Form 486BPOS PGIM Credit Income Fund
Tweet
Share
E-mailAs filed with the Securities and Exchange Commission on April 27, 2026
Securities Act File No. 333-274044
Investment Company Act File No. 811-23894
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X )
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 2 (X )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X )
AMENDMENT NO. 5 (X )
Check appropriate box or boxes
(Exact Name of Registrant as Specified in Charter)
(Address of Principal Executive Offices)
(Registrant’s Telephone Number, Including Area Code):
(973 ) 802-5032
PGIM Investments LLC
(Name and Address of Agent for Service)
With Copies to:
Benjamin C. Wells, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 | Jacqueline Edwards, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 | Ryan P. Brizek, Esq. Simpson Thacher & Bartlett LLP 900 G Street, N.W. Washington, D.C. 20001 |
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this
Registration Statement.
reinvestment plans.
Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in
reliance on Rule 415 under the Securities Act of 1933 (
“
Securities Act
”
), other than securities offered in
connection with a dividend reinvestment plan.
amendment thereto.
amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the
Securities Act.
Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the
Securities Act.
It is proposed that this filing will become effective (check appropriate box):
on April 30, 2026 pursuant to paragraph (b) of Rule 486.
If appropriate, check the following box:
registration statement.
Act, and the Securities Act registration statement number of the earlier effective registration statement for the same
offering is:
Securities Act registration statement number of the earlier effective registration statement for the same offering is:
Securities Act registration statement number of the earlier effective registration statement for the same offering is:
Check each box that appropriately characterizes the Registrant:
Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940
(
“
Investment Company Act
”
)).
development company under the Investment Company Act).
Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic
repurchase offers under Rule 23c-3 under the Investment Company Act).
Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act).
“
Exchange
Act
”
)).
__ If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 7(a)(2)(B) of Securities Act.
preceding this filing).
PGIM CREDIT INCOME FUND
CLASS Z COMMON SHARES (PGIWX)
CLASS A COMMON SHARES (PGIZX)
CLASS C COMMON SHARES (PGAJX)
The Fund.
PGIM Credit Income Fund, a Delaware statutory trust (the
“
Fund
”
), is a diversified, closed-end management
investment company registered under the Investment Company Act of 1940, as amended (the
“
Investment Company Act
”
)
that continuously offers its common shares of beneficial interest, par value $0.001 per share (
“
Common Shares
”
), and is
operated as an
“
interval fund.
”
PGIM Investments LLC (the
“
Manager
”
or
“
PGIM Investments
”
) serves as the investment manager to the Fund and has
engaged its affiliates, PGIM, Inc. (
“
PGIM
”
), together with PGIM Limited (together with PGIM, the
“
Subadvisers
”
), an
indirect wholly-owned subsidiary of PGIM, to serve as subadvisers to provide day-to-day management of the Fund’s
portfolio, primarily through the PGIM Credit investment group (
“
PGIM Credit
”
). PGIM Credit is the public and private fixed
income investment group within PGIM. PGIM Credit consists of two investment sub-groups, PGIM Fixed Income, a
manager of public and private fixed income investments, and PGIM Private Credit (formerly, PGIM Private Capital)
(
“
PPC
”
), a manager of private fixed income investments.
Investment Objective.
The Fund’s investment objective is to seek total return, through a combination of current income and
capital appreciation.
Investment Strategies.
The Fund seeks to achieve its investment objective by investing, under normal circumstances,
across a wide array of credit markets, including corporate, mortgage, consumer and municipal credit markets, and
employing a flexible asset allocation strategy among multiple public and private credit sectors in the global credit markets,
including but not limited to corporate debt (including, among other things, fixed-, variable- and floating-rate bonds and
loans issued by U.S. or foreign (non-U.S.) corporations or other business entities); mortgage-related and other
consumer-related instruments; collateralized debt obligations, including, but not limited to, collateralized loan obligations;
municipal bonds; and other fixed-, variable- and floating-rate income-producing securities of U.S. and foreign issuers
(including developed and emerging market issuers). The Fund may invest in any sector, market or region without limit,
subject to compliance with applicable law. The Fund has flexibility to actively adjust allocations over time while adapting to
the market and economic environment without any explicit duration target or liquidity limitations. The Fund may invest
without limit in both investment grade debt securities and in below investment grade debt securities (which are commonly
referred to as
“
high yield
”
securities or
“
junk bonds
”
), including securities of stressed, distressed and defaulted issuers.
Interval Fund/Repurchases.
The Fund is an
“
interval fund,
”
a type of fund which, in order to provide liquidity to
shareholders, has adopted a fundamental investment policy to make quarterly offers to repurchase between 5% and 25%
of its outstanding Common Shares at net asset value. Subject to applicable law and approval of the Fund’s Board of
Trustees (the
“
Board
”
), for each quarterly repurchase offer, the Fund currently expects to offer to repurchase 5% of the
Fund’s outstanding Common Shares on the repurchase request deadline at the net asset value per Common Share as of
the repurchase pricing date. Written notification of each quarterly repurchase offer (the
“
Repurchase Offer Notice
”
) will be
sent to shareholders at least 21 days before the repurchase request deadline (i.e., the date by which shareholders can
tender their Common Shares in response to a repurchase offer) (the
“
Repurchase Request Deadline
”
). The date on which
the repurchase price for Common Shares is determined shall occur no later than the 14th day after the Repurchase
Request Deadline (or the next business day, if the 14th day is not a business day). See
“
Periodic Repurchase Offers
”
and
“
Risks — Repurchase Offers Risk
”
for additional information regarding repurchase offers and related risks.
Securities Offered.
The Fund currently offers three classes of its Common Shares, on a continuous basis, designated as
Class Z (
“
Class Z Shares
”
), Class A (
“
Class A Shares
”
) and Class C (
“
Class C Shares
”
). The Fund may offer additional
classes of its Common Shares in the future.
No Secondary Market.
■
The Common Shares have no history of public trading, nor is it currently intended that the Common Shares will be listed on any public
exchange or any other trading market in the near future.
■
No organized secondary market is expected to develop for the Common Shares.
■
Even though the Fund will make quarterly repurchase offers for its outstanding Common Shares (currently intended to be limited to 5% of
its outstanding Common Shares per quarter), investors should consider Common Shares of the Fund to be an illiquid investment.
■
There is no guarantee that you will be able to sell your Common Shares at any given time or in the quantity that you desire.
■
There is no assurance that the Fund will be able to maintain a certain level of, or at any particular time make any, distributions to
shareholders.
■
An investment in the Fund may not be suitable for investors who may need the money they invest in a specified timeframe.
■
We cannot guarantee that we will make distributions, and if we do we may fund such distributions from sources other than cash flow
from operations, including the sale of assets, borrowings or return of capital, and although we generally expect to fund distributions from
cash flow from operations, we have not established limits on the amounts we may pay from such sources.
■
Distributions may also be funded in significant part, directly or indirectly, from temporary waivers or expense reimbursements borne by
the Manager or its affiliates, that may be subject to reimbursement to the Manager or its affiliates. The repayment of any amounts owed
to our affiliates will reduce future distributions to which you would otherwise be entitled.
■
Such distributions may constitute return of capital and also reduce an investor’s adjusted tax basis in the Common Shares, thereby
increasing the investor’s potential taxable gain or reducing the potential taxable loss on the sale of Common Shares. Any capital returned
to holders of Common Shares through distributions will be distributed after payment of fees and expenses.
■
The Fund invests in floating rate loans of private companies for which very little public information exists. Such companies are also
generally more vulnerable to economic downturns and may experience substantial variations in operating results.
Sales Load.
■
An investor in Class A Shares will pay a sales load of up to 2.50% on the amounts it invests. If you pay the maximum aggregate 2.50%
sales load, you must experience a total return on your net investment of 2.56% in order to recover such sales charges.
Investing in the Common Shares involves certain risks. See
“
Risks
”
beginning on page
39
of this prospectus.
Offering Price (1) | Maximum Sales Load | Proceeds to Fund (1) | |
Class Z Common Shares, par value $0.001 per share | Current NAV | — | Amount Invested at NAV |
Class A Common Shares, par value $0.001 per share | Current NAV, plus sales load of up to 2.50%, if applicable | 2.50% | Amount Invested at NAV less sales load |
Class C Common Shares, par value $0.001 per share | Current NAV | — | Amount Invested at NAV |
(1)
Class Z Common Shares and Class C Common Shares are offered on a continuous basis at an offering price equal to the then-current net asset value (
“
NAV
”
) per share of the
applicable class. Class A Common Shares are offered on a continuous basis at an offering price equal to the then-current NAV per share of the applicable class plus the
applicable sales load, as described in this prospectus. While neither the Fund nor the distributor of the Fund imposes a sales load on Class Z or Class C Common Shares, if you
buy Class Z or Class C Common Shares through certain brokers or dealers (
“
Selling Agents
”
) or other financial intermediaries, they may directly charge you a transaction fee in
such amount as they may determine. Any such fees will be in addition to your investment in the Fund and not deducted therefrom. Investors should consult with their Selling
Agents or other financial intermediaries about any transaction or other fees their Selling Agents or other financial intermediaries might impose on each class of shares. See
“
Plan
of Distribution.
”
Neither the Securities and Exchange Commission (the
“
SEC
”
) nor any state securities commission has approved or
disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Prospectus dated April 30, 2026.
Leverage.
The Fund currently expects to utilize leverage through reverse repurchase agreements and may also obtain
leverage through credit default swaps, dollar rolls, and through borrowings, such as bank loans or commercial paper
and/or other credit facilities. The Fund may also enter into transactions other than those noted above that may give rise to
a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts),
credit default swaps, total return swaps and other derivative transactions. The Fund’s Board of Trustees may authorize the
issuance of preferred shares without the approval of holders of Common Shares (
“
Common Shareholders
”
). If the Fund
issues preferred shares in the future, all costs and expenses relating to the issuance and ongoing maintenance of the
preferred shares will be borne by the Common Shareholders, and these costs and expenses may be significant. The Fund
utilizes reverse repurchase agreements, dollar rolls, borrowings and other forms of leverage opportunistically and may
choose to increase or decrease, or eliminate entirely, its use of leverage over time and from time to time based on PGIM’s
assessment of the yield curve environment, interest rate trends, market conditions and other factors. By using leverage,
the Fund seeks to obtain a higher return for Common Shareholders than if the Fund did not use leverage. Leveraging is a
speculative technique and there are special risks and costs involved. There can be no assurance that a leveraging strategy
will be used or that it will be successful during any period in which it is employed.
Investment Manager.
PGIM Investments, the Fund’s investment manager and a registered investment adviser under the
Investment Advisers Act of 1940 (the
“
Advisers Act
”
), provides administrative and management services to the Fund,
subject to the supervision of the Board. PGIM Investments is an indirect, wholly-owned subsidiary of Prudential Financial,
Inc. (
“
Prudential
”
) (NYSE:PRU) that was organized in 1987. As of December 31, 2025, PGIM Investments’ total assets
under management were approximately $333.2 billion.
Subadvisers.
The Manager has engaged PGIM and PGIM Limited as subadvisers to provide day-to-day management of the
Fund’s portfolio, primarily through PGIM Credit. PGIM Credit is the public and private fixed income investment group
within PGIM. PGIM Credit consists of two investment sub-groups, PGIM Fixed Income and PPC. The Manager is permitted
to allocate portions of the Fund’s portfolio to any of the investment groups within PGIM.
PGIM is an indirect, wholly-owned subsidiary of Prudential that was organized in 1984. PGIM is the global asset
management business of Prudential. As of December 31, 2025, PGIM managed approximately $1.47 trillion in assets.
PGIM's address is 655 Broad Street, Newark, New Jersey 07102.
PGIM Fixed Income, a manager of public and private fixed income investments, is an investment sub-group of PGIM
Credit with $909.2 billion in assets under management as of December 31, 2025.*
PGIM Fixed Income’s investment strategies include but are not limited to the following categories: multi-sector strategies,
investment-grade credit, securitized products, leveraged finance, emerging markets strategies and alternative strategies.
PGIM Fixed Income is organized into groups specializing in different sectors of the fixed income market: U.S. and
non-U.S. government bonds, mortgages and asset-backed securities, U.S. and non-U.S. investment grade corporate
bonds, high yield bonds, emerging markets bonds, municipal bonds, and money market securities.
PPC and its predecessors have been providing private debt for more than 75 years and have been a leading source of
private debt for public and private companies. As of December 31, 2025, PPC managed a $ 112.6 billion portfolio of
private placements, loans and mezzanine investments through its 15 regional offices throughout North America, Europe
and Australia. The business is supported by 205 professionals globally.
PGIM Limited is an indirect, wholly-owned subsidiary of PGIM. PGIM Limited is located at Grand Buildings, 1-3 Strand,
Trafalgar Square, London WC2N 5HR. PGIM Limited provides investment advisory services with respect to securities in
certain foreign markets. As of December 31, 2025, PGIM Limited managed approximately $68.1 billion in assets.
* PGIM Fixed Income’s assets under management includes the assets under management of PGIM Limited.
Investing in the Fund involves certain risks, and is suitable only for investors who can bear the risks associated with the
limited liquidity of the Common Shares. The Common Shares should be viewed as a long-term investment within a multi-asset
personal portfolio, and should not be viewed individually as a complete investment program. Because of the risks associated
with investing in loans and related instruments and mortgage-related and other asset-backed instruments, high yield
securities, foreign and emerging market securities (and related exposure to foreign currencies), and the Fund's ability to use
leverage, an investment in the Fund may be considered speculative. You could lose some or all of your investment. See
“
Risks
”
below in this prospectus.
The Manager has received an exemptive order from the SEC that permits the Fund to offer multiple classes of shares. The
Fund will offer three separate classes of Common Shares designated as Class Z, Class A and Class C Shares. Each class of
Common Shares is subject to different fees and expenses. The Fund may offer additional classes of Common Shares in
the future.
The Fund does not currently intend to list its Common Shares for trading on any securities exchange or any other trading
market in the near future. There is currently no secondary market for its Common Shares and the Fund does not expect
any secondary market to develop for its Common Shares. Shareholders of the Fund are not able to have their Common
Shares redeemed or otherwise sell their Common Shares on a daily basis because the Fund is an unlisted closed-end
fund. In order to provide liquidity to shareholders, the Fund is structured as an
“
interval fund
”
and conducts periodic
repurchase offers for a portion of its outstanding Common Shares, as described herein. Investors should consider Common
Shares of the Fund to be an illiquid investment. An investment in the Fund is suitable only for investors who can bear the
risks associated with the limited liquidity of the Common Shares, as described in
“
Interval Fund/Repurchases
”
above.
Investors should consider their investment goals, time horizons and risk tolerance before investing in the Fund.
This prospectus provides information that you should know about the Fund before investing. Please read this prospectus
carefully and keep it for future reference. A Statement of Additional Information, dated April 30, 2026, as it may be
amended (the
“
SAI
”
), containing additional information about the Fund has been filed with the SEC and is incorporated by
reference in its entirety into this prospectus. Additional information about the Fund has been filed with the SEC and is
available upon written or oral request and without charge. You may also obtain the SAI and other information regarding the
Fund on the SEC’s website at http://www.sec.gov. For a free copy of the Fund’s most recent SAI, annual report or
semi-annual report or to request other information or ask questions about the Fund, please write to the Fund at 655 Broad
Street, Newark, NJ 07102-4410, call toll-free at (844) 753-6354 or visit the Fund’s website at www.pgim.com. This
reference to the website does not incorporate the contents of the website into this prospectus.
As permitted by regulations adopted by the SEC, paper copies of the Fund’s annual and semi-annual shareholder reports
will not be sent by mail, except to investors that specifically request paper copies of the reports. Instead, the reports will be
made available on the Fund’s website at www.pgim.com, and you will be notified by mail each time a report is posted and
provided with a website link to access the report.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can
contact your financial intermediary or, if you are a direct investor, you can call (844) 753-6354 to let the Fund know you
wish to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds
held in your account if you invest through your financial intermediary or all funds held within the Fund complex if you
invest directly with the Fund.
The Common Shares do not represent a deposit or obligation of and are not guaranteed or endorsed by, any bank or other
insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
TABLE OF CONTENTS
1 | |
14 | |
19 | |
19 | |
20 | |
36 | |
39 | |
57 | |
60 | |
61 | |
62 | |
63 | |
65 | |
66 | |
68 | |
70 | |
75 | |
77 | |
84 | |
84 | |
84 | |
84 |
You should rely only on the information contained in or incorporated by reference into this prospectus. The Fund has not authorized anyone
to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The
Fund is not making an offer of these securities in any jurisdiction where the offer is not permitted.
Website Disclosure
The Fund’s website, at www.pgim.com, contains additional information about the Fund, but the contents of the website are not
incorporated by reference in or otherwise a part of this prospectus. From time to time, the Fund may use its website as a distribution
channel for material Fund information.
i
PROSPECTUS SUMMARY
This is only a summary. This summary does not contain all of the information that you should consider before investing in the PGIM
Credit Income Fund (the
“
Fund
”
). You should review the more detailed information contained in this prospectus and in the Statement of
Additional Information (the
“
SAI
”
), especially the information under the heading
“
Risks.
”
The Fund | The Fund is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “ Investment Company Act ” or “ 1940 Act ” ). The Fund continuously offers its Common Shares and is operated as an “ interval fund. ” The Fund currently offers three classes of Common Shares: Class Z Shares, Class A Shares and Class C Shares. The Fund was organized as a Delaware statutory trust on July 24, 2023, pursuant to the Agreement and Declaration of Trust (the “ Declaration of Trust ” ), which is governed by the laws of the State of Delaware. The Fund has limited operating history. The Fund’s principal office is located at 655 Broad Street, Newark, NJ 07102-4410 and its telephone number is (844) 753-6354 (toll-free). |
PGIM Investments LLC (the “ Manager ” or “ PGIM Investments ” ) serves as the investment manager to the Fund. The Manager has engaged its affiliates, PGIM, Inc. ( “ PGIM ” ), together with PGIM Limited (together with PGIM, the “ Subadvisers ” ), an indirect wholly-owned subsidiary of PGIM, as investment subadvisers to provide day-to-day management of the Fund’s portfolio, primarily through the PGIM Credit investment group ( “ PGIM Credit ” ). PGIM Credit is the public and private fixed income investment group within PGIM. PGIM Credit consists of two investment sub-groups, PGIM Fixed Income, a manager of public and private fixed income investments, and PGIM Private Credit (formerly, PGIM Private Capital) ( “ PPC ” ), a manager of private fixed income investments. See “ The Fund. ” | |
The Offering | The Fund’s Class Z, Class A and Class C Common Shares are being offered at an offering price of $25.00 per share. The Common Shares are expected to be offered on a continuous basis at net asset value ( “ NAV ” ) per share. Each class of Common Shares is subject to different fees and expenses. |
The Fund reserves the right to reject a purchase order for any reason. Shareholders will not have the right to redeem their Common Shares. However, as described below, in order to provide some liquidity to shareholders, the Fund will conduct periodic repurchase offers for a portion of its outstanding Common Shares. | |
The Fund offers multiple classes of Common Shares in reliance on an exemptive order the Manager received from the U.S. Securities and Exchange Commission (the “ SEC ” ). For additional information regarding each class of Common Shares please see “ Summary of Fund Expenses ” and “ Plan of Distribution ” in this prospectus. The Fund may offer additional classes of Common Shares in the future. | |
Periodic Repurchase Offers | The Fund is an “ interval fund, ” a type of fund which, in order to provide liquidity to shareholders, has adopted a fundamental investment policy to make quarterly offers to repurchase between 5% and 25% of its outstanding Common Shares at NAV, reduced by any applicable redemption fee. Subject to applicable law and approval of the Board, for each quarterly repurchase offer, the Fund currently expects to offer to repurchase 5% of the Fund’s outstanding Common Shares at NAV on the repurchase request deadline at the net asset value per Common Share as of the repurchase pricing date. Written notification of each quarterly repurchase offer (the “ Repurchase Offer Notice ” ) will be sent to shareholders at least 21 days before the repurchase request deadline (i.e., the date by which shareholders can tender their Common Shares in response to a repurchase offer) (the “ Repurchase Request Deadline ” ). The Fund’s Common Shares are not listed on any securities exchange, and the Fund anticipates that no secondary market will develop for its Common Shares. Accordingly, you may not be able to sell Common Shares when and/or in the amount that you desire. Investors should consider Common Shares of the Fund to be an illiquid investment. Thus, the Common Shares are appropriate only as a long-term investment. In addition, the Fund’s repurchase offers may subject the Fund and shareholders to special risks. See “ Risks — Repurchase Offers Risk. ” |
Who May Want to Invest | An investment in the Fund involves a considerable amount of risk. It is possible that you will lose money. An investment in the Fund is suitable only for investors who can bear the risks associated with the limited liquidity of the Common Shares and should be viewed as a long-term investment. Before making your investment decision, you should (i) consider the suitability of this investment with respect to your investment objectives and personal financial situation and (ii) consider factors such as your personal net worth, income, age, risk tolerance and liquidity needs. An investment in the Fund should not be viewed as a complete investment program. |
Investment Objective | The Fund’s investment objective is to seek total return, through a combination of current income and capital appreciation. |
Investment Strategies | The Fund seeks to achieve its investment objective by investing, under normal circumstances, across a wide array of credit markets, including corporate, mortgage, consumer and municipal credit markets, and employing a flexible asset allocation strategy among multiple public and private credit sectors in the global credit markets, including but not limited to corporate debt (including, among other things, fixed-, variable- and floating-rate bonds and loans issued by U.S. or foreign (non-U.S.) corporations or other business entities); mortgage-related and other consumer-related instruments; collateralized debt obligations, including, but not limited to, collateralized loan obligations; municipal bonds; and other fixed-, variable- and floating-rate income-producing securities of U.S. and foreign issuers (including developed and emerging market issuers). The Fund may invest in any sector, market or region without limit, subject to compliance with applicable law. The Fund has flexibility to actively adjust allocations over time while adapting to the market and economic environment without any explicit duration target or liquidity limitations. The Fund invests without limit in both investment grade debt securities and in below investment grade debt securities (which are commonly referred to as “ high yield ” securities or “ junk bonds ” ), including securities of stressed, distressed and defaulted issuers. |
1
80% Investment Policy | The Fund invests, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) in a portfolio of debt instruments of varying maturities (the “ 80% policy ” ). |
For purposes of the 80% policy, debt instruments may include, without limitation, bonds, debt securities and other similar instruments of varying maturities, issued by various U.S. and foreign (non-U.S.) public or private-sector entities; asset-backed securities issued on a public or private basis (including, but not limited to, agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities, adjustable rate mortgage-backed securities, mortgage-pass through securities, privately issued mortgage-related securities, stripped mortgage securities, collateralized bond obligations ( “ CBOs ” ), collateralized loan obligations ( “ CLOs ” ), collateralized debt obligations ( “ CDOs ” ), collateralized mortgage obligations ( “ CMOs ” ), CMO residuals, multi-class pass-through securities and other similarly structured securities); corporate debt securities (including, among other things, fixed-, variable- and floating-rate bonds and loans issued by U.S. or foreign (non-U.S.) corporations or other business entities, including emerging market issuers); securities issued or guaranteed by the U.S. Government, its agencies or government-sponsored enterprises ( “ U.S. Government Securities ” ); bank loans (including, among others, senior and second lien loans, mezzanine loans, bridge loans, delayed funding loans, revolving credit facilities, covenant-lite obligations and loan participations and assignments); inverse floaters; and loans held and/or originated by private financial institutions or PGIM, including commercial and residential mortgage loans, corporate loans and consumer loans (such as credit card receivables, automobile loans and student loans) ( “ private credit assets ” ). | |
The Fund will not change its 80% policy without providing sixty (60) days’ notice to shareholders, as required by Rule 35d-1 under the Investment Company Act of 1940. | |
Investment Philosophy and Portfolio Construction | In managing the Fund’s assets, the Subadvisers use a combination of top-down economic analysis and bottom-up research in conjunction with proprietary quantitative models and risk management systems. In the top-down economic analysis, the Subadvisers develop views on economic policy and market trends while considering, among other things, market conditions, valuation assessments and economic outlook. |
Using PGIM’s macroeconomic analysis as the basis for top-down investment decisions, the Fund has broad latitude to invest across multiple credit sectors and will not focus on a specific sector at the time of its launch. However, following the Fund’s launch it may choose to focus on particular sectors across countries or regions, asset classes, industries and to the exclusion of others at any time and from time to time based on market conditions and other factors. | |
Once the Fund’s top-down, portfolio positioning decisions have been made, PGIM generally selects particular investments for the Fund by employing a bottom-up, disciplined credit approach with a focus on identifying securities and other instruments with solid and/or improving fundamentals. PGIM attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide positive risk-adjusted returns based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure. PGIM also attempts to identify investments that may appreciate in value based on PGIM’s assessment of the forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally. | |
Portfolio construction focuses on capturing the best firm-wide total return investment ideas achieved from capital appreciation or current income. Additionally, PGIM incorporates proprietary risk framework designed to focus risk in areas of potential reward and to manage downside risks. | |
PGIM relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s sector portfolio managers utilize this information in an attempt to minimize credit risk and/or to identify issuers, industries or sectors that they believe are undervalued and/or that offer potentially attractive yields relative to PGIM’s assessment of their credit characteristics. In its bottom-up credit research, the Subadvisers assess potential investments based on deep level fundamental research, relative value, technical and legal analysis. The credit research process is supported by the firm’s extensive credit and industry knowledge and market presence with companies and financial sponsors. | |
While duration is not explicitly targeted, it is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to five year range), as calculated by the Manager, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. | |
Implementation of Investment Strategies | The Fund invests in securities of U.S. issuers and foreign (non-U.S.) issuers, securities traded principally outside of the United States, and securities denominated in currencies other than the U.S. dollar. The Fund invests without limit in instruments of corporate and other foreign (non-U.S. issuers), including emerging market issuers and in instruments traded principally outside of the U.S. The Fund also invests directly in foreign currencies, including currencies of emerging market countries. |
2
The Fund invests without limitation in debt instruments that are, at the time of purchase, rated below “ investment grade ” by at least one of Moody’s Investors Service, Inc. ( “ Moody’s ” ), S&P Global Ratings ( “ S&P ” ) or Fitch, Inc. ( “ Fitch ” ), or unrated but determined by PGIM to be of comparable quality. “ Investment grade ” means a rating, in the case of Moody’s, of Baa3 or higher, or in the case of S&P and Fitch, of BBB- or higher. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “ high yield ” securities or “ junk bonds. ” | |
The Fund invests in securities of stressed or distressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations or, if unrated, are determined by PGIM to be of comparable quality. The Fund may also invest in defaulted securities and debtor-in-possession ( “ DIP ” ) financings. The Fund enters into repurchase agreements. | |
The Fund invests in any level of the capital structure of an issuer of mortgage-backed or asset-backed instruments, including the equity or “ first loss ” tranche. | |
The Fund invests in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdiction, including without limitation securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended (the “ Securities Act ” ) or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. | |
The Fund originates loans and invests in loans held and/or originated by private financial institutions or PGIM, specifically through direct lending to companies or corporations, including foreign (non-U.S.) entities, which may be in the form of unsecured notes, senior and second lien loans, mezzanine loans, bridge loans, asset-based finance or similar investments. Such borrowers may have credit ratings that are determined by one or more nationally recognized statistical rating organizations ( “ NRSROs ” ) or PGIM to be below investment grade. The originated loans in which the Fund invests may vary in maturity and/or duration. The Fund is not limited in the amount, size or type of originated loans it may invest in, including with respect to a single borrower or with respect to borrowers that are determined to be below investment grade, other than pursuant to any applicable law or the Fund’s fundamental investment restrictions and related interpretations. The Fund’s investments in originated loans may also be limited by the Fund’s intention to qualify as a regulated investment company ( “ RIC ” ). | |
The Fund may use derivatives, including credit default swaps, to manage its duration, as well as to manage its foreign currency exposure, to hedge against losses and to try to improve returns. The Fund may be either the buyer or seller in credit default swap transactions. | |
Investment Manager | The Manager, an indirect wholly-owned subsidiary of Prudential and a registered investment adviser under the Investment Advisers Act of 1940, as amended ( “ Advisers Act ” ), is the Fund’s investment manager. |
PGIM Investments and its predecessors have served as a manager or administrator to registered investment companies since 1987. As of December 31, 2025, PGIM Investments served as investment manager to all of the Prudential U.S. and offshore open-end management investment companies, and as manager and administrator to closed-end investment companies. As of December 31, 2025, PGIM Investments’ total assets under management were approximately $333.2 billion. | |
Subadvisers | PGIM, together with PGIM Limited, an indirect wholly-owned subsidiary of PGIM, serves as the Fund’s investment subadvisers. |
See “ Management and Advisory Arrangements. ” | |
Investment Management Agreement | The Fund and the Manager have entered into a management agreement (the “ Management Agreement ” ) pursuant to which the Manager is entitled to receive a management fee from the Fund, as described below. |
The management fee (the “ Management Fee ” ) will be payable at the end of each month at the annual rate of 1.10% of the average daily value of the Fund’s total managed assets. For purposes of this calculation, average daily value of the Fund’s total managed assets is determined at the end of each month on the basis of the average value of the Fund’s total managed assets of the Fund for each day during the month. | |
See “ Management and Advisory Arrangements. ” | |
Investment Subadvisory Agreement | The Manager has entered into a subadvisory agreement (the “ Subadvisory Agreement ” ) with each of PGIM and PGIM Limited, which provides that the Subadvisers will furnish investment advisory services in connection with the management of the Fund. Under the Subadvisory Agreement, the Subadvisers, subject to the supervision of the Manager, are responsible for managing the assets of the Fund in accordance with the Fund’s investment objective, investment program and policies. The Manager continues to have responsibility for all investment advisory services pursuant to the Management Agreement and supervises the Subadvisers’ performance of such services. |
Subadvisory fees are paid by the Manager out of the management fee that it receives from the Fund. No subadvisory fees are paid by the Fund directly to PGIM. PGIM will pay a portion of its subadvisory fee to PGIM Limited for its services. Because the Subadvisers are affiliates, the Manager may from time to time share certain of its profits with, or allocate other resources to, the Subadvisers. Any such payments by the Manager to the Subadvisers will be from the Manager’s own resources. |
3
Leverage | The Fund utilizes reverse repurchase agreements, dollar rolls, borrowings and other forms of leverage opportunistically and may choose to increase or decrease, or eliminate entirely, its use of leverage over time and from time to time based on PGIM’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. In the future, the Fund may incur leverage through indebtedness such as credit facilities. See “ Leverage. ” |
Distributions | The Fund expects to declare and pay regular monthly distributions. In addition, the Fund distributes any net capital gains it earns from the sale of portfolio securities to shareholders no less frequently than annually. Net short-term capital gain distributions may be paid more frequently. See “ Distributions. ” |
Cash distributions to holders of the Common Shares will automatically be reinvested under the Fund’s Distribution Reinvestment Plan (the “ DRIP ” ) in additional whole and fractional shares unless you elect to receive your distributions in cash. Investors may terminate their participation in the DRIP with prior written notice to the Fund. Under the DRIP, shareholders’ distributions are reinvested in Common Shares of the same class of Common Shares owned by the shareholder for a purchase price equal to the NAV per share (for the class of Common Shares being purchased) on the date that the distribution is paid. See “ Distribution Reinvestment Plan. ” | |
Expenses and Reimbursement | The Fund will pay any third-party expenses incurred by the Fund or on its behalf, unless such expenses are waived and/or reimbursed pursuant to the Expense Limitation and Reimbursement Agreement. To the extent the Manager and/or its affiliates pay such costs on behalf of the Fund, the Fund will reimburse them. Such Fund expenses will include, but are not limited to, costs related to valuation, audit, reporting, regulatory, administration, compliance, directors and financing as well as legal services. |
Pursuant to an Expense Limitation and Reimbursement Agreement, through December 6, 2029 (the “ ELRA Period ” ), the Manager has contractually agreed to waive its fees and/or reimburse expenses of the Fund so that the Fund’s Specified Expenses will not exceed 0.50% of net assets (annualized). The Fund has agreed to repay these amounts, when and if requested by the Manager, but only if and to the extent that Specified Expenses are less than 0.50% of net assets (annualized) (or, if a lower expense limit is then in effect, such lower limit) within three years after the date the Manager waived or reimbursed such fees or expenses. In no event will the Fund’s Specified Expenses exceed 0.50% of net assets (annualized) during the ELRA Period notwithstanding any repayment made by the Fund pursuant to the ELRA. This arrangement cannot be terminated without the consent of the Fund’s Board prior to the end of the ELRA Period. “ Specified Expenses ” is defined to include all expenses incurred in the business of the Fund, including organizational and offering costs, with the exception of (i) the Management Fee, (ii) the Distribution and Servicing Fee, (iii) brokerage costs or other investment-related out-of-pocket expenses, including with respect to unconsummated investments, (iv) dividend/interest payments (including any dividend payments, interest expenses, commitment fees, or other expenses related to any leverage incurred by the Fund), (v) taxes, and (vi) extraordinary expenses (as determined in the sole discretion of the Manager). | |
For a more complete discussion of the Fund’s expenses and reimbursement arrangements, see “ Summary of Fund Expenses. ” | |
Custodian and Transfer Agent | The Bank of New York serves as the Fund’s custodian (the “ Custodian ” ). Prudential Mutual Fund Services LLC serves as the Fund’s transfer agent (the “ Transfer Agent ” ). SS&C GIDS, Inc. serves as sub-transfer agent to the Fund. See “ Custodian and Transfer Agent. ” |
Distributor | Prudential Investment Management Services LLC ( “ PIMS ” or the “ Distributor ” ) is the principal underwriter and distributor of the Fund’s Class Z Shares, Class A Shares and Class C Shares and serves in that capacity on a “ best efforts ” basis, subject to various conditions. Other broker-dealers ( “ Selling Agents ” ) may be appointed by the Distributor to assist in the sale of the Common Shares on a “ best efforts ” basis. See “ Plan of Distribution. ” |
Sales Load | Class A Shares are subject to a sales load of up to 2.50% of the total offering price (including sales load). The Fund’s Class A Share sales load schedule is modified so that investors who purchase $250,000 or more of Class A Shares (or otherwise qualify through utilization of the Rights of Accumulation, Letter of Intent or 90-Day Repurchase Privilege) will not be subject to a sales load. However, a contingent deferred sales charge ( “ CDSC ” ) of 1.50% will be assessed on Class A Shares purchased without a sales charge if the shares are repurchased during the first 12 months after their purchase. In addition, a CDSC of 1.00% will be assessed on Class C Shares if the shares are repurchased during the first 12 months after their purchase. The Class A and Class C CDSC is waived for certain retirement and/or benefit plans and after a shareholder is deceased or permanently disabled, as further described in the “ Plan of Distribution ” section of this prospectus. No sales load will be paid with respect to any Common Shares sold pursuant to the DRIP. |
The Distributor may reallow sales loads to participating broker-dealers. Selling Agents typically receive the sales load with respect to the Class A Shares purchased by their customers. Sales loads may be reduced for certain categories of purchasers and for volume discounts, as disclosed in this prospectus. Investors should consult with their Selling Agents about the sales load and any additional fees or charges their Selling Agents might impose on each class of Common Shares. | |
Class Z Shares and Class C Shares are not subject to a sales load; however, investors could be required to pay brokerage commissions to their Selling Agents on purchases and sales of such shares. |
4
Distribution and Servicing Plan | The Fund has adopted a Distribution and Servicing Plan for its Class A Shares and Class C Shares to pay to the Distributor a Distribution and Servicing Fee to compensate financial industry professionals for distribution-related expenses, if applicable, and providing ongoing services in respect of shareholders who own such shares. These activities include marketing and other activities primarily intended to result in the sale of Class A Shares and Class C Shares and activities related to administration and servicing of Class A or Class C accounts (including sub-accounting and other administrative services, as well as shareholder liaison services such as responding to inquiries from shareholders and providing shareholders with information about their investments in the Fund). Under the Distribution and Servicing Plan, these classes of Shares of the Fund pay distribution and other fees to the Distributor as compensation for its services, which the Distributor generally pays (or “ reallows ” ) to Selling Agents. These Distribution and Servicing Fees — known as 12b-1 fees — are set forth in the “ Summary of Fund Expenses ” table and are described in greater detail below. |
Under the Distribution and Servicing Plan, Class A and Class C Shares pay a Distribution and Servicing Fee to the Distributor at an annual rate of 0.75% and 1.00%, respectively, based on the aggregate net assets of the Fund attributable to such class. If a financial intermediary is not eligible to accept payment of the pro rata portion of the Distribution and Servicing Fee attributable to its shareholder accounts then the Distributor may retain such monies or the Distributor will waive such fees or return such monies to the Fund. The Distribution and Servicing Fee is paid out of the relevant class’s assets and decreases the net profits or increases the net losses of the Fund solely with respect to such class. Because the Distribution and Servicing Fee is paid out of the Fund’s assets on an on-going basis, over time these fees will increase the cost of a shareholder’s investment and may cost the shareholder more than paying other types of sales charges, if applicable. A portion of the Distribution and Servicing Fee may also be used to pay for sub-transfer agency, sub-accounting and certain other administrative services that are not required to be paid pursuant to a “ service fee ” under FINRA rules. The remainder is for distribution support and related services. | |
Class Z Shares are not subject to any Distribution and Servicing Fee and do not bear any expenses associated therewith. | |
Unlisted Closed-End Fund Structure; Limited Liquidity | The Fund does not currently intend to list its Common Shares for trading on any securities exchange or any other trading market in the near future. There is currently no secondary market for its Common Shares and the Fund does not expect any secondary market to develop for its Common Shares. Shareholders of the Fund are not able to have their Common Shares redeemed or otherwise sell their Common Shares on a daily basis because the Fund is an unlisted closed-end fund. In order to provide liquidity to shareholders, the Fund is structured as an “ interval fund ” and conducts periodic repurchase offers for a portion of its outstanding Common Shares, as described herein. Investors should consider Common Shares of the Fund to be an illiquid investment. An investment in the Fund is suitable only for investors who can bear the risks associated with the limited liquidity of the Common Shares, as described in “ Interval Fund/Repurchases ” above. Investors should consider their investment goals, time horizons and risk tolerance before investing in the Fund. |
Minimum Investment; Share Class Availability | Generally, the minimum initial investment is $1,000 for Class A Shares and Class C Shares. The minimum subsequent investment is $100 for Class A and Class C Shares, except for additional purchases pursuant to the DRIP, which are not subject to a minimum purchase amount. There is no minimum initial investment or subsequent investment amount for Class Z Shares. The minimum investment for each class of Common Shares can be modified or waived in the sole discretion of the Fund or the Distributor, including for certain financial firms that submit orders on behalf of their customers, the Fund’s officers and trustees and certain employees of PGIM, including its affiliates, vehicles controlled by such employees and their extended family members. Each of the Fund or the Distributor may modify or waive minimum investment amounts in their sole discretion. See “ Plan of Distribution—Minimum Investment and Share Class Availability. ” |
Class A are available to the general public through Selling Agents and other financial intermediaries. | |
Class C Shares are generally available for purchase only (1) through fee-based programs, also known as wrap accounts, that provide access to Class C Shares, (2) through participating broker-dealers that have alternative fee arrangements with their clients to provide access to Class C Shares, (3) through investment advisers that are registered under the Advisers Act or applicable state law and direct clients to trade with a broker-dealer that offers Class C Shares, (4) through bank trust departments or any other organization or person authorized to act in a fiduciary capacity for its clients or customers or (5) through other categories of investors that we name in an amendment or supplement to this prospectus. |
5
Class Z Shares are generally available to various institutional investors, as well as participants in any fee-based program or trust program sponsored by Prudential or an affiliate that includes the Fund as an available option. Class Z Shares also can be purchased by investors in certain programs sponsored by financial intermediaries who offer Class Z Shares of the Fund, or whose programs are available through financial intermediaries that offer Class Z Shares of the Fund, for (1) mutual fund “ wrap ” or asset allocation programs where the sponsor places fund trades, links its clients’ accounts to a master account in the sponsor’s name and charges its clients a management, consulting or other fee for its services; (2) mutual fund “ supermarket ” programs where the sponsor links its clients’ accounts to a master account in the sponsor's name and the sponsor charges a fee for its services; or (3) fee- or commission-based retail brokerage programs of certain financial intermediaries that offer Class Z Shares through such programs and that have agreements with PIMS to offer such shares when acting solely on an agency basis for their customers for the purchase or sale of such shares. Class Z Shares also can be purchased by any of the following: (1) certain participants in the MEDLEY Program (group variable annuity contracts) sponsored by Prudential for whom Class Z Shares of the PGIM Funds are an available option; (2) current and former Directors/Trustees of mutual funds, closed-end funds and ETFs managed by PGIM Investments or any other affiliate of Prudential; (3) current and former employees (including their spouses, children and parents) of Prudential and its affiliates; former employees must have an existing investment in the Fund; (4) Prudential (including any program or account sponsored by Prudential or an affiliate that includes the Fund as an available option); (5) PGIM Funds, including PGIM funds-of-funds; (6) qualified state tuition programs (529 plans); and (7) investors working with fee-based consultants for investment selection and allocations. See “ Plan of Distribution— Minimum Investment and Share Class Availability ” for additional information. | |
Summary of Risks | Investing in the Fund involves risks, including the risk that a shareholder may receive little or no return on his or her investment or that a shareholder may lose part or all of his or her investment. The Fund should be considered a speculative investment that entails substantial risks, and a prospective investor should invest in the Fund only if they can sustain a complete loss of their investment. Below is a summary of some of the principal risks of investing in the Fund. For a more complete discussion of the risks of investing in the Fund, see “ Risks. ” |
Investors should consider carefully the following principal risks before investing in the Fund: | |
Limited History of Operations. The Fund is a diversified, closed-end management investment company with limited history of operations or public trading and is subject to all of the business risks and uncertainties associated with any new business. As a result, prospective investors have limited track record or history on which to base their investment decision. | |
General, Market and Economic Risk. Investing in the Fund involves certain risks and the Fund may not be able to achieve its intended results for a variety of reasons, including, among others, the possibility that the Fund may not be able to successfully implement its investment strategy because of market, economic, regulatory, geopolitical and other conditions. International wars or conflicts (such as those in the Middle East and Ukraine) and geopolitical developments in foreign countries, along with instability in regions such as Asia, Eastern Europe, and the Middle East, possible terrorist attacks in the United States or around the world, public health epidemics and pandemics such as the outbreak of infectious diseases like the COVID-19 pandemic, and other similar events could adversely affect the U.S. and foreign financial markets, including increases in market volatility, reduced liquidity in the securities markets and government intervention, and may cause further long-term economic uncertainties in the United States and worldwide generally. | |
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. | |
Repurchase Offers Risk. Repurchase offers and the need to fund repurchase obligations may affect the ability of the Fund to be fully invested or force the Fund to maintain a higher percentage of its assets in liquid investments, which may harm the Fund’s investment performance. Moreover, diminution in the size of the Fund through repurchases may result in untimely sales of portfolio securities (with associated imputed transaction costs, which may be significant), and may limit the ability of the Fund to participate in new investment opportunities or to achieve its investment objective. The Fund may accumulate cash by holding back (i.e., not reinvesting) payments received in connection with the Fund’s investments. The Fund believes that payments received in connection with the Fund’s investments will generate sufficient cash to meet the maximum potential amount of the Fund’s repurchase obligations. If at any time cash and other cash equivalents held by the Fund are not sufficient to meet the Fund’s repurchase obligations, the Fund intends, if necessary, to sell investments. If, as expected, the Fund employs investment leverage, repurchases of Common Shares would compound the adverse effects of leverage in a declining market. In addition, if the Fund borrows to finance repurchases, interest on that borrowing will negatively affect Common Shareholders who do not tender their Common Shares by increasing the Fund’s expenses and reducing any net investment income.In the event that shareholders tender more than the repurchase offer amount plus 2% of the Fund’s outstanding shares as of the date of the Repurchase Request Deadline, the Fund will repurchase the Common Shares tendered on a pro rata basis, and shareholders will have to wait until the next repurchase offer to make another repurchase request. As a result, shareholders may be unable to liquidate all or a given percentage of their investment in the Fund during a particular repurchase offer. A shareholder may be subject to market and other risks, and the NAV of Common Shares tendered in a repurchase offer may decline between the Repurchase Request Deadline and the date on which the NAV for tendered Common Shares is determined. |
6
Illiquid Investment Risk. To the extent consistent with the applicable liquidity requirements for interval funds under Rule 23c-3 of the Investment Company Act, the Fund may invest without limit in illiquid securities. The Fund generally considers “ illiquid securities ” to be securities that cannot be sold within seven days in the ordinary course of business at approximately the value used by the Fund in determining its NAV. The Fund may not be able to readily dispose of such securities at prices that approximate those at which the Fund could sell the securities if they were more widely traded and, as a result of that illiquidity, the Fund may have to sell such securities at a loss or sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. Limited liquidity can also affect the market price of securities, thereby adversely affecting the Fund’s NAV and ability to make dividend distributions. The Fund may invest in privately-held companies, below-investment-grade instruments ( “ junk ” bonds), securities which are at risk of default as to the repayment of principal and/or interest at the time of acquisition by the fund or are rated in the lower rating categories or are unrated, which may be difficult to value and may be illiquid. The Fund may also invest in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including, without limitation, securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended (the “ Securities Act ” ). Rule 144A permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the Securities Act. Rule 144A securities may be deemed illiquid, although the Fund may determine that certain Rule 144A securities are liquid. | |
Distributions Risk. There can be no assurance that the Fund will achieve investment results that will allow the Fund to make a specified level of cash distributions or maintain certain levels of cash distributions. All distributions will be paid at the discretion of the Board and may depend on the Fund’s earnings, the Fund’s net investment income, the Fund’s financial condition, compliance with applicable regulations and such other factors as the Board may deem relevant from time to time. The distributions for any full or partial calendar year might not be made in equal amounts, and one distribution may be larger than others. The Fund will make a distribution only if authorized by the Board and declared by the Fund out of assets legally available for these distributions. This distribution policy may, under certain circumstances, have certain adverse consequences to the Fund and its shareholders because it may result in a return of capital, which would reduce the Fund’s NAV and, over time, potentially increase the Fund’s expense ratio. If the Fund distributes a return of capital, it means that the Fund is returning to shareholders a portion of their investment rather than making a distribution that is funded from the Fund’s earned income or other profits. The Fund’s distribution policy may be changed by the Board at any time without shareholder approval. | |
Liquidity Risk. In order to provide liquidity to shareholders, the Fund is structured as an “ interval fund ” and conducts periodic repurchase offers for a portion of its outstanding Common Shares, as described herein.The Fund is designed primarily for long-term investors and an investment in the Common Shares should be considered illiquid. The Common Shares are not currently listed for trading on any securities exchange. There is currently no public market for the Common Shares and none is expected to develop. Although the Fund may offer to repurchase Common Shares from shareholders, no assurance can be given that these repurchases will occur as scheduled or at all. | |
Valuation Risk. The value of certain of the Fund’s investments will be difficult to determine and the valuation determinations made by the Manager, Subadvisers, and the Fund’s independent valuation advisor (the “ Independent Valuation Advisor ” ) with respect to such investments will likely vary from the amounts the Fund would receive upon sale or disposition of such investments. It is possible that the fair value determined for an investment may differ materially from the value that could be realized upon the sale of the investment. Within the parameters of the Fund’s valuation policies and procedures, the valuation methodologies used to value the Fund’s assets will involve subjective judgments and projections and that ultimately may not materialize. Ultimate realization of the value of an asset depends to a great extent on economic, market and other conditions beyond the Fund’s control and the control of the Manager and the Independent Valuation Advisor and third-party appraisers. Rapidly changing market conditions or material events may not be immediately reflected in the Fund’s daily NAV. The resulting potential disparity in the Fund’s NAV may inure to the benefit of shareholders whose shares are repurchased or new purchasers of the Common Shares, depending on whether the Fund’s published NAV per share for such class is overstated or understated. See “ Net Asset Value. ” | |
Asset-Based Finance Risk. The asset-based finance securities in which the Fund invests are typically not listed on any securities exchange and not registered under the 1933 Act. In addition, the Fund anticipates that these instruments may only be sold to a limited number of investors and may have a limited or non-existent secondary market. Accordingly, the Fund currently expects that certain of the investments in asset-based finance securities will face heightened levels of liquidity risk. Although currently there is generally no reliable, active secondary market for certain asset-based finance securities, a secondary market for these asset-based finance securities may, or may not, develop. If the Fund purchases asset-based finance securities on an alternative lending platform, the Fund will have the right to receive principal and interest payments due on loans underlying the asset-based finance securities only if the platform servicing the loans receives the borrower’s payments on such loans and passes such payments through to the Fund. If a borrower is unable or fails to make payments on a loan for any reason, the Fund may be greatly limited in its ability to recover any outstanding principal or interest due, as, among other reasons, the Fund may not have direct recourse against the borrower or may otherwise be limited in its ability to directly enforce its rights under the loan, whether through the borrower or the platform through which such loan was originated, the loan may be unsecured or under-collateralized and/or it may be impracticable to commence a legal proceeding against the defaulting borrower. |
7
Loans Risk. The 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 the 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 a default, the Fund may have difficulty collecting on any collateral and would not have the ability to collect on any collateral for an uncollateralized loan. Further, the Fund's access to collateral, if any, may be limited by bankruptcy laws. | |
In some instances, loans and loan participations are not rated by independent credit rating agencies; in such instances, a decision by the Fund to invest in a particular loan or loan participation could depend exclusively on the Subadvisers’ credit analysis of the borrower, or in the case of a loan participation, of the intermediary holding the portion of the loan that the Fund has purchased. To the extent the Fund invests in loans of non-U.S. issuers, the risks of investing in non-U.S. issuers are applicable. | |
Loan Origination Risk. The Subadvisers will originate loans on behalf of the Fund. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies, particularly companies experiencing significant business and financial difficulties, is high. There can be no assurance that the Subadvisers and the Fund will correctly evaluate the value of the assets collateralizing these loans or the prospects for successful repayment or a successful reorganization or similar action. Loan origination involves a number of particular risks that may not exist in the case of secondary debt purchases. A Subadviser may have to rely more on its own resources to conduct due diligence of the borrower, and such borrower may in some circumstances present a higher credit risk and/or could not obtain debt financing in the syndicated markets. Increased competition for, or a diminution in the available supply of, qualifying loans may result in lower yields on such loans, which could reduce returns to the Fund. | |
Mortgage-Backed and Asset-Backed Securities Risk. Mortgage-backed and asset-backed securities tend to increase in value less than other debt securities when interest rates decline, but are subject to similar risk of decline in market value during periods of rising interest rates. The values of mortgage-backed and asset-backed securities become more volatile as interest rates rise. In a period of declining interest rates, the Fund may be required to reinvest more frequent prepayments on mortgage-backed and asset-backed securities in lower-yielding investments. | |
Structured Products Risk. Holders of structured product securities bear risks of the underlying investments, index or reference obligation. Certain structured products may be thinly traded or have a limited trading market, and as a result may be characterized as illiquid. 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, which may also result in additional costs. Structured products are also subject to credit risk; the assets backing the structured product may be insufficient to pay interest or principal. In addition to the general risks associated with investments in fixed income, structured products carry additional risks, including, but not limited to: the possibility that distributions from collateral securities will not be adequate to make interest or other payments; the quality of the collateral may decline in value or default; and the possibility that the structured products are subordinate to other classes. | |
Fixed Income Instruments Risk. In addition to the other risks described herein, fixed income instruments are also subject to certain risks, including: | |
■ Issuer Risk. The value of fixed income instruments may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods and services. | |
■ Interest Rate Risk. The value of the Fund’s investments may go down when interest rates rise. A rise in rates tends to have a greater impact on the prices of longer term or duration debt securities. When interest rates fall, the issuers of debt obligations may prepay principal more quickly than expected, and the Fund may be required to reinvest the proceeds at a lower interest rate. The Fund may face a heightened level of interest rate risk as a result of the U.S. Federal Reserve Board’s rate-setting policies. | |
■ Duration Risk. Duration measures the time-weighted expected cash flows of a security, which can determine the security’s sensitivity to changes in the general level of interest rates (or yields). Securities with longer durations tend to be more sensitive to interest rate (or yield) changes than securities with shorter durations. Various techniques may be used to shorten or lengthen the Fund’s duration. The duration of a security will be expected to change over time with changes in market factors and time to maturity. | |
■ Floating-Rate and Fixed-to-Floating-Rate Securities Risk. The market value of floating-rate securities is a reflection of discounted expected cash flows based on expectations for future interest rate resets. The market value of such securities may fall in a declining interest rate environment and may also fall in a rising interest rate environment if there is a lag between the rise in interest rates and the reset. This risk may also be present with respect to fixed-to-floating-rate securities in which the Fund may invest. A secondary risk associated with declining interest rates is the risk that income earned by the Fund on floating-rate and fixed-to-floating-rate securities will decline due to lower coupon payments on floating-rate securities. |
8
■ Prepayment Risk. During periods of declining interest rates, the issuer of an instrument may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding instruments, which may result in a decline in the Fund’s income and distributions to shareholders. | |
■ Extension Risk. During periods of rising interest rates, an issuer could exercise its right to pay principal on an obligation held by the Fund later than expected. Under these circumstances, the value of the obligation will decrease, and the Fund may be prevented from reinvesting in higher yielding securities. | |
■ Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured, traded or called fixed income instruments at market interest rates that are below the portfolio’s current earnings rate. | |
■ Spread Risk. Wider credit spreads and decreasing market values typically represent a deterioration of the fixed income instrument’s credit soundness and a perceived greater likelihood or risk of default by the issuer. Fixed income instruments generally compensate for greater credit risk by paying interest at a higher rate. The difference (or “ spread ” ) between the yield of a security and the yield of a benchmark, such as a U.S. Treasury security with a comparable maturity, measures the additional interest paid for credit risk. As the spread on a security widens (or increases), the price (or value) of the security generally falls. Spread widening may occur, among other reasons, as a result of market concerns over the stability of the market, excess supply, general credit concerns in other markets, security- or market-specific credit concerns or general reductions in risk tolerance. | |
■ Credit Risk. Credit risk is the risk that one or more fixed income instruments in the Fund’s portfolio will decline in price or fail to pay interest or principal when due because the issuer, the guarantor or the insurer of the instrument or any applicable counterparty may be unable or unwilling to make timely principal and interest payments or to otherwise honor its obligations. Additionally, the instruments could lose value due to a loss of confidence in the ability of the issuer, guarantor, insurer or counterparty to pay back debt. The longer the maturity and the lower the credit quality of a bond, the more sensitive it is to credit risk. | |
■ Refinancing Risk. Refinancing risk is the risk that one or more issuers of fixed income instruments in the Fund’s portfolio may not be able to pay off their debt upon maturity. During times of extreme market stress, even creditworthy companies can have temporary trouble accessing the markets to refinance their outstanding debt, potentially leading to an inability to pay off existing bondholders, including the Fund. This could negatively affect the Fund’s NAV or overall return. | |
Private Company Investments Risk. Investments in private companies involve risks that may not exist in the case of more established and/or publicly traded companies. These risks include the risk that: | |
■ these companies may have limited financial resources and limited access to additional financing; | |
■ these companies frequently have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which render such companies more vulnerable to competition and market conditions, as well as general economic downturns; | |
■ there will not be as much information publicly available about these companies as would be available for public companies and such information may not be of the same quality; | |
■ these companies are more likely to depend on the management talents and efforts of a small group of persons; and | |
■ these companies generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance their expansion or maintain their competitive position. | |
Below Investment Grade (High Yield or Junk Bond) Instruments Risk. The Fund’s investments in below investment grade quality securities and instruments are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions. Fixed income instruments rated below investment grade generally offer a higher current yield than that available from higher grade issuers, but typically involve greater risk. These investments are especially sensitive to adverse changes in general economic conditions, to changes in the financial condition of their issuers and to price fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, issuers of below investment grade instruments may experience financial stress that could adversely affect their ability to make payments of principal and interest on their obligations and increase the possibility of default. The secondary market for high yield instruments may not be as liquid as the secondary market for more highly rated instruments, a factor that may have an adverse effect on the Fund’s ability to dispose of a particular security. Under continuing adverse market or economic conditions, the secondary market for high yield instruments could contract further, independent of any specific adverse changes in the condition of a particular issuer, and these instruments may become illiquid. |
9
|
|
Distressed and Defaulted Obligations Risk. The Fund may invest in “ below investment grade ” securities (commonly referred to as “ high yield ” securities or “ junk bonds ” ) and obligations of issuers in weak financial condition, experiencing poor operating results, having substantial capital needs or negative net worth, facing special competitive or product obsolescence problems (including companies involved in bankruptcy or other reorganization and liquidation proceedings). Below investment grade securities in which the Fund may invest also include defaulted and partially defaulted loans. Such investments are likely to be particularly risky although they also may offer the potential for correspondingly high returns. Any one or all of the issuers of the securities in which the Fund may invest may be unsuccessful or not show any return for a considerable period of time. |
|
|
Subprime Risk. Loans, and debt instruments collateralized by loans acquired by the Fund may be subprime in quality, or may become subprime in quality. Subprime loans, and debt instruments secured by such loans, have speculative characteristics and are subject to heightened risks, including the risk of nonpayment of interest or repayment of principal, and the risks associated with investments in high yield securities. |
|
|
Inflation Risk. Globally, inflation and rapid fluctuations in inflation rates have in the past had negative effects on economies and financial markets, particularly in emerging economies, and may do so in the future. Wages and prices of inputs increase during periods of inflation, which can negatively impact returns on investments. In an attempt to stabilize inflation, governments may impose wage and price controls, or otherwise intervene in the economy. Governmental efforts to curb inflation often have negative effects on levels of economic activity. |
|
|
In the United States, inflation has accelerated in recent years as a result of global supply chain disruptions, a rise in energy prices, strong consumer spending, and other factors. Inflationary pressures have increased the costs of labor, energy, and raw materials, and have adversely affected consumer spending, economic growth, and the operations of companies in the U.S. and globally, and have resulted in a tightening of monetary policy by the U.S. Federal Reserve. Inflation may continue in the near to medium-term, particularly in the U.S., with the possibility that monetary policy may tighten further in response. Inflation may have an adverse impact on the Fund’s returns. |
|
|
|
|
|
Derivatives Risk. The Fund’s investments in derivative transactions may subject the Fund to increased risk of principal loss due to imperfect correlation between the values of the derivatives and the underlying securities or unexpected price or interest rate movements. The use of derivatives may subject the Fund to risks, including, but not limited to: |
|
|
■ Counterparty Risk. The risk that the counterparty in a derivative transaction will be unable to honor its financial obligation to the Fund, or the risk that the reference entity in a credit default swap or similar derivative will not be able to honor its financial 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. |
|
|
■ Leverage Risk. The Fund may use, among other things, reverse repurchase agreements and/or dollar rolls to add leverage to its portfolio. The risk associated with certain types of derivative strategies that relatively small market movements may result in large changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. See “ Leverage ” in the prospectus and “ Investment Policies and Techniques – Reverse Repurchase Agreements and Dollar Rolls ” in the Statement of Additional Information for more information. |
|
|
■ Liquidity Risk. The risk that certain derivative positions may be difficult or impossible to close out at the time that the Fund would like or at the price that the Fund believes the position is currently worth. This risk is heightened to the extent the Fund engages in over-the-counter derivative transactions, which are generally less liquid than exchange-traded instruments. |
|
|
■ 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 the Fund seeks exposure. |
|
|
■ Index Risk. If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. |
|
|
■ Regulatory Risk. Derivative contracts, including, without limitation, swaps, currency forwards, and non-deliverable forwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act ( “ Dodd-Frank Act ” ) in the U.S. and under comparable regimes in Europe, Asia and other non-U.S. jurisdictions. Swaps, non-deliverable forwards 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 the Fund of trading these instruments and, as a result, may affect returns to investors in the Fund. |
10
|
|
■ Credit Default Swaps Risk . Credit default swaps involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general market risks, credit default swaps are subject to liquidity risk and credit risk. A buyer of credit protection also may lose its investment and recover nothing should no credit event occur. If a credit event were to occur, the value of the reference obligation received by the seller, coupled with the periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. Further, in certain circumstances, the buyer can receive the notional value of a credit default swap only by delivering a physical security to the seller, and is at risk if such deliverable security is unavailable or illiquid. Such a delivery “ crunch ” is a distinct risk of these investments. |
|
|
Leverage Risk . Although the Fund may utilize leverage, there can be no assurance that the Fund will do so, or that, if utilized, it will be successful during any period in which it is employed. Leverage is a speculative technique that exposes the Fund to greater risk and higher costs than if it were not implemented. |
|
|
The Fund anticipates that any money borrowed from a bank or other financial institution for investment purposes will accrue interest based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio provides a higher rate of return, net of expenses, than the interest rate on borrowed money, as reset periodically, the leverage may cause the Fund to receive a higher current rate of return than if the Fund were not leveraged. If, however, short-term rates rise, the interest rate on borrowed money could exceed the rate of return on instruments held by the Fund, reducing returns to the Fund and the level of income available for dividends or distributions made by the Fund. Developments in the credit markets may adversely affect the ability of the Fund to borrow for investment purposes and may increase the costs of such borrowings, which would also reduce returns to the Fund. There is no assurance that a leveraging strategy will be successful. The use of leverage to purchase additional investments creates an opportunity for increased Common Shares dividends, but also creates special risks and considerations for the common shareholders, including: |
|
|
■ the likelihood of greater volatility of NAV and dividend rate of Common Shares than a comparable fund without leverage; |
|
|
■ the risk that fluctuations in interest rates on borrowings and short-term debt or in dividend payments on, principal proceeds distributed to, or redemption of any preferred shares and/or notes or other debt securities that the Fund has issued will reduce the return to the Fund; |
|
|
■ magnified interest rate risk, which is the risk that the prices of certain of the portfolio investments will fall (or rise) if market interest rates for those types of investments rise (or fall). As a result, leverage may cause greater changes in the Fund’s NAV, which could have a material adverse impact on the Fund’s business, financial condition and results of operations; |
|
|
■ the effect of leverage in a declining market, which is likely to cause a greater decline in the NAV of the Common Shares than if the Fund were not leveraged; and |
|
|
■ leverage may increase expenses (which will be borne entirely by the common shareholders), which may reduce the Fund’s NAV and the total return to common shareholders. |
|
|
Allocation of Investment Opportunities Risk. Certain other existing or future funds, investment vehicles and accounts managed by the Manager and its affiliates and PGIM affiliated proprietary entities invest in securities, properties and other assets in which the Fund may seek to invest. Allocation of identified investment opportunities among the Fund, the Manager and other PGIM affiliated investment vehicles presents inherent conflicts of interest where demand exceeds available supply. While the Manager believes it is likely that there will be some overlap of investment opportunities for the Fund and other PGIM affiliated investment vehicles and PGIM affiliated proprietary accounts from time to time, the Fund’s stock of investment opportunities may be materially affected by competition from other PGIM affiliated investment vehicles and PGIM affiliated proprietary entities. Investors should note that the conflicts inherent in making such allocation decisions will not always be resolved in favor of the Fund. |
|
|
See “ Management and Advisory Arrangements ” and “ Conflicts of Interest. ” |
|
|
Non-U.S. Investment Risk. The Fund may invest in non-U.S. investments, which may include investments denominated in U.S. dollars or in non-U.S. currencies, to the extent permitted by the 1940 Act. Such investments may involve a broad range of economic, non-U.S. currency and exchange rate, political, legal, tax and financial risks not typically associated with investments in U.S. companies. Prior government approval for non-U.S. investments may be required under certain circumstances in some countries, and the process of obtaining these approvals may require a significant expenditure of time and resources. Additionally, certain countries depend heavily on exports to the United States. Accordingly, these countries may be sensitive to fluctuations in U.S. demand and changes in U.S. market conditions. The foregoing factors may increase transaction costs and adversely impact the value of the Fund’s investments in non-U.S. portfolio companies. |
11
|
|
“ Covenant-Lite ” Risk. Some of the debt obligations, loans or other securities in which the Fund may invest or get exposure to may be “ covenant-lite ” , which means the loans or obligations contain fewer financial maintenance covenants than other loans or obligations (in some cases, none) and do not include terms which allow the lender to monitor the borrower’s performance and declare a default if certain criteria are breached. An investment by the Fund in a covenant-lite loan may potentially hinder the ability to reprice credit risk associated with the issuer and reduce the ability to restructure a problematic loan and mitigate potential loss. The Fund may also experience difficulty, expenses or delays in enforcing its rights on its holdings of covenant-lite loans or obligations. As a result of these risks, the Fund’s exposure to losses may be increased, which could result in an adverse impact on the Fund’s net income and NAV. |
|
|
Repurchase Agreements Risk. Repurchase agreements could involve certain risks in the event of default or insolvency of the seller, including losses and possible delays or restrictions upon the Fund’s ability to dispose of the underlying securities. To the extent that, in the meantime, the value of the securities that the Fund has purchased has decreased, the Fund could experience a loss. |
|
|
U.S. Government and Agency Securities Risk. U.S. Government and agency securities are subject to market risk, interest rate risk and credit risk. Not all U.S. Government securities are insured or guaranteed by the full faith and credit of the U.S. Government; some are only insured or guaranteed by the issuing agency, which must rely on its own resources to repay the debt. Some agency securities carry no guarantee whatsoever and the risk of default associated with these securities would be borne by the Fund. The maximum potential liability of the issuers of some U.S. Government securities held by the Fund may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. No assurance can be given that the U.S. Government would provide financial support to any such issuers if it is not obligated to do so by law. It is possible that these issuers will not have the funds to meet their payment obligations in the future. In addition, the value of U.S. Government securities may be affected by changes in the credit rating of the U.S. Government. |
|
|
Privately Issued Mortgage-Related Securities Risk. There are no direct or indirect government or agency guarantees of payments in pools created by non-governmental issuers. Privately issued mortgage-related securities are also not subject to the same underwriting requirements for the underlying mortgages that are applicable to those mortgage-related securities that have a government or government-sponsored entity guarantee. Privately issued mortgage-related securities are not traded on an exchange and there may be a limited market for the securities, especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market, mortgage-related securities held in the Fund’s portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying mortgage loans. |
|
|
Leveraged Portfolio Company Risk. While investments in leveraged companies offer the potential opportunity for capital appreciation, such investments also involve a higher degree of risk as a result of recessions, operating problems and other general business and economic risks that may have a more pronounced effect on the profitability or survival of such companies. Such investments are inherently more sensitive to declines in revenues, competitive pressures and increases in expenses. Moreover, rising interest rates may significantly increase portfolio companies’ interest expense, causing losses and/or the inability to service debt levels. If a portfolio company cannot generate adequate cash flow to meet debt obligations, the portfolio company may default on its loan agreements or be forced into bankruptcy resulting in a restructuring of the company’s capital structure or liquidation of the company, and the Fund may suffer a partial or total loss of capital invested in the portfolio company. Furthermore, to the extent companies in which the Fund has invested become insolvent, the Fund may determine, in cooperation with other debt holders or on its own, to engage, at the Fund’s expense in whole or in part, counsel and other advisors in connection therewith. In addition to leverage in the capital structure of portfolio companies, the Fund may incur leverage which magnifies gains and losses attributable to other investment policies and practices. |
|
|
Senior Loans Risk. The assets of the Fund may include first lien senior secured debt and may also include selected second and third lien senior secured debt, each of which involves a higher degree of risk of a loss of capital as compared to debt of an earlier lien. Senior secured loans are also subject to other risks, including: |
|
|
■ the possible invalidation of a debt or lien as a “ fraudulent conveyance ” ; |
|
|
■ the recovery as a “ preference ” of liens perfected or payments made on account of a debt in the 90 days before a bankruptcy filing; |
|
|
■ equitable subordination claims by other creditors; |
|
|
■ “ lender liability ” claims by the portfolio company of the obligations; and |
|
|
■ environmental and/or other liabilities that may arise with respect to collateral securing the obligations. |
|
|
The Fund’s investments may be subject to early redemption features, refinancing options, pre-payment options or similar provisions that, in each case, could result in the portfolio company repaying the principal on an obligation held by the Fund earlier than expected. As a consequence, the Fund’s ability to achieve its investment objective may be adversely affected. |
12
|
|
Follow-On Investment Risk. The Fund may be called upon to provide additional funding for its portfolio companies or have the opportunity to increase its investment in such portfolio companies. There can be no assurance that the Fund will wish to make follow-on investments or that it will have sufficient funds to do so. Any decision by the Fund not to make follow-on investments or its inability to make them may have a substantial negative impact on a portfolio company in need of such an investment. |
|
|
Syndication of Co-Investments Risk. From time to time, the Fund may make an investment with the expectation of offering a portion of its interests therein as a co-investment opportunity to third-party investors. There can be no assurance that the Fund will be successful in syndicating any such co-investment, in whole or in part, that the closing of such co-investment will be consummated in a timely manner, that any syndication will take place on terms and conditions that will be preferable for the Fund or that expenses incurred by the Fund with respect to any such syndication will not be substantial. In the event that the Fund is not successful in syndicating any such co-investment, in whole or in part, the Fund may consequently hold a greater concentration and have more exposure in the related investment than initially was intended, which could make the Fund more susceptible to fluctuations in value resulting from adverse economic and/or business conditions with respect thereto. Moreover, an investment by the Fund that is not syndicated to co-investors as originally anticipated could significantly reduce the Fund’s overall investment returns. |
|
|
Affiliated Transactions Risk. The Fund is prohibited under the 1940 Act from participating in certain transactions with certain of its affiliates without the prior approval of a majority of the independent members of the Board and, in some cases, the SEC. The Fund has received exemptive relief from the SEC that allows the Fund to engage in certain co-investment transactions with the Manager and its affiliates, subject to certain terms and conditions (the “ Order ” ). Pursuant to such Order, the Fund is generally permitted to co-invest with the Manager and its affiliates if such co-investments are completed on the same terms and at the same time, as further detailed in the Order. In addition, the Manager and its affiliates must adopt and implement policies and procedures reasonably designed to ensure that: (i) opportunities to participate in co-investment transactions are allocated in a manner that is fair and equitable to the Fund and (ii) the Manager or affiliate negotiating the co-investment transaction considers the interest in the transaction of the Fund. |
|
|
Confidential Information Access Risk. In managing the Fund (and other PGIM clients), PGIM may from time to time have the opportunity to receive material, non-public information ( “ Confidential Information ” ) about the issuers of certain investments, including, without limitation, senior floating rate loans, other loans and related investments being considered for acquisition by the Fund or held in the Fund’s portfolio. Pursuant to applicable policies and procedures, PGIM may (but is not required to) seek to avoid receipt of Confidential Information from the issuer so as to avoid possible restrictions on its ability to purchase and sell investments on behalf of the Fund and other clients to which such Confidential Information relates. PGIM may also determine to receive such Confidential Information in certain circumstances under its applicable policies and procedures. If PGIM intentionally or unintentionally comes into possession of Confidential Information, it may be unable, potentially for a substantial period of time, to purchase or sell investments to which such Confidential Information relates. |
|
|
Private Placements Risk. A private placement involves the sale of securities that have not been registered under the Securities Act, or relevant provisions of applicable non-U.S. law, including Rule 144A securities, to certain institutional and qualified individual purchasers, such as the Fund. In addition to the general risks to which all securities are subject, securities received in a private placement generally are subject to strict restrictions on resale, and there may be no liquid secondary market or ready purchaser for such securities. See “ Risks—Liquidity Risk. ” Therefore, the Fund may be unable to dispose of such securities when it desires to do so, or at the most favorable time or price. Private placements may also raise valuation risks. See “ Risks—Valuation Risk. ” |
|
|
Potential Conflicts of Interest Risk. The Manager and Subadvisers serve as adviser or subadvisers to other vehicles that have the same or similar investment objectives and investment strategies to those of the Fund. As a result, the Manager and the Fund’s portfolio managers may devote unequal time and attention to the management of the Fund and those other funds and accounts. Conflicts of interest exist or could arise in the future as a result of the relationships between the Fund, on one hand, and its affiliates, on the other. For further information on potential conflicts of interest, see “ Conflicts of Interest. ” |
13
SUMMARY OF FUND EXPENSES
The purpose of the following table is to help you understand all fees and expenses common shareholders would bear directly
or indirectly.
