PRUDENTIAL US EMERGING GROWTH FUND INC
497, 2001-01-17
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<PAGE>
                      PROSPECTUS AND FINANCIAL PRIVACY NOTICE   JANUARY 12, 2001

   PRUDENTIAL
   U.S. EMERGING GROWTH FUND, INC.

     FUND TYPE Stock

     OBJECTIVE Long-term capital appreciation

BUILD ON THE ROCK

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares, nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state otherwise.

                                                               [PRUDENTIAL LOGO]
<PAGE>

<TABLE>
<S>     <C>
1       RISK/RETURN SUMMARY
1       Investment Objective and Principal Strategies
1       Principal Risks
3       Evaluating Performance
4       Fees and Expenses

6       HOW THE FUND INVESTS
6       Investment Objective and Policies
7       Other Investments and Strategies
11      Investment Risks

15      HOW THE FUND IS MANAGED
15      Board of Directors
15      Manager
15      Investment Adviser
16      Portfolio Manager
16      Distributor

17      FUND DISTRIBUTIONS AND TAX ISSUES
17      Distributions
18      Tax Issues
19      If You Sell or Exchange Your Shares

21      HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
21      How to Buy Shares
29      How to Sell Your Shares
33      How to Exchange Your Shares
35      Telephone Redemptions or Exchanges

36      FINANCIAL HIGHLIGHTS
36      Class A Shares
37      Class B Shares
38      Class C Shares
39      Class Z Shares

40      THE PRUDENTIAL MUTUAL FUND FAMILY

i       YOUR FINANCIAL SECURITY, YOUR SATISFACTION & YOUR PRIVACY

        FOR MORE INFORMATION (Back Cover)
</TABLE>

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PRUDENTIAL U.S. EMERGING GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
-------------------------------------

This section highlights key information about the PRUDENTIAL U.S. EMERGING
GROWTH FUND, INC. (formerly known as Prudential Emerging Growth Fund, Inc.),
which we refer to as "the Fund." Additional information follows this summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is LONG-TERM CAPITAL APPRECIATION, which means we seek
investments whose price will increase over several years. We normally invest at
least 65% of the Fund's total assets in equity securities of small and
medium-sized U.S. companies with the potential for above-average growth. The
Fund participates in the initial public offering (IPO) market.
    The Fund may actively and frequently trade its portfolio securities. While
we make every effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since we invest
primarily in equities, there is the risk that the price of particular equities
we own could go down, or the value of the equity markets or a sector of them
could go down. Stock markets are volatile. Generally, the stock prices of small
and medium-sized companies vary more than the prices of large company stocks and
may present above-average risks. This means that when stock prices decline
overall, the Fund may decline more than the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index). In addition, different parts of a market can
react differently to adverse issuer, market, regulatory, political and economic
developments.
    Since our objective is long-term capital appreciation, the companies that we
invest in generally reinvest their earnings rather than distribute them to
shareholders. As a result, the Fund is not likely to receive significant
dividend income on its portfolio securities.

-------------------------------------------------------------------
WE'RE GROWTH INVESTORS
In deciding which equities to buy, we use what is known as a growth investment
style. This means we invest in companies that we believe could experience
superior sales or earnings growth.
-------------------------------------------------------------------
--------------------------------------------------------------------------------
                                                                               1
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

    As the Fund's assets grow, the impact of IPO investments will decline, which
may reduce the Fund's total returns.

    The Fund may actively and frequently trade its portfolio securities. High
portfolio turnover results in higher transaction costs and can affect the Fund's
performance and have adverse tax consequences.

    Like any mutual fund, an investment in the Fund could lose value, and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests--Investment Risks."

    An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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2  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.           [GRAPHIC] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

EVALUATING PERFORMANCE
A number of factors--including risk--can affect how the Fund performs. The
following bar chart shows the Fund's performance for each full calendar year of
operation. The bar chart and table below demonstrate the risk of investing in
the Fund by showing how returns can change from year to year and by showing how
the Fund's average annual total returns compare with a stock index and a group
of similar mutual funds. Past performance does not mean that the Fund will
achieve similar results in the future.

