment as
qualified dividend income or for the dividends received deduction or qualified
business income deduction, a Fund must meet certain holding period requirements
with respect to the shares on which a Fund received the eligible dividends, and
the U.S. shareholder must meet certain holding period requirements with respect
to a Fund shares. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year,
including the portion of dividends paid that qualify for the reduced tax
rate.
Ordinarily,
shareholders are required to take taxable distributions by a Fund into account
in the year in which the distributions are made. However, for federal income tax
purposes, dividends that are declared by a Fund in October, November or December
as of a record date in such month and actually paid in January of the following
year will be treated as if they were paid on December 31 of the year declared.
Therefore, such dividends will generally be taxable to a shareholder in the year
declared rather than the year paid.
Dividends paid by
a Fund that are properly reported as exempt-interest dividends will not be
subject to regular federal income tax. Dividends paid by a Fund will be exempt
from federal income tax (though not necessarily exempt from state and local
taxation) to the extent of a Fund’s tax-exempt interest income as long as 50% or
more of the value of a Fund’s assets at the end of each quarter is invested in
(1) state, municipal and other bonds that are excluded from gross income for
federal income tax purposes or (2) interests in other regulated investment
companies, and, in each case, as long as a Fund properly reports such dividends
as exempt-interest dividends. Exempt-interest dividends from interest earned on
municipal securities of a state, or its political subdivisions, are generally
exempt from income tax in that state. However, income from municipal securities
from other states generally will not qualify for tax-free treatment.
Prudential
Investment Portfolios, Inc. 15 76
Interest on
indebtedness incurred by a shareholder to purchase or carry shares of a Fund
will not be deductible for U.S. federal income tax purposes to the extent it
relates to exempt-interest dividends received by a shareholder. If a shareholder
receives exempt-interest dividends with respect to any share of a Fund (other
than if a Fund declares income dividends daily and pays such dividends at least
as frequently as monthly) and if the share is held by the shareholder for six
months or less, then any loss on the sale or exchange of the share may, to the
extent of the exempt-interest dividends, be disallowed. In addition, the Code
may require a shareholder that receives exempt-interest dividends to treat as
taxable income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, a portion of any
exempt-interest dividend paid by a Fund that represents income derived from
certain revenue or private activity bonds held by a Fund may not retain its
tax-exempt status in the hands of a shareholder who is a “substantial user” of a
facility financed by such bonds, or a “related person” thereof. In addition, the
receipt of dividends and distributions from a Fund may affect a non-U.S.
corporate shareholder’s federal “branch profits” tax liability and the federal
“excess net passive income” tax liability of a shareholder of an S corporation.
Shareholders should consult their own tax advisers as to whether they are (i)
“substantial users” with respect to a facility or “related” to such users within
the meaning of the Code or (ii) subject to the federal “branch
profits”
tax,
or the federal “excess net passive income” tax.
A Fund may either
retain or distribute to shareholders its net capital gain (i.e., excess net
long-term capital gain over net short-term capital loss) for each taxable year.
Each Fund currently intends to distribute any such amounts. If net capital gain
is distributed and reported as a “capital gain dividend,” it will be taxable to
shareholders as long-term capital gain, regardless of the length of time the
shareholder has held its shares or whether such gain was recognized by a Fund
prior to the date on which the shareholder acquired its shares. Conversely, if a
Fund elects to retain its net capital gain, a Fund will be taxed thereon (except
to the extent of any available capital loss carryovers) at the 21% corporate tax
rate. In such a case, it is expected that a Fund also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of its pro rata share of such gain, with the result that
each shareholder will be required to report its pro rata share of such gain on
its tax return as long-term capital gain, will receive a refundable tax credit
for its pro rata share of tax paid by a Fund on the gain, and will increase the
tax basis for its shares by an amount equal to the deemed distribution less the
tax credit.
Distributions that
exceed a Fund’s current and accumulated earnings and profits will be treated as
a return of capital to the extent of (and in reduction of) the shareholder’s tax
basis in its shares; any distribution in excess of such tax basis will be
treated as gain from the sale of its shares, as discussed below. Distributions
in excess of a Fund’s minimum distribution requirements but not in excess of a
Fund’s earnings and profits will be taxable to shareholders and will not
constitute nontaxable returns of capital. In the event that a Fund were to
experience an ownership change as defined under the Code, a Fund’s loss
carryforwards, if any, may be subject to limitation.
Distributions will
be treated in the manner described above regardless of whether such
distributions are paid in cash or reinvested in additional shares of a Fund (or
of another fund). Shareholders receiving a distribution in the form of
additional shares will be treated as receiving a distribution in an amount equal
to the amount of cash that could have been received. In addition, prospective
investors in a Fund should be aware that distributions from a Fund will, all
other things being equal, have the effect of reducing the NAV of a Fund’s shares
by the amount of the distribution. If the NAV is reduced below a shareholder’s
cost, the distribution will nonetheless be taxable as described above, even if
the distribution effectively represents a return of invested capital. Investors
should consider the tax implications of buying shares just prior to a
distribution, when the price of shares may reflect the amount of the forthcoming
distribution.
SALE
OR REDEMPTION OF SHARES. A shareholder
will generally recognize gain or loss on the sale or redemption of shares in an
amount equal to the difference between the proceeds of the sale or redemption
and the shareholder’s adjusted tax basis in the shares. All or a portion of any
loss so recognized may be disallowed if the shareholder acquires other shares of
the Fund or substantially identical stock or securities within a period of 61
days beginning 30 days before such disposition, such as pursuant to reinvestment
of a dividend in shares of the Fund. Additionally, if a shareholder disposes of
shares of a Fund within 90 days following their acquisition, and the shareholder
subsequently re-acquires Fund shares (1) before January 31 of the calendar year
following the calendar year in which the original stock was disposed of, (2)
pursuant to a reinvestment right received upon the purchase of the original
shares and (3) at a reduced load charge (i.e., sales or additional charge), then
any load charge incurred upon the acquisition of the original shares will not be
taken into account as part of the shareholder’s basis for computing gain or loss
upon the sale of such shares, to the extent the original load charge does not
exceed any reduction of the load charge with respect to the acquisition of the
subsequent shares. To the extent the original load charge is not taken into
account on the disposition of the original shares, such charge shall be treated
as incurred in connection with the acquisition of the subsequent shares. In
general, any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long term capital gain or loss if the shares were held for more than one
year. However, any capital loss arising from the sale or redemption of shares
held for six months or less will be treated as a long-term capital loss to the
extent of the amount of long-term capital gain dividends received on (or
undistributed long-term capital gains credited with respect to) such
shares.