This table illustrates the fees and expenses of the Fund that you will incur if you buy and hold Common Shares.
|
|
Class Z Shares |
Class A Shares |
Class C Shares |
|
Shareholder Transaction Expenses |
|
|
|
|
Maximum Initial Sales Load ( (1) |
|
|
|
|
Maximum Contingent Deferred Sales Charge (as a percentage of the offering price or repurchase proceeds, whichever is lower) (2) |
|
|
|
|
Redemption Fee (on shares purchased and held for less than twelve months) (as a percentage of amount redeemed, if applicable) |
|
|
|
|
Annual Expenses (Percentage of Net Assets Attributable to Common Shares) |
|
|
|
|
Management Fee (3) |
|
|
|
|
Distribution and Servicing Fee (4) |
|
|
|
|
Interest Payments on Borrowed Funds (5) |
|
|
|
|
Other Expenses (6) |
|
|
|
|
Total Annual Fund Operating Expenses |
|
|
|
|
Fees Waived and/or Expenses Reimbursed (7) |
( |
( |
( |
|
Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement |
|
|
|
(1)
The Distributor is the principal underwriter and distributor of the Common Shares and serves in that capacity on a
“
best efforts
”
basis, subject to various conditions. Shares may
be offered through Selling Agents that have entered into selling agreements with the Distributor. Selling Agents typically receive the sales load with respect to Class A Shares
purchased by their clients. The Distributor does not retain any portion of the sales load. Class A Shares are subject to an initial sales load of up to 2.50% of the total offering
price (including sales load). Class Z Shares and Class C Shares are each not subject to an initial sales load; however, investors could be required to pay brokerage commissions
on purchases and sales of such shares to their Selling Agents. Investors should consult with their Selling Agents about the sales load and any additional fees or charges their
Selling Agents might impose on each class of Common Shares. See
“
Prospectus Summary—Sales Loads.
”
(2)
A contingent deferred sales charge (
“
CDSC
”
) of 1.50% will be assessed on Class A Shares purchased without a sales charge if the shares are repurchased during the first 12
months after their purchase. In addition, a CDSC of 1.00% will be assessed on Class C Shares if the shares are repurchased during the first 12 months after their purchase.
(3)
Pursuant to an investment management agreement, the Manager receives a Management Fee, payable monthly in arrears by the Fund, at an annual rate equal to 1.10% of the
average daily value of the Fund’s total managed assets.
(4)
The Fund pays the Distributor a Distribution and Servicing Fee pursuant to its Distribution and Servicing Plan that is payable monthly and accrued daily at an annualized rate of
0.75% of the net assets of the Fund attributable to Class A Shares and an annualized rate of 1.00% of the net assets of the Fund attributable to Class C Shares. The Distribution
and Servicing Fee is for personal services provided to shareholders and/or the maintenance of shareholder accounts, as well as for the sale and marketing of the Class A Shares
and Class C Shares, and to reimburse the Distributor for related expenses incurred. The Distribution and Servicing Fee may also be used to pay for sub-transfer agency,
sub-accounting and certain other administrative services that are not required to be paid pursuant to a service fee under Financial Industry Regulatory Authority (
“
FINRA
”
) rules.
The Distributor generally will pay (or
“
reallow
”
) all or a portion of the Distribution and Servicing Fee to the Selling Agents that sell Class A Shares and Class C Shares. The
Distribution and Servicing Fee is governed by the Fund’s Distribution and Servicing Plan.
(5)
Reflects the Fund’s use of leverage in the form of reverse repurchase agreements at December 31, 2025 which represented 20.9% of the Fund’s total managed assets (including
assets attributable to such leverage), at an annual interest rate cost to the Fund of 3.79% which is the average interest rate cost at the fiscal year ended December 31, 2025. See
“
Use of Leverage—Effects of Leverage.
”
The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of leverage
and variations in market interest rates. Borrowing expense is required to be treated as an expense of the Fund for accounting purposes. Any associated income or gains (or losses)
realized from leverage obtained through such instruments is not reflected in the Annual Expenses table above, but would be reflected in the Fund’s performance results.
(6)
“
Other Expenses
”
represent the annual other expenses of the Fund and its subsidiaries based on actual amounts of other expenses incurred during the fiscal year ended
December 31, 2025, divided by the Fund’s average net assets for the fiscal year ended December 31, 2025.
(7)
Pursuant to an Expense Limitation and Reimbursement Agreement, through December 6, 2029 (the
“
ELRA Period
”
), the Manager has contractually agreed to waive its fees and/or
reimburse expenses of the Fund so that the Fund’s Specified Expenses will not exceed 0.50% of net assets (annualized). The Fund has agreed to repay these amounts, when and if
requested by the Manager, but only if and to the extent that Specified Expenses are less than 0.50% of net assets (annualized) (or, if a lower expense limit is then in effect, such
lower limit) within three years after the date the Manager waived or reimbursed such fees or expenses. In no event will the Fund’s Specified Expenses exceed 0.50% of net assets
(annualized) during the ELRA Period notwithstanding any repayment made by the Fund pursuant to the ELRA. This arrangement cannot be terminated without the consent of the
Fund’s Board prior to the end of the ELRA Period.
“
Specified Expenses
”
is defined to include all expenses incurred in the business of the Fund, including organizational and
offering costs, with the exception of (i) the Management Fee, (ii) the Distribution and Servicing Fee, (iii) brokerage costs or other investment-related out-of-pocket expenses,
including with respect to unconsummated investments, (iv) dividend/interest payments (including any dividend payments, interest expenses, commitment fees, or other expenses
related to any leverage incurred by the Fund), (v) taxes, and (vi) extraordinary expenses (as determined in the sole discretion of the Manager).
Class Z Example
The following example illustrates the expenses that you would pay on a $1,000 investment in Class Z Shares and assuming (i) total
annual expenses of net assets attributable to the Class Z Shares remains the same, (ii) a 5% annual return, (iii) reinvestment of all
dividends and distributions at net asset value and (iv) application of the Expense Limitation and Reimbursement Agreement through the
ELRA Period:
14
|
|
1 Year |
3 Years |
5 Years |
10 Years |
|
Total Expenses Incurred |
$ |
$ |
$ |
$ |
The example should not be considered a representation of future expenses. Actual expenses may be greater or less than those shown.
Class A Example
The following example illustrates the expenses that you would pay on a $1,000 investment in Class A Shares and assuming (i) total
annual expenses of net assets attributable to the Class A Shares remains the same, (ii) a 5% annual return, (iii) reinvestment of all
dividends and distributions at net asset value and (iv) application of the Expense Limitation and Reimbursement Agreement through the
ELRA Period:
|
|
1 Year |
3 Years |
5 Years |
10 Years |
|
Total Expenses Incurred |
$ |
$ |
$ |
$ |
The example should not be considered a representation of future expenses. Actual expenses may be greater or less than those shown.
Class C Example
The following example illustrates the expenses that you would pay on a $1,000 investment in Class C Shares and assuming (i) total
annual expenses of net assets attributable to the Class C Shares remains the same, (ii) a 5% annual return, (iii) reinvestment of all
dividends and distributions at net asset value and (iv) application of the Expense Limitation and Reimbursement Agreement through the
ELRA Period:
|
|
1 Year |
3 Years |
5 Years |
10 Years |
|
Total Expenses Incurred |
$ |
$ |
$ |
$ |
The example should not be considered a representation of future expenses. Actual expenses may be greater or less than those shown.
15
FINAN
CIAL HIGHLIGHTSThe selected data below sets forth the per share operating performance and ratios for the years presented. The financial information was
derived from and should be read in conjunction with the Financial Statements of the Fund and Notes thereto, which are incorporated by
reference into this prospectus and the SAI. The financial information has been audited by PricewaterhouseCoopers LLP, the Fund’s
independent registered public accounting firm, whose unqualified report on such Financial Statements is incorporated by reference into
the SAI.
|
Class A Shares |
|||
|
|
Year Ended December 31, |
December 11, 2023 (a) through December 31, 2023 |
|
|
|
2025 |
2024 |
|
|
Per Share Operating Performance (b) : |
|||
|
Net Asset Value, Beginning of Period |
$25.60 |
$25.19 |
$25.00 |
|
Income (loss) from investment operations: |
|||
|
Net investment income (loss) |
1.67 |
2.20 |
0.09 |
|
Net realized and unrealized gain (loss) on investments and foreign currency transactions |
(0.22) |
0.54 |
0.22 |
|
Total from investment operations |
1.45 |
2.74 |
0.31 |
|
Less Dividends and Distributions: |
|||
|
Dividends from net investment income |
(1.95) |
(2.33) |
— (c) |
|
Tax return of capital distributions |
(0.32) |
— |
(0.11) |
|
Distributions from net realized gains |
(0.09) |
— |
(0.01) |
|
Total dividends and distributions |
(2.36) |
(2.33) |
(0.12) |
|
Net asset value, end of Period |
$24.69 |
$25.60 |
$25.19 |
|
Total Return (d) : |
5.98% |
11.28% |
1.26% |
|
|
|||
|
Ratios/Supplemental Data: |
|||
|
Net assets, end of year (000) |
$10 |
$11 |
$10 |
|
Average net assets (000) |
$10 |
$11 |
$10 |
|
Ratios to average net assets (e) : |
|||
|
Expenses after waivers and/or expense reimbursement |
4.02% (f) |
1.86% (f) |
0.75% (g) |
|
Expenses before waivers and/or expense reimbursement |
647.90% |
430.32% (f) |
13.72% (g) |
|
Net investment income (loss) |
6.69% |
8.59% |
6.39% (g) |
|
Portfolio turnover rate (h) |
47% |
55% |
1% |
|
Reverse repurchase agreements (000) |
$29,300 |
$27,102 |
$- |
|
Reverse repurchase agreements asset coverage ratio (i) |
480% |
508% |
—% |
|
Reverse repurchase agreements asset coverage per $1,000 of principal (i) |
$4,797 |
$5,080 |
$- |
|
|
|
|
(a) |
Commencement of operations. |
|
(b) |
Calculated based on average shares outstanding during the period. |
|
(c) |
Amount rounds to zero. |
|
(d) |
Total return does not consider the effects of sales loads or redemption fees, if any. Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions, if any. Total returns may reflect adjustments to conform to GAAP. Total returns for periods less than one full year are not annualized. |
|
(e) |
Does not include expenses of the underlying funds in which the Fund invests. |
|
(f) |
Includes interest expense on reverse repurchase agreements of 1.35% and 1.01% which is being excluded from the Fund's contractual waiver for the years ended December 31, 2025 and December 31, 2024, respectively. |
|
(g) |
Annualized, with the exception of certain non-recurring expenses. |
|
(h) |
The Fund's portfolio turnover rate is calculated in accordance with regulatory requirements, without regard to transactions involving short-term investments, certain derivatives and in-kind transactions (if any). If such transactions were included, the Fund's portfolio turnover rate may be higher. |
|
(i) |
Represents value of net assets plus reverse repurchase agreements, if any, at the end of the period divided by the reverse repurchase agreements, if any, at the end of the period. |
16
|
Class C Shares |
|||
|
|
Year Ended December 31, |
December 11, 2023 (a) through December 31, 2023 |
|
|
|
2025 |
2024 |
|
|
Per Share Operating Performance (b) : |
|||
|
Net Asset Value, Beginning of Period |
$25.60 |
$25.19 |
$25.00 |
|
Income (loss) from investment operations: |
|||
|
Net investment income (loss) |
1.61 |
2.01 |
0.08 |
|
Net realized and unrealized gain (loss) on investments and foreign currency transactions |
(0.15) |
0.54 |
0.22 |
|
Total from investment operations |
1.46 |
2.55 |
0.30 |
|
Less Dividends and Distributions: |
|||
|
Dividends from net investment income |
(1.88) |
(2.14) |
— (c) |
|
Tax return of capital distributions |
(0.32) |
— |
(0.11) |
|
Distributions from net realized gains |
(0.09) |
— |
(-) (c) |
|
Total dividends and distributions |
(2.29) |
(2.14) |
(0.11) |
|
Net asset value, end of Period |
$24.77 |
$25.60 |
$25.19 |
|
Total Return (d) : |
6.04% |
10.40% |
1.22% |
|
|
|||
|
Ratios/Supplemental Data: |
|||
|
Net assets, end of year (000) |
$10 |
$11 |
$10 |
|
Average net assets (000) |
$10 |
$11 |
$10 |
|
Ratios to average net assets (e) : |
|||
|
Expenses after waivers and/or expense reimbursement |
4.27% (f) |
2.61% (f) |
1.50% (g) |
|
Expenses before waivers and/or expense reimbursement |
619.10% |
400.40% (f) |
14.47% (g) |
|
Net investment income (loss) |
6.44% |
7.83% |
5.65% (g) |
|
Portfolio turnover rate (h) |
47% |
55% |
1% |
|
Reverse repurchase agreements (000) |
$29,300 |
$27,102 |
$- |
|
Reverse repurchase agreements asset coverage ratio (i) |
480% |
508% |
—% |
|
Reverse repurchase agreements asset coverage per $1,000 of principal (i) |
$4,797 |
$5,080 |
$- |
|
|
|
|
(a) |
Commencement of operations. |
|
(b) |
Calculated based on average shares outstanding during the period. |
|
(c) |
Amount rounds to zero. |
|
(d) |
Total return does not consider the effects of redemption fees, if any. Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions, if any. Total returns may reflect adjustments to conform to GAAP. Total returns for periods less than one full year are not annualized. |
|
(e) |
Does not include expenses of the underlying funds in which the Fund invests. |
|
(f) |
Includes interest expense on reverse repurchase agreements of 1.35% and 1.01% which is being excluded from the Fund's contractual waiver for the years ended December 31, 2025 and December 31, 2024, respectively. |
|
(g) |
Annualized, with the exception of certain non-recurring expenses. |
|
(h) |
The Fund's portfolio turnover rate is calculated in accordance with regulatory requirements, without regard to transactions involving short-term investments, certain derivatives and in-kind transactions (if any). If such transactions were included, the Fund's portfolio turnover rate may be higher. |
|
(i) |
Represents value of net assets plus reverse repurchase agreements, if any, at the end of the period divided by the reverse repurchase agreements, if any, at the end of the period. |
17
Class Z Shares | |||
Year Ended December 31, | December 11, 2023 (a) through December 31, 2023 | ||
2025 | 2024 | ||
Per Share Operating Performance (b) : | |||
Net Asset Value, Beginning of Period | $25.61 | $25.19 | $25.00 |
Income (loss) from investment operations: | |||
Net investment income (loss) | 1.86 | 2.27 | 0.10 |
Net realized and unrealized gain (loss) on investments and foreign currency transactions | (0.15) | 0.54 | 0.22 |
Total from investment operations | 1.71 | 2.81 | 0.32 |
Less Dividends and Distributions: | |||
Dividends from net investment income | (2.13) | (2.39) | (0.01) |
Tax return of capital distributions | (0.32) | — | (0.11) |
Distributions from net realized gains | (0.09) | — | (0.01) |
Total dividends and distributions | (2.54) | (2.39) | (0.13) |
Net asset value, end of Period | $24.78 | $25.61 | $25.19 |
Total Return (c) : | 7.07% | 11.55% | 1.27% |
Ratios/Supplemental Data: | |||
Net assets, end of year (000) | $111,225 | $110,569 | $70,980 |
Average net assets (000) | $108,723 | $106,451 | $70,609 |
Ratios to average net assets (d) : | |||
Expenses after waivers and/or expense reimbursement | 3.27% (e) | 1.62% (e) | 0.50% (f) |
Expenses before waivers and/or expense reimbursement | 3.57% | 3.80% (e) | 4.86% (f) |
Net investment income (loss) | 7.44% | 8.83% | 6.62% (f) |
Portfolio turnover rate (g) | 47% | 55% | 1% |
Reverse repurchase agreements (000) | $29,300 | $27,102 | $- |
Reverse repurchase agreements asset coverage ratio (h) | 480% | 508% | —% |
Reverse repurchase agreements asset coverage per $1,000 of principal (h) | $4,797 | $5,080 | $- |
(a) | Commencement of operations. |
(b) | Calculated based on average shares outstanding during the period. |
(c) | Total return does not consider the effects of redemption fees, if any. Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions, if any. Total returns may reflect adjustments to conform to GAAP. Total returns for periods less than one full year are not annualized. |
(d) | Does not include expenses of the underlying funds in which the Fund invests. |
(e) | Includes interest expense on reverse repurchase agreements of 1.35% and 1.02% which is being excluded from the Fund's contractual waiver for the years ended December 31, 2025 and December 31, 2024, respectively. |
(f) | Annualized, with the exception of certain non-recurring expenses. |
(g) | The Fund's portfolio turnover rate is calculated in accordance with regulatory requirements, without regard to transactions involving short-term investments, certain derivatives and in-kind transactions (if any). If such transactions were included, the Fund's portfolio turnover rate may be higher. |
(h) | Represents value of net assets plus reverse repurchase agreements, if any, at the end of the period divided by the reverse repurchase agreements, if any, at the end of the period. |
18
THE FUND
The Fund is a diversified, closed-end management investment company registered under the Investment Company Act. The Fund
continuously offers its Common Shares and is operated as an
“
interval fund.
”
The Fund currently offers three classes of Common
Shares: Class Z Shares, Class A Shares and Class C Shares. The Fund was organized as a Delaware statutory trust on July 24, 2023,
pursuant to the Agreement and Declaration of Trust (the
“
Declaration of Trust
”
), which is governed by the laws of the State of Delaware.
The Fund has limited operating history. The Fund’s principal office is located at 655 Broad Street, Newark, NJ 07102-4410 and its
telephone number is (844) 753-6354 (toll-free).
The business operations of the Fund are managed and supervised under the direction of the Board, subject to the Investment Company
Act, the laws of the State of Delaware and the Fund’s Declaration of Trust. The Board is comprised of four trustees, a majority of whom
are Independent Trustees. The Board has overall responsibility for the management and supervision of the business operations of
the Fund.
Closed-end management investment companies differ from open-end management investment companies (commonly referred to as
mutual funds) in that closed-end management investment companies do not redeem their securities at the option of the shareholder,
whereas open-end management investment companies issue securities redeemable at NAV at any time at the option of the shareholder
and typically engage in a continuous offering of their shares. Accordingly, open-end management investment companies are subject to
continuous asset in-flows and out-flows that can complicate portfolio management. Although the common shares of closed-end
management investment companies is often listed on a securities exchange, the Fund does not currently intend to list its Common
Shares for trading on any securities exchange or any other trading market in the near future.
PGIM Investments serves as the investment manager to the Fund and has engaged its affiliates, PGIM, together with PGIM Limited, an
indirect wholly-owned subsidiary of PGIM, as subadvisers to provide day-to-day management of the Fund’s portfolio, primarily through
PGIM Credit. PGIM Credit is the public and private fixed income investment group within PGIM. PGIM Credit consists of two investment
sub-groups, PGIM Fixed Income and PPC.
The Fund’s investment objective and policies are non-fundamental and may be changed without shareholder approval. The Board may
at any time consider a merger, consolidation or other form of reorganization of the Fund with one or more other investment companies
advised by PGIM Investments or the Subadvisers with similar investment objectives and policies as the Fund. Any such merger,
consolidation or other form of reorganization would require the prior approval of the Board and, to the extent required by applicable law
and the Fund Agreement and Declaration of Trust, the shareholders of the Fund. See
“
Description of Shares
”
and
“
Certain Provisions in
the Declaration of Trust.
”
USE OF PROCEEDS
The Fund will invest the net proceeds from the sale of its Common Shares in accordance with the Fund’s investment objective and
policies as stated below. The Fund generally expects to invest the proceeds from the offering as soon as practicable; which under normal
circumstances is expected to be within three months from receipt thereof, subject to the availability of appropriate investment
opportunities consistent with the Fund’s investment objective and market conditions. However, in certain limited circumstances, such as
in the case of unusually large cash inflows, the Fund may take up to six months or longer to fully invest the proceeds from the offering.
Proceeds from the offering will be held by the Fund’s custodian and available to fund investments. No arrangements have been made to
place such proceeds in an escrow, trust or similar account. Pending investment pursuant to the Fund’s investment objective and
policies, the net proceeds of the offering may be invested in permitted temporary investments, including, without limitation,
U.S. Government securities, exchange-traded funds (
“
ETFs
”
), money market and fixed income instruments or money market mutual
funds, high grade, short-term securities, index futures contracts or similar derivative instruments designed to give the Fund exposure to
the securities and markets in which it intends to invest while the PGIM selects specific investments. In addition, the Fund may maintain
a portion of the proceeds in cash to meet operational needs. The Fund may be prevented from achieving its investment objective during
any time in which the Fund’s assets are not substantially invested in accordance with its policies.
19
INVESTMENT OBJECTIVE AND STRATEGIES
Investment Objective
The Fund’s investment objective is to seek total return, through a combination of current income and capital appreciation.
Investment Strategies
The Fund seeks to achieve its investment objective by investing, under normal circumstances, across a wide array of credit markets,
including corporate, mortgage, consumer and municipal credit markets, and employing a flexible asset allocation strategy among
multiple public and private credit sectors in the global credit markets, including but not limited to corporate debt (including, among
other things, fixed-, variable- and floating-rate bonds and loans issued by U.S. or foreign (non-U.S.) corporations or other business
entities); mortgage-related and other consumer-related instruments; collateralized debt obligations, including, but not limited to,
collateralized loan obligations; municipal bonds; and other fixed-, variable- and floating-rate income-producing securities of U.S. and
foreign issuers (including developed and emerging market issuers). The Fund may invest in any sector, market or region without limit,
subject to compliance with applicable law. The Fund has flexibility to actively adjust allocations over time while adapting to the market
and economic environment without any explicit duration target or liquidity limitations. The Fund invests without limit in both investment
grade debt securities and in below investment grade debt securities (which are commonly referred to as
“
high yield
”
securities or
“
junk
bonds
”
), including securities of stressed, distressed and defaulted issuers.
80% Investment Policy
The Fund invests, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) in a
portfolio of debt instruments of varying maturities (the
“
80% policy
”
).
For purposes of the 80% policy, debt instruments may include, without limitation, bonds, debt securities and other similar instruments of
varying maturities, issued by various U.S. and foreign (non-U.S.) public or private-sector entities; asset-backed securities issued on a
public or private basis (including, but not limited to, agency and non-agency residential mortgage-backed securities and commercial
mortgage-backed securities, adjustable rate mortgage-backed securities, mortgage-pass through securities, privately issued
mortgage-related securities, stripped mortgage securities, CBOs, CLO, CDOs, CMOs, CMO residuals, multi-class pass-through securities
and other similarly structured securities); corporate debt securities (including, among other things, fixed-, variable- and floating-rate
bonds and loans issued by U.S. or foreign (non-U.S.) corporations or other business entities, including emerging market issuers);
securities issued or guaranteed by the U.S. Government, its agencies or government-sponsored enterprises (
“
U.S. Government
Securities
”
); bank loans (including, among others, senior and second lien loans, mezzanine loans, bridge loans, delayed funding loans,
revolving credit facilities, covenant-lite obligations and loan participations and assignments); inverse floaters; and loans held and/or
originated by private financial institutions or PGIM, including commercial and residential mortgage loans, corporate loans and consumer
loans (such as credit card receivables, automobile loans and student loans) (
“
private credit assets
”
).
The Fund will not change its 80% policy without providing sixty (60) days’ notice to shareholders, as required by Rule 35d-1 under the
Investment Company Act of 1940.
Investment Philosophy and Portfolio Construction
In managing the Fund’s assets, the Subadvisers use a combination of top-down economic analysis and bottom-up research in
conjunction with proprietary quantitative models and risk management systems. In the top-down economic analysis, the Subadvisers
develop views on economic, policy and market trends while considering, among other things, market conditions, valuation assessments
and economic outlook.
With PGIM’s macroeconomic analysis as the basis for top-down investment decisions, the Fund expects to focus on seeking attractive
risk-adjusted returns across multiple credit sectors. The Fund has broad latitude to invest across sectors and will not focus on a specific
sector at the time of its launch. The Fund may choose to focus on particular sectors across countries or regions, asset classes, industries
and to the exclusion of others at any time and from time to time based on market conditions and other factors. Once the Fund’s
top-down, portfolio positioning decisions have been made as described above, PGIM generally selects particular investments for the
Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector
represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals. The
fundamental and relative value assessment within credit sectors draws on PGIM’s sector Portfolio Manager and analyst insights. PGIM
attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt
obligations and other income-producing securities that provide positive risk-adjusted returns based on its analysis of the issuer’s credit
characteristics and the position of the security in the issuer’s capital structure. PGIM also attempts to identify investments that may
appreciate in value based on PGIM’s assessment of the issuer’s credit characteristics, forecast for interest rates and outlook for
particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally. PGIM utilizes strategies
that focus on credit quality analysis, duration management and other risk management techniques.
20
Portfolio construction focuses on capturing the best firm-wide total return investment ideas achieved from capital appreciation or current
income. Additionally, PGIM incorporates proprietary risk framework designed to focus risk in areas of potential reward and to manage
downside risks.
PGIM relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the
Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s sector portfolio managers utilize this
information in an attempt to minimize credit risk and/or to identify issuers, industries or sectors that they believe are undervalued and/or
that offer potentially attractive yields relative to PGIM’s assessment of their credit characteristics. In its bottom-up credit research, the
Subadvisers assess potential investments based on deep level fundamental research, relative value, technical and legal analysis. The
credit research process is supported by the firm’s extensive credit and industry knowledge and market presence with companies and
financial sponsors.
While duration is not explicitly targeted, it is expected that the Fund normally will have a short to intermediate average portfolio duration
(i.e., within a zero to five year range), as calculated by the Manager, although it may be shorter or longer at any time or from time to time
depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration,
there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to
determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative
average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates
but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PGIM may also utilize
certain strategies including, without limitation, investments in interest rate futures contracts or swap, cap, floor or collar transactions, for
the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such
strategies will be successful.
Implementation of Investment Strategies
The Fund invests in securities of U.S. issuers and foreign (non-U.S.) issuers, securities traded principally outside of the United States,
and securities denominated in currencies other than the U.S. dollar. The Fund invests without limit in instruments of corporate and other
foreign (non-U.S.), including emerging market issuers and in instruments traded principally outside of the U.S. The Fund may also
invest directly in foreign currencies, including currencies of emerging market countries.
The Fund invests without limitation in debt instruments that are, at the time of purchase, rated below
“
investment grade
”
by at least one
of Moody’s Investors Service, Inc. (
“
Moody’s
”
), S&P Global Ratings (
“
S&P
”
) or Fitch, Inc. (
“
Fitch
”
), or unrated but determined by PGIM
to be of comparable quality.
“
Investment grade
”
means a rating, in the case of Moody’s, of Baa3 or higher, or in the case of S&P and
Fitch, of BBB- or higher. Debt instruments of below investment grade quality are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as
“
high yield
”
securities or
“
junk bonds.
”
The Fund invests in securities of stressed or distressed issuers, which include securities at risk of being in default as to the repayment of
principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally
recognized statistical rating organizations or, if unrated, are determined by PGIM to be of comparable quality. The Fund may also invest
in defaulted securities and debtor-in-possession (
“
DIP
”
) financings.
The Fund invests in any level of the capital structure of an issuer of mortgage-backed or asset-backed instruments, including the equity
or
“
first loss
”
tranche.
The Fund invests in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdiction, including without
limitation securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended (the
“
Securities
Act
”
) or relevant provisions of applicable non-U.S. law, and other securities issued in private placements.
The Fund originates loans and invests in loans held and/or originated by private financial institutions or PGIM, specifically through direct
lending to companies or corporations, including foreign (non-U.S.) entities, which may be in the form of unsecured notes, senior and
second lien loans, mezzanine loans, bridge loans, asset-based finance or similar investments. Such borrowers may have credit ratings
that are determined by one or more nationally recognized statistical rating organizations (
“
NRSROs
”
) or PGIM to be below investment
grade. The originated loans in which the Fund invests may vary in maturity and/or duration. The Fund is not limited in the amount, size
or type of originated loans it may invest in, including with respect to a single borrower or with respect to borrowers that are determined to
be below investment grade, other than pursuant to any applicable law or the Fund’s fundamental investment restrictions and related
interpretations. The Fund’s investments in originated loans may also be limited by the Fund’s intention to qualify as a regulated
investment company (
“
RIC
”
).
21
The Fund may use derivatives to manage its duration, as well as to manage its foreign currency exposure, to hedge against losses and to
try to improve returns. The Fund may be either the buyer or seller in credit default swap transactions.
Leverage
The Fund currently expects to utilize leverage through reverse repurchase agreements and may also obtain leverage through credit
default swaps, dollar rolls and borrowings, such as through bank loans or commercial paper and/or other credit facilities. The Fund may
also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and
forward contracts (including foreign currency exchange contracts), credit default swaps, total return swaps and other derivative
transactions. The Fund’s Board of Trustees may authorize the issuance of preferred shares without the approval of Common
Shareholders. If the Fund issues preferred shares in the future, all costs and expenses relating to the issuance and ongoing
maintenance of the preferred shares will be borne by the Common Shareholders, and these costs and expenses may be significant. The
Fund utilizes reverse repurchase agreements, dollar rolls, borrowings and other forms of leverage opportunistically and may choose to
increase or decrease, or eliminate entirely, its use of leverage over time and from time to time based on PGIM’s assessment of the yield
curve environment, interest rate trends, market conditions and other factors.
The net proceeds the Fund obtains from reverse repurchase agreements, credit default swaps, dollar rolls or other forms of leverage
utilized will be invested in accordance with the Fund’s investment objective and policies as described in this prospectus. So long as the
rate of return, net of applicable Fund expenses, on the debt obligations and other investments purchased by the Fund exceeds the costs
to the Fund of the leverage it utilizes, the investment of the Fund’s assets attributable to leverage will generate more income than will be
needed to pay the costs of the leverage. If so, and all other things being equal, the excess may be used to pay higher dividends to
Common Shareholders than if the Fund were not so leveraged.
Derivatives
Derivatives are financial instruments whose value depends upon, or is derived from, the value of something else, such as one or more
underlying investments, indices or currencies. The Fund and Subadvisers may use various derivative strategies to try to improve the
Fund’s returns by managing risks, such as by using hedging techniques to try to protect the Fund’s assets. A derivative contract will
obligate or entitle the Fund to deliver or receive an asset or cash payment based on the change in value of one or more investments,
indices or currencies. Derivatives may be traded on organized exchanges, or in individually negotiated transactions with other parties
(these are known as
“
over-the-counter
”
derivatives). The Fund may be limited in its use of derivatives by rules adopted by the SEC
governing derivatives transactions, such as Rule 18f-4 under the Investment Company Act, described below. Although the Fund has the
flexibility to make use of derivatives, it may choose not to for a variety of reasons, even under very volatile market conditions.
The Fund relies on certain exemptions in Rule 18f-4 to enter into derivatives transactions and certain other transactions notwithstanding
the restrictions on the issuance of
“
senior securities
”
under Section 18 of the Investment Company Act. Under Rule 18f-4,
“
derivatives
transactions
”
include the following: (1) any swap, security-based swap, futures contract, forward contract, option, any combination of
the foregoing, or any similar instrument, under which the Fund is or may be required to make any payment or delivery of cash or other
assets during the life of the instrument or at maturity or early termination, whether as margin or settlement payment or otherwise; and
(2) any short sale borrowing. Rule 18f-4, among other things, requires the Fund to adopt and implement a comprehensive written
derivatives risk management program (
“
DRMP
”
) and comply with a relative or absolute limit on Fund leverage risk calculated based on
value-at-risk (
“
VaR
”
). The DRMP is administered by a
“
derivatives risk manager,
”
who is appointed by the Fund’s Board and periodically
reviews the DRMP and reports to the Fund’s Board. The Fund will rely on a separate exemption in Rule 18f- 4(e) when entering into
unfunded commitment agreements, which includes any commitment to make a loan to a company, including term loans, delayed draw
term loans, and revolvers, or to invest equity in a company. To rely on the unfunded commitment agreements exemption, the Fund must
reasonably believe, at the time it enters into such agreement, that it will have sufficient cash and cash the equivalents to meet its
obligations with respect to all of its unfunded commitment agreements, in each case as they come due. The Fund will rely on the
exemption in Rule 18f-4(f) when purchasing when-issued or forward-settling securities (e.g., firm and standby commitments, including
TBA commitments, and dollar rolls) and non-standard settlement cycle securities, if certain conditions are met.
Futures Contracts and Related Options.
The Fund may purchase and sell financial futures contracts and related options on financial
futures. A futures contract is an agreement to buy or sell a set quantity of an underlying asset at a future date, or to make or receive a
cash payment based on the value of a securities index, or some other asset, at a stipulated future date. The terms of futures contracts
are standardized. In the case of a financial futures contract based upon a broad index, there is no delivery of the securities comprising
the underlying index, margin is uniform, a clearing corporation or an exchange is the counterparty and the Fund makes daily margin
payments based on price movements in the index. An option gives the purchaser the right to buy or sell securities or currencies, or in
the case of an option on a futures contract, the right to buy or sell a futures contract in exchange for a premium.
22
Foreign Currency Forward Contracts.
The Fund may enter into foreign currency forward contracts to protect the value of its assets
against future changes in the level of foreign exchange rates or to enhance returns. A foreign currency forward contract is an obligation
to buy or sell a given currency on a future date and at a set price or to make or receive a cash payment based on the value of a given
currency at a future date. Delivery of the underlying currency is expected, the terms are individually negotiated, the counterparty is not a
clearing corporation or an exchange, and payment on the contract is made upon delivery, rather than daily.
Swap Transactions.
The Fund may enter into swap transactions. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods typically ranging from a few weeks to more than one year. In a standard
“
swap
”
transaction, two parties
agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or
instruments, which may be adjusted for an interest factor. There are various types of swaps, including but not limited to credit default
swaps, interest rate swaps, total return swaps and index swaps.
Swap Options.
The Fund may enter into swap options. A swap option is a contract that gives a counterparty the right (but not the
obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some
designated future time on specified terms.
Options on Securities and Financial Indices.
The Fund may purchase and sell put and call options on securities, and financial indices
traded on U.S. or non-U.S. securities exchanges, on NASDAQ or in the over-the-counter market. An option gives the purchaser the right
to buy or sell securities in exchange for a premium.
Temporary Strategies
At times the Subadvisers may judge that conditions in the markets make pursuing the Fund’s primary investment strategy inconsistent
with the best interests of its shareholders. During temporary periods or in order to keep the Fund’s cash fully invested until the net
proceeds of this offering of Common Shares can be invested in accordance with the Fund’s primary investment strategies, the Fund may
deviate from its investment policies and objectives. At such times the Subadvisers may, temporarily, use alternative strategies primarily
designed to reduce fluctuations in the value of the Fund’s assets. If the Fund takes a temporary position, it may be unable to achieve its
investment objective.
In implementing these temporary strategies, the Fund may invest all or a portion of its assets in investments such as high grade debt
securities, including high quality, short-term debt securities, and cash and cash equivalents that the Manager considers consistent with
this strategy.
It is impossible to predict when, or for how long, the Fund will use these temporary strategies. There can be no assurance that such
strategies will be successful.
Principal Strategies
The following provides information regarding the types of securities and other instruments in which the Fund will ordinarily invest. A
more detailed discussion of these and other instruments and non-principal investment techniques that may be used by the Fund is
provided under
“
Investment Policies and Techniques
”
in the Statement of Additional Information.
High Yield Securities
The Fund may invest without limit in debt instruments that are, at the time of purchase, rated below
“
investment grade
”
by at least one
of Moody’s Investors Service, Inc. (
“
Moody’s
”
), S&P Global Ratings or Fitch, or unrated but determined by PGIM to be of comparable
quality.
“
Investment grade
”
means a rating, in the case of Moody’s, of Baa3 or higher, or in the case of S&P and Fitch, of BBB- or
higher. The Fund may invest in securities of stressed or distressed issuers, which include securities at risk of being in default as to the
repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or
more NRSROs or, if unrated, are determined by PGIM to be of comparable quality. The Fund may invest in defaulted securities and
debtor-in-possession financings. Below investment grade securities are commonly referred to as
“
high yield
”
securities or
“
junk bonds.
”
High yield securities involve a greater degree of risk (in particular, a greater risk of default) than, and special risks in addition to the risks
associated with, investment grade debt obligations. While offering a greater potential opportunity for capital appreciation and higher
yields, high yield securities typically entail greater potential price volatility and may be less liquid than higher-rated securities. High yield
securities may be regarded as predominantly speculative with respect to the issuer’s continuing ability to make timely principal and
interest payments. They also may be more susceptible to real or perceived adverse economic and competitive industry conditions than
higher-rated securities. Debt securities in the lowest investment grade category also may be considered to possess some speculative
characteristics by certain ratings agencies. The market values of high yield securities tend to reflect individual developments of the
issuer to a greater extent than do higher-quality securities, which tend to react mainly to fluctuations in the general level of interest rates.
In addition, lower-quality debt securities tend to be more sensitive to general economic conditions. Certain emerging market
23
governments that issue high yield securities in which the Fund may invest are among the largest debtors to commercial banks, foreign
governments and supranational organizations, such as the World Bank, and may not be able or willing to make principal and/or interest
payments as they come due.
Credit ratings and unrated securities
Rating agencies are private services that provide ratings of the credit quality of debt obligations. Appendix A to this prospectus describes
the various ratings assigned to debt obligations by Moody’s, S&P and Fitch. As noted in Appendix A, Moody’s, S&P and Fitch may
modify their ratings of securities to show relative standing within a rating category, with the addition of numerical modifiers (1, 2 or 3) in
the case of Moody’s, and with the addition of a plus (+) or minus (-) sign in the case of S&P and Fitch. Ratings assigned by a rating
agency are not absolute standards of credit quality and do not evaluate market risks. Rating agencies may fail to make timely changes in
credit ratings, and an issuer’s current financial condition may be better or worse than a rating indicates. The Fund will not necessarily
sell a security when its rating is reduced below its rating at the time of purchase. The ratings of a debt security may change over time.
Moody’s, S&P and Fitch monitor and evaluate the ratings assigned to securities on an ongoing basis. As a result, debt instruments held
by the Fund could receive a higher rating (which would tend to increase their value) or a lower rating (which would tend to decrease
their value) during the period in which they are held by the Fund. The Fund may invest without limit in unrated securities (which are not
rated by a rating agency) if PGIM determines, in its sole discretion, that the security is of comparable quality to a rated security that the
Fund may purchase. In making determinations, PGIM may take into account different factors than those taken into account by rating
agencies, and PGIM’s rating of a security may differ from the rating that a rating agency may have given the same securities. Unrated
securities may be less liquid than comparable rated securities and involve the risk that PGIM may not accurately evaluate the security’s
comparative credit quality, which could result in the Fund’s portfolio having a higher level of credit and/or high yield risk than PGIM has
estimated or desires for the Fund, and could negatively impact the Fund’s performance and/or returns. The Fund may invest a
substantial portion of its assets in unrated securities and therefore may be particularly subject to the associated risks. Analysis of the
creditworthiness of issuers of high yield securities may be more complex than for issuers of higher-quality debt obligations. To the extent
that the Fund invests in high yield and/or unrated securities, the Fund’s success in achieving its investment objective may depend more
heavily on the portfolio managers’ creditworthiness analysis than if the Fund invested exclusively in higher-quality and rated securities.
Mortgage-Related and Other Asset-Backed Instruments
The Fund may invest in a variety of mortgage-related and other asset-backed instruments issued by government agencies or other
governmental entities or by private originators or issuers. Mortgage-related assets include, but are not limited to, any security, instrument
or other asset that is related to U.S. or non U.S. mortgages, including those issued by private originators or issuers, or issued or
guaranteed as to principal or interest by the U.S. Government or its agencies or instrumentalities or by non-U.S. governments or
authorities, such as, without limitation, assets representing interests in, collateralized or backed by, or whose values are determined in
whole or in part by reference to any number of mortgages or pools of mortgages or the payment experience of such mortgages or pools
of mortgages, including Real Estate Mortgage Investment Conduits (
“
REMICs
”
), which could include resecuritizations of REMICs
(
“
Re-REMICs
”
), mortgage pass-through securities, inverse floaters, collateralized mortgage obligations, collateralized loan obligations,
multiclass pass-through securities, private mortgage pass- through securities, stripped mortgage securities (generally interest-only and
principal-only securities), mortgage-related asset backed securities and mortgage-related loans (including through participations,
assignments, originations and whole loans), including commercial and residential mortgage loans. Exposures to mortgage-related assets
through derivatives or other financial instruments will be considered investments in mortgage-related assets.
Mortgage Pass-Through Securities
Interests in pools of mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments
are a
“
pass through
”
of the monthly payments made by the individual borrowers on their residential or commercial mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from
the sale of the underlying property, refinancing or foreclosure, net of fees or costs that may be incurred. Some mortgage-related assets
(such as securities issued by GNMA) are described as
“
modified pass-through.
”
These securities entitle the holder to receive all interest
and principal payments owed on the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether the
mortgagor actually makes the payment.
The rate of pre-payments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the
effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. To the
extent that unanticipated rates of prepayment on underlying mortgages increase the effective duration of a mortgage-related security, the
volatility of such security can be expected to increase. The mortgage market in the United States has experienced heightened difficulties
over the past several years that may adversely affect the performance and market value of mortgage-related investments. Delinquencies
24
and losses on residential and commercial mortgage loans (especially subprime and second-lien residential mortgage loans) generally
have increased recently and may continue to increase, and a decline in or flattening of property values (as has recently been
experienced and may continue to be experienced in many markets) may exacerbate such delinquencies and losses. Borrowers with
adjustable-rate mortgage loans are more sensitive to changes in interest rates, which affect their monthly mortgage payments, and may
be unable to secure replacement mortgages at comparably low interest rates. Also, a number of residential mortgage loan originators
have recently experienced serious financial difficulties or bankruptcy. Owing largely to the foregoing, reduced investor demand for
mortgage loans and mortgage-related securities and increased investor yield requirements have caused limited liquidity in the secondary
market for mortgage-related securities, which can adversely affect the market value of mortgage-related securities. It is possible that
such limited liquidity in such secondary markets could continue or worsen.
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. 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 in
the future.
Privately Issued Mortgage-Related Securities
Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market
issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may be the originators and/or servicers
of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental
issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely payment of interest and principal of these pools may
be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of
credit, which may be issued by governmental entities or private insurers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related security meets the Fund’s investment quality standards.
There can be no assurance that insurers or guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or guarantees if, through an examination of the loan
experience and practices of the originators/servicers and poolers, PGIM determines that the securities meet the Fund’s quality
standards. Securities issued by certain private organizations may not be readily marketable.
Privately issued mortgage-related securities are not subject to the same underwriting requirements for the underlying mortgages that are
applicable to those mortgage-related securities that have a government or government-sponsored entity guarantee. As a result, the
mortgage loans underlying privately issued mortgage-related securities may, and frequently do, have less favorable collateral, credit risk
or other underwriting characteristics than government or government-sponsored mortgage-related securities and have wider variances in
a number of terms including interest rate, term, size, purpose and borrower characteristics. Mortgage pools underlying privately issued
mortgage-related securities more frequently include second mortgages, high loan-to-value ratio mortgages and manufactured housing
loans, in addition to commercial mortgages and other types of mortgages where a government or government-sponsored entity
guarantee is not available. The coupon rates and maturities of the underlying mortgage loans in a privately-issued mortgage-related
securities pool may vary to a greater extent than those included in a government guaranteed pool, and the pool may include subprime
mortgage loans. Subprime loans are loans made to borrowers with weakened credit histories or with a lower capacity to make timely
payments on their loans. For these reasons, the loans underlying these securities have had in many cases higher default rates than
those loans that meet government underwriting requirements.
The risk of non-payment is greater for mortgage-related securities that are backed by loans that were originated under weak underwriting
standards, including loans made to borrowers with limited means to make repayment. A level of risk exists for all loans, although,
historically, the poorest performing loans have been those classified as subprime. Other types of privately issued mortgage-related
securities, such as those classified as pay-option adjustable rate or Alt-A have also performed poorly. Even loans classified as prime have
25
experienced higher levels of delinquencies and defaults. The substantial decline in real property values across the U.S. has exacerbated
the level of losses that investors in privately issued mortgage-related securities have experienced. It is not certain when these trends may
reverse. Market factors that may adversely affect mortgage loan repayment include adverse economic conditions, unemployment, a
decline in the value of real property, or an increase in interest rates.
Privately issued mortgage-related securities are not traded on an exchange and there may be a limited market for the securities,
especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market,
mortgage-related securities held in the Fund’s portfolio may be particularly difficult to value because of the complexities involved in
assessing the value of the underlying mortgage loans.
The Fund may purchase privately issued mortgage-related securities that are originated, packaged and serviced by third party entities. It
is possible these third parties could have interests that are in conflict with the holders of mortgage-related securities, and such holders
(such as the Fund) could have rights against the third parties or their affiliates. For example, if a loan originator, servicer or its affiliates
engaged in negligence or willful misconduct in carrying out its duties, then a holder of the mortgage-related security could seek recourse
against the originator/servicer or its affiliates, as applicable. Also, as a loan originator/servicer, the originator/servicer or its affiliates may
make certain representations and warranties regarding the quality of the mortgages and properties underlying a mortgage-related
security. If one or more of those representations or warranties is false, then the holders of the mortgage-related securities (such as the
Fund) could trigger an obligation of the originator/servicer or its affiliates, as applicable, to repurchase the mortgages from the
issuing trust.
Notwithstanding the foregoing, many of the third parties that are legally bound by trust and other documents have failed to perform their
respective duties, as stipulated in such trust and other documents, and investors have had limited success in enforcing terms. To the
extent third party entities involved with privately issued mortgage-related securities are involved in litigation relating to the securities,
actions may be taken that are adverse to the interests of holders of the mortgage-related securities, including the Fund. For example,
third parties may seek to withhold proceeds due to holders of the mortgage-related securities, including the Fund, to cover legal or
related costs. Any such action could result in losses to the Fund.
PGIM seeks to manage the portion of the Fund’s assets committed to privately issued mortgage-related securities in a manner consistent
with the Fund’s investment objective, policies and overall portfolio risk profile. In determining whether and how much to invest in
privately issued mortgage-related securities, and how to allocate those assets, PGIM will consider a number of factors. These may
include, but are not limited to: (1) the nature of the borrowers (e.g., residential vs. commercial); (2) the collateral loan type (e.g., for
residential: First Lien - Jumbo/Prime, First Lien - Alt-A, First Lien - Subprime, First Lien - Pay-Option or Second Lien; for commercial:
Conduit, Large Loan or Single Asset / Single Borrower); and (3) in the case of residential loans, whether they are fixed rate or adjustable
mortgages. Each of these criteria can cause privately issued mortgage-related securities to have differing primary economic
characteristics and distinguishable risk factors and performance characteristics.
Collateralized Mortgage Obligations
A CMO is a debt obligation of a legal entity that is collateralized by mortgages and divided into classes. Similar to a bond, interest and
prepaid principal is paid, in most cases, on a monthly basis. CMOs may be collateralized by whole mortgage loans or private mortgage
bonds, but are generally collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC or FNMA and
their income streams. CMOs are structured into multiple classes, often referred to as
“
tranches,
”
with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. The riskiest portion is
the
“
equity
”
tranche which bears the bulk of defaults and serves to protect the other, more senior tranches from default in all but the
most severe circumstances. Actual maturity and average life will depend upon the pre-payment experience of the collateral. In the case
of certain CMOs (known as
“
sequential pay
”
CMOs), payments of principal received from the pool of underlying mortgages, including
prepayments, are applied to the classes of CMOs in the order of their respective final distribution dates. Thus, no payment of principal
will be made to any class of sequential pay CMOs until all other classes having an earlier final distribution date have been paid in full.
CMOs may be less liquid and may exhibit greater price volatility than other types of mortgage- or asset-backed instruments.
Commercial Mortgage-Backed Securities
Commercial mortgage-backed securities (
“
CMBSs
”
) include securities that reflect an interest in, and are secured by, mortgage loans on
commercial real property. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the
real estate securing the underlying mortgage loans. These risks reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments and the ability of a property to attract and retain tenants. Commercial
mortgage-backed securities may be less liquid and exhibit greater price volatility than other types of mortgage- or
asset-backed instruments.
26
CMO Residuals
CMO residuals are mortgage securities issued by agencies or instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment
banks and special purpose entities of the foregoing. The cash flow generated by the mortgage assets underlying a series of a CMO is
applied first to make required payments of principal and interest on the CMO and second to pay the related administrative expenses and
any management fee of the issuer. The residual in a CMO structure generally represents the interest in any excess cash flow remaining
after making the foregoing payments. Each payment of such excess cash flow to a holder of the related CMO residual represents income
and/or a return of capital. The amount of residual cash flow resulting from a CMO will depend on, among other things, the
characteristics of the mortgage assets, the coupon rate of each class of CMO, prevailing interest rates, the amount of administrative
expenses and the prepayment experience on the mortgage assets. In particular, the yield to maturity on CMO residuals is extremely
sensitive to prepayments on the related underlying mortgage assets, in the same manner as an interest-only (or IO) class of stripped
mortgage-backed securities (described below). In addition, if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. As described below with respect to stripped mortgage-backed securities, in certain circumstances the Fund
may fail to recoup fully its initial investment in a CMO residual. CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. CMO residuals may, or pursuant to an exemption therefrom, may
not, have been registered under the Securities Act. CMO residuals, whether or not registered under the Securities Act, may be subject to
certain restrictions on transferability.
Adjustable Rate Mortgage-Backed Securities
Adjustable rate mortgage-backed securities (
“
ARMs
”
) have interest rates that reset at periodic intervals. Acquiring ARMs permits the
Fund to participate in increases in prevailing current interest rates through periodic adjustments in the coupons of mortgages underlying
the pool on which ARMs are based. Such ARMs generally have higher current yield and lower price fluctuations than is the case with
more traditional fixed income debt securities of comparable rating and maturity. In addition, when prepayments of principal are made on
the underlying mortgages during periods of rising interest rates, the Fund can reinvest the proceeds of such prepayments at rates higher
than those at which they were previously invested. Mortgages underlying most ARMs, however, have limits on the allowable annual or
lifetime increases that can be made in the interest rate that the mortgagor pays. Therefore, if current interest rates rise above such limits
over the period of the limitation, the Fund, when holding an ARM, does not benefit from further increases in interest rates. Moreover,
when interest rates are in excess of coupon rates (i.e., the rates being paid by mortgagors) of the mortgages, ARMs behave more like
fixed income securities and less like adjustable-rate securities and are subject to the risks associated with fixed income securities. In
addition, during periods of rising interest rates, increases in the coupon rate of adjustable-rate mortgages generally lag current market
interest rates slightly, thereby creating the potential for capital depreciation on such securities.
Stripped Mortgage-Backed Securities
SMBSs are derivative multi-class mortgage securities. SMBSs may be issued by agencies or instrumentalities of the U.S. Government, or
by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing. SMBSs are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage assets. A common type of SMBS will have one class
receiving some of the interest and most of the principal from the mortgage assets, while the other class will receive most of the interest
and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the IO class), while the other class
will receive all of the principal (the principal-only or PO class). The yield to maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have
a material adverse effect on the Fund’s yield to maturity from these securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to recoup some or all of its initial investment in these securities even if the
security is in one of the highest rating categories.
Collateralized Bond Obligations, Collateralized Loan Obligations and other Collateralized Debt Obligations
The Fund may invest in each of CBOs, CLOs, other CDOs and other similarly structured securities. CBOs, CLOs and CDOs are types of
asset-backed securities. A CBO is a trust which 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. Other CDOs are trusts backed by other types of assets representing obligations of various parties. CBOs, CLOs and other
CDOs may charge management fees and administrative expenses. For CBOs, CLOs and CDOs, 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
27
circumstances. Since they are partially protected from defaults, senior tranches from a CBO trust, CLO trust or trust of another CDO
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, CLO or other CDO 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, CLO or other CDO securities as a class. The Fund may invest in any tranche, including the equity tranche, of a CBO, CLO or other
CDO. The risks of an investment in a CBO, CLO or other CDO depend largely on the type of the collateral securities and the class of the
instrument in which the Fund invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus, are not registered
under the securities laws. As a result, investments in CBOs, CLOs and other CDOs may be characterized by the Fund as illiquid
investments, however an active dealer market may exist for CBOs, CLOs and other CDOs allowing them to qualify for Rule 144A under
the Securities Act. In addition to the normal risks associated with debt instruments discussed elsewhere in this prospectus and in the
Statement of Additional Information (e.g., prepayment risk, credit risk, liquidity risk, market risk, structural risk, legal risk and interest
rate risk (which may be exacerbated if the interest rate payable on a structured financing changes based on multiples of changes in
interest rates or inversely to changes in interest rates) and default risk), CBOs, CLOs and other CDOs may carry additional risks
including, but are 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 possibility that investments in
CBOs, CLOs and other CDOs are subordinate to other classes or tranches thereof; and (iv) 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.