ANNUAL RETURN* (CLASS A SHARES)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S>   <C>
1997   22.33%
1998   21.88%
1999   93.10%
2000  -13.50%
</TABLE>

BEST QUARTER: 55.68% (4th quarter of 1999) WORST QUARTER: -18.58% (3rd quarter
of 1998)

* THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
  INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. WITHOUT THE
  DISTRIBUTION AND SERVICE (12b-1) FEE WAIVER, THE ANNUAL RETURNS WOULD HAVE
  BEEN LOWER, TOO.

  AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-00)

<TABLE>
<CAPTION>
                                            1 YR        SINCE INCEPTION
<S>                                       <C>       <C>
  Class A shares                           -17.82%  24.02% (since 12-31-96)
  Class B shares                           -19.11%  24.39% (since 12-31-96)
  Class C shares                           -15.97%  24.33% (since 12-31-96)
  Class Z shares                           -13.24%  25.92% (since 12-31-96)
  S&P 400 Mid-Cap Index(2)                  17.50%  20.72% (since 12-31-96)
  Lipper Average(3)                        -10.01%  17.72% (since 12-31-96)
</TABLE>

1    THE FUND'S RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.
     WITHOUT THE DISTRIBUTION AND SERVICE (12b-1) FEE WAIVER FOR CLASS A SHARES,
     THE RETURNS WOULD HAVE BEEN LOWER.
2    THE STANDARD & POOR'S MID-CAP 400 STOCK INDEX (S&P 400 MID-CAP INDEX)--AN
     UNMANAGED INDEX OF 400 DOMESTIC STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY
     AND INDUSTRY GROUP REPRESENTATION--GIVES A BROAD LOOK AT HOW MID-CAP STOCK
     PRICES HAVE PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES
     CHARGES OR OPERATING EXPENSES OF A MUTUAL FUND. THESE RETURNS WOULD BE
     LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES AND OPERATING EXPENSES.
     THE SECURITIES IN THE S&P 400 MID-CAP INDEX MAY BE VERY DIFFERENT FROM
     THOSE IN THE FUND. SOURCE: LIPPER INC.
3    THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN
     THE LIPPER MID-CAP GROWTH FUNDS CATEGORY AND DOES NOT INCLUDE THE EFFECT OF
     ANY SALES CHARGES. AGAIN, THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE
     EFFECT OF SALES CHARGES. SOURCE: LIPPER INC.

--------------------------------------------------------------------------------
                                                                               3
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

FEES AND EXPENSES
This table shows the sales charges, fees and expenses that you may pay if you
buy and hold shares of each class of the Fund--Class A, B, C and Z. Each share
class has different sales charges--known as loads--and expenses, but represents
an investment in the same fund. Class Z shares are available only to a limited
group of investors. For more information about which share class may be right
for you, see "How to Buy, Sell and Exchange Shares of the Fund."

  SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
                                 CLASS A     CLASS B     CLASS C     CLASS Z
<S>                             <C>         <C>         <C>         <C>
  Maximum sales charge (load)
   imposed on purchases (as a
   percentage of offering
   price)                              5%        None          1%        None
  Maximum deferred sales
   charge (load) (as a
   percentage of the lower of
   original purchase price or
   sale proceeds)                    None          5%(2)        1%(3)      None
  Maximum sales charge (load)
   imposed on reinvested
   dividends and other
   distributions                     None        None        None        None
  Redemption fees                    None        None        None        None
  Exchange fee                       None        None        None        None
</TABLE>

  ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
                                 CLASS A     CLASS B     CLASS C     CLASS Z
<S>                             <C>         <C>         <C>         <C>
  Management fees                    .60%        .60%        .60%        .60%
  + Distribution and service
   (12b-1) fees                      .30%(4)     1.00%      1.00%        None
  + Other expenses                   .21%        .21%        .21%        .21%
  = Total annual Fund
   operating expenses               1.11%       1.81%       1.81%        .81%
  - Fee waiver or expense
   reimbursement                     .05%        None        None        None
  = NET ANNUAL FUND OPERATING
   EXPENSES                         1.06%(4)     1.81%      1.81%        .81%
</TABLE>

1    YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
     SALES OF SHARES.
2    THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B SHARES DECREASES BY
     1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH YEAR.
     CLASS B SHARES CONVERT TO CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER
     PURCHASE.
3    THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN 18 MONTHS OF
     PURCHASE.
4    FOR THE FISCAL YEAR ENDING 10-31-01, THE DISTRIBUTOR OF THE FUND HAS
     CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12b-1) FEES
     FOR CLASS A SHARES TO .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE
     CLASS A SHARES.