77
Capital gain of a
non-corporate U.S. shareholder is generally taxed at a federal income tax rate
of up to 15% or 20%, depending on whether the shareholder’s income exceeds
certain threshold amounts, which are adjusted annually for inflation. Capital
gain of a corporate shareholder is taxed at the same rate as ordinary
income.
Cost
Basis Reporting. Mutual funds
must report cost basis information to you and the IRS when you sell or exchange
shares acquired on or after January 1, 2012 in your non-retirement accounts. The
cost basis regulations do not affect retirement accounts, money market funds,
and shares acquired before January 1, 2012. The regulations also require mutual
funds to report whether a gain or loss is short-term (shares held one year or
less) or long-term (shares held more than one year) for all shares acquired on
or after January 1, 2012 that are subsequently sold or exchanged. To calculate
the gain or loss on shares sold, you need to know the cost basis of the shares.
Cost basis is the original value of an asset for tax purposes (usually the gross
purchase price), adjusted for stock splits, reinvested dividends, and return of
capital distributions. This value is used to determine the capital gain (or
loss), which is the difference between the cost basis of the shares and the
gross proceeds when the shares are sold. The Fund’s Transfer Agent supports
several different cost basis methods from which you may select a cost basis
method you believe best suited to your needs. If you decide to elect the
Transfer Agent’s default method, which is average cost, no action is required on
your part. For shares acquired on or after January 1, 2012, if you change your
cost basis method, the new method will apply to all shares in the account if you
request the change prior to the first redemption. If, however, you request the
change after the first redemption, the new method will apply to shares acquired
on or after the date of the change. Keep in mind that the Fund’s Transfer Agent
is not required to report cost basis information to you or the IRS on shares
acquired before January 1, 2012. However, the Transfer Agent will provide this
information to you, as a service, if its cost basis records are complete for
such shares. This information will be separately identified on the Form 1099-B
(Proceeds from Broker and Barter Exchange Transactions) sent to you by the
Transfer Agent and not transmitted to the IRS.
BACKUP
WITHHOLDING. A Fund will be
required in certain cases to withhold and remit to the U.S. Treasury 24% of all
dividends and capital gain dividends, and the proceeds of redemption of shares,
paid to any shareholder (1) who has provided the Fund with either an incorrect
tax identification number or no number at all, (2) who is subject to backup
withholding by the IRS for failure to report the receipt of interest or dividend
income properly or (3) who has failed to certify to the Fund that it is not
subject to backup withholding or that it is a corporation or other exempt
recipient. In addition, dividends and capital gain dividends made to corporate
United States holders may be subject to information reporting and backup
withholding. Backup withholding is not an additional tax and any amounts
withheld may be refunded or credited against a shareholder’s federal income tax
liability, provided the appropriate information is furnished to the
IRS.
If a shareholder
recognizes a loss with respect to a Fund’s shares of $2 million or more for an
individual shareholder or $10 million or more for a corporate shareholder, the
shareholder must file with the IRS a disclosure statement on Form 8886. Direct
shareholders of portfolio securities are in many cases exempted from this
reporting requirement, but under current guidance, shareholders of a regulated
investment company are not exempted. The fact that a loss is reportable under
these regulations does not affect the legal determination of whether the
taxpayer’s treatment of the loss is proper. Shareholders should consult their
tax advisers to determine the applicability of these regulations in light of
their individual circumstances.
MEDICARE
CONTRIBUTION TAX. A U.S. person that
is an individual or estate, or a trust that does not fall into a special class
of trusts that is exempt from such tax, is subject to a 3.8% tax on the lesser
of (1) the U.S. person’s “net investment income” for the relevant taxable year
and (2) the excess of the U.S. person’s modified adjusted gross income for the
taxable year over $200,000 (or $250,000 if married filing jointly). A Fund
shareholder’s net investment income will generally include, among other things,
dividend income from the Fund and net gains from the disposition of Fund shares,
unless such dividend income or net gains are derived in the ordinary course of
the conduct of a trade or business (other than a trade or business that consists
of certain passive or trading activities). If you are a U.S. person that is an
individual, estate or trust, you are urged to consult your tax advisers
regarding the applicability of the Medicare contribution tax to your income and
gains in respect of your investment in the Fund shares.
NON-U.S.
SHAREHOLDERS. Dividends paid to
a shareholder who, as to the United States, is a nonresident alien individual,
non-U.S. trust or estate, non-U.S. corporation, or non-U.S. partnership
(“non-U.S. shareholder”) will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) on the gross amount of the dividend. Such
a non-U.S. shareholder would generally be exempt from U.S. federal income tax,
including withholding tax, on gains realized on the sale of shares of a Fund,
net capital gain dividends, exempt-interest dividends, amounts retained by the
Fund that are reported as undistributed capital gains, and amounts reported by
the Fund as interest-related dividends or short-term capital gain
dividends.
The foregoing
applies when the non-U.S. shareholder’s income from a Fund is not effectively
connected with a U.S. trade or business. If the income from a Fund is
effectively connected with a U.S. trade or business carried on by a non-U.S.
shareholder, then ordinary income dividends, qualified dividend income, net
capital gain dividends, undistributed capital gains credited to such shareholder
and any gains realized upon the sale of shares of the Fund will be subject to
U.S. federal income tax at the graduated rates applicable to U.S. citizens or
domestic corporations.