Asset-Backed Securities
Asset-backed securities (
“
ABS
”
) are bonds backed by pools of loans or other receivables. ABS are created from many types of assets,
including auto loans, credit card receivables, home equity loans and student loans. ABS are typically issued through special purpose
vehicles that are bankruptcy remote from the issuer of the collateral. The credit quality of an ABS transaction depends on the
performance of the underlying assets. To protect ABS investors from the possibility that some borrowers could miss payments or even
default on their loans, ABS include various forms of credit enhancement. Some ABS, particularly home equity loan ABS, are subject to
interest rate risk and prepayment risk. A change in interest can affect the pace of payments on the underlying loans, which in turn
affects total return on the securities. ABS also carry credit or default risk. If many borrowers on the underlying loans default, losses could
exceed the credit enhancement level and result in losses to investors in an ABS. In addition, ABS have structural risk due to a unique
characteristic known as early amortization, or early payout, risk. Built into the structure of most ABS are triggers for early payout,
designed to protect investors from losses. These triggers are unique to each transaction and can include a big rise in defaults on the
underlying loans, a sharp drop in the credit enhancement level or even the bankruptcy of the originator. Once early amortization begins,
all incoming loan payments (after expenses are paid) are used to pay investors as quickly as possible based upon a predetermined
priority of payment. Please see
“
Investment Objectives and Strategies—Mortgage-Related and Other Asset-Backed Instruments
”
and
“
Risks—Mortgage-Backed and Asset-Backed Securities Risk
”
in this prospectus for a more detailed description of the types of
mortgage-related and other asset-backed instruments in which the Fund may invest and their related risks.
Asset-Based Finance
The Fund may invest in and lend against pools of assets with contractual cash flows. The Fund seeks to invest in investment grade,
non-investment grade, and residual or first-loss tranches of these pools of assets. The asset-based finance investments the Fund may
make include, without limitation, senior, whole and other loans, credit-linked and other notes, commercial and/or other mortgage-backed
securities, CLOs, other securitizations, structured financings and/or asset-based instruments.
Loans and Other Indebtedness, Loan Participations and Assignments
The Fund may purchase indebtedness and participations in loans held and/or originated by private financial institutions, including
commercial and residential mortgage loans, corporate loans and consumer loans, as well as interests and/or servicing or similar rights in
such loans. Such instruments may be secured or unsecured and may be newly-originated (and may be specifically designed for the
Fund). Indebtedness is different from traditional debt securities in that debt securities are part of a large issue of securities to the public
whereas indebtedness may not be a security, and may represent a specific loan to a borrower. Loan participations typically represent
direct participation, together with other parties, in a loan to a borrower, and generally are offered by banks or other financial institutions
or lending syndicates. The Fund may participate in such syndications, or can buy part of a loan, becoming a part lender. When
purchasing indebtedness and loan participations, the Fund assumes the credit risk associated with the borrower and may assume the
credit risk associated with an interposed bank or other financial intermediary. The indebtedness and loan participations that the Fund
may acquire may not be rated by any NRSRO. A loan is often administered by an agent bank acting as agent for all holders. The agent
bank administers the terms of the loan, as specified in the loan agreement. In addition, the agent bank is normally responsible for the
collection of principal and interest payments from the borrower and the apportionment of these payments to the credit of all institutions
which are parties to the loan agreement. Unless, under the terms of the loan or other indebtedness, the Fund has direct recourse
against the borrower, the Fund may have to rely on the agent bank or other financial intermediary to apply appropriate credit remedies
against a borrower.
28
A financial institution’s employment as agent bank might be terminated in the event that it fails to observe a requisite standard of care or
becomes insolvent. A successor agent bank would generally be appointed to replace the terminated agent bank, and assets held by the
agent bank under the loan agreement would likely remain available to holders of such indebtedness. However, if assets held by the
agent bank for the benefit of the Fund were determined to be subject to the claims of the agent bank’s general creditors, the Fund might
incur certain costs and delays in realizing payment on a loan or loan participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance company or governmental agency) similar risks may arise.
Purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of
principal and interest. Loans are subject to the risk that scheduled interest or principal payments will not be made in a timely manner or
at all, either of which may adversely affect the values of the loan. If the Fund does not receive scheduled interest or principal payments
on such indebtedness, the NAV, market share price and/ or yield of the Common Shares could be adversely affected. Loans that are fully
secured offer the Fund more protection than an unsecured loan in the event of non-payment of scheduled interest or principal.
However, the collateral underlying a loan may be unavailable or insufficient to satisfy a borrower’s obligation, and the Fund could
become part owner of any collateral if a loan is foreclosed, subjecting the Fund to costs associated with owning and disposing of the
collateral. In the event of the bankruptcy of a borrower, the Fund could experience delays or limitations in its ability to realize the benefits
of any collateral securing a loan.
The Fund may acquire loans and loan participations, or originate loans with credit quality comparable to that of issuers of its securities
investments. Indebtedness of companies whose creditworthiness is poor in quality involves substantially greater risks, and may be highly
speculative. Some companies may never pay off their indebtedness, or may pay only a small fraction of the amount owed. Consequently,
when acquiring indebtedness of companies with poor credit, the Fund bears a substantial risk of losing the entire amount of the
instrument acquired. The Fund may make purchases of indebtedness and loan participations to achieve income and/or capital
appreciation, rather than to seek income. The Fund limits the amount of its total assets that it will invest in issuers within the same
industry (except with respect to the Fund’s policy to concentrate in mortgage-related assets). For purposes of this limit, the Fund
generally will treat the corporate borrower as the
“
issuer
”
of indebtedness held by the Fund. In the case of loan participations where a
bank or other lending institution serves as a financial intermediary between the Fund and the corporate borrower, if the participation
does not shift to the Fund the direct debtor-creditor relationship with the corporate borrower, SEC interpretations require the Fund to
treat both the lending bank or other lending institution and the corporate borrower as
“
issuers.
”
Treating a financial intermediary as an
issuer of indebtedness may restrict the Fund’s ability to invest in indebtedness related to a single financial intermediary, or a group of
intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies and industries.
Loans and other types of direct indebtedness (which the Fund may purchase or otherwise gain exposure to) may not be readily
marketable and may be subject to restrictions on resale. In connection with certain loan transactions, transaction costs that are borne by
the Fund may include the expenses of third parties that are retained to assist with reviewing and conducting diligence, negotiating,
structuring and servicing a loan transaction, and/or providing other services in connection therewith. Furthermore, the Fund may incur
such costs in connection with loan transactions that are pursued by the Fund but not ultimately consummated (so-called
“
broken deal
costs
”
). In some cases, negotiations involved in disposing of indebtedness may require weeks to complete.
Consequently, some indebtedness may be difficult or impossible to dispose of readily at what PGIM believes to be a fair price. In
addition, valuation of illiquid indebtedness involves a greater degree of judgment in determining the Fund’s NAV than if that value were
based on available market quotations, and could result in significant variations in the Fund’s daily share price. At the same time, some
loan interests are traded among certain financial institutions and accordingly may be deemed liquid. As the market for different types of
indebtedness develops, the liquidity of these instruments is expected to improve.
Acquisitions of loan participations are considered to be debt obligations for purposes of the Fund’s investment restriction relating to the
lending of funds or assets by the Fund. Acquisitions of loans through a purchase of a loan, loan origination or direct assignment of a
financial institution’s interests with respect to a loan may involve additional risks to the Fund. The purchaser of an assignment typically
succeeds to all the rights and obligations under the loan agreement with the same rights and obligations as the assigning lender.
Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights
and obligations acquired by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning
lender. If a loan is foreclosed, the Fund could become part owner of any collateral, and would bear the costs and liabilities associated
with owning and disposing of the collateral. In addition, it is conceivable that under emerging legal theories of lender liability, the Fund
could be held liable as co-lender. It is unclear whether loans and other forms of direct indebtedness offer securities law protections
against fraud and misrepresentation. In the absence of definitive regulatory guidance, the Fund relies on PGIM’s research in an attempt
to avoid situations where fraud or misrepresentation could adversely affect the Fund.
For whole loans purchased by the Fund (which would not include, for example, underlying loans in a securitized product held by the
Fund), it is expected that a qualified custodian of the Fund will typically receive or be provided with access to an executed loan package.
While the executed packages may differ for certain investments, it is typically comprised of evidence in the form of a promissory note or
29
similar document, an executed copy of the underlying loan agreement or security instrument, and an executed copy of the loan
assignment. Although the Fund’s custodian would have access to loan files, whether in electronic form or otherwise, it is expected that
the enforcement of the loans will generally be handled by the loan servicer. The Fund may make, participate in or acquire
debtor-in-possession financings (commonly known as
“
DIP financings
”
). DIP financings are arranged when an entity seeks the
protections of the bankruptcy court under Chapter 11 of the U.S. Bankruptcy Code. These financings allow the entity to continue its
business operations while reorganizing under Chapter 11. Such financings constitute senior liens on unencumbered security (i.e.,
security not subject to other creditors’ claims). There is a risk that the entity will not emerge from Chapter 11 and be forced to liquidate
its assets under Chapter 7 of the U.S. Bankruptcy Code. In the event of liquidation, the Fund’s only recourse will be against the property
securing the DIP financing.
Loan Origination
The Fund may seek to originate loans and invest in loans held and/or originated by private financial institutions or PGIM, specifically
through direct lending to companies or corporations, including foreign (non-U.S.) entities, which may be in the form of, without
limitation, corporate loans or other types of loans, which may be in the form of secured and unsecured notes, senior and second lien
loans, mezzanine loans, bridge loans or similar investments. Such borrowers may have credit ratings that are determined by one or more
NRSROs or PGIM to be below investment grade. The loans the Fund originates may vary in maturity and/or duration. The Fund is not
limited in the amount, size or type of loans it may originate, including with respect to a single borrower or with respect to borrowers that
are determined to be below investment grade, other than pursuant to any applicable law or the Fund’s fundamental investment
restrictions and related interpretations. The Fund’s origination of loans may also be limited by the Fund’s intention to qualify as a RIC.
The Fund will retain all fees received in connection with originating or structuring the terms of any such loan.
Through its loan origination strategy, PGIM Fixed Income will be engaged primarily in the origination of loans to upper-middle market
and large cap borrowers while PPC will be engaged primarily in the origination of loans to middle-market borrowers, as described below.
PGIM Fixed Income utilizes a rigorous bottom-up, relative value-based investment approach with a focus on emphasizing company
fundamentals to identify creditworthy borrowers and reduce downside risk from defaults.
Throughout the underwriting process, PGIM Fixed Income may consider the following to evaluate the opportunity: an assessment of
industry fundamentals, asset assessment, management expertise, suite of products/services, competitive position in its markets, barriers
to entry, valuation, operating and financial performance (historical and forward looking), organic and inorganic growth prospects, as well
as the expansion potential of its markets. PGIM Fixed Income seeks to identify the specific sources of cash flow and whether they are
recurring or one-time in nature. PGIM Fixed Income also reviews an issuer’s other available sources of cash and liquidity, which may
include the type and scope of available bank lines, access to capital markets (both debt and equity), and asset values. PGIM Fixed
Income typically assesses issuers within a given industry and across the relevant industries in a sector to seek to determine the degrees
of relative value. This proprietary relative value process is periodically performed across the global leverage finance platform and used to
guide portfolio construction across range of strategies that have exposure. PGIM Fixed Income's origination strategy is broadly focused
on upper-middle market borrowers in the United States, United Kingdom and Europe defined as companies with $75 million or more of
EBITDA. Borrowers may be at times supported by financial or private equity sponsors.
PPC focuses on leveraging its unique origination network to produce a diverse portfolio of both non-sponsored, non-change of control
loans coupled with a selective approach to sponsored loans. This origination strategy is broadly focused on middle market borrowers in
the United States, United Kingdom, Western Europe and Australia defined as companies with up to $75 million of EBITDA, further
segmented between Lower Middle Market (lower than $20 million of EBITDA) and Core Middle Market (between $20 million-$75 million
of EBITDA). PPC believes its non-sponsored origination capability offers diversification and differentiation to the portfolio with those
borrowers typically sized between $25-$75 million of EBITDA. PPC believes the size and longevity of these borrowers more than offset
non-sponsored risk (i.e., lack of equity fund capital/governance). PPC is also a leading sponsored direct lender, focused on the core and
lower middle market with borrowers typically ranging from $10-$50 million of EBITDA. On the lower end of this range, smaller company
risk is offset by equity contribution and sponsor governance. In the majority of its financings, PPC typically seeks to be sole, lead, or
co-lead lender to exert control and influence over terms, relationship management, and investment outcome.
This direct lending origination approach enables the Fund to grow its direct lending investment pace while also remaining disciplined on
risk credit underwriting. The Fund maintains its investment discipline in directly originated loans by: (i) focusing on first lien senior
secured loans, which generally provides for lower rates of defaults and higher recoveries; (ii) seeking deals with maintenance
covenant(s) and terms protection for equity friendly events; (iii) average entry leverage of less than 4.5x debt to EBITDA and less than
50% LTV (Loan to Enterprise Value); (iv) maintaining origination capabilities through its regional-office network allowing it to be selective;
and (v) deploying a fundamental credit-focused underwriting process resulting in selective investment decisions.
30
In determining whether to make a direct loan, the Fund will rely primarily upon the creditworthiness of the borrower and/or any collateral
for payment of interest and repayment of principal. In making a direct loan, the Fund is exposed to the risk that the borrower may
default or become insolvent and, consequently, that the Fund will lose money on the loan. Furthermore, direct loans may subject the
Fund to liquidity and interest rate risk and certain direct loans may be deemed illiquid. Direct loans are not publicly traded and may not
have a secondary market. The lack of a secondary market for direct loans may have an adverse impact on the ability of the Fund to
dispose of a direct loan and/or to value the direct loan.
When engaging in direct lending, the Fund’s performance may depend, in part, on the ability of the Fund to originate loans on
advantageous terms. In originating and purchasing loans, the Fund will often compete with a broad spectrum of lenders. Increased
competition for, or a diminishment in the available supply of, qualifying loans could result in lower yields on and/or less advantageous
terms of such loans, which could reduce Fund performance.
As part of its lending activities, the Fund may originate loans to companies that are experiencing significant financial or business
difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings or that are rated
“
below
investment grade
”
by a national recognized ratings agency. Although the terms of such financing may result in significant financial
returns to the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary for
successful financing to companies experiencing significant business and financial difficulties is unusually high. Different types of assets
may be used as collateral for the Fund’s loans and, accordingly, the valuation of and risks associated with such collateral will vary by
loan. There is no assurance that the Fund will correctly evaluate the value of the assets collateralizing the Fund’s loans or the prospects
for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a company that the Fund
funds, the Fund may lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less
than the amount of the loan advanced by the Fund or its affiliates to the borrower. Furthermore, in the event of a default by a borrower,
the Fund may have difficulty disposing of the assets used as collateral for a loan.
Bridge loans are short-term loan arrangements (e.g., 12 to 18 months) typically made by a borrower in anticipation of intermediate-term
or long-term permanent financing. Most bridge loans are structured as floating-rate debt with step-up provisions under which the
interest rate on the bridge loan rises over time. Thus, the longer the loan remains outstanding, the more the interest rate increases. In
addition, bridge loans commonly contain a conversion feature that allows the bridge loan investor to convert its loan interest into senior
exchange notes if the loan has not been prepaid in full on or prior to its maturity date. Bridge loans may be subordinate to other debt
and may be secured or unsecured. Like any loan, bridge loans involve credit risk. Bridge loans are generally made with the expectation
that the borrower will be able to obtain permanent financing in the near future. Any delay in obtaining permanent financing subjects the
bridge loan investor to increased risk. A borrower's use of bridge loans also involves the risk that the borrower may be unable to locate
permanent financing to replace the bridge loan, which may impair the borrower's perceived creditworthiness.
Delayed Funding Loans and Revolving Credit Facilities
The Fund may invest in or acquire participations in, delayed funding loans and revolving credit facilities, in which a lender agrees to
make loans up to a maximum amount upon demand by the borrower during a specified term. A revolving credit facility differs from a
delayed funding loan in that as the borrower repays the loan, an amount equal to the repayment may be borrowed again during the term
of the revolving credit facility. Delayed funding loans and revolving credit facilities usually provide for floating or variable rates of interest.
These commitments may have the effect of requiring the Fund to increase its investment in an issuer at a time when it might not
otherwise decide to do so (including at a time when the issuer’s financial condition makes it unlikely that such amounts will be repaid).
The Fund may invest in delayed funding loans and revolving credit facilities with credit quality comparable to that of issuers of its
securities investments. Delayed funding loans and revolving credit facilities may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, the Fund may be unable to sell such investments at an opportune time or
may have to resell them at less than fair market value.
U.S. Government Securities
U.S. government securities are obligations of and, in certain cases, guaranteed by, the U.S. government, its agencies or
instrumentalities. The U.S. government does not guarantee the NAV of the Fund’s Common Shares. Some U.S. government securities,
such as Treasury bills, notes and bonds, and securities guaranteed by GNMA, are supported by the full faith and credit of the United
States; others, such as those of the FHLBs, are supported by the right of the issuer to borrow from the U.S. Department of the Treasury
(the
“
U.S. Treasury
”
); others, such as those of FNMA, are supported by the discretionary authority of the U.S. government to purchase
the agency’s obligations; and still others are supported only by the credit of the instrumentality. U.S. government securities may include
zero coupon securities, which do not distribute interest on a current basis and tend to be subject to greater risk than interest-paying
securities of similar maturities.
31
Inverse Floaters
An inverse floater is a type of debt instrument that bears a floating or variable interest rate that moves in the opposite direction to interest
rates generally or the interest rate on another security or index. Changes in interest rates generally, or the interest rate of the other
security or index, inversely affect the interest rate paid on the inverse floater, with the result that the inverse floater’s price will be
considerably more volatile than that of a fixed-rate bond. The Fund may invest without limitation in inverse floaters, which brokers
typically create by depositing an income-producing instrument, which may be a mortgage-related asset, in a trust. The trust in turn
issues a variable rate security and inverse floaters. The interest rate for the variable rate security is typically determined by an index or an
auction process, while the inverse floater holder receives the balance of the income from the underlying income-producing instrument
less an auction fee. The market prices of inverse floaters may be highly sensitive to changes in interest rates and prepayment rates on
the underlying securities, and may decrease significantly when interest rates increase or prepayment rates change. In a transaction in
which the Fund purchases an inverse floater from a trust, and the underlying bond was held by the Fund prior to being deposited into
the trust, the Fund typically treats the transaction as a secured borrowing for financial reporting purposes. As a result, for financial
reporting purposes, the Fund will generally incur a non-cash interest expense with respect to interest paid by the trust on the variable
rate securities, and will recognize additional interest income in an amount directly corresponding to the non-cash interest expense.
Therefore, the Fund’s NAV per Common Share and performance are not affected by the non-cash interest expense. This accounting
treatment does not apply to inverse floaters acquired by the Fund when the Fund did not previously own the underlying bond.
Foreign (Non-U.S.) Investments
The Fund may invest some or all of its assets in U.S. dollar-denominated debt obligations of foreign issuers or supranational government
agencies. Subject to the limitations set forth in this prospectus, the Fund may invest in securities denominated in foreign currencies,
including sovereign debt issued by foreign developed and emerging market governments and their respective sub-divisions, agencies or
instrumentalities, government sponsored enterprises and supranational government entities. Supranational entities include international
organizations that are organized or supported by one or more government entities to promote economic reconstruction or development
and by international banking institutions and related governmental agencies. As a holder of such debt securities, the Fund may be
requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. In addition, there are
generally no bankruptcy proceedings similar to those in the United States by which defaulted foreign debt securities may be collected.
Investing in foreign securities involves special risks and considerations not typically associated with investing in U.S. securities. See
“
Risks—Non-U.S. Investment Risks.
”
PGIM generally considers an instrument to be economically tied to a non-U.S. country if the issuer
is a foreign (non-U.S.) government (or any political subdivision, agency, authority or instrumentality of such government), or if the issuer
is organized under the laws of a non-U.S. country. In the case of money market instruments other than commercial paper and
certificates of deposit, such instruments will be considered economically tied to a non-U.S. country if the issuer of such money market
instrument is organized under the laws of a non-U.S. country. In the case of commercial paper and certificates of deposit, instruments
will be considered economically tied to a non-U.S. country if the
“
country of exposure
”
of such instrument is a non-U.S. country, as
determined by the criteria set forth below. With respect to derivative instruments, PGIM generally considers such instruments to be
economically tied to non-U.S. countries if the underlying assets are foreign currencies (or baskets or indexes of such currencies), or
instruments or securities that are issued by foreign governments or issuers organized under the laws of a non-U.S. country (or if the
underlying assets are money market instruments other than commercial paper and certificates of deposit, the issuer of such money
market instrument is organized under the laws of a non-U.S. country, or, in the case of underlying assets that are commercial paper or
certificates of deposit, if the
“
country of exposure
”
of such money market instrument is a non-U.S. country). A security’s
“
country of
exposure
”
is determined by PGIM using certain factors provided by a third-party analytical service provider. The factors are applied in
order such that the first factor to result in the assignment of a country determines the
“
country of exposure.
”
Both the factors and the
order in which they are applied may change in the discretion of PGIM. The current factors, listed in the order in which they are applied,
are: (i) if an asset-backed or other collateralized security, the country in which the collateral backing the security is located; (ii) the
“
country of risk
”
of the issuer; (iii) if the security is guaranteed by the government of a country (or any political subdivision, agency,
authority or instrumentality of such government), the country of the government or instrumentality providing the guarantee; (iv) the
“
country of risk
”
of the issuer’s ultimate parent; or (v) the country where the issuer is organized or incorporated under the laws thereof.
“
Country of risk
”
is a separate four-part test determined by the following factors, listed in order of importance: (i) management location;
(ii) country of primary listing; (iii) sales or revenue attributable to the country; and (iv) reporting currency of the issuer. Further, where a
derivative instrument is exposed to an index, PGIM generally considers the derivative to be economically tied to each country
represented by the components of the underlying index pursuant to the criteria set forth in the preceding sentence.
The foreign securities in which the Fund may invest include without limitation Eurodollar obligations and
“
Yankee Dollar
”
obligations.
Eurodollar obligations are U.S. dollar-denominated certificates of deposit and time deposits issued outside the U.S. capital markets by
foreign branches of U.S. banks and by foreign banks. Yankee Dollar obligations are U.S. dollar-denominated obligations issued in the
U.S. capital markets by foreign banks. Eurodollar and Yankee Dollar obligations are generally subject to the same risks that apply to
domestic debt issues, notably credit risk, interest rate risk, market risk and liquidity risk. Additionally, Eurodollar (and to a limited extent,
Yankee Dollar) obligations are subject to certain sovereign risks. One such risk is the possibility that a sovereign country might prevent
32
capital, in the form of U.S. dollars, from flowing across its borders. Other risks include adverse political and economic developments; the
extent and quality of government regulation of financial markets and institutions; the imposition of foreign withholding or other taxes;
market disruptions, the possibility of security suspensions; the expropriation or nationalization of foreign issuers or the imposition of
sanctions or other similar measures.
Derivative Strategies
The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) for investment purposes,
leveraging purposes, or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. See
“
Leverage.
”
Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying
asset, reference rate or index, and may relate to, among others, individual debt instruments, interest rates, currencies or currency
exchange rates, commodities and related indexes. Examples of derivative instruments that the Fund may use include, without limitation,
futures and forward contracts (including foreign currency exchange contracts), call and put options (including options on futures
contracts), credit default swaps, total return swaps, basis swaps and other swap agreements. The Fund’s use of derivative instruments
involves risks different from, or possibly greater than, the risks associated with investment directly in securities and other more traditional
investments. See
“
Risks — Derivatives Risk.
”
Certain types of derivative instruments that the Fund may utilize are described elsewhere
in this section, including those described under
“
Certain Interest Rate Transactions
”
and
“
Credit Default Swaps
”
. Please see
“
Investment Policies and Techniques — Derivatives,
”
“
Investment Policies and Techniques — Structured Notes and Related
Instruments
”
and
“
Investment Policies and Techniques — Hybrid Instruments
”
in the Statement of Additional Information for additional
information about these and other derivative instruments that the Fund may use and the risks associated with such instruments. There
is no assurance that these derivative strategies will be available at any time or that PGIM will determine to use them for the Fund or, if
used, that the strategies will be successful. In addition, the Fund may be subject to certain restrictions on its use of derivative strategies
imposed by guidelines of one or more rating agencies that may issue ratings for any preferred shares issued by the Fund.
Certain Interest Rate Transactions
In order to reduce the interest rate risk inherent in the Fund’s underlying investments and capital structure, the Fund may (but is not
required to) enter into interest rate swap transactions. Interest rate swaps involve the exchange by the Fund with a counterparty of their
respective commitments to pay or receive interest, such as an exchange of fixed rate payments for floating rate payments. These
transactions generally involve an agreement with the swap counterparty to pay a fixed or variable rate payment in exchange for the
counterparty paying the Fund the other type of payment stream (i.e., variable or fixed). The payment obligation would be based on the
notional amount of the swap. Other forms of interest rate swap agreements in which the Fund may invest include without limitation
interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or
“
cap;
”
interest rate floors, under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates fall below a specified rate, or
“
floor;
”
and interest rate
“
collars,
”
under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum
levels. The Fund may (but is not required to) use interest rate swap transactions with the intent to reduce or eliminate the risk that an
increase in short-term interest rates could pose for the performance of the Fund’s Common Shares as a result of leverage, and also may
use these instruments for other hedging or investment purposes. Any termination of an interest rate swap transaction could result in a
termination payment by or to the Fund.
Credit Default Swaps
The Fund may enter into credit default swaps for both investment and risk management purposes, as well as to add leverage to the
Fund’s portfolio. A credit default swap may have as reference obligations one or more securities that are not currently held by the Fund.
The protection
“
buyer
”
in a credit default swap is generally obligated to pay the protection
“
seller
”
an upfront or a periodic stream of
payments over the term of the contract provided that no credit event, such as a default, 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. Rather than exchange the bonds for par value, a single cash payment may be due from the
protection seller representing the difference between the par value of the bonds and the current market value of the bonds (which may
be determined through an auction).
The spread of a credit default swap is the annual amount the protection buyer must pay the protection seller over the length of the
contract, expressed as a percentage of the notional amount. When spreads rise, market perceived credit risk rises and when spreads
fall, market perceived credit risk falls. Wider credit spreads and decreasing market values, when compared to the notional amount of the
swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event
occurring as defined under the terms of the agreement. For credit default swaps on asset-backed securities and credit indices, the
quoted market prices and resulting values, as well as the annual payment rate, serve as an indication of the current status of the
payment/performance risk.
33
Credit default swaps involve greater risks than if the Fund had invested in the reference obligation directly since, in addition to general
market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risk, among other risks associated with
derivative instruments. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is
held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the
upfront 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 the seller. The Fund’s obligations under a credit default swap will be accrued daily (offset against any amounts owing to the Fund).
Private Placements
A private placement involves the sale of securities that have not been registered under the Securities Act, or relevant provisions of
applicable non-U.S. law, including Rule 144A securities, to certain institutional and qualified individual purchasers, such as the Fund. In
addition to the general risks to which all securities are subject, securities received in a private placement generally are subject to strict
restrictions on resale, and there may be no liquid secondary market or ready purchaser for such securities. Therefore, the Fund may be
unable to dispose of such securities when it desires to do so, or at the most favorable time or price. Private placements may also raise
valuation risks.
Rule 144A Securities
The Fund invests in securities that have not been registered for public sale, but that are eligible for purchase and sale pursuant to Rule
144A under the Securities Act. Rule 144A permits certain qualified institutional buyers, such as the Fund, to trade in privately placed
securities that have not been registered for sale under the Securities Act. Rule 144A securities may be deemed illiquid, although the
Fund may determine that certain Rule 144A securities are liquid.
“
Covenant-lite
”
Obligations
The Fund invests in, or obtain exposure to debt obligations, loans or other securities that may be
“
covenant-lite,
”
which means such
obligations lack, or possess fewer, financial covenants that protect lenders. Covenant-lite agreements feature incurrence covenants, as
opposed to more restrictive maintenance covenants. Under a maintenance covenant, the borrower would need to meet regular, specific
financial tests, while under an incurrence covenant, the borrower only would be required to comply with the financial tests at the time it
takes certain actions (e.g., issuing additional debt, paying a dividend, making an acquisition). A covenant-lite obligation contains fewer
maintenance covenants than other obligations, or no maintenance covenants, and may not include terms that allow the lender to
monitor the performance of the borrower and declare a default if certain criteria are breached.
Repurchase Agreements
The Fund enters into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer agrees to
repurchase the security at the Fund’s cost plus interest within a specified time. If the party agreeing to repurchase should default, the
Fund would seek to sell the securities which it holds. This could involve costs or delays in addition to a loss on the securities if their value
should fall below their repurchase price. Repurchase agreements may be or become illiquid. These events could also trigger adverse tax
consequences for the Fund.
Portfolio Turnover
The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the
securities held by the Fund is known as
“
portfolio turnover.
”
The Fund may engage in frequent and active trading of portfolio securities
to achieve its investment objective, particularly during periods of volatile market movements. High portfolio turnover (e.g., over 100%)
generally involves correspondingly greater expenses to the Fund, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestments in other securities. Sales of portfolio securities may also result in realization
of taxable capital gains, including short-term capital gains (which are generally treated as ordinary income upon distribution in the form
of dividends). The trading costs and tax effects associated with portfolio turnover may adversely affect the Fund’s performance. Please
see
“
Investment Policies and Techniques
”
in the Statement of Additional Information for additional information regarding the
investments of the Fund and their related risks.
Variable- and Floating-Rate Securities
Variable- and floating-rate instruments are instruments that pay interest at rates that adjust whenever a specified interest rate changes
and/or that reset on predetermined dates (such as the last day of a month or calendar quarter). In addition to senior loans, variable- and
floating-rate instruments may include, without limitation, instruments such as catastrophe and other event-linked bonds, bank capital
securities, unsecured bank loans, corporate bonds, money market instruments and certain types of mortgage-related and other
asset-backed securities. Due to their variable- or floating-rate features, these instruments will generally pay higher levels of income in a
rising interest rate environment and lower levels of income as interest rates decline. For the same reason, the market value of a variable-
or floating-rate instrument is generally expected to have less sensitivity to fluctuations in market interest rates than a fixed-rate
instrument, although the value of a variable- or floating-rate instrument may nonetheless decline as interest rates rise and due to other
34
factors, such as changes in credit quality. The Fund also may engage in credit spread trades. A credit spread trade is an investment
position relating to a difference in the prices or interest rates of two bonds or other securities, in which the value of the investment
position is determined by changes in the difference between the prices or interest rates, as the case may be, of the respective securities.
Emerging Markets Investments
The Fund may invest in securities and instruments by
emerging
market issuers that are economically tied to “
emerging market
”
countries. PGIM generally considers an instrument to be economically tied to an emerging market country if: the issuer is organized
under the laws of an emerging market country; the currency of settlement of the security is a currency of an emerging market country;
the security is guaranteed by the government of an emerging market country (or any political subdivision, agency, authority or
instrumentality of such government); for an asset-backed or other collateralized security, the country in which the collateral backing the
security is located is an emerging market country; or the security’s
“
country of exposure
”
is an emerging market country, as determined
by the criteria set forth below.
With respect to derivative instruments, PGIM generally considers such instruments to be economically tied to emerging market countries
if the underlying assets are currencies of emerging market countries (or baskets or indexes of such currencies), or instruments or
securities that are issued or guaranteed by governments of emerging market countries or by entities organized under the laws of
emerging market countries or an instrument’s
“
country of exposure
”
is an emerging market country. PGIM will consider emerging
market country and currency composition based on its evaluation of relative interest rates, inflation rates, exchange rates, monetary and
fiscal policies, trade and current account balances, legal and political developments and any other specific factors it believes to
be relevant.
The Fund generally considers emerging market countries to be countries included in the JP Morgan Emerging Markets Bond Index
Global Diversified Index, the JP Morgan Government Bond Index-Emerging Markets Global Diversified Index, the JP Morgan Emerging
Local Markets Index Plus or the JP Morgan Corporate Emerging Markets Bond Index Broad Diversified.
35
LEVERAGE
The Fund may seek to enhance the level of its current distributions to its Common Shareholders and capital appreciation through the
use of leverage, subject to the limitations of the Investment Company Act. The Fund may incur entity level debt, including unsecured
and secured credit facilities from certain financial institutions and other forms of borrowing (collectively,
“
Borrowings
”
), which is limited
to 33 1∕3% of the Fund’s total assets (less all liabilities and indebtedness not represented by Investment Company Act leverage)
immediately after such Borrowings.
In addition, the Fund may use investment management techniques (including reverse repurchase agreements and derivative
transactions) that have similar effects as leverage, but which are not subject to the foregoing 33 1∕3% limitation if effected in compliance
with applicable SEC rules and guidance. Furthermore, the Fund may add leverage to its portfolio through the issuance of preferred
shares in an aggregate amount of up to 50% of the Fund’s total assets (less all liabilities and indebtedness not represented by
Investment Company Act leverage) immediately after such issuance.
Indebtedness
Under the Investment Company Act, the Fund generally is not permitted to incur indebtedness, including through borrowings and the
issuance of debt securities, unless immediately thereafter the Fund will have an asset coverage of at least 300%. In general, the term
“
asset coverage
”
for this purpose means the ratio which the value of the total assets of the Fund, less all liabilities and indebtedness not
represented by senior securities, bears to the aggregate amount of senior securities representing indebtedness of the Fund. In addition,
the Fund may be limited in its ability to declare any cash distribution on its capital stock or purchase its capital stock unless, at the time
of such declaration or purchase, the Fund has an asset coverage (on its indebtedness) of at least 300% after deducting the amount of
such distribution or purchase price, as applicable. The Investment Company Act contains an exception, however, that permits dividends
to be declared upon any preferred shares issued by the Fund if the Fund’s indebtedness has an asset coverage of at least 200% at the
time of declaration after deducting the amount of the dividend. In addition, if the Fund issues non-public indebtedness (for example, if it
enters into a loan agreement in a privately arranged transaction with a bank), it may be able to continue to pay dividends on its capital
stock even if the asset coverage ratio on its indebtedness falls below 300%. Further, the Investment Company Act requires (in certain
circumstances) that holders of the Fund’s senior securities representing indebtedness be provided with certain voting rights or that an
event of default be deemed to have occurred in the event certain asset coverage requirements specified in Section 18(a) of the
Investment Company Act are not met.
Certain types of borrowings may result in the Fund being subject to covenants in credit agreements, including those relating to asset
coverage, borrowing base and portfolio composition requirements and additional covenants that may affect the Fund’s ability to pay
dividends and distributions on the Common Shares in certain instances. The Fund may also be required to pledge its assets to the
lenders in connection with certain types of borrowing. PGIM Investments and the Subadvisers do not anticipate that these covenants or
restrictions will adversely affect their ability to manage the Fund’s portfolio in accordance with the Fund’s investment objective and
policies. However, due to these covenants or restrictions, the Fund may be forced to liquidate investments at times and at prices that are
not favorable to the Fund, or the Fund may be forced to forgo investments that the Subadvisers otherwise view as favorable. The Fund
may be subject to certain restrictions on investments imposed by guidelines of one or more NRSROs that may issue ratings for any short
term debt instruments or preferred shares issued by the Fund. These guidelines may impose asset coverage or portfolio composition
requirements that are more stringent than those imposed by the Investment Company Act. It is not anticipated that these covenants or
guidelines will impede PGIM Investments or PGIM from managing the Fund’s portfolio in accordance with the Fund’s investment
objective and policies.
Borrowings have seniority over Common Shares and preferred shares (if any). The Fund’s Board of Trustees may authorize the issuance
of indebtedness without the approval of Common Shareholders. If the Fund enters into a credit facility or issues debt securities in the
future, all costs and expenses relating to the issuance and ongoing maintenance of the indebtedness will be borne by the Common
Shareholders, and these costs and may be significant. Any Borrowings (if incurred) leverage investments in Common Shares.
Preferred Shares
The Fund may engage in leverage through the issuance of preferred shares. Under the Investment Company Act, the Fund is not
permitted to issue preferred shares unless immediately after such issuance the Fund will have an asset coverage of at least 200%. In
general, the term
“
asset coverage
”
for this purpose means the ratio which the value of the total assets of the Fund, less all liabilities and
indebtedness not represented by senior securities, bears to the aggregate amount of senior securities representing indebtedness of the
Fund plus the aggregate of the involuntary liquidation preference of the preferred shares. The involuntary liquidation preference refers to
the amount to which the preferred shares would be entitled on the involuntary liquidation of the Fund in preference to a security junior to
them. In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Shares or purchase its
Common Shares unless, at the time of such declaration or purchase, the Fund satisfies this 200% asset coverage requirement after
deducting the amount of the distribution or purchase price, as applicable. Under the Investment Company Act, holders of the preferred
36
shares would be entitled to elect two Trustees of the Fund at all times and to elect a majority of the Trustees if at any time dividends on
the preferred shares are unpaid in an amount equal to two full years’ dividends. Holders of the preferred shares would continue to have
the right to elect a majority of the Trustees until all dividends in arrears have been paid. In addition, holders of the preferred shares
would also be entitled to vote separately as a class on certain matters, which may at times give holders of preferred shares
disproportionate influence over the Fund’s affairs.
Preferred shares have seniority over Common Shares. The Fund’s Board of Trustees may authorize the issuance of preferred shares
without the approval of Common Shareholders. If the Fund issues preferred shares in the future, all costs and expenses relating to the
issuance and ongoing maintenance of the preferred shares will be borne by the Common Shareholders, and these costs and may be
significant. Any preferred shares (if issued) leverage investments in Common Shares.
Derivatives, Reverse Repurchase Agreements, Dollar Rolls and Similar Instruments
The Fund’s use of derivatives transaction and other similar instruments is generally subject to a value-at-risk leverage limit, derivatives
risk management program, and reporting requirements under Rule 18f-4 under the 1940 Act. Derivatives, reverse repurchase
agreements and other such instruments may represent a form of economic leverage and create special risks. The use of these forms of
leverage increases the volatility of the Fund's investment portfolio and could result in larger losses to Common Shareholders than if these
strategies were not used. To the extent that the Fund engages in borrowings, it may prepay a portion of the principal amount of the
borrowing to the extent necessary in order to maintain the required asset coverage. Failure to maintain certain asset coverage
requirements could result in an event of default by the Fund with respect to bank borrowings or other arrangements.
Use of Leverage
There can be no assurance, however, that the Fund will borrow in order to leverage its assets or, if it does borrow, what percentage of the
Fund’s assets such borrowings will represent. The Fund may choose not to use leverage at all times, and the amount of leverage used by
the Fund may vary depending upon a number of factors, including the Manager’s and the Subadvisers’ outlook for the market and the
costs that the Fund would incur as a result of such leverage. There is no assurance that the Fund’s leveraging strategy will
be successful.
The Fund’s use of leverage is premised upon the expectation that the cost of the leverage used to purchase additional assets will be
lower than the return the Fund achieves on its investments with the proceeds of the borrowings or the issuance of preferred shares.
Such difference in return may result from the short term nature of the Fund’s borrowing compared to the longer term nature of its
investments. If the assets of the Fund are invested in higher yielding portfolio investments, Common Shareholders will be the
beneficiaries of the incremental return. Should the differential between the return on underlying assets and cost of leverage narrow, any
incremental return will be reduced or eliminated. Furthermore, if long term interest rates rise, the NAV of the Common Shares is
expected to decline in value. See
“
Risks — Leverage Risk.
”
The Fund also may borrow in an amount equal to 5% of its total assets as a temporary measure for extraordinary or emergency
purposes, including the payment of dividends and the settlement of securities transactions that otherwise might require untimely
dispositions of Fund securities. The Fund at times may borrow from affiliates of PGIM Investments, as permitted by applicable law.
Effects of Leverage
The following ta
bl
e is furnished in response to requirements of the SEC. It is designed to illustrate the effects of leverage through the use of senior securities, as that term is defined under Section 18 of the 1940 Act, on Common Share total return, assuming investment
portfolio total returns (consisting of income and changes in the value of investments held in the Fund’s portfolio) of -10%, -5%, 0%, 5%
and 10%. Although not considered senior securities, the table below reflects the Fund’s use of leverage based on its usage of of reverse
repurchase agreements as of December 31, 2025, which represented approximately 20.9% of the Fund’s total managed assets
(including assets attributable to such leverage) at an estimated annual effective interest expense rate of 3.79% payable by the Fund on
such instruments. Based on such estimated annual effective interest expense rate, the annual return that the Fund’s portfolio must
experience (net of expenses) in order to cover such costs of the reverse repurchase agreements is 0.76%. The information below does
not reflect the Fund’s use of certain other forms of economic leverage achieved through the use of other instruments or transactions not
considered to be senior securities under the 1940 Act, such as credit default swaps or other derivative instruments. The assumed
investment portfolio returns in the table below are hypothetical figures and are not necessarily indicative of the investment portfolio
returns experienced or expected to be experienced by the Fund. Your actual returns may be greater or less than those appearing below.
In addition, actual borrowing expenses associated with reverse repurchase agreements (or dollar rolls/buybacks or borrowings, if any)
used by the Fund may vary freque
ntly a
nd may be significantly higher or lower than the rate used for the example below. 37
Assumed Portfolio Total Return (Net of Expenses) | (10.00)% | (5.00)% | 0.00% | 5.00% | 10.00% |
Common Shares Total Return | ( )% | ( )% | ( |
38
RISKS
The Fund is designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete
investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its
investment objective(s). At any point in time your investment in the Fund may be worth less than you invested, even after taking into
account the reinvestment of Fund dividends, distributions or interest payments, as applicable.
Investing in the Fund involves risks, including the risk that a shareholder may receive little or no return on his or her investment or that a
shareholder may lose part or all of his or her investment. The Fund should be considered a speculative investment that entails
substantial risks, and a prospective investor should invest in the Fund only if they can sustain a complete loss of their investment. Below
is a summary of some of the principal risks of investing in the Fund.
Shareholders should consider carefully the following principal risks before investing in the Fund:
Limited History of Operations Risk.
The Fund is a diversified, closed-end management investment company with limited history of
operations or public trading and is subject to all of the business risks and uncertainties associated with any new business. As a result,
prospective investors have limited track record or history on which to base their investment decision.
General, Market and Economic Risk
. Investing in the Fund involves certain risks and the Fund may not be able to achieve its intended
results for a variety of reasons, including, among others, the possibility that the Fund may not be able to successfully implement its
investment strategy because of market, economic, regulatory, geopolitical and other conditions. International wars or conflicts (such as
those in the Middle East and Ukraine) and geopolitical developments in foreign countries, along with instability in regions such as Asia,
Eastern Europe, and the Middle East, possible terrorist attacks in the United States or around the world, public health epidemics and
pandemics such as the outbreak of infectious diseases like the COVID-19 pandemic, and other similar events could adversely affect the
U.S. and foreign financial markets, including increases in market volatility, reduced liquidity in the securities markets and government
intervention, and may cause further long-term economic uncertainties in the United States and worldwide generally. Relatively reduced
liquidity in credit and fixed income markets could adversely affect issuers worldwide. U.S. and foreign governments have taken a
number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that have
experienced extreme volatility, and in some cases a lack of liquidity. The impact of these measures, as well as any additional future
regulatory actions, is not yet known and cannot be predicted.
Legislation or regulation may also change the way in which the Fund itself is regulated and could limit or preclude the Fund’s ability to
achieve its investment objective. Because the market price of the Common Shares will fluctuate, there is a risk that you will lose money.
Your investment will decline in value if, among other things, the market price of the Common Shares decreases. As with any security, a
complete loss of your investment is possible.
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 sign
ific
antly impacted, which could lead to such securities being valued at zero.Geopolitical Climate Risk.
U.S. and global markets are experiencing volatility and disruption following the geopolitical instability resulting
from the ongoing Russia-Ukraine conflict, recent escalation of conflict in the Middle East and Southwest Asia and continued political and
social unrest in various countries, such as Venezuela and Mexico, which have led, and will continue to lead to disruptions in local,
regional, national, and global markets and economies. Most recently, on February 28, 2026, the United States and Israel launched a
major assault on Iran, triggering Iranian retaliation across the Gulf, including attacks against targets in Qatar, the United Arab Emirates
(UAE), Kuwait, Bahrain and Saudi Arabia. An escalation in this or other global conflicts may have a material adverse impact on the
Fund, its portfolio companies and the market generally, including as a result of intense regional and global military and/or economic
retaliation, major maritime disruptions in the Strait of Hormuz, and large-scale cyber warfare.
The extent and duration of the ongoing conflicts, and the resulting measures that have been taken, and could be taken in the future, by
NATO, the U.S., the United Kingdom, the European Union, Israel and its neighboring states and other countries have created global
security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing
conflicts are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and
capital markets, as well as supply chain interruptions and increased cyber-attacks against U.S. companies. Additionally, any sanctions
39
and related market disruptions are impossible to predict, but could adversely affect the global economy and financial markets,
particularly if current or new sanctions continue for an extended period of time, and could lead to instability, lack of liquidity in capital
markets and price volatility. Any such disruptions may also have the effect of heightening many of the other risks described in this
section. If these disruptions or other matters of global concern continue for an extensive period of time, to the extent that we, our
portfolio companies, third party service providers, investors, or related customer bases have material operations or assets in such conflict
zones, they may be materially adversely a
ffec
ted.Repurchase Offers Risk.
As described under
“
Periodic Repurchase Offers
”
a
bov
e, the Fund is an “
interval fund
”
and, in order to provide
liquidity to shareholders, the Fund, subject to applicable law, will conduct quarterly repurchase offers of the Fund’s outstanding
Common Shares at NAV, with the size of the repurchase offer subject to approval of the Board. In all cases, such repurchase offers will
be for at least 5% and not more than 25% of its outstanding Common Shares at NAV, pursuant to Rule 23c-3 under the Investment
Company Act. The Fund currently expects to conduct quarterly repurchase offers for 5% of its outstanding Common Shares under
ordinary circumstances. The Fund believes that these repurchase offers are generally beneficial to the Fund’s shareholders, and
repurchases generally will be funded from available cash or sales of portfolio securities. However, repurchase offers and the need to
fund repurchase obligations may affect the ability of the Fund to be fully invested or force the Fund to maintain a higher percentage of
its assets in liquid investments, which may harm the Fund’s investment performance. Moreover, diminution in the size of the Fund
through repurchases may result in untimely sales of portfolio securities (with associated imputed transaction costs, which may be
significant), and may limit the ability of the Fund to participate in new investment opportunities or to achieve its investment objective.
The Fund may accumulate cash by holding back (i.e., not reinvesting) payments received in connection with the Fund’s investments.
The Fund believes that payments received in connection with the Fund’s investments will generate sufficient cash to meet the maximum
potential amount of the Fund’s repurchase obligations. If at any time cash and other cash equivalents held by the Fund are not sufficient
to meet the Fund’s repurchase obligations, the Fund intends, if necessary, to sell investments. If, as expected, the Fund employs
investment leverage, repurchases of Common Shares would compound the adverse effects of leverage in a declining market. In addition,
if the Fund borrows to finance repurchases, interest on that borrowing will negatively affect Common Shareholders who do not tender
their Common Shares by increasing the Fund’s expenses and reducing any net investment income. If a repurchase offer is
oversubscribed, the Fund may, but is not required to, determine to increase the amount repurchased by up to 2% of the Fund’s
outstanding shares as of the date of the Repurchase Request Deadline. In the event that the Fund determines not to repurchase more
than the repurchase offer amount, or if shareholders tender more than the repurchase offer amount plus 2% of the Fund’s outstanding
shares as of the date of the Repurchase Request Deadline, the Fund will repurchase the Common Shares tendered on a pro rata basis,
and shareholders will have to wait until the next repurchase offer to make another repurchase request. As a result, shareholders may be
unable to liquidate all or a given percentage of their investment in the Fund during a particular repurchase offer. Some shareholders, in
anticipation of proration, may tender more Common Shares than they wish to have repurchased in a particular quarter, thereby
increasing the likelihood that proration will occur. A shareholder may be subject to market and other risks, and the NAV of Common
Shares tendered in a repurchase offer may decline between the Repurchase Request Deadline and the date on which the NAV for
tendered Common Shares is determined. In addition, the repurchase of Common Shares by the Fund may be a taxable event to
shareholders. Substantial repurchases of Common Shares could result in a decrease in the Fund’s net assets, resulting in an increase in
the Fund’s total annual operating expense ratio.
Illiquid Investment Risk.
To the extent consistent with the applicable liquidity requirements for interval funds under Rule 23c-3 under the
1940 Act, the Fund may invest without limit in illiquid securities. A variety of factors could make it difficult for the Fund to dispose of any
of its illiquid assets on acceptable terms even if a disposition is in the best interests of the Fund’s shareholders. The Fund may not be
able to readily dispose of such securities at prices that approximate those at which the Fund could sell the securities if they were more
widely traded and, as a result of that illiquidity, the Fund may have to sell such securities at a loss or sell other investments or engage in
borrowing transactions if necessary to raise cash to meet its obligations. Limited liquidity can also affect the market price of securities,
thereby adversely affecting the Fund’s NAV and ability to make dividend distributions. The Fund may invest in privately-held companies,
below-investment-grade instruments (
“
junk
”
bonds), securities which are at risk of default as to the repayment of principal and/or
interest at the time of acquisition by the fund or are rated in the lower rating categories or are unrated, which may be difficult to value
and may be illiquid. The Fund may also invest in securities that have not been registered for public sale in the U.S. or relevant
non-U.S. jurisdictions, including, without limitation, securities eligible for purchase and sale pursuant to Rule 144A under the Securities
Act. Rule 144A permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been
registered for sale under the Securities Act. Rule 144A securities may be deemed
illiquid
, although the Fund may determine
that certain Rule 144A securities are liquid.
Distributions Risk.
There can be no assurance that the Fund will achieve investment results that will allow the Fund to make a specified
level of cash distributions or maintain certain levels of cash distributions. All distributions will be paid at the discretion of the Board and
may depend on the Fund’s earnings, the Fund’s net investment income, the Fund’s financial condition, compliance with applicable
regulations and such other factors as the Board may deem relevant from time to time. The distributions for any full or partial calendar
year might not be made in equal amounts, and one distribution may be larger than others. The Fund will make a distribution only if
40
authorized by the Board and declared by the Fund out of assets legally available for
the
se distributions. This distribution policy may, under certain circumstances, have certain adverse consequences to the Fund and its shareholders because it may result in a return of
capital, which would reduce the Fund’s NAV and, over time, potentially increase the Fund’s expense ratio. If the Fund distributes a
return of capital, it means that the Fund is returning to shareholders a portion of their investment rather than making a distribution that
is funded from the Fund’s earned income or other profits. The Fund’s distributio
n po
licy may be changed by the Board at any time without shareholder approval.
Liquidity Risk.
In order to provide liquidity to shareholders, the Fund is structured as an
“
interval fund
”
and conducts periodic
repurchase offers for a portion of its outstanding Common Shares, as described herein. The Fund is designed primarily for long-term
investors and an investment in the Common Shares should be considered illiquid. The Common Shares are not currently listed for
trading on any securities exchange. There is currently no public market for the Common Shares and none is expected to develop.
Although the Fund may offer to repurchase Common Shares from shareholders, no assurance can be given that these repurchases will
occur as scheduled or at all.
Valuation Risk.
The value of certain of the Fund’s investments will be difficult to determine and the valuation determinations made by the
Manager, Subadvisers, and Independent Valuation Advisor with respect to such investments will likely vary from the amounts the Fund
would receive upon sale or disposition of such investments. It is possible that the fair value determined for an investment may differ
materially from the value that could be realized upon the sale of the investment. Within the parameters of the Fund’s valuation policies
and procedures, the valuation methodologies used to value the Fund’s assets will involve subjective judgments and projections and that
ultimately may not materialize. Ultimate realization of the value of an asset depends to a great extent on economic, market and other
conditions beyond the Fund’s control and the control of the Manager and the Fund’s Independent Valuation Advisor and third-party
appraisers. Rapidly changing market conditions or material events may not be immediately reflected in the Fund’s daily NAV. The
resulting potential disparity in the Fund’s NAV may inure to the benefit of shareholders whose shares are repurchased or new purchasers
of the Common Shares, depending on whether the Fund’s published NAV per share for such class is overstated or understated. See
“
Net Asset Value.
”
Asset-Based Finance Risk.
The asset-based finance securities in which the Fund invests are typically not listed on any securities
exchange and not registered under the 1933 Act. In addition, the Fund anticipates that these instruments may only be sold to a limited
number of investors and may have a limited or non-existent secondary market. Accordingly, the Fund currently expects that certain of
the investments in asset-based finance securities will face heightened levels of liquidity risk. Although currently there is generally no
reliable, active secondary market for certain asset-based finance securities, a secondary market for these asset-based finance securities
may, or may not, develop. If the Fund purchases asset-based finance securities on an alternative lending platform, the Fund will have
the right to receive principal and interest payments due on loans underlying the asset-based finance securities only if the platform
servicing the loans receives the borrower’s payments on such loans and passes such payments through to the Fund. If a borrower is
unable or fails to make payments on a loan for any reason, the Fund may be greatly limited in its ability to recover any outstanding
principal or interest due, as, among other reasons, the Fund may not have direct recourse against the borrower or may otherwise be
limited in its ability to directly enforce its rights under the loan, whether through the borrower or the platform through which such loan
was originated, the loan may be unsecured or under-collateralized and/or it may be impracticable to commence a legal proceeding
against the defaulting borrower.
Loans Risk.
The Fund may invest in loans, including, among others, bank loans, senior loans, mezzanine loans, bridge loans, delayed
funding loans and revolving credit facilities, loan participations and assignments, and loans held and/or originated by private financial
institutions or PGIM, including commercial and residential mortgage loans and private credit assets. The loans that the Fund may invest
in include loans that are first lien, second lien, third lien or that are unsecured. In addition, the loans the Fund will invest in will usually
be rated below investment grade or may also be unrated. Loans are subject to a number of risks described elsewhere in this prospectus,
including credit risk, liquidity risk, below investment grade instruments risk and management risk. The Fund may also make, participate
in or acquire DIP financings. DIP financings constitute senior liens on unencumbered security.
The 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 the 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.
Although certain loans in which the Fund may invest will be secured by collateral, there can be no assurance that such collateral could
be readily liquidated or that the liquidation of such collateral would satisfy the borrower’s obligation in the event of non-payment of
scheduled interest or principal. In the event of the bankruptcy or insolvency of a borrower, the Fund could experience delays or
limitations with respect to its ability to realize the benefits of the collateral securing a loan. In the event of a decline in the value of the
already pledged collateral, if the terms of a loan do not require the borrower to pledge additional collateral, the Fund will be exposed to
41
the risk that the value of the collateral will not at all times equal or exceed the amount of the borrower’s obligations under the loans. To
the extent that a loan is collateralized by stock in the borrower or its subsidiaries, such stock may lose some or all of its value in the event
of the bankruptcy or insolvency of the borrower. Those loans that are under-collateralized involve a greater risk of loss.
Further, there is a risk that any collateral pledged by portfolio companies in which the Fund has taken a security interest may decrease
in value over time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in
value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to
raise additional capital. To the extent the Fund’s debt investment is collateralized by the securities of a portfolio company’s subsidiaries,
such securities may lose some or all of their value in the event of the bankruptcy or insolvency of the portfolio company. Also, in some
circumstances, the Fund’s security interest may be contractually or structurally subordinated to claims of other creditors. In addition,
deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be
accompanied by deterioration in the value of the collateral for the debt. Secured debt that is under-collateralized involves a greater risk of
loss. In addition, second lien debt is granted a second priority security interest in collateral, which means that any realization of collateral
will generally be applied to pay senior secured debt in full before second lien debt is paid. Likewise, third lien debt is granted a third
priority security interest in collateral, which means that any realization of collateral will generally be applied to pay senior secured debt
and second lien debt in full before third lien debt is paid. Consequently, the fact that debt is secured does not guarantee that the Fund
will receive principal and interest payments according to the debt’s terms, or at all, or that the Fund will be able to collect on the debt
should it be forced to enforce remedies.
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 the
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. Extended trade settlement periods may, in unusual market conditions with a high volume of shareholder
repurchase requests, present a risk to shareholders regarding the Fund's ability to pay repurchase offer proceeds in a timely manner.
In some instances, loans and loan participations are not rated by independent credit rating agencies; in such instances, a decision by
the Fund to invest in a particular loan or loan participation could depend exclusively on the Subadvisers’ credit analysis of the borrower,
or in the case of a loan participation, of the intermediary holding the portion of the loan that the Fund has purchased.
The Fund may acquire loans through assignments. The purchaser of an assignment typically succeeds to all the rights and obligations of
the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the purchaser’s
rights can be more restricted than those of the assigning institution, and the Fund may not be able to unilaterally enforce all rights and
remedies under the loan and with regard to any associated collateral.
A participation typically results in a contractual relationship only with the institution selling the participation interest, not with the
borrower. Sellers of participations typically include banks, broker-dealers, other financial institutions and lending institutions. Certain
participation agreements also include the option to convert the participation to a full assignment under agreed upon circumstances.
In purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan
agreement against the borrower, and the Fund may not directly benefit from the collateral supporting the debt obligation in which it has
purchased the participation. As a result, the Fund will be exposed to the credit risk of both the borrower and the institution selling the
participation. Further, in purchasing participations in lending syndicates, the Fund will not be able to conduct the due diligence on the
borrower or the quality of the loan with respect to which it is buying a participation that the Fund would otherwise conduct if it were
investing directly in the loan, which may result in the Fund being exposed to greater credit or fraud risk with respect to the borrower or
the loan than the Fund expected when initially purchasing the participation.
To the extent the 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 the 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.
42
Loan Origination Risk.
The Subadvisers will originate loans on behalf of the Fund. The level of analytical sophistication, both financial
and legal, necessary for successful financing to companies, particularly companies experiencing significant business and financial
difficulties, is high. There can be no assurance that the Subadvisers and the Fund will correctly evaluate the value of the assets
collateralizing these loans or the prospects for successful repayment or a successful reorganization or similar action.
In accordance with applicable law, the Fund’s ability to acquire loans could be dependent on the existence and performance of PGIM’s
origination platform, which includes other funds’ managed by PGIM and enables PGIM to commit in size to multiple deals. Therefore, a
decrease in PGIM’s origination platform or its inability to acquire investments suitable for the Fund could reduce or possibly eliminate
the ability of the Fund to participate in certain loans within the Fund’s investment objective and would have a material adverse effect on
the Fund’s performance. Other PGIM funds could be subject to certain restrictions on the types of investments they can make, and such
restrictions may in effect limit the types of investments the Fund could make to the extent that the Fund is dependent on PGIM’s
origination platform.
Loan origination involves a number of particular risks that may not exist in the case of secondary debt purchases. PGIM may have to rely
more on its own resources to conduct due diligence of the borrower, and such borrower may in some circumstances present a higher
credit risk and/or could not obtain debt financing in the syndicated markets. Loan origination may also involve additional regulatory risks
given licensing requirements for certain types of lending in some jurisdictions, and the scope of these regulatory requirements (and
certain permitted exemptions) may vary from jurisdiction to jurisdiction and may change from time to time. In addition, in originating
loans, the Fund will compete with a broad spectrum of lenders, some of which may have greater financial resources than the Fund, and
some of which may be willing to lend money on better terms (from a borrower’s standpoint) than the Fund. Increased competition for, or
a diminution in the available supply of, qualifying loans may result in lower yields on such loans, which could reduce returns to the
Fund. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies, particularly
companies experiencing significant business and financial difficulties is unusually high. There is no assurance that the Subadvisers will
correctly evaluate the value of the assets collateralizing these loans or the prospects for successful repayment or a successful
reorganization or similar action.
Mortgage-Backed and Asset-Backed Securities Risk.
Mortgage-backed securities are particularly susceptible to prepayment and
extension risks, because prepayments on the underlying mortgages tend to increase when interest rates fall and decrease when interest
rates rise. Prepayments may also occur on a scheduled basis or due to foreclosure. When market interest rates increase, mortgage
refinancings and prepayments slow, which lengthens the effective duration of these securities. As a result, the negative effect of the
interest rate increase on the market value of mortgage-backed securities is usually more pronounced than it is for other types of fixed
income securities, potentially increasing the volatility of the Fund.
Conversely, when market interest rates decline, while the value of mortgage
-bac
ked securities may increase, the rates of prepayment of the underlying mortgages tend to increase, which shortens the effective duration of these securities. Mortgage-backed securities are also
subject to the risk that underlying borrowers will be unable to meet their obligations.
At times, some of the mortgage-backed securities in which the Fund may invest will have higher than market interest rates and therefore
will be purchased at a premium above their par value. Prepayments may cause losses on securities purchased at a premium.
The value of mortgage-backed securities may be affected by changes in credit quality or value of the mortgage loans or other assets that
support the securities. In addition, for mortgage-backed securities, when market conditions result in an increase in the default rates on
the underlying mortgages and the foreclosure values of the underlying real estate are below the outstanding amount of the underlying
mortgages, collection of the full amount of accrued interest and principal on these investments may be doubtful. For mortgage
derivatives and structured securities that have embedded leverage features, small changes in interest or prepayment rates may cause
large and sudden price movements. Mortgage derivatives can also become illiquid and hard to value in declining markets.
Asset-backed securities are structured like mortgage-backed securities and are subject to many of the same risks, including prepayment
risk, extension risk, credit risk and interest rate risk. The ability of an issuer of asset-backed securities to enforce its security interest in
the underlying assets or to otherwise recover from the underlying obligor may be limited. Certain asset-backed securities present a
heightened level of risk because, in the event of default, the liquidation
valu
e of the underlying assets may be inadequate to pay any unpaid principal or interest.
Structured Products Risk.
Holders of structured product securities bear risks of the underlying investments, index or reference
obligation. Certain structured products may be thinly traded or have a limited trading market, and as a result may be characterized as
illiquid. 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, which may
also result in additional costs. Structured products are also subject to credit risk; the assets backing the structured product may be
43
insufficient to pay interest or principal. In addition to the general risks associated with investments in fixed income, structured products
carry additional risks, including, but not limited to: the possibility that distributions from collateral securities will not be adequate to make
interest or other payments; the quality of the collateral may decline in value or default; and the possibility that the structured products
are subordinate to other classes. Structured 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
”
), and changes in the reference instrument or security may cause significant price fluctuations, or
could cause the interest rate on the structured security to be reduced to zero. Holders of structured products indirectly bear risks
associated with the reference instrument, are subject to counterparty risk and typically do not have direct rights against the reference
instrument. Structured products may also entail structural complexity and documentation risk and there is no guarantee that the courts
or administrators will interpret the priority of
pri
ncipal and interest payments as expected.Fixed Income Instruments Risk.
In addition to the other risks described herein, fixed income instruments are also subject to certain
risks, including:
■
Issuer Risk.
The value of fixed income instruments may decline for a number of reasons that directly relate to the issuer, such as
management performance, financial leverage and reduced demand for the issuer’s goods and services.
■
Interest Rate Risk.
The value of the Fund’s investments may go down when interest rates rise. A rise in rates tends to have a greater
impact on the prices of longer term or duration debt securities. When interest rates fall, the issuers of debt obligations may prepay
principal more quickly than expected, and the Fund may be required to reinvest the proceeds at a lower interest rate. This is referred
to as
“
prepayment risk.
”
When interest rates rise, debt obligations may be repaid more slowly than expected, and the value of the
Fund’s holdings may fall sharply. This is referred to as
“
extension risk.
