<PAGE>
PRUDENTIAL EMERGING GROWTH FUND, INC.
PROSPECTUS DATED DECEMBER 30, 1997
(REVISED AS OF OCTOBER 14, 1998)
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Prudential Emerging Growth Fund, Inc. (the Fund) is a diversified, open-end,
management investment company with an investment objective of long-term capital
appreciation. The Fund seeks to achieve its objective by investing primarily in
equity securities of small and medium sized U.S. companies with the potential
for above-average growth. These companies will generally have a market
capitalization ranging from $500 million to $4.5 billion. The Fund may also
invest in (i) equity securities of other companies, including foreign issuers,
(ii) investment grade debt securities, including foreign issuers, and (iii)
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. The Fund may engage in various derivative securities
transactions, such as options on equity securities, stock indices and foreign
currencies, foreign currency exchange contracts and futures contracts on stock
indices and options thereon to hedge its portfolio and to attempt to enhance
return. There can be no assurance that the Fund's investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102, and its telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission (the
Commission) in a Statement of Additional Information, dated December 30, 1997,
which information is incorporated herein by reference (is legally considered a
part of this Prospectus) and is available without charge upon request to the
Fund at the address or telephone number noted above. The Commission maintains a
website (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information regarding
the Fund.
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INVESTORS ARE ADVISED TO READ THE PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
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AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS THE PRUDENTIAL EMERGING GROWTH FUND, INC.?
Prudential Emerging Growth Fund, Inc. is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is an open-end,
diversified, management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term capital appreciation. It
seeks to achieve its objective by investing primarily in equity securities
of small and medium sized U.S. companies, with the potential for
above-average growth. See "How the Fund Invests--Investment Objective and
Policies" at page 6.
WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
The small and medium sized companies in which the Fund invests may be
subject to significant price fluctuation and above-average risk. As with an
investment in any mutual fund, an investment in this Fund can decrease in
value and you can lose money. In addition, these companies are likely to
reinvest their earnings rather than distribute them; as a result, the Fund
is not likely to receive significant dividend income on its portfolio
securities. An investment in the Fund should not be considered a complete
investment program and may not be appropriate for all investors.
Under normal market conditions, the Fund intends to invest primarily in
equity securities of small and medium sized U.S. companies. These companies
will generally have a market capitalization ranging from $500 million to
$4.5 billion. See "How the Fund Invests--Investment Objective and Policies"
at page 6. In addition, the Fund may also invest in (i) equity securities of
other companies, including foreign issuers, (ii) investment grade debt
securities, including foreign issuers, and (iii) obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
Investing in securities of foreign companies and countries involves certain
risks and considerations not typically associated with investments in
domestic companies. See "How the Fund Invests--Risk Factors and Special
Considerations of Investing in Foreign Securities" at page 10. The Fund may
engage in various derivative securities transactions, such as options on
equity securities, stock indices and foreign currencies, foreign currency
exchange contracts and futures contracts on stock indices and options
thereon to hedge its portfolio and to attempt to enhance return. See "How
the Fund Invests--Hedging and Return Enhancement Strategies--Risks of
Hedging and Return Enhancement Strategies" at page 12. As with an investment
in any mutual fund, an investment in this Fund can decrease in value and you
can lose money.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM or the Manager), is the
manager of the Fund and is compensated for its services at an annual rate of
.60 of 1% of average daily net assets of the Fund. As of November 30, 1997,
PIFM served as manager or administrator to 63 investment companies,
including 41 mutual funds, with aggregate assets of approximately $60
billion. The Prudential Investment Corporation which does business under the
name of Prudential Investments (PI, the Subadviser or the investment
adviser), furnishes investment advisory services in connection with the
management of the Fund under a Subadvisory Agreement with PIFM. See "How the
Fund is Managed--Manager" at page 13.
2
<PAGE>
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Fund's Class A, Class B, Class C and Class Z shares.
The Distributor is paid a distribution and service fee with respect to Class
A, Class B, and Class C shares, which is currently being charged at the
annual rate of .25 of 1% of the average daily net assets of the Class A
shares and 1% of the average daily net assets of each of the Class B and
Class C shares. The Distributor incurs the expense of distributing the
Fund's Class Z shares under a Distribution Agreement with the Fund, none of
which is paid for or reimbursed by the Fund. See "How the Fund is
Managed--Distributor" at page 13.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 for Class A or Class B shares and
$5,000 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement
for certain employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Investment Plan, the
minimum initial and subsequent investment is $50. See "Shareholder
Guide--How to Buy Shares of the Fund" at page 19 and "Shareholder
Guide--Shareholder Services" at page 29.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through the Distributor or brokers or
dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC (the
Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor, plus a sales charge which may
be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at NAV without any sales charge. Dealers may
charge their customers a separate fee for handling purchase transactions.
See "How the Fund Values its Shares" at page 15 and "Shareholder Guide--How
to Buy Shares of the Fund" at page 19.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares:
- Class A Shares: Sold with an initial sales charge of up to 5% of
the offering price.
- Class B Shares: Sold without an initial sales charge, but subject
to a contingent deferred sales charge (CDSC),
declining to zero from 5% of the lower of the
amount invested or the redemption proceeds, which
will be imposed on certain redemptions made within
six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related
expenses than Class A shares, Class B shares will
automatically convert to Class A shares
approximately seven years after purchase.
- Class C Shares: Sold without an initial sales charge but, for one
year after purchase, are subject to a CDSC of 1% on
redemptions. Like Class B shares, Class C shares
are subject to higher ongoing distribution-related
expenses than Class A shares, but Class C shares do
not convert to another class.
- Class Z Shares: Sold without either an initial sales charge or CDSC
to a limited group of investors. Class Z shares are
not subject to any ongoing service or
distribution-related expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 20.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
your Dealer, the Distributor or the Transfer Agent receives your sell order.
The proceeds of redemptions of Class B and Class C shares may be subject to
a CDSC. Dealers may charge their customers a separate fee for handling sale
transactions. See "Shareholder Guide--How to Sell Your Shares" at page 24.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any,
annually and make distributions of any net capital gains at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that
they be paid to you in cash. See "Taxes, Dividends and Distributions" at
page 16.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- ------------------------------ --------------------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price).................... 5% None None None
Maximum Sales Load Imposed on
Reinvested Dividends............... None None None None
Maximum Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)................ None 5% during the first year, 1% on redemptions made None
decreasing by 1% annually to within one year of purchase
1% in the fifth and sixth
years and 0% in the seventh
year*
Redemption Fees..................... None None None None
Exchange Fees....................... None None None None
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- ------------------------------ --------------------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees..................... .60% .60% .60% .60%
12b-1 Fees (After Reduction)........ .25%++ 1.00% 1.00% None
Other Expenses...................... .61% .61% .61% .61%
--- --- --- ---
Total Fund Operating Expenses (After
Reduction)......................... 1.46% 2.21% 2.21% 1.21%
--- --- --- ---
--- --- --- ---
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
------ ------- ------- -------
<S> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period:
Class A............................. $64 $94 $126 $216
Class B............................. $72 $99 $128 $227
Class C............................. $32 $69 $118 $254
Class Z............................. $12 $38 $66 $147
You would pay the following expenses on
the same investment, assuming no
redemption:
Class A............................. $64 $94 $126 $216
Class B............................. $22 $69 $118 $227
Class C............................. $22 $69 $118 $254
Class Z............................. $12 $38 $66 $147
</TABLE>
The above example is based on data for the Fund's fiscal period ended
October 31, 1997. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The purpose of this table is to assist an investor in understanding the
various types of costs and expenses that an investor in the Fund will
bear, whether directly or indirectly. For more complete descriptions of
the various costs and expenses, see "How the Fund is Managed." "Other
Expenses" include estimated operating expenses of the Fund, for the fiscal
year ending October 31, 1998, such as Directors' and professional fees,
registration fees, reports to shareholders and transfer agency and
custodian (domestic and foreign) fees, but excludes foreign withholding
taxes.