Prudential
Investment Portfolios, Inc. 15 78
Distributions that
a Fund reports as “short-term capital gain dividends” or “net capital gain
dividends” will not be treated as such to a recipient non-U.S. shareholder if
the distribution is attributable to gain from the sale or exchange of U.S. real
property or an interest in a U.S. real property holding corporation (including a
REIT dividend attributable to such gain) and a Fund’s direct or indirect
interests in U.S. real property exceed certain levels. Instead, if the non-U.S.
shareholder has not owned more than 5% of the outstanding shares of a Fund at
any time during the one year period ending on the date of distribution, such
distributions will be subject to 30% withholding by a Fund and will be treated
as ordinary dividends to the non-U.S. shareholder; if the non-U.S. shareholder
owned more than 5% of the outstanding shares of a Fund at any time during the
one-year period ending on the date of the distribution, such distribution will
be treated as real property gain subject to 21% withholding tax and could
subject the non-U.S. shareholder to U.S. filing requirements. Additionally, if a
Fund’s direct or indirect interests in U.S. real property were to exceed certain
levels, a non-U.S. shareholder realizing gains upon redemption from a Fund could
be subject to the 21% withholding tax and U.S. filing requirements unless more
than 50% of a Fund’s shares were owned by U.S. persons at such time or unless
the non-U.S. person had not held more than 5% of a Fund’s outstanding shares
throughout either such person’s holding period for the redeemed shares or, if
shorter, the previous five years.
The rules laid out
in the previous paragraph, other than the withholding rules, will apply
notwithstanding a Fund’s participation in a wash sale transaction or its payment
of a substitute dividend.
The Fund may be
required to recognize a portion of its gain on the in-kind distribution of
certain U.S. real property interests if the Fund is domestically controlled
(meaning that more than 50% of the value of the Fund's shares is held by U.S.
shareholders).
In the case of
non-U.S. non-corporate shareholders, a Fund may be required to backup withhold
U.S. federal income tax on distributions that are otherwise exempt from
withholding tax unless such shareholders furnish the Fund with proper
notification of their non-U.S. status.
Separately, a 30%
withholding tax is currently imposed on U.S.-source dividends, interest and
other income items paid to (i) non-U.S. financial institutions including
non-U.S. investment funds unless they agree to collect and disclose to the IRS
information regarding their direct and indirect U.S. account holders and (ii)
certain other non-U.S. entities, unless they certify certain information
regarding their direct and indirect U.S. owners. To avoid withholding, non-U.S.
financial institutions will need to (i) enter into agreements with the IRS that
state that they will provide the IRS information, including the names, addresses
and taxpayer identification numbers of direct and indirect U.S. account holders,
comply with due diligence procedures with respect to the identification of U.S.
accounts, report to the IRS certain information with respect to U.S. accounts
maintained, agree to withhold tax on certain payments made to non-compliant
non-U.S. financial institutions or to account holders, or (ii) in the event that
an intergovernmental agreement and implementing legislation are adopted, provide
local revenue authorities with similar account holder information. Other
non-U.S. entities will need to either provide the name, address, and taxpayer
identification number of each substantial U.S. owner or certifications of no
substantial U.S. ownership unless certain exceptions apply.
The tax
consequences to a non-U.S. shareholder entitled to claim the benefits of an
applicable tax treaty may be different from those described herein. Non-U.S.
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund, the procedure
for claiming the benefit of a lower treaty rate and the applicability of
non-U.S. taxes.
NON-U.S.
TAXES. A Fund may be
subject to non-U.S. withholding taxes or other non-U.S. taxes with respect to
income (possibly including, in some cases, capital gain) received from sources
within non-U.S. countries. So long as more than 50% by value of the total assets
of the Fund (1) at the close of the taxable year, consists of stock or
securities of non-U.S. issuers, or (2) at the close of each quarter, consists of
interests in other regulated investment companies, the Fund may elect to treat
any non-U.S. income taxes paid by it as paid directly by its
shareholders.
If the Fund makes
the election, each shareholder will be required to (i) include in gross income,
even though not actually received, its pro rata share of the Fund’s non-U.S.
income taxes, and (ii) either deduct (in calculating U.S. taxable income) or
credit (in calculating U.S. federal income tax) its pro rata share of the Fund’s
income taxes. A non-U.S. tax credit may not exceed the U.S. federal income tax
otherwise payable with respect to the non-U.S. source income. For this purpose,
each shareholder must treat as non-U.S. source gross income (i) its
proportionate share of non-U.S. taxes paid by the Fund and (ii) the portion of
any actual dividend paid by the Fund which represents income derived from
non-U.S. sources; the gain from the sale of securities will generally be treated
as U.S. source income and certain non-U.S. currency gains and losses likewise
will be treated as derived from U.S. sources. This non-U.S. tax credit
limitation is, with certain exceptions, applied separately to separate
categories of income; dividends from the Fund will be treated as “passive” or
“general” income for this purpose. The effect of this limitation may be to
prevent shareholders from claiming as a credit the full amount of their pro rata
share of the Fund’s non-U.S. income taxes. In addition, shareholders will not be
eligible to claim a non-U.S. tax credit with respect to non-U.S. income taxes
paid by the Fund unless certain holding period requirements are met at both the
Fund and the shareholder levels. For purposes of foreign tax credits for U.S.
shareholders of the Fund, foreign capital gains taxes may not produce associated
foreign source income, limiting the availability of such credits for U.S.
persons.
79
A Fund will make
such an election only if it deems it to be in the best interest of its
shareholders. A shareholder not subject to U.S. tax may prefer that this
election not be made. The Fund will notify shareholders in writing each year if
it makes the election and of the amount of non-U.S. income taxes, if any, to be
passed through to the shareholders and the amount of non-U.S. taxes, if any, for
which shareholders of the Fund will not be eligible to claim a non-U.S. tax
credit because the holding period requirements (described above) have not been
satisfied.
Shares of a Fund
held by a non-U.S. shareholder at death will be considered situated within the
United States and subject to the U.S. estate tax.
STATE
AND LOCAL TAX MATTERS. Depending on the
residence of the shareholders for tax purposes, distributions may also be
subject to state and local taxes. Rules of state and local taxation regarding
qualified dividend income, ordinary income dividends and capital gains
distributions from regulated investment companies and other items may differ
from federal income tax rules. Shareholders are urged to consult their tax
advisers as to the consequences of these and other state and local tax rules
affecting investment in a Fund.