-------------------------------------------------------------------
4  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.           [GRAPHIC] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
    The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A shares during the
first year. Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:

<TABLE>
<CAPTION>
                                1 YR  3 YRS  5 YRS   10 YRS
<S>                             <C>   <C>    <C>     <C>
  Class A shares                $603   $831  $1,076  $1,780
  Class B shares                $684   $869  $1,080  $1,857
  Class C shares                $382   $664  $1,070  $2,205
  Class Z shares                $ 83   $259  $  450  $1,002
</TABLE>

You would pay the following expenses on the same investment if you did not sell
your shares:

<TABLE>
<CAPTION>
                                1 YR  3 YRS  5 YRS   10 YRS
<S>                             <C>   <C>    <C>     <C>
  Class A shares                $603   $831  $1,076  $1,780
  Class B shares                $184   $569  $  980  $1,857
  Class C shares                $282   $664  $1,070  $2,205
  Class Z shares                $ 83   $259  $  450  $1,002
</TABLE>

--------------------------------------------------------------------------------
                                                                               5
<PAGE>
HOW THE FUND INVESTS
-------------------------------------

INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is LONG-TERM CAPITAL APPRECIATION. This means we
seek investments whose price will increase over several years. While we make
every effort to achieve our objective, we can't guarantee success.
    In pursuing our objective, we normally invest at least 65% of the Fund's
total assets in EQUITY SECURITIES OF SMALL AND MEDIUM-SIZED U.S. COMPANIES with
the potential for above-average growth. We consider small and medium-sized
companies to be those with market capitalizations that are less than the largest
capitalization of the Standard & Poor's Mid-Cap 400 Stock Index as of the end of
a calendar quarter. As of December 29, 2000, this number was $13 billion. Market
capitalization is measured at the time of purchase.
    In addition to buying equities, the Fund may invest in other equity-related
securities. Equity-related securities include American Depositary Receipts
(ADRs); common stocks; nonconvertible preferred stocks; warrants and rights that
can be exercised to obtain stock; investments in various types of business
ventures, including partnerships and joint ventures; real estate investment
trusts (REITs); and similar securities.
    We also may buy convertible securities. These are securities--like bonds,
corporate notes and preferred stocks--that we can convert into the company's
common stock or some other equity security. The Fund will only invest in
investment-grade convertible securities. Generally, we consider selling a
security when, in the opinion of the investment adviser, the security has
experienced a fundamental disappointment in earnings; it has reached an
intermediate-term price objective and its outlook no longer seems sufficiently
promising; a relatively more attractive security emerges; or the security has
experienced adverse price movements.

    The Fund may participate in the IPO market. IPO investments may increase the
Fund's total returns. As the Fund's assets grow, the impact of IPO investments
will decline, which may reduce the Fund's total returns.

-------------------------------------------------------------------
OUR GROWTH STRATEGY
We look for small and medium-sized companies that have growth in sales and
earnings driven by products or services. These companies usually have a unique
market niche, a strong new product profile or superior management. We analyze
companies using both fundamental and/or quantitative techniques.
-------------------------------------------------------------------
-------------------------------------------------------------------
6  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.           [GRAPHIC] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

PORTFOLIO TURNOVER
It is not a principal strategy of the Fund to actively and frequently trade its
portfolio securities to achieve its investment objective. Nevertheless, the Fund
normally may have an annual portfolio turnover rate of up to 200%, and in times
of extreme market volatility, the Fund's turnover rate may exceed 200%.
Portfolio turnover is generally the percentage found by dividing the lesser of
portfolio purchases or sales by the monthly average value of the portfolio. High
portfolio turnover (100% or more) results in higher brokerage commissions and
other transaction costs and can affect the Fund's performance. It also can
result in a greater amount of distributions as ordinary income rather than
long-term capital gains.

    For more information, see "Investment Risks" below and the Statement of
Additional Information, "Description of the Fund, Its Investments and Risks."
The Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover
page of this prospectus.
    The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Fund can change
investment policies that are not fundamental.

OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies, we also may use the following
investment strategies to try to increase the Fund's returns or protect its
assets if market conditions warrant.

OTHER EQUITY SECURITIES
The Fund can invest in equity securities of companies with larger market
capitalizations than previously noted.

FOREIGN SECURITIES
The Fund can invest in FOREIGN SECURITIES, including stocks and other
equity-related securities, money market instruments and other investment-grade
fixed-income securities of foreign issuers, including those in developing
countries. We do not consider ADRs and other similar receipts or shares to be
foreign securities.
--------------------------------------------------------------------------------
                                                                               7
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns.
We may use hedging techniques to try to protect the Fund's assets. We cannot
guarantee that these strategies will work, that the instruments necessary to
implement these strategies will be available or that the Fund will not lose
money. Derivatives--such as futures, options, foreign currency forward contracts
and options on futures--involve costs and can be volatile. With derivatives, the
investment adviser tries to predict whether the underlying investment--a
security, market index, currency, interest rate or some other benchmark--will go
up or down at some future date. We may use derivatives to try to reduce risk or
to increase return consistent with the Fund's overall investment objective. The
investment adviser will consider other factors (such as cost) in deciding
whether to employ any particular strategy or use any particular instrument. Any
derivatives we use may not match the Fund's underlying holdings.

OPTIONS. The Fund may purchase and sell put and call options on equity
securities, financial indexes and foreign currencies traded on U.S. or foreign
securities exchanges or in the over-the-counter market. An OPTION is the right
to buy or sell securities or currencies in exchange for a premium. The Fund will
sell only covered options.

FUTURES CONTRACTS AND RELATED OPTIONS
FOREIGN CURRENCY FORWARD CONTRACTS. The Fund may purchase and sell financial
futures contracts and related options on financial futures. A FUTURES CONTRACT
is an agreement to buy or sell a set quantity of an underlying product at a
future date, or to make or receive a cash payment based on the value of a
securities index. The Fund also may enter into foreign currency forward
contracts to protect the value of its assets against future changes in the level
of foreign exchange rates. A FOREIGN CURRENCY FORWARD CONTRACT is an obligation
to buy or sell a given currency on a future date at a set price.

    For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks--Risk Management and Return Enhancement
Strategies."
-------------------------------------------------------------------
8  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.           [GRAPHIC] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

FIXED-INCOME OBLIGATIONS, INCLUDING BONDS AND MONEY MARKET INSTRUMENTS
Fixed-income obligations include bonds and notes. The Fund can invest in
investment-grade corporate or government obligations. Investment-grade
obligations are rated in one of the top four long-term quality ratings by a
major rating service (such as Baa/BBB or better by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group, respectively). We also may
invest in obligations that are not rated, but that we believe to be of
comparable quality. Obligations rated in the fourth category (Baa/BBB) have
speculative characteristics. These lower-rated obligations are subject to a
greater risk of loss of principal and interest. Generally, fixed-income
securities provide a fixed rate of return, but provide less opportunity for
capital appreciation than investing in stocks.
    Money market instruments include the commercial paper of corporations, the
obligations of banks, certificates of deposit and obligations issued or
guaranteed by the U.S. government or its agencies or a foreign government. The
Fund will purchase money market instruments only in one of the two highest
short-term quality ratings of a major rating service. The Fund uses money market
instruments for cash management purposes only.

REPURCHASE AGREEMENTS
The Fund also may use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund and is, in effect, a loan by the
Fund. The Fund uses repurchase agreements for cash management purposes only.

TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in cash or money market
instruments. Investing heavily in these securities limits our ability to achieve
capital appreciation, but can help to preserve the Fund's assets when the equity
markets are unstable.
--------------------------------------------------------------------------------
                                                                               9
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

ADDITIONAL STRATEGIES
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 20% of the value of its total assets); LENDS ITS SECURITIES to
others for cash management purposes (the Fund can lend up to 33 1/3% of the
value of its total assets, including collateral received in the transaction);
and HOLDS ILLIQUID SECURITIES (the Fund may hold up to 15% of its net assets in
illiquid securities, including securities with legal or contractual restrictions
on resale, those without a readily available market and repurchase agreements
with maturities longer than seven days). The Fund is subject to certain
investment restrictions that are fundamental policies, which means they cannot
be changed without shareholder approval. For more information about these
restrictions, see the SAI.
-------------------------------------------------------------------
10  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. Since the Fund's holdings can vary significantly from broad market
indexes, performance of the Fund can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Fund's principal
investments and certain other non-principal investments the Fund may make. The
investment types are listed in the order in which they normally will be used by
the portfolio manager. See, too, "Description of the Fund, Its Investments and
Risks" in the SAI.