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* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Dealers may independently charge additional fees for shareholder transactions
or advisory services. Pursuant to rules of the National Association of
Securities Dealers, Inc., the aggregate initial sales charges, deferred
sales charges and asset-based sales charges (12b-1 fees) on shares of the
Fund may not exceed 6.25% of total gross sales, subject to certain
exclusions. This 6.25% limitation is imposed on each class of the Fund
rather than on a per shareholder basis. Therefore, long-term Class B and
Class C shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay up to an annual rate of .30 of 1% per annum of the average daily
net assets of the Class A shares, the Distributor has agreed to limit its
distribution fees with respect to Class A shares of the Fund so as not to
exceed .25 of 1% of the average daily net assets of the Class A shares
for the fiscal year ending October 31, 1998. See "How the Fund is
Managed--Distributor." Total Fund Operating Expenses for Class A shares
would be 1.51% absent this limitation.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS A, CLASS B, CLASS C AND CLASS Z SHARES)
The following financial highlights for Class A, Class B, Class C and Class Z
shares have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. This information should be read in conjuction
with the financial statements and the notes thereto, which appear in the
Statement of Additional Information. The financial highlights contain selected
data for a Class A, Class B, Class C and Class Z share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the period indicated. The information has been determined based on data
contained in the financial statements. Further performance information is
contained in the annual report which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
----------- ----------- ----------- -----------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 31, 31, 31,
1996(A) TO 1996(a) TO 1996(a) TO 1996(a) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1997 1997 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ----------- -----------
Income from investment operations
Net investment loss......................................... (.08) (.14) (.14) (.03)
Net realized and unrealized gain on investment
transactions.............................................. 2.00 1.99 1.99 1.96
----------- ----------- ----------- -----------
Total from investment operations........................ 1.92 1.85 1.85 1.93
----------- ----------- ----------- -----------
Net asset value, end period................................. $ 11.92 $ 11.85 $ 11.85 $ 11.93
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN(B):............................................ 19.20% 18.50% 18.50% 19.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................. $ 33,124 $ 82,070 $ 6,477 $ 561
Average net assets (000).................................... $ 28,141 $ 67,420 $ 5,526 $ 261
Ratios to average net assets (c):
Expenses, including distribution fees................... 1.46% 2.21% 2.21% 1.21%
Expenses, excluding distribution fees................... 1.21% 1.21% 1.21% 1.21%
Net investment loss..................................... (.92)% (1.67)% (1.69)% (.73)%
Portfolio turnover rate..................................... 107% 107% 107% 107%
Average commission rate paid per share...................... $ .0521 $ .0521 $ .0521 $ .0521
</TABLE>
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(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
5
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM CAPITAL APPRECIATION. IT SEEKS TO
ACHIEVE ITS OBJECTIVE BY INVESTING PRIMARILY (THAT IS, AT LEAST 65% OF ITS TOTAL
ASSETS) IN EQUITY SECURITIES OF SMALL AND MEDIUM SIZED U.S. COMPANIES WITH THE
POTENTIAL FOR ABOVE-AVERAGE GROWTH. THERE CAN BE NO ASSURANCE THAT THE FUND'S
OBJECTIVE WILL BE ACHIEVED. SEE "INVESTMENT OBJECTIVE AND POLICIES" IN THE
STATEMENT OF ADDITIONAL INFORMATION. AS WITH AN INVESTMENT IN ANY MUTUAL FUND,
AN INVESTMENT IN THIS FUND CAN DECREASE IN VALUE AND YOU CAN LOSE MONEY.
Under normal market conditions, the Fund intends to invest primarily in equity
securities of small and medium sized U.S. companies, with the potential for
above-average growth. These companies will generally have a market
capitalization ranging from $500 million to $4.5 billion. (If a portfolio
security increases to greater than $4.5 billion in market capitalization,
however, the Fund will not necessarily sell the security.) Equity securities
include common stocks, preferred stocks, securities convertible into or
exchangeable for common or preferred stocks, equity investments in partnerships,
joint ventures and other forms of non-corporate investment, American Depositary
Receipts, warrants and rights exercisable for equity securities. The Subadviser
will select stocks on a company-by-company basis generally through the use of
both fundamental and quantitative analyses. The Subadviser looks for companies
that have demonstrated growth in earnings and sales, have historically had high
returns on equity and assets, offer products or services that generate recurring
revenues, or have other strong financial characteristics, and that, in the
judgment of the Subadviser, are attractively valued. These companies tend to
have a unique market niche, a strong new product profile or superior management.
The Fund may also invest up to 35% of its total assets in (i) equity
securities of other companies, including foreign issuers, (ii) investment grade
debt securities, including those of foreign issuers and (iii) obligations issued
or guaranteed by the U.S. Government, its agencies and instrumentalities.
Investing in securities of foreign issuers and countries involves certain risks
and considerations not typically associated with investments in domestic
companies.
Securities of small and medium sized companies have historically been more
volatile than those in the S&P 500 Index. Accordingly, during periods when stock
prices decline generally, it can be expected that the value of the Fund will
decline more than the market indices. In addition, these companies are likely to
reinvest their earnings rather than distribute them; as a result, the Fund is
not likely to receive significant dividend income on its portfolio securities.
The Fund may purchase and sell put and call options on equity securities,
stock indices and foreign currencies, purchase and sell futures contracts on
stock indices, foreign currency exchange contracts and options to hedge its
portfolio and to attempt to enhance return. The Fund may also lend its portfolio
securities, enter into repurchase agreements and purchase securities on a
when-issued and delayed-delivery basis.
The Fund reserves the right as a defensive measure to hold temporarily other
types of securities without limit, including high quality commercial paper,
bankers' acceptances, non-convertible debt securities (corporate and government)
or government and high quality money market securities of United States and
non-United States issuers, or cash (foreign currencies or United States
dollars), in such proportions as, in the opinion of the Subadviser, prevailing
market, economic or political conditions warrant.
The Fund may also temporarily hold cash or invest in high quality foreign or
domestic money market instruments pending investment of proceeds from new sales
of Fund shares or to meet ordinary daily cash needs. See "Other Investments and
Policies" below.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND MAY NOT BE CHANGED
WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S OUTSTANDING
VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. INVESTMENT
POLICIES THAT ARE NOT FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF DIRECTORS.
6
<PAGE>
CONVERTIBLE SECURITIES
A convertible security is a bond or preferred stock which may be converted at
a stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible securities are
senior to common stocks in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a common
stock but lower than that afforded by a similar nonconvertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation dependent upon a
market price advance in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the higher
of its "investment value" (I.E., its value as a fixed-income security) or its
"conversion value" (I.E., its value upon conversion into its underlying common
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying stock. The price of
a convertible security tends to increase as the market value of the underlying
stock rises, whereas it tends to decrease as the market value of the underlying
stock declines. The Fund will only invest in investment grade convertible
securities. See "Other Investments and Policies--Corporate and Other Debt
Obligations" below. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
In recent years, convertibles have been developed which combine higher or
lower current income with options and other features. The Fund may invest in
these types of convertible securities.