”
The Fund may face a heightened level of interest rate risk as a
result of the U.S. Federal Reserve Board’s rate-setting policies. Interest rates are at or near historical lows, which may increase the
risks associated with rising interest rates in the future. The Fund may lose money if short-term or long-term interest rates rise sharply
or in a manner not anticipated by the Subadvisers. Fluctuations in the market price of the Fund’s instruments will not affect interest
income derived from instruments already owned by the Fund, but will be reflected in the Fund’s NAV. The Fund may utilize certain
strategies, including investments in derivatives, for the purpose of reducing the interest rate sensitivity of the portfolio and decreasing
the Fund’s exposure to interest rate risk, although there is no assurance that it will do so or that such strategies, if utilized, will
be successful.
■
Duration Risk.
Duration measures the time-weighted expected cash flows of a security, which can determine the security’s sensitivity
to changes in the general level of interest rates (or yields). Securities with longer durations tend to be more sensitive to interest rate (or
yield) changes than securities with shorter durations. Various techniques may be used to shorten or lengthen the Fund’s duration. The
duration of a security will be expected to change over time with changes in market factors and
time
to maturity.■
Floating-Rate and Fixed-to-Floating-Rate Securities Risk.
The market value of floating-rate securities is a reflection of discounted
expected cash flows based on expectations for future interest rate resets. The market value of such securities may fall in a declining
interest rate environment and may also fall in a rising interest rate environment if there is a lag between the rise in interest rates and
the reset. This risk may also be present with respect to fixed-to-floating-rate securities in which the Fund may invest. A secondary risk
associated with declining interest rates is the risk that income earned by the Fund on floating-rate and fixed-to-floating-rate securities
will decline due to lower coupon payments on floating-rate securities.
■
Prepayment Risk.
During periods of declining interest rates, the issuer of an instrument may exercise its option to prepay principal
earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding instruments, which may
result in a decline in the Fund’s income and distributions to shareholders. This is known as prepayment or
“
call
”
risk. Fixed income
instruments frequently have call features that allow the issuer to redeem the instrument at dates prior to its stated maturity at a
specified price (typically greater than par) only if certain prescribed conditions are met (
“
call protection
”
). An issuer may choose to
redeem a fixed income instrument if, for example, the issuer can refinance the instrument at a lower cost due to declining interest
rates or an improvement in the credit standing of the issuer. For premium bonds (bonds acquired at prices that exceed their par or
principal value) purchased by the Fund, prepayment risk may be enhanced.
■
Extension Risk.
During periods of rising interest rates, an issuer could exercise its right to pay principal on an obligation held by the
Fund later than expected. Under these circumstances, the value of the obligation will decrease, and the Fund may be prevented from
reinvesting in higher yielding securities.
■
Reinvestment Risk.
Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the
proceeds from matured, traded or called fixed income instruments at market interest rates that are below the portfolio’s current
earnings rate.
■
Spread Risk.
Wider credit spreads and decreasing market values typically represent a deterioration of the fixed income instrument’s
credit soundness and a perceived greater likelihood or risk of default by the issuer.
Fixed income instruments generally compensate
for greater credit risk by paying interest at a higher rate. The difference (or
“
spread
”
) between the yield of a security and the yield of a
benchmark, such as a U.S. Treasury security with a comparable maturity, measures the
additional interest paid for credit risk. As the
spread on a security widens (or increases), the price (or value) of the security generally
falls. Spread widening may occur, among
other reasons, as a result of market concerns over the stability of the market, excess
supply, general credit concerns in other markets,
security- or market-specific credit concerns or general reductions in risk tolerance.
■
Credit Risk.
Credit risk is the risk that one or more fixed income instruments in the Fund’s portfolio will decline in price or fail to pay
interest or principal when due because the issuer, the guarantor or the insurer of the instrument or any applicable counterparty may
44
be unable or unwilling to make timely principal and interest payments or to otherwise honor its obligations. Additionally, the
instruments could lose value due to a loss of confidence in the ability of the issuer, guarantor, insurer or counterparty to pay back
debt. The longer the maturity and the lower the credit quality of a bond, the more sensitive it is to credit risk.
■
Refinancing Risk.
This is the risk that one or more issuers of fixed income instruments in the Fund’s portfolio may not be able to pay
off their debt upon maturity. During times of extreme market stress, even creditworthy companies can have temporary trouble
accessing the markets to refinance their outstanding debt, potentially leading to an inability to pay off existing bondholders, including
the Fund. This could negatively affect the Fund’s NAV or overall return.
Private Company Investments Risk.
Investments in private companies involve risks that may not exist in the case of more established
and/or publicly traded companies. These risks include the risk that:
■
these companies may have limited financial resources and limited access to additional financing, which may increase the risk of their
defaulting on their obligations, leaving creditors, such as the Fund, dependent on any guarantees or collateral that they may
have obtained;
■
these companies frequently have shorter operating histories, narrower product lines and smaller market shares than larger
businesses, which render such companies more vulnerable to competition and market conditions, as well as general
economic downturns;
■
there will not be as much information publicly available about these companies as would be available for public companies and such
information may not be of the same quality;
■
these companies are more likely to depend on the management talents and efforts of a small group of persons; as a result, the death,
disability, resignation or termination of one or more of these persons could have a material adverse impact on these companies’ ability
to meet their obligations;
■
these companies generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in
rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital
to support their operations, finance their expansion or maintain their competitive position; and
■
these companies may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow
or to repay their outstanding indebtedness upon maturity.
Below Investment Grade (High Yield or Junk Bond) Instruments Risk.
The Fund’s investments in below investment grade quality
securities and instruments are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay
interest and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions. Below
investment grade instruments are often issued in connection with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less established companies seeking to expand. Such issuers are often
highly leveraged and generally less able than more established or less leveraged entities to make scheduled payments of principal and
interest in the event of adverse developments or business conditions. Fixed income instruments rated below investment grade generally
offer a higher current yield than that available from higher grade issuers, but typically involve greater risk. These investments are
especially sensitive to adverse changes in general economic conditions, to changes in the financial condition of their issuers and to price
fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, issuers of below
investment grade instruments may experience financial stress that could adversely affect their ability to make payments of principal and
interest on their obligations and increase the possibility of default. The secondary market for high yield instruments may not be as liquid
as the secondary market for more highly rated instruments, a factor that may have an adverse effect on the Fund’s ability to dispose of a
particular security. There are fewer dealers in the market for high yield instruments than for investment grade obligations. The prices
quoted by different dealers may vary significantly, and the spread between the bid and asked price is generally much larger for high
yield instruments than for higher quality instruments. Under continuing adverse market or economic conditions, the secondary market
for high yield instruments could contract further, independent of any specific adverse changes in the condition of a particular issuer, and
these instruments may become illiquid. In addition, adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of below investment grade instruments, especially in a market characterized by a
low volume of trading. Default, or the market’s perception that an issuer is likely to default, could reduce the value and liquidity of
instruments held by the Fund, which could have a material adverse impact on the Fund’s business, financial condition and results of
operations. In addition, default may cause the Fund to incur expenses in seeking recovery of principal and/or interest on its portfolio
holdings. In any reorganization or liquidation proceeding relating to a portfolio company, the Fund may lose its entire investment or may
be required to accept cash or securities or other instruments with a value less than its original investment and/or may be subject to
restrictions on the sale of such securities or instruments. Among the risks inherent in investments in a troubled entity is the fact that it
frequently may be difficult to obtain information as to the true financial condition of such issuer. The Subadvisers' judgment about the
credit quality of an issuer and the relative value of its instruments may prove to be wrong. Investments in below investment grade
instruments may present special tax issues for the Fund, particularly to the extent that the issuers of these instruments default on their
obligations pertaining thereto, and the U.S. federal income tax consequences to the Fund as a holder of such instruments, including
when the Fund may stop reporting interest income or claim a loss on such instruments, may not be clear. Lower rated high yield
instruments generally present the same type of risks as investments in higher rated high yield instruments. However, in most cases,
these risks are of a
gre
ater magnitu
de because of the uncertainties of investing in an issuer undergoing financial distress. In particular, 45
lower rated high yield instruments entail a higher risk of default. Such instruments present substantial credit risk and default is a real
possibility. Such instruments may be illiquid and the prices at which such instruments may be sold may represent a substantial discount
to what the Subadvisers believe to be the ultimate value of such instruments.
Distressed and Defaulted Obligations Risk.
The Fund may invest in
“
below investment grade
”
securities (commonly referred to as
“
high
yield
”
securities or
“
junk bonds
”
) and obligations of issuers in weak financial condition, experiencing poor operating results, having
substantial capital needs or negative net worth, facing special competitive or product obsolescence problems (including companies
involved in bankruptcy or other reorganization and liquidation proceedings). Below investment grade securities in which the Fund may
invest also include defaulted and partially defaulted loans. Such investments are likely to be particularly risky although they also may
offer the potential for correspondingly high returns. Any one or all of the issuers of the securities in which the Fund may invest may be
unsuccessful or not show any return for a considerable period of time.
Among the risks inherent in investments in troubled entities is the risk that it frequently may be difficult to obtain information as to the
true condition of such issuers. Such investments may also be adversely affected by laws relating to, among other things, fraudulent
transfers and other voidable transfers or payments, lender liability and the bankruptcy court’s power to disallow, reduce, subordinate,
recharacterize debt as equity or disenfranchise particular claims. Such companies’ obligations may be considered speculative, and the
ability of such companies to pay their debts on schedule could be affected by adverse interest rate movements, changes in the general
economic climate, economic factors affecting a particular industry or specific developments within such companies. In addition, there is
no minimum credit standard that is a prerequisite to the Fund’s investments. Obligations in which the Fund invests may be less than
investment grade. The level of analytical sophistication, both financial and legal, necessary for successful investment in companies
experiencing significant business and financial difficulties is unusually high. There is no assurance that value of the assets collateralizing
the Fund’s investments will be sufficient or that prospects for a successful reorganization or similar action will become available. Unless
such loans are most senior, in any reorganization or liquidation proceeding relating to a company in which the Fund invests, the Fund
may lose its entire investment, may be required to accept cash or securities with a value less than its original investment and/or may be
required to accept payment over an extended period of time. Under such circumstances, the returns generated from the Fund’s
investments may not compensate investors adequately for the risks assumed. In addition, under certain circumstances, payments and
distributions may be disgorged if any such payment is later determined to have been a fraudulent conveyance or a preferential payment.
In liquidation (both in and out of bankruptcy) and other forms of corporate reorganization, there exists the risk that the
reorganization
either will be unsuccessful (due to, for example, failure to obtain requisite approvals), will be delayed (for example, until various
liabilities, actual or contingent, have been satisfied) or will result in a distribution of cash or a new investment the value of which will be
less than the purchase price to the Fund of the investment in respect to which such distribution was made.
Subprime Risk.
Loans, and debt instruments collateralized by loans acquired by the Fund may be subprime in quality, or may become
subprime in quality. Although there is no specific legal or market definition of
“
subprime,
”
subprime loans are generally understood to
refer to loans made to borrowers that display poor credit histories and other characteristics that correlate with a higher default risk.
Accordingly, subprime loans, and debt instruments secured by such loans, have speculative characteristics and are subject to
heightened risks, including the risk of nonpayment of interest or repayment of principal, and the risks associated with investments in
high yield securities. In addition, these instruments could be subject to increased regulatory scrutiny. The Fund is not restricted by any
particular borrower credit criteria when acquiring loans or debt instruments collateralized by loans.
Inflation Risk.
Globally, inflation and rapid fluctuations in inflation rates have in the past had negative effects on economies and financial
markets, particularly in emerging economies, and may do so in the future. Wages and prices of inputs increase during periods of
inflation, which can negatively impact returns on investments. In an attempt to stabilize inflation, governments may impose wage and
price controls, or otherwise intervene in the economy. Governmental efforts to curb inflation often have negative effects on levels of
economic activity.
In the United States, inflation has accelerated in recent years as a result of global supply chain disruptions, a rise in energy prices,
strong consumer spending, and other factors. Inflationary pressures have increased the costs of labor, energy, and raw materials, and
have adversely affected consumer spending, economic growth, and the operations of companies in the U.S. and globally, and have
resulted in a tightening of monetary policy by the U.S. Federal Reserve. Inflation may continue in the near to medium-term, particularly
in the U.S., with the possibility that monetary policy may tighten further in response. Inflation could become a serious problem in the
future and have an adverse impact on the Fund’s returns.
Derivatives Risk.
The Fund may invest in derivative instruments, such as options contracts, futures contracts, options on futures
contracts, indexed securities, credit linked notes, credit default swaps and other swap agreements for investment, hedging and risk
management purposes.
46
The Fund’s investments in derivatives may be for hedging, investment or leverage purposes, or to manage interest rates or the duration
of the Fund’s portfolio. Derivative transactions may subject the Fund to increased risk of principal loss due to imperfect correlation
between the values of the derivatives and the underlying securities or unexpected price or interest rate movements. The use of
derivatives may subject the Fund to risks, including, but not limited to:
■
Counterparty Risk.
The risk that the counterparty in a derivative transaction will be unable to honor its financial obligation to the Fund,
or the risk that the reference entity in a credit default swap or similar derivative will not be able to honor its financial obligations. If the
Fund’s counterparty to a derivative transaction experiences a loss of capital, or is perceived to lack adequate capital or access to
capital, it may experience margin calls or other regulatory requirements to increase equity. Under such circumstances, the risk that a
counterparty will be unable to honor its financial obligations may be substantially increased. The counterparty risk for cleared
derivatives is generally lower than for uncleared over-the-counter derivative transactions since generally a clearing organization
becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under
the contract as each party to a trade looks only to the clearing house for performance of financial obligations. However, there can be
no assurance that the clearing house, or its members, will satisfy its obligations to the Fund.
■
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.
■
Leverage Risk.
The Fund may use, among other things, reverse repurchase agreements and/or dollar rolls to add leverage to its
portfolio. The risk associated with certain types of derivative strategies that relatively small market movements may result in large
changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that greatly
exceed the amount originally invested. See
“
Leverage
”
in the prospectus and
“
Investment Policies and Techniques – Reverse
Repurchase Agreements and Dollar Rolls
”
in the Statement of Additional Information for more information.
■
Liquidity Risk.
The risk that certain derivative positions may be difficult or impossible to close out at the time that the Fund would like
or at the price that the Fund believes the position is currently worth. This risk is heightened to the extent the Fund engages in
over-the-counter derivative transactions, which are generally less liquid than exchange-traded instruments.
■
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 the Fund seeks exposure. Furthermore, the ability to successfully
use derivative instruments depend in part on the ability of the Manager and Subadvisers to predict pertinent market movements,
which cannot be assured.
■
Index Risk.
If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that
index. If the index changes, the Fund could receive lower interest payments or experience a reduction in the value of the derivative to
below what the Fund paid. Certain indexed derivatives may create leverage, to the extent that they increase or decrease in value at a
rate that is a multiple of the changes in the applicable index.
■
Regulatory Risk.
Derivative contracts, including, without limitation, swaps, currency forwards, and non-deliverable forwards, are
subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (
“
Dodd-Frank Act
”
) in the U.S. and
under comparable regimes in Europe, Asia and other non-U.S. jurisdictions. Swaps, non-deliverable forwards 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 the Fund of trading these instruments and, as a result, may affect returns to
investors in the Fund. In addition, the Commodity Futures Trading Commission (the
“
CFTC
”
) subjects advisers to registered
investment companies to regulation by the CFTC if a fund that is advised by the investment adviser either (i) invests, directly or
indirectly, more than a prescribed level of its liquidation value in certain derivatives, or (ii) markets itself as providing investment
exposure to such instruments. CFTC Rule 4.5 permits investment advisers to registered investment companies to claim an exclusion
from the definition of
“
commodity pool operator
”
under the Commodity Exchange Act (
“
CEA
”
) with respect to a fund, provided certain
requirements are met. In order to permit the Manager and Subadvisers to claim this exclusion with respect to the Fund, the Fund will
limit its use of such derivatives (excluding transactions entered into for
“
bona fide hedging purposes,
”
as defined under CFTC
regulations) such that either: (i) the aggregate initial margin and premiums required to establish its derivatives do not exceed 5% of
the liquidation value of the Fund’s portfolio, after taking into account unrealized profits and losses on such positions, or (ii) the
aggregate net notional value of its derivatives does not exceed 100% of the liquidation value of the Fund’s portfolio, after taking into
account unrealized profits and losses on such positions. Additionally, the Fund will not market itself as a
“
commodity pool
”
or a
vehicle for trading such instruments. Accordingly, the Fund is not subject to regulation under the CEA or otherwise regulated by the
CFTC, and the Manager and Subadvisers have claimed an exclusion from the definition of the term
“
commodity pool operator
”
under
the CEA pursuant to Rule 4.5 under the CEA. The Manager and Subadvisers are not, therefore, subject to registration or regulation as
a
“
commodity pool operator
”
under the CEA in respect of the Fund.
■
Credit Default Swaps Risk
. Credit default swaps involve greater risks than if the Fund had invested in the reference obligation directly.
In addition to general market risks, credit default swaps are subject to liquidity risk and credit risk. A buyer of credit protection also
may lose its investment and recover nothing should no credit event occur. If a credit event were to occur, the value of the reference
obligation received by the seller, coupled with the periodic payments previously received, may be less than the full notional value it
pays to the buyer, resulting in a loss of value to the Fund. Further, in certain circumstances, the buyer can receive the notional value
of a credit default swap only by delivering a physical security to the seller, and is at risk if such deliverable security is unavailable or
illiquid. Such a delivery
“
crunch
”
is a distinct risk of these investments.
■
The credit derivatives market is a rapidly evolving market. As a result, different participants in the credit derivatives markets may have
different practices or interpretations with respect to applicable terms and definitions, and ambiguities concerning such terms or
47
definitions, may be interpreted or resolved in ways that are adverse to the Fund. Additionally, there may be circumstances and market
conditions (including the possibility of a large number of buyers of credit default swaps being required to deliver the same physical
security in the same time frame) that have not yet been experienced that could have a
dver
se effects on the Fund’s investments.Leverage Risk.
Although the Fund may utilize leverage, there can be no assurance that the Fund will do so, or that, if utilized, it will be
successful during any period in which it is employed. Leverage is a speculative technique that exposes the Fund to greater risk and
higher costs than if it were not implemented.
The Fund anticipates that any money borrowed from a bank or other financial institution for investment purposes will accrue interest
based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio provides a higher rate of return, net
of expenses, than the interest rate on borrowed money, as reset periodically, the leverage may cause the Fund to receive a higher
current rate of return than if the Fund were not leveraged. If, however, short-term rates rise, the interest rate on borrowed money could
exceed the rate of return on instruments held by the Fund, reducing returns to the Fund and the level of income available for dividends
or distributions made by the Fund. Developments in the credit markets may adversely affect the ability of the Fund to borrow for
investment purposes and may increase the costs of such borrowings, which would also reduce returns to the Fund. There is no
assurance that a leveraging strategy will be successful. The use of leverage to purchase additional investments creates an opportunity for
increased Common Shares dividends, but also creates special risks and considerations for the common shareholders, including:
■
the likelihood of greater volatility of NAV, market price and dividend rate of Common Shares than a comparable fund without leverage;
■
the risk that fluctuations in interest rates on borrowings and short-term debt or in dividend payments on, principal proceeds
distributed to, or redemption of any preferred shares and/or notes or other debt securities that the Fund has issued will reduce the
return to the Fund;
■
magnified interest rate risk, which is the risk that the prices of certain of the portfolio investments will fall (or rise) if market interest
rates for those types of investments rise (or fall). As a result, leverage may cause greater changes in the Fund’s NAV, which could have
a material adverse impact on the Fund’s business, financial condition and results of operations;
■
the effect of leverage in a declining market, which is likely to cause a greater decline in the NAV of the Common Shares than if the
Fund were not leveraged; and
■
leverage may increase expenses (which will be borne entirely by the common shareholders), which may reduce the Fund’s NAV and
the total return to common shareholders.
Leveraging is a speculative technique and there are special risks and costs involved. When leverage is used, the net asset value of the
Common Shares and the yield to Common Shareholders will be more volatile. In addition, interest and other expenses borne by the Fund
with respect to its use of leverage are borne by the Common Shareholders and result in a reduction of the net asset value of the
Common Shares. In addition, because the fees received by the Manager are based on the average daily total managed assets of the
Fund (including any assets attributable to any reverse repurchase agreements, dollar rolls, borrowings and any preferred shares that
may be outstanding, if issued), the Manager has a financial incentive for the Fund to use certain forms of leverage (e.g., reverse
repurchase agreements, dollar rolls, borrowings and preferred shares), which may create a conflict of interest between the Manager, on
the one hand, and the Common Shareholders, on the other hand.
Leverage creates risks for Common Shareholders, including the likelihood of greater volatility of net income, distributions and/or NAV in
relation to market changes, the risk that fluctuations in interest rates on borrowings and short term debt or in the dividend rates on any
preferred shares may affect the return to Common Shareholders and increased operating costs, which may reduce the Fund’s total
return. To the extent the income or capital appreciation derived from investments purchased with funds received from leverage exceeds
the cost of leverage, the Fund’s return will be greater than if leverage had not been used. Conversely, if the income or capital
appreciation from the investments purchased with such funds is not sufficient to cover the cost of leverage, the return of the Fund will
be less than if leverage had not been used, and therefore the amount available for distribution to shareholders as dividends and other
distributions will be reduced. In the latter case, PGIM Investments and/or the Subadvisers in their best judgment nevertheless may
determine to maintain the Fund’s leveraged position if it expects that the benefits to the Fund’s shareholders of maintaining the
leveraged position will outweigh the current reduced return. Capital raised through leverage will be subject to interest costs or dividend
payments that may or may not exceed the income and appreciation on the assets purchased. The Fund also may be required to
maintain minimum average balances in connection with borrowings or to pay a commitment or other fee to maintain a line of credit;
either of these requirements will increase the cost of borrowing over the stated interest rate. The issuance of additional series of
preferred shares involves offering expenses and other costs and may limit the Fund’s freedom to pay dividends on Common Shares or to
engage in other activities. Borrowings and the issuance of a class of preferred shares create an opportunity for greater return per share
of Common Shares, but at the same time such borrowing is a speculative technique in that it will increase the Fund’s exposure to capital
risk. Unless the income and appreciation, if any, on assets acquired with borrowed funds or offering proceeds exceed the cost of
borrowing or issuing additional classes of securities, the use of leverage will diminish the investment performance of the Fund compared
with what it would have been without leverage.
48
Allocation of Investment Opportunities Risk.
Certain other existing or future funds, investment vehicles and accounts managed by the
Manager and its affiliates and PGIM affiliated proprietary entities invest in securities, properties and other assets in which the Fund may
seek to invest. Allocation of identified investment opportunities among the Fund, the Manager and other PGIM affiliated investment
vehicles presents inherent conflicts of interest where demand exceeds available supply. While the Manager believes it is likely that there
will be some overlap of investment opportunities for the Fund and other PGIM affiliated investment vehicles and PGIM affiliated
proprietary accounts from time to time, the Fund’s stock of investment opportunities may be materially affected by competition from
other PGIM affiliated investment vehicles and PGIM affiliated proprietary entities. Investors should note that the conflicts inherent in
making such allocation decisions will not always be resolved in favor of the Fund. See
“
Management and Advisory Arrangements
”
and
“
Conflicts of Interest.
”
Non-U.S. Investment Risk.
The Fund may invest in non-U.S. investments, which may include investments denominated in U.S. dollars
or in non-U.S. currencies, to the extent permitted by the 1940 Act. Such investments may involve a broad range of economic,
non-U.S. currency and exchange rate, political, legal, tax and financial risks not typically associated with investments in U.S. companies.
Such risks include, but are not limited to, (i) the risk of nationalization or expropriation of assets or confiscatory taxation, (ii) negative
diplomatic developments and social, economic and political uncertainty, including war and revolution, (iii) dependence on exports and
the corresponding importance of international trade, (iv) greater price fluctuations and market volatility, less liquidity and smaller
capitalization of securities markets, (v) currency exchange rate fluctuations, (vi) higher rates of inflation, (vii) controls on, and changes in
controls on, foreign investment and limitations on repatriation of invested capital and on the Fund’s ability to exchange local currencies
for United States dollars, (viii) governmental involvement in and control over the economies and other aspects of the private sector,
(ix) governmental decisions to discontinue support of economic reform programs generally and to impose centrally planned economies,
(x) differences in auditing and financial reporting standards which may result in the unavailability of material information about issuers,
(xi) less extensive regulation of the securities markets, (xii) longer settlement periods for securities transactions and (xiii) less developed
corporate laws regarding fiduciary duties and the protection of investors, and (xiv) taxes that may not be mitigated through refunds or tax
treaties. Prior government approval for non-U.S. investments may be required under certain circumstances in some countries, and the
process of obtaining these approvals may require a significant expenditure of time and resources. Additionally, certain countries depend
heavily on exports to the United States. Accordingly, these countries may be sensitive to fluctuations in U.S. demand and changes in
U.S. market conditions. The foregoing factors may increase transaction costs and adversely impact the value of the Fund’s investments
in non-U.S. portfolio companies.
“
Covenant-Lite
”
Risk.
Some of the debt obligations, loans or other securities in which the Fund may invest or get exposure to may be
“
covenant-lite
”
, which means the loans or obligations contain fewer financial maintenance covenants than other loans or obligations (in
some cases, none) and do not include terms which allow the lender to monitor the borrower’s performance and declare a default if
certain criteria are breached. An investment by the Fund in a covenant-lite loan may potentially hinder the ability to reprice credit risk
associated with the issuer and reduce the ability to restructure a problematic loan and mitigate potential loss. The Fund may also
experience difficulty, expenses or delays in enforcing its rights on its holdings of covenant-lite loans or obligations. As a result of these
risks, the Fund’s exposure to losses may be increased, which could result in an adverse impact on the Fund’s net income and NAV.
Repurchase Agreements Risk.
Repurchase agreements could involve certain risks in the event of default or insolvency of the seller,
including losses and possible delays or restrictions upon the Fund’s ability to dispose of the underlying securities. To the extent that, in
the meantime, the value of the securities that the Fund has purchased has decreased, the Fund could experience a loss.
U.S. Government and Agency Securities Risk.
U.S. Government and agency securities are subject to market risk, interest rate risk and
credit risk. Not all U.S. Government securities are insured or guaranteed by the full faith and credit of the U.S. Government; some are
only insured or guaranteed by the issuing agency, which must rely on its own resources to repay the debt. Some agency securities carry
no guarantee whatsoever and the risk of default associated with these securities would be borne by the Fund. The maximum potential
liability of the issuers of some U.S. Government securities held by the Fund may greatly exceed their current resources, including their
legal right to support from the U.S. Treasury. No assurance can be given that the U.S. Government would provide financial support to
any such issuers if it is not obligated to do so by law. It is possible that these issuers will not have the funds to meet their payment
obligations in the future. In addition, the value of U.S. Government securities may be affected by changes in the credit rating of the
U.S. Government.
Privately Issued Mortgage-Related Securities Risk.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage
loans. Such issuers may be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the
mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government
and government-related pools because there are no direct or indirect government or agency guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of credit, which may be issued by governmental entities or private
49
insurers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a
mortgage-related security meets the Fund’s investment quality standards. There can be no assurance that insurers or guarantors can
meet their obligations under the insurance policies or guarantee arrangements. The Fund may buy mortgage-related securities without
insurance or guarantees if, through an examination of the loan experience and practices of the originators/servicers and poolers, the
Manager determines that the securities meet the Fund’s quality standards. Securities issued by certain private organizations may not be
readily marketable.
Privately issued mortgage-related securities are not subject to the same underwriting requirements for the underlying mortgages that are
applicable to those mortgage-related securities that have a government or government-sponsored entity guarantee. As a result, the
mortgage loans underlying privately issued mortgage-related securities may, and frequently do, have less favorable collateral, credit risk
or other underwriting characteristics than government or government-sponsored mortgage-related securities and have wider variances in
a number of terms including interest rate, term, size, purpose and borrower characteristics. Mortgage pools underlying privately issued
mortgage-related securities more frequently include second mortgages, high loan-to-value ratio mortgages and manufactured housing
loans, in addition to commercial mortgages and other types of mortgages where a government or government-sponsored entity
guarantee is not available. The coupon rates and maturities of the underlying mortgage loans in a privately-issued mortgage-related
securities pool may vary to a greater extent than those included in a government guaranteed pool, and the pool may include subprime
mortgage loans. Subprime loans are loans made to borrowers with weakened credit histories or with a lower capacity to make timely
payments on their loans. For these reasons, the loans underlying these securities have had in many cases higher default rates than
those loans that meet government underwriting requirements.
The risk of non-payment is greater for mortgage-related securities that are backed by loans that were originated under weak underwriting
standards, including loans made to borrowers with limited means to make repayment. A level of risk exists for all loans, although,
historically, the poorest performing loans have been those classified as subprime. Other types of privately issued mortgage-related
securities, such as those classified as pay-option adjustable rate or Alt-A have also performed poorly. Even loans classified as prime have
experienced higher levels of delinquencies and defaults. The substantial decline in real property values across the U.S. has exacerbated
the level of losses that investors in privately issued mortgage-related securities have experienced. It is not certain when these trends may
reverse. Market factors that may adversely affect mortgage loan repayment include adverse economic conditions, unemployment, a
decline in the value of real property, or an increase in interest rates.
Privately issued mortgage-related securities are not traded on an exchange and there may be a limited market for the securities,
especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market,
mortgage-related securities held in the Fund’s portfolio may be particularly difficult to value because of the complexities involved in
assessing the value of the underlying mortgage loans.
The Fund may purchase privately issued mortgage-related securities that are originated, packaged and serviced by third party entities. It
is possible these third parties could have interests that are in conflict with the holders of mortgage-related securities, and such holders
(such as the Fund) could have rights against the third parties or their affiliates. For example, if a loan originator, servicer or its affiliates
engaged in negligence or willful misconduct in carrying out its duties, then a holder of the mortgage-related security could seek recourse
against the originator/servicer or its affiliates, as applicable. Also, as a loan originator/servicer, the originator/servicer or its affiliates may
make certain representations and warranties regarding the quality of the mortgages and properties underlying a mortgage-related
security. If one or more of those representations or warranties is false, then the holders of the mortgage-related securities (such as the
Fund) could trigger an obligation of the originator/servicer or its affiliates, as applicable, to repurchase the mortgages from the
issuing trust.
Notwithstanding the foregoing, many of the third parties that are legally bound by trust and other documents have failed to perform their
respective duties, as stipulated in such trust and other documents, and investors have had limited success in enforcing terms. To the
extent third party entities involved with privately issued mortgage-related securities are involved in litigation relating to the securities,
actions may be taken that are adverse to the interests of holders of the mortgage-related securities, including the Fund. For example,
third parties may seek to withhold proceeds due to holders of the mortgage-related securities, including the Fund, to cover legal or
related costs. Any such action could result in losses to the Fund.
The Manager seeks to manage the portion of the Fund’s assets committed to privately issued mortgage-related securities in a manner
consistent with the Fund’s investment objective, policies and overall portfolio risk profile. In determining whether and how much to invest
in privately issued mortgage-related securities, and how to allocate those assets, the Manager will consider a number of factors. These
may include, but are not limited to: (1) the nature of the borrowers (e.g., residential vs. commercial); (2) the collateral loan type (e.g., for
residential: First Lien - Jumbo/Prime, First Lien - Alt-A, First Lien - Subprime,
Firs
t Lien - Pay-Option or Second Lien; for commercial: 50
Conduit, Large Loan or Single Asset / Single Borrower); and (3) in the case of residential loans, whether they are fixed rate or adjustable
mortgages. Each of these criteria can cause privately issued mortgage-related securities to have differing primary economic
characteristics and distinguishable risk factors and performance
characteristics
.Leveraged Portfolio Company Risk.
While investments in leveraged companies offer the potential opportunity for capital appreciation,
such investments also involve a higher degree of risk as a result of recessions, operating problems and other general business and
economic risks that may have a more pronounced effect on the profitability or survival of such companies. Such investments are
inherently more sensitive to declines in revenues, competitive pressures and increases in expenses. Moreover, rising interest rates may
significantly increase portfolio companies’ interest expense, causing losses and/or the inability to service debt levels. If a portfolio
company cannot generate adequate cash flow to meet debt obligations, the portfolio company may default on its loan agreements or be
forced into bankruptcy resulting in a restructuring of the company’s capital structure or liquidation of the company, and the Fund may
suffer a partial or total loss of capital invested in the portfolio company. Furthermore, to the extent companies in which the Fund has
invested become insolvent, the Fund may determine, in cooperation with other debt holders or on its own, to engage, at the Fund’s
expense in whole or in part, counsel and other advisors in connection therewith. In addition to leverage in the capital structure of
portfolio companies, the Fund may incur leverage which magnifies gains and losses attributable to other investment policies
and practices.
■
Distressed Investments; Restructurings Risk.
The Fund may make investments in companies that subsequently
be
come distressed (e.g., defaulted, out- of-favor or distressed bank loans and debt securities). Certain of the Fund’s investments may, therefore, include
specific investments in companies that become highly leveraged with significant burdens on cash flow, and, therefore, involve a high
degree of financial risk. Portfolio companies may be facing liquidity challenges due to debt maturities, covenant violations, cyclical
challenges or imminent bankruptcy, or they need financing in order to exit bankruptcy. The Fund’s investments may be considered
speculative and subject to a high degree of risk, and the ability of the relevant portfolio companies to pay their debts on schedule
could be adversely affected by interest rate movements, changes in the general economic climate or the economic factors affecting a
particular industry, or specific developments within such companies. Investments in companies operating in workout or bankruptcy
modes also present additional legal risks, including fraudulent conveyance, voidable preference and equitable subordination risks.
The level of analytical sophistication, both financial and legal, necessary for successful investment in companies experiencing
significant business and financial difficulties is unusually high. There is no assurance that the Subadviser will correctly evaluate the
value of the assets collateralizing the Fund’s loans or the prospects for a successful reorganization or similar action.
■
Non-Performing Debt Risk.
Certain debt instruments that the Fund may invest in may be or become nonperforming and possibly in
default. The obligor or relevant guarantor may also be in or enter bankruptcy or liquidation. There can be no assurance as to the
amount and timing of payments, if any, with respect to any such debt instruments.
Loans may become non-performing for a variety of reasons and borrowers on loans constituting the Fund’s assets may seek the
protection afforded by bankruptcy, insolvency and other debtor relief laws. Upon a bankruptcy filing in a U.S. Bankruptcy Court by an
issuer of debt, the U.S. Bankruptcy Code imposes an automatic stay on payments of such issuer’s pre-petition debt. A stay on
payments to be made on the assets of the Fund could adversely affect the value of those assets and the Fund itself. Other protections
in such proceedings may include forgiveness of debt, the ability to create super-priority liens in favor of certain creditors of the debtor
and certain well-defined claims procedures. Non-performing debt obligations may require substantial workout negotiations,
restructuring or bankruptcy filings that may entail a substantial reduction in the interest rate, deferral of payments and/or a substantial
write- down of the principal of a loan or conversion of some or all of the debt to equity. Insolvency laws may, in certain jurisdictions,
result in a restructuring of the debt without the Fund’s consent under the
“
cramdown
”
provisions of applicable insolvency laws and
may also result in a discharge of all or part of the debt without payment to the Fund. If a portfolio company were to file for Chapter 11
reorganization, the U.S. Bankruptcy Code authorizes the issuer to restructure the terms of repayment of a class of debt, even if the
class fails to accept the restructuring, as long as the restructured terms are
“
fair and equitable
”
to the class and certain other
conditions are met. Similar risks may be present in non-U.S. insolvency proceedings.
Such non-performing instruments or loans may also require a substantial amount of workout negotiations or restructuring, which may
entail, among other things, a substantial reduction in the interest rate and a substantial writedown of principal. It is possible that the
Fund may find it necessary or desirable to foreclose on collateral securing one or more loans purchased by the Fund. The foreclosure
process varies jurisdiction by jurisdiction and can be lengthy and expensive. Borrowers often resist foreclosure actions, which often
prolongs and complicates an already difficult and time-consuming process. In some states or other jurisdictions, foreclosure actions
can take up to several years or more to conclude. During the foreclosure proceedings, a borrower may have the ability to file for
bankruptcy, potentially staying the foreclosure action and further delaying the foreclosure process. Foreclosure litigation tends to
create a negative public image of the collateral assets and may result in disrupting ongoing management of the company. There can
be no assurance as to the amount and timing of payments, if any, with respect to any such debt instruments.
Senior Loans Risk.
The assets of the Fund may include first lien senior secured debt and may also include selected second and third
lien senior secured debt, each of which involves a higher degree of risk of a loss of capital as compared to debt of an earlier lien.
The factors affecting an issuer’s first, second and third lien loans, and its overall capital structure, are complex. Some first lien loans may
not necessarily have priority over all other unsecured debt of an issuer. For example, some first lien loans may permit other secured
obligations (such as overdrafts, swaps or other derivatives made available by members of the syndicate to the company), or involve first
51
liens only on specified assets of an issuer (e.g., excluding real estate). Issuers of first lien loans
may
have multiple tranches of first lien debt outstanding, each with first liens on separate collateral, or may share first liens on the same collateral. Furthermore, liens with
respect to primarily U.S. financings generally only cover U.S. assets, and non-U.S. assets are not included (other than, for example,
where a borrower pledges a portion of the stock of first-tier non-U.S. subsidiaries). In the event of Chapter 11 filing by an issuer, the
U.S. Bankruptcy Code authorizes the issuer to use a creditor’s collateral and to obtain additional credit by grant of a prior lien on its
property, senior even to liens that were first in priority prior to the filing, as long as the issuer provides what the presiding bankruptcy
judge considers to be
“
adequate protection,
”
which may, but need not always, consist of the grant of replacement or additional liens or
the making of cash payments to the affected secured creditor. The imposition of prior liens on the Fund’s collateral would adversely
affect the priority of the liens and claims held by the Fund and could adversely affect the Fund’s recovery on its leveraged loans.
Any secured debt is secured only to the extent of its lien and only to the extent of the value of underlying assets or incremental proceeds
on already secured assets. Moreover, underlying assets are subject to credit, liquidity, and interest rate risk. Although the amount and
characteristics of the underlying assets selected as collateral may allow the Fund to withstand certain assumed deficiencies in payments
occasioned by the borrower’s default, if any deficiencies exceed such assumed levels or if underlying assets are sold, it is possible that
the proceeds of such sale or disposition will not be sufficient to satisfy the amount of principal and interest owing to the Fund in respect
of its investment.
Senior secured credit facilities may sometimes be syndicated to a number of different financial market participants. The documentation
governing such facilities typically requires either a majority consent or, in certain cases, unanimous approval for certain actions in
respect of the credit, such as waivers, amendments, or the exercise of remedies. In addition, voting to accept or reject the terms of a
restructuring of a credit pursuant to a Chapter 11 plan of reorganization is done on a class basis. As a result of these voting regimes, the
Fund may not have the ability to control any decision in respect of any amendment, waiver, exercise of remedies, restructuring or
reorganization of debts owed to the Fund.
Senior secured loans are also subject to other risks, including:
■
the possible invalidation of a debt or lien as a
“
fraudulent conveyance
”
;
■
the recovery as a
“
preference
”
of liens perfected or payments made on account of a debt in the 90 days before a bankruptcy filing;
■
equitable subordination claims by other creditors;
■
“
lender liability
”
claims by the portfolio company of the obligations; and
■
environmental and/or other liabilities that may arise with respect to collateral securing the obligations.
Decisions in bankruptcy cases have held that a secondary loan market assignee can be denied a recovery from the debtor in a
bankruptcy if a prior holder of the loans either received and does not return a preference or fraudulent conveyance, or if such prior
holder engaged in conduct that would qualify for equitable subordination.
The Fund’s investments may be subject to early redemption features, refinancing options, pre-payment options or similar provisions that,
in each case, could result in the portfolio company repaying the principal on an obligation held by the Fund earlier than expected. As a
consequence, the Fund’s ability to achieve its investment objective may be adversely affected.
Follow-On Investments Risk
. The Fund may be called upon to provide additional funding for its portfolio companies or have the
opportunity to increase its investment in such portfolio companies. There can be no assurance that the Fund will wish to make follow-on
investments or that it will have sufficient funds to do so. Any decision by the Fund not to make follow-on investments or its inability to
make them may have a substantial negative impact on a portfolio company in need of such an investment.
Syndication of Co-Investments Risk.
From time to time, the Fund may make an investment with the expectation of offering a portion of
its interests therein as a co-investment opportunity to third-party investors. There can be no assurance that the Fund will be successful
in syndicating any such co-investment, in whole or in part, that the closing of such co-investment will be consummated in a timely
manner, that any syndication will take place on terms and conditions that will be preferable for the Fund or that expenses incurred by
the Fund with respect to any such syndication will not be substantial. In the event that the Fund is not successful in syndicating any
such co-investment, in whole or in part, the Fund may consequently hold a greater concentration and have more exposure in the related
investment than initially was intended, which could make the Fund more susceptible to fluctuations in value resulting from adverse
economic and/or business conditions with respect thereto. Moreover, an investment by the Fund that is not syndicated to co-investors as
originally anticipated could significantly reduce the Fund’s overall investment returns.
Affiliated Transactions Risk.
The Fund is prohibited under the 1940 Act from participating in certain transactions with certain of its
affiliates without the prior approval of a majority of the independent members of the Board and, in some cases, the SEC. Any person that
owns, directly or indirectly, 5% or more of the Fund’s outstanding voting securities will be the Fund’s affiliate for purposes of the 1940
Act and generally the Fund will be prohibited from buying or selling any securities from or to such affiliate, absent the prior approval of
52
the Board. However, the Fund may under certain circumstances purchase any such affiliate’s loans or securities in the secondary
market, which could create a conflict for the Manager or the Subadvisers between the Fund’s interests and the interests of such affiliate,
in that the ability to recommend actions in the Fund’s best interest may be limited. The 1940 Act also prohibits certain
“
joint
”
transactions with certain of the Fund’s affiliates, which could include investments in the same portfolio company (whether at the same or
closely related times), without prior approval of the Board and, in some cases, the SEC. If a person acquires more than 25% of the
Fund’s voting securities, the Fund will be prohibited from buying or selling any security from or to such person or certain of that person’s
affiliates, or entering into prohibited joint transactions (including certain co-investments) with such persons, absent the prior approval of
the SEC. Similar restrictions limit the Fund’s ability to transact business with its officers, the Board, the Manager, the Subadvisers or their
affiliates. As a result of these restrictions, the Fund may be prohibited from buying or selling any security from or to any fund or any
portfolio company of a fund managed by the Manager, the Subadvisers or their affiliates, or entering into joint arrangements such as
certain co-investments with these companies or funds without the prior approval of the SEC, which may limit the scope of investment
opportunities that would otherwise be available to the Fund.
The Fund has received exemptive relief from the SEC that allows the Fund to engage in certain co-investment transactions with the
Manager and its affiliates, subject to certain terms and conditions (the
“
Order
”
). Pursuant to such Order, the Fund is generally permitted
to co-invest with the Manager and its affiliates if such co-investments are completed on the same terms and at the same time, as further
detailed in the Order. In addition, the Manager and its affiliates must adopt and implement policies and procedures reasonably designed
to ensure that: (i) opportunities to participate in co-investment transactions are allocated in a manner that is fair and equitable to the
Fund and (ii) the Manager or affiliate negotiating the co-investment transaction considers the interest in the transaction of the Fund.
Confidential Information Access Risk.
In managing the Fund (and other PGIM clients), PGIM may from time to time have the opportunity
to receive Confidential Information about the issuers of certain investments, including, without limitation, senior floating rate loans, other
loans and related investments being considered for acquisition by the Fund or held in the Fund’s portfolio. For example, an issuer of
privately placed loans considered by the Fund may offer to provide PGIM with financial information and related documentation regarding
the issuer that is not publicly available. Pursuant to applicable policies and procedures, PGIM may (but is not required to) seek to avoid
receipt of Confidential Information from the issuer so as to avoid possible restrictions on its ability to purchase and sell investments on
behalf of the Fund and other clients to which such Confidential Information relates. In such circumstances, the Fund (and other PGIM
clients) may be disadvantaged in comparison to other investors, including with respect to the price the Fund pays or receives when it
buys or sells an investment. Further, PGIM’s and the Fund’s abilities to assess the desirability of proposed consents, waivers or
amendments with respect to certain investments may be compromised if they are not privy to available Confidential Information. PGIM
may also determine to receive such Confidential Information in certain circumstances under its applicable policies and procedures. If
PGIM intentionally or unintentionally comes into possession of Confidential Information, it may be unable, potentially for a substantial
period of time, to purchase or sell investments to which such Confidential Information relates.
Private Placements Risk.
A private placement involves the sale of securities that have not been registered under the Securities Act, or
relevant provisions of applicable non-U.S. law, including Rule 144A securities, to certain institutional and qualified individual purchasers,
such as the Fund. In addition to the general risks to which all securities are subject, securities received in a private placement generally
are subject to strict restrictions on resale, and there may be no liquid secondary market or ready purchaser for such securities. See
“
Risks—Liquidity Risk.
”
Therefore, the Fund may be unable to dispose of such securities when it desires to do so, or at the most
favorable time or price. Private placements may also raise valuation risks. See
“
Risks—Valuation Risk.
”
Other Strategy Risks
The following information is a discussion of the additional risk factors associated with an investment in the Common Shares specifically,
as well as those factors generally associated with an investment in a company with investment objectives, investment policies, capital
structure or trading markets similar to the Fund.
Reliance on Investment Professionals.
The success of the Fund’s investments will depend on the ability of the Manager and/or the
Subadvisers and their respective affiliates to identify and consummate suitable investments and to, when relevant, exit investments of
the Fund prudently.
Delay in Use of Proceeds Risk.
Although the Fund currently intends to invest the proceeds from any sale of the Common Shares offered
hereby within three months from receipt thereof, such investments may be delayed if suitable investments are unavailable at the time.
Delays which the Fund encounters in the selection, due diligence and origination or acquisition of investments would likely limit its ability
to pay distributions and lower overall returns.
53
Potential Conflicts of Interest Risk.
The Manager and Subadvisers serve as adviser or subadvisers to other vehicles that have the same or
similar investment objectives and investment strategies to those of the Fund. As a result, the Manager and the Fund’s portfolio managers
may devote unequal time and attention to the management of the Fund and those other funds and accounts. Conflicts of interest exist or
could arise in the future as a result of the relationships between the Fund, on one hand, and its affiliates, on the other. For further
information on potential conflicts of interest, see
“
Conflicts of Interest.
”
Best Efforts Offering Risk.
This offering is being made on a
“
best efforts
”
basis, meaning the Distributor and broker-dealers participating
in the offering are only required to use their best efforts to sell shares and have no firm commitment or obligation to sell any of the
shares. Even though the Fund has acquired the initial portfolio, such portfolio by itself is not diversified. Further, if the Distributor is
unable to raise substantial funds in this offering, the Fund’s Board may seek the approval of the Fund’s shareholders to sell all or
substantially all of the Fund’s assets and dissolve the Fund. In the event of the liquidation, dissolution or winding up of the Fund,
shareholders are entitled to receive the then-current NAV per share of the assets legally available for distribution to the Fund’s
shareholders, after payment of or adequate provision for all of the Fund’s known debts and liabilities, including any outstanding debt
securities or other borrowings and any interest thereon.
Anti-Takeover Provisions Risk.
Certain provisions of the Fund’s certificate of trust and bylaws could have the effect of limiting the ability
of other entities or persons to acquire control of the Fund or to modify the Fund’s structure. These provisions may inhibit a change of
control in circumstances that could give the shareholders the opportunity to realize a premium over the value of the Common Shares.
Cyber Security Risk.
The 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 the Fund’s third-party service providers (e.g.,
custodians, financial intermediaries, transfer agents), Subadvisers, shareholder usage of unsecure systems to access personal accounts,
as well as breaches suffered by the issuers of securities in which the Fund invests, may cause significant disruptions in the business
operations of the Fund. Potential impacts may include, but are not limited to, potential financial losses for the Fund and the issuers’
securities, the inability of shareholders to conduct transactions with the Fund, an inability of the Fund to calculate NAV, and disclosures
of personal or confidential shareholder information.
In addition to direct impacts on Fund shareholders, cyber security failures by the Fund and/or its service providers and others may result
in regulatory inquiries, regulatory proceedings, regulatory and/or legal and litigation costs to the Fund, and reputational damage. The
Fund may incur reimbursement and other expenses, including the costs of litigation and litigation settlements and additional compliance
costs. The Fund may also incur considerable expenses in enhancing and upgrading computer systems and systems security following a
cyber security failure.
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 the Fund and its service providers and Subadvisers 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, the Fund cannot control or assure the efficacy of the cyber security
plans and systems implemented by third-party service providers, the Subadvisers, and the issuers in which the Fund invests.
Portfolio Turnover Risk.
The length of time the Fund has held a particular security is not generally a co
nsid
eration in investment decisions. Under certain market conditions, the Fund’s turnover rate may be higher than that of other mutual funds. Portfolio turnover
generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities. These transactions may result in realization of taxable capital gains. The trading
costs and tax effects associated with portfolio turnover may adversely affect the Fund’s investment performance.
54
Privacy and Data Security Risk.
The Gramm-Leach-Bliley Act (
“
GLBA
”
) and other laws limit the disclosure of certain non-public personal
information about a consumer to non-affiliated third parties and require financial institutions to disclose certain privacy policies and
practices with respect to information sharing with both affiliates and non-affiliated third parties.
Many states and a number of non-U.S. jurisdictions have enacted privacy and data security laws requiring safeguards on the privacy
and security of consumers’ personally identifiable information. Other laws deal with obligations to safeguard and dispose of private
information in a manner designed to avoid its dissemination. Privacy rules adopted by the U.S. Federal Trade Commission and SEC
implement GLBA and other requirements and govern the disclosure of consumer financial information by certain financial institutions,
ranging from banks to private investment funds. U.S. platforms following certain models generally are required to have privacy policies
that conform to these GLBA and other requirements. In addition, such platforms typically have policies and procedures intended to
maintain platform participants’ personal information securely and dispose of it properly.
The Fund generally does not intend to receive borrowers’ non-public personal information, and the Fund has implemented procedures
designed to prevent the disclosure of borrowers’ non-public personal information to the Fund. However, service providers to the Fund or
its direct or indirect fully-owned subsidiaries, including their custodians and the platforms acting as loan servicers for the Fund or its
direct or indirect fully-owned subsidiaries, may obtain, hold or process such information. The Fund cannot guarantee the security of
non-public personal information in the possession of such a service provider and cannot guarantee that service providers have been and
will continue to comply with GLBA, other data security and privacy laws and any other related regulatory requirements. Violations of
GLBA and other laws could subject the Fund to litigation and/or fines, penalties or other regulatory action, which, individually or in the
aggregate, could have an adverse effect on the Fund.
Focused Investment Risk.
To the extent that the Fund focuses its investments in a particular sector, it may be susceptible to loss due to
adverse developments affecting that sector, including (but not limited to): governmental regulation; inflation; rising interest rates; cost
increases in raw materials, fuel and other operating expenses; technological innovations that may render existing products and
equipment obsolete; competition from new entrants; high research and development costs; increased costs associated with compliance
with environmental or other governmental regulations; and other economic, business or political developments specific to that sector.
Furthermore, the Fund may invest a substantial portion of its assets in companies in related sectors that may share common
characteristics, are often subject to similar business risks and regulatory burdens, and whose securities may react similarly to the types
of developments described above, which will subject the Fund to greater risk. The Fund also will be subject to focused investment risk to
the extent that it invests a substantial portion of its assets in a particular issuer, market, asset class, country or geographic region.
Competition Risk.
Identifying, completing and realizing attractive portfolio investments is competitive and involves a high degree of
uncertainty. In acquiring its target assets, the Fund will compete with a variety of institutional investors, including specialty finance
companies, public and private funds (including other funds managed by the Manager or the Subadvisers), commercial and investment
banks, commercial finance and insurance companies and other financial institutions.
Failure of Financial Institutions and Sustained Financial Market Illiquidity Risk.
The failure of certain financial institutions, namely banks,
may increase the possibility of a sustained deterioration of financial market liquidity, or illiquidity at clearing, cash management and/or
custodial financial institutions. The failure of a bank (or banks) with which we and/or our portfolio companies have a commercial
relationship could adversely affect, among other things, our and/or our portfolio companies’ ability to pursue key strategic initiatives,
including by affecting our ability to borrow from financial institutions on favorable terms. Our direct origination platform generally focuses
on mature companies backed by well-capitalized equity partners (e.g., private equity firms), typically with significant equity capital
invested. In the event a portfolio company, or potential portfolio company, has a commercial relationship with a bank that has failed or is
otherwise distressed, such portfolio company may experience delays or other issues in meeting certain obligations or
consummating transactions.
Additionally, if a portfolio company’s sponsor has a commercial relationship with a bank that has failed or is otherwise distressed, the
portfolio company may experience issues receiving financial support from a sponsor to support its operations or consummate
transactions, to the detriment of their business, financial condition and/or results of operations. In addition, such bank failure(s) could
affect, in certain circumstances, the ability of both affiliated and unaffiliated co-lenders, including syndicate banks or other fund
vehicles, to undertake and/or execute co-investment transactions with us, which in turn may result in fewer co-investment opportunities
being made available to us or impact our ability to provide additional follow-on support to portfolio companies. Our and our portfolio
companies’ ability to spread banking relationships among multiple institutions may be limited by certain contractual arrangements,
including liens placed on their respective assets as a result of a bank agreeing to provide financing.
Tax Treatment Limitations and Potential Changes in Tax Treatment Risk.
The Fund’s investment strategy will potentially be limited by its
intention to qualify for treatment as a regulated investment company and can limit the Fund’s ability to qualify and be treated as such.
The tax treatment of certain of the Fund’s investments under one or more of the qualification or distribution tests applicable to regulated
55
investment companies is not certain. An adverse determination or future guidance by the IRS might affect the Fund's ability to qualify for
such treatment. Additionally, as a RIC, the Fund must satisfy, among other requirements, certain ongoing asset diversification,
source-of-income and annual distribution requirements. The Fund may have difficulty complying with these requirements. In particular,
to the extent that the Fund holds equity investments in entities that are treated as partnerships or other pass-through entities for
U.S. federal income tax purposes, it may not have control over, or receive accurate information about, the underlying income and assets
of those entities that are taken into account in determining its compliance with the aforementioned ongoing requirements.
If, in any year, the Fund were to fail to qualify for treatment as a regulated investment company under the Code, and were ineligible to or
did not otherwise cure such failure, the Fund would be subject to tax on its taxable income at corporate rates and, when such income is
distributed, shareholders would be subject to a further tax to the extent of the Fund's current or accumulated earnings and profits.
56
MANAGEMENT AND ADVISORY ARRANGEMENTS
Board of Trustees
The Board is responsible for the overall supervision of the business and affairs of the Fund and performs the various duties imposed on
the trustees of investment companies by the Investment Company Act, the Declaration of Trust and applicable Delaware law. The Board
also oversees the Fund’s officers, who conduct and supervise the daily business operations of the Fund. A vacancy on the Board may be
filled by the trustees, unless the Investment Company Act requires the election of one or more such trustees by shareholders.
Manager
The Manager of the Fund is PGIM Investments, 655 Broad Street, Newark, NJ 07102-4410. PGIM Investments 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. PGIM Investments and its predecessors have served as a manager or administrator to investment companies since 1987.
PGIM Investments currently serves as manager to all of the other investment companies that, together with the Fund, comprise the
Prudential Investments registered investment companies. As of December 31, 2025, PGIM Investments served as the investment
manager to all of the Prudential U.S. and offshore open-end management investment companies, and as manager and administrator to
closed-end investment companies. As of December 31, 2025, PGIM Investments’ total assets under management were approximately
$333.2 billion.
Pursuant to a Management Agreement with the Fund (the
“
Management Agreement
”
), PGIM Investments, subject to the supervision of
the Fund’s Board and in conformity with the stated policies of the Fund, manages both the investment operations of the Fund and the
composition of the Fund’s portfolio, including the purchase, retention, disposition and loan of securities and other assets. In connection
therewith, PGIM Investments is obligated to keep certain books and records of the Fund. PGIM Investments will review the performance
of the Subadvisers and make recommendations to the Board with respect to the retention of subadvisers and the renewal of contracts.
PGIM Investments also administers the Fund’s corporate affairs and, in connection therewith, furnishes the Fund with office facilities,
together with those ordinary clerical and bookkeeping services which are not being furnished by the Fund’s custodian and transfer
agent. The management services that PGIM Investments provides to the Fund are not exclusive under the terms of the Management
Agreement and PGIM Investments is free to, and does, render management services to others.
For services it receives under the Management Agreement, the Fund pays PGIM Investments a management fee. The management fee
(the
“
Management Fee
”
) is payable at the end of each month at the annual rate of 1.10% of the average daily value of the Fund’s total
managed assets.
“
Total managed assets
”
means total assets of the Fund (including any assets attributable to any repurchase
agreements, reverse repurchase agreements, dollar rolls, borrowings and any preferred shares that may be outstanding, if issued) minus
the sum of (i) accrued liabilities of the Fund (other than liabilities for money borrowed, including the liquidation preference of any
outstanding preferred shares, and principal on notes and other debt securities issued by the Fund), (ii) any accrued and unpaid interest
on money borrowed and (iii) accumulated dividends on any outstanding common shares and preferred shares issued by the Fund. For
purposes of this calculation, average daily value of the Fund’s total managed assets is determined at the end of each month on the basis
of the average value of the Fund’s total managed assets of the Fund for each day during the month.
The 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 Fund 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 Investment Company Act) or loss resulting from willful misfeasance, bad
faith or gross negligence or reckless disregard of duties. The Management Agreement provides that it will terminate automatically if
assigned (as defined in the Investment Company Act), and that it may be terminated without penalty by either PGIM Investments or the
Fund by the Board or vote of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act)
upon not more than 60 days’, nor less than 30 days’, written notice. The Management Agreement will continue in effect for a period of
more than two years from the date of execution only so long as such continuance is specifically approved at least annually by the Board
in accordance with the requirements of the Investment Company Act.
Pursuant to an Expense Limitation and Reimbursement Agreement, through the ELRA Period, the Manager has contractually agreed to
waive its fees and/or reimburse expenses of the Fund so that the Fund’s Specified Expenses will not exceed 0.50% of net assets
(annualized). The Fund has agreed to repay these amounts, when and if requested by the Manager, but only if and to the extent that
Specified Expenses are less than 0.50% of net assets (annualized) (or, if a lower expense limit is then in effect, such lower limit) within
three years after the date the Manager waived or reimbursed such fees or expenses. In no event will the Fund’s Specified Expenses
exceed 0.50% of net assets (annualized) during the ELRA Period notwithstanding any repayment made by the Fund pursuant to the
ELRA. This arrangement cannot be terminated without the consent of the Fund’s Board prior to the end of the ELRA Period.
“
Specified
Expenses
”
is defined to include all expenses incurred in the business of the Fund, including organizational and offering costs, with the
exception of (i) the Management Fee, (ii) the Distribution and Servicing Fee, (iii) brokerage costs or other investment-related
57
out-of-pocket expenses, including with respect to unconsummated investments, (iv) dividend/interest payments (including any dividend
payments, interest expenses, commitment fees, or other expenses related to any leverage incurred by the Fund), (v) taxes, and
(vi) extraordinary expenses (as determined in the sole discretion of the Manager).
Subadvisers
The Manager has engaged PGIM and PGIM Limited as subadvisers to provide day-to-day management of the Fund’s portfolio, primarily
through PGIM Credit. PGIM Credit is the public and private fixed income investment group within PGIM. PGIM Credit consists of two
investment sub-groups, PGIM Fixed Income and PPC. The Manager is permitted to allocate portions of the Fund’s portfolio to any of the
investment groups within PGIM.
PGIM is an indirect, wholly-owned subsidiary of Prudential that was organized in 1984. PGIM is the global asset management business
of Prudential Financial, Inc. (NYSE:PRU). As of December 31, 2025, PGIM managed approximately $1.47 trillion in assets. PGIM's
address is 655 Broad Street, Newark, New Jersey 07102.
PGIM Fixed Income, a manager of public and private fixed income investments, is an investment sub-group of PGIM Credit with $909.2
billion in assets under management as of December 31, 2025.*
PGIM Fixed Income’s investment strategies include but are not limited to the following categories: multi-sector strategies,
investment-grade credit, securitized products, leveraged finance, emerging markets strategies and alternative strategies. PGIM Fixed
Income is organized into groups specializing in different sectors of the fixed income market: U.S. and non-U.S. government bonds,
mortgages and asset-backed securities, U.S. and non-U.S. investment grade corporate bonds, high yield bonds, emerging markets
bonds, municipal bonds, and money market securities.
PPC and its predecessors have been providing private debt for more than 75 years and have been a leading source of private debt for
public and private companies. As of December 31, 2025, PPC managed a $ 112.6 billion portfolio of private placements, loans and
mezzanine investments through its 15 regional offices throughout North America, Europe and Australia. The business is supported by
205 professionals globally.
PGIM Limited is an indirect wholly-owned subsidiary of PGIM. PGIM Limited is located at Grand Buildings, 1-3 Strand, Trafalgar Square,
London WC2N 5HR. PGIM Limited provides investment advisory services with respect to securities in certain foreign markets. As of
December 31, 2025, PGIM Limited managed approximately $68.1 billion in assets.
* PGIM Fixed Income’s assets under management includes the assets under management of PGIM Limited.
Subadvisory Agreement
The Manager has entered into a subadvisory agreement (the
“
Subadvisory Agreement
”
) with each of PGIM and PGIM Limited. The
Subadvisory Agreement provides that the Subadvisers will furnish investment advisory services in connection with the management of
the Fund.
Under the Subadvisory Agreement, the Subadvisers, subject to the supervision of the Manager, are responsible for managing the assets
of the Fund in accordance with the Fund’s investment objective, investment program and policies. The Subadvisers generally determine
what fixed-income and other debt securities are purchased and sold for the Fund and are responsible for obtaining and evaluating
financial data relevant to the Fund. The Manager continues to have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises the Subadvisers’ performance of such services.
Subadvisory fees are paid by the Manager out of the management fee that it receives from the Fund. No subadvisory fees are paid by
the Fund directly to PGIM. PGIM will pay a portion of its subadvisory fee to PGIM Limited for its services.
Because the Subadvisers are affiliates, the Manager may from time to time share certain of its profits with, or allocate other resources to,
the Subadvisers. Any such payments by the Manager to the Subadvisers will be from the Manager’s own resources.
A discussion of the basis for the Board’s approval of the continuance of the Management Agreement and Subadvisory Agreement is
available in the Fund’s semi-annual report to shareholders for the six-month period ended June 30, 2025.
Portfolio Managers
The following individuals are jointly and primarily responsible for the day-to-day implementation of the Fund’s investment strategy.