CAPITAL
LOSS CARRYFORWARDS.
PGIM High
Yield Fund. For
federal income tax purposes, the Fund had an approximated capital loss
carryforward, as shown in the table below, as of August 31, 2024 which can be
carried forward for an unlimited period. No capital gains distributions are
expected to be paid to shareholders until net gains have been realized in excess
of such losses.
|
Capital
Loss Carryforward |
Capital
Loss Carryforward Utilized |
|
$1,201,509,000 |
$— |
PGIM Short
Duration High Yield Income Fund. For federal income tax purposes,
the Fund had an approximated capital loss carryforward, as shown in the table
below, as of August 31, 2024 which can be carried forward for an unlimited
period. No capital gains distributions are expected to be paid to shareholders
until net gains have been realized in excess of such losses.
|
Capital
Loss Carryforward |
Capital
Loss Carryforward Utilized |
|
$333,977,000 |
$— |
DISCLOSURE
OF PORTFOLIO HOLDINGS
The Board of each
Fund in the PGIM Fund complex has adopted policies and procedures with respect
to the disclosure of portfolio securities owned by each Fund and to authorize
certain arrangements to make available information about portfolio holdings.
These policies and procedures are designed to ensure that disclosures of a
Fund’s portfolio holdings are made consistently with the antifraud provisions of
the federal securities laws and the fiduciary duties of each Fund and each
Funds' adviser. The policy is designed to ensure that disclosures of nonpublic
portfolio holdings to selected third parties are made only when the Fund has
legitimate business purposes for doing so and the recipients are subject to a
duty of confidentiality, including a duty not to trade on the nonpublic
information.
The Board has
authorized PGIM Investments, as the investment manager of each Fund, to
administer these policies and procedures and to enter into confidentiality
agreements on behalf of the Funds that provide that all information disclosed
shall be treated as confidential and that the recipient will not trade on the
nonpublic information. No material, non-public information, including but not
limited to portfolio holdings, may be disseminated to third parties except in
compliance with these policies and procedures.
The Custodian Bank
(Bank of New York Mellon) is authorized to facilitate, under the supervision of
PGIM Investments, the release of portfolio holdings.
Regulatory
Filings. Portfolio
holdings for each Fund will be made public at the time of quarterly public
regulatory filings via Forms N-CSR and/or N-PORT unless noted otherwise
herein.
Annual and
semi-annual reports for each Fund are filed with the SEC on Form N-CSR and
transmitted or made available to shareholders within 60 days after the end of
the second and fourth fiscal quarters. Annual and semi-annual shareholder
reports for a Fund may be accessed at the SEC’s website at www.sec.gov and at
the website for the PGIM Funds (www.pgim.com/investments).
Portfolio holdings
for each Fund are filed with the SEC on Form N-PORT. Form N-PORT is filed with
the SEC quarterly, and the Fund's full portfolio holdings as of its first and
third quarter ends of each fiscal quarter will be made publicly available 60
days after the end of each quarter on www.sec.gov.
Prudential
Investment Portfolios, Inc. 15 80
Public
Disclosures—Fund Holdings and Characteristics. Each Fund may
post on the PGIM Funds website a detailed list of its portfolio holdings and
characteristics derived from the portfolio holdings as of the end of each
calendar month approximately 15 days after the end of the month, unless noted
otherwise herein.
Any portfolio
holdings and characteristics information that is posted to the Fund’s website
and third-party databases but not contained in regulatory filings may be
distributed at or after posting to financial advisors, investment consultants,
broker-dealers, registered investment advisers, plan sponsors, shareholders,
plan participants, and third-party databases.
Public
Disclosures—Other Time Periods. Where a Fund has
recently commenced operations or adopted significant changes to its investment
policies (a “repositioning”), it may make available in the manner described
above the same portfolio holdings and characteristics information, but as of
other relevant period-ends besides month-end, with such information made
available and posted to the website approximately 15 days after the commencement
of the Fund’s operations or the date of the repositioning (“Effective Date”),
and any portfolio holdings or characteristics information may be distributed
after posting to financial advisors, investment consultants, broker-dealers,
registered investment advisers, plan sponsors, shareholders, plan participants,
and third-party databases. The Fund may release this information until the first
quarter-end or the first month-end following the Effective Date, as
applicable.
Other than as set
forth above, the release of holdings and characteristics information will
normally occur 15 days after the end of the month: the release of holdings and
characteristics information other than 15 days after the end of the month will
be determined based on procedures approved by the Chief Compliance Officer. In
addition, when authorized by the Chief Compliance Officer and another officer of
the PGIM Funds, portfolio holdings information may be publicly disseminated more
frequently or at different periods than as described above.
Public
Disclosures—Non-Specific Information. Each Fund and/or
PGIM Investments may publicly distribute non-specific information about the
Funds and/or summary information about the Funds at any time. Such information
will not identify any specific portfolio holding, but may reflect, among other
things, the quality or character of a Fund’s holdings.
Ongoing
Nonpublic Disclosure Arrangements. Each Fund has
entered into ongoing arrangements to make available nonpublic information about
its portfolio holdings, subject to the conditions, restrictions and requirements
set forth below. Parties receiving this information may include intermediaries
that distribute Fund shares, third-party providers of auditing, custody, proxy
voting and other services for the Funds, rating and ranking organizations, and
certain affiliated persons of each Fund, as described below. The procedures
utilized to determine eligibility are set forth below:
All requests from
third parties for portfolio holdings shall require the following
steps:
■
A request for
release of portfolio holdings shall be prepared setting forth a legitimate
business purpose for such release which shall specify the Fund(s), the terms of
such release, and frequency (e.g., level of detail, staleness). Such request
shall address whether there are any conflicts of interest between the Fund and
the investment adviser, subadviser, principal underwriter or any affiliated
person thereof and how such conflicts shall be dealt with to demonstrate that
the disclosure is in the best interest of the shareholders of the
Fund(s).