OTHER INVESTMENTS AND POLICIES
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. Treasury or
by an agency or instrumentality of the U.S. Government. Not all U.S. Government
securities are backed by the full faith and credit of the United States. Some
are supported only by the credit of the issuing agency. See "Investment
Objective and Policies--U.S. Government Securities" in the Statement of
Additional Information.
The Fund may invest in mortgage-backed securities and other derivative
mortgage products, including those representing an undivided ownership interest
in a pool of mortgages, e.g., Government National Mortgage Association (GNMA),
Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage
Corporation (FHLMC) certificates where the U.S. Government or its agencies or
instrumentalities guarantees the payment of interest and principal of these
securities. These guarantees do not extend to the securities' yield or value,
which are likely to vary inversely with fluctuations in interest rates, nor do
these guarantees extend to the yield or value of the Fund's shares. See
"Investment Objective and Policies--U.S. Government Securities" in the Statement
of Additional Information. These certificates are in most cases "pass-through"
instruments, through which the holder receives a share of all interest and
principal payments from the mortgages underlying the certificate, net of certain
fees.
Mortgage-backed securities are subject to the risk that the principal on the
underlying mortgage loans may be prepaid at any time. Although the extent of
prepayments on a pool of mortgage loans depends on various economic and other
factors, as a general rule prepayments on fixed rate mortgage loans will
increase during a period of falling interest rates and decrease during a period
of rising interest rates. Accordingly, amounts available for reinvestment by the
Fund are likely to be greater during a period of declining interest rates and,
as a result, likely to be reinvested at lower interest rates than during a
period of rising interest rates. Mortgage-backed securities may decrease in
value as a result of increases in interest rates and may benefit less than other
fixed income securities from declining interest rates because of the risk of
prepayment.
7
<PAGE>
CORPORATE AND OTHER DEBT OBLIGATIONS
The Fund may invest in investment grade corporate and other debt obligations
of domestic and foreign issuers, including money market instruments. See "Money
Market Instruments" below. Bonds and other debt securities are used by issuers
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and must repay the amount borrowed at maturity. Investment
grade debt securities are rated within the four highest quality grades as
determined by Moody's Investors Service, Inc. (Moody's) (currently Aaa, Aa, A
and Baa for bonds), Standard & Poor's Ratings Group (S&P) (currently AAA, AA, A
and BBB for bonds), or another nationally recognized statistical rating
organization. Unrated securities may also be investment grade if, in the opinion
of the Subadviser, they are of equivalent quality to those rated in the four
highest quality grades. Securities rated Baa by Moody's or BBB by S&P, although
considered to be investment grade, lack outstanding investment characteristics
and, in fact, have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
interest and principal payments than is the case with higher grade bonds. Such
lower rated securities are subject to a greater risk of loss of principal and
interest. A portfolio security whose rating is downgraded below Baa by Moody's
or BBB by S&P, or otherwise has a reduction in credit quality below investment
grade, will be disposed of as soon as practicable.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
Fund's repurchase agreements should at all times be fully collateralized in an
amount at least equal to the resale price. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss. See "Investment Objective and Policies--Repurchase
Agreements" in the Statement of Additional Information.
MONEY MARKET INSTRUMENTS
The Fund may hold cash or invest in high quality money market instruments,
including commercial paper of a U.S. or non-U.S. company, foreign government
securities, certificates of deposit, bankers' acceptances and time deposits of
domestic and foreign banks, and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. These obligations will be U.S.
dollar denominated or denominated in a foreign currency. Money market
instruments typically have a maturity of one year or less as measured from the
date of purchase. The Fund may hold cash or invest in money market instruments
without limit for temporary defensive purposes. To the extent that the Fund
otherwise holds cash or invests in money market instruments, it is subject to
its investment policies described above.
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If the
Fund borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net asset
value of the shares to rise faster than would otherwise be the case. On the
other hand, if the investment performance of the additional securities purchased
fails to cover their cost (including any interest paid on the money borrowed) to
the Fund, the net asset value of the Fund's shares will decrease faster than
would otherwise be the case. This is the speculative factor known as "leverage."
8
<PAGE>
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets in illiquid securities including
repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act) and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
See "Investment Restrictions" in the Statement of Additional Information. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. The Fund's investment in Rule
144A securities could have the effect of increasing illiquidity to the extent
that qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. Repurchase agreements subject to demand are
deemed to have a maturity equal to the applicable notice period.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is generally not expected to exceed 100%.
High portfolio turnover (over 100%) may involve correspondingly greater
brokerage commissions and other transaction costs, which will be borne directly
by the Fund. See "Portfolio Transactions and Brokerage" in the Statement of
Additional Information. In addition, high portfolio turnover may result in
increased short-term capital gains, which, when distributed to shareholders, are
treated as ordinary income. See "Taxes, Dividends and Distributions."
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time of entering into the transaction. The Fund's
Custodian will segregate cash or other liquid assets having a value equal to or
greater than the Fund's purchase commitments. The securities so purchased are
subject to market fluctuation and no interest accrues to the purchaser during
the period between purchase and settlement. At the time of delivery of the
securities the value may be more or less than the purchase price and an increase
in the percentage of the Fund's assets committed to the purchase of securities
on a when-issued or delayed delivery basis may increase the volatility of the
Fund's net asset value.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets or secures an
irrevocable letter of credit in favor of the Fund in an amount equal to at least
100%, determined daily, of the market value of the securities loaned which are
segregated pursuant to applicable regulations. During the time portfolio
securities are on loan, the borrower will pay the Fund an amount equivalent to
any dividend or interest paid on such securities and the Fund may invest the
cash collateral and earn additional income, or it may receive an agreed-upon
amount of interest income from the borrower. As a matter of fundamental policy,
the Fund will not lend more than 33-1/3% of the value of its total assets. The
Fund may pay reasonable administration and custodial fees in connection with a
loan. See "Investment Objective and Policies--Lending of Securities" in the
Statement of Additional Information.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales against-the-box. A short sale "against-the-box"
is a short sale in which the Fund owns an equal amount of the securities sold
short or securities convertible into or exchangeable for, without payment of any
further consideration, securities of the same issuer as, and equal in amount to,
the securities sold short. See "Investment Objective and Policies--Short Sales
Against-the-Box," in the Statement of Additional Information.
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RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES
Foreign securities involve certain risks, which should be considered carefully
by an investor in the Fund. These risks include political or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange controls
and the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. Government, its instrumentalities or agencies. In
addition, there may be less publicly available information about a foreign
issuer than about a domestic company. Foreign issuers generally are not subject
to uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States and there is a possibility of expropriation, confiscatory
taxation or diplomatic developments which could affect investment.
Additional costs could be incurred in connection with the Fund's international
investment activities. Foreign brokerage commissions are generally higher than
United States brokerage commissions. Increased custodian costs as well as
administrative difficulties (such as the applicability of foreign laws to
foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.
If a security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders.