58
Richard Piccirillo
is a Managing Director and one of the Co-Heads on PGIM Credit's Multi-Sector Team. Mr. Piccirillo had specialized in
mortgage-and asset-backed securities since joining PGIM in 1993. Before joining PGIM, Mr. Piccirillo was a fixed income analyst with
Fischer Francis Trees & Watts. Mr. Piccirillo started his career as a financial analyst at Smith Barney. He received a BBA in Finance from
George Washington University and an MBA in Finance and International Business from New York University. Mr. Piccirillo was named a
2019 winner of the Pension and Investment Provider Award for Global Multi-Asset Credit. Mr. Piccirillo has been a portfolio manager of
the Fund since December 2023.
Tyler Thorn
is a Managing Director and a portfolio manager on PGIM Credit's Multi-Sector Team. Mr. Thorn joined PGIM in 2015 and
previously was an analyst in the Portfolio Analysis Group. He has also worked on the Quantitative Modeling and Strategies team.
Mr. Thorn received a B.S. in business administration with concentrations in finance, economics, and computer science from Boston
College. Mr. Thorn has been a portfolio manager of the Fund since December 2023.
Edwin Wilches, CFA
is a Managing Director and Co-Head of PGIM Credit’s Securitized Products Team which includes public and private
markets. Mr. Wilches oversees securitized product security selection across PGIM’s fixed income investment strategies and is also a
portfolio manager for CLO, securitized product, and credit income strategies. Additionally, Mr. Wilches oversees PGIM’s private
Asset-Based Finance platform. Mr. Wilches is an active member in multiple trade associations across the US and European markets
seeking to represent our client’s best interests and to help promote a functioning market structure. He also plays an active leadership
role in PGIM’s employee affinity groups and is a member of PGIM’s Latinx Executive Leadership Team. Prior to his current
responsibilities, Mr. Wilches was responsible for managing and trading PGIM's investments in CLO tranches and supporting the Dryden
CLO platform. Earlier, Mr. Wilches was a member of the CDO analyst team, business and product development team and fixed income
operations team. Mr. Wilches joined PGIM in 2003. He received a BA in Economics from Rutgers University, an MBA from New York
University and holds the Chartered Financial Analyst (CFA) designation. Mr. Wilches has been a portfolio manager of the Fund since
December 2023.
Brian Juliano
is a Managing Director and Head of PGIM Credit's U.S. Leveraged Loan Team. He is also the Co-Head of PGIM’s U.S. CLO
business and is a portfolio manager for PGIM's investments in CLO tranches and PGIM Large Cap Private Credit Team. Before joining
the Bank Loan Team in 2003, Mr. Juliano was a CDO analyst and member of the CDO Business Team for PGIM and a manager in
financial analysis in the Finance Group, where he was responsible for the finance function of various investment subsidiaries. Mr. Juliano
joined PGIM in 2000. Previously, he was a consultant at Deloitte & Touche, where he worked on investment strategy and tax compliance
of high net worth individuals. Mr. Juliano received a B.S. in Finance and an MBA in Finance and Accounting from New York University.
Mr. Juliano has been a portfolio manager of the Fund since December 2023.
Dianna Carr-Coletta
is a Managing Director within the Direct Lending Team at PGIM Credit. Prior to this role, she led our Corporate and
Project Workout team and oversaw the management and restructuring of non-performing investments. Previously, Mrs. Carr-Coletta was
a Senior Principal in PGIM’s Chicago Corporate Finance group. In this role, she led a team responsible for marketing, originating and
managing private placement, mezzanine and structured equity investments in Michigan and Wisconsin, with prior geographies that also
included Southern Ohio and Kentucky. Mrs. Carr-Coletta received a BA from Michigan State University and an MBA from Northwestern
University's Kellogg School of Management. Mrs. Carr-Coletta has been a portfolio manager of the Fund since April 2026.
Tom McCartan,
FIA, CFA
is a Managing Director and portfolio manager on PGIM's Multi-Sector Team. Mr. McCartan joined PGIM in 2015
and had specialized in asset allocation and liability-driven investment strategy. Prior to joining PGIM, Mr. McCartan was based in the UK
for 5 years, working at Mercer and Redington where he worked with institutional pension and insurance clients to develop strategic asset
allocation and liability hedging strategies. Mr. McCartan received a B.S.c. with Honors in Actuarial and Financial Studies from University
College Dublin. He holds the Chartered Financial Analyst (CFA) designation and is a Fellow of the UK Institute of Actuaries (FIA).
Mr. McCartan has been a portfolio manager of the Fund since April 2026.
Additional information about portfolio manager compensation, other accounts managed, and portfolio manager ownership of Fund
securities may be found in the SAI.
59
CONTROL PERSONS
A control person includes a person who beneficially owns more than 25% of the voting securities of a company. As of March 31, 2026,
the Fund could be deemed to be under control of Prudential, through its affiliated entities, which has voting authority with respect to
95.21% of the outstanding interests in the Fund. A control person's vote could have a more significant effect on matters presented to
shareholders for approval than the vote of other Fund shareholders.
60
NET ASSET VALUE
Calculation of NAV
The Fund determines its NAV on each day on which the Fund is open for business, as of the close of regular trading on the New York
Stock Exchange (
“
NYSE
”
) (generally, 4:00 p.m. Eastern Time). The Fund determines the NAV per share of each class of Common
Shares by dividing the value of the Fund’s securities, cash and other assets (including interest accrued but not collected) less all its
liabilities (including accrued expenses, the liquidation preference of any outstanding preferred shares, if any, and dividends payable) by
the total number of shares of Common Shares outstanding.
The Fund’s portfolio investments are valued based upon market quotations or, if market quotations are not readily available, at fair value
as determined in good faith under valuation policies and procedures established by the Board. These valuation policies and procedures
include pricing 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, and authorize 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 or
investments and other market factors.
Exchange-traded options, futures and options on futures are valued at the settlement price determined by the exchange.
The Fund may invest in foreign instruments that are denominated in currencies other than the U.S. dollar. Foreign currency exchange
rates are generally determined as of the close of business on the New York Stock Exchange. Foreign instruments owned by the Fund
may trade on weekends or other days when the Fund’s Common Shares do not trade. As a result, the Fund’s NAV may change on days
when you will not be able to purchase or sell shares.
The Board has designated the Manager as the
“
valuation designee
”
pursuant to the provisions of Rule 2a-5 under the Investment
Company Act (the
“
Valuation Designee
”
). If the Valuation Designee determines that a market quotation for an investment is not reliable
based on, among other things, events or market conditions that occur with respect to one or more securities held by the Fund or the
market as a whole, after the quotation is derived or after the closing of the primary market on which the security is traded, but before the
time that the Fund’s NAV is determined, the Fund may use
“
fair value pricing,
”
which is implemented by a valuation committee made
up of representation from the Valuation Designee. Specifically, representation from Compliance, Product Development, Fund Law and
Fund Administration (
“
Valuation Committee
”
). In addition, the Fund may use fair value pricing determined by the Valuation Committee if
the pricing source does not provide an evaluated price for an investment or provides an evaluated price that, in the judgment of the
Valuation Designee, does not represent fair value.
The Subadvisers often provide relevant information for the meetings of the Valuation Committee.
Different valuation methods may result in differing values for the same investment. The fair value of a portfolio investment that the Fund
uses to determine its NAV may differ from the investment’s quoted or published price of the investment.
Fair value pricing procedures are designed to result in prices for the Fund’s securities and its NAV that are reasonable in light of the
circumstances which make or have made market quotations unavailable or unreliable. There is no assurance, however, that fair value
pricing will accurately reflect the market value of an investment.
At least annually, the Valuation Designee reviews the appropriateness of the Fund’s valuation policies and procedures.
61
DISTRIBUTIONS
The Fund expects to declare and pay regular monthly distributions. In addition, the Fund distributes any net capital gains it earns from
the sale of portfolio securities to shareholders no less frequently than annually. Net short-term capital gain distributions may be paid
more frequently.
Cash distributions to holders of the Common Shares will automatically be reinvested under the DRIP in additional whole and fractional
shares unless you elect to receive your distributions in cash. Investors may terminate their participation in the DRIP with prior written
notice to the Fund. Under the DRIP, shareholders’ distributions are reinvested in Common Shares of the same class of Common Shares
owned by the shareholder for a purchase price equal to the NAV per share (for the class of Common Shares being purchased) on the
date that the distribution is paid. See
“
Distribution Reinvestment Plan.
”
If, for any monthly distribution, net investment income and net realized gains were less than the amount of the distribution, the
difference may be distributed from the Fund’s assets in the form of a return of capital which is applied against and reduces the
shareholder’s basis in his or her Common Shares. A
“
return of capital
”
merely represents a partial return of your original investment and
does not represent a gain on the Fund’s investments. When you sell the Common Shares in the Fund, the amount, if any, by which the
Fund’s sales price exceeds your basis in the Common Shares is gain subject to tax. Because a return of capital reduces your basis in the
Common Shares, it will increase the amount of your gain or decrease the amount of your loss when you sell the Common Shares, all
other things being equal. To the extent that the amount of any such distribution exceeds the shareholder’s basis in his or her Common
Shares, the excess will be treated by the shareholder as gain from a sale or exchange of the Common Shares. As a result, you may be
required to pay tax even if selling your investment in the Common Shares at a loss. In addition, in order to make such distributions, the
Fund might have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such
action. The Fund’s final distribution for each calendar year may include any remaining net investment income and net realized gains
undistributed during the year. The Fund’s actual financial performance will likely vary significantly from month-to-month and from
year-to-year, and there may be extended periods of up to several years when the distribution rate will exceed the Fund’s actual total
returns. The Fund’s projected or actual distribution rate is not a prediction of what the Fund’s actual total returns will be over any
specific future period.
Various factors will affect the level of the Fund’s income, including the asset mix and the amount of leverage utilized by the Fund. To
permit the Fund to maintain a more stable monthly distribution, the Fund may from time to time distribute less than the entire amount of
income earned in a particular period. The undistributed income would be available to supplement future distributions. As a result, the
distributions paid by the Fund for any particular month may be more or less than the amount of income actually earned by the Fund
during that period. Undistributed income will add to the Fund’s net asset and, correspondingly, distributions from undistributed income
will reduce the Fund’s NAV.
Cash distributions to holders of the Common Shares will automatically be reinvested under the Fund’s Distribution Reinvestment Plan
(the
“
DRIP
”
) in additional whole and fractional shares unless you elect to receive your distributions in cash. Investors may terminate
their participation in the DRIP with prior written notice to the Fund. Under the DRIP, shareholders’ distributions are reinvested in
Common Shares of the same class of Common Shares owned by the shareholder for a purchase price equal to the NAV per share (for
the class of Common Shares being purchased) on the date that the distribution is paid. See
“
Distribution Reinvestment Plan.
”
62
DISTRIBUTION REINVESTMENT PLAN
Unless a shareholder elects to receive cash by contacting Prudential Mutual Fund Services LLC (the
“
Plan Administrator
”
), all
distributions declared on Common Shares, net of applicable withholding taxes, will be automatically reinvested by the Plan Administrator
pursuant to the Fund’s DRIP, in additional Common Shares. Shareholders who elect not to participate in the DRIP will receive all
dividends and other distributions (together, a
“
Distribution
”
) in cash directly to the shareholder of record (or, if the Common Shares is
held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation in the
DRIP is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the
Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any
subsequently declared Distributions. Such notice will be effective with respect to a particular Distribution. Some brokers may
automatically elect to receive cash on behalf of the Common Shareholders and may reinvest that cash in additional Common Shares.
The Plan Administrator will open an account for each Common Shareholder under the DRIP in the same name in which such
Shareholder’s Common Shares is registered. Whenever the Fund declares a Distribution payable in cash, non-participants in the DRIP
will receive cash and participants in the DRIP will receive the equivalent in Common Shares. The Common Shares will be acquired by
the Plan Administrator for the participants’ accounts, depending upon the circumstances described below through receipt of additional
unissued but authorized Common Shares from the Fund (
“
Newly Issued Common Shares
”
). The number of shares of Newly Issued
Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Distribution by the
NAV per Common Shares on the payment date.
The Plan Administrator maintains all shareholder accounts in the DRIP and furnishes written confirmation of all transactions in the
accounts, including information needed by shareholders for tax records. Common Shares in the account of each plan participant will be
held by the Plan Administrator on behalf of the DRIP participant, and each shareholder proxy will include those shares purchased or
received pursuant to the DRIP.
The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held under the DRIP in
accordance with the instructions of the participants.
In the case of the shareholders such as banks, brokers or nominees that hold Common Shares for others who are the beneficial owners,
the Plan Administrator will administer the DRIP on the basis of the number of Common Shares certified from time to time by the record
shareholder’s name and held for the account of beneficial owners who participate in the DRIP.
There is no charge to participants for reinvesting regular distributions and capital gains distributions; however, the Fund reserves the
right to amend the DRIP to include a service charge payable by the participants. The fees of the Plan Administrator for handling the
reinvestment of regular distributions and capital gains distributions are included in the fee to be paid by the Fund to the transfer agent.
There are no brokerage charges with respect to Common Shares issued directly by us as a result of regular distributions or capital gains
distributions payable either in Common Shares or in cash.
There will be no brokerage charges with respect to Common Shares issued directly by the Fund. The automatic reinvestment of
Distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on
such Distributions. See
“
Certain U.S. Federal Income Tax Considerations.
”
Participants that request a sale of Common Shares through
the Plan Administrator are subject to brokerage commissions.
Each participant may terminate the participant’s account under the DRIP by so notifying the Plan Administrator via the Plan
Administrator’s website at www.pgim.com/investments, by filling out the transaction request form located at the bottom of the
participant’s Statement and sending it to the Plan Administrator or by calling the Plan Administrator. Such termination will be effective
immediately if the participant’s notice is received by the Plan Administrator prior to any Distribution record date. Upon any withdrawal or
termination, the Plan Administrator will cause to be delivered to each terminating participant a statement of holdings for the appropriate
number of the Fund’s whole book-entry Common Shares and a check for the cash adjustment of any fractional share at the market
value per Common Shares as of the close of business on the date the termination is effective less any applicable fees. In the event a
participant’s notice of termination is on or after a record date (but before payment date) for an account whose Distributions are
reinvested, the Plan Administrator, in its sole discretion, may either distribute such Distributions in cash or reinvest them in Common
Shares on behalf of the terminating participant. In the event reinvestment is made, the Plan Administrator will process the termination as
soon as practicable, but in no event later than five business days after the reinvestment is completed. The DRIP may be terminated by
the Fund upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any Distribution
by the Fund.
The Fund reserves the right to amend or terminate the DRIP. There is no direct service charge to participants with regard to purchases
in the DRIP; however, the Fund reserves the right to amend the DRIP to include a service charge payable by the participants.
63
DESCRIPTION OF SHARES
The Fund is a Delaware statutory trust formed on July 24, 2023. The Fund currently offers three classes of Common Shares on a
continuous basis: Class Z Shares, Class A Shares, and Class C Shares. The Manager obtained exemptive relief from the SEC that permits
the Fund to issue multiple classes of Common Shares. An investment in any class of Common Shares of the Fund represents an
investment in the same assets of the Fund. However, the minimum investment amounts and ongoing fees and expenses for each class
of Common Shares are expected to be different. The estimated fees and expenses for each class of Common Shares are set forth in
“
Summary of Fund Expenses.
”
Shares of each class of the Fund represent an equal pro rata interest in the Fund and, generally, have identical voting, distribution,
liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications and terms and conditions, except that: (a) each
class has a different designation; (b) each class of Common Shares bears any class-specific expenses; and (c) each class shall have
separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other
class, and shall have exclusive voting rights on any matter submitted to shareholders that relates solely to that class.
Any additional offerings of classes of Common Shares will require approval by the Board. Any additional offering of classes of Common
Shares will also be subject to the requirements of the Investment Company Act, which provides that such Common Shares may not be
issued at a price below the then-current net asset value, except in connection with an offering to existing holders of Common Shares or
with the consent of a majority of the Fund’s common shareholders.
The following table shows the amounts of Common Shares that have been authorized and outstanding as of March 31, 2026:
Share Class | Amount Authorized | Amount Outstanding |
There is currently no market for the Common Shares, and the Fund does not expect that a market for the Common Shares will develop
in the foreseeable future.
65
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST
An investor in the Fund will be a shareholder of the Fund and his or her rights in the Fund will be established and governed by the
Declaration of Trust. A prospective investor and his or her advisers should carefully review the Declaration of Trust as each shareholder
will agree to be bound by its terms and conditions. The following is a summary description of additional items and of select provisions of
the Declaration of Trust that may not be described elsewhere in this Prospectus. The description of such items and provisions is not
definitive and reference should be made to the complete text of the Declaration of Trust.
Shareholders; Additional Classes of Shares
Persons who purchase Common Shares will be shareholders of the Fund. The Manager may invest in the Fund as a shareholder.
In addition, to the extent permitted by the Investment Company Act and subject to the Fund’s exemptive relief from the SEC, the Fund
reserves the right to issue additional classes of shares in the future subject to fees, charges, repurchase rights, and other characteristics
different from those of the Common Shares offered in this Prospectus.
Each Common Share has one vote and, when issued and paid for in accordance with the terms of this offering, will be fully paid and
non-assessable. All classes of Common Shares are equal as to distributions, assets and voting privileges and have no conversion,
preemptive or other subscription rights.
Anti-Takeover and Other Provisions
The Declaration of Trust includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control
of the Fund, to change the composition of the Board or convert the Fund to open-end status. These provisions may have the effect of
discouraging attempts to acquire control of the Fund, which attempts could have the effect of increasing the expenses of the Fund and
interfering with the normal operation of the Fund. The Trustees are elected for indefinite terms and do not stand for reelection. A Trustee
may be removed from office (i) at any meeting of shareholders by a vote of not less than two-thirds of the outstanding voting Common
Shares or (ii) with or without cause at any time by written instrument signed by at least two-thirds of the number of Trustees prior to such
removal, specifying the date when such removal shall become effective. The Trustees may also fill vacancies caused by enlargement of
their number or by the death, resignation or removal of a Trustee. The Declaration of Trust requires the affirmative vote of not less than
seventy-five percent (75%) of the Common Shares of the Fund to approve, adopt or authorize an amendment to the Declaration of Trust
that makes the Common Shares a
“
redeemable security
”
as that term is defined in the Investment Company Act, unless such
amendment has been approved by a majority of the Trustees then in office, in which case approval by the vote of a majority of the
outstanding voting securities, as defined in the Investment Company Act, is required. Upon the adoption of a proposal to convert the
Fund from a
“
closed-end company
”
to an
“
open-end company
”
, as those terms are defined by the Investment Company Act, and the
necessary amendments to the Declaration of Trust to permit such a conversion of the Fund’s outstanding Common Shares entitled to
vote, the Fund shall, upon complying with any requirements of the Investment Company Act and state law, become an
“
open-end
”
investment company. Such affirmative vote or consent shall be in addition to the vote or consent of the holders of the Common Shares
otherwise required by law, or any agreement between the Fund and any national securities exchange.
Limitation of Liability; Indemnification
The Declaration of Trust provides that the Trustees and former Trustees of the Board and officers and former officers of the Fund shall
not be liable to the Fund or any of the shareholders for any loss or damage occasioned by any act or omission in the performance of
their services as such in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of their office, and shall not be liable for errors of judgement or mistakes of fact or law. Persons extending credit to,
contracting with or having any claim against the Fund shall look only to the assets of the Fund for payment under such credit, contract
or claim, and neither the shareholders nor the Trustees, nor any of the Fund’s officers, employees or agents, whether past, present or
future, shall be personally liable therefor. The rights of indemnification and exculpation provided under the Declaration of Trust shall not
be construed so as to limit liability or provide for indemnification of the Trustees and former Trustees of the Board, officers and former
officers of the Fund, and the other persons entitled to such indemnification for any liability (including liability under applicable federal or
state securities laws which, under certain circumstances, impose liability even on persons that act in good faith), to the extent (but only
to the extent) that such indemnification or limitation on liability would be in violation of applicable law, but shall be construed so as to
effectuate the applicable provisions of the Declaration of Trust to the fullest extent permitted by law.
Derivative Actions and Direct Actions
The Declaration of Trust provides that a shareholder may bring a derivative action on behalf of the Fund only if the following conditions
are met: (i) the shareholder or shareholders must make a pre-suit demand upon the Trustees to bring the subject action unless an effort
to cause the Trustees to bring such an action is not likely to succeed; (ii) shareholders eligible to bring such derivative action under the
Delaware Statutory Trust Act (the
“
DSTA
”
) who hold at least ten percent (10%) of the outstanding Common Shares of the Fund or ten
percent (10%) of the outstanding Common Shares of the series or class to which such action relates, shall join in the request for the
66
Trustees to commence such action; (iii) the Trustees must be afforded a reasonable amount of time to consider such shareholder
request and to investigate the basis of such claim (the Trustees may retain counsel or other advisors in considering the merits of the
request and shareholders making such request must reimburse the Fund for the expense of any such advisor if the Trustees determine
not to take action); (iv) the Board may designate a committee of one Trustee to consider a shareholder demand if necessary to create a
committee with a majority of Trustees who do not have a personal financial interest in the transaction at issue; and (v) any decision by
the Trustees to bring, maintain, or compromise (or not to bring, maintain, or compromise) such court action, proceeding or claim, or to
submit the matter to a vote of shareholders, shall be made by the Trustees in good faith and shall be binding upon the shareholders.
In addition, each shareholder agrees that any claim that affects all shareholders of the Fund or any series or class equally, that is,
proportionately based on their number of Common Shares in the Fund or in such series or class, must be brought as a derivative claim
irrespective of whether such claim involves a violation of the shareholder’s rights under the Declaration of Trust or any other alleged
violation of contractual or individual rights that might otherwise give rise to a direct claim (and regardless, in each case, of whether such
claims sound in tort, fraud or otherwise, or are based on common law, statutory, equitable, legal or other grounds).
Notwithstanding the foregoing, however, such provision shall not apply to any claims asserted under U.S. federal securities law.
Exclusive Jurisdiction
Under the Declaration of Trust, actions by shareholders against the Fund asserting a claim governed by Delaware law or the Fund’s
organizational documents must be brought in the Court of Chancery of the State of Delaware or any other court in the State of Delaware
with subject matter jurisdiction. The exclusive jurisdiction provision limits a shareholder’s ability to litigate a claim in a jurisdiction that
may be more favorable and convenient to the shareholder. It may also make it more expensive for a shareholder to bring a suit.
Notwithstanding the foregoing, however, such provision shall not apply to any claims asserted under U.S. federal securities law.
Shareholders also waive the right to jury trial to the fullest extent permitted by law.
Amendment of the Declaration of Trust
The Declaration of Trust may generally be amended, in whole or in part, with the approval of a majority of the Board (including a majority
of the Independent Trustees, if required by the Investment Company Act) and without the approval of the shareholders unless the
approval of shareholders is required under Investment Company Act or such an amendment would limit shareholder rights, as
discussed in the Declaration of Trust.
Term, Dissolution, and Liquidation
Unless dissolved and terminated as provided in the Declaration of Trust, the Fund shall continue without limitation of time. The Fund
may be terminated by a vote of at least a majority of the outstanding Common Shares or a vote of the Trustees without the need for a
shareholder vote. Upon liquidation of the Fund, after paying or adequately providing for the payment of all claims and obligations
required under the DSTA, and upon receipt of such releases, indemnities and refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining assets of the Fund among the classes of Common Shares of the Fund in
accordance with the respective rights of such classes.
Transfer Restrictions
No person shall become a substituted shareholder of the Fund without the consent of the Fund. Shares held by shareholders may be
transferred only: (i) by operation of law in connection with the death, bankruptcy, insolvency, adjudicated incompetence or dissolution of
the shareholder; or (ii) with the consent of the Board (which may be withheld in its sole and absolute discretion).
Notice of a proposed transfer of Common Shares must also be accompanied by a properly executive instrument of transfer, including
evidence of compliance with any securities laws and contractual restrictions as may be required. In connection with any request to
transfer Common Shares, the Fund may require the shareholder requesting the transfer to obtain, at the shareholder’s expense, an
opinion of counsel selected by the Fund as to such matters as the Fund may reasonably request. Each transferring shareholder and
transferee may be charged reasonable expenses, including, but not limited to, attorneys’ and accountants’ fees, incurred by the Fund in
connection with the transfer.
Any transferee acquiring Common Shares by operation of law in connection with the death, bankruptcy, insolvency, adjudicated
incompetence or dissolution of the shareholder, will be recorded on the applicable register of Common Shares as the shareholder of
such Common Shares upon providing proper evidence to the Trustees or its delegate, but until such record is made, the shareholder of
record will be deemed to be the shareholder of such Common Shares for all purposes.
67
PERIODIC REPURCHASE OFFERS
No Right of Redemption
The Fund is a closed-end interval fund and, to provide liquidity and the ability to receive NAV on a disposition of at least a portion of
Common Shares, makes periodic offers to repurchase Common Shares. No shareholder will have the right to require the Fund to
repurchase its Common Shares, except as permitted by the Fund’s interval structure. No public market for the Common Shares exists,
and none is expected to develop in the future. Consequently, shareholders generally will not be able to liquidate their investment other
than as a result of repurchases of their Common Shares by the Fund, and then only on a limited basis.
The Fund has adopted, pursuant to Rule 23c-3 under the Investment Company Act, a fundamental policy, which cannot be changed
without shareholder approval, requiring the Fund to offer to repurchase at least 5% and up to 25% of its Common Shares at NAV on a
regular schedule. Although the policy permits repurchases of between 5% and 25% of the Fund’s outstanding Common Shares, for
each quarterly repurchase offer, the Fund currently expect to offer to repurchase 5% of the Fund’s outstanding Common Shares (in the
aggregate across all share classes) at NAV subject to the approval of the Board. The schedule requires the Fund to make repurchase
offers every three months.
Repurchase Dates
The Fund makes quarterly repurchase offers. As discussed below, the date on which the repurchase price for Common Shares is
determined shall occur no later than the 14th day after the Repurchase Request Deadline (or the next business day, if the 14th day is
not a business day).
When a repurchase offer commences, the Fund sends, at least 21 days before the Repurchase Request Deadline, written notice to each
shareholder setting forth, among other things:
■
The percentage of outstanding Common Shares that the Fund is offering to repurchase and how the Fund will purchase Common
Shares on a pro rata basis if the offer is oversubscribed.
■
The date on which a shareholder’s repurchase request is due.
■
The date that will be used to determine the Fund’s NAV applicable to the repurchase offer (the
“
Repurchase Pricing Date
”
).
■
The date by which the Fund will pay to shareholders the proceeds from their Common Shares accepted for repurchase.
■
The NAV of the Common Shares as of a date no more than seven days before the date of the written notice and the means by which
shareholders may ascertain the NAV.
■
The procedures by which shareholders may tender their Common Shares and the right of shareholders to withdraw or modify their
tenders before the Repurchase Request Deadline.
■
The circumstances in which the Fund may suspend or postpone the repurchase offer.
This notice may be included in a shareholder report or other Fund document.
The Repurchase Request Deadline will be strictly observed.
If a shareholder fails to submit a repurchase request in good order by the Repurchase Request Deadline, the shareholder will be unable
to liquidate Common Shares until a subsequent repurchase offer, and will have to resubmit a request in the next repurchase offer.
Shareholders may withdraw or change a repurchase request with a proper instruction submitted in good form at any point before the
Repurchase Request Deadline. The Fund will be deemed to have received a repurchase request when a Selling Agent or, if applicable, a
Selling Agent's authorized designee, receives the order.
Determination of Repurchase Price and Payment for Shares
The Repurchase Pricing Date shall occur no later than the 14th day after the Repurchase Request Deadline (or the next business day, if
the 14th day is not a business day). The Fund expects to distribute payment to shareholders between one and three business days after
the Repurchase Pricing Date and will distribute such payment no later than seven (7) calendar days after such date. The Fund’s NAV
per share may change materially between the date a repurchase offer is mailed and the Repurchase Request Deadline, and it may also
change materially between the Repurchase Request Deadline and Repurchase Pricing Date. The method by which the Fund calculates
NAV is discussed below under
“
Net Asset Value.
”
During the period an offer to repurchase is open, shareholders may obtain the current
NAV by visiting www.pgim.com or calling the Fund’s transfer agent at (844) 753-6354.
Your financial adviser or other financial intermediary may charge service fees for handling Common Share repurchases. Please consult
your financial adviser or other financial intermediary for details.
Suspension or Postponement of Repurchase Offers
The Fund may suspend or postpone a repurchase offer in limited circumstances set forth in Rule 23c-3 under the Investment Company
Act, as described below, but only with the approval of a majority of the Trustees, including a majority of the Independent Trustees. The
Fund may suspend or postpone a repurchase offer only: (1) if making or effecting the repurchase offer would cause the Fund to lose its
status as a regulated investment company under Subchapter M of the Internal Revenue Code; (2) for any period during which the NYSE
68
or any other market in which the securities owned by the Fund are principally traded is closed, other than customary weekend and
holiday closings, or during which trading in such market is restricted; (3) for any period during which an emergency exists as a result of
which disposal by the Fund of securities owned by it is not reasonably practicable, or during which it is not reasonably practicable for the
Fund fairly to determine the value of its net assets; or (4) for such other periods as the SEC may by order permit for the protection of
shareholders of the Fund.
Oversubscribed Repurchase Offers
There is no minimum number of Common Shares that must be tendered before the Fund will honor repurchase requests. However, the
Fund’s Trustees set for each repurchase offer a maximum percentage of Common Shares that may be repurchased by the Fund, which
is currently expected to be 5% of the Fund’s outstanding Common Shares. In the event a repurchase offer by the Fund is
oversubscribed, the Fund may repurchase, but is not required to repurchase, additional Common Shares up to a maximum amount of
2% of the outstanding Common Shares of the Fund. If the Fund determines not to repurchase additional Common Shares beyond the
repurchase offer amount, or if shareholders tender an amount of Common Shares greater than that which the Fund is entitled to
repurchase, the Fund will repurchase the Common Shares (in the aggregate across all share classes) tendered on a pro rata basis.
If any Common Shares that you wish to tender to the Fund are not repurchased because of proration, you will have to wait until the next
repurchase offer and resubmit a new repurchase request, and your repurchase request will not be given any priority over other
shareholders’ requests. Thus, there is a risk that the Fund may not purchase all of the Common Shares you wish to have repurchased in
a given repurchase offer or in any subsequent repurchase offer. In anticipation of the possibility of proration, some shareholders may
tender more Common Shares than they wish to have repurchased in a particular quarter, increasing the likelihood of proration.
There is no assurance that you will be able to tender your Common Shares when or in the amount that you desire.
Consequences of Repurchase Offers
From the time the Fund distributes or publishes each repurchase offer notification until the Repurchase Pricing Date for that offer, the
Fund must maintain liquid assets at least equal to the percentage of its Common Shares subject to the repurchase offer. For this
purpose,
“
liquid assets
”
means assets that may be sold or otherwise disposed of in the ordinary course of business, at approximately the
price at which the Fund values them, within the period between the Repurchase Request Deadline and the repurchase payment
deadline, or which mature by the repurchase payment deadline. The Fund is also permitted to borrow up to the maximum extent
permitted under the Investment Company Act to meet repurchase requests.
If the Fund borrows to finance repurchases, interest on that borrowing will negatively affect shareholders who do not tender their
Common Shares by increasing the Fund’s expenses and reducing any net investment income. There is no assurance that the Fund will
be able sell a significant amount of additional Common Shares so as to mitigate these effects.
These and other possible risks associated with the Fund’s repurchase offers are described under
“
Risks—Repurchase Offers Risk
”
above. In addition, the repurchase of Common Shares by the Fund will be a taxable event to shareholders, potentially even to those
shareholders that do not participate in the repurchase. For a discussion of these tax consequences, see
“
Certain U.S. Federal Income
Tax Considerations
”
below and in the Statement of Additional Information.
69
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of certain U.S. federal income tax considerations applicable to us and the purchase,
ownership and disposition of our shares. This discussion does not purport to be complete or to deal with all aspects of U.S. federal
income taxation that may be relevant to Common Shareholders in light of their particular circumstances. Unless otherwise noted, this
discussion applies only to U.S. shareholders that hold our shares as capital assets. A U.S. shareholder is an individual who is a citizen or
resident of the United States, a U.S. corporation, a trust if it (a) is subject to the primary supervision of a court in the United States and
one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has made a valid election to be treated
as a U.S. person, or any estate the income of which is subject to U.S. federal income tax regardless of its source. This discussion is
based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, or differing interpretations (possibly with retroactive effect). This discussion does not represent a detailed
description of the U.S. federal income tax consequences relevant to special classes of taxpayers including, without limitation, financial
institutions, insurance companies, investors in pass- through entities, U.S. shareholders whose
“
functional currency
”
is not the
U.S. dollar, tax-exempt organizations, dealers in securities or currencies, traders in securities or commodities that elect mark to market
treatment, or persons that will hold our shares as a position in a
“
straddle,
”
“
hedge
”
or as part of a
“
constructive sale
”
for U.S. federal
income tax purposes. In addition, this discussion does not address U.S. federal estate or gift taxes, the application of the Medicare tax
on net investment income or the U.S. federal alternative minimum tax, or any tax consequences attributable to persons being required to
accelerate the recognition of any item of gross income with respect to our shares as a result of such income being recognized on an
applicable financial statement. Prospective investors should consult their tax advisors with regard to the U.S. federal tax consequences
of the purchase, ownership, or disposition of our shares, as well as the tax consequences arising under the laws of any state, foreign
country or other taxing jurisdiction.
Taxation as a Regulated Investment Company
The Fund has elected to be treated, and intends to qualify each taxable year thereafter, as a RIC under Subchapter M of the Code.
To qualify for the favorable tax treatment accorded to RICs under Subchapter M of the Code, the Fund must, among other things:
(1) have filed with its return for the taxable year an election to be a RIC or have made such election for a previous taxable year;
(2) derive in each taxable year at least 90% of its gross income from (a) dividends, interest, payments with respect to certain securities
loans, and gains from the sale or other disposition of stock or securities or foreign currencies, or other income (including but not limited
to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities, or
currencies; and (b) net income derived from an interest in certain publicly-traded partnerships that are treated as partnerships for
U.S. federal income tax purposes and that derive less than 90% of their gross income from the items described in (a) above (each, a
“
Qualified Publicly-Traded Partnership
”
); and (3) diversify its holdings so that, at the end of each quarter of each taxable year of the
Fund (a) at least 50% of the value of the Fund’s total assets is represented by cash and cash items (including receivables),
U.S. government securities and securities of other RICs, and other securities for purposes of this calculation limited, in respect of any
one issuer to an amount not greater in value than 5% of the value of the Fund’s total assets, and to not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Fund’s total assets is invested in the
securities (other than U.S. government securities or securities of other RICs) of (I) any one issuer, (II) any two or more issuers which the
Fund controls and which are determined to be engaged in the same or similar trades or businesses or related trades or businesses or
(III) any one or more Qualified Publicly-Traded Partnerships (described in 2(b) above).
As a RIC, the Fund generally will not be subject to U.S. federal income tax on its investment company taxable income (as that term is
defined in the Code, but determined without regard to the deduction for dividends paid) and net capital gain (the excess of net long-term
capital gain over net short-term capital loss), if any, that it distributes in each taxable year to its shareholders, provided that it distributes
at least 90% of the sum of its investment company taxable income and its net tax-exempt income for such taxable year. Generally, the
Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income and net
capital gains, if any.
As a RIC, the Fund is limited in its ability to deduct expenses in excess of its investment company taxable income. If the Fund’s
expenses in a given year exceed its investment company taxable income, it will have a net operating loss for that year. However, the
Fund is not permitted to carry forward net operating losses to subsequent years, so these net operating losses generally will not pass
through to our shareholders. In addition, expenses can be used only to offset investment company taxable income, and may not be used
to offset net capital gain. As a RIC, the Fund may not use any net capital losses (that is, realized capital losses in excess of realized
capital gains) to offset investment company taxable income, but may carry forward those losses, and use them to offset future capital
gains, indefinitely.
70
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible
4% U.S. federal excise tax. To prevent imposition of the excise tax, the Fund must distribute during each calendar year an amount at
least equal to the sum of (i) 98% of its ordinary income for the calendar year, (ii) 98.2% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the one-year period ending October 31 of the calendar year and (iii) any ordinary income and
capital gains for previous years that were not distributed during those years. For these purposes, the Fund will be deemed to have
distributed any income or gains on which it paid U.S. federal income tax.
A distribution will be treated as paid on December 31 of any calendar year if it is declared by the Fund in October, November or
December with a record date in such a month and paid by the Fund during January of the following calendar year. Such distributions
will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the
distributions are received.
If the Fund failed to qualify as a RIC or failed to satisfy the 90% distribution requirement in any taxable year, the Fund would be subject
to U.S. federal income tax at regular corporate rates on its taxable income (including distributions of net capital gain), even if such
income were distributed to its shareholders, and all distributions out of earnings and profits would be taxed to shareholders as ordinary
dividend income. Such distributions generally would be eligible (i) to be treated as
“
qualified dividend income
”
in the case of individual
and other non-corporate shareholders and (ii) for the dividends received deduction in the case of corporate shareholders. In addition,
the Fund could be required to recognize unrealized gains, pay taxes and make distributions (which could be subject to interest charges)
before requalifying for taxation as a RIC.
Distributions
Distributions to shareholders by the Fund of ordinary income (including
“
market discount
”
realized by the Fund on the sale of debt
securities), and of net short-term capital gains, if any, realized by the Fund will generally be taxable to shareholders as ordinary income
to the extent such distributions are paid out of the Fund’s current or accumulated earnings and profits. Distributions, if any, of net capital
gains properly reported as
“
capital gain dividends
”
will be taxable as long-term capital gains, regardless of the length of time the
shareholder has owned our shares. A distribution of an amount in excess of the Fund’s current and accumulated earnings and profits
(as determined for U.S. federal income tax purposes) will be treated by a shareholder as a return of capital which will be applied against
and reduce the shareholder’s basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder’s
basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange of the shares. Distributions paid
by the Fund generally will not be eligible for the dividends received deduction allowed to corporations or for the reduced rates applicable
to certain qualified dividend income received by non-corporate shareholders.
Distributions will be treated in the manner described above regardless of whether such distributions are paid in cash or invested in
additional shares pursuant to the distribution reinvestment plan. Shareholders receiving distributions in the form of additional shares will
generally be treated as receiving a distribution in the amount of the fair market value of the distributed shares. The additional shares
received by a shareholder pursuant to the distribution reinvestment plan will have a new holding period commencing on the day
following the day on which the shares were credited to the shareholder’s account.
The Fund may elect to retain its net capital gain or a portion thereof for investment and be taxed at corporate rates on the amount
retained. In such case, it may designate the retained amount as undistributed capital gains in a notice to its shareholders, who will be
treated as if each received a distribution of his pro rata share of such gain, with the result that each shareholder will (i) be required to
report its pro rata share of such gain on its tax return as long- term capital gain, (ii) receive a refundable tax credit for its pro rata share
of tax paid by the Fund on the gain and (iii) increase the tax basis for its shares by an amount equal to the deemed distribution less the
tax credit.
Certain distributions reported by the Fund as Section 163(j) interest dividends may be treated as interest income by U.S. shareholders
for purposes of the tax rules applicable to interest expense limitations under the Code. Such treatment by U.S. shareholders is generally
subject to holding period requirements and other potential limitations. The amount that the Fund is eligible to report as a Section
163(j) dividend for a tax year is generally limited to the excess of its business interest income over its (i) business interest expense and
(ii) other deductions properly allocable to our business interest income.
Shareholders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to pay a 3.8%
Medicare tax on all or a portion of their
“
net investment income.
”
For these purposes,
“
net investment income
”
generally includes
interest and taxable distributions and deemed distributions paid with respect to shares, and net gain attributable to the disposition of
shares (in each case, unless the shares are held in connection with certain trades or businesses), but will be reduced by any deductions
properly allocable to these distributions or this net gain.
71
The Internal Revenue Service currently requires that a RIC that has two or more classes of stock allocate to each such class
proportionate amounts of each type of its income (such as ordinary income and capital gains) based upon the percentage of total
dividends paid to each class for the tax year. Accordingly, if the Fund issues preferred shares, the Fund intends to allocate capital gain
dividends, if any, between its common shares and preferred shares in proportion to the total dividends paid to each class with respect to
such tax year. Shareholders will be notified annually as to the U.S. federal tax status of distributions, and shareholders receiving
distributions in the form of additional shares will receive a report as to the NAV of those shares.
Sale or Exchange of Shares
Upon the sale or other disposition of our shares (except pursuant to a repurchase by the Fund, as described below), a shareholder will
generally realize a capital gain or loss in an amount equal to the difference between the amount realized and the shareholder’s adjusted
tax basis in the shares sold. Such gain or loss will be long-term or short-term, depending upon the shareholder’s holding period for the
shares. Generally, a shareholder’s gain or loss will be a long-term gain or loss if the shares have been held for more than one year. For
non-corporate taxpayers, long-term capital gains are currently eligible for reduced rates of taxation.
No loss will be allowed on the sale or other disposition of shares if the owner acquires (including pursuant to the distribution
reinvestment plan) or enters into a contract or option to acquire securities that are substantially identical to such shares within 30 days
before or after the disposition. In such a case, the basis of the securities acquired will be adjusted to reflect the disallowed loss. Losses
realized by a shareholder on the sale or exchange of shares held for six months or less are treated as long-term capital losses to the
extent of any distribution of long-term capital gain received (or amounts designated as undistributed capital gains) with respect to
such shares.
From time to time, the Fund may offer to repurchase its outstanding shares. Shareholders who tender all shares of the Fund held, or
considered to be held, by them will be treated as having sold their shares and generally will realize a capital gain or loss. If a shareholder
tenders fewer than all of its shares or fewer than all shares tendered are repurchased, such shareholder may be treated as having
received a taxable dividend upon the tender of its shares. In such a case, there is a risk that non-tendering shareholders, and
shareholders who tender some but not all of their shares or fewer than all of whose shares are repurchased, in each case whose
percentage interests in the Fund increase as a result of such tender, will be treated as having received a taxable distribution from the
Fund. The extent of such risk will vary depending upon the particular circumstances of the tender offer, and in particular whether such
offer is a single and isolated event or is part of a plan for periodically redeeming shares of the Fund.
Under U.S. Treasury regulations, if a shareholder recognizes a loss with respect to 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 Internal Revenue Service a disclosure
statement on Internal Revenue Service Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this
reporting requirement, but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend the current
exception from this reporting requirement to shareholders of most or all RICs. 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
advisors to determine the applicability of these regulations in light of their individual circumstances.
Nature of the Fund’s Investments
Certain of the Fund’s hedging and derivatives transactions are subject to special and complex U.S. federal income tax provisions that
may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower-taxed
long-term capital gain into higher- taxed short-term capital gain or ordinary income, (iii) convert an ordinary loss or a deduction into a
capital loss (the deductibility of which is more limited), (iv) cause the Fund to recognize income or gain without a corresponding receipt
of cash, (v) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the
intended characterization of certain complex financial transactions and (vii) produce income that will not be treated as qualifying income
for purposes of the 90% gross income test described above.
These rules could therefore affect the character, amount and timing of distributions to shareholders and the Fund’s status as a RIC. The
Fund will monitor its transactions and may make certain tax elections in order to mitigate the effect of these provisions.
Below Investment Grade Instruments
The Fund expects to invest in debt securities that are rated below investment grade by rating agencies or that would be rated below
investment grade if they were rated. Investments in these types of instruments may present special tax issues for the Fund. U.S. federal
income tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount or
market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments received on
obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy or
workout context are taxable. These and other issues will be addressed by the Fund, to the extent necessary, to preserve its status as a
RIC and to distribute sufficient income to not become subject to U.S. federal income tax.
72
Original Issue Discount
For federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a
corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original
issue discount (such as zero coupon securities, debt instruments with PIK interest (i.e., interest paid with additional securities or equity
instead of cash) or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in
income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash
representing such income is received by us in the same taxable year. Because any original issue discount will be included in our
investment company taxable income for the year of the accrual, we may be required to make a distribution to our shareholders in order
to satisfy the annual distribution requirement, even though we will not have received any corresponding cash amount. As a result, we
may have difficulty meeting the annual distribution requirement necessary to qualify for and maintain RIC tax treatment under
Subchapter M of the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous,
raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other
sources, we may not qualify for or maintain RIC tax treatment and thus we may become subject to corporate-level income tax.
Market Discount
In general, the Fund will be treated as having acquired a security with market discount if its stated redemption price at maturity (or, in
the case of a security issued with original issue discount, its revised issue price) exceeds the Fund’s initial tax basis in the security by
more than a statutory de minimis amount. The Fund will be required to treat any principal payments on, or any gain derived from the
disposition of, any securities acquired with market discount as ordinary income to the extent of the accrued market discount, unless the
Fund makes an election to accrue market discount on a current basis. If this election is not made, all or a portion of any deduction for
interest expense incurred to purchase or carry a market discount security may be deferred until the Fund sells or otherwise disposes of
such security.
Currency Fluctuations
Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time the Fund accrues income
or receivables or expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such income or
receivables or pays such liabilities are generally treated as ordinary income or loss. Similarly, gains or losses on foreign currency, foreign
currency forward contracts, certain foreign currency options or futures contracts and the disposition of debt securities denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also
treated as ordinary income or loss.
Foreign Taxes
The Fund’s investment in non-U.S. securities may be subject to non-U.S. withholding taxes. In that case, the Fund’s yield on those
securities would be decreased. Shareholders will generally not be entitled to claim a credit or deduction with respect to foreign taxes
paid by the Fund.
Preferred Shares or Borrowings
If the Fund utilizes leverage through the issuance of preferred shares or borrowings, it may be restricted by certain covenants with
respect to the declaration of, and payment of, dividends on shares in certain circumstances. Limits on the Fund’s payments of dividends
on shares may prevent the Fund from meeting the distribution requirements described above, and may, therefore, jeopardize the Fund’s
qualification for taxation as a RIC and possibly subject the Fund to the 4% excise tax. The Fund will endeavor to avoid restrictions on its
ability to make dividend payments.
Backup Withholding
The Fund may be required to withhold from all distributions and redemption proceeds payable to U.S. shareholders who fail to provide
the Fund with their correct taxpayer identification numbers or to make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Certain shareholders specified in the Code generally are exempt from such
backup withholding. This backup withholding is not an additional tax. Any amounts withheld may be refunded or credited against the
shareholder’s U.S. federal income tax liability, provided the required information is timely furnished to the Internal Revenue Service.
Foreign Shareholders
U.S. taxation of a shareholder who is a nonresident alien individual, a foreign trust or estate or a foreign corporation, as defined for
U.S. federal income tax purposes (a
“
foreign shareholder
”
), depends on whether the income from the Fund is
“
effectively connected
”
with a U.S. trade or business carried on by the shareholder.
73
If the income from the Fund is not
“
effectively connected
”
with a U.S. trade or business carried on by the foreign shareholder,
distributions of investment company taxable income will be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally
withheld from such distributions. However, dividends paid by the Fund that are
“
interest-related dividends
”
or
“
short-term capital gain
dividends
”
will generally be exempt from such withholding, in each case to the extent the Fund properly reports such dividends to
shareholders. For these purposes, interest-related dividends and short- term capital gain dividends generally represent distributions of
interest or short-term capital gains that would not have been subject to U.S. federal withholding tax at the source if received directly by a
foreign shareholder, and that satisfy certain other requirements. A foreign shareholder whose income from the Fund is not
“
effectively
connected
”
with a U.S. trade or business would generally be exempt from U.S. federal income tax on capital gain dividends, any
amounts retained by the Fund that are designated as undistributed capital gains and any gains realized upon the sale or exchange of
shares. However, a foreign shareholder who is a nonresident alien individual and is physically present in the United States for more than
182 days during the taxable year and meets certain other requirements will nevertheless be subject to a U.S. tax of 30% on such capital
gain dividends, undistributed capital gains and sale or exchange gains.
If the income from the Fund is
“
effectively connected
”
with a U.S. trade or business carried on by a foreign shareholder, then
distributions of investment company taxable income, any capital gain dividends, any amounts retained by the Fund that are designated
as undistributed capital gains and any gains realized upon the sale or exchange of shares will be subject to U.S. federal income tax at
the graduated rates applicable to U.S. citizens, residents or domestic corporations. Foreign corporate shareholders may also be subject
to the branch profits tax imposed by the Code.
The Fund may be required to withhold from distributions that are otherwise exempt from U.S. federal withholding tax (or taxable at a
reduced treaty rate) unless the foreign shareholder certifies his or her foreign status under penalties of perjury or otherwise establishes
an exemption.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may differ from those
described herein.
Foreign shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
Additional Withholding Requirements
Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as
“
FATCA
”
), a 30% United States federal
withholding tax may apply to any dividends that the Fund pays to (i) a
“
foreign financial institution
”
(as specifically defined in the Code),
whether such foreign financial institution is the beneficial owner or an intermediary, unless such foreign financial institution agrees to
verify, report and disclose its United States
“
account
”
holders (as specifically defined in the Code) and meets certain other specified
requirements or (ii) a non-financial foreign entity, whether such nonfinancial foreign entity is the beneficial owner or an intermediary,
unless such entity provides a certification that the beneficial owner of the payment does not have any substantial United States owners
or provides the name, address and taxpayer identification number of each such substantial United States owner and certain other
specified requirements are met. In certain cases, the relevant foreign financial institution or non-financial foreign entity may qualify for
an exemption from, or be deemed to be in compliance with, these rules. In addition, foreign financial institutions located in jurisdictions
that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. You should consult
your own tax advisor regarding FATCA and whether it may be relevant to your ownership and disposition of our shares.
Other Taxation
Shareholders may be subject to state, local and foreign taxes on their distributions from the Fund. Shareholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund.
74
CERTAIN ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the purchase of Common Shares by (i)
“
employee benefit plans
”
that are subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (
“
ERISA
”
), (ii) plans, individual
retirement accounts (
“
IRAs
”
) and other arrangements that are subject to Section 4975 of the Code or provisions under any other federal,
state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or ERISA (collectively,
“
Other Plan
Laws
”
), and (iii) entities whose underlying assets are considered to include
“
plan assets
”
of any of the foregoing described in clauses
(i) and (ii) pursuant to ERISA or other applicable law (each of the foregoing described in clauses (i), (ii) and (iii) referred to herein as a
“
Plan
”
).
General Fiduciary Matters
ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan which is a Benefit Plan Investor (defined below) and
prohibit certain transactions involving the assets of Benefit Plan Investor and its fiduciaries or other interested parties. Under ERISA and
the Code, any person who exercises any discretionary authority or control over the administration of a Benefit Plan Investor or the
management or disposition of the assets of a Benefit Plan Investor, or who renders investment advice for a fee or other compensation to
a Benefit Plan Investor, is generally considered to be a fiduciary of the Benefit Plan Investor. The term
“
benefit plan investor
”
(
“
Benefit
Plan Investor
”
) is generally defined to include (a)
“
employee benefit plans
”
within the meaning of Section 3(3) of ERISA that are subject
to Title I of ERISA,
“
plans
”
within the meaning of, and subject to, Section 4975 of the Code (including
“
Keogh
”
plans and IRAs), and
(b) entities whose underlying assets are considered to include the assets of any of the foregoing described in clauses (a) and (b) above
(e.g., an entity of which 25% or more of the total value of any class of equity interests is held by Benefit Plan Investors and which does
not satisfy another exception under ERISA).
In considering an investment in Common Shares of a portion of the assets of any Plan, a fiduciary should determine whether the
investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA, the Code
or any Other Plan Law relating to a fiduciary’s duties to the Plan including, without limitation, the prudence, diversification, delegation of
control and prohibited transaction provisions of ERISA, the Code and any applicable Other Plan Laws.
Prohibited Transaction Issues
Section 406 of ERISA and Section 4975 of the Code prohibit Benefit Plan Investors from engaging in specified transactions involving
plan assets with persons or entities who are
“
parties in interest,
”
within the meaning of ERISA, or
“
disqualified persons,
”
within the
meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engaged in a
non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In
addition, the fiduciary of the Benefit Plan Investor that engaged in such a non-exempt prohibited transaction may be subject to penalties
and liabilities under ERISA and the Code.
Whether or not the underlying assets of the Fund were deemed to include
“
plan assets,
”
as described below, the acquisition and/or
holding of Common Shares by a Benefit Plan Investor with respect to which the Fund, the Manager, the Distributor or a Subadviser is
considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section
406 of ERISA and/or Section 4975 of the Code, unless the investment is acquired and is held in accordance with an applicable statutory,
class or individual prohibited transaction exemption. In this regard, the U.S. Department of Labor has issued prohibited transaction class
exemptions, or
“
PTCEs,
”
that may apply to the acquisition and holding of Common Shares. These class exemptions include, without
limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting
insurance company pooled separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting life
insurance company general accounts and PTCE 96-23 respecting transactions determined by in-house asset managers. In addition,
Section 408(17) of ERISA and Section 4975(d)(20) of the Code provide relief from the prohibited transaction provisions of ERISA and
Section 4975 of the Code for certain transactions, provided that neither the issuer of the securities nor any of its affiliates (directly or
indirectly) have or exercise any discretionary authority or control or render any investment advice with respect to the assets of any
Benefit Plan Investor involved in the transaction and provided further that the Benefit Plan Investor pays no more than adequate
consideration in connection with the transaction. Each of the above-noted exemptions contains conditions and limitations on its
application. Fiduciaries of Benefit Plan Investors considering acquiring Common Shares in reliance on these or any other exemption
should carefully review the exemption in consultation with their legal advisors to assure it is applicable. There can be no assurance that
all of the conditions of any such exemptions will be satisfied.
Plan Assets
Under ERISA and the regulations promulgated thereunder, as modified by Section 3(42) of ERISA (the
“
Plan Assets Regulation
”
), when
a Benefit Plan Investor acquires an equity interest in an entity that is neither a
“
publicly-offered security
”
(within the meaning of the Plan
Assets Regulation) nor a security issued by an investment company registered under the Investment Company Act, the Benefit Plan
Investor’s assets include both the equity interest and an undivided interest in each of the underlying assets of the entity unless it is
75
established either that less than 25% of the total value of each class of equity interest in the entity is held by Benefit Plan Investors or
that the entity is an
“
operating company,
”
each as defined in the Plan Assets Regulation. Because the Fund is registered as an
investment company under the Investment Company Act, the underlying assets of the Fund will not be considered to be
“
plan assets
”
of
any Benefit Plan Investor investing in the Fund for purposes of the fiduciary responsibility and prohibited transaction rules under Title I
of ERISA or Section 4975 of the Code. Thus, none of the Fund, the Manager or the Subadviser(s) will be a fiduciary within the meaning
of ERISA or Section 4975 of the Code with respect to the assets of any Benefit Plan Investor that becomes a shareholder, solely as a
result of the Benefit Plan Investor’s investment in the Fund.
Other Plans
Certain Plans, such as governmental plans and non-U.S. plans, may not be subject to ERISA or Section 4975 of the Code, but may be
subject to provisions of Other Plan Laws which may restrict the type of investments such a Plan may make or otherwise have an impact
on such a Plan’s ability to invest the Fund. Accordingly, each Plan, including governmental and foreign plans, considering an investment
in Common Shares should consult with their legal advisors regarding their proposed investment in Common Shares.
Representation
By acceptance of Common Shares, each purchaser and subsequent transferee of Common Shares will be deemed to have represented
and warranted that either (i) no portion of the assets used by such purchaser or transferee to acquire and hold Common Shares
constitutes assets of any Plan or (ii) the purchase and holding of Common Shares by such purchaser or transferee will not constitute a
non-exempt prohibited transaction under Title I of ERISA or Section 4975 of the Code or similar violation under any applicable Other
Plan Laws.
Reporting of Indirect Compensation
Under ERISA’s general reporting and disclosure rules, certain Benefit Plan Investors subject to Title I of ERISA are required to file annual
reports (Form 5500) with the U.S. Department of Labor regarding their assets, liabilities and expenses. To facilitate a plan administrator’s
compliance with these requirements it is noted that the descriptions contained in this prospectus of fees and compensation, including
the Management Fee payable to the Manager and the Distribution and Servicing Fee payable to the Distributor, are intended to satisfy
the disclosure requirements for
“
eligible indirect compensation
”
for which the alternative reporting option on Schedule C of Form 5500
may be available.
The foregoing discussion of ERISA, the Code and Other Plan Law issues should not be construed as legal advice. Fiduciaries of Plans
should consult their own legal advisors with respect to issues arising under ERISA, the Code and applicable Other Plan Laws make their
own independent decision regarding an investment in the Fund. The foregoing discussion is general in nature and is not intended to be
all-inclusive. Each Plan fiduciary should consult with its legal advisors concerning the considerations discussed above before making an
investment in the Fund. As indicated above, Other Plan Laws governing the investment and management of the assets of Plans that are
not subject to Title I of ERISA or Section 4975 of the Code, such as governmental plans and non-U.S. plans, may contain fiduciary
responsibility and prohibited transaction requirements similar to those under ERISA and Section 4975 of the Code. Accordingly, Plans,
in consultation with their legal advisors, should consider the impact of their respective laws and regulations on an investment in the
Fund and the considerations discussed above, if applicable.
76
PLAN OF DISTRIBUTION
Common Shares
The Fund currently offers three classes of its Common Shares on a continuous basis: Class Z Common Shares, Class A Common Shares
and Class C Common Shares. The Fund may offer additional classes of its Common Shares in the future. The Manager has obtained
exemptive relief from the SEC that permits the Fund to issue multiple classes of Common Shares.
Unlisted Closed-End Fund Structure; Limited Liquidity
The Fund does not currently intend to list its Common Shares for trading on any securities exchange or any other trading market in the
near future. There is currently no secondary market for its Common Shares and the Fund does not expect any secondary market to
develop for its Common Shares. Shareholders of the Fund are not able to have their Common Shares redeemed or otherwise sell their
Common Shares on a daily basis because the Fund is an unlisted closed-end fund. In order to provide liquidity to shareholders, the
Fund is structured as an
“
interval fund
”
and conducts periodic repurchase offers for a portion of its outstanding Common Shares, as
described herein. Investors should consider Common Shares of the Fund to be an illiquid investment. An investment in the Fund is
suitable only for investors who can bear the risks associated with the limited liquidity of the Common Shares, as described in
“
Interval
Fund/Repurchases
”
above. Investors should consider their investment goals, time horizons and risk tolerance before investing in
the Fund.
Distributor
The Distributor is the principal underwriter and distributor of the Class Z Shares, Class A Shares and Class C Shares, and serves in that
capacity on a
“
best efforts
”
basis, subject to various conditions. The Distributor is an affiliate of PGIM. The Distributor is located at 655
Broad Street, Newark, New Jersey 07102-4410, and is a broker-dealer registered with the SEC and a member of FINRA.
Other Selling Agents may be appointed by the Distributor to assist in the sale of the Common Shares on a
“
best efforts
”
basis. Shares of
Common Shares are generally offered through Selling Agents that have entered into selling agreements with the Distributor. The Fund
has authorized one or more Selling Agents to receive on its behalf purchase and repurchase orders. Such Selling Agents are authorized
to designate other intermediaries to receive purchase and repurchase orders on the Fund's behalf.
The Distributor is not obligated to sell any specific amount of shares of Common Shares. The Distribution Agreement also provides that
the Fund will indemnify the Distributor and its affiliates and certain other persons against certain liabilities, including certain liabilities
arising under the Securities Act.
Sales Load
Class A Shares are subject to a sales load of up to 2.50% of the total offering price (including sales load). Class A sales loads are waived
for certain types of investors, including investors investing through certain group retirement plans (including defined contribution plans,
defined benefit plans and deferred compensation plans) available through a retirement plan recordkeeper or third party administrator, as
well as clients of financial intermediaries who (i) offer Class A Shares through a no-load network or platform, (ii) charge clients an
ongoing fee for advisory, investment, consulting or similar services, or (iii) offer self-directed brokerage accounts or other similar types of
accounts that may or may not charge transaction fees to customers. No sales load will be paid with respect to any Common Shares sold
pursuant to the DRIP.
The Distributor may reallow sales loads to participating broker-dealers. Selling Agents typically receive the sales load with respect to the
Class A Shares purchased by their customers. Sales loads may be reduced for certain categories of purchasers and for volume
discounts, as disclosed in this prospectus. Investors should consult with their Selling Agents about the sales load and any additional fees
or charges their Selling Agents might impose on each class of Common Shares.
Class Z Shares and Class C Shares are not subject to a sales load; however, investors could be required to pay brokerage commissions
to their Selling Agents on purchases and sales of such shares.
Distribution and Servicing Plan
The Fund has adopted a Distribution and Servicing Plan for its Class A Shares and Class C Shares to pay to the Distributor a Distribution
and Servicing Fee to compensate financial industry professionals for distribution-related expenses, if applicable, and providing ongoing
services in respect of shareholders who own such shares. These activities include marketing and other activities primarily intended to
result in the sale of Class A Shares and Class C Shares and activities related to administration and servicing of Class A or Class C
accounts (including sub- accounting and other administrative services, as well as shareholder liaison services such as responding to
inquiries from shareholders and providing shareholders with information about their investments in the Fund). The Distribution and
Servicing Plan operates in a manner consistent with Rule 12b-1 under the Investment Company Act, which regulates the manner in
which an open-end investment company may directly or indirectly bear the expenses of distributing its shares. Although the Fund is not
77
an open-end investment company, it has undertaken to comply with the terms of Rule 12b-1, as required by its exemptive relief,
permitting the Fund to, among other things, issue multiple classes of shares. Under the Distribution and Servicing Plan, these classes of
Shares of the Fund pay distribution and other fees to the Distributor as compensation for its services, which the Distributor generally
pays (or
“
reallows
”
) to Selling Agents. These Distribution and Servicing Fees — known as 12b-1 fees — are set forth in the
“
Summary of
Fund Expenses
”
table and are described in greater detail below.
Under the Distribution and Servicing Plan, Class A and Class C Shares pay a Distribution and Servicing Fee to the Distributor at an
annual rate of 0.75% and 1.00%, respectively, based on the aggregate net assets of the Fund attributable to such class. If a financial
intermediary is not eligible to accept payment of the pro rata portion of the Distribution and Servicing Fee attributable to its shareholder
accounts then the Distributor may retain such monies or the Distributor will waive such fees or return such monies to the Fund. The
Distribution and Servicing Fee is paid out of the relevant class’s assets and decreases the net profits or increases the net losses of the
Fund solely with respect to such class. Because the Distribution and Servicing Fee is paid out of the Fund’s assets on an on- going
basis, over time these fees will increase the cost of a Shareholder’s investment and may cost the Shareholder more than paying other
types of sales charges, if applicable. Up to 0.25% per annum of the Distribution and Servicing Fee may qualify as a
“
service fee
”
under
FINRA rules and therefore will not be limited by FINRA rules which limit distribution fees as a percentage of total new gross sales.