■
The request shall be forwarded to
PGIM Investments’ Product Management Group and to the Chief Compliance Officer
or their
delegate for review
and approval.
■
A confidentiality
agreement in the form approved by a Fund officer must be executed by the
recipient of the portfolio holdings.
■
A Fund officer
shall approve the release and the agreement. Copies of the release and agreement
shall be sent to PGIM Investments’ Law Department.
■
Written
notification of the approval shall be sent by such officer to PGIM Investments’
Fund Administration Group to arrange the release of portfolio
holdings.
■
PGIM Investments’
Fund Administration Group shall arrange the release by the Custodian
Bank.
Requests for
disclosure to PGIM Investments or its employees shall follow the procedures
noted above other than the execution of a confidentiality agreement.
Set forth below
are the authorized ongoing arrangements as of the date of this SAI:
1. Traditional
External Recipients/Vendors
■
Full holdings on a
daily basis to Institutional Shareholder Services (“ISS”), Broadridge and Glass,
Lewis & Co. (proxy voting administrator/agents) at the end of each
day;
■
Full holdings on a
daily basis to ISS (securities class action claims administrator) at the end of
each day;
81
■
Full holdings on a
daily basis to a Fund's subadviser(s), Custodian Bank, sub-custodian (if any)
and accounting agents (which includes the Custodian Bank and any other
accounting agent that may be appointed) at the end of each day. When a Fund has
more than one subadviser, each subadviser receives holdings information only
with respect to the “sleeve” or segment of the Fund for which the subadviser has
responsibility;
■
Full holdings to a
Fund's independent registered public accounting firm as soon as practicable
following the Fund's fiscal year-end or on an as-needed basis;
■
Full holdings to a
Fund’s counsel on an as-needed basis;
■
Full holdings to
counsel of a Fund’s independent board members on an as-needed basis;
■
Full holdings to
financial printers as soon as practicable following the end of a Fund's
quarterly, semi-annual and annual period-ends; and
■
Full holdings to a
Fund’s securities lending agent on a daily basis.
2. Analytical
Service Providers
■
Fund trades on a
quarterly basis to Abel/Noser Corp. (an agency-only broker and transaction cost
analysis company) as soon as practicable following the Fund's fiscal
quarter-end;
■
Full holdings on a
daily basis to FactSet Research Systems Inc. (investment research provider) at
the end of each day;
■
Full holdings on a
quarterly basis to Frank Russell Company (investment research provider) when
made available;
■
Full holdings on a
monthly basis to Fidelity Advisors (wrap program provider) approximately five
days after the end of each month (PGIM Jennison Growth Fund and certain other
selected PGIM Funds only);
■
Full holdings on a daily basis to
Bloomberg BVAL, ICE, S&P Global, London Stock Exchange Group
(LSEG) and J.P.
Morgan PricingDirect (securities valuation);
■
Full holdings on a
monthly basis to FX Transparency (foreign exchange/transaction analysis) when
made available;
■
Full holdings on a daily basis to
ICE/Innocap
(liquidity
calculations); and
■
Full holdings to
Innocap (VaR calculations) on a daily basis (for funds that are full derivatives
users pursuant to Rule 18f-4 under the 1940 Act).
■
Full holdings on a quarterly basis
to CAPIS (commission Recapture calculations) when made available.
In each case, the
information disclosed must be for a legitimate business purpose and is subject
to a confidentiality agreement intended to prohibit the recipient from trading
on or further disseminating such information (except for legitimate business
purposes).
In addition,
certain authorized employees of PGIM Investments receive portfolio holdings
information on a quarterly, monthly or daily basis or upon request, in order to
perform their business functions. All PGIM Investments employees are subject to
the requirements of the personal securities trading policy of Prudential, which
prohibits employees from trading on or further disseminating confidential
information, including portfolio holdings information.
Also, affiliated
shareholders may, subject to execution of a non-disclosure agreement, receive
current portfolio holdings for the sole purpose of enabling a Fund to effect the
payment of the redemption price to such shareholder 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 the rules of the SEC and procedures adopted by
the Board. For more information regarding the payment of the redemption price by
a distribution in kind of securities from the investment portfolio of the Fund,
see “Purchase, Redemption and Pricing of Fund Shares—Redemption in Kind” in the
SAI.
In addition, the
Fund provides an industry trade group, subject to a confidentiality agreement,
with data from the Fund's N-PORT filing with the SEC on a quarterly basis. Such
data is aggregated with other industry participants and made anonymous for the
purposes of research strictly for public policy and advocacy efforts for
investment companies, the markets and investors.
PGIM Investments’
Law and Compliance Departments shall review the arrangements with each recipient
on an annual basis. The Board shall, on a quarterly basis be advised of any
revisions to the list of recipients of portfolio holdings and the reason for
such disclosure. These policies and procedures will be reviewed for adequacy and
effectiveness in connection with the Funds' compliance program under Rule 38a-1
under the 1940 Act.
A listing of the
parties who will receive portfolio holdings pursuant to these procedures is
maintained by PGIM Investments Compliance.
There can be no
assurance that the policies and procedures on portfolio holdings information
will protect a Fund from the potential misuse of such information by individuals
or entities that come into possession of the information.
Prudential
Investment Portfolios, Inc. 15 82
PROXY
VOTING
The Board has
delegated to the Manager the responsibility for voting any proxies and
maintaining proxy recordkeeping with respect to the Funds. The Manager is
authorized by the Funds to delegate, in whole or in part, their proxy voting
authority to the subadviser(s) or third party vendors consistent with the
policies set forth below. The proxy voting process shall remain subject to the
supervision of the Board, including any committee thereof established for that
purpose.
The Manager and
the Board view the proxy voting process as a component of the investment process
and, as such, seek to ensure that all proxy proposals are voted with the primary
goal of seeking the optimal benefit for the Funds. Consistent with this goal,
the Board views the proxy voting process as a means to encourage strong
corporate governance practices and ethical conduct by corporate management. The
Manager and the Board maintain a policy of seeking to protect the best interests
of the Funds should a proxy issue potentially implicate a conflict of interest
between the Funds and the Manager or its affiliates.