Shareholders should be aware that investing in the equity markets of
developing countries involves exposure to economies that are generally less
diverse and mature, and to political systems which can be expected to have less
stability than those of developed countries. Historical experience indicates
that the markets of developing countries have been more volatile than the
markets of developed countries. The risks associated with investments in foreign
securities, described above, may be greater with respect to investments in
developing countries.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING USING
DERIVATIVES TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE
RETURN. THE FUND, AND THUS INVESTORS MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE
OF THESE STRATEGIES. These strategies currently include the use of options,
forward currency exchange contracts, futures contracts and options thereon. The
Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations and there can be no assurance that any
of these strategies will succeed. See "Investment Objective and Policies" and
"Taxes, Dividends and Distributions" in the Statement of Additional Information.
New financial products and risk management techniques continue to be developed
and the Fund may use these new investments and techniques to the extent
consistent with its investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES, STOCK INDICES AND CURRENCIES THAT ARE TRADED ON U.S. OR FOREIGN
SECURITIES EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ATTEMPT TO ENHANCE
RETURN OR TO HEDGE ITS PORTFOLIO. These options will be on equity securities,
stock indices (e.g., S&P 500) and foreign currencies. The Fund may write put and
call options to generate additional income through the receipt of premiums,
purchase put options in an effort to protect the value of securities (or
currencies) that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
(or currencies) it intends to purchase. The Fund may also purchase put and call
options to offset previously written put and call options of the same series.
See "Investment Objective and Policies--Options on Securities" in the Statement
of Additional Information.
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A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE RIGHT
FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY SUBJECT TO
THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE). The writer
of a call option, in return for the premium, has the obligation, upon exercise
of the option, to deliver, depending upon the terms of the option contract, the
underlying securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When the Fund writes a call option, it gives up
the potential for gain on the underlying securities or currency in excess of the
exercise price of the option during the period that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. A written option is covered if, as
long as the Fund is obligated under the option (i), it owns an offsetting
position in the underlying security or currency or (ii) segregates cash or other
liquid assets in an amount equal to or greater than its obligation under the
option. There is no limitation on the amount of call options the Fund may write.
See "Investment Objective and Policies--Options on Securities" in the Statement
of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS THEREON
WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN ACCORDANCE WITH
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC). THE FUND, AND
THUS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES.
These futures contracts and related options will be on debt securities, stock
indices and foreign currencies. A futures contract is an agreement to purchase
or sell an agreed amount of securities or currencies at a set price for delivery
in the future. A stock index futures contract is an agreement to purchase or
sell cash equal to a specific dollar amount times the difference between the
value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. The Fund may purchase and sell
futures contracts or related options as a hedge against changes in market
conditions.
The Fund may not purchase or sell futures contracts and related options to
attempt to enhance return, if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. The Fund may purchase and sell futures
contracts and related options, without limitation, for BONA FIDE hedging
purposes in accordance with regulations of the CFTC (I.E., to reduce certain
risks of its investments). The value of all futures contracts sold will not
exceed the total market value of the Fund's portfolio.
Futures contracts and related options are generally subject to segregation
requirements of the Commission and coverage requirements of the CFTC. If the
Fund does not hold the security or currency underlying the futures contract, the
Fund will be required to segregate on an ongoing basis with its Custodian cash
or other liquid assets in an amount at least equal to the Fund's obligations
with respect to such futures contracts. The Fund may place and maintain cash,
securities and similar investments with a futures commission merchant in amounts
necessary to effect the Fund's transactions in exchange-traded futures contracts
and options thereon, provided certain conditions are satisfied.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the movements in the index or price of the
currencies underlying the futures contract is imperfect and there is a risk that
the value of the indices or currencies underlying the futures contract may
increase or decrease at a greater rate than the related futures contracts
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have
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<PAGE>
established daily limits on the amount that the price of futures contracts or
related options may vary, either up or down, from the previous day's settlement
price. These daily limits may restrict the Fund's ability to purchase or sell
certain futures contracts or related options on any particular day.
THE FUND'S ABILITY TO ENTER INTO OR CLOSE OUT FUTURES CONTRACTS AND OPTIONS
THEREON IS LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE FOR
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. See "Taxes, Dividends and
Distributions" and "Investment Objective and Policies" in the Statement of
Additional Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. The Fund, and thus
investors, may lose money through any unsuccessful use of these strategies. If
the Subadviser's predictions of movements in the direction of the securities,
foreign currency or interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options, foreign currency
and futures contracts and options on futures contracts include (1) dependence on
the Subadviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; (5) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if the investment adviser believes
that the other party to the options will continue to make a market for such
options.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE ACTIONS
OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON MATTERS OF
GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.
For the fiscal period ended October 31, 1997, total expenses as a percentage
of average net assets were 1.46%, 2.21%, 2.21% and 1.21% (annualized) of the
Class A, Class B, Class C and Class Z shares, respectively. See "Financial
Highlights."
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MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102, IS THE MANAGER OF
THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .60 OF 1% OF
THE FUND'S AVERAGE DAILY NET ASSETS. PIFM is organized in New York as a limited
liability company. The Fund paid management fees to PIFM of .60 of 1% of the
Fund's average net assets during the fiscal period ended October 31, 1997. See
"Manager" in the Statement of Additional Information.
As of November 30, 1997, PIFM served as the manager to 41 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $60 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER THE SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC) DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE SUBADVISER
OR THE INVESTMENT ADVISER), THE SUBADVISER FURNISHES INVESTMENT ADVISORY
SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PIFM
FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. PIC's
address is Prudential Plaza, Newark, New Jersey 07102-3777. Under the Management
Agreement, PIFM continues to have responsibility for all investment advisory
services and supervises the Subadviser's performance of such services.
PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance Company
of America (Prudential), a major diversified insurance and financial services
company.
The portfolio manager of the Fund is Susan Hirsch, a Vice President of PIC,
who is responsible for the day-to-day management of the Fund's portfolio. Ms.
Hirsch has been employed by PIC as a portfolio manager since July 1996. Ms.
Hirsch joined PIC from Delphi Asset Management (Delphi), where she was solely
responsible for the management of the U.S. Selected Growth Portfolio of the AMT
Capital Fund. Prior to that, she was at Lehman Brothers Global Asset Management
Inc. where she was the sole portfolio manager of the Lehman Selected Growth
Stock Portfolio (Lehman Growth Portfolio) since the fund's inception in May,
1994, and a Lehman Brothers research analyst for small growth stocks since 1988.
DISTRIBUTOR
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (THE DISTRIBUTOR), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS A LIMITED
LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE THAT SERVES
AS THE DISTRIBUTOR OF THE CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF THE
FUND. IT IS A WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL. Prudential Securities
Incorporated (Prudential Securities), One Seaport Plaza, New York, New York
10292, served as the distributor of Fund shares until July 1, 1998. Prudential
Securities is an indirect, wholly-owned subsidiary of Prudential.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
FUND'S CLASS A, CLASS B AND CLASS C SHARES. THE DISTRIBUTOR ALSO INCURS THE
EXPENSES OF DISTRIBUTING THE FUND'S CLASS Z SHARES UNDER THE DISTRIBUTION
AGREEMENT, NONE OF WHICH IS PAID FOR OR REIMBURSED BY THE FUND. These expenses
include commissions and account servicing fees paid to, or on account of,
Dealers or financial institutions which have entered into agreements with the
Distributor, advertising expenses, the cost of printing and mailing prospectuses
to potential investors and indirect and overhead costs of the Distributor
associated with the sale of the Fund's shares, including lease, utility,
communications and sales promotion expenses.