“
Service fees
”
are defined for purposes of FINRA rules to mean fees paid for providing shareholder services or the maintenance of
shareholder accounts. FINRA rules limit service fees to 0.25% of a fund’s average annual net assets. A portion of the Distribution and
Servicing Fee may also be used to pay for sub-transfer agency, sub-accounting and certain other administrative services that are not
required to be paid pursuant to a
“
service fee
”
under FINRA rules. The remainder is for distribution support and related services.
Class Z Shares are not subject to any Distribution and Servicing Fee and do not bear any expenses associated therewith.
Minimum Investment and Share Class Availability
Generally, the minimum initial investment is $1,000 for Class A Shares and Class C Shares. The minimum subsequent investment is
$100 for Class A and Class C Shares, except for additional purchases pursuant to the DRIP, which are not subject to a minimum
purchase amount. There is no minimum initial investment or subsequent investment amount for Class Z Shares. The minimum
investment for each class of Common Shares can be modified or waived in the sole discretion of the Fund or the Distributor (defined
below), including for certain financial firms that submit orders on behalf of their customers, the Fund’s officers and trustees and certain
employees of PGIM, including its affiliates, vehicles controlled by such employees and their extended family members. See
“
Plan of
Distribution — How to Purchase Common Shares.
”
Each of the Fund or the Distributor may modify or waive minimum investment
amounts in their sole discretion.
Class A Shares are available to the general public through Selling Agents and other financial intermediaries that offer them.
Class C Shares are generally available for purchase only (1) through fee-based programs, also known as wrap accounts, that provide
access to Class C Shares, (2) through participating broker-dealers that have alternative fee arrangements with their clients to provide
access to Class C Shares, (3) through investment advisers that are registered under the Advisers Act or applicable state law and direct
clients to trade with a broker-dealer that offers Class C Shares, (4) through bank trust departments or any other organization or person
authorized to act in a fiduciary capacity for its clients or customers or (5) other categories of investors that we name in an amendment or
supplement to this prospectus.
Class Z Shares are generally available to various institutional investors, including corporations, banks, governmental entities,
municipalities, hospitals, insurance companies and IRS Section 501 entities, such as foundations and endowments. Institutional
investors are responsible for indicating their eligibility to purchase Class Z Shares at the time of purchase. Certain financial
intermediaries may require that investments by their institutional investor clients in Class Z Shares be placed directly with the Fund’s
Transfer Agent. Please contact the Transfer Agent at (844) 753-6354 for further details.
Class Z Shares can also be purchased by participants in any fee-based program or trust program sponsored by Prudential or an affiliate
that includes the Fund as an available option. Class Z Shares also can be purchased by investors in certain programs sponsored by
financial intermediaries who offer Class Z Shares of the Fund, or whose programs are available through financial intermediaries that offer
Class Z Shares of the Fund, for (1) mutual fund
“
wrap
”
or asset allocation programs where the sponsor places fund trades, links its
clients’ accounts to a master account in the sponsor’s name and charges its clients a management, consulting or other fee for its
services; (2) mutual fund
“
supermarket
”
programs where the sponsor links its clients’ accounts to a master account in the sponsor's
name and the sponsor charges a fee for its services; or (3) fee- or commission-based retail brokerage programs of certain financial
intermediaries that offer Class Z Shares through such programs and that have agreements with PIMS to offer such shares when acting
solely on an agency basis for their customers for the purchase or sale of such shares.
78
Class Z Shares also can be purchased by any of the following: (1) certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z Shares of the PGIM Funds are an available option; (2) current and former
Directors/Trustees of mutual funds, closed-end funds and ETFs managed by PGIM Investments or any other affiliate of Prudential;
(3) current and former employees (including their spouses, children and parents) of Prudential and its affiliates; former employees must
have an existing investment in the Fund; (4) Prudential (including any program or account sponsored by Prudential or an affiliate that
includes the Fund as an available option); (5) PGIM Funds, including PGIM funds-of-funds; (6) qualified state tuition programs (529
plans); and (7) investors working with fee-based consultants for investment selection and allocations.
How to Purchase Common Shares
■
The following section provides basic information about how to purchase Common Shares of the Fund.
■
The Distributor acts as the distributor of Common Shares for the Fund on a
“
best efforts
”
basis, subject to various conditions and
pursuant to the terms of the Distribution Agreement. The Distributor is not obligated to sell any specific amount of Common Shares of
the Fund. Shares of the Fund will be continuously offered through the Distributor. As discussed below, the Fund may authorize one or
more Selling Agents to receive orders on its behalf.
■
Class Z Shares, Class A Shares and Class C Shares will be continuously offered at NAV per share calculated each regular business
day, plus any applicable sales load.
■
Selling Agents may establish different minimum investment requirements than the Fund and may also independently charge you
transaction fees and additional amounts (which may vary) in return for its services, which will reduce your return. Shares you
purchase through Selling Agents will normally be held in your account with that firm.
■
The Fund and the Distributor will have the sole right to accept orders to purchase Common Shares and reserve the right to reject any
order in whole or in part.
■
No market currently exists for the Common Shares. The Fund does not currently intend to list its Common Shares for trading on any
securities exchange in the near future. There is currently no secondary market for the Common Shares and the Fund does not
anticipate that a secondary market will develop for its Common Shares. Neither the Manager nor the Distributor intends to make a
market in the Common Shares.
■
Investors purchasing shares through a retirement plan or employee benefit plan may obtain additional information regarding the plan
from their plan sponsor.
Acceptance and Timing of Purchase Orders
A purchase order received by the Fund or its designee prior to the close of the NYSE, on a day the Fund is open for business, together
with payment made in one of the ways described above will be effected at that day’s NAV plus any applicable sales charge. Certain
financial intermediaries are authorized to designate other intermediaries to receive purchase orders on the Fund’s behalf. An order
received after the close of the NYSE will be effected at the NAV determined on the next business day. However, orders received by
certain retirement plans and other financial firms on a business day prior to the close of the NYSE and communicated to the Fund or its
designee prior to such time as agreed upon by the Fund and financial firm will be effected at the NAV determined on the business day
the order was received by the financial firm. The Fund is
“
open for business
”
on each day the NYSE is open for trading, which generally
excludes the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. If the NYSE is closed due to weather or other extenuating
circumstances on a day it would typically be open for business, the Fund reserves the right to treat such day as a business day and
accept purchase orders in accordance with applicable law. The Fund reserves the right to close if the primary trading markets of the
Fund’s portfolio instruments are closed and the Fund’s management believes that there is not an adequate market to meet purchase
requests. On any business day when the Securities Industry and Financial Markets Association recommends that the securities markets
close trading early, the Fund may close trading early. Purchase orders will be accepted only on days which the Fund is open
for business.
Investors may buy and sell shares of the Fund through Selling Agents that have made arrangements with the Fund and are authorized to
buy and sell shares of the Fund and receive purchase and repurchase orders on the Fund’s behalf. Orders will be priced at the Fund’s
NAV next computed after they are received by a Selling Agent or the Selling Agent's authorized designee. A Selling Agent may hold
shares in an omnibus account in the Selling Agent’s name or the Selling Agent may maintain individual ownership records. Selling
Agents may charge fees for the services they provide in connection with processing your transaction order or maintaining an investor’s
account with them. Investors should check with their Selling Agent to determine if it is subject to these arrangements. Selling Agents are
responsible for placing orders correctly and promptly with the Fund and forwarding payment promptly. The Fund will be deemed to have
received a purchase order when a Selling Agent or, if applicable, a Selling Agent's authorized designee, receives the order. Purchase
orders must include the name and signature of an appropriate person designated on the account application, account name, account
number, name of the Fund and dollar amount. Payments received without order instructions could result in a processing delay or a
return of wire. Failure to send the accompanying payment on the same day may result in the cancellation of the order.
79
The Fund and the Distributor each reserves the right, in its sole discretion, to accept or reject any order for purchase of Common
Shares. The sale of Common Shares may be suspended during any period in which the NYSE is closed other than weekends or holidays,
or if permitted by the rules of the SEC, when trading on the NYSE is restricted or during an emergency which makes it impracticable for
the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period as permitted by the SEC
for the protection of investors.
Purchasing Directly From the Fund
The following section provides additional information for investors wishing to purchase Class Z Shares or Class A Shares directly from the
Fund. If you are investing through a financial intermediary, please contact your Selling Agent directly for more information.
Purchase by Mail.
To purchase shares of Common Shares by mail, simply complete and sign the account application and mail it, or for
subsequent purchases include name, fund name and account number along with a check made payable to the Fund:
Regular Mail | Overnight or Express Mail |
PGIM Investments LLC P.O. Box 219929 Kansas City, MO 64121-9929 | PGIM Investments LLC 801 Pennsylvania Ave, Suite 219929 Kansas City, MO 64105-1307 |
The Fund does not consider the U.S. Postal Service or other independent delivery services to be its agents. Therefore, deposit in the
mail or with such services, or receipt at U.S. Bank Global Fund Services post office box does not constitute receipt by the Transfer
Agent. Receipt is determined at the time the order is received at the Transfer Agent’s offices.
All purchase checks must be in U.S. dollars drawn on a domestic financial institution. The Fund will not accept payment in cash or
money orders. To prevent check fraud, the Fund will not accept third party checks, Treasury checks, credit card checks, traveler’s
checks or starter checks for the purchase of shares. The Fund is unable to accept post-dated checks, or any conditional order
or payment.
It is the policy of the Fund not to accept applications under certain circumstances or in amounts considered disadvantageous to
shareholders. The Fund reserves the right to reject any application. An account application to purchase Common Shares is subject to
acceptance by the Fund and is not binding until so accepted. Accounts opened by entities, such as credit unions, corporations, limited
liability companies, partnerships or trusts, will require additional documentation. Please note that if any information is missing, your
account application will be returned, and your account will not be opened.
Initial Investment — By wire.
To purchase by wire, the Transfer Agent must have a completed account application before your wire is
sent. A purchase order will not be accepted until the Fund has received the completed application and any requested documentation in
proper form. Wired funds must be received by 4:00 p.m. Eastern Time to be eligible for same day pricing. Call the Transfer Agent at
(844) 753-6354 between 8:00 a.m. and 5:00 p.m. Central Time on any day the New York Stock Exchange is open for business to advise
of your intent to wire. This will ensure proper credit.
Subsequent Investments — By wire.
Before sending your wire, please contact the Transfer Agent to advise them of your intent to wire
funds. This will ensure prompt and accurate credit upon receipt of your wire.
Wired Funds Disclaimer.
Wired funds must be received prior to 4:00 p.m. Eastern time to be eligible for same day pricing. The Fund and
the Transfer Agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire system, or
from incomplete wiring instructions.
Lost Shareholders, Inactive Accounts and Unclaimed Property.
It is important that the Fund maintains a correct address for each investor.
An incorrect address may cause an investor’s account statements and other mailings to be returned to the Fund. Based upon statutory
requirements for returned mail, the Fund will attempt to locate the investor or rightful owner of the account. If the Fund is unable to
locate the investor, then the Fund will determine whether the investor’s account can legally be considered abandoned. Mutual fund
accounts may be transferred to the state government of an investor’s state of residence if no activity occurs within the account during
the
“
inactivity period
”
specified in the applicable state’s abandoned property laws, which varies by state. The Fund is legally obligated to
escheat (or transfer) abandoned property to the appropriate state’s unclaimed property administrator in accordance with statutory
requirements. The investor’s last known address of record determines which state has jurisdiction. Please proactively contact the
Transfer Agent toll-free at (844) 753-6354 at least annually to ensure your account remains in active status.
80
Signature Guarantees.
Signature guarantees will generally be accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and savings associations, as well as from participants in the
New York Stock Exchange Medallion Signature Program and the Securities Transfer Agents Medallion Program. A notary public is not an
acceptable signature guarantor.
A signature guarantee, from either a Medallion program member or a non-Medallion program member, is required in the
following situations:
■
If ownership is being changed on your account;
■
When redemption proceeds are payable or sent to any person, address, or bank account not on record;
■
When a redemption request is received by the Transfer Agent and the account address has changed within the last 15 calendar
days; or
■
For all redemptions in excess of $100,000 where proceeds are requested to be sent by check.
The Fund may waive any of the above requirements in certain instances. In addition to the situations described above, the Fund and/or
the Transfer Agent reserve the right to require a signature guarantee in other instances based on the circumstances relative to the
particular situation.
Non-financial transactions, including establishing or modifying certain services on an account, may require a signature guarantee,
signature verification from a Signature Validation Program member, or other acceptable form of authentication from a financial
institution source.
Anti-Money Laundering
In compliance with the USA Patriot Act of 2001, please note that the Transfer Agent will verify certain information on your account
application as part of the Fund’s Anti-Money Laundering Program. As requested on the account application, you must supply your full
name, date of birth, social security number and permanent street address. If you are opening the account in the name of a legal entity
(e.g., partnership, limited liability company, business trust, corporation, etc.), you must also supply the identity of the beneficial owners.
Mailing addresses containing only a P.O. Box will not be accepted. Please contact the Transfer Agent at (844) 753-6354 if you need
additional assistance when completing your account application.
If the Fund does not have a reasonable belief of the identity of a customer, the account will be rejected, or the customer will not be
allowed to perform a transaction on the account until such information is received. The Fund may also reserve the right to close the
account within 5 business days if clarifying information/documentation is not received.
Sales Load Reductions
This section includes important information about sales load and sales load reductions available to investors in the Fund’s
Class A Shares.
The public offering price of Class A Shares will be the NAV per share at the time of purchase, plus any applicable sales load. The initial
sales load varies depending on the size of your purchase, as set forth in the tables below. The actual sales load paid may vary among
and within Selling Agents, as described herein. No sales load will be paid with respect to any Common Shares sold pursuant to the DRIP.
It is the responsibility of you and/or your financial intermediary to ensure that you obtain the proper breakpoint sales load discount,
if any.
Because the offering price is calculated to two decimal places, the dollar amount of the sales charge as a percentage of the offering
price and your net amount invested for any particular purchase of Common Shares may be higher or lower depending on whether
downward or upward rounding was required during the calculation process.
Class A Shares of the Fund are sold subject to the following sales load:
Your investment | Sales Load as a % of the offering price | Dealer Reallowance |
Up to $100,000 | 2.50% | 2.50% |
$100,000 to $249,999 | 2.00% | 2.00% |
$250,000 and over | None | 1.50% |
81
A person eligible for a sales load reduction includes an individual, his or her spouse or equivalent, children under 21 years of age and
any corporation, partnership or sole proprietorship which is 100% owned, either alone or in combination, by any of the foregoing, a
director or other fiduciary purchasing for a single trust or for a single fiduciary account, or a
“
company
”
as defined in Section 2(a)(8) of
the Investment Company Act. Investors must notify the Fund or their Selling Agent at the time of the purchase order whenever a sales
load reduction is applicable to purchases and may be required to provide the Fund, or their Selling Agent, with certain information or
records to verify eligibility for a sales load reduction. Such information or records may include account statements or other records for
shares of the Fund of the investor and other eligible persons, as described above.
Upon such notification, an investor will pay the lowest applicable sales load. Sales load reductions may be modified or terminated at any
time. Selling Agents may, in their sole discretion and subject to applicable law, reduce or waive the sales load on a non-scheduled basis
in individual cases. For more information about sales load reductions, investors should contact the Distributor or their Selling Agent.
Contingent Deferred Sales Charge
If you sell Class C Shares within 12 months of purchase, you will have to pay a CDSC of 1.00%. In addition, if you purchase $250,000 or
more of Class A Shares, although you are not subject to an initial sales charge, you are subject to a CDSC of 1.50% for shares
repurchased during the first 12 months after their purchase. The CDSC is waived for certain retirement and/or benefit plans and after a
shareholder is deceased or permanently disabled, as further described in this Supplement. To keep the CDSC as low as possible, we will
sell amounts representing shares in the following order:
■
Amounts representing shares you purchased with reinvested dividends and distributions,
■
Amounts representing the increase in NAV above the total amount of payments for shares made during the past 12 months for
Class A Shares (in certain cases) and 12 months for Class C Shares, and
■
Amounts representing the cost of shares held beyond the CDSC period (12 months for Class A Shares (in certain cases) and 12
months for Class C Shares).
Since shares that fall into any of the categories listed above are not subject to the CDSC, selling them first helps you to avoid — or at
least minimize — the CDSC.
Having sold the exempt shares first, if there are any remaining shares that are subject to the CDSC, we will apply the CDSC to amounts
representing the cost of shares held for the longest period of time within the applicable CDSC period.
The CDSC is calculated based on the lesser of the original purchase price or the net asset value at redemption. The rate decreases on
the anniversary date of your purchase.
The holding period for purposes of determining the applicable CDSC will be calculated from the anniversary date of the purchase.
Waiver of the CDSC — Class A Shares and Class C Shares
The CDSC will be waived if the Class A Shares and Class C Shares are sold:
■
After a shareholder is deceased or permanently disabled (or, in the case of a trust account, after the death or permanent 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.
Qualifying for a Reduced Class A Sales Load
Investors in the Fund may reduce or eliminate sales charges applicable to purchases of Class A Shares through utilization of the Rights
of Accumulation, Letter of Intent or 90-Day Repurchase Privilege. These programs will apply to purchases of other closed-end funds that
the Manager or its affiliates may sponsor in the future as well as any open-end funds sponsored by the Manager or its affiliates
(collectively, the
“
Eligible Funds
”
). These programs are summarized below.
Rights of Accumulation
Any
“
purchaser
”
(as defined below) may buy Class A Shares at a reduced sales charge by aggregating the dollar amount of the new
purchase and the total net amount invested of all shares of the Fund then held by the purchaser and applying the sales charge
applicable to such aggregate. To obtain such discount, the purchaser must provide sufficient information at the time of purchase to
permit verification that the purchase qualifies for the reduced sales charge. The rights of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
82
For purposes of determining the applicable sales charge discount, a
“
purchaser
”
includes an individual, the individual’s spouse and the
individual’s children under the age of 21, purchasing Class A Shares for the individual’s own account or account with the individual’s
spouse and/or children; or a director or other fiduciary purchasing Class A Shares for a single fiduciary account although more than one
beneficiary may be involved; or employees of a common employer, provided that purchases are aggregated and submitted by a single
source and quarterly confirmation of such purchases can be provided to that single source; or an organized group, provided that the
purchases are made through a central administrator, or a single dealer.
Letter of Intent
A Letter of Intent (a
“
LOI
”
) provides an opportunity for an investor to obtain a reduced sales charge by aggregating investments over a
13-month period, provided that the investor refers to such LOI when placing orders. For purposes of an LOI, the
“
Amount of Investment
”
as referred to in the preceding sales charge table includes all purchases of Common Shares over the 13-month period based on the total
amount of intended purchases plus the value of all shares previously purchased and still owned. An alternative is to compute the
13-month period starting up to 90 days before the date of execution of an LOI. Each investment made during the period receives the
reduced sales charge applicable to the total amount of the investment goal. The LOI imposes no obligation to purchase or sell additional
shares and provides for a price adjustment depending upon the actual amount purchased within such period. If the total investments
under the LOI are less than the intended amount and thereby qualify for a higher sales charge than actually paid, the appropriate
number of escrowed shares is redeemed and the proceeds are used towards satisfaction of the obligation to pay the increased sales
charge. If a redemption order is received for an account prior to the satisfaction of the LOI, any shares not held in escrow will be
redeemed first. Common Shares held in escrow will then be redeemed and a portion of the proceeds will be used to satisfy the obligation
to pay the higher sales charge. Please contact the Transfer Agent to obtain an LOI application at P.O. Box 219929, Kansas City,
MO 64121-9929.
Shareholder’s Responsibility With Respect to Breakpoint Discounts
To obtain the Class A Share sales charge discount set forth above, you must inform your financial intermediary of the existence of any
eligible amounts under any Rights of Accumulation in accounts held by family members at the time of purchase. You must inform your
financial intermediary of all shares of the Fund held (i) in your account(s) at the financial intermediary, (ii) in your account(s) by another
financial intermediary, and (iii) in any other accounts held at any financial intermediary belonging to family members. IF YOU FAIL TO
INFORM YOUR FINANCIAL INTERMEDIARY OR THE FUND OF ALL ELIGIBLE HOLDINGS OR PLANNED PURCHASES, YOU MAY NOT
RECEIVE A SALES CHARGE DISCOUNT TO WHICH YOU WOULD OTHERWISE BE ENTITLED. The Fund will require the names and
account numbers of all accounts claimed in connection with a request for a sales charge discount. You may also be required to provide
verification of holdings (such as account statements and/or copies of documents that reflect the original purchase cost of your holdings)
that qualify you for a sales charge reduction.
As such, it is very important that you retain all records that may be needed to substantiate an
original purchase price of your holdings, because the Fund, the Transfer Agent and financial intermediaries may not maintain this
information.
90-Day Repurchase Privilege
If you redeem Class A Shares, you may reinvest some or all of the proceeds in the same class of any Eligible Fund, other closed-end
funds or interval funds that the Manager or its affiliates may sponsor in the future, as well as any open-end funds sponsored by the
Manager or its affiliates on or before the 90th day after the redemption without a sales charge unless the reinvestment would be
prohibited by the Manager’s frequent trading policy (if any). Special tax rules may apply. All accounts involved must have the same
registration. This privilege does not apply to purchases made through automatic investment services. The 90-day repurchase privilege
only applies to your Class A Shares if you previously paid a front-end sales charge in connection with your purchase of such
Class A Shares.
Automatic Reinvestment
For your convenience, we will automatically reinvest your distributions in the Fund at NAV, without any sales charge. If you want your
distributions paid in cash, you can indicate this preference on your application, or by notifying your broker or the Transfer Agent in
writing (at the address below) at least five business days before the date we determine who receives dividends. For accounts held at the
Transfer Agent, distributions of $10.00 or less on non-retirement accounts will not be paid out in cash, but will be automatically
reinvested into your account.
Payments to Financial Intermediaries
The Fund may pay service fees to Selling Agents for sub-administration, sub-transfer
agency and other shareholders services associated
with shareholders whose Common Shares, including Class Z Shares, Class A Shares and
Class C Shares, are held of record in omnibus
accounts, other group accounts or accounts traded through registered securities clearing
agents. As a result, operating expenses of
classes that incur new or additional fees relating to sub-administration, sub-transfer
agency or other shareholder services may increase
over time.
83
The Manager and its affiliates, out of its own resources and without additional cost to the Fund or its shareholders, may provide
additional cash payments to intermediaries, including affiliates of the Manager, for the sale of Common Shares and related services.
These payments and compensation are in addition to service fees paid by the Fund, if any. Payments are generally made to
intermediaries that provide shareholder servicing, marketing and related sales support or access to sales meetings, sales representatives
and management representatives of the intermediary. Payments may also be paid to intermediaries for inclusion of the Fund on a sales
list, including a preferred or select sales list or in other sales programs. Compensation may be paid as an expense reimbursement in
cases in which the intermediary provides shareholder services to the Fund. The Manager may also pay cash compensation in the form
of finder’s fees that vary depending on the dollar amount of the Common Shares sold. The level of such payments may be substantial
and may be different for different Selling Agents. These payments may create incentives on the part of Selling Agents to view the Fund
favorably compared with investment funds that do not make these payments, or that make smaller payments.
Share Class Considerations
The Fund currently offers three classes of Common Shares: Class Z Shares, Class A Shares and Class C Shares. When selecting a class
of the Common Shares, you should consider the following:
■
Which classes of Common Shares are available to you;
■
The amount you intend to invest;
■
How long you expect to own the Common Shares; and
■
The total costs and expenses associates with a particular class of Common Shares.
Each investor’s financial considerations are different. You should speak with your Selling Agent to help you decide which class of
Common Shares is best for you. Not all Selling Agents offer all classes of Common Shares. In addition, Selling Agents may vary the
actual sales load charged, if applicable, as well as impose additional fees and charges on each class of Common Shares. If your Selling
Agent offers more than one class of Common Shares, you should carefully consider which class of Common Shares to purchase.
Distribution in Foreign Jurisdictions
The distribution of this prospectus and the offer and sale of Common Shares in certain jurisdictions may be restricted by law. It is the
responsibility of any persons wishing to purchase Common Shares to inform themselves of and to observe all applicable laws and
regulations of any relevant jurisdictions. Prospective investors should inform themselves as to the legal requirements and tax
consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding
or disposal of Common Shares, and any foreign exchange restrictions that may be relevant thereto.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York, 240 Greenwich Street, New York, New York 10286, serves as custodian for the Fund’s portfolio securities and
cash, and in that capacity, maintains certain financial accounting books and records pursuant to an agreement with the Fund.
Subcustodians provide custodial services for any non-U.S. assets held outside the United States.
Prudential Mutual Fund Services LLC (
“
PMFS
”
), 655 Broad Street, Newark, New Jersey 07102, serves as the transfer and dividend
disbursing agent of the Fund. PMFS is an affiliate of the Manager. PMFS provides customary transfer agency services to the Fund,
including the handling of shareholder communications, the processing of shareholder transactions, the maintenance of shareholder
account records, the payment of dividends and distributions, and related functions. SS&C GIDS, Inc. (
“
SS&C
”
), 801 Pennsylvania Ave,
Suite 219929, Kansas City, MO 64105-1307, serves as sub-transfer agent to the Fund. PMFS has contracted with SS&C to provide
certain administrative functions to PMFS. PMFS will compensate SS&C for such services.
LEGAL MATTERS
Simpson Thacher & Bartlett LLP, New York, NY and Washington, D.C., serves as counsel to the Fund. Morris, Nichols, Arsht & Tunnell
LLP serves as Delaware counsel to the Fund.
REPORTS TO SHAREHOLDERS
The Fund makes available to its Common Shareholders unaudited semi-annual and audited annual reports, including a list of
investments held.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP is the independent registered public accounting firm for the Fund providing audit related services. The
principal business address of PricewaterhouseCoopers LLP is 300 Madison Avenue New York, New York 10017.
84
APPENDIX A: DESCRIPTION OF SECURITIES RATINGS
The Fund’s investments may range in quality from securities rated in the lowest category in which the Fund is permitted to invest to
securities rated in the highest category (as rated by Moody’s, Standard & Poor’s or Fitch, or, if unrated, determined by PGIM to be of
comparable quality). The percentage of the Fund’s assets invested in securities in a particular rating category will vary. The following
terms are generally used to describe the credit quality of fixed income securities:
High Quality Debt Securities
are those rated in one of the two highest rating categories (the highest category for commercial paper) or, if
unrated, deemed comparable by PGIM.
Investment Grade Debt Securities
are those rated in one of the four highest rating categories, or, if unrated, deemed comparable
by PGIM.
Below Investment Grade High Yield Securities (
“
Junk Bonds
”
),
are those rated lower than Baa by Moody’s, BBB by Standard & Poor’s or
Fitch, and comparable securities. They are deemed predominantly speculative with respect to the issuer’s ability to repay principal
and interest.
The following is a description of Moody’s, Standard & Poor’s and Fitch’s rating categories applicable to fixed income securities.
Moody’s Investors Service, Inc.
Global Long-Term Rating Scale
Ratings assigned on Moody’s global long-term rating scales are forward-looking opinions of the relative credit risks of financial obligations
issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public sector entities.
Long-term ratings are assigned to issuers or obligations with an original maturity of eleven months or more and reflect both on the
likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default
or impairment.
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.
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 indicator, the long-term obligation rating assigned to a hybrid security is an
expression of the relative credit risk associated with that security.
Medium-Term Note Program Ratings
Moody’s assigns provisional ratings to medium-term note (MTN) or similar programs and definitive ratings to the individual debt
securities issued from them (referred to as drawdowns or notes).
MTN program ratings are intended to reflect the ratings likely to be assigned to drawdowns issued from the program with the specified
priority of claim (e.g., senior or subordinated). To capture the contingent nature of a program rating, Moody’s assigns provisional ratings
to MTN programs. A provisional rating is denoted by a (P) in front of the rating.
The rating assigned to a drawdown from a rated MTN or bank/deposit note program is definitive in nature, and may differ from the
program rating if the drawdown is exposed to additional credit risks besides the issuer’s default, such as links to the defaults of other
issuers, or has other structural features that warrant a different rating. In some circumstances, no rating may be assigned to
a drawdown.
Moody’s encourages market participants to contact Moody’s Ratings Desks or visit www.moodys.com directly if they have questions
regarding ratings for specific notes issued under a medium-term note program. Unrated notes issued under an MTN program may be
assigned an NR (not rated) symbol.
Global Short-Term Rating Scale
Ratings assigned on Moody’s global short-term rating scales are forward-looking opinions of the relative credit risks of financial
obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public
sector entities. Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect both on the
likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default
or impairment.
Moody’s employs the following designations to indicate the relative repayment ability of rated issuers:
P-1: Ratings of Prime-1 reflect a superior ability to repay short-term obligations.
P-2: Ratings of Prime-2 reflect a strong ability to repay short-term 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.
National Scale Long-Term Ratings
Moody’s long-term National Scale Ratings (NSRs) are opinions of the relative creditworthiness of issuers and financial obligations within
a particular country. NSRs are not designed to be compared among countries; rather, they address relative credit risk within a given
country. Moody’s assigns national scale ratings in certain local capital markets in which investors have found the global rating scale
provides inadequate differentiation among credits or is inconsistent with a rating scale already in common use in the country.
In each specific country, the last two characters of the rating indicate the country in which the issuer is located or the financial obligation
was issued (e.g., Aaa.ke for Kenya).
Aaa.n: Issuers or issues rated Aaa.n demonstrate the strongest creditworthiness relative to other domestic issuers and issuances.
Aa.n: Issuers or issues rated Aa.n demonstrate very strong creditworthiness relative to other domestic issuers and issuances.
A.n: Issuers or issues rated A.n present above-average creditworthiness relative to other domestic issuers and issuances.
Baa.n: Issuers or issues rated Baa.n represent average creditworthiness relative to other domestic issuers and issuances.
Ba.n: Issuers or issues rated Ba.n demonstrate below-average creditworthiness relative to other domestic issuers and issuances.
B.n: Issuers or issues rated B.n demonstrate weak creditworthiness relative to other domestic issuers and issuances.
Caa.n: Issuers or issues rated Caa.n demonstrate very weak creditworthiness relative to other domestic issuers and issuances.
Ca.n: Issuers or issues rated Ca.n demonstrate extremely weak creditworthiness relative to other domestic issuers and issuances.
C.n: Issuers or issues rated C.n demonstrate the weakest creditworthiness relative to other domestic issuers and issuances.
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.
National Scale Short-Term Ratings
Moody’s short-term NSRs are opinions of the ability of issuers or issuances in a given country, relative to other domestic issuers or
issuances, to repay debt obligations that have an original maturity not exceeding thirteen months. Short-term NSRs in one country
should not be compared with short-term NSRs in another country, or with Moody’s global ratings. There are four categories of short-term
national scale ratings, generically denoted N-1 through N-4 as defined below.
In each specific country, the first two letters indicate the country in which the issuer is located (e.g., KE-1 through KE-4 for Kenya).
N-1: N-1 issuers or issuances represent the strongest likelihood of repayment of short-term debt obligations relative to other domestic
issuers or issuances.
N-2: N-2 issuers or issuances represent an above average likelihood of repayment of short-term debt obligations relative to other
domestic issuers or issuances.
N-3: N-3 issuers or issuances represent an average likelihood of repayment of short-term debt obligations relative to other domestic
issuers or issuances.
N-4: N-4 issuers or issuances represent a below average likelihood of repayment of short-term debt obligations relative to other domestic
issuers or issuances.
The short-term rating symbols P-1.za, P-2.za, P-3.za and NP.za are used in South Africa.
Short-Term Obligation Ratings
The Municipal Investment Grade (MIG) scale is used for US municipal cash flow notes, bond anticipation notes and certain other
short-term obligations, which typically mature in three years or less. Under certain circumstances, the MIG scale is used for bond
anticipation notes with maturities of up to five years.
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.
Demand Obligation Ratings
In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned. The components are a long-term rating
and a short-term demand obligation rating. The long-term rating addresses the issuer’s ability to meet scheduled principal and interest
payments. The short-term demand obligation rating addresses the ability of the issuer or the liquidity provider to make payments
associated with the purchase-price-upon-demand feature (
“
demand feature
”
) of the VRDO. The short-term demand obligation rating
uses the Variable Municipal Investment Grade (VMIG) scale.
VMIG 1: This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the
liquidity provider and structural and legal protections.
VMIG 2: This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the
liquidity provider and structural and legal protections.
VMIG 3: This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength
of the liquidity provider and structural and legal protections.
SG: This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity
provider that does not have a sufficiently strong short-term rating or may lack the structural or legal protections.
Standard & Poor’s Ratings Services
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on S&P Global Ratings’ (
“
S&P
”
) analysis of the following considerations:
■
Likelihood of payment—capacity and willingness of the obligor to meet its financial commitments on an obligation in accordance with
the terms of the obligation;
■
Nature and provisions of the financial obligation and the promise S&P imputes; and
■
Protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy, reorganization, or other
arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.
Issue ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event
of default. Junior obligations are typically rated lower than senior obligations, to reflect lower priority in bankruptcy, as noted above.
(Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.)
Investment Grade
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.
Speculative Grade
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 that 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.
NR: This indicates that a rating has not been assigned or is no longer assigned.
Plus (+) or minus (-): The 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.
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.
Dual Ratings: Dual ratings may be assigned to debt issues that have a put option or demand feature. The first component of the rating
addresses the likelihood of repayment of principal and interest as due, and the second component of the rating addresses only the
demand feature. The first component of the rating can relate to either a short-term or long-term transaction and accordingly use either
short-term or long-term rating symbols. The second component of the rating relates to the put option and is assigned a short-term rating
symbol (for example, ‘AAA/A-1+‘ or ‘A-1+/ A-1’). With U.S. municipal short-term demand debt, the U.S. municipal short-term note rating
symbols are used for the first component of the rating (for example, ‘SP-1+/A-1+‘).
Active Qualifiers
S&P uses the following qualifiers that limit the scope of a rating. The structure of the transaction can require the use of a qualifier such
as a ‘p’ qualifier, which indicates the rating addresses the principal portion of the obligation only. A qualifier appears as a suffix and is
part of the rating.
L: Ratings qualified with ‘L’ apply only to amounts invested up to federal deposit insurance limits.
p: This suffix is used for issues in which the credit factors, the terms, or both, that determine the likelihood of receipt of payment of
principal are different from the credit factors, terms or both that determine the likelihood of receipt of interest on the obligation. The ‘p’
suffix indicates that the rating addresses the principal portion of the obligation only and that the interest is not rated.
prelim: Preliminary ratings, with the ‘prelim’ suffix, may be assigned to obligors or obligations, including financial programs, in the
circumstances described below. Assignment of a final rating is conditional on the receipt by S&P of appropriate documentation. S&P
reserves the right not to issue a final rating. Moreover, if a final rating is issued, it may differ from the preliminary rating.
■
Preliminary ratings may be assigned to obligations, most commonly structured and project finance issues, pending receipt of final
documentation and legal opinions.
■
Preliminary ratings may be assigned to obligations that will likely be issued upon the obligor’s emergence from bankruptcy or similar
reorganization, based on late-stage reorganization plans, documentation, and discussions with the obligor. Preliminary ratings may
also be assigned to the obligors. These ratings consider the anticipated general credit quality of the reorganized or post-bankruptcy
issuer as well as attributes of the anticipated obligation(s).
■
Preliminary ratings may be assigned to entities that are being formed or that are in the process of being independently established
when, in S&P’s opinion, documentation is close to final. Preliminary ratings may also be assigned to the obligations of these entities.
■
Preliminary ratings may be assigned when a previously unrated entity is undergoing a well-formulated restructuring, recapitalization,
significant financing or other transformative event, generally at the point that investor or lender commitments are invited. The
preliminary rating may be assigned to the entity and to its proposed obligation(s). These preliminary ratings consider the anticipated
general credit quality of the obligor, as well as attributes of the anticipated obligation(s), assuming successful completion of the
transformative event. Should the transformative event not occur, S&P would likely withdraw these preliminary ratings.
■
A preliminary recovery rating may be assigned to an obligation that has a preliminary issue credit rating.
t: This symbol indicates termination structures that are designed to honor their contracts to full maturity or, should certain events occur,
to terminate and cash settle all their contracts before their final maturity date.
cir: This symbol indicates a Counterparty Instrument Rating (CIR), which is a forward-looking opinion about the creditworthiness of an
issuer in a securitization structure with respect to a specific financial obligation to a counterparty (including interest rate swaps, currency
swaps, and liquidity facilities). The CIR is determined on an ultimate payment basis; these opinions do not take into account timeliness
of payment.
Inactive Qualifiers (no longer applied or outstanding)
*:This symbol indicated that the rating was contingent upon S&P receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows. Discontinued use in August 1998.
c: This qualifier was used to provide additional information to investors that the bank may terminate its obligation to purchase tendered
bonds if the long-term credit rating of the issuer was lowered to below an investment-grade level and/or the issuer’s bonds were deemed
taxable. Discontinued use in January 2001.
G: The letter ‘G’ followed the rating symbol when a fund’s portfolio consisted primarily of direct U.S. government securities.
i: This suffix was used for issues in which the credit factors, terms, or both that determine the likelihood of receipt of payment of interest
are different from the credit factors, terms, or both that determine the likelihood of receipt of principal on the obligation. The 'i' suffix
indicated that the rating addressed the interest portion of the obligation only. The 'i' suffix was always used in conjunction with the 'p'
suffix, which addresses likelihood of receipt of principal. For example, a rated obligation could have been assigned a rating of 'AAApNRi'
indicating that the principal portion was rated 'AAA' and the interest portion of the obligation was not rated.
pi: This qualifier was used to indicate ratings that were based on an analysis of an issuer’s published financial information, as well as
additional information in the public domain. Such ratings did not, however, reflect in-depth meetings with an issuer’s management and
therefore, could have been based on less comprehensive information than ratings without a ‘pi’ suffix. Discontinued use as of
December 2014 and as of August 2015 for Lloyd’s Syndicate Assessments.
pr: The letters ‘pr’ indicate that the rating was provisional. A provisional rating assumed the successful completion of a project financed
by the debt being rated and indicates that payment of debt service requirements was largely or entirely dependent upon the successful,
timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, made no
comment on the likelihood of or the risk of default upon failure of such completion.
q: A ‘q’ subscript indicates that the rating is based solely on quantitative analysis of publicly available information. Discontinued use
in April 2001.
r: The ‘r’ modifier was assigned to securities containing extraordinary risks, particularly market risks, that are not covered in the credit
rating. The absence of an ‘r’ modifier should not be taken as an indication that an obligation would not exhibit extraordinary
noncredit-related risks. S&P discontinued the use of the ‘r’ modifier for most obligations in June 2000 and for the balance of obligations
(mainly structured finance transactions) in November 2002.
Fitch Ratings
Long-Term Credit Ratings
Investment Grade
Rated entities in a number of sectors, including financial and non-financial corporations, sovereigns, insurance companies and certain
sectors within public finance, are generally assigned Issuer Default Ratings (
“
IDRs
”
). IDRs are also assigned to certain entities or
enterprises in global infrastructure, project finance, and public finance. IDRs opine on an entity’s relative vulnerability to default
(including by way of a distressed debt exchange) on financial obligations. The threshold default risk addressed by the IDR is generally
that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such, IDRs also address
relative vulnerability to bankruptcy, administrative receivership or similar concepts.
In aggregate, IDRs provide an ordinal ranking of issuers based on the agency’s view of their relative vulnerability to default, rather than a
prediction of a specific percentage likelihood of default.
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.
Speculative Grade
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.
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 the issuer is in standstill, or for a closed funding vehicle, payment capacity is irrevocably
impaired. Conditions that are indicative of a ‘C’ category rating for an issuer include:
a. the issuer has entered into a grace or cure period following non-payment of a material financial obligation;
b. the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material
financial obligation;
c. the formal announcement by the issuer or their agent of a distressed debt exchange;
d. 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 Ratings’ 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:
i. the selective payment default on a specific class or currency of debt;
ii. the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank
loan, capital markets security or other material financial obligation;
iii. the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either
in series or in parallel; ordinary execution of a distressed debt exchange on one or more material financial obligations.
D: Default. ‘D’ ratings indicate an issuer that in Fitch Ratings’ opinion has entered into bankruptcy filings, administration, receivership,
liquidation or other formal winding-up procedure or that has otherwise ceased business. 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.
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.
Recovery Ratings
Recovery Ratings are assigned to selected individual securities and obligations, most frequently for individual obligations of corporate
finance issuers with IDRs in speculative grade categories.
Among the factors that affect recovery rates for securities are the collateral, the seniority relative to other obligations in the capital
structure (where appropriate), and the expected value of the company or underlying collateral in distress.
The Recovery Rating scale is based on the expected relative recovery characteristics of an obligation upon the curing of a default,
emergence from insolvency or following the liquidation or termination of the obligor or its associated collateral.
Recovery Ratings are an ordinal scale and do not attempt to precisely predict a given level of recovery. As a guideline in developing the
rating assessments, the agency employs broad theoretical recovery bands in its ratings approach based on historical averages and
analytical judgment, but actual recoveries for a given security may deviate materially from historical averages.
RR1: Outstanding recovery prospects given default. ‘RR1’ rated securities have characteristics consistent with securities historically
recovering 91%-100% of current principal and related interest.
RR2: Superior recovery prospects given default. ‘RR2’ rated securities have characteristics consistent with securities historically
recovering 71%-90% of current principal and related interest.
RR3: Good recovery prospects given default. ‘RR3’ rated securities have characteristics consistent with securities historically recovering
51%-70% of current principal and related interest.
RR4: Average recovery prospects given default. ‘RR4’ rated securities have characteristics consistent with securities historically
recovering 31%-50% of current principal and related interest.
RR5: Below average recovery prospects given default. ‘RR5’ rated securities have characteristics consistent with securities historically
recovering 11%-30% of current principal and related interest.
RR6: Poor recovery prospects given default. ‘RR6’ rated securities have characteristics consistent with securities historically recovering
0%-10% of current principal and related interest.
Short-Term Credit Ratings
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity and relates to the
capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-term deposit ratings
may be adjusted for loss severity. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as
“
short term
”
based
on market convention (a long-term rating can also be used to rate an issue with short maturity). Typically, this means up to 13 months
for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
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.
PGIM CREDIT INCOME FUND
CLASS Z COMMON SHARES (PGIWX)
CLASS A COMMON SHARES (PGIZX)
CLASS C COMMON SHARES (PGAJX)
PROSPECTUS
All dealers that buy, sell or trade the Common Shares, whether or not participating in this offering, may be required to deliver a prospectus
in accordance with the terms of the dealers’ agreements with the Fund’s Distributor.
You should rely only on the information contained in or incorporated by reference into this prospectus. The Fund has not authorized anyone
to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The
Fund is not making an offer of these securities in any jurisdiction where the offer is not permitted.
April 30, 2026
PGIM Credit Income Fund
Statement of Additional Information dated April 30, 2026
PGIM Credit Income Fund, a Delaware statutory (the “Fund”), is a diversified, closed-end management investment company that continuously offers its shares and is operated as an “interval fund.” This Statement of Additional Information (“SAI”) relating to the common shares of beneficial interest, par value $0.001 per share
(“Common Shares”), does not constitute a prospectus, but should be read in conjunction with the prospectus relating
thereto dated April 30, 2026 (the “Prospectus”). This SAI, which is not a prospectus, does not include all information that a prospective
investor should consider before purchasing Common Shares, and investors should obtain and read the
Prospectus prior to purchasing such Common Shares. A copy of the Prospectus may be obtained without charge by calling
(844) 753-6354. You may also obtain a copy of the Prospectus on the Securities and Exchange Commission’s (“SEC”) website (http://www.sec.gov). Capitalized terms used but not defined in this SAI have the meanings ascribed to them
in the Prospectus.
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
|
1
|
|
|
4
|
|
|
29
|
|
|
36
|
|
|
51
|
|
|
52
|
|
|
52
|
|
|
52
|
|
|
53
|
|
|
53
|
|
|
53
|
|
|
53
|
|
|
53
|
|
|
54
|
|
|
A-1
|
i
INVESTMENT RESTRICTIONS
The following restrictions are the Fund’s only fundamental policies—that is, policies that cannot be changed without the approval of the holders of a majority of the Fund’s outstanding voting securities (a “1940 Act Vote”). For the purposes of the foregoing, a “majority of the Fund’s outstanding voting securities” means the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares.
The other policies and investment restrictions are not fundamental polices of the Fund and may be changed by the Fund’s Board of Trustees (the “Board of Trustees”, the “Board”, and the members thereof, the “Trustees”) without shareholder approval. If a percentage restriction set forth below is adhered
to at the time a transaction is effected, later changes in percentage resulting from any cause other
than actions by the Fund will not be considered a violation. Under its fundamental restrictions:
Borrowing: The Fund may not borrow money except as permitted by (i) the 1940 Act, or interpretations
or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other
relief or permission from the SEC, SEC staff or other authority.
Underwriting: The Fund may not engage in the business of underwriting the securities of other
issuers except as permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority
with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority.
Lending: The Fund may lend money or other assets to the extent permitted by (i) the 1940
Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive
or other relief or permission from the SEC, SEC staff or other authority.
Senior Securities: The Fund may not issue senior securities except as permitted by (i) the 1940 Act,
or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive
or other relief or permission from the SEC, SEC staff or other authority.
Real Estate: The Fund may not purchase or sell real estate except as permitted by (i) the 1940
Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive
or other relief or permission from the SEC, SEC staff or other authority.
Commodities: The Fund may purchase or sell commodities or contracts related to commodities to
the extent permitted by (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority
with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority.
Concentration: Except as permitted by exemptive or other relief or permission from the SEC, SEC
staff or other authority with appropriate jurisdiction, the Fund may not make any investment if, as a result, the Fund’s investments will be concentrated in any one industry.
Diversification: The Fund is currently classified as a diversified fund under the 1940 Act.
The following notations are not considered to be part of the Fund’s fundamental restrictions and are subject to change without shareholder approval.
For the purpose of borrowing money, “asset coverage” means the ratio that the value of the Fund’s total assets, minus liabilities other than borrowings, bears to the aggregate amount of all borrowings. Certain trading
practices and investments may be considered to be borrowings and thus subject to the 1940 Act restrictions. On the other hand, certain
practices and investments may involve leverage but are not considered to be borrowings under the 1940 Act, such as the purchasing of
securities on a when-issued or delayed delivery basis, entering into reverse repurchase agreements, dollar rolls, credit default swaps
or futures contracts, engaging in short sales and writing options on portfolio securities, so long as the Fund relies on an applicable
exemption under Rule 18f-4. Borrowing money to increase portfolio holdings is known as “leveraging.” Practices and investments that may involve leverage but are not considered to be
borrowings are not subject to the policy.
With respect to the fundamental policy relating to underwriting set forth above, the
1940 Act does not prohibit a fund from engaging in the underwriting business or from underwriting the securities of other issuers. A
fund engaging in transactions involving the acquisition or 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 a fund investing
in restricted securities. Although it is not believed
1
that the application of the 1933 Act provisions described above would cause the Fund
to be engaged in the business of underwriting, the policy above will be interpreted not to prevent the Fund from engaging in transactions
involving the acquisition or disposition of portfolio securities, regardless of whether the Fund may be considered to be an underwriter
under the 1933 Act.
With respect to the fundamental policy relating to lending set forth above, 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.) While lending securities may be a source of income to the Fund, 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. However, loans would be made only when PGIM Investments or PGIM believes the income justifies the attendant risks. The Fund
also will be permitted by this policy to make loans of money, including to other funds. The Fund would have to obtain exemptive relief
from the SEC to make loans to other funds. The policy above will be interpreted not to prevent the Fund from purchasing or investing
in debt obligations and loans. In addition, collateral arrangements with respect to options, forward currency and futures transactions and
other derivative instruments, as well as delays in the settlement of securities transactions, will not be considered loans.
With respect to the fundamental policy relating to issuing senior securities set forth
above, “senior securities” are defined as any bond, debenture, note, or similar obligation or instrument constituting a security and evidencing
indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment of dividends.
Under the 1940 Act, a “senior security” does not include any promissory note or evidence of indebtedness where such loan is for temporary
purposes only and in an amount not exceeding 5% of the value of the total assets of the issuer at the time the loan is
made. A loan is presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed.
With respect to the fundamental policy relating to real estate set forth above, the
1940 Act does not prohibit a fund from owning real estate. Investing in real estate may involve risks, including that real estate is
generally considered illiquid and may be difficult to value and sell. Owners of real estate may be subject to various liabilities, including environmental
liabilities. The policy above will be interpreted not to prevent the Fund from investing in real estate-related companies,
companies whose businesses consist in whole or in part of investing in real estate, instruments (like mortgages) that are secured by
real estate or interests therein, or real estate investment trust securities.
With respect to the fundamental policy relating to commodities set forth above, the
1940 Act does not prohibit a fund from owning commodities, whether physical commodities and contracts related to physical commodities
(such as oil or grains and related futures contracts), or financial commodities and contracts related to financial commodities
(such as currencies and, possibly, currency futures). If the Fund were to invest in a physical commodity or a physical commodity-related
instrument, the Fund would be subject to the additional risks of the particular physical commodity and its related market. The
value of commodities and commodity-related instruments may be extremely volatile and may be affected either directly or indirectly
by a variety of factors. There also may be storage charges and risks of loss associated with physical commodities. The policy above will
be interpreted to permit investments in exchange traded funds that invest in physical and/or financial commodities.
With respect to the fundamental policy relating to concentration set forth above,
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 activities in the same industry or group of
industries constitutes concentration. It is possible that interpretations of concentration could change in the future. A fund that invests a
significant percentage of its total assets in a single industry may be particularly susceptible to adverse events affecting that industry
and may be more risky than a fund that does not concentrate in an industry. The policy above will be interpreted to refer to concentration
as that term may be interpreted from time to time. In addition, the term industry will be interpreted to include a related group
of industries. The policy also will be interpreted to permit investment without limit in the following: securities of the U.S. government
and its agencies or instrumentalities (including, for the avoidance of doubt, U.S. agency mortgage-backed securities); securities of state,
territory, possession or municipal governments and their authorities, agencies, instrumentalities or political subdivisions; securities
of foreign governments; and repurchase agreements collateralized by any such obligations. Accordingly, issuers of the foregoing securities
will not be considered to be members of any industry. There also will be no limit on investment in issuers domiciled in a single
jurisdiction or country. The policy also will be interpreted to give broad authority to the Fund as to how to classify issuers within
or among industries or groups of industries. For purposes of applying the Fund’s fundamental policy relating to concentration, the Fund will classify, to the extent practicable, each privately issued asset-backed security and mortgage-backed security held by the Fund
with a particular industry associated with the type(s) of assets that collateralize the asset-backed security or mortgage-backed
security. The Fund has been advised by the staff of the SEC that the staff currently views securities issued by a foreign government to be
in a single industry for purposes of calculating applicable limits on concentration.
2
With respect to the Fund’s diversification policy set forth above, 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)
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. When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of the government creating the issuing entity and only the assets
and revenues of such entity back the security, such entity is deemed to be the sole issuer. Similarly, in the case of a private activity
bond, if only the assets and revenues of the nongovernmental user back that bond, then such nongovernmental user is deemed to be
the sole issuer. If, however, in either case, the creating government or some other entity guarantees a security, such a guarantee would
be considered a separate security and is to be treated as an issue of such government or other entity. The Fund may only change to
non-diversified status with a 1940 Act Vote.
The Fund’s fundamental policies are written and 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 policy provides
that an investment practice may be conducted as permitted by the 1940 Act, the policy will be interpreted to mean either that the
1940 Act expressly permits the practice or that the 1940 Act does not prohibit the practice.
In addition, the Fund has adopted the following fundamental policies with respect
to repurchase offers, which may not be changed without the approval of the holders of a majority of the outstanding voting securities
of the Fund:
■
On a quarterly basis, the Fund makes an offer to repurchase a designated percentage
of the outstanding Common Shares from shareholders (a “Repurchase Offer”), pursuant to Rule 23c-3 under the Investment Company Act, as it may be amended from
time to time.
■
The Fund will repurchase shares that are tendered by a specific date (the “Repurchase Request Deadline”). Each Repurchase Request Deadline will be determined in accordance with Rule 23c-3, as may be amended
from time to time. Currently, Rule 23c-3 requires the repurchase request deadline to be no less than 21 and no more than 42
days after the Fund sends a notification to shareholders of the Repurchase Offer.
■
Each Repurchase Pricing Date (as defined in Rule 23c-3) will be determined in accordance
with Rule 23c-3, as may be amended from time to time. Currently, Rule 23c-3 requires the Repurchase Pricing Date to be
no later than the 14th day after a Repurchase Request Deadline, or the next business day if the 14th day is not a business day.
Non-Fundamental Policies
The Fund’s investment objective is non-fundamental and may be changed with the approval of the Fund’s Board upon 60 days’ prior notice to the Fund’s shareholders.
The Fund’s policy to invest, under normal circumstances, at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in portfolio of debt instruments (as defined in the prospectus)
is non-fundamental and may be changed by the Fund’s Board, upon 60 days’ prior written notice to shareholders.
3
INVESTMENT POLICIES AND TECHNIQUES
The Fund’s investment objective is to seek total return, through a combination of current income and capital appreciation.
The Fund seeks to achieve its investment objective by investing, under normal circumstances,
across a wide array of credit markets, including corporate, mortgage, consumer and municipal credit markets, and employing
a flexible asset allocation strategy among multiple public and private credit sectors in the global credit markets, including
but not limited to corporate debt (including, among other things, fixed-, variable- and floating-rate bonds and loans issued by U.S. or
foreign (non-U.S.) corporations or other business entities); mortgage-related and other consumer-related instruments; collateralized
debt obligations, including, but not limited to, collateralized loan obligations; municipal bonds; and other fixed-, variable- and
floating-rate income-producing securities of U.S. and foreign issuers (including developed and emerging market issuers). The Fund may invest
in any sector, market or region without limit, subject to compliance with applicable law. The Fund has flexibility to actively adjust
allocations over time while adapting to the market and economic environment without any explicit duration target or liquidity limitations.
The Fund may invest without limit in both investment grade debt securities and in below investment grade debt securities (which
are commonly referred to as “high yield” securities or “junk bonds”), including securities of stressed, distressed and defaulted issuers.
The following information supplements the discussion of the Fund’s investment policies and techniques in the prospectus.
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, PGIM, Inc. (“PGIM”) and PGIM Limited (together, the “Subadvisers”) 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 the 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. 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, the Fund is authorized to enter into foreign currency hedging transactions in which the 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 Europe 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 shareholders 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 the Fund is called for redemption, the Fund
will be required to redeem the security, convert it
4
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 Subadvisers 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 Subadvisers 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 Subadvisers
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 Subadvisers 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 Subadvisers believe such a Manufactured Convertible would better promote the Fund’s objective(s) than alternate investments. For example, the Subadvisers 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 the Fund’s credit exposure, or with a U.S. Treasury 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.
Corporate Loans
Commercial banks and other financial institutions make loans to companies. These loans
may be variously referred to as corporate loans, bank 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.
Because the trading market for corporate loans is less developed than the secondary market for bonds and notes, the Fund may experience
difficulties from time to time in selling its corporate loans. 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, the Fund may not recover its investment, or there might be a delay in the Fund’s recovery. By investing in a corporate loan, the Fund becomes a member of the syndicate.
As in the case of junk bonds, the corporate loans in which the 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
5
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 or 90 days but generally not more than one year. Consequently, the value of corporate loans held by the 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.
On the other hand, the secondary dealer market for corporate loans is not as well developed as the secondary dealer market for junk
bonds, and therefore presents increased market risk relating to liquidity and pricing concerns.
The Fund may acquire interests in corporate loans by means of a novation, assignment
or participation. In a novation, the 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, the 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, the 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 the Fund may not directly benefit from
the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund will assume the credit risk
of both the borrower and the institution selling the participation to the Fund.
The 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 the 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 a default, the Fund may have difficulty collecting on any collateral and would not
have the ability to collect on any collateral for an uncollateralized loan. Further, the 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 the Fund to value loans or sell loans at an acceptable price when it wants to sell them. Loans trade in an over-the-counter
(“OTC”) 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 the 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 the Fund to invest in a particular loan or loan participation could depend exclusively on the Subadvisers’ credit analysis of the borrower, or in the case of a loan participation, of the intermediary holding
the portion of the loan that the Fund has purchased. To the extent the 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 the 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.
Debt Securities
Debt securities, such as bonds, 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 the Fund’s investment in that issuer. Credit risk is reduced to the extent the Fund invests its assets in U.S. Government securities. All
debt securities are also subject to interest rate risk.
SOFR
The Secured Overnight Financing Rate (“SOFR”) is intended to be a broad measure of the cost of borrowing funds overnight in transactions that are collateralized by U.S. Treasury securities. SOFR is calculated
based on transaction-level repo data collected from various sources. For each trading day, SOFR is calculated as a volume-weighted median
rate derived from such data. SOFR is calculated and published by the Federal Reserve Bank of New York (“FRBNY”). If data from a given source required by the FRBNY to calculate SOFR is unavailable for any day, then the most recently available data for
that segment will be used, with certain adjustments.
6
If errors are discovered in the transaction data or the calculations underlying SOFR
after its initial publication on a given day, SOFR may be republished at a later time that day. Rate revisions will be effected only on the
day of initial publication and will be republished only if the change in the rate exceeds one basis point.
Because SOFR is a financing rate based on overnight secured funding transactions,
it differs fundamentally from the previously used rate, LIBOR. SOFR is a secured overnight rate reflecting the credit of U.S. Treasury
securities as collateral. Thus, it is largely insensitive to credit-risk considerations and to short-term interest rate risks. SOFR is a transaction-based
rate, and it has been more volatile than other benchmark or market rates during certain periods. SOFR has a limited history,
having been first published in April 2018. The future performance of SOFR, and SOFR-based reference rates, cannot be predicted based on SOFR’s history or otherwise. Levels of SOFR in the future may bear little or no relation to historical levels of SOFR, LIBOR
or other rates.
Depositary Receipts
The 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. American depositary receipt (“ADRs”) and American depositary shares (“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. European depositary receipts (“EDRs”) are receipts issued in Europe that evidence a similar ownership arrangement. Global
depositary receipts (“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.
The 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.
Exchange-Traded Funds
The Fund may invest in exchange traded funds (“ETFs”). ETFs, which may be unit investment trusts or mutual funds, typically hold portfolios of securities designed to track the performance of various broad securities
indexes or sectors of such indexes. ETFs provide another means, in addition to futures and options on indexes, of including index exposure in the Fund’s investment strategies. The Fund will indirectly bear its proportionate share of any management fees and other expenses
paid by such ETF. The Fund may invest in ETFs to a greater during its initial investment period.
Derivatives
The 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 the Fund to increase or decrease the level of risk
to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. The Fund may use derivatives,
including credit default swaps, to manage its duration, as well as to manage its foreign currency exposure, to hedge against losses,
and to try to improve returns. The use of a derivative is speculative if the Fund is primarily seeking to achieve gains, rather
than offset the risk of other positions. When the Fund invests in a derivative for speculative or hedging purposes, the Fund will be fully
exposed to the risks of loss of that derivative, which may sometimes be greater than the derivative’s cost. The Fund may not use any derivative to gain exposure to an asset or class of assets that the Fund would be prohibited by its investment restrictions from purchasing directly.
The Fund has claimed an exclusion from the definition of the term “commodity pool operator” (“CPO”) under the Commodity Exchange Act of 1936, as amended (the “CEA”), pursuant to Rule 4.5 under the CEA promulgated by the U.S. Commodity Futures Trading
Commission (“CFTC”). The Fund is not, therefore, subject to registration or regulation as a CPO under
the CEA and the Fund is operated so as not to be deemed to be a “commodity pool” under the regulations of the CFTC.
Derivatives involve special risks, including possible default by the other party to
the transaction, illiquidity and, to the extent the Manager’s or Subadvisers’ view as to certain market movements are incorrect, the risk that the use of derivatives could result in significantly greater losses than if they had not been used. The degree of the Fund’s use of derivatives may be limited by certain provisions of the Internal Revenue Code of 1986, as amended (the “Code”).
7
Rule 18f-4 limits a fund’s derivatives exposure through a value-at-risk test and requires the adoption and implementation of a derivatives risk management program for certain derivatives users. Rule 18f-4 may limit the Fund’s ability to engage in certain derivatives transactions and/or increase the costs of such derivatives transactions.
A discussion of the risk factors relating to derivatives is set out in the sub-section
entitled “Risk Factors Involving Derivatives.”
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 the 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 the 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 the Fund’s ability to hedge effectively its portfolio. There is also a risk of loss by the Fund of margin deposits or collateral in the event of bankruptcy of a broker with whom the Fund has an open position
in an option, a futures contract or a related option.
There can be no assurance that the Fund’s hedging strategies will be effective or that hedging transactions will be available to the Fund. The Fund is not required to engage in hedging transactions and the Fund may choose
not to do so from time to time.
Indexed and Inverse Securities
The Fund may invest in securities the potential return of which is based on an index
or interest rate. As an illustration, the 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. The 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 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, the 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 the 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. The 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.)
Swap Agreements
The 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, the 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 the Fund
than if the 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 the Fund would calculate
the obligations of the parties to the agreement on a “net basis.” Consequently the 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”). The Fund’s current obligations under a swap agreement that is not cleared through a central counterparty will be accrued daily (offset against any amounts owed to the Fund).
8
Since swaps are individually negotiated, the 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. The Fund will enter into swaps that are not cleared through a central counterparty only with counterparties
meeting certain creditworthiness standards (generally, such counterparties would have to be eligible counterparties under the terms of the Fund’s repurchase agreement guidelines approved by the Board).
Credit Default Swap Agreements and Similar Instruments
The 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 the 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. The Fund may be either the buyer or seller in the transaction. If the Fund is a buyer
and no credit event occurs, the 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, the 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 the 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. The 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 Subadvisers 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 the Fund. When acting as a seller of a credit default swap or a similar instrument,
the 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.
Credit Linked Securities
Among the income producing securities in which the 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, the 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 the Fund would receive. The 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 Securities
Act. Accordingly, there may be no established trading market for the securities and they may constitute illiquid investments.
Total Return Swap Agreements
The 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 the Fund’s portfolio because, in addition to its total net assets, the 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 the Fund thereunder. Swap agreements also bear the risk that the Fund will not be able to meet its obligation
to the counterparty.
9
Options on Securities and Securities Indexes
Types of Options
The 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
The Fund may purchase call options on any of the types of securities or instruments
in which it may invest. A call option gives the 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. The 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 covered call option is an option in which the 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 the Fund has established cover by segregating liquid instruments on its books. 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, the 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, the Fund’s ability to sell the underlying security will be limited while the option is in effect
unless the Fund enters into a closing purchase transaction. A closing purchase transaction cancels out the 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 the Fund that are covered only by segregated portfolio securities, the 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
The 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, the Fund acquires a right to sell such underlying securities or instruments at the exercise price, thus limiting the Fund’s risk of loss through a decline in the market value of the securities or instruments until
the put option expires. The 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 the 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. The Fund also may purchase
uncovered put options.