The Manager
delegates to the Funds' subadviser(s) the responsibility for voting proxies. The
subadviser is expected to identify and seek to obtain the optimal benefit for
the Funds, and to adopt written policies that meet certain minimum standards,
including that the policies be reasonably designed to protect the best interests
of the Funds and delineate procedures to be followed when a proxy vote presents
a conflict between the interests of the Funds and the interests of the
subadviser or its affiliates. The Manager and the Board expect that the
subadviser will notify the Manager and Board at least annually of any such
conflicts identified and confirm how the issue was resolved. In addition, the
Manager expects that the subadviser will deliver to the Manager, or its
appointed vendor, information required for filing the Form N-PX with the SEC.
Information regarding how the Funds voted proxies relating to their portfolio
securities during the most recent twelve-month period ending June 30 is
available without charge on the Funds' website at www.pgim.com/investments and
on the SEC's website at www.sec.gov.
A summary of the
proxy voting policies of the subadviser(s) is set forth in its respective
Appendix to this SAI.
CODES
OF ETHICS
The Board has
adopted a Code of Ethics. In addition, the Manager, subadviser(s) and
Distributor have each adopted a Code of Ethics. The Codes of Ethics apply to
access persons (generally, persons who have access to information about the
Funds' investment program) and permit personnel subject to the Codes of Ethics
to invest in securities, including securities that may be purchased or held by
the Funds. However, the protective provisions of the Codes of Ethics prohibit
certain investments and limit such personnel from making investments during
periods when the Funds are making such investments. The Codes of Ethics are on
public file with, and are available from, the SEC.
APPENDIX
I: PROXY VOTING POLICIES OF THE SUBADVISER
PGIM,
INC.
The policy of each
of PGIM’s asset management units is to vote proxies in the best interests of
their respective clients based on the clients’ priorities. Client interests are
placed ahead of any potential interest of PGIM or its asset management
units.
Because the
various asset management units manage distinct classes of assets with differing
management styles, some units will consider each proxy on its individual merits
while other units may adopt a pre‐determined set of voting guidelines. The
specific voting approach of each unit is noted below.
Relevant members
of management and regulatory personnel oversee the proxy voting process and
monitor potential conflicts of interest. In addition, should the need arise,
senior members of management, as advised by Compliance and Law, are authorized
to address any proxy matter involving an actual or apparent conflict of interest
that cannot be resolved at the level of an individual asset management business
unit.
VOTING
APPROACH OF PGIM ASSET MANAGEMENT UNITS
PGIM Fixed
Income. PGIM Fixed
Income is a business unit of PGIM. PGIM Fixed Income’s policy is to vote proxies
in the best interests of its clients. In the case of pooled accounts, the policy
is to vote proxies in the best interests of the pooled account. The proxy voting
policy contains detailed voting guidelines on a wide variety of issues commonly
voted upon by shareholders. These guidelines reflect PGIM Fixed Income’s
judgment of how to further the best interests of its clients through the
shareholder or debt-holder voting process.
PGIM Fixed Income
invests primarily in debt securities, thus there are few traditional proxies
voted by it. PGIM Fixed Income generally votes with management on routine
matters such as the appointment of accountants or the election of directors.
From time to time, ballot issues arise that are not addressed by the policy or
circumstances may suggest a vote not in accordance with the established
guidelines. In these cases, voting decisions are made on a case-by-case basis by
the applicable portfolio manager taking into consideration the
83
potential economic
impact of the proposal. Not all ballots are received by PGIM Fixed Income in
advance of voting deadlines, but when ballots are received in a timely fashion,
PGIM Fixed Income strives to meet its voting obligations. It cannot, however,
guarantee that every proxy will be voted prior to its deadline.
With respect to non-U.S. holdings,
PGIM Fixed Income takes into account additional restrictions in some countries
that might impair its ability to trade those securities or have other
potentially adverse economic consequences. PGIM Fixed Income generally votes
non-U.S. securities on a best efforts basis if it determines that voting is in
the best interests of its clients.
Occasionally, a conflict of
interest may arise in connection with proxy voting. For example, the issuer of
the securities being voted may also be a client of PGIM Fixed Income. When PGIM
Fixed Income identifies an actual or potential material conflict of interest
between the firm and its clients with respect to proxy voting, the matter is
presented to senior management who will resolve such issue in consultation with
the compliance and legal departments. Proxy voting is reviewed by the trade
management oversight
committee.
Any client may obtain a copy of
PGIM Fixed Income’s proxy voting policy, guidelines and procedures, as well as
the proxy voting records for that client’s securities, by contacting the account
management representative responsible for the client’s account.
PGIM
Real Estate. PGIM Real Estate
is a business unit of PGIM. PGIM Real Estate's proxy voting policy contains
detailed voting guidelines on a wide variety of issues commonly voted upon by
shareholders. These guidelines reflect PGIM Real Estate's judgment of how to
further the best long-range economic interest of our clients (i.e., the mutual
interest of clients in seeing the appreciation in value of a common investment
over time) through the shareholder voting process. PGIM Real Estate’s policy is
generally to vote proxies on social or political issues on a case by case basis.
Additionally, where issues are not addressed by our policy, or when
circumstances suggest a vote not in accordance with our established guidelines,
voting decisions are made on a case-by-case basis taking into consideration the
potential economic impact of the proposal. With respect to international
holdings, we take into account additional restrictions in some countries that
might impair our ability to trade those securities or have other potentially
adverse economic consequences, and generally vote foreign securities on a best
efforts basis in accordance with the recommendations of the issuer's management
if we determine that voting is in the best economic interest of our
clients.
PGIM Real Estate
utilizes the services of a third party proxy voting facilitator, and upon
receipt of proxies will direct the voting facilitator to vote in a manner
consistent with PGIM Real Estate's established proxy voting guidelines described
above (assuming timely receipt of proxy materials from issuers and custodians).
In accordance with its obligations under the Advisers Act, PGIM Real Estate
provides full disclosure of its proxy voting policy, guidelines and procedures
to its clients upon their request, and will also provide to any client, upon
request, the proxy voting records for that client's securities.