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Under the Plans, the Fund is obligated to pay distribution and/or service fees
to the Distributor as compensation for its distribution and service activities,
not as reimbursement for specific expenses incurred. If the Distributor's
expenses exceed its distribution and service fees, the Fund will not be
obligated to pay any additional expenses. If the Distributor's expenses are less
than such distribution and service fees, it will retain its full fees and
realize a profit.
The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis Dealers in consideration for the distribution,
marketing, administrative and other services and activities provided by Dealers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.
UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. The Distributor has agreed to
limit its distribution-related fees payable under the Class A Plan to .25 of 1%
of the average daily net assets of the Class A shares for the fiscal year ending
October 31, 1998.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES AT AN
ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B AND
CLASS C SHARES. The Class B and Class C Plans provide for the payment to the
Distributor of (i) an asset-based sales charge of .75 of 1% of the average daily
net assets of the Class B and Class C shares, respectively, and (ii) a service
fee of .25 of 1% of the average daily net assets of each of the Class B and
Class C shares. The service fee is used to pay for personal service and/or the
maintenance of shareholder accounts. The Distributor also receives contingent
deferred sales charges from certain redeeming shareholders. See "Shareholder
Guide--How to Sell Your Shares--Contingent Deferred Sales Charges."
For the fiscal period ended October 31, 1997, the Fund paid distribution
expenses of .25 of 1%, 1.00% and 1.00% of the average daily net assets of the
Class A, Class B and Class C shares, respectively. The Fund records all payments
made under the Plans as expenses in the calculation of net investment income.
See "Distributor" in the Statement of Additional Information.
Distribution expenses attributable to the sale of Class A, Class B and Class C
shares of the Fund will be allocated to each such class based upon the ratio of
sales of each such class to the sales of Class A, Class B or Class C shares of
the Fund other than expenses allocable to a particular class. The distribution
fee and sales charge of one class will not be used to subsidize the sale of
another class.
Each Plan provides that it shall continue in effect from year to year provided
that a majority of the Board of Directors of the Fund, including a majority of
the Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the Rule 12b-1
Directors), vote annually to continue the Plan. Each Plan may be terminated at
any time by vote of a majority of the Rule 12b-1 Directors or of a majority of
the outstanding shares of the applicable class of the Fund. The Fund will not be
obligated to pay expenses incurred under any Plan if it is terminated or not
continued.
In addition to distribution and service fees paid by the Fund under the Class
A, Class B and Class C Plans, the Manager (or one of its affiliates) may make
payments out of its own resources to Dealers and other persons which distribute
shares of the Fund (including Class Z shares). Such payments may be calculated
by reference to the net asset value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
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FEE WAIVERS
The Distributor has agreed to limit its distribution fees for the Class A,
Class B and Class C shares as described under "Distributor." Fee waivers will
increase the Fund's total return. See "Performance Information" in the Statement
of Additional Information and "Fund Expenses."
PORTFOLIO TRANSACTIONS
Affiliates of the Distributor may act as brokers or futures commission
merchants for the Fund provided that the commissions, fees or other remuneration
they receive are fair and reasonable. See "Portfolio Transactions and Brokerage"
in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15035, New
Brunswick, New Jersey 08906-5035.
YEAR 2000
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000 and expect that their systems, and those of
outside service providers, will be adapted in time for that event.
Additionally, issuers of securities generally as well as those purchased by
the Fund may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and result in a decline in the value of securities held by
the Fund.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
BOARD OF DIRECTORS HAS FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE
FUND'S NAV TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. For valuation purposes, quotations
of foreign securities in a foreign currency are converted to U.S. dollar
equivalents. See "Net Asset Value" in the Statement of Additional Information.
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<PAGE>
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class B and Class C shares will generally be lower than
the NAV of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares are subject. The NAV of Class Z shares will
generally be higher than the NAV of the other three classes because Class Z
shares are not subject to any distribution and/or service fees. It is expected,
however, that the NAV of the four classes will tend to converge immediately
after the recording of dividends, if any, which will differ by approximately the
amount of distribution and/or service fee expense accrual differential among the
classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL RETURN AND
AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL
RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The total return shows how much an
investment in the Fund would have increased (decreased) over a specified period
of time (I.E., one, five, or ten years or since inception of the Fund) assuming
that all distributions and dividends by the Fund were reinvested on the
reinvestment dates during the period and less all recurring fees. The aggregate
total return reflects actual performance over a stated period of time. Average
annual total return is a hypothetical rate of return that, if achieved annually,
would have produced the same aggregate total return if performance had been
constant over the entire period. Average annual total return smooths out
variations in performance and takes into account any applicable initial or
contingent deferred sales charges. Neither average annual total return nor
aggregate total return takes into account any federal or state income taxes
which may be payable upon redemption. The yield refers to the income generated
by an investment in the Fund over a one-month or 30-day period. This income is
then "annualized;" that is, the amount of income generated by the investment
during that 30-day period is assumed to be generated each 30-day period for
twelve periods and is shown as a percentage of the investment. The income earned
on the investment is also assumed to be reinvested at the end of the sixth
30-day period. The Fund also may include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc., Morningstar Publications,
Inc., and other industry publications, business periodicals and market indices.
See "Performance Information" in the Statement of Additional Information.
Further performance information will be contained in the Fund's annual and
semi-annual reports to shareholders, which will be available without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE FUND WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Fund. See "Taxes, Dividends and Distributions" in
the Statement of Additional Information.
16
<PAGE>
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold at
market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions may be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss. See
"Taxes, Dividends and Distributions" in the Statement of Additional Information.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition may be
treated as ordinary gain or loss. These gains or losses increase or decrease the
amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency fluctuation
losses exceed other investment company taxable income during a taxable year,
distributions made by the Fund during the year would be characterized as a
return of capital to shareholders, reducing the shareholder's basis in his or
her Fund shares.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of net
short-term gains, (I.E., the excess of net short-term capital gains over net
long-term capital losses) distributed to shareholders will be taxable as
ordinary income to the shareholder whether or not reinvested. Any net capital
gains (I.E., the excess of net long-term capital gains over short-term capital
losses) distributed to shareholders will be taxable as long-term capital gains
to the shareholders, whether or not reinvested and regardless of the length of
time a shareholder has owned his or her shares. The maximum long-term capital
gains rate for individual shareholders for securities held more than one year is
20% and the maximum tax rate for ordinary income is 39.6%. The maximum long-term
capital gains rate for corporate shareholders currently is 35%.
Both regular and capital gains dividends are taxable to shareholders in the
year in which received, whether they are received in cash or in additional
shares. In addition, certain dividends declared by the Fund will be treated as
received by shareholders on December 31 of the year the dividends are declared.
This rule applies to dividends declared by the Fund in October, November or
December of a calendar year, payable to shareholders of record on a date in any
such month, if such dividends are paid during January of the following calendar
year.
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to interest income, capital and currency gain, gain or
loss from Section 1256 contracts, dividend income from foreign corporations and
income from some other sources are not eligible for the corporate dividends
received deduction. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information. Corporate shareholders should consult their tax advisers
regarding other requirements applicable to the dividends received deduction.