The Fund may write (i.e., sell) put options on the types of securities or instruments
that may be held by the Fund. The Fund will receive a premium for writing a put option, which increases the Fund’s return.
Futures
The 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 the 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, the 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.
10
The sale of a futures contract limits the 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, the 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 the Fund from having to pay more for
securities as a consequence of increases in the market value for such securities during a period when the Fund was attempting to identify
specific securities in which to invest in a market the Fund believes to be attractive. In the event that such securities decline
in value or the Fund determines not to complete an anticipatory hedge transaction relating to a futures contract, however, the Fund may
realize a loss relating to the futures position. The 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 the Fund entered
into futures transactions. The 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, the 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 the Fund intends to purchase.
The Fund will be considered “covered” with respect to a call option written on a futures contract if the 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 segregates for the term of the option cash or other liquid assets equal to the fluctuating value
of the optioned future. The Fund will be considered “covered” with respect to a put option written on a futures contract if the 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 the Fund segregates for the term of the option cash or other liquid assets at all times equal in value to the exercise price of the put (less any
initial margin deposited by the Fund with its futures custody manager or as otherwise permitted by applicable law with respect to such option).
There is no limitation on the amount of the Fund’s assets that can be segregated.
Foreign Exchange Transactions
The 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 the Fund, sold by the Fund but not yet delivered, or committed or anticipated to be purchased
by the Fund.
As an illustration, the 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, the Fund may purchase a foreign currency
put option enabling the 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, the Fund may also sell a call option which, if exercised, requires
the 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, the 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 the Fund are considered to constitute hedging transactions and are consistent with
the policies described above. The 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 future date set at the time of the contract. Spot foreign
exchange transactions are similar but require current, rather than future, settlement. The Fund will enter into foreign exchange
transactions for purposes of hedging either a specific transaction or a portfolio position, or to seek to enhance returns. The 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 the Fund has received or anticipates receiving a dividend or distribution.
The 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 the Fund is denominated or by purchasing a currency
in which the Fund anticipates acquiring a portfolio position in the near future. The 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.
11
Currency Futures
The Fund may seek to enhance returns or hedge against the decline in the value of
a currency against the U.S. dollar 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
The 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. The 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.” Currency options involve substantial currency risk, and may also involve credit,
leverage or liquidity risk.
Limitations on Currency Hedging
The Fund may use currency hedging instruments to seek to enhance returns. Accordingly,
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. 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 Subadvisers believe 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 the Fund’s use of Currency Instruments to effect hedging strategies is intended to reduce the volatility of the NAV of the Fund’s shares, the NAV of the 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 the Fund’s hedging strategies will be ineffective. To the extent that the Fund hedges against anticipated currency movements that do not occur, the Fund may realize losses and decrease its total return as the result of
its hedging transactions. Furthermore, the 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, the Fund will
contract with a foreign or domestic bank, or 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, the 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 the Fund of
any profit potential or force the Fund to cover its commitments for resale, if any, at the then market price and could result in a loss
to the Fund.
It may not be possible for the 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 the 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 the 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.
Risk Factors Involving Derivatives
Derivatives are volatile and involve significant risks, including:
Counterparty Risk — the risk that the counterparty on a derivative transaction will be unable to honor its financial obligation to the Fund.
12
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.
Leverage Risk — the risk associated with certain types of investments or trading strategies (such as borrowing money to increase the amount of investments) that relatively small market movements may result in large
changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that
greatly exceed the amount originally invested.
Liquidity Risk — the risk that certain securities 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.
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.
The use of derivatives for hedging purposes involves correlation risk. If the value
of the derivative moves more or less than the value of the hedged instruments, the Fund will experience a gain or loss that will not be completely
offset by movements in the value of the hedged instruments.
The Fund intends to enter into transactions involving derivatives only if there appears
to be a liquid secondary market for such instruments or, in the case of illiquid instruments traded in OTC transactions, such
instruments satisfy the criteria set forth below under “Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives.” However, there can be no assurance that, at any specific time, either a liquid secondary market will exist for a derivative or
the 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, swaps and
OTC options, involve substantial liquidity risk. The absence of liquidity may make it difficult or impossible for the Fund to sell such
instruments promptly at an acceptable price. The absence of liquidity may also make it more difficult for the Fund to ascertain a market
value for such instruments. The Fund will, therefore, acquire illiquid OTC instruments (i) if the agreement pursuant to which
the instrument is purchased contains a formula price at which the instrument may be terminated or sold, or (ii) for which the Subadvisers
anticipate the Fund can receive on each business day at least two independent bids or offers, unless a quotation from only one dealer is available, in which case that dealer’s quotation may be used.
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 the Fund has unrealized gains in such instruments
or has deposited collateral with its counterparties, the Fund is at risk that its counterparties will become bankrupt or
otherwise fail to honor their obligations. The 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 the Fund with a third-party guaranty or other credit enhancement.
Inflation-Indexed Bonds
Inflation-indexed bonds (other than municipal inflation-indexed bonds and certain
corporate inflation-indexed bonds) are fixed income securities the principal value of which is periodically adjusted according to the
rate of inflation. If the index measuring inflation falls, the principal value of inflation-indexed bonds (other than municipal inflation-indexed
bonds and certain corporate inflation-indexed bonds) will be adjusted downward, and consequently the interest payable on these securities
(calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as
adjusted for inflation) is guaranteed in the case of Treasury Inflation Protected Securities (“TIPS”). For bonds that do not provide a similar guarantee, the adjusted principal value
of the bond repaid at maturity may be less than the original principal. TIPS may also be
divided into individual zero-coupon instruments for each coupon or principal payment (known as “iSTRIPS”). An iSTRIP of the principal component of a TIPS issue will retain the embedded deflation floor that will allow the holder of the security to receive the
greater of the original principal or inflation-adjusted principal value at maturity. iSTRIPS may be less liquid than conventional TIPS because
they are a small component of the TIPS market. Municipal inflation-indexed securities are municipal bonds that pay coupons based
on a fixed rate plus CPI. With regard to municipal inflation-indexed bonds and certain corporate inflation-indexed bonds, the inflation
adjustment is typically reflected in the semi-annual coupon payment. As a result, the principal value of municipal inflation-indexed bonds
and such corporate inflation-indexed bonds does not adjust according to the rate of inflation. At the same time, the value of municipal
inflation-indexed securities and such corporate inflation-indexed securities generally will not increase if the rate of inflation
decreases. Because municipal inflation-indexed securities and corporate inflation-indexed securities are a small component of the municipal
bond and corporate bond markets, respectively, they may be less liquid than conventional municipal and corporate bonds. The value of inflation-indexed
bonds is expected to change in response to changes in real interest rates. Real interest rates are tied to the relationship
between nominal interest rates and the rate of
13
inflation. If nominal interest rates increase at a faster rate than inflation, real
interest rates may rise, leading to a decrease in value of inflation-indexed bonds. Any increase in the principal amount of an inflation-indexed
bond will be considered taxable ordinary income, even though investors do not receive their principal until maturity. See “Certain U.S. Federal Income Tax Considerations” in the Prospectus.
Preferred Securities
Preferred securities represent an equity interest in a company that generally entitles
the holder to receive, in preference to the holders of other stocks such as common stocks, dividends and a fixed share of the proceeds resulting
from liquidation of the company. Unlike common stocks, preferred securities usually do not have voting rights. Preferred securities
in some instances are convertible into common stock. Some preferred securities also entitle their holders to receive additional
liquidation proceeds on the same basis as holders of a company’s common stock, and thus also represent an ownership interest in the company. Some preferred securities offer a fixed rate of return with no maturity date. Because they never mature, these preferred
securities may act like long-term bonds, can be more volatile than other types of preferred securities and may have heightened sensitivity
to changes in interest rates. Other preferred securities have a variable dividend, generally determined on a quarterly or other
periodic basis, either according to a formula based upon a specified premium or discount to the yield on particular U.S. Treasury securities
or based on an auction process, involving bids submitted by holders and prospective purchasers of such securities. Although they
are equity securities, preferred securities have certain characteristics of both debt securities and common stock. They are like debt
securities in that their stated income is generally contractually fixed. They are like common stocks in that they do not have rights to
precipitate bankruptcy proceedings or collection activities in the event of missed payments. Furthermore, preferred securities have
many of the key characteristics of equity due to their subordinated position in an issuer’s capital structure and because their quality and value are heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets or cash flows. Because preferred
securities represent an equity ownership interest in a company, their value usually will react more strongly than bonds and
other debt instruments to actual or perceived changes in a company’s financial condition or prospects, or to fluctuations in the equity markets.
In order to be payable, dividends on preferred securities must be declared by the issuer’s board of directors. In addition, distributions on preferred securities may be subject to deferral and thus may not be automatically
payable. Income payments on some preferred securities are cumulative, causing dividends and distributions to accrue even if they
are not declared by the board of directors of the issuer or otherwise made payable. Other preferred securities are non-cumulative, meaning
that skipped dividends and distributions do not continue to accrue. There is no assurance that dividends on preferred securities
in which the Fund invests will be declared or otherwise made payable.
Preferred securities have a liquidation value that generally equals their original
purchase price at the date of issuance. The market values of preferred securities may be affected by favorable and unfavorable changes affecting the issuers’ industries or sectors. They also may be affected by actual and anticipated changes or ambiguities in the tax status
of the security and by actual and anticipated changes or ambiguities in tax laws, such as changes in corporate and individual income
tax rates or the characterization of dividends as tax-advantaged. The dividends paid on the preferred securities in which the Fund may
invest might not be eligible for tax-advantaged “qualified dividend” treatment. See “Certain U.S. Federal Income Tax Considerations.” Because the claim on an issuer’s earnings represented by preferred securities may become disproportionately large when interest
rates fall below the rate payable on the securities or for other reasons, the issuer may redeem preferred securities, generally after
an initial period of call protection in which the security is not redeemable. Thus, in declining interest rate environments in particular, the Fund’s holdings of higher dividend-paying preferred securities may be reduced and the Fund may be unable to acquire securities paying
comparable rates with the redemption proceeds.
Convertible Securities and Synthetic Convertible Securities
Convertible securities (i.e., debt securities that may be converted at either a stated
price or stated rate into underlying shares of common stock) have general characteristics similar to both debt securities and equity securities.
Although to a lesser extent than with debt obligations, the market value of convertible securities tends to decline as interest
rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market
value of convertible securities tends to vary with fluctuations in the market value of the underlying common stocks and, therefore, also
will react to variations in the general market for equity securities.
Convertible securities are investments that provide for a stable stream of income
with generally higher yields than common stocks. There can be no assurance of current income because the issuers of the convertible securities
may default on their obligations. Convertible securities, however, generally offer lower interest or dividend yields than non-convertible
debt securities of similar credit quality because of the potential for equity-related capital appreciation. A convertible security,
in addition to providing current income, offers the potential for capital appreciation through the conversion feature, which enables the holder
to benefit from increases in the market price of the underlying common stock.
14
The Fund may invest in synthetic convertible securities, which are created through
a combination of separate securities that possess the two principal characteristics of a traditional convertible security, that is, an income-producing
component and the right to acquire a convertible component. The income-producing component is achieved by investing in
non-convertible, income-producing securities such as bonds, preferred securities and money market instruments. The convertible
component is achieved by purchasing warrants or options to buy common stock at a certain exercise price, or options on a stock index.
The Fund may also purchase synthetic securities created by other parties, typically investment banks, including convertible structured
notes. The income-producing and convertible components of a synthetic convertible security may be issued separately by different
issuers and at different times. The values of synthetic convertible securities will respond differently to market fluctuations than
a traditional convertible security because a synthetic convertible is composed of two or more separate securities or instruments, each with
its own market value. Synthetic convertible securities are also subject to the risks associated with derivatives. See “Risks—Derivatives Risk” in the Prospectus. In addition, if the value of the underlying common stock or the level of the index involved in the convertible
element falls below the strike price of the warrant or option, the warrant or option may lose all value.
Contingent Convertible Securities
Contingent convertible securities (“CoCos”) are a form of hybrid debt security issued primarily by non-U.S. issuers, which have
loss absorption mechanisms built into their terms. CoCos have no stated maturity, have
fully discretionary coupons and are typically issued in the form of subordinated debt instruments. CoCos generally either convert into equity
of the issuer or have their principal written down upon the occurrence of certain triggering events (“triggers”) linked to regulatory capital thresholds or regulatory actions relating to the issuer’s continued viability. In certain scenarios, investors in CoCos may suffer a loss of capital ahead of equity holders or when equity holders do not. There is no guarantee that the Fund will receive a return of principal
on CoCos. Any indication that an automatic write-down or conversion event may occur can be expected to have an adverse effect
on the market price of CoCos. CoCos are often rated below investment grade and are subject to the risks of high yield securities.
Because CoCos are issued primarily by financial institutions, CoCos may present substantially
increased risks at times of financial turmoil, which could affect financial institutions more than companies in other sectors
and industries. Further, the value of an investment in CoCos is unpredictable and will be influenced by many factors and risks,
including interest rate risk, credit risk, market risk and liquidity risk. An investment by the Fund in CoCos may result in losses to
the Fund.
Some additional risks associated with CoCos include, but are not limited to:
Loss absorption risk
CoCos may be subject to an automatic write-down (i.e., the automatic write-down of
the principal amount or value of the securities, potentially to zero, and the cancellation of the securities) under certain circumstances,
which could result in the Fund losing a portion or all of its investment in such securities. In addition, the Fund may not have any rights
with respect to repayment of the principal amount of the securities that has not become due or the payment of interest or dividends
on such securities for any period from (and including) the interest or dividend payment date falling immediately prior to the occurrence
of such automatic write-down. An automatic write-down could also result in a reduced income rate if the dividend or interest payment is based on the security’s par value. In addition, CoCos have fully discretionary coupons. This means coupons can potentially be cancelled at the issuer’s discretion or at the request of the relevant regulatory authority in order to help the issuer absorb losses and may be
suspended in the event there are insufficient distributable reserves.
Subordinated instruments
CoCos will, in the majority of circumstances, be issued in the form of subordinated
debt instruments in order to provide the appropriate regulatory capital treatment prior to a conversion. Accordingly, in the event of liquidation,
dissolution or winding-up of an issuer prior to a conversion having occurred, the rights and claims of the holders of the CoCos, such
as the Fund, against the issuer in respect of or arising under the terms of the CoCos shall generally rank junior to the claims of
all holders of unsubordinated obligations of the issuer. In addition, if the CoCos are converted into the issuer’s underlying equity securities following a conversion event (i.e., a “trigger”), each holder will be subordinated due to their conversion from being the holder of a debt
instrument to being the holder of an equity instrument. Market value will fluctuate based on unpredictable factors. The trading behavior of a given issuer’s CoCos may be strongly impacted by the trading behavior of other issuers’ CoCos, such that negative information from an unrelated CoCo may cause a decline in value of one or more CoCos held by the Fund. Accordingly, the trading behavior of
CoCos may not follow the trading behavior of other similarly structured securities. The value of CoCos is unpredictable and could be
influenced by many factors including, without limitation: (i) the creditworthiness of the issuer and/or fluctuations in such issuer’s applicable capital ratios; (ii) supply and demand for the CoCos; (iii) general market conditions and available liquidity; and (iv) economic,
financial and political events that affect the issuer, its particular market or the financial markets in general.
15
Hybrid Instruments
A hybrid instrument is a type of potentially high-risk derivative that combines a
traditional bond, stock or commodity with an option or forward contract. Generally, the principal amount, amount payable upon maturity or
redemption, or interest rate of a hybrid is tied (positively or negatively) to the price of some commodity, currency or securities
index or another interest rate or some other economic factor (each a “benchmark”). The interest rate or (unlike most fixed income securities) the principal amount
payable at maturity of a hybrid security may be increased or decreased, depending on changes in the value of
the benchmark. An example of a hybrid could be a bond issued by an oil company that pays a small base level of interest with additional
interest that accrues in correlation to the extent to which oil prices exceed a certain predetermined level. Such a hybrid instrument
would be a combination of a bond and a call option on oil.
Hybrids can be used as an efficient means of pursuing a variety of investment goals,
including currency hedging, duration management and increased total return. Hybrids may not bear interest or pay dividends. The value
of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply
and rapidly than the benchmark. These benchmarks may be sensitive to economic and political events, such as commodity shortages
and currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption
value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated
with a similar investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed rate
or floating rate of interest. The purchase of hybrids also exposes the Fund to the credit risk of the issuer of the hybrids. These risks
may cause significant fluctuations in the NAV of the Common Shares if the Fund invests in hybrid instruments.
Certain hybrid instruments may provide exposure to the commodities markets. These
are derivative securities with one or more commodity-linked components that have payment features similar to commodity futures
contracts, commodity options or similar instruments. Commodity-linked hybrid instruments may be either equity or debt securities,
leveraged or unleveraged, and are considered hybrid instruments because they have both security and commodity-like characteristics.
A portion of the value of these instruments may be derived from the value of a commodity, futures contract, index
or other economic variable.
Certain issuers of structured products such as hybrid instruments may be deemed to
be investment companies as defined in the 1940 Act. As a result, the Fund’s investments in these products may be subject to limits applicable to investments in investment companies and may be subject to restrictions contained in the 1940 Act.
The Fund’s use of commodity-linked instruments may be limited by the Fund’s intention to qualify as a RIC and may limit the Fund’s ability to so qualify. In order to qualify for the special tax treatment accorded
RICs and their shareholders, the Fund must, among other things, derive at least 90% of its income from certain specified sources (qualifying
income). Income from certain commodity-linked instruments does not constitute qualifying income to the Fund. The tax treatment of
certain other commodity-linked instruments in which the Fund might invest is not certain, in particular with respect to whether
income and gains from such instruments constitute qualifying income. If the Fund were to treat income from a particular instrument as
qualifying income and the income were later determined not to constitute qualifying income and, together with any other nonqualifying income, caused the Fund’s nonqualifying income to exceed 10% of its gross income in any taxable year, the Fund would fail
to qualify as a RIC unless it is eligible to and does pay a tax at the Fund level. See “Certain U.S. Federal Income Tax Considerations” in the Prospectus.
Structured Notes and Related Instruments
The Fund may invest in “structured” notes and other related instruments, which are privately negotiated debt obligations
in which the principal and/or interest is determined by reference to the performance of a benchmark
asset, market or interest rate (an “embedded index”), such as selected securities, an index of securities or specified interest rates,
or the differential performance of two assets or markets, such as indexes reflecting bonds. Structured instruments may be issued by
corporations, including banks, as well as by governmental agencies. Structured instruments frequently are assembled in the form
of medium-term notes, but a variety of forms are available and may be used in particular circumstances. The terms of such structured
instruments normally provide that their principal and/or interest payments are to be adjusted upwards or downwards (but ordinarily not
below zero) to reflect changes in the embedded index while the structured instruments are outstanding. As a result, the interest
and/or principal payments that may be made on a structured product may vary widely, depending on a variety of factors, including the
volatility of the embedded index and the effect of changes in the embedded index on principal and/or interest payments. The rate of return
on structured notes may be determined by applying a multiplier to the performance or differential performance of the referenced
index(es) or other asset(s). Application of a multiplier involves leverage that will serve to magnify the potential for gain and
the risk of loss.
The Fund may use structured instruments for investment purposes and also for risk
management purposes, such as to reduce the duration and interest rate sensitivity of the Fund’s portfolio, and for leveraging purposes. While structured instruments may offer the potential for a favorable rate of return from time to time, they also entail certain
risks. Structured instruments may be less liquid than other debt securities, and the price of structured instruments may be more volatile.
In some cases, depending on the terms of the
16
embedded index, a structured instrument may provide that the principal and/or interest
payments may be adjusted below zero. Structured instruments also may involve significant credit risk and risk of default
by the counterparty. Structured instruments may also be illiquid. Like other sophisticated strategies, the Fund’s use of structured instruments may not work as intended. If the value of the embedded index changes in a manner other than that expected by PGIM, principal and/or
interest payments received on the structured instrument may be substantially less than expected. Also, if PGIM chooses to use structured
instruments to reduce the duration of the Fund’s portfolio, this may limit the Fund’s return when having a longer duration would be beneficial (for instance, when interest rates decline).
Credit-Linked Trust Certificates
The Fund may invest in credit-linked trust certificates, which are investments in
a limited purpose trust or other vehicle which, in turn, invests in a basket of derivative instruments, such as credit default swaps, total
return swaps, interest rate swaps or other securities, in order to provide exposure to the high yield or another debt securities market. Like
an investment in a bond, investments in credit-linked trust certificates 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 certificate. However, these payments are conditioned on the trust’s receipt of payments from, and the trust’s potential obligations to, the counterparties to the derivative instruments and other
securities in which the trust invests. For instance, the trust may sell one or more credit default swaps, under which the trust 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 trust would be obligated
to pay to 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 the Fund would receive as an investor in the trust. The 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, valuation risk and management risk. It is expected that the trusts that issue
credit-linked trust certificates will constitute “private” investment companies, exempt from registration under the 1940 Act. Therefore, the
certificates will not be subject to applicable investment limitations and other regulation imposed by the 1940 Act (although the
Fund will remain subject to such limitations and regulation, including with respect to its investments in the certificates). Although
the trusts are typically private investment companies, they generally are not actively managed such as a “hedge fund” might be. It also is expected that the certificates will be exempt from registration under the Securities Act. Accordingly, there may be no established trading
market for the certificates and they may constitute illiquid investments. See “Risks—Liquidity Risk” in the Prospectus. If market quotations are not readily available for the certificates, they will be valued by the Fund at fair value. See “Net Asset Value—Calculation of NAV” in the Prospectus. The Fund may lose its entire investment in a credit-linked trust certificate.
Equity And Equity-Related Securities
From time to time, the Fund may invest in or hold common stock and other equity and
equity-related securities incidental to the purchase or ownership of fixed income instruments or in connection with a reorganization
of a borrower, including, but not limited to, equity securities of REITs. Investments in equity securities incidental to investment
in debt securities entail certain risks in addition to those associated with investments in those debt securities. Common stock represents
an equity ownership interest in a company. Historical trends would indicate that common stock is subject to higher levels of
volatility and market and issuer-specific risk than debt securities. The value of equity securities may be affected more rapidly, and to a
greater extent, by company-specific developments and general market conditions. These risks may increase fluctuations in the Fund’s NAV. The equity interests held by the Fund, if any, may not pay dividends or otherwise generate income or appreciate in value and, in fact,
may decline in value. Accordingly, the Fund may not be able to realize gains from its equity investments, and any gains that the Fund
does realize may not be sufficient to contribute materially to the Fund’s investment objective. Equity securities held by the Fund may be illiquid.
Foreign Investments
The Fund may invest in foreign debt and/or equity 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.
Foreign Market Risk
Foreign securities offer the potential for more diversification than if the 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 the Fund will lose money. In particular, the 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 the 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.
17
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 the Fund’s ability to purchase or sell foreign securities or transfer the Fund’s assets or income back into the United States, or otherwise adversely affect the 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.
Currency Risk and Exchange Risk
Securities in which the 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 the 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 for U.S. investors while a weak U.S. dollar will increase those returns.
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.
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.
Certain Risks of Holding Fund Assets Outside the United States
The 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 the 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 the 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 the Fund can earn on its investments and typically results in a
higher operating expense ratio for the Fund as compared to investment companies that invest only in the United States.
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 the Fund to carry out transactions. If the Fund cannot settle or there is a delay in settling a purchase
of securities, the Fund may miss attractive investment opportunities and certain assets may be uninvested with no return earned thereon for
some period. If the Fund cannot settle or there is a delay in settling a sale of securities, the 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, the 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.
Foreign Currencies and Related Transactions
The Fund’s Common Shares are priced in U.S. dollars and the distributions paid by the Fund to Common Shareholders are paid in U.S. dollars. However, a significant portion of the Fund’s assets may be denominated in foreign (non-U.S.) currencies and the income received by the Fund from many foreign debt obligations will be paid in foreign currencies.
The Fund also may invest in or gain exposure to foreign currencies themselves for investment or hedging purposes. The Fund’s investments in securities that trade in, or receive
18
revenues in, foreign currencies will be subject to currency risk, which is the risk
that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. See “Risks—Currency Risk” in the Prospectus. The Fund may (but is not required to) hedge some or all of its exposure to foreign currencies through
the use of derivative strategies. For instance, the Fund may enter into forward foreign currency exchange contracts, and may buy and sell
foreign currency futures contracts and options on foreign currencies and foreign currency futures. A forward foreign currency exchange
contract, which involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract, may reduce the Fund’s exposure to changes in the value of the currency it will deliver and increase its exposure to
changes in the value of the currency it will receive for the duration of the contract. The effect on the value of the Fund is similar to selling
securities denominated in one currency and purchasing securities denominated in another currency. Foreign currency transactions, like currency
exchange rates, can be affected unpredictably by intervention (or the failure to intervene) by U.S. or foreign governments or central
banks, or by currency controls or political developments. Such events may prevent or restrict the Fund’s ability to enter into foreign currency transactions, force the Fund to exit a foreign currency transaction at a disadvantageous time or price or result in penalties
for the Fund, any of which may result in a loss to the Fund. Contracts to sell foreign currency would limit any potential gain that might
be realized by the Fund if the value of the hedged currency increases. The Fund may enter into these contracts to hedge against foreign exchange risk arising from the Fund’s investment or anticipated investment in securities denominated in foreign currencies. Suitable
hedging transactions may not be available in all circumstances and there can be no assurance that the Fund will engage in such transactions
at any given time or from time to time when they would be beneficial. Although PGIM has the flexibility to engage in such
transactions for the Fund, it may determine not to do so or to do so only in unusual circumstances or market conditions. Also, these transactions
may not be successful and may eliminate any chance for the Fund to benefit from favorable fluctuations in relevant foreign
currencies.
The Fund may also use derivatives contracts for purposes of increasing exposure to
a foreign currency or to shift exposure to foreign currency fluctuations from one currency to another. To the extent that it does so,
the Fund will be subject to the additional risk that the relative value of currencies will be different than anticipated by PGIM.
Please see “Investment Policies and Techniques—Foreign (Non-U.S.) Investments,” “Investment Policies and Techniques—Foreign Exchange Transactions” and “Investment Policies and Techniques—Currency Risk and Exchange Risk” in the Prospectus for a more detailed description of the types of foreign investments and foreign currency transactions
in which the Fund may invest or engage and their related risks.
Illiquid Or Restricted Securities
To the extent consistent with the applicable liquidity requirements for interval funds
under Rule 23c-3 of the Act, the Fund may invest without limit in illiquid investments. Liquidity of a security relates to the ability
to dispose easily of the security and the price to be obtained upon disposition of the security, which may be less than would be obtained
for a comparable more liquid security. Illiquid securities may trade at a discount from comparable, more liquid investments. Investment of the Fund’s assets in illiquid securities may restrict the ability of the 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 the Fund’s operations require cash, such as when the Fund redeems shares or pays dividends, or in connection with repurchase offers,
and could result in the Fund borrowing to meet short term cash requirements or incurring capital losses on the sale of illiquid
investments. The Fund may invest in securities that are not registered (restricted securities) under the Securities 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 the 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 the Fund are required to be registered
under the securities laws of one or more jurisdictions before being resold, the Fund may be required to bear the expenses of registration. Certain of the 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, the Fund may obtain access
to material nonpublic information, which may restrict the Fund’s ability to conduct portfolio transactions in such securities.
The Fund may purchase restricted securities that can be offered and sold to “qualified institutional buyers” under Rule 144A under the Securities Act. This investment practice could have the effect of increasing the level
of illiquidity in the Fund to the extent that qualified institutional buyers become for a time uninterested in purchasing these securities.
19
Investment In Emerging Markets
The 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) possible fluctuations in exchange rates, differing legal systems
and the existence or possible imposition of exchange controls, custodial restrictions or other foreign or U.S. governmental laws or restrictions
applicable to such investments, (iv) national policies that may limit the Fund’s investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests, and (v) the lack or relatively early development of legal structures
governing private and foreign investments and private property. In addition to withholding taxes on investment income, some countries
with emerging markets may impose differential capital gains taxes on foreign 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 the 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 the 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 to which U.S. companies are subject. 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 the 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 the 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. The Fund would absorb any loss resulting from such registration problems
and may have no successful claim for compensation.
With respect to derivative instruments, PGIM generally considers such instruments
to be economically tied to emerging market countries if the underlying assets are currencies of emerging market countries (or baskets or
indexes of such currencies), or instruments or securities that are issued or guaranteed by governments of emerging market countries
or by entities organized under the laws of emerging market countries or an instrument’s “country of exposure” is an emerging market country. PGIM will consider emerging market country and currency composition based on its evaluation of relative interest
rates, inflation rates, exchange rates, monetary and fiscal policies, trade and current account balances, legal and political developments
and any other specific factors it believes to be relevant.
The Fund generally considers emerging market countries to be countries included in
the JP Morgan Emerging Markets Bond Index Global Diversified Index, the JP Morgan Government Bond Index-Emerging Markets Global
Diversified Index, the JP Morgan Emerging Local Markets Index Plus or the JP Morgan Corporate Emerging Markets Bond Index Broad
Diversified.
Investment In Other Investment Companies
The Fund may invest in other investment companies, including ETFs (including those
advised by the Manager or its affiliates). In accordance with the Investment Company Act, the Fund may invest up to 10% of its total
assets in securities of other investment companies. In addition, under the Investment Company Act, the Fund may not own more
than 3% of the total outstanding voting stock of any investment company and not more than 5% of the value of the Fund’s total assets may be invested in securities of any single investment company.
20
Notwithstanding the limits discussed above, the Fund may invest in other investment
companies without regard to the limits set forth above provided that the Fund complies with Rules 12d1-1, 12d1-3, and 12d1-4 promulgated
by the SEC under the Investment Company Act and pursuant to the terms and conditions of exemptive orders granted by
the SEC to certain ETFs. As with other investments, investments in other investment companies are subject to market and selection
risk. In addition, if the Fund acquires shares in other investment companies, shareholders would bear both their proportionate
share of expenses in the Fund (including management and advisory fees, unless waived) and, indirectly, the expenses of such
investment companies (including management and advisory fees). To the extent the Fund invests in affiliated investment companies,
management fees of either the Fund or an affiliated fund, as applicable, will be waived, so that shareholders of the Fund are not paying
management fees.
Junk Bonds
Junk bonds are debt securities that are rated below investment grade by the major
rating agencies or are unrated securities that the Subadvisers believe 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 the
Fund. The major risks in 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 the Fund before it matures. If an issuer redeems the junk bonds, the 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 less liquid 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 the Fund’s portfolio securities than in the case of securities trading in a more liquid market.
■
Investments in junk bonds may present special tax issues for the Fund, particularly
to the extent that the issuers of these instruments default on their obligations pertaining thereto, and the U.S. federal income tax consequences
to the Fund as a holder of such instruments, including when the Fund may stop reporting interest income or claim a
loss on such instruments, may not be clear.
■
Adverse publicity and investor perceptions, whether or not based on fundamental analysis,
may also decrease the values and liquidity of junk bonds, especially in a market characterized by a low volume of trading.
■
The Fund may incur expenses to the extent necessary to seek recovery upon default
or to negotiate new terms with a defaulting issuer.
Money Market Instruments
The Fund may invest in money market instruments. Money market instruments include
cash equivalents and short-term obligations of U.S. banks, certificates of deposit, 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 foreign branches,
by foreign 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 foreign corporations.
Municipal Bonds and Notes
Municipal bonds and notes are issued by state and local governments and their agencies,
authorities and other instrumentalities. Municipal bonds and notes may be general obligation or revenue bonds. General obligation bonds or notes are secured by the issuer’s pledge of its faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenues derived from a particular facility or class of facilities or from the proceeds of
a special excise tax or other specific revenue source but not from the general taxing power. Municipal notes also include tax-exempt or municipal
commercial paper, which may be issued to meet seasonal working capital needs of a municipality or interim construction financing
and may be paid from the general revenues of the municipality or refinanced with long-term debt. Municipal commercial paper may be
backed by letters of credit, lines of credit, lending agreements, note repurchase agreements or other credit facility agreements offered
by banks or other institutions.
21
The Fund may invest in taxable municipal bonds and municipal lease obligations. A
lease is not a full faith and credit obligation of the issuer and is usually backed only by the borrowing government’s unsecured pledge to make annual appropriations for lease payments. There have been challenges to the legality of lease financing in numerous states,
and, from time to time, certain municipalities have considered not appropriating money for lease payments. In deciding whether to purchase
a lease obligation for the Fund, the Manager will assess the financial condition of the borrower or obligor, the merits of the
project, the level of public support for the project, other credit characteristics of the obligor, and the legislative history of lease financing
in the state. These securities may be less readily marketable than other municipal securities. Some longer-term municipal bonds give
the investor the right to “put” or sell the security at par (face value) within a specified number of days following the investor’s request—usually one to seven days. This demand feature enhances a security’s liquidity by shortening its effective maturity and enables it to trade at a price equal to or very close to par. If a demand feature terminates prior to being exercised, the Fund would hold the longer-term
security, which could experience substantially more volatility. The Fund may invest in municipal warrants, which are essentially
call options on municipal bonds. In exchange for a premium, municipal warrants give the purchaser the right, but not the obligation,
to purchase a municipal bond in the future. The Fund may purchase a warrant to lock in forward supply in an environment in which the current
issuance of bonds is sharply reduced. Like options, warrants may expire worthless and may have reduced liquidity. The Fund may
invest in municipal bonds with credit enhancements such as letters of credit, municipal bond insurance and standby bond
purchase agreements (“SBPAs”). Letters of credit are issued by a third party, usually a bank, to enhance liquidity and to ensure repayment
of principal and any accrued interest if the underlying municipal bond should default. Municipal bond insurance, which is usually
purchased by the bond issuer from a private, nongovernmental insurance company, provides an unconditional and irrevocable guarantee that the insured bond’s principal and interest will be paid when due. Insurance does not guarantee the price of the bond.
The credit rating of an insured bond reflects the credit rating of the insurer, based on its claims-paying ability. The obligation of
a municipal bond insurance company to pay a claim extends over the life of each insured bond. Although defaults on insured municipal
bonds have been low to date and municipal bond insurers have met their claims, there is no assurance that this will continue. A higher-than
expected default rate could strain the insurer’s loss reserves and adversely affect its ability to pay claims to bondholders. Because a significant portion of insured municipal bonds that have been issued and are outstanding is insured by a small number of insurance
companies, not all of which have the highest credit rating, an event involving one or more of these insurance companies,
such as a credit rating downgrade, could have a significant adverse effect on the value of the municipal bonds insured by such insurance
company or companies and on the municipal bond markets as a whole. An SBPA is a liquidity facility provided to pay the purchase
price of bonds that cannot be re-marketed. The obligation of the liquidity provider (usually a bank) is only to advance funds to
purchase tendered bonds that cannot be re-marketed and does not cover principal or interest under any other circumstances. The liquidity provider’s obligations under the SBPA are usually subject to numerous conditions, including the continued creditworthiness of the underlying
borrower.
Preferred Stock
Preferred stock represents an equity or ownership interest in an issuer. Preferred
stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares
bankruptcy. However, in the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over
the claims of those who own preferred and common stock. Preferred stock, unlike common stock, often has a stated dividend rate payable from the corporation’s earnings. Preferred stock dividends may be cumulative or non-cumulative, participating, or auction
rate. “Cumulative” dividend provisions require all or a portion of prior unpaid dividends to be paid before dividends can be paid to the issuer’s common stock.
“Participating” preferred stock may be entitled to a dividend exceeding the stated dividend in certain
cases. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of such
stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions allowing the stock to be
called or redeemed, which can limit the benefit of a decline in interest rates. Preferred stock is subject to many of the risks to which
common stock and debt securities are subject.
Repurchase Agreements
The Fund may invest in securities pursuant to repurchase agreements. The Fund will
enter into repurchase agreements only with parties meeting creditworthiness standards as set forth in the Fund’s repurchase agreement procedures.
Under such agreements, the other party agrees, upon entering into the contract with
the 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. Such agreements usually cover short periods, such as under
one week. 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, the Fund will require all repurchase agreements
to be fully collateralized at all times by cash or other 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
22
by the seller under a repurchase agreement construed to be a collateralized loan,
the underlying securities are not owned by the Fund but only constitute collateral for the seller’s obligation to pay the repurchase price. Therefore, the Fund may suffer time delays and incur costs or possible losses in connection with disposition of the collateral. The 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 the Fund may be aggregated with those of such investment companies
and invested in one or more repurchase agreements. The Fund participates in the income earned or accrued in the joint account
based on the percentage of its investment.
Restrictions on Entering into Affiliated Transactions
The Fund will rely on SEC staff no-action letters to invest alongside other clients
of the Subadvisers in aggregated transactions in public securities and, if only price-related terms are negotiated, in privately placed securities.
Investments in loans are treated as investments in securities for purposes of the 1940 Act.
The Subadvisers will not cause the Fund to engage in co-investments investment transactions
alongside certain other persons, including certain affiliates of the Manager or Subadvisers and certain public or private funds
managed by the Manager or Subadvisers and their affiliates, in private placement securities that involve the negotiation of certain
terms of the private placement securities to be purchased (in addition to price-related terms) except in reliance on an order granting an exemption
from Section 17(d) of the 1940 Act and Rule 17d-1 thereunder or other applicable exemptive relief. Affiliates of the Fund have
obtained such an exemptive order from the SEC that the Fund can rely on to participate in such negotiated investments in private placement
securities in aggregated transactions alongside such affiliates. However, the exemptive order contains certain conditions that may limit or restrict the Fund’s ability to participate in such negotiated investments.
Reverse Repurchase Agreements And Dollar Rolls
The Fund may enter into reverse repurchase agreements. A reverse repurchase agreement
involves the sale of a portfolio-eligible security by the Fund, coupled with its agreement to repurchase the instrument at a
specified item and price. See “Repurchase Agreements.”
The Fund may enter into dollar rolls. In a dollar roll, the 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, the Fund forgoes principal and interest paid on the securities. The
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
the Fund may decline below the price of the securities sold by the Fund but which the 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, the 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 the Fund’s obligation to repurchase the securities. Cash proceeds from dollar rolls may be invested in cash or other liquid assets.
Securities Of Smaller Or Emerging Growth Companies
Investment in debt issued by 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 the process of selection and continuous supervision by the Subadvisers do 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 cap and emerging growth companies requires
specialized research and analysis. In addition, many investors cannot invest sufficient assets in such companies to provide wide diversification.
Equity securities of specific small cap 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 cap 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.
23
Short Sales And Short Sales Against-the-Box
The 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 the Fund does not own declines in value. When the
Fund makes a short sale, the security sold short is borrowed by the Fund and is delivered by the Fund to the broker-dealer through which
the Fund made the short sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to turn over
any payments received on such borrowed securities to the lender of the securities. The Fund may not be able to limit any losses resulting
from share price volatility if the security indefinitely continues to increase in value at such specified time. The Fund secures its obligation
to replace the borrowed security by depositing collateral with the broker-dealer, usually in cash, U.S. Government securities or
other liquid securities similar to those borrowed.
Because making short sales in securities not owned by the Fund exposes the Fund to
the risks associated with those securities, such short sales involve speculative exposure risk. As a result, if the Fund makes short
sales in securities that increase in value, the Fund will likely underperform similar investment companies that do not make short sales in securities
they do not own. The 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 the Fund replaces the borrowed security. The Fund will realize a gain if the security declines
in price between those dates. There can be no assurance that the Fund will be able to close out a short sale position at any particular time or at a desired price. Although the Fund’s gain is limited to the price at which the 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.
The Fund may also make short sales against-the-box. A short sale against-the-box is
a short sale in which the Fund owns an equal amount of the securities sold short, or securities convertible or exchangeable for,
with or without payment of any further consideration, such securities.
Securities Lending
Consistent with applicable regulatory requirements, the Fund may lend portfolio securities
with a value up to 33 1/3% of its total assets to brokers, dealers and other financial organizations to earn additional income. Loans
of portfolio securities will be collateralized by cash.
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.
Subsidiaries
The Fund may make investments in debt instruments and other securities directly or
through one or more wholly-owned and controlled subsidiaries formed by the Fund (each, a “Subsidiary”). The Fund will treat a Subsidiary’s assets as assets of the Fund for purposes of determining compliance with various provisions of the 1940 Act applicable to the Fund,
including those relating to investment policies (Section 8), capital structure and leverage (Section 18) and affiliated transactions
and custody (Section 17). To the extent the Fund invests through one or more of Subsidiaries, the Fund would be exposed to the risks associated with such Subsidiary’s investments. Such Subsidiaries would likely not be registered as investment companies under the
Investment Company Act and therefore would not be subject to all of the investor protections of the Investment Company Act. Changes
in the laws of the United States and/or the jurisdiction in which a Subsidiary is organized could result in the inability of the
Fund and/or the Subsidiary to operate as intended and could adversely affect the Fund.
24
Supranational Entities
The Fund may invest in debt securities of supranational entities. Examples of supranational
entities include the World Bank, the European Steel and Coal Community, the Asian Development Bank and the Inter-American
Development Bank. The government members, or “shareholders,” 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.
Temporary Defensive Strategy and Short-Term Investments
The 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.
The 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. The 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.
Event-Linked Instruments
The Fund may obtain event-linked exposure by investing in “event-linked bonds” or “event-linked swaps” or by implementing “event-linked strategies.” Event-linked exposure results in gains or losses that typically are contingent upon,
or formulaically related to, defined trigger events. Examples of trigger events include hurricanes, earthquakes,
weather-related phenomena or statistics relating to such events. Some event-linked bonds are commonly referred to as “catastrophe bonds.” If a trigger event occurs, the Fund may lose a portion of or its entire principal invested in the bond or notional amount on a swap.
Event-linked exposure often provides for an extension of maturity to process and audit loss claims when a trigger event has, or
possibly has, occurred. An extension of maturity may increase volatility. Event-linked exposure may also expose the Fund to certain other
risks including credit risk, counterparty risk, adverse regulatory or jurisdictional interpretations and adverse tax consequences. Event-linked
exposures may also be subject to liquidity risk.
Variable- and Floating-Rate Securities
Variable- and floating-rate instruments are instruments that pay interest at rates
that adjust whenever a specified interest rate (the “reference rate”) changes and/or that reset on predetermined dates (such as the last day of a month
or calendar quarter). In addition to floating-rate loans, variable- and floating-rate instruments may include, without
limitation, instruments such as catastrophe and other event-linked bonds, bank capital securities, unsecured bank loans, corporate bonds
and money market instruments. Due to their variable- or floating-rate features, these instruments will generally pay higher levels
of income in a rising interest rate environment and lower levels of income as interest rates decline. For the same reason, the market
value of a variable- or floating-rate instrument is generally expected to have less sensitivity to fluctuations in market interest rates
than a fixed-rate instrument, although the value of a variable- or floating-rate instrument may nonetheless decline as interest rates rise
and due to other factors, such as changes in credit quality or because of an imperfect correlation between the securities interest rate
adjustment mechanism and the level of interest rates generally.
The Fund also may engage in credit spread trades. A credit spread trade is an investment
position relating to a difference in the prices or interest rates of two bonds or other securities, in which the value of the investment
position is determined by changes in the difference between the prices or interest rates, as the case may be, of the respective
securities.
When-Issued Securities, Delayed Delivery Securities and Forward Commitments
The Fund may purchase or sell securities that the Fund is entitled to receive on a
when-issued basis. The Fund may also purchase or sell securities on a delayed delivery basis or through a forward commitment. These
transactions involve the purchase or sale of securities by the Fund at an established price with payment and delivery taking place in the
future. The Fund enters into these transactions to obtain what is considered an advantageous price to the Fund at the time of entering
into the transaction. The 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 the Fund’s purchase price. The 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.
U.S. Government Securities
The 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 the Fund’s shares. Not all U.S. Government securities are backed by the full faith and credit of
25
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, the Small Business Administration and securities guaranteed under FDIC’s Temporary Liquidity Guarantee Program (“TLGP”) are backed by the full faith and credit of the United States. In the case of securities
not backed by the full faith and credit of the United States, the Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be able to assert a claim against the United States if the agency
or instrumentality does not meet its commitments.
The Fund may invest in debt securities that are guaranteed under the FDIC’s TLGP. Under the TLGP, the FDIC guarantees, with the full faith and credit of the U.S. Government, the payment of principal and interest on
senior unsecured debt issued by entities eligible to participate in the TLGP, which generally include FDIC-insured depository institutions,
U.S. bank holding companies or financial holding companies and certain U.S. savings and loan holding companies. This guarantee presently
extends through the earlier of the maturity date of the debt or June 30, 2012 (or December 31, 2012, depending on when the debt
was originally issued). This guarantee does not extend to shares of the Fund itself.
The 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.
Yankee Obligations
The Fund may invest in U.S. dollar-denominated debt securities of foreign corporations
issued in the United States and U.S. dollar-denominated debt securities issued or guaranteed as to payment of principal
and interest by governments, quasi-governmental entities, government agencies, and other governmental entities
of foreign countries and supranational entities, which securities are issued in the United States (Yankee obligations). Debt securities of
quasi-governmental entities are issued by entities owned by either a national, state or equivalent government or are obligations of a
political unit that is not backed by the national government’s full faith and credit and general taxing powers. These include, among others, the Province of Ontario and the City of Tokyo.
Commercial Paper
Commercial paper represents short-term unsecured promissory notes issued in bearer
form by corporations such as banks or bank holding companies and finance companies. The rate of return on commercial paper may
be linked or indexed to the level of exchange rates between the U.S. dollar and a foreign currency or currencies.
Bank Capital Securities and Bank Obligations
The Fund may invest in fixed time deposits and bankers’ acceptances, bank certificates of deposit and bank capital securities of both non-U.S. (foreign) and U.S. issuers. Bank capital securities are issued by banks to
help fulfill their regulatory capital requirements. There are three common types of bank capital: Lower Tier II, Upper Tier II and Tier I. Upper
Tier II securities are commonly thought of as hybrids of debt and preferred securities. Upper Tier II securities are often perpetual
(with no maturity date), callable and have a cumulative interest deferral feature. This means that under certain conditions, the
issuer bank can withhold payment of interest until a later date. However, such deferred interest payments generally earn interest. Tier
I securities often take the form of trust preferred securities. The Fund may also invest in other bank obligations including without limitation certificates of deposit, bankers’ acceptances and fixed time deposits. Certificates of deposit are negotiable certificates that
are issued against funds deposited in a commercial bank for a definite period of time and that earn a specified return. Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are “accepted” by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed
time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn
on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are
26
generally no contractual restrictions on the right to transfer a beneficial interest
in a fixed time deposit to a third party, although there is generally no market for such deposits. The Fund may also hold funds on deposit with
its custodian bank in an interest-bearing account for temporary purposes.
Zero Coupon Securities, Pay-In-Kind Securities and Deferred Payment Securities
The 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. 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. The 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. Zero
coupon, 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, the Fund’s investment exposure to these securities and their risks, including credit risk, will increase during the time these securities are held in the Fund’s portfolio. Further, to maintain its qualification for pass-through treatment under the federal tax laws, the 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 the Fund’s exposure to such securities.
Environmental, Social, and Governance (“ESG”) Integration
Although the 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 Subadvisers deem financially material
are embedded in various stages of the Subadvisers’ investment research processes for the Fund. In particular, where the Subadvisers believe 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 Subadvisers believe 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 the Fund, and may be given more or less weight than other factors in the investment process. In some cases the Subadvisers
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 risks that are present. The Subadvisers’ 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 Subadvisers will correctly identify
and evaluate all relevant ESG factors. It is also possible that the Subadvisers’ opinion of which ESG factors are likely to be financially material for an investment position could differ from those of other investors. Although the Subadvisers consider ESG factors as part
of the investment process, there are no specific ESG criteria that must be considered in determining whether to include, maintain or
exclude any potential investment for the Fund.
Subsidiaries
The Fund may make investments in debt instruments and other securities directly or
through one or more Subsidiaries. Each Subsidiary may invest, for example, in whole loans or in shares, certificates, notes or other
securities representing the right to receive principal and interest payments due on fractions of whole loans or pools of whole loans, or any
other security or other instrument that the Fund may hold directly. References herein to the Fund include references to a Subsidiary in respect of the Fund’s investment exposure. The allocation of the Fund’s portfolio in a Subsidiary will vary over time and might not always include all of the different types of investments
27
described herein. The Fund will treat a Subsidiary’s assets as assets of the Fund for purposes of determining compliance with various provisions of the 1940 Act applicable to the Fund, including those relating to investment
policies (Section 8), capital structure and leverage (Section 18) and affiliated transactions and custody (Section 17). In addition, PGIM and the Fund’s Board of Trustees will comply with the provisions of Section 15 of the 1940 Act with respect to a Subsidiary’s investment advisory contract.
28
TRUSTEES AND OFFICERS
The Fund’s Board is responsible for the overall supervision of the business and affairs of the Fund and performs the various duties imposed on the trustees of investment companies by the Investment Company Act and
applicable Delaware law. The Board in turn elects the officers, who are responsible for administering the day-to-day operations
of the Fund. Information about the Board and officers is set forth below. Trustees who are not deemed to be “interested persons” of the Fund, as defined in the Investment Company Act, are referred to as “Independent Trustees.” Trustees who are not deemed to be Independent Trustees are referred to as “Interested Trustees.”
The Fund’s executive officers are elected by the Board to hold office until their respective successors are duly elected and qualify. Unless noted otherwise, the address of all Trustees and Officers is c/o PGIM Investments
LLC, 655 Broad Street, Newark, New Jersey 07102-4410.
Biographical Information of the Board of Trustees. Certain biographical and other information relating to the Trustees of the Fund is
set out below.
Independent Trustees
|
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
|
|
Morris L. McNair, III
1968
Trustee
Portfolios Overseen: 46
|
Chairman of SG Credit Partners, Inc. (lower middle
market lender) (August 2019–Present); Chief Executive
Officer of MidMark Financial Group, Inc. (specialty
finance business) (February 2019–Present); formerly,
Founding Partner of Virgo Investment Group
(middle-market opportunistic private equity fund)
(2010–2019); formerly, Investment Professional, Silver
Point Capital (2007–2009); formerly, Senior Managing
Director at CIT (2001–2007); formerly, Vice President
Wachovia’s Corporate Banking Group (1993–2001).
|
Formerly, Director, Lease Corporation of America (2013–
2022); formerly, Director, Stonegate Capital
(Co-Chairman) (2017–2019); formerly, Director;
AgResource Management/Agrifund (Chairman) (2016–
2019); formerly, Director, NOW Account Network
Corporation (2014–2019); formerly, Director, HPF Service
(Chairman) (2013–2019); formerly, Director, Zippy Shell
Incorporated (Chairman) (2015–2018); formerly, Director,
Ygrene Energy Fund (2014–2018).
|
Since September 2023
|
|
Mary Lee Schneider
1962
Trustee
Portfolios Overseen: 46
|
Formerly, President & Chief Executive Officer of SG360°
(direct marketing communications) (2015–2018);
formerly, President & Chief Executive Officer of Follett
Corp. (PreK-12 Educational Technology & Services)
(2012–2015); formerly, President, Digital Solutions &
Chief Technology Officer for RR Donnelley
(communications company for marketing, commercial
printing and related services) (1992–2012); formerly,
McGraw Hill’s Business Week Magazine (1987–1992);
Time Warner (1985–1987).
|
Independent Director, Propelis (formerly, SGS & Co.) (a
global brand agency) (2023-Present); Independent
Director, The Larry H. Miller Company (holding company
comprised of real estate, senior healthcare, sports/
entertainment businesses and various minority/majority
investments) (2015-Present); Trustee, Penn State
University’s Board of Trustees (2015-Present); Member,
Penn State Investment Council (2023-Present); Life
Director, Chicago Public Library Foundation
(2014-present); Mercy Home for Boys & Girls’ Leader
Council (2014-Present); Executive Service Corps of
Chicago (2025 to present).
|
Since September 2023
|
|
Thomas M. Turpin
1960
Trustee and
Chairperson
Portfolios Overseen: 46
|
Formerly, Chief Operating Officer at Heitman LLC (global
real estate investment firm) (2013–2018); formerly,
Chief Operating Officer and Chief Executive Officer of Old
Mutual US Asset Management (institutional and retail
asset management business) (2002–2010); formerly,
Managing Director and Head of Defined Contribution
Plans, Putnam (2000–2001); formerly, Managing Director
and Chief Administrative Officer of the Institutional,
Retail and Defined Contributions Business; Putnam
Investments (1993-1999); formerly, Trust Accountant,
Financial Analyst, Controller of Institutional group;
formerly, Manager, Global Cash and Securities
Processing Group The Boston Company (now part of BNY
Mellon) (1982–1993).
|
Formerly, Director-Old Mutual Asset Management Trust
Co. (2009–2010); formerly, Trustee-Old Mutual Advisors
Fund II (2008–2010); formerly, Board Member of
numerous investment boutiques majority owned by Old
Mutual Asset Management (2004–2010).
|
Since September 2023
|
29
Interested Trustee
|
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
|
|
Scott E. Benjamin
1973
Trustee & Vice President
Portfolios Overseen: 147
|
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.; Managing Director, Board
Governance of PGIM-Global Wealth (since March 2026);
formerly Senior Vice President, Global Product
Management and Marketing (2006- 2026) 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 September 2023
|
Biographical Information of the Officers of the Fund. Certain biographical and other information relating to the officers of the Fund is
set out below.
Fund Officers(a)
|
Name
Year of Birth
Fund Position
|
Principal Occupation(s) During Past Five Years
|
Length of Service as
Fund Officer
|
|
Stuart S. Parker
1962
President and Principal Executive
Officer
|
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).
|
Since September 2023
|
|
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 September 2023
|
|
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 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 September 2023
|
|
Melissa Gonzalez
1980
Assistant Secretary
|
Vice President and Corporate Counsel (since September 2018) of Prudential; Vice President
and Assistant
Secretary of DC Solutions (since August 2025); Vice President and Assistant Secretary
(since August 2020) of
PGIM Investments LLC; Vice President and Assistant Secretary (since June 2025) of
AST Investment Services,
Inc.; 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 September 2023
|
|
Patrick E. McGuinness
1986
Assistant Secretary
|
Vice President and Corporate Counsel (since March 2026) of Prudential; formerly Director
and Corporate Counsel
(February 2017-March 2026) 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 September 2023
|
30
|
Name
Year of Birth
Fund Position
|
Principal Occupation(s) During Past Five Years
|
Length of Service as
Fund Officer
|
|
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 September 2023
|
|
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 September 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 September 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 September 2023
|
|
Christian J. Kelly
1975
Chief Financial Officer
|
Managing Director, Head of Registered Products Fund Operations (since March 2026);
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 Vice President, Global Head of Investment Operations
(2018-2026) of PGIM
Investments LLC; 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 Real Estate Fund Inc.
|
Since September 2023
|
|
Russ Shupak
1973
Treasurer and Principal Accounting
Officer
|
Executive Director, RIC Fund Administration (since March 2026); 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 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 Vice President (2017-2026) within PGIM Investments
Fund Administration;
formerly Assistant Treasurer (March 2022–July 2022) of the PGIM Real Estate Fund Inc.
|
Since September 2023
|
|
Elyse M. McLaughlin
1974
Assistant Treasurer
|
Executive Director, RIC Fund Administration (since March 2026); 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 Real Estate Fund Inc., and (since
October 2019) of the PGIM
Retail Funds; formerly Vice President (2017-2026) within PGIM Investments Fund Administration.
|
Since September 2023
|
|
Robert W. McCormack
1973
Assistant Treasurer
|
Senior Director, RIC Fund Administration (since March 2026); Assistant Treasurer (since
March 2023) of the PGIM
Retail Funds and Prudential Annuities Funds and (since March 2022) of the PGIM Alternatives
Funds; formerly
Vice President (2019-2026) within PGIM Investments Fund Administration.
|
Since September 2023
|
(a)
Excludes Mr. Benjamin, Interested Trustee of the Fund, who also serves as Vice President
of the Fund. See biography above.
Explanatory Notes to Tables:
■
Trustees are deemed to be “interested persons,” as defined in the Investment Company Act, by reason of his or her affiliation with
PGIM Investments LLC and/or an affiliate of PGIM Investments LLC.
■
Unless noted otherwise, the address of all Trustees and Officers is c/o PGIM Investments
LLC, 655 Broad Street, Newark, New Jersey 07102-4410.
■
“Other Directorship Held” includes only Directorships of companies required to register or file reports with
the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (that is, “public companies”), or other investment companies registered under the Investment Company 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 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.
31
Compensation of Trustees and Officers. Pursuant to a Management Agreement (as defined below) with the Fund, the Manager
pays all compensation of employees and officers of the Fund as well as the fees and expenses
of all Interested Trustees.
The Fund pays each of its Independent Trustees annual compensation in addition to
certain out-of-pocket expenses. Independent Trustees who serve on Board Committees may receive additional compensation. The amount
of annual compensation paid to each Independent Trustee may change as a result of the introduction of additional funds
on whose board the Trustees may be asked to serve.
The following table sets forth the estimated compensation to be paid by the Fund to
the Independent Trustees for service on the Board projected through the end of the Fund’s first full fiscal year, and the board of any other investment company in the Fund Complex (as defined below) for the most recently completed calendar year. Interested Trustees
do not receive compensation from funds in the Fund Complex and therefore are not shown in the following table.
Compensation Received by Independent Trustees
|
Name
|
Aggregate Fiscal Year
Compensation from the Fund
|
Pension or Retirement Benefits
Accrued as Part of Fund Expenses
|
Estimated Annual Benefits
Upon Retirement
|
Total Compensation from Fund
and Fund Complex(1) for Most
Recent Calendar Year(2)(3)
|
|
Compensation Received by Independent Board Members
|
||||
|
Morris L. McNair, III
|
$58,000
|
None
|
None
|
$252,000 (4/46)
|
|
Mary Lee Schneider
|
$58,000
|
None
|
None
|
$252,000 (4/46)
|
|
Thomas M. Turpin
|
$60,000
|
None
|
None
|
$260,000 (4/46)
|
Explanatory Notes to Compensation Table:
(1)
“Fund Complex” includes the Prudential Annuities Funds, the PGIM Retail Mutual Funds, the PGIM Alternatives
Funds, and any other funds that are managed by PGIM Investments.
(2)
Compensation relates to portfolios that were in existence for any period during 2025.
(3)
No. of Portfolios Overseen represent those in existence as of December 31, 2025, and
excludes funds/portfolios that have merged or liquidated during the year. Additionally,
the number of funds/portfolios includes those that are approved as of December 31, 2025,
which however, may commence operations after that date. No compensation is paid out
from such funds/portfolios.
Board Committees. The Board has established two standing committees in connection with Fund governance — the Audit Committee and the Nominating and Governance Committee — and may establish additional committees from time to time, as necessary. 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 an Independent
Trustee. The responsibilities of the Audit Committee are to assist the Board in overseeing the Fund’s independent registered public accounting firm, accounting policies and procedures and other areas relating to the Fund’s 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 Fund. The Audit Committee is also responsible for pre-approving permitted non-audit
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 Fund, provided that the engagement of the independent registered public
accounting firm relates directly to the operation and financial reporting of the Fund. 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). During the year ended December 31, 2025, the Audit Committee met six times.
The membership of the Audit Committee is set forth below:
Morris L. McNair, III (Chair of the Audit Committee)
Mary Lee Schneider
Thomas M. Turpin
Mary Lee Schneider
Thomas M. Turpin
Nominating and Governance Committee: The Nominating and Governance Committee of the Board is responsible for nominating
Trustees and making recommendations to the Board concerning Board composition, committee structure
and governance, and governance practices. The Board has determined that each member of the Nominating and Governance
Committee is an Independent Trustee. During the year ended December 31, 2025, the Nominating and Governance Committee met
four times.
The membership of the Nominating and Governance Committee is set forth below:
32
Mary Lee Schneider (Chair of the Nominating and Governance Committee)
Morris L. McNair, III
Thomas M. Turpin
Morris L. McNair, III
Thomas M. Turpin
Leadership Structure and Qualifications of Board of Trustees. The Board is responsible for oversight of the business and affairs of the Fund. The Fund has engaged the Manager to manage the business and affairs of the Fund
on a day-to-day basis. The Board oversees the Manager and certain other principal service providers in the operations of the
Fund. The Board is currently composed of four trustees, three of whom are Independent Trustees and one of whom is an Interested
Trustee. The Board meets at regularly scheduled meetings four times throughout the year. In addition, trustees 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 two standing committees — Audit and Nominating and Governance — and may establish ad hoc committees or working groups from time to time, to assist the Board in fulfilling its oversight responsibilities. The Independent Trustees have also engaged independent legal counsel to assist them
in fulfilling their responsibilities.
The Board is chaired by an individual who is an Independent Trustee (the “Independent Chair”). The current Independent Chair of the Board is Thomas M. Turpin. As Independent Chair, this Trustee leads the Board in its
activities. The Trustees 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 Fund, on the one hand, and the Manager, the Subadvisers 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 Trustee's experience, qualifications,
attributes or skills on an individual basis and in combination with those of the other Trustees, each Trustee should serve as a Trustee.
Among other attributes common to all Trustees are their ability to review critically, evaluate, question and discuss information provided
to them, to interact effectively with the various service providers to the Fund, and to exercise reasonable business judgment in the performance
of their duties as Trustees. A Trustee's ability to perform his or her duties effectively may have been attained through a Trustee's educational
background or professional training; business, consulting, public service or academic positions; experience from service
as a Trustee of other funds, public companies, or non-profit entities or other organizations; or other experiences. Specific details
about each Trustee's professional experience appear in the professional biography tables, above. In addition, set forth below is a brief
discussion of the specific experience, qualifications, attributes or skills of each Trustee that led the Board to conclude that he or she
should serve as a Trustee.
Morris L. McNair, III. Mr. McNair joined the Boards of the PGIM Real Estate Fund Inc. and PGIM Private Credit
Fund in 2022 and PGIM Credit Income Fund and PGIM Rock ETF Trust in 2023. Mr. McNair has held senior executive
positions in the financial services industry, including having served on an audit committee and has over 28 years of private credit
markets and special situations investing experience.
Mary Lee Schneider. Ms. Schneider joined the Boards of the PGIM Real Estate Fund Inc. and PGIM Private
Credit Fund in 2022 and PGIM Credit Income Fund and PGIM Rock ETF Trust in 2023. Ms. Schneider has served in a variety of senior leadership positions — including CEO and CTO — in the publishing, printing and educational services industries. She also has years of experience in the non-profit sector, including serving on Penn State University’s Board of Trustees and Mercy Home for Boys & Girls’ Leader Council.
Thomas M. Turpin. Mr. Turpin joined the Boards of the PGIM Real Estate Fund Inc. and PGIM Private Credit
Fund in 2022 and PGIM Credit Income Fund and PGIM Rock ETF Trust in 2023. Mr. Turpin has worked in the asset
management industry for over 30 years and served as a senior executive in an asset management firm.