Prudential
Investment Portfolios, Inc. 15 84
APPENDIX
II: DESCRIPTIONS OF SECURITY RATINGS
MOODY’S
INVESTORS SERVICE, INC. (“MOODY’S”)
Global Long
Term Ratings
Aaa: Obligations rated
Aaa are judged to be of the highest quality, subject to the lowest level of
credit risk.
Aa: Obligations rated
Aa are judged to be of high quality and are subject to very low credit
risk.
A: Obligations rated
A are judged to be upper-medium grade and are subject to low credit
risk.
Baa: Obligations rated
Baa are judged to be medium-grade and subject to moderate credit risk and as
such may possess certain speculative characteristics.
Ba: Obligations rated
Ba are judged to be speculative and are subject to substantial credit
risk.
B: Obligations rated
B are considered speculative and are subject to high credit risk.
Caa: Obligations rated
Caa are judged to be speculative of poor standing and are subject to very high
credit risk.
Ca: Obligations rated
Ca are highly speculative and are likely in, or very near, default, with some
prospect of recovery of principal and interest.
C: Obligations rated
C are the lowest rated and are typically in default, with little prospect for
recovery of principal or interest.
Note: Moody’s appends numerical
modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa.
The modifier 1 indicates that the obligation ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of that generic rating category.
Additionally, a ‘(hyb)’ indicator is appended to all ratings of hybrid
securities issued by banks, insurers, finance companies, and securities
firms.*
*By their terms, hybrid securities
allow for the omission of scheduled dividends, interest, or principal payments,
which can potentially result in impairment if such an omission occurs. Hybrid
securities may also be subject to contractually allowable write-downs of
principal that could result in impairment. Together with the hybrid security
indicator, the long-term obligation rating assigned to a hybrid security is an
expression of the relative credit risk associated with that
security.
Global
Short-Term Ratings
P-1:
Ratings
of Prime-1 reflect a
superior ability to repay short-term debt obligations.
P-2:
Ratings
of Prime-2 reflect a
strong ability to repay short-term debt obligations.
P-3:
Ratings
of Prime-3 reflect an
acceptable ability to repay short-term obligations.
NP: Issuers (or
supporting institutions) rated Not Prime do not fall within any of the Prime
rating categories.
Short-Term
Municipal Ratings
MIG
1: This designation
denotes superior credit quality. Excellent protection is afforded by established
cash flows, highly reliable liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG
2: This designation
denotes strong credit quality. Margins of protection are ample, although not as
large as in the preceding group.
MIG
3: This designation
denotes acceptable credit quality. Liquidity and cash-flow protection may be
narrow, and market access for refinancing is likely to be less
well-established.
SG:
This
designation denotes speculative-grade credit quality. Debt instruments in this
category may lack sufficient margins of protection.
S&P Global
Ratings (“S&P”)
Long-Term Issue Credit Ratings*
Long-Term Issue Credit Ratings*
85
AAA:
An obligation rated
‘AAA’ has the highest rating assigned by S&P. The obligor’s capacity to meet
its financial commitments on the obligation is extremely strong.
AA:
An obligation rated
‘AA’ differs from the highest rated obligations only to a small degree. The
obligor’s capacity to meet its financial commitments on the obligation is very
strong.
A: An obligation rated ‘A’ is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher-rated categories. However, the
obligor’s capacity to meet its financial commitments on the obligation is still
strong.
BBB:
An obligation rated
‘BBB’ exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to weaken the obligor’s
capacity to meet its financial commitments on the obligation.
BB, B, CCC, CC,
and C:
Obligations rated
‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’
are regarded as
having significant speculative characteristics. ‘BB’
indicates the least
degree of speculation and ‘C’ the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposure to adverse conditions.
BB:
An obligation rated
‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it
faces major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor’s inadequate capacity to
meet its financial commitments on the obligation.
B: An obligation rated ‘B’ is more
vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently
has the capacity to meet its financial commitments on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor’s
capacity or willingness to meet its financial commitments on the
obligation.
CCC:
An obligation rated
CCC is currently vulnerable to nonpayment, and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitments on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitments on the obligation.
CC:
An obligation rated
‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when
a default has not yet occurred but S&P expects default to be a virtual
certainty, regardless of the anticipated time to default.
C: An obligation rated
‘C’
is currently highly
vulnerable to nonpayment,
and the obligation is
expected to have lower relative seniority or lower ultimate recovery
compared
with obligations that
are rated
higher.
D: An obligation rated 'D' is in
default or in breach of an imputed promise. For non-hybrid capital instruments,
the 'D' rating category is used when payments on an obligation are not made on
the date due, unless S&P believes that such payments will be made within the
next five business days in the absence of a stated grace period or within the
earlier of the stated grace period or the next 30 calendar days. The 'D' rating
also will be used upon the filing of a bankruptcy petition or the taking of
similar action and where default on an obligation is a virtual certainty, for
example due to automatic stay provisions. A rating on an obligation is lowered
to 'D' if it is subject to a distressed debt
restructuring.
*Ratings
from
‘AA’
to
‘CCC’ may be modified
by the addition of a plus (+) or minus (-) sign to show relative standing within
the rating categories.
Short-Term
Issue Credit Ratings
A-1:
A short-term
obligation rated 'A-1' is rated in the highest category by S&P. The
obligor's capacity to meet its financial commitments on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitments on these obligations is extremely strong.
A-2:
A
short-term obligation rated 'A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitments on the obligation is satisfactory.
A-3:
A
short-term obligation rated 'A-3' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to weaken an obligor's capacity to meet its financial commitments on the
obligation.
Prudential
Investment Portfolios, Inc. 15 86
B:
A
short-term obligation rated 'B' is regarded as vulnerable and has significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitments; however, it faces major ongoing uncertainties that could
lead to the obligor's inadequate capacity to meet its financial
commitments.
C:
A
short-term obligation rated 'C' is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation.