Any gain or loss realized upon a sale or redemption of shares by a shareholder
who is not a dealer in securities will be treated as long-term capital gain or
loss if the shares have been held more than one year and otherwise as short-term
capital gain or loss. Any such loss with respect to shares that are held six
months or less, however, will be treated as a long-term capital loss to the
extent of any capital gain distributions received by the shareholder. With
respect to non-corporate shareholders, gain or loss on shares held more than one
year will be considered in determining a holder's adjusted net capital gain
subject to a maximum statutory tax rate of 20%.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit to
the U.S. Treasury 31% of dividend, capital gain income and redemption proceeds,
on the accounts of certain shareholders who fail to furnish their correct tax
identification
17
<PAGE>
numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain foreign
shareholders) with the required certifications regarding the shareholder's
status under the federal income tax law. Withholding at this rate is also
required from dividends and capital gains distributions (but not redemption
proceeds) payable to shareholders who are otherwise subject to backup
withholding. Dividends of net investment income and short-term capital gains
paid to a foreign shareholder will generally be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate).
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, ANNUALLY
AND TO MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM
CAPITAL LOSSES AT LEAST ANNUALLY. Dividends paid by the Fund with respect to
each class of shares, to the extent any dividends are paid, will be calculated
in the same manner, at the same time, on the same day and will be in the same
amount except that each class (other than Class Z) will bear its own
distribution and/or service fee charges, generally resulting in lower dividends
for Class B and Class C shares in relation to Class A and Class Z shares and
lower dividends for Class A shares in relation to Class Z shares. Distribution
of net capital gains, if any, will be paid in the same amount per share for each
class of shares. See "How The Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES, BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services LLC, Attn: Account Maintenance Unit, P. O. Box 15035, New
Brunswick, New Jersey 08906-5035. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis.
IF YOU BUY SHARES ON OR IMMEDIATELY BEFORE THE RECORD DATE (THE DATE THAT
DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING OF
DIVIDENDS WHEN BUYING SHARES OF THE FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON AUGUST 23, 1996. THE FUND IS
AUTHORIZED TO ISSUE 2 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE,
DIVIDED INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C AND CLASS Z
COMMON STOCK. Of the authorized shares of common stock of the Fund, 1 billion
shares consist of Class A common stock, 500 million shares consist of Class B
common stock, 300 million shares consist of Class C common stock and 200 million
shares consist of Class Z common stock. Each class of common stock of the Fund
represents an interest in the same assets of the Fund and is identical in all
respects except that (i) each class is subject to different sales charges and
distribution and/or service fees (except Class Z shares, which are not subject
to any sales charges and distribution and/or service fees), which may affect
performance, (ii) each class has exclusive voting rights on any matter submitted
to shareholders that relates solely to its distribution arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "How the Fund is Managed--Distributor." In
accordance with the Fund's Articles of Incorporation, the Board of Directors may
authorize the creation of additional series of common stock and classes within
such series, with such preferences, privileges, limitations and voting and
dividend rights as the Board may determine.
18
<PAGE>
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares (with the exception of Class
Z shares, which are not subject to any distribution and/or service fees). Except
for the conversion feature applicable to the Class B shares, there are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses of the Fund have been
paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of those
classes are likely to be lower than to Class A shareholders and to Class Z
shareholders, whose shares are not subject to any distribution and/ or service
fees. The Fund's shares do not have cumulative voting rights for the election of
Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OR MORE
OF THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the Commission under
the Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
office of the Commission in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH THE DISTRIBUTOR, THROUGH DEALERS
OR DIRECTLY FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O.
BOX 15035, NEW BRUNSWICK, NEW JERSEY 08906-5035. The purchase price is the NAV
next determined following receipt of an order in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Distributor, your Dealer or the Transfer Agent plus a sales
charge which, at your option, may be imposed either (i) at the time of purchase
(Class A shares) or (ii) on a deferred basis (Class B or Class C shares). Class
Z shares are offered to a limited group of investors at net asset value without
any sales charge. Payments may be made by wire, check or through your brokerage
account. See "Alternative Purchase Plan" and "How the Fund Values its Shares."
In order to receive that day's NAV, your order must be received before the
Fund's NAV is computed (currently 4:15 P.M., New York time). If you purchase
shares through your Dealer, the Dealer must receive your order before the Fund's
NAV is computed that day and must transmit the order to the Distributor that
same day for you to receive that day's NAV.
The minimum initial investment is $1,000 for Class A and Class B shares and
$5,000 for Class C shares, except that the minimum initial investment for Class
C shares may be waived from time to time. There is no minimum investment
requirement for Class Z shares. The minimum subsequent investment is $100 for
all classes, except for Class Z shares, for which there is no such minimum. All
minimum investment requirements are waived for certain retirement and employee
savings plans or custodial accounts for the benefit of minors. For purchases
made through the Automatic Investment Plan, the minimum initial and subsequent
investment is $50. See "Shareholder Services" below.
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<PAGE>
Application forms can be obtained from the Transfer Agent, the Distributor or
a Dealer. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares in street name with their Dealers will not receive stock
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your Dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the placement of the
order.
Dealers may charge their customers a separate fee for processing purchases and
redemptions. In addition, transactions in Fund shares may be subject to postage
and handling charges imposed by your Dealer. Any such charges are retained by
the Dealer and are not remitted to the Fund.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone the Transfer Agent to receive an
account number at (800) 225-1852 (toll-free). The following information will be
requested: your name, address, tax identification number, class election,
dividend distribution election, amount being wired and wiring bank. Instructions
should then be given by you to your bank to transfer funds by wire to State
Street Bank and Trust Company (State Street), Boston, Massachusetts, Custody and
Shareholder Services Division, Attention: Prudential Emerging Growth Fund, Inc.,
specifying on the wire the account number assigned by the Transfer Agent and
your name and identifying the class in which you are eligible to invest (Class
A, Class B, Class C or Class Z shares).
If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York time) on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Emerging Growth
Fund, Inc., Class A, Class B, Class C or Class Z shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing federal funds. The minimum amount which may be
invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS FOUR CLASSES OF SHARES (CLASS A, CLASS B, CLASS C AND CLASS Z
SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH
OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES (AS A % OF
SALES CHARGE AVERAGE DAILY NET ASSETS) OTHER INFORMATION
----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% .30 of 1% (currently being charged Initial sales charge waived or
of the public offering price at a rate of .25 of 1%) reduced for certain purchases
CLASS B Maximum CDSC of 5% of the lesser of 1% Shares convert to Class A shares
the amount invested or the approximately seven years after
redemption proceeds; declines to purchase
zero after six years
CLASS C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another
the amount invested or the class
redemption proceeds on redemptions
made within one year of purchase.
CLASS Z None None Sold to a limited group of
investors
</TABLE>
20
<PAGE>
The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of Class Z shares, which are not subject to any distribution
and/or service fees) bears the separate expenses of its Rule 12b-1 distribution
and service plan, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, and (iii)
only Class B shares have a conversion feature. See "How to Exchange Your Shares"
below. The income attributable to each class and the dividends payable on the
shares of each class will be reduced by the amount of the distribution fee, if
any, of each class. Class B and Class C shares bear the expenses of a higher
distribution fee, which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class Z
shares and will generally receive more compensation initially for selling Class
A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares automatically
convert to Class A shares approximately seven years after purchase (see
"Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund.
If you intend to hold your investment in the Fund for less than 7 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to an initial sales charge of 5% and Class B shares are subject to a
CDSC of 5% which declines to zero over a 6-year period, you should consider
purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class A or Class B shares over Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in NAV, the effect of the return on the investment
over this period of time or redemptions when the CDSC is applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES
UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See "Reduction and
Waiver of Initial Sales Charges" and "Class Z Shares" below.