  INVESTMENT TYPE

<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS   RISKS                          POTENTIAL REWARDS
<S>                        <C>                            <C>
-----------------------------------------------------------------------------------
  STOCKS OF SMALL AND      -- Individual stocks           -- Historically, stocks
  MEDIUM-SIZED U.S.             could lose value               have outperformed
  COMPANIES                -- The equity markets              other investments
                               could go down,                 over the long term
  AT LEAST 65%                 resulting in a             -- Generally, economic
                               decline in value of            growth means higher
                               the Fund's                     corporate profits,
                               investments                    which leads to an
                           -- Stocks of small and             increase in stock
                               medium-sized                   prices, known as
                               companies are more             capital appreciation
                               volatile and may           -- Highly successful
                               decline more than              smaller companies can
                               those in the S&P 500           outperform larger
                               Index                          ones
                           -- Smaller companies are
                               more likely to
                               reinvest earnings and
                               not pay dividends
                           -- Changes in interest
                               rates may affect the
                               securities of small
                               and medium-sized
                               companies more than
                               the securities of
                               larger companies
                           -- Changes in economic or
                               political conditions,
                               both domestic and
                               international, may
                               result in a decline
                               in value of the
                               Fund's investments
-----------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
                                                                              11
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

  INVESTMENT TYPE (CONT'D)

<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS        RISKS                          POTENTIAL REWARDS
<S>                             <C>                            <C>
----------------------------------------------------------------------------------------
  STOCKS OF LARGER U.S.         -- Similar risks to small      -- Not as likely to lose
  COMPANIES                         and medium-sized U.S.          value as stocks of
                                    companies                      small and
  UP TO 35%; USUALLY LESS THAN  -- Companies that pay              medium-sized
  20%                               dividends may not do           companies
                                    so if they don't have      -- May be a source of
                                    profits or adequate            dividend income
                                    cash flow
----------------------------------------------------------------------------------------
  FOREIGN SECURITIES            -- Foreign markets,            -- Investors can
                                    economies and                   participate in the
  UP TO 35%; USUALLY LESS THAN      political systems may          growth of foreign
  10%                               not be as stable as            markets and companies
                                    in the U.S.,                   operating in those
                                    particularly those in          markets
                                    developing countries       -- May profit from
                                -- Currency risk--                 changing value of
                                    changing value of              foreign currencies
                                    foreign currencies         -- Opportunities for
                                    can cause losses               diversification
                                -- May be less liquid
                                     than U.S. stocks and
                                    bonds
                                -- Differences in foreign
                                    laws, accounting
                                    standards, public
                                    information, custody
                                    and settlement
                                    practices provide
                                    less reliable
                                    information on
                                    foreign investments
                                    and involve more
                                    risks
----------------------------------------------------------------------------------------
</TABLE>

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12  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

  INVESTMENT TYPE (CONT'D)