D: A short-term obligation rated 'D'
is in default or in breach of an imputed promise. For non-hybrid capital
instruments, the 'D' rating category is used when payments on an obligation are
not made on the date due, unless S&P believes that such payments will be
made within any stated grace period. However, any stated grace period longer
than five business days will be treated as five business days. The 'D' rating
also will be used upon the filing of a bankruptcy petition or the taking of a
similar action and where default on an obligation is a virtual certainty, for
example due to automatic stay provisions. A rating on an obligation is lowered
to 'D' if it is subject to a distressed debt
restructuring.
Municipal
Short-Term Note Ratings
An S&P U.S.
municipal note rating
reflects S&P’s opinion about the liquidity factors and market access risks
unique to the notes. Notes due in three years or less will likely receive a note
rating. Notes with an original maturity of more than three years will most
likely receive a long-term debt rating. In determining the type of rating if
any, to assign, S&P’s analysis will review the following
considerations.
■ Amortization schedule-the larger
the final maturity relative to other maturities, the more likely it will be
treated as a note;
and
■ Source of
payment-the more dependent the issue is on the market for its refinancing, the
more likely it will be treated as a note.
Note rating
symbols are as follows:
SP-1:
Strong capacity to
pay principal and interest. An issue determined to possess a very strong
capacity to pay debt service is given a plus (+) designation.
SP-2:
Satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
SP-3:
Speculative
capacity to pay principal and interest.
D:
‘D’ is assigned upon
failure to pay the note when due, completion of a distressed debt restructuring,
or the filing of a bankruptcy petition or the taking of similar action and where
default on an obligation is a virtual certainty, for example due to automatic
stay provisions.
FITCH RATINGS
LTD. (“Fitch”)
Issuer Default
Ratings
AAA:
Highest Credit
Quality. ‘AAA’ ratings denote the lowest expectation of default risk. They are
assigned only in cases of exceptionally strong capacity for payment of financial
commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events.
AA:
Very High Credit
Quality. ‘AA’ ratings denote expectations of very low default risk. They
indicate very strong capacity for payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
A: High Credit Quality. ‘A’ ratings
denote expectations of low default risk. The capacity for payment of financial
commitments is considered strong. This capacity may, nevertheless, be more
vulnerable to adverse business or economic conditions than is the case for
higher ratings.
BBB:
Good Credit Quality.
‘BBB’ ratings indicate that expectations of default risk are currently low. The
capacity for payment of financial commitments is considered adequate, but
adverse business or economic conditions are more likely to impair this
capacity.
BB:
Speculative. ‘BB’
ratings indicate an elevated vulnerability to default risk, particularly in the
event of adverse changes in business or economic conditions over time; however,
business or financial flexibility exists that supports the servicing of
financial
commitments.
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B: Highly Speculative. ‘B’ ratings
indicate that material default risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is vulnerable to deterioration in the business and
economic
environment.
CCC:
Substantial Credit
Risk.
Very low margin for
safety.
Default is a
real
possibility.
CC:
Very High Levels of
Credit Risk. Default of some kind appears
probable.
C: Near Default. A default or
default-like process has begun, or for a closed funding vehicle, payment
capacity is irrevocably impaired. Conditions that are indicative of a ‘C’
category rating for an issuer
include:
■
The issuer has entered into a
grace or cure period following non-payment of a material financial
obligation;
■
The formal announcement by the
issuer or their agent of a distressed debt exchange; and
■
A closed financing vehicle where
payment capacity is irrevocably impaired such that it is not expected to pay
interest and/or principal in full during the life of the transaction, but where
no payment default is imminent.
RD:
Restricted default.
‘RD’ ratings indicate an issuer that in Fitch’s opinion has
experienced:
■
An uncured payment default or
distressed debt exchange on a bond, loan or other material financial obligation,
but
■
Has not entered into bankruptcy
filings, administration, receivership, liquidation, or other formal winding-up
procedure, and
■
Has not otherwise ceased
operating.
This would include:
-
The selective payment default on a
specific class or currency of debt;
-
The uncured expiry of any
applicable original grace period, cure period or default forbearance period
following a payment default on a bank loan, capital markets security or other
material financial obligation.
D: Default. ‘D’ ratings indicate an
issuer that in Fitch’s opinion has entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up procedure,
or that has otherwise ceased business and debt is still outstanding.
Default ratings are not assigned
prospectively to entities or their obligations; within this context, non-payment
on an instrument that contains a deferral feature or grace period will generally
not be considered a default until after the expiration of the deferral or grace
period, unless a default is otherwise driven by bankruptcy or other similar
circumstance, or by a distressed debt exchange.
In all cases, the assignment of a
default rating reflects the agency’s opinion as to the most appropriate rating
category consistent with the rest of its universe of ratings and may differ from
the definition of default under the terms of an issuer’s financial obligations
or local commercial practice.
Prudential
Investment Portfolios, Inc. 15 88
Short-Term
Ratings Assigned to Issuers and Obligations
F1:
Highest Short-Term
Credit Quality. Indicates the strongest intrinsic capacity for timely payment of
financial commitments; may have an added “+” to denote any exceptionally strong
credit feature.
F2:
Good
Short-Term Credit Quality. Good intrinsic capacity for timely payment of
financial commitments.
F3:
Fair
Short-Term Credit Quality. The intrinsic capacity for timely payment of
financial commitments is adequate.
B:
Speculative
Short-Term Credit Quality. Minimal capacity for timely payment of financial
commitments, plus heightened vulnerability to near term adverse changes in
financial and economic conditions.
C:
High
Short-Term Default Risk. Default is a real possibility.
RD:
Restricted Default.
Indicates an entity that has defaulted on one or more of its financial
commitments, although it continues to meet other financial obligations.
Typically applicable to entity ratings only.
D: Default. Indicates a broad based
default event for an entity, or the default of a short-term
obligation.
Within
rating
categories,
Fitch may use
modifiers.
The modifiers “+” or
“-” may be appended to a rating to denote relative status within major rating
categories. For example, the rating category ‘AA’ has three notch-specific
rating levels (‘AA+’;
‘AA’;
‘AA-‘; each a rating
level). Such suffixes are not added to ‘AAA’ ratings and ratings below the ‘CCC’
category. For the short-term rating category of ‘F1’, a “+”
may be
appended.
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