Scott E. Benjamin. Mr. Benjamin, an Interested Trustee and Vice President of the PGIM Real Estate Fund
Inc. and PGIM Private Credit Fund since 2022 and the PGIM Credit Income Fund and PGIM Rock ETF Trust since 2023
as well as other funds in the PGIM Investments Retail Fund Complex since 2009. Mr. Benjamin has held senior positions
in PGIM Investments since 2003 and also serves as an Interested Board Member of the PGIM Investments Retail Funds since 2010.
Risk Oversight. Investing in general and the operation of a registered closed-end fund involve a
variety of risks, such as investment risk, compliance risk, and operational risk, among others. The Board oversees risk as part
of its oversight of the business and affairs of the Fund. 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, the Subadvisers, the Fund’s Chief Compliance Officer, the Fund’s independent registered public accounting firm, counsel, and internal auditors of the
Manager or its affiliates, as appropriate, regarding risks faced by the Fund and the risk management programs of the Manager and certain
service providers. The actual day-to-day risk management with respect to the Fund resides with the Manager and other service providers
to the Fund.
33
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 Fund 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 Fund or the Manager, its affiliates or
other service providers.
Selection of Trustee Nominees. The Nominating and Governance Committee is responsible for considering nominees for
Trustees 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 Trustees, and by executive search firms
which the Nominating and Governance 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 Investment Company 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 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 election as Trustees based on whether the nominee is recommended
by a shareholder.
A shareholder who wishes to recommend an individual for nomination should submit his
or her recommendation in writing to the Independent Chair of the Board (Thomas M. Turpin) or the Chair of the Nominating and
Governance Committee (Mary Lee Schneider), in either case in care of the Fund, at 655 Broad Street, Newark, NJ 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 Investment Company Act; any other information that the Fund 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 Financial,
Inc. (“Prudential”) (the parent company of the Manager) would be deemed an “interested person” under the Investment Company Act. In addition, certain other relationships with Prudential or its subsidiaries, with registered broker-dealers, or with the Fund’s outside legal counsel may cause a person to be deemed an “interested person.” Before the Nominating and Governance Committee decides to nominate an individual
for election to the Board, Committee members and other Trustees 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, if applicable, 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 Trustee's share ownership in the Fund as of December
31, 2025 and in all other registered funds in the Fund Complex that are overseen by the respective Trustees
as of December 31, 2025 is set forth in the chart below.
|
Name
|
Dollar Range
of Equity
Securities in
the Fund
|
Aggregate Dollar Range of Equity
Securities in All Registered
Investment Companies Overseen
by Trustee in the Family of
Registered Investment Companies(1)(2)(3)
|
|
Board Member Share Ownership: Independent Trustees
|
|
|
|
Morris L. McNair, III
|
$50,001 - $100,000
|
Over $100,000
|
|
Mary Lee Schneider
|
$50,001 - $100,000
|
Over $100,000
|
|
Thomas M. Turpin (Independent Chair)
|
$10,001 - $50,000
|
Over $100,000
|
|
Board Member Share Ownership: Interested Trustee
|
|
|
|
Scott E. Benjamin
|
None
|
Over $100,000
|
(1)
Dollar ranges are as follows: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000.
(2)
Dollar ranges were determined using the number of shares that are beneficially owned
as of December 31, 2025.
(3)
The term “Family of Registered Investment Companies” refers to all registered investment companies advised by the Manager or an affiliate
board.
34
Unless noted otherwise herein, none of the Independent Trustees, or any member of
his/her immediate family, owned beneficially or of record any securities in an investment adviser or principal underwriter of the 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 the Fund.
Shareholder Communications with Trustees. Shareholders can communicate directly with Trustees by writing to the Independent
Chair of the Board, c/o the Fund, 655 Broad Street, Newark, NJ 07102-4410. Shareholders can
communicate directly with an individual Trustee by writing to that Trustee, c/o the Fund, 655 Broad Street, Newark, NJ 07102-4410.
Such communications to the Board or individual Trustees are not screened before being delivered to the addressee.
35
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager
The Manager of the Fund is PGIM Investments, 655 Broad Street, Newark, NJ 07102-4410.
PGIM Investments 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 Financial, Inc. (“Prudential”). PGIM Investments and its predecessors have served as manager or administrator to
investment companies since 1987. PGIM Investments currently serves as manager to all
of the other investment companies that, together with the Fund, comprise the Prudential Investments registered investment
companies. As of December 31, 2025, PGIM Investments served as the investment manager to all of the Prudential U.S. and offshore
open-end investment companies, and as manager and administrator to all of the Prudential U.S. closed-end investment companies.
As of December 31, 2025, PGIM Investments had total assets under management of approximately $333.2 billion.
Pursuant to a management agreement with the Fund (the “Management Agreement”), PGIM Investments, subject to the supervision of the Fund’s Board and in conformity with the stated policies of the Fund, manages both the investment operations of the Fund and the composition of the Fund’s portfolio, including the purchase, retention, disposition and loan of securities and other assets. In connection therewith, PGIM Investments is obligated to keep certain books and records of the
Fund. PGIM Investments will review the performance of the Subadvisers and make recommendations to the Board with respect to the retention
of subadvisers and the renewal of contracts. PGIM Investments also administers the Fund’s corporate affairs and, in connection therewith, furnishes the Fund with office facilities, together with those ordinary clerical and bookkeeping services which are not being furnished by the Fund’s custodian and transfer agent. The management services that PGIM Investments provides to the Fund are not
exclusive under the terms of the Management Agreement and PGIM Investments is free to, and does, render management services to
others.
Under the Management Agreement, the Manager is entitled to receive a management fee.
The management fee (the “Management Fee”) is payable monthly in arrears at an annual rate of 1.10% of the average daily value of the Fund’s total managed assets.
The Management Fee is payable in cash. The Fund could apply for exemptive relief from
the SEC in the future that if granted would permit the Fund to pay the Manager all or a portion of its Management Fee in Common
Shares in lieu of paying the Manager an equivalent amount of such fees in cash. As a condition of any such exemptive relief,
the Manager would have to commit not to sell any such Common Shares received in lieu of a cash payment of its Management Fee for at
least 12 months from the date of issuance, except in exceptional circumstances. As of the date of this Prospectus, the Fund has
not applied for such exemptive relief.
The Management Agreement continues in effect for a period of two years from its effective
date, and, if not sooner terminated, will continue in effect for successive periods of 12 months thereafter, provided that each
continuance is specifically approved at least annually by both (1) the vote of a majority of the Board or the vote of a “majority of the outstanding securities” entitled to vote (as such term is defined in the Investment Company Act) and (2) by the vote of a majority of
the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval. The Management Agreement
may be terminated at any time, without the payment of any penalty, by the Fund (upon the vote of a majority of the Board or a
majority of the outstanding securities entitled to vote) or by the Manager, upon not more than 60 nor less than 30 days’ written notice by either party to the other which can be waived by the non-terminating party. The Management Agreement will terminate automatically in the
event of its assignment (as such term is defined in the Investment Company Act and the rules thereunder).
The Management Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the Manager is not liable to the Fund or any of the Fund’s shareholders for any act or omission by the Manager in the supervision or management of its respective investment activities or for any loss sustained by the Fund or the Fund’s shareholders and provides for indemnification by the Fund of the Manager, its Trustees, officers,
employees, agents and control persons for liabilities incurred by them in connection with their services to the Fund, subject to certain
limitations and conditions.
Although the professional staff of the Manager will devote as much time to the management
of the Fund as the Manager deems appropriate to perform its duties in accordance with the Management Agreement and
in accordance with reasonable commercial standards, the professional staff of the Manager may have conflicts in allocating
its time and services among the Fund and the Manager’s other investment vehicles and accounts. The Manager has informed the Board that the services of the Manager are not exclusive, and the Manager provides similar services to other clients and may engage
in other activities.
In connection with its management of the corporate affairs of the Fund, PGIM Investments
bears the following expenses, among others: (i) the salaries and expenses of all of its and the Fund’s personnel, except the fees and expenses of Trustees who are not affiliated persons of PGIM Investments or the Subadvisers; (ii) all expenses incurred by PGIM
Investments in connection with managing the ordinary course of the Fund’s business, other than those assumed by the Fund as described below; (iii) the fees, costs and expenses payable to the Subadvisers pursuant to the Subadvisory Agreement and (iv) the Fund’s offering and organizational expenses (including
36
the sales load), and all expenses incurred in connection with the registration and
the offering and issuance of the shares, including the preparation and printing, as necessary, of the Registration Statement, the Fund’s prospectuses for filing under federal and state securities laws in connection with the initial registration of the Common Shares.
Under the terms of the Management Agreement, the Fund is responsible for the payment
of the fees and expenses incurred by the Fund in connection with the management of the investment and reinvestment of the Fund’s assets payable to PGIM Investments; the fees and expenses of Trustees who are not affiliated persons of PGIM Investments or
the Subadvisers; the fees and certain expenses of the custodian and transfer and dividend disbursing agent, including the cost of providing
records to PGIM Investments in connection with its obligation of maintaining required records of the Fund and of pricing the Fund’s shares; the charges and expenses of the Fund’s legal counsel and independent auditors; brokerage commissions and any issue or transfer
taxes chargeable to the Fund in connection with its securities (and futures, if applicable) transactions; all taxes and corporate
fees payable by the Fund to governmental agencies; the fees of any trade associations of which the Fund may be a member; the cost of
share certificates representing, and/or non-negotiable share deposit receipts evidencing, shares of the Fund; the cost of
fidelity, Trustees and officers and errors and omissions insurance; subsequent to the completion of the initial public offering of the shares,
the fees and expenses involved in maintaining registration of the Fund and of its shares with the SEC and paying any notice filing
fees under state securities laws, including the preparation and printing of the Fund’s registration statements and prospectuses for such purposes; expenses (including registration fees) of issuing, redeeming and repurchasing (including expenses associated with the Fund’s repurchases pursuant to Rule 23c-3 under the 1940 Act); allocable communications expenses with respect to investor services
and all expenses of shareholder and Board meetings and of preparing, printing and mailing reports, proxy statements and notices
to shareholders; litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business; interest payable on debt and dividends and distributions on preferred shares, as applicable, if any, incurred to finance the Fund’s investments; the cost of office facilities, equipment and certain systems (including, but not limited to application
licensing, development and maintenance, data licensing and reporting); the cost incurred to implement and monitor ISDA and other agreements governing the Fund’s financing or borrowing facilities; expenses related to the engagement of any third-party professionals,
consultants, experts or specialists hired to perform work in respect of the Fund; all other expenses incurred by the Fund in connection with administering the Fund’s business; and such non-recurring or extraordinary expenses as may arise.
The Manager will provide, or oversee the performance of, administrative and compliance
services, including, but not limited to, maintaining financial records, overseeing the calculation of NAV, compliance monitoring (including diligence and oversight of the Fund’s other service providers), preparing reports to shareholders and reports filed with
the SEC, preparing materials and coordinating meetings of the Board, managing the payment of expenses and the performance of administrative
and professional services rendered by others and providing office space, equipment and office services.
The table below sets forth information about the total Management Fee paid by the
Fund to the Manager, and the Management Fee waived and/or reimbursed by the Manager, for the indicated fiscal years:
|
Management Fees Paid by the Fund
|
|
|
|
|
|
2025
|
2024(1)
|
2023(1)(2)
|
|
Gross Fee
|
$1,548,350
|
$1,383,249
|
$44,699
|
|
Amount Waived/Reimbursed by PGIM Investments
|
$(450,822)
|
$(2,410,749)
|
$(620,635)
|
|
Net Fee(3)
|
$1,098,528
|
$(1,027,500)
|
$(575,936)
|
(1) The Manager previously contractually agreed to waive its management fee From December
6, 2023 to December 6, 2024.
(2) Period from December 11, 2023 (commencement of operations of the Fund) to December
31, 2023.
(3) Reflects the impact of the Expense Limitation and Reimbursement Agreement.
Pursuant to an Expense Limitation and Reimbursement Agreement, through December 6,
2029 (the “ELRA Period”), the Manager has contractually agreed to waive its fees and/or reimburse expenses of the Fund so that the Fund’s Specified Expenses will not exceed 0.50% of net assets (annualized). The Fund has agreed to repay these amounts, when
and if requested by the Manager, but only if and to the extent that Specified Expenses are less than 0.50% of net assets (annualized)
(or, if a lower expense limit is then in effect, such lower limit) within three years after the date the Manager waived or reimbursed such fees or expenses. In no event will the Fund’s Specified Expenses exceed 0.50% of net assets (annualized) during the ELRA Period
notwithstanding any repayment made by the Fund pursuant to the ELRA. This arrangement cannot be terminated without the consent of the Fund’s Board prior to the end of the ELRA Period. “Specified Expenses” is defined to include all expenses incurred in the business of the Fund, including
organizational and offering costs, with the exception of (i) the Management Fee, (ii) the Distribution
and Servicing Fee, (iii) brokerage costs or other investment-related out-of-pocket expenses, including with respect to unconsummated
investments, (iv) dividend/interest payments (including any dividend payments, interest expenses, commitment fees, or other expenses
related to any leverage incurred by the Fund), (v) taxes, and (vi) extraordinary expenses (as determined in the sole discretion
of the Manager).
37
The Subadvisers
The Manager has engaged PGIM, Inc. and PGIM Limited as subadvisers to provide day-to-day management of the Fund’s portfolio, primarily through the PGIM Credit investment group (“PGIM Credit”). PGIM Credit is the public and private fixed income investment group within PGIM. PGIM Credit consists of two investment sub-groups, PGIM Fixed Income,
a manager of public and private fixed income investments, and PGIM Private Credit (formerly, PGIM Private Capital) (“PPC”), a manager of private fixed income investments. The Manager is permitted to allocate management of portions of the Fund’s portfolio to any of the investment groups within PGIM.
PGIM is an indirect, wholly-owned subsidiary of Prudential that was organized in 1984.
PGIM is the global asset management business of Prudential Financial, Inc. (NYSE:PRU). As of December 31, 2025, PGIM managed approximately $1.47 trillion in assets. PGIM’s address is 655 Broad Street, Newark, New Jersey 07102.
PGIM Fixed Income, a manager of public and private fixed income investments, is an
investment sub-group of PGIM Credit with $909.2 billion in assets under management as of December 31, 2025.*
PGIM Fixed Income’s investment strategies include but are not limited to the following categories: multi-sector strategies, investment-grade credit, securitized products, leveraged finance, emerging markets
strategies and alternative strategies. PGIM Fixed Income is organized into groups specializing in different sectors of the fixed income
market: U.S. and non-U.S. government bonds, mortgages and asset-backed securities, U.S. and non-U.S. investment grade corporate
bonds, high yield bonds, emerging markets bonds, municipal bonds, and money market securities.
PPC and its predecessors have been providing private debt for more than 75 years and
have been a leading source of private debt for public and private companies. As of December 31, 2025, PPC managed a $112.6 billion
portfolio of private placements, loans and mezzanine investments through its 15 regional offices throughout North America, Europe
and Australia. The business is supported by 205 professionals globally.
PGIM Limited is an indirect, wholly-owned subsidiary of PGIM. PGIM Limited is located
at Grand Buildings, 1-3 Strand, Trafalgar Square, London WC2N 5HR. PGIM Limited provides investment advisory services with respect to
securities in certain foreign markets. As of December 31, 2025, PGIM Limited managed approximately $68.1 billion in assets.
* PGIM Fixed Income’s assets under management includes the assets under management of PGIM Limited.
The Subadvisory Agreement provides that the Subadvisers will furnish investment advisory
services in connection with the management of the Fund. In connection therewith, the Subadvisers are obligated to keep certain
books and records of the Fund. Under the Subadvisory Agreement, the Subadvisers, subject to the supervision of PGIM Investments,
are responsible for managing the assets of the Fund in accordance with the Fund’s investment objective, investment program and policies. The Subadvisers determine the securities and other instruments that are purchased and sold for the Fund and are
responsible for obtaining and evaluating financial data relevant to the Fund. PGIM Investments continues to have responsibility for all
investment advisory services pursuant to the Management Agreement and supervises the Subadvisers’ performance of such services. The Subadvisory Agreement provides that it will terminate in the event of its assignment (as defined in the Investment Company Act)
or upon the termination of the Management Agreement. The Subadvisory Agreement may be terminated by the Fund, PGIM Investments,
or the Subadvisers upon not more than 60 days’, nor less than 30 days’, written notice. The Subadvisory Agreement provides that it will continue in effect for a period of 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 Investment Company Act.
Subadvisory fees are paid by the Manager out of the management fee that it receives
from the Fund. No subadvisory fees are paid by the Fund directly to PGIM. PGIM will pay a portion of its subadvisory fee to PGIM
Limited for its services.
Because the Subadvisers are affiliates, the Manager may from time to time share certain
of its profits with, or allocate other resources to, the Subadvisers. Any such payments by the Manager to the Subadvisers will be from the Manager’s own resources.
A discussion of the basis for the Board's approval of the continuance of the Management
Agreement and Subadvisory Agreement is available in the Fund's semi-annual report to shareholders for the six-month period
ended June 30, 2025.
Portfolio Managers
The portfolio managers primarily responsible for the day-to-day management of the
Fund also manage other registered investment companies, other pooled investment vehicles and other accounts, as indicated below.
The following table identifies, as of December 31, 2025, unless otherwise noted: (i) the other registered investment companies, other
pooled investment vehicles and other accounts
38
managed by an investment committee (or equivalent body) on which the corresponding
portfolio manager serves and (ii) the total assets under management (“AUM”) of such companies, vehicles and accounts, and (iii) the number and total AUM of
such companies, vehicles and accounts with respect to which the advisory fee is based on performance.
Richard Piccirillo
|
|
Account(s)
Managed
|
Assets of
Accounts
|
Number of Accounts
Subject to a
Performance Fee
|
Assets
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
48
|
$116,337,834,112
|
0
|
$0
|
|
Pooled Investment Vehicles Other Than Registered Investment Companies
|
23
|
$45,744,256,028
|
1
|
$51,743,466
|
|
Other Accounts
|
155
|
$124,453,120,369
|
8
|
$6,477,548,415
|
Tyler Thorn
|
|
Account(s)
Managed
|
Assets of
Accounts
|
Number of Accounts
Subject to a
Performance Fee
|
Assets
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
39
|
$107,782,669,093
|
0
|
$0
|
|
Pooled Investment Vehicles Other Than Registered Investment Companies
|
21
|
$34,825,492,149
|
1
|
$51,743,466
|
|
Other Accounts
|
85
|
$55,049,260,568
|
3
|
$1,625,029,764
|
Edwin Wilches
|
|
Account(s)
Managed
|
Assets of
Accounts
|
Number of Accounts
Subject to a
Performance Fee
|
Assets
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
65
|
$54,202,629,237
|
0
|
$0
|
|
Pooled Investment Vehicles Other Than Registered Investment Companies
|
34
|
$12,758,770,140
|
0
|
$0
|
|
Other Accounts
|
386
|
$78,924,207,674
|
12
|
$1,023,657,071
|
Brian Juliano
|
|
Account(s)
Managed
|
Assets of
Accounts
|
Number of Accounts
Subject to a
Performance Fee
|
Assets
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
29
|
$27,798,894,742
|
0
|
$0
|
|
Pooled Investment Vehicles Other Than Registered Investment Companies
|
69
|
$26,130,909,948
|
1
|
$442,417,663
|
|
Other Accounts
|
133
|
$26,026,555,971
|
4
|
$437,142,072
|
Dianna Carr-Coletta
|
|
Account(s)
Managed
|
Assets of
Accounts
|
Number of Accounts
Subject to a
Performance Fee
|
Assets
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
1
|
$362,264,088.09
|
0
|
$0
|
|
Pooled Investment Vehicles Other Than Registered Investment Companies
|
13
|
$2,574,891,720.34
|
8
|
$2,123,057,313.37
|
|
Other Accounts
|
7
|
$4,534,359,674.23
|
7
|
$4,534,359,674.23
|
Tom McCartan
|
|
Account(s)
Managed
|
Assets of
Accounts
|
Number of Accounts
Subject to a
Performance Fee
|
Assets
Subject to a
Performance Fee
|
|
Registered Investment Companies
|
39
|
$107,782,669,093
|
0
|
$0
|
|
Pooled Investment Vehicles Other Than Registered Investment Companies
|
21
|
$34,825,492,149
|
1
|
$51,743,466
|
|
Other Accounts
|
114
|
$101,344,557,691
|
3
|
$1,625,029,764
|
39
Portfolio Manager Compensation
None of the portfolio managers receive any direct compensation from us. All compensation
received by the portfolio managers is received from PGIM.
PGIM Fixed Income:
The following information is provided with respect to the portfolio managers in the
PGIM Fixed Income investment sub-group of PGIM.
The base salary of an investment professional in the PGIM Fixed Income investment
sub-group of PGIM is primarily based on market data relative to similar positions as well as the performance 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.
The PGIM Fixed Income investment group 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;
■
overall performance of PGIM; 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 PGIM Fixed Income long-term incentive plan and targeted long-term incentive plan. Long-term compensation is intended
to align compensation with investment performance. The targeted long-term incentive plan is intended to align the interests of certain 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 head 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.
PPC:
The following information is provided with respect to the portfolio managers in the
PPC investment sub-group of PGIM.
PPC provides a competitive total compensation package that engages, motivates and
retains top talent while aligning their interests with those of our clients. Portfolio managers are compensated based on the overall performance
of PPC and performance of the specific investments they are responsible for managing.
Specifically, there are three elements of compensation: base salary, bonus and long
term incentive compensation.
■
Base salary levels are reviewed annually to determine if an individual should receive
an increase based on individual and PPC performance, job responsibilities and market compensation data, which is derived from
external market data studies.
40
■
Cash bonuses are awarded annually based on the individual’s performance, the scope of the individual’s responsibilities, investment and business performance for the prior year and the size of the overall bonus pool
available in a given year. The bonus pool is determined based on the financial performance of PPC and PGIM. An individual’s share of the pool is based on his or her contribution toward meeting these goals.
■
Certain portfolio managers also receive annual long-term incentive program compensation
(“LTIP”) and/or a share of incentive fees from the performance of various lending strategies. LTIP awards are based on the same
factors as the annual cash bonus. The LTIP award, however, is not immediately paid to the individual and vests over three years
as described below. One hundred percent (100%) of the LTIP award is made in the form of Prudential Financial restricted stock units
which vest proportionately over three years with one-third of the grant vesting on each anniversary until fully vested. Portfolio managers
who participate in incentive fees generally receive a grant at the launch of a new fund based on involvement in the fund and historical
investment performance, among other factors.
Securities Ownership of Portfolio Managers
The following table identifies the dollar range of securities beneficially owned by
the portfolio managers as of December 31, 2025.
|
Portfolio Manager
|
Dollar Range of Equity Securities Owned*
|
|
Richard Piccirillo
|
$10,001-50,000
|
|
Tyler Thorn
|
$10,001-50,000
|
|
Brian Juliano
|
$10,001-50,000
|
|
Edwin Wilches
|
$10,001-50,000
|
|
Dianna Carr-Coletta
|
None
|
|
Tom McCartan
|
None
|
*Dollar Ranges: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001-$500,000,
$500,001-$1,000,000 or over $1,000,000
Conflicts of Interest
PGIM Fixed Income:
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 our 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.
41
■
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 directs or recommends 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.
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 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.
42
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 an investment sub-group 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 subadvises 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
43
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
44
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 Outsourced Chief Investment Officer
(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 the Employee Retirement Income Security Act of 1974, as amended (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 matter, 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.
45
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 reviews 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 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.
PPC:
General
Shareholders should be aware that there will be situations where PPC may encounter
potential conflicts of interest in connection with the Fund’s investment activities. There can be no assurance that PPC will resolve conflicts of interest in a manner that is favorable to the Fund’s shareholders. The following details certain potential conflicts of interest which should be carefully considered before making an investment in the Fund. You should be aware that individual conflicts will not necessarily
be resolved in favor of your interest. The foregoing list of conflicts does not purport to be a complete enumeration or explanation
of the actual and potential conflicts involved in an investment in the Fund, but does reflect all material conflicts known to the Fund
at the time of this filing.
Management of the Fund
PPC intends to devote sufficient time to the Fund, and directors, officers and key
personnel will devote a sufficient amount of time to the Fund’s business in fulfilling their responsibilities. Although members of PPC’s Direct Lending team will devote substantially all of their business time to PPC’s direct lending strategy (including the Fund, other investment vehicles and managed accounts), the other employees of PPC will spend a substantial portion of their business time on matters unrelated to the Fund or PPC’s direct lending strategy. As a result, conflicts of interest will arise, including with respect to
allocating management time, services and functions, between the investment activities of the Fund, on the one hand, and the other investment
activities of other clients of PPC and its affiliates, on the other hand. Moreover, PPC is subject to various conflicts of interest
restrictions under the 1940 Act.
Allocation of Investment Opportunities
46
PPC may provide investment management services to other business development companies,
registered investment companies, investment funds, client accounts and proprietary accounts.
PPC will share any investment and sale opportunities with its other clients and the
Fund in accordance with the 1940 Act and the Advisers Act, and PPC’s allocation policies.
In addition, as a closed-end management investment company registered under the 1940
Act, the Fund is subject to certain limitations relating to co-investments and joint transactions with affiliates, which may in certain circumstances limit the Fund’s ability to make investments or enter into other transactions alongside other clients.
The Fund has received exemptive relief from the SEC that permits it to, among other
things, participate in certain co-investment transactions with certain other persons, including certain affiliates of the Manager
or Subadvisers and certain public or private funds managed by the Manager or Subadvisers and their affiliates, subject to certain terms
and conditions.
Economic Interests in Other PPC Funds
Most of the senior investment professionals in PPC have economic interests in other
PPC funds, including funds that are still in their investment periods and that may have investments in the same portfolio companies as
the Fund but at different levels of the portfolio companies’ capital structures. This may provide an incentive for one or more senior investment professionals of PPC to favor the interests of other funds over those of the Fund, to the extent that they conflict.
Such conflicts may arise, for example, in investment allocation decisions or addressing conflicts arising from funds having investments
in different levels of the capital structure. In addition, to the extent one fund in which a member of the PPC Investment Committee and other
PPC senior investment professionals have economic interests is at or above its preferred return hurdle and another fund in
which he/she has an economic interest is not, or the economic interests in one fund are greater than the economic interests in another
fund, such difference could impact the incentives for risk taking between such different funds or provide an incentive to favor one fund
over another fund. While these conflicts cannot be eliminated, PPC intends to implement procedures designed to mitigate such conflicts.
Portfolio Investments in which Other PPC Funds Invest
Subject to compliance with the 1940 Act, it is expected that other clients of PPC
and its affiliates (“Other Accounts”) will co-invest with the Fund. Subject to any legal, tax, regulatory or other similar considerations, such
co-investments will generally be made in the same class of debt in which the Fund invests. From time to time, however, the Fund will
hold investments in a portfolio company in a different class of debt or at a different level of the capital structure than Other Accounts.
For example, these situations may occur when the Fund and Other Accounts acquired these investments in different transactions. When the
Fund does not hold exactly the same securities of an issuer in exactly the same proportions as Other Accounts, such as where the Other
Accounts hold different classes or tranches of debt, or securities at different levels of an issuer’s capital, conflicts may arise with regard to (i) the ongoing enforcement of the Fund’s rights and obligations in respect of its investment relative to Other Accounts, (ii) the terms and degree of the Fund’s and Other Accounts’ participation in any follow-on investments and (iii) the resolution of any recapitalization,
workout, restructuring or bankruptcy. These conflicting interests become more acute as a portfolio company’s financial situation deteriorates. For example, if additional financing is necessary as a result of financial or other difficulties, it may not be in the best
interests of the Fund to provide such additional financing.
Conflicts Resulting From Investments in Different Classes of Debt
Subject to the requirements of the 1940 Act and the Fund’s co-investment order, the Fund could hold investments in a portfolio company in a different class of debt than Other Accounts, or in the same classes of
debt but in different proportions than Other Accounts. For example, due to acquisitions at different points in time or dispositions
that the Fund does not participate in, the Fund may hold term loans and revolving loans but Other Accounts hold term loans only, or the
Other Accounts may hold both a term loan and a revolving loan but in different proportions than the Fund. Such conflict of interest
will result primarily from the fact that interests of the holders of one class or tranche of debt and the interests of holders of a different
class or tranche do not always align, and decisions that may benefit one interest holder in a certain class or tranche of debt may harm the
interests of another interest holder participating in a different class or tranche of debt of a portfolio company, and in a restructuring
or insolvency, one class or tranche may have more influence over the outcome of the negotiation or voting process. There can be no assurance
that conflicts will be resolved in favor of the Fund or that the Fund will not suffer adverse consequences, and there can be no assurance that the return on the Fund’s investment will be equivalent to or better than the returns obtained by the Other Accounts participating
in the transaction.
Conflicts Resulting From Investments in Different Levels of Capital Structure.
47
From time to time, as explained above the Fund and the Other Accounts may hold investments
at different levels of a portfolio company’s capital structure, subject to the limitations of the 1940 Act. For example, the Fund may hold senior debt of a portfolio company in which Other Accounts own the same portfolio company’s subordinated debt, equity or equity-like securities. Such investments present inherent conflicts of interest or perceived conflicts of interest
between the Fund and the Other Accounts. Such conflicts result from the fact that interests of the holders of subordinated debt
and/or equity securities, and the interests of the holders of senior debt, do not always align, and decisions that may benefit one interest holder in a certain part of a portfolio company’s capital structure may harm the interests of another interest holder participating in a different part of such portfolio company’s capital structure. For example, if an investor holds an equity interest in a portfolio company that is
financially distressed, it may be to the benefit of such investor to favor business decisions by the portfolio company with a higher risk-reward
profile in order to provide a return on such equity investment. Conversely, the portfolio company’s debtholders may favor more conservative business decisions because debtholders have priority over equity holders in bankruptcy. These conflicting interests become more acute as a portfolio company’s financial situation deteriorates. To the extent the Fund holds securities or loans that are different
(including with respect to their relative seniority) than those held by Other Accounts, PPC and its affiliates may be presented with decisions
when the interests of their clients are in conflict. Any applicable co-investment order issued by the SEC may restrict the Fund’s ability to participate in follow-on financings. PPC may in its discretion take steps to reduce the potential for adversity between the Fund and
the Other Accounts, including causing the Fund and/or such Other Accounts to take certain actions that, in the absence of such conflict,
it would not take, such as selling an investment to a third party on the secondary market.
While such conflicts cannot be eliminated, PPC has procedures designed to ensure that
the PPC team making investment decisions for the senior debt investment makes determinations independent from that of the team
making investment decisions for the junior capital investment.
Relationship with Prudential
Prudential and its affiliates also engage in a broad spectrum of activities, including
investment advisory activities, and have extensive investment activities that are independent from, and may from time to time conflict
with, those of the Fund. Prudential and its affiliates may invest in, advise, sponsor and/or act as investment manager to investment vehicles
and other entities that may have investment objectives similar to those of the Fund and that may compete with the Fund for investment
opportunities. For example, Prudential and its affiliates and their respective clients and accounts may themselves invest in
debt obligations that would be appropriate for the Fund and may compete with the Fund for investment opportunities. The foregoing potential
conflicts of interest are mitigated to a certain extent by the fact that the Fund generally will benefit from access to direct lending
deal flow originated by PPC that fits within the investment objectives and strategies of the Fund, subject to compliance with the 1940
Act and applicable law.
Additionally, affiliates of PPC and investors in other PPC funds or accounts sometimes
invest in the same debt obligations in which the Fund is investing. For example, PPC may find investment opportunities that it believes
are too large and thus risky for the Fund (together with other managed funds and accounts in PPC’s direct lending strategy) to consummate alone. In those situations, the Fund may simultaneously invest in the same debt obligations being purchased outside of the
Fund by other PPC affiliates or investors in other PPC funds or accounts so that the Fund’s investments are not overly concentrated in any single investment, subject to the requirements of the 1940 Act. While PPC believes that having the ability to structure transactions
in this manner benefits the Fund by allowing the Fund to close transactions that it may not otherwise prudently have the ability or scale
to execute, the situation creates inherent conflicts of interest. For example, the Fund may feel pressured to make a decision to sell an investment
earlier or maintain an investment longer than it would if the related interests or parties were not invested in the same securities.
Legal, regulatory and contractual restrictions, including but not limited to the 1940
Act, may limit how much, if any, of a particular security PPC may purchase or sell on behalf of the Fund, and the timing of the purchase
or sale of a security. Such restrictions may arise as a result of PPC’s relationship with Prudential and its other affiliates.
Certain affiliates of PPC may develop and may publish research that is independent
from the research developed within PPC. PPC may hold different opinions on the investment merits of a given security, issuer or industry
such that PPC may be purchasing or holding a security for a client (such as the Fund) and an affiliated entity may be selling or
recommending a sale of the same security or other securities of the same issuer. Conversely, PPC may be selling a security for the Fund
and an affiliated entity may be purchasing or recommending a buy of the same security or other securities of the same issuer. In addition, PPC’s affiliated broker-dealers or investment advisers may be executing transactions in the market in the same securities
as the Fund at the same time. PPC may cause transactions to be executed for the Fund concurrently with authorizations to purchase
or sell the same assets for other accounts managed by PPC or its affiliates, including proprietary accounts or accounts of affiliates.
In these instances, the executions of purchases or sales, where possible, are allocated equitably among the various accounts (including
the Fund). PPC sometimes buys, sells, directs or recommends that a client buys or sells, securities of the same kind or class that
are purchased or sold for a client of an affiliate of PPC, which securities could have different underlying credit assessments and ESG assessments
due to differences in investment committees,
48
and processes and/or different deal teams for the different clients. The foregoing
differences may also result in differing decisions on valuation and portfolio management for the same securities held by different clients.
For example, PPC might, at any time, execute trades of securities of the same kind or class in one direction for a client and an
affiliate of PPC might trade in the opposite direction or not trade for any other account due to such differences or client direction.
PPC has an internal arrangement outlining the respective areas of investment focus
of its business and the business of an asset management affiliate. This arrangement aims to streamline sourcing and provide clarity
by specifying the types of investments that each affiliate may pursue in areas of potential overlap (for instance, certain segments
of the private credit market). As a result of this arrangement, there will be certain potentially beneficial investment opportunities
that PPC will decline to pursue for its clients.
Inside Information
From time to time, Prudential and its affiliates may come into possession of inside
information concerning specific companies although internal structures are in place to prevent exchanges of such information. Under applicable securities laws this may limit the Fund’s flexibility to buy or sell securities issued by such companies. The Fund’s investment flexibility may be constrained as a consequence of PPC’s inability to use such information for investment purposes.
Co-Investments; Consortiums
Subject to compliance with the 1940 Act, it is expected that affiliated advisers will
co-invest with the Fund through managed accounts or investment vehicles, and there may be other clients of PPC and its affiliates who
also co-invest with the Fund. Subject to any legal, tax, regulatory, investment restrictions or other considerations, such co-investments will
generally be made and disposed of on substantially the same terms and conditions as those on which the Fund invests and divests. Subject
to compliance with the 1940 Act (including the conditions of any co-investment exemptive order that the Fund obtains in the future),
PPC may in certain circumstances determine that it may not be advisable to dispose of investments purchased in co-investments in “lock step,” given that the Fund and other clients of affiliated advisers may have differing investment objectives, liquidity requirements
and regulatory constraints. To the extent that any dispositions are not made in lock step, they will be made under principles designed
to avoid potential or actual conflicts of interest. Employees of PPC may from time to time invest in a private fund that invests alongside
the Fund in certain investment opportunities, as permitted by the 1940 Act.
Co-investment transactions potentially raise conflicts of interest. For example, the
Fund may co-invest with market participants with which an affiliated adviser has important business relationships, and such relationships
could influence the decisions made by PPC with respect to the purchase or sale of such investments, subject to compliance with the
1940 Act. Further, such third parties could have interests that may be contrary to the Fund’s investment objective or which may conflict with the Fund’s interest. There can be no assurance that the foregoing will not have an adverse impact on the Fund’s ability to find, consummate and/or exit investments.
From time to time, investors, funds and/or investment vehicles managed or advised
by PPC, its affiliates or third parties may be presented with opportunities to co-invest in investments alongside the Fund, subject
to compliance with the 1940 Act. PPC and/or its affiliates may offer such co-investment opportunities on the basis of various factors
including:
■
the size of the potential investment;
■
its clients’ concentration in the relevant geographic or market sector;
■
its clients’ stated desire to participate in co-investments;
■
an investor's ability to execute such offer and the approval of transaction counterparties;
■
the overall risk profile of the investment portfolio of the applicable clients;
■
the anticipated type and timing of exit from the investment;
■
the then-current amount of undrawn commitments of its applicable clients, if applicable;
■
the form of acquisition of the potential investment;
■
its clients’ desire not to invest additional amounts in the investment, whether due to its ownership of competitive assets, its desire to diversify its portfolio by making investments in other potential investments with
its limited capital pool, or for any other reason; and
■
whether the investment is likely to require additional capital in the future with
more favorable rights, priorities, preferences and privileges (as compared to the rights, priorities, preferences and privileges associated
with the initial capital investment), which its clients desire to acquire.
Further and subject to compliance with the 1940 Act, PPC may determine the allocations
of co-investment opportunities on the basis of various factors including:
■
potential strategic benefits to the Fund, the investment or any of its equity holders,
including (without limitation) the ability of a co-investor to provide strategic insight and/or consulting and/or industry contacts,
potential new clients, customers and/or suppliers, developers, potential new employees, and/or additional capital in respect of the investment;
■
potential to generate goodwill between a co-investor and PPC;
49
■
potential strategic benefits to the Fund or other PPC clients, including (without
limitation):
■
the ability of a co-investor to source future transactions for the Fund;
■
the ability of a co-investor to provide consulting services to the investment vehicles
or the Fund or other PPC clients;
■
the ability of a co-investor to identify additional sources of capital for the investment;
■
the ability of a co-investor to assist the Fund in developing and executing an exit
strategy or acquisition strategy;
■
the speed and ease with which a co-investor is able to participate in the co-investment
opportunity;
■
the scope and timing of due diligence to be performed by a co-investor with respect
to the investment;
■
the expertise of a co-investor in the industry, market or business of the investment;
■
the expertise of a co-investor in the type or structure of the co-investment opportunity;
■
the ability of a co-investor to invest in the investment without additional structuring
(whether from a tax or regulatory standpoint or otherwise); and
■
whether the co-investor assisted the Fund in sourcing or developing the investment.
Investing in the Fund does not entitle any shareholder to allocations of co-investment
opportunities. Any co-investment opportunities offered to clients of PPC and its affiliates may, and typically will, be offered to
some, and not other clients or investors in PPC products, or to third parties who are not clients or investors in PPC products. Further, the
Fund may make an investment with the intention of syndicating (where permissible) a portion of such investment to third party co-investors.
In the event that the Fund is unable to syndicate the full amount that it intended to syndicate, the Fund may be less diversified than
PPC intended.
In addition, once such third party co-investments are made, the Fund’s interests and those of co-investing investors may subsequently diverge as market conditions shift or other opportunities become available. The Fund
may not be in a position to unilaterally control such investments or exercise certain rights associated with such investments. In addition,
if a co-investing party removes its general partner or manager or terminates, the ability of the Fund to exercise certain rights associated
with its investments may require the cooperation of a successor general partner/manager or other persons. Furthermore, if the Fund and third
party co-investors have the ability to dispose of their interests in the co-investment separately, a disposition of a large position
by one party may depress the market value of the continuing investment of the remaining co-investor (possibly including the Fund),
or may reduce the price available to other co-investors (possibly including the Fund) which may also be disposing of their respective investments.
The Fund may also co-invest with third parties through consortiums of private equity
investors, partnerships, joint ventures or other similar arrangements, including clubbed or syndicated investments or where a third
party is leading the investment. Such investments may involve risks in connection with such third party involvement, including the possibility
that a third party co-lender may have financial, legal or regulatory difficulties, resulting in a negative impact on such
investment; may have economic or business interests or goals that are inconsistent with those of the Fund; or may be in a position to take (or block) action in a manner contrary to the Fund’s investment objective. In addition, the Fund may in certain circumstances be liable
for the actions of its third party co-lenders. Investments made with third parties through consortiums of private equity investors,
partnerships, joint ventures or other similar arrangements may involve carried interest and/or other fees payable to such third
party partners or co-venturers. In those circumstances where such third parties involve a management group, such third parties may receive
compensation arrangements relating to such investments, including incentive compensation arrangements. Such compensation arrangements
may reduce the return to an investor in the Fund.
In allocating an investment opportunity among the Fund and its other clients, PPC
will be guided by its good faith discretion and shall allocate such investment opportunity in a manner that is consistent with an allocation
methodology of PPC designed to ensure that allocations of such opportunities are made over time on a fair and equitable basis.
In determining such allocations, PPC will take into account such factors as it deems appropriate, including, leverage and anticipated
leverage for such funds or managed accounts, legal, tax, regulatory, investment restrictions or other considerations, including compliance
with the 1940 Act, and subject in each case to Fund’s investment guidelines and operational limitations on its ability to comply with funding requirements, as well as other relevant factors. These limitations may lead the Fund to have greater exposure to certain types of investments within a portfolio company’s capital structure than otherwise would be the case. For example, the Fund may own a lower percentage of a portfolio company’s revolving credit facility than the Fund owns of the same portfolio company’s senior secured term loan. PPC shall have broad discretion in determining whether any available investment, including without limitation a revolving credit
facility, is appropriate for allocation to the Fund.
Fees and expenses incurred in respect of any investment (and any transaction or other
fee income earned in respect of any investment) will be allocated among the Fund and any co-investors on the basis of capital committed
by each to the relevant investment and subject to the requirements of the 1940 Act (including any applicable exemptive relief).
50
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board, PGIM Investments is primarily responsible for the execution of the Fund’s portfolio transactions and the allocation of brokerage. The Fund has no obligation to deal with
any dealer or group of dealers in the execution of transactions in portfolio securities of the Fund. When possible, the Fund deals directly
with the dealers who make a market in the securities involved except in those circumstances where better prices and execution
are available elsewhere. It is the policy of the Fund to obtain what are believed to be the best results in conducting portfolio transactions,
taking into account such factors as price (including the applicable dealer spread or commission), the size, type and difficulty of the transaction involved, the firm’s general execution and operations facilities and the firm’s risk in positioning the securities involved. The cost of portfolio securities transactions of the Fund primarily consists of dealer or underwriter spreads and brokerage commissions.
While reasonable competitive spreads or commissions are sought, the Fund will not necessarily be paying the lowest spread or commission available. Many of the Fund’s investments in real estate will not be investments in securities.
Subject to obtaining the best net results, dealers who provide supplemental investment
research (such as quantitative and modeling information assessments and statistical data and other similar services) to PGIM Investments
and/or the Subadvisers may receive orders for transactions by the Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by PGIM Investments and/or the Subadvisers and the expenses of PGIM Investments and/or
the Subadvisers will not necessarily be reduced as a result of the receipt of such supplemental information. Supplemental
investment research obtained from such dealers might be used by PGIM Investments and/or the Subadvisers in servicing all of its accounts
and such research might not be used by PGIM Investments and/or the Subadvisers in connection with the Fund.
Under the Investment Company Act, any affiliated person or promoter of or principal
underwriter for the Fund and persons who are affiliated with such persons are prohibited from dealing with the Fund as principal
in the purchase and sale of securities unless an exemptive order allowing such transactions is obtained from the SEC. Because transactions
in the OTC market usually involve transactions with dealers acting as principal for their own accounts, affiliated persons of the Fund will not serve as the Fund’s dealer in such transactions and the underwriters will not serve as the Fund’s dealer in such transactions until permitted by applicable law. However, affiliated persons of the Fund may serve as its broker in listed or OTC transactions
conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker
is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable transactions.
In addition, the Fund may not purchase securities during the existence of any underwriting syndicate for such securities
of which an affiliate is a member or in a private placement in which an affiliate serves as placement agent except pursuant to procedures
adopted by the Board that either comply with rules adopted by the SEC or with interpretations of the SEC staff.
Section 11(a) of the Exchange Act generally prohibits members of the U.S. national
securities exchanges from executing exchange transactions for their affiliates and institutional accounts that they manage unless
the member (i) has obtained prior express authorization from the account to effect such transactions; (ii) at least annually
furnishes the account with a statement setting out the aggregate compensation received by the member in effecting such transactions; and
(iii) complies with any rules the SEC has prescribed with respect to the requirements of clauses (i) and (ii).
Securities may be held by, or be appropriate investments for, the Fund as well as
other funds or investment advisory clients of PGIM Investments and/or the Subadvisers or their affiliates. Because of different investment
objective or other factors, a particular security may be bought for one or more clients of PGIM Investments and/or the Subadvisers or their
affiliates when one or more clients of PGIM Investments and/or the Subadvisers or their affiliates are selling the same security.
If purchases or sales of securities arise for consideration at or about the same time that would involve the Fund or other clients
or funds for which PGIM Investments and/or the Subadvisers or their affiliates act as investment advisers, transactions in such securities
will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent that
transactions on behalf of more than one client of PGIM or their affiliates during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an adverse effect on price.
51
CODE OF ETHICS
The Board, including a majority of the Independent Trustees, has adopted the code
of ethics of the Fund pursuant to Rule 17j-1 under the Investment Company Act, and has also approved the Manager’s, Subadvisers' and Prudential Investment Management Services LLC’s codes of ethics, which were adopted by each of them in accordance with Rule 17j-1 under the Investment Company Act and, in the case of the Manager and the Subadvisers, Rule 204A-1 under the Investment Advisers
Act of 1940, as amended. These codes of ethics establish procedures for personal investments and restrict certain personal
securities transactions. Personnel subject to a code may invest in securities for their personal investment accounts, including securities
that may be purchased or held by the Fund, so long as such investments are made in accordance with the code’s requirements.
The codes of ethics are available on the Edgar Database on the SEC’s website, http://www.sec.gov. You may also obtain copies of each code of ethics, after paying a duplicating fee, by electronic request at the following
e-mail address: [email protected].
PROXY VOTING POLICIES
The Board has delegated to the Manager the responsibility for voting any proxies and
maintaining proxy recordkeeping with respect to the Fund. The Manager is authorized by the Fund to delegate, in whole or in part,
its 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 Fund. 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 Fund should a proxy issue potentially implicate a conflict of interest between the Fund and the Manager or its
affiliates.
The Manager delegates to PGIM the responsibility for voting proxies. PGIM is expected
to identify and seek to obtain the optimal benefit for the Fund, and to adopt written policies that meet certain minimum standards, including
that the policies be reasonably designed to protect the best interests of the Fund and delineate procedures to be followed when
a proxy vote presents a conflict between the interests of the Fund and the interests of PGIM or its affiliates. The Manager and
the Board expect that PGIM 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 PGIM will deliver to the Manager, or its appointed
vendor, information required for filing the Form N-PX with the SEC. Information regarding how the Fund voted proxies relating to its
portfolio securities during the most recent twelve-month period ending June 30 will be available without charge on the Fund’s website at www.pgim.com and on the SEC’s website at www.sec.gov.
A summary of the proxy voting policies of the Subadvisers is attached as Appendix
A.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
A control person includes a person who beneficially owns more than 25% of the voting
securities of a company. As of March 31, 2026, the Fund could be deemed to be under control of Prudential, through its affiliated
entities, which has voting authority with respect to 95.21% of the outstanding interests in the Fund. A control person's vote could have
a more significant effect on matters presented to shareholders for approval than the vote of other Fund shareholders.
A principal shareholder is any person who owns of record or beneficially 5% or more
of any class of outstanding shares of the Fund. The table below sets forth the name, address, and percentage of ownership of each person
or entity who to the knowledge of the Fund owned, of record or beneficially, 5% or more of any class of the Fund’s outstanding equity securities as of March 31, 2026:
Class Z Shares
|
Name and Address
|
% Ownership
|
Type of Ownership(1)
|
|
Pruco Life Insurance Company
PLAZ Seed Account PI
Attn: Public Investment Opps
655 Broad Street
Newark, NJ 07102-4419
|
95.2147%
|
Both
|
52
Class A Shares
|
Name and Address
|
% Ownership
|
Type of Ownership(1)
|
|
PGIM Strategic Investments Inc.
Attn: Kristen Pederson
Attn: Public Investment Ops
655 Broad Street, 19th Floor
Newark, NJ 07102-4419
|
100%
|
Both
|
Class C Shares
|
Name and Address
|
% Ownership
|
Type of Ownership(1)
|
|
PGIM Strategic Investments Inc.
Attn: Kristen Pederson
Attn: Public Investment Ops
655 Broad Street, 19th Floor
Newark, NJ 07102-4419
|
100%
|
Both
|
(1)
“Record” ownership means the shareholder of record, or the exact name of the shareholder on
the account, e.g., “ABC Brokerage, Inc.” “Beneficial” ownership refers to the actual pecuniary, or financial, interest in the security e.g., “Jane Doe Shareholder.”
As of March 31, 2026, the Trustees and officers of the Fund, as a group, owned less
than 1% of the outstanding shares of the Fund.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, an independent registered public accounting firm, provides
auditing services to the Fund and is located at 300 Madison Avenue New York, New York 10017.
CUSTODIAN
The Bank of New York (“BNY”), 240 Greenwich Street, New York, New York 10286, serves as custodian for the Fund’s portfolio securities and cash, and in that capacity, maintains certain financial accounting
books and records pursuant to an agreement with the Fund. Subcustodians provide custodial services for any non-U.S. assets held outside
the United States.
DIVIDEND PAYING AGENT
Prudential Mutual Fund Services LLC (“PMFS”) serves as the dividend paying agent of the Fund. The principal business address
of PMFS is 655 Broad Street, Newark, New Jersey 07102.
TRANSFER AGENT AND REGISTRAR
PMFS, 655 Broad Street, Newark, New Jersey 07102, serves as the transfer and dividend
disbursing agent of the Fund. PMFS is an affiliate of the Manager. PMFS provides customary transfer agency services to the
Fund, including the handling of shareholder communications, the processing of shareholder transactions, the maintenance of shareholder
account records, the payment of dividends and distributions, and related functions.
SS&C GIDS, Inc. (“SS&C”), 801 Pennsylvania Ave, Suite 219929, Kansas City, MO 64105-1307, serves as sub-transfer
agent to the Fund. PMFS has contracted with SS&C to provide certain administrative functions to
PMFS. PMFS will compensate SS&C for such services.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments thereto, relating to the
Common Shares offered hereby has been filed by the Fund with the SEC in Washington, D.C. The Fund’s Prospectus and the SAI do not contain all of the information set forth in the Registration Statement that the Fund has filed with the SEC. You may obtain the complete Registration Statement from the SEC’s website at http://www.sec.gov. To obtain annual and semi-annual shareholder reports electronically, please visit the Fund’s website at www.pgim.com, which will also provide a link to the SEC’s website, or call (844) 753-6354 (toll-free). You may also call this number to request additional information or to make other inquiries pertaining to the Fund.
53
Statements contained in the Fund’s Prospectus and SAI as to the contents of any material contract or other documents referred to are not necessarily complete, and, in each instance, reference is made to the copy of
such material contract or other document required by SEC rules to be filed as an exhibit to the Registration Statement of which this SAI
forms a part, each such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The Fund’s financial statements as of and for the year ended December 31, 2025, which are incorporated by reference into this SAI from the Fund’s annual report on Form N-CSR for the year ended December 31, 2025 (the “Annual Report”) (File No. 811-23894), as filed with the SEC on March 9, 2026, have been audited by PricewaterhouseCoopers LLP,
an independent registered public accounting firm, as stated in their report which expresses an unqualified opinion on the financial
statements.
No other parts of the Annual Report are incorporated by reference herein. A copy of
the Annual Report may be obtained upon request and without charge by calling (844) 753-6354 or by writing to the Fund at 655 Broad
Street, Newark, NJ 07102.
54
APPENDIX A: PROXY VOTING POLICIES OF THE SUBADVISERS
PGIM, INC. (“PGIM”) AND PGIM LIMITED (“PGIM LIMITED”)
The policy of each of PGIM’s and PGIM Limited’s investment groups 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, PGIM Limited or their respective investment groups.
Because the various investment groups manage distinct classes of assets with differing
management styles, some investment groups will consider each proxy on its individual merits while other investment groups may adopt
a pre-determined set of voting guidelines. The specific voting approach of each investment sub-group 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 investment group.
VOTING APPROACH OF PGIM FIXED INCOME
PGIM Fixed Income is an investment sub-group 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 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.
VOTING APPROACH OF PPC
PPC is an investment sub-group of PGIM. PPC’s policies and procedures are reasonably designed to ensure that PPC votes proxies in the best interest of the Fund and addresses how it will resolve any conflict of interest
that may arise when voting proxies and, in so doing, to maximize the value of the investments made by the Fund, taking into consideration the Fund’s investment horizons and other relevant factors. It will review on a case-by-case basis each proposal submitted for
a shareholder vote to determine its impact on the portfolio securities held by its clients. Although PPC will generally vote against proposals that may have a negative impact on its clients’ portfolio securities, it may vote for such a proposal if there exists compelling long-term
reasons to do so.
Decisions on how to vote a proxy generally are made by PPC. In determining whether
and how to vote, PPC considers a number of items including detailed knowledge of the issuer’s financial condition, long- and short-term economic outlook for the issuer, the issuer’s capital structure and debt-service obligations, the issuer’s management team and capabilities, as well as other relevant factors. In addition, PPC may determine not to vote a proxy after consideration of the vote’s expected benefit to clients and the cost of voting the proxy.
The Fund’s interests are placed ahead of any potential interest of PGIM or its investment groups.
A-1
PART C
OTHER INFORMATION
Item 25: Financial Statements and Exhibits.
Part A: None
|
Exhibits
|
|
|
(a)(1)
|
|
|
(a)(2)
|
|
|
(b)(1)
|
|
|
(c)
|
Not Applicable
|
|
(d)
|
Not Applicable
|
|
(e)
|
|
|
(f)
|
Not Applicable
|
|
(g)(1)
|
|
|
(g)(2)
|
|
|
(h)(1)
|
|
|
(h)(2)
|
|
|
(h)(3)
|
|
|
(i)
|
Not Applicable
|
|
(j)(1)(a)
|
|
|
(j)(1)(b)
|
C-1
|
Exhibits
|
|
|
(k)(1)(a)
|
|
|
(k)(1)(b)
|
|
|
(k)(2)(a)
|
|
|
(k)(2)(b)
|
|
|
(k)(3)
|
|
|
(k)(4)
|
|
|
(l)
|
|
|
(m)
|
Not Applicable
|
|
(n)
|
|
|
(o)
|
Not Applicable
|
|
(p)
|
Not Applicable
|
|
(q)
|
Not Applicable
|
|
(r)(1)
|
|
|
(r)(2)
|
|
|
(r)(3)
|
|
|
(s)
|
Not Applicable
|
|
(t)
|
Item 26: Marketing Arrangements.
The information contained under the heading “Plan of Distribution” in the prospectus is incorporated herein by reference.
C-2
Item 27: Other Expenses of Issuance and Distribution.
Not applicable.
Item 28: Persons Controlled by or Under Common Control with Registrant.
None.
Item 29: Number of Holders of Securities.
The following table shows the number of holders of securities of the Registrant as
of March 31, 2026.
|
Title of Class
|
Number of Record Holders
|
|
Class Z Shares
|
24
|
|
Class A Shares
|
1
|
|
Class C Shares
|
1
|
Item 30: Indemnification
The information contained under the heading “Certain Provisions in the Declaration of Trust,” “Management and Advisory Arrangements” and “Plan of Distribution” in this Registration Statement is incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities Act may be
permitted to Trustees, officers and controlling persons of the Registrant pursuant to the provisions described above,
or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the payment by the Registrant
of expenses incurred or paid by a Trustee, officer or controlling person in the successful defense of an action suit
or proceeding) is asserted by a Trustee, officer or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such indemnification by it is again public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Prior to offering its shares to the public, the Registrant expects to obtain liability
insurance for the benefit of its Trustees and officers (other than with respect to claims resulting from the willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her
office) on a claims-made basis.
Item 31: Business and Other Connections of Manager and Subadvisers.
PGIM Investments LLC serves as the investment manager to the Registrant. PGIM, Inc.
and PGIM Limited serve as the investment subadvisers to the Fund. PGIM Investments LLC, PGIM, Inc. and PGIM
Limited are each engaged in the investment management business. For information as to the business, profession,
vocation or employment of a substantial nature in which PGIM Investments LLC, PGIM, Inc., PGIM Limited and each
of their executive officers and directors is or has been, during the last two fiscal years, engaged for his or
her own account or in the capacity of director, officer, employee, partner or trustee, reference is made to the information
set forth in PGIM Investments LLC’s Form ADV (SEC File No. 801-31104), PGIM, Inc.’s Form ADV (SEC File No. 801-22808) and PGIM Limited’s Form ADV (SEC File No. 801-73882), each as filed with the Securities and Exchange
Commission and incorporated herein by reference.
C-3
Item 32: Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940, and the rules thereunder are maintained at the offices of:
■
the Registrant, PGIM Credit Income Fund, 655 Broad Street, Newark, NJ 07102;
■
the Transfer Agent, Prudential Mutual Fund Services LLC, 655 Broad Street, Newark,
New Jersey 07102;
■
the Custodian, The Bank of New York, 240 Greenwich Street, New York, New York 10286;
■
the Manager, PGIM Investments LLC, 655 Broad Street, Newark, NJ 07102;
■
the Subadviser, PGIM Inc., 655 Broad Street, Newark, NJ 07102; and
■
the Subadviser, PGIM Limited, Grand Buildings, 1-3 Strand, Trafalgar Square, London
WC2N 5HR.
Item 33: Management Services.
Not applicable.
Item 34: Undertakings.
(1)
Not applicable.
(2)
Not applicable.
(3)
The Registrant undertakes:
a. To file, during any period in which offers or sales are being made, a post-effective
amendment to the registration statement:
i. to include any prospectus required by Section 10(a)(3) of the Securities Act;
ii. to reflect in the prospectus any facts or events after the effective date of the
registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
iii. to include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material change to such information in the registration statement;
b. that, for the purpose of determining any liability under the Securities Act, each
such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered
therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof;
c. to remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering;
d. that, for the purpose of determining liability under the Securities Act to any
purchaser:
i. Not applicable;
ii. if the Registrant is subject to Rule 430C [17 CFR 230.430C]: each prospectus filed
pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other
than registration statements relying on Rule 430B or prospectuses filed in reliance on Rule 430A under the Securities Act, shall be deemed
to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by
C-4
reference into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the registration statement or made in any such document
immediately prior to such date of first use; and
e. that for the purpose of determining liability of the Registrant under the Securities
Act to any purchaser in the initial distribution of securities, the undersigned Registrant undertakes that in a primary
offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser
by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser
and will be considered to offer or sell such securities to the purchaser:
i. any preliminary prospectus or prospectus of the undersigned Registrant relating
to the offering required to be filed pursuant to Rule 424 under the Securities Act;
ii. free writing prospectus relating to the offering prepared by or on behalf of the
undersigned Registrant or used or referred to by the undersigned Registrants;
iii. the portion of any advertisement pursuant to Rule 482 under the Securities Act
[17 CFR 230.482] relating to the offering containing material information about the undersigned Registrant or its securities
provided by or on behalf of the undersigned Registrant; and
iv. any other communication that is an offer in the offering made by the undersigned
Registrant to the purchaser.
(4)
Not applicable.
(5)
Not applicable.
(6)
Insofar as indemnification for liabilities arising under the Securities Act of 1933
(the “Act”) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(7)
The Registrant undertakes to send by first class mail or other means designed to ensure
equally prompt delivery, within two business days of receipt of a written or oral request, any prospectus
or Statement of Additional Information.
C-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the “Securities Act”), and the Investment Company Act of 1940, as amended, the Registrant certifies that this Registration Statement on
Form N-2 meets all of the requirements for effectiveness under Rule 486(b) under the Securities Act and has
duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Newark, State of New Jersey, on the 27th of April, 2026.
PGIM CREDIT INCOME FUND
By: /s/ Stuart S. Parker*
Name: Stuart S. Parker
Title: President and Principal Executive Officer
Name: Stuart S. Parker
Title: President and Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
By: /s/ Morris L. McNair, III*
Morris L. McNair, III
|
Trustee
|
April 27, 2026
|
|
By: /s/ Mary Lee Schneider*
Mary Lee Schneider
|
Trustee
|
April 27, 2026
|
|
By: /s/ Thomas M. Turpin*
Thomas M. Turpin
|
Trustee and Chairperson
|
April 27, 2026
|
|
By: /s/ Scott Benjamin*
Scott Benjamin
|
Trustee and Vice President
|
April 27, 2026
|
|
By: /s/ Stuart S. Parker*
Stuart S. Parker
|
President and Principal Executive Officer
|
April 27, 2026
|
|
By: /s/ Christian J. Kelly*
Christian J. Kelly
|
Principal Financial Officer
|
April 27, 2026
|
|
By: /s/ Russ Shupak*
Russ Shupak
|
Treasurer and Principal Accounting Officer
|
April 27, 2026
|
|
*By: /s/ George Hoyt
George Hoyt
|
Agent or Attorney-in-Fact
|
April 27, 2026
|
The original powers of attorney authorizing Andrew French, Claudia DiGiacomo, Melissa
Gonzalez, Patrick McGuinness, Debra Rubano, George Hoyt and Devan Goolsby to execute the Registration
Statement, and any amendments thereto, for the directors and officers of the Registrant on whose behalf
this Registration Statement is filed, have been executed and are incorporated by reference herein as Item 25, Exhibit
(t).
C-6
PGIM Credit Income Fund
Exhibit Index
|
|
|
|
(j)(1)(b)
|
|
|
(k)(1)(a)
|
|
|
(k)(1)(b)
|
|
|
(k)(2)(b)
|
|
|
(k)(3)
|
|
|
(k)(4)
|
|
|
(n)
|
|
|
(r)(2)
|
|
|
(t)
|
EX-101. SCH XBRL Taxonomy Extension Schema Document
EX-101. DEF XBRL Taxonomy Extension Definition Linkbase
EX-101. LAB XBRL Taxonomy Extension Label Linkbase
EX-101.PRE XBRL Taxonomy Extension Presentation Linkbase
C-7
ATTACHMENTS / EXHIBITS
(J)(1)(B) AMENDMENT TO CUSTODY AGREEMENT
(K)(1)(A) TRANSFER AGENCY AND SERVICE AGREEMENT
(K)(1)(B) AMENDMENT NO. 1 TO TRANSFER AGENCY AND SERVICE AGREEMENT
(K)(2)(B) AMENDMENT TO FUND ADMINISTRATION AND ACCOUNTING AGREEMENT
(K)(3) EXPENSE LIMITATION AND REIMBURSEMENT AGREEMENT
(K)(4) AMENDED AND RESTATED MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
(N) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- TESCO Metering Launches Universal SIM Card for AMI Networks and Expands the TESCO AMI Adaptiv™ Ecosystem
- St. Johns County Concludes Fiscal Year 2027 Public Budget Workshops
- Fed to Release 2026 Bank Stress Test Results on June 24
Create E-mail Alert Related Categories
SEC FilingsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