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<PAGE>
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
The Distributor may reallow the entire sales charge to Dealers. Dealers may be
deemed to be underwriters, as that term is defined in the Securities Act of
1933. The Distributor reserves the right, without prior notice to any Dealer, to
suspend or eliminate Dealer concessions or commissions.
In connection with the sale of the Class A shares at NAV (without payment of
an initial sales charge), the Manager, the Distributor or one of their
affiliates may pay Dealers, financial advisers and other persons who distribute
shares a finders' fee from its own resources based on a percentage of the NAV of
shares sold by such persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
You must notify the Transfer Agent either directly or through your Dealer that
you are entitled to the waiver of the sales charge. The reduction or waiver will
be granted subject to confirmation of your entitlement.
BENEFIT PLANS. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 or 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the Benefit Plan has existing assets
of at least $1 million invested in shares of Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange privilege)
or 250 eligible employees or participants. In the case of Benefit Plans whose
accounts are held directly with the Transfer Agent and for which the Transfer
Agent does individual account recordkeeping (Direct Account Benefit Plans),
Class A shares may be purchased at NAV by participants who are repaying loans
made from such plans to the participant.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan qualifies
to purchase Class A shares at NAV, all subsequent purchases will be made at NAV.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
the Transfer Agent, by the following persons: (a) officers of the Prudential
Mutual Funds (including the Fund), (b) employees of the Distributor and PIFM and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at the Transfer Agent, (c) employees of subadvisers
of the Prudential Mutual Funds provided that purchases at NAV are permitted by
such person's employer, (d) Prudential, employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of its subsidiaries, (e) registered
representatives and employees of Dealers who have entered
22
<PAGE>
into a selected dealer agreement with the Distributor, provided that purchases
at NAV are permitted by such person's employer, (f) investors in Individual
Retirement Accounts, provided the purchase is made with the proceeds of a
tax-free rollover of assets from a Benefit Plan for which Prudential Investments
serves as the recordkeeper or administrator, (g) investors previously eligible
to purchase Class A shares at NAV because of their participation in programs
sponsored by an affiliate of the Distributor for certain retirement plan or
deferred compensation plan participants, (h) orders placed by broker-dealers,
investment advisers or financial planners who have entered into an agreement
with the Distributor, who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services (E.G., mutual fund "wrap" or asset allocation programs), and (i)
clients of broker-dealers, investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such broker-dealer, investment adviser or financial planner on the books and
records of the broker-dealer, investment adviser or financial planner (E.G.,
mutual fund "supermarket" programs).
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale, either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the Dealer
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class
A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one of
the deferred sales charge alternatives is the NAV next determined following
receipt of an order in proper form by the Transfer Agent, your Dealer or the
Distributor. Although there is no sales charge imposed at the time of purchase,
redemption of Class B and Class C shares may be subject to a CDSC. See "How to
Sell Your Shares--Contingent Deferred Sales Charges."
The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to Dealers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee. See "How the Fund is Managed--Distributor." In connection
with the sale of Class C shares, the Distributor will pay, from its own
resources, Dealers, financial advisers and other persons which distribute Class
C shares a sales commission of up to 1% of the purchase price at the time of the
sale.
CLASS Z SHARES
Class Z shares are currently available for purchases by: (i) pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code, deferred compensation plans and annuity plans under
Sections 457 and 403(b)(7) of the Internal Revenue Code, and non-qualified plans
for which the Fund is an available option (collectively, Benefit Plans);
provided that such Benefit Plans (in combination with other plans sponsored by
the same employer or group of related employers) have at least $50 million in
defined contribution assets, (ii) participants in any fee-based program or trust
program sponsored by an affiliate of the Distributor which includes mutual funds
as investment options and for which the Fund is an available option, (iii)
certain participants in the MEDLEY Program (group variable annuity contracts)
sponsored by an affiliate of the Distributor, for whom Class Z shares of the
Prudential Mutual Funds are an available investment option, (iv) Benefit Plans
for which an affiliate of the Distributor serves as recordkeeper and as of
September 20, 1996 (a) were Class Z shareholders of the Prudential Mutual Funds
or (b) executed a letter of intent to purchase Class Z shares of the Prudential
Mutual Funds, (v) current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (vi) employees of certain affiliates of the
Distributor who participate in an employer-sponsored employee savings plan,
after a Benefit Plan qualifies to purchase Class Z shares, all subsequent
purchases will be for Class Z shares, and (vii) Prudential with an investment of
$10 million or more.
23
<PAGE>
In connection with the sale of Class Z Shares, the Manager, Distributor or one
of their affiliates may pay Dealers, financial advisers and other persons who
distribute shares a finders' fee, from its own resources, based on a percentage
of the net asset value of shares distributed by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER SHARE
NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM (IN
ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN CONNECTION WITH
INVESTORS' ACCOUNTS) BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER. SEE
"HOW THE FUND VALUES ITS SHARES." In certain cases, however, redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales
charge, as described below. See "Contingent Deferred Sales Charges." If you are
redeeming your shares through a Dealer, your Dealer must receive your sell order
before the Fund computes its NAV for that day (I.E., 4:15 P.M., New York time)
in order to receive that day's NAV. Your Dealer will be responsible for
furnishing all necessary documentation to the Distributor and may charge you for
its services in connection with redeeming shares of the Fund.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF
AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST
WILL BE ACCEPTED. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services, LLC, Attention: Redemption Services, P.O. Box 15035, New Brunswick,
New Jersey 08906-5035, the Distributor or to your Dealer.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER OF THE
CERTIFICATE AND/OR WRITTEN REQUEST EXCEPT AS INDICATED BELOW. If you hold shares
through a Dealer, payment for shares presented for redemption will be credited
to your account at your Dealer unless you indicate otherwise. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Commission,
by order, so permits; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, WHICH MAY TAKE UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE
PURCHASE CHECK BY THE FUND OR THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY
PURCHASING SHARES BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the Commission. Securities will be readily marketable and will be valued in the
same manner as a regular redemption. See "How
24
<PAGE>
the Fund Values its Shares." If your shares are redeemed in kind, you would
incur transaction costs in converting the assets into cash. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act,
under which the Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any
one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board of
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
any such shareholder 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No CDSC will be imposed
on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not previously
exercised the repurchase privilege, you may reinvest any portion or all of the
proceeds of such redemption in shares of the Fund at the NAV next determined
after the order is received, which must be within 90 days after the date of
redemption. Any CDSC paid in connection with such redemption will be credited
(in shares) to your account. (If less than a full repurchase is made, the credit
will be on a PRO RATA basis.) You must notify the Transfer Agent, either
directly or through your Dealer or the Distributor, at the time the repurchase
privilege is exercised to adjust your account for the CDSC you previously paid.