<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS        RISKS                          POTENTIAL REWARDS
<S>                             <C>                            <C>
----------------------------------------------------------------------------------------
  DERIVATIVES                   -- Derivatives such as         -- The Fund could make
                                    futures, options and           money and protect
  PERCENTAGE VARIES; USUALLY        foreign currency               against losses if the
  LESS THAN 10%                     forward contracts              investment analysis
                                    that are used for              proves correct
                                    hedging purposes may       -- Derivatives that
                                    not fully offset the            involve leverage
                                    underlying positions           could generate
                                    and this could result          substantial gains at
                                    in losses to the Fund          low cost
                                    that would not have        -- One way to manage the
                                    otherwise occurred             Fund's risk/return
                                -- Derivatives used for            balance is by locking
                                     risk management may           in the value of an
                                    not have the intended          investment ahead of
                                    effects and may                time
                                    result in losses or
                                    missed opportunities
                                -- The other party to a
                                    derivatives contract
                                    could default
                                -- Derivatives that
                                     involve leverage
                                    could magnify losses
                                -- Certain types of
                                    derivatives involve
                                    costs to the Fund
                                    that can reduce
                                    returns
----------------------------------------------------------------------------------------
  ILLIQUID SECURITIES           -- May be difficult to         -- May offer a more
                                    value precisely                attractive yield or
  UP TO 15% OF NET ASSETS       -- May be difficult to             potential for growth
                                     sell at the time or           than more widely
                                    price desired                  traded securities
----------------------------------------------------------------------------------------
  U.S. GOVERNMENT SECURITIES    -- Not all are insured or      -- May preserve the
                                    guaranteed by the              Fund's assets
  UP TO 35%; USUALLY LESS THAN      government, but only       -- Regular interest
  10%                               by the issuing agency           income
                                -- Limits potential for        -- Generally more secure
                                    capital appreciation           than lower quality
                                -- See market risk,                debt securities and
                                     credit risk and               equity securities
                                    interest rate risk         -- Principal and interest
                                                                   may be guaranteed by
                                                                   the U.S. government
----------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
                                                                              13
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

  INVESTMENT TYPE (CONT'D)

<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS        RISKS                          POTENTIAL REWARDS
<S>                             <C>                            <C>
----------------------------------------------------------------------------------------
  MONEY MARKET INSTRUMENTS      -- Limits potential for        -- May preserve the
                                    capital appreciation           Fund's assets
  UP TO 35% ON A NORMAL BASIS   -- See credit risk and
  AND UP TO 100% ON A               market risk
  TEMPORARY BASIS
----------------------------------------------------------------------------------------
  FIXED-INCOME OBLIGATIONS      -- The Fund's holdings,        -- Bonds have generally
                                    share price and total          outperformed money
  UP TO 35%; USUALLY LESS THAN      return may fluctuate           market instruments
  5%                                in response to bond            over the long term,
                                    market movements               with less risk than
                                -- Credit risk--the risk           stocks
                                    that the default of        -- Most bonds will rise
                                    an issuer would leave           in value when
                                    the Fund with unpaid           interest rates fall
                                    interest or                -- Regular interest
                                    principal. The lower            income
                                    a bond's quality, the      -- Investment-grade bonds
                                    higher its potential           have a lower risk of
                                    volatility                     default than junk
                                -- Market risk--the risk           bonds
                                    that the market value      -- High-quality debt
                                    of an investment may           obligations generally
                                    move up or down,               are more secure than
                                    sometimes rapidly or           stocks since
                                    unpredictably. Market          companies must pay
                                    risk may affect an             their debts before
                                    industry, a sector or          they pay dividends
                                    the market as a whole      -- Principal and interest
                                -- Interest rate                    on government
                                     risk--the risk that           securities may be
                                    the value of most              guaranteed by the
                                    bonds will fall when           issuing government
                                    interest rates rise.
                                    The longer a bond's
                                    maturity and the
                                    lower its credit
                                    quality, the more its
                                    value typically
                                    falls. It can lead to
                                    price volatility
----------------------------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
14  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
-------------------------------------

BOARD OF DIRECTORS
The Fund's Board of Directors oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers, who conduct and supervise the daily business operations of
the Fund.

MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077

    Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM also is
responsible for supervising the Fund's investment adviser. For the fiscal year
ended October 31, 2000, the Fund paid PIFM management fees of .60% of the Fund's
average net assets.
    PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of December 31, 2000, PIFM served as the
manager to all 39 of the Prudential mutual funds, and as manager or
administrator to 21 closed-end investment companies, with aggregate assets of
approximately $76 billion.

INVESTMENT ADVISER
Jennison Associates LLC (Jennison) is the Fund's investment adviser and has
served as such since August 24, 2000. Its address is 466 Lexington Avenue, New
York, NY 10017. PIFM has responsibility for all investment advisory services,
supervises Jennison and pays Jennison for its services. As of December 31, 2000,
Jennison managed approximately $80.9 billion in assets. Jennison has served as
an investment adviser to investment companies since 1990. The Prudential
Investment Corporation (PIC) served as investment adviser from the Fund's
inception through August 23, 2000. Jennison is a wholly-owned subsidiary of PIC.
For the period January 1, 2000 through May 24, 2000, PIC was paid at the annual
rate