Thereafter, any redemptions will be subject to the CDSC applicable at the time
of the redemption. See "Contingent Deferred Sales Charges" below. Exercise of
the repurchase privilege will generally not affect the federal tax treatment of
any gain realized upon redemption. However, if the redemption was made within a
30 day period of the repurchase and if the redemption resulted in a loss, some
or all of the loss, depending on the amount reinvested, may not be allowed for
federal income tax purposes. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge (CDSC) declining to zero from 5% over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares to an amount which is lower than the amount of
all payments by you for shares during the preceding six years, in the case of
Class B shares, and one year, in the case of Class C shares. A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of your shares or shares purchased
through reinvestment of dividends or distributions are not subject to CDSC. The
amount of any contingent deferred sales charge will be paid to and retained by
the Distributor. See "How the Fund is Managed--Distributor" and "Waiver of
Contingent Deferred Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
The following table sets forth the rates of the CDSC applicable to redemptions
of Class B shares:
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
OF DOLLARS INVESTED
YEAR SINCE PURCHASE OR REDEMPTION
PAYMENT MADE PROCEEDS
- ---------------------------------------- --------------------
<S> <C>
First................................... 5.0%
Second.................................. 4.0
Third................................... 3.0
Fourth.................................. 2.0
Fifth................................... 1.0
Sixth................................... 1.0
Seventh................................. None
</TABLE>
25
<PAGE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results generally in the lowest possible rate. It
will be assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years;
then of amounts representing the cost of shares held beyond the applicable CDSC
period; and finally, of amounts representing the cost of shares held for the
longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will be
waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust, at the time of death or initial
determination or disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions are: (i) in the case of a tax-deferred
retirement plan, a lump-sum or other distribution after retirement; (ii) in the
case of an IRA (including a Roth IRA), a lump-sum or other distribution after
attaining age 59 1/2 or a periodic distribution based on life expectancy; (iii)
in the case of a Section 403(b) custodial account, a lump sum or other
distribution after attaining age 59 1/2; and (iv) a tax-free return of an excess
contribution or plan distributions following the death or disability of the
shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service, I.E.,
following voluntary or involuntary termination of employment or following
retirement. Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan unless such
redemptions otherwise qualify as a waiver as described above. Shares purchased
with amounts used to repay a loan from such plans on which a CDSC was not
previously deducted will thereafter be subject to a CDSC without regard to the
time such amounts were previously invested. In the case of a 401(k) plan, the
CDSC will also be waived upon the redemption of shares purchased with amounts
used to repay loans made from the account to the participant and from which a
CDSC was previously deducted.
SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase or, for shares purchased prior
to March 1, 1997, on March 1 of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% amount is reached.
You must notify the Transfer Agent either directly or through your Dealer, at
the time of redemption, that you are entitled to waiver of the CDSC and provide
the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement. See "Purchase and Redemption of Fund Shares--Waiver of the
Contingent Deferred Sales Charge--Class B Shares" in the Statement of Additional
Information.
26
<PAGE>
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (I.E., $1,000
divided by $2,100 or 47.62% multiplied by 200 shares or 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than Class
B shares, the per share net asset value of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions, all
payments for Class B shares during a month will be deemed to have been made on
the last day of the month, or for Class B shares acquired through exchange, or a
series of exchanges, on the last day of the month in which the original payment
for purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund, the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares.
The conversion feature is subject to the continuing availability of opinions
of counsel or rulings of the Internal Revenue Service (i) that the dividends and
other distributions paid on Class A, Class B, Class C and Class Z shares will
not constitute "preferential dividends" under the Internal Revenue Code and (ii)
that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares will continue to be subject, possibly indefinitely, to their higher
annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN OTHER
PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET FUNDS,
SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A, CLASS B,
CLASS C AND CLASS Z SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV.
No sales charge will be imposed at the time of exchange. Any applicable
27
<PAGE>
CDSC payable upon the redemption of shares exchanged will be that imposed by the
fund in which shares are initially purchased and will be calculated from the
first day of the month after the initial purchase, excluding the time shares
were held in a money market fund. Class B and Class C shares may not be
exchanged into money market funds other than Prudential Special Money Market
Fund, Inc. For purposes of calculating the holding period applicable to the
Class B conversion feature, the time period during which Class B shares were
held in a money market fund will be excluded. See "Conversion Feature--Class B
Shares." An exchange will be treated as a redemption and purchase for tax
purposes. See "Shareholder Investment Account--Exchange Privilege" in the
Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15035, New Brunswick, New
Jersey 08906-5035.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges")
and for shareholders who qualify to purchase Class Z shares (see "Alternative
Purchase Plan--Class Z Shares"). Under this exchange privilege, amounts
representing any Class B and Class C shares (which are not subject to a CDSC)
held in such a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise. Similarly,
shareholders who qualify to purchase Class Z shares, will have their Class B and
Class C shares which are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through their Dealer that they are eligible
for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at NAV.
The exchange privilege is not a right and may be suspended, terminated or
modified on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and
28
<PAGE>
excessive trading can have on efficient portfolio management, the Fund reserves
the right to refuse purchase orders and exchanges by any person, group or
commonly controlled accounts, if, in the Manager's sole judgment, such person,
group or accounts were following a market timing strategy or were otherwise
engaging in excessive trading (Market Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Fund may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
- AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTION WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested.
- AUTOMATIC INVESTMENT PLAN (AIP). Under AIP you may make regular purchases of
the Fund's shares in amounts as little as $50 via an automatic debit to a bank
account or brokerage account. For additional information about this service, you
may contact the Transfer Agent directly.
- TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from the Transfer Agent. If you
are considering adopting such a plan, you should consult with your own legal or
tax adviser with respect to the establishment and maintenance of such a plan.
- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--
Contingent Deferred Sales Charges." See also "Shareholder Investment
Account--Systematic Withdrawal Plan" in the Statement of Additional Information.
- REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 (toll-free) or by writing to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In
addition, monthly unaudited financial data are available upon request from the
Fund.
- SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone, at (800) 225-1852 (toll-free) or, from outside the U.S.A. at (732)
417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
29
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- -------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................. 2
What are the Fund's Risk Factors and Special
Characteristics?......................................................... 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
HOW THE FUND INVESTS........................................................ 6
Investment Objective and Policies......................................... 6
Other Investments and Policies............................................ 7
Risk Factors and Special Considerations of Investing in Foreign
Securities............................................................... 10
Hedging and Return Enhancement Strategies................................. 10
Investment Restrictions................................................... 12
HOW THE FUND IS MANAGED..................................................... 12
Manager................................................................... 13
Distributor............................................................... 13
Fee Waivers............................................................... 15
Portfolio Transactions.................................................... 15
Custodian and Transfer and Dividend Disbursing Agent...................... 15
Year 2000................................................................. 15
HOW THE FUND VALUES ITS SHARES.............................................. 15
HOW THE FUND CALCULATES PERFORMANCE......................................... 16
TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 16
GENERAL INFORMATION......................................................... 18
Description of Common Stock............................................... 18
Additional Information.................................................... 19
SHAREHOLDER GUIDE........................................................... 19
How to Buy Shares of the Fund............................................. 19
Alternative Purchase Plan................................................. 20
How to Sell Your Shares................................................... 24
Conversion Feature--Class B Shares........................................ 27
How to Exchange Your Shares............................................... 27
Shareholder Services...................................................... 29
</TABLE>
- -------------------------------------------
MF173P
Class A: 744 31 L 107
Class B: 744 31 L 206
CUSIP Nos.: Class C: 744 31 L 305
Class Z: 744 31 L 404
Prudential Emerging
Growth Fund, Inc.
PROSPECTUS
[GRAPHIC]
DECEMBER 30, 1997
[REVISED AS OF OCTOBER 12, 1998]
[LOGO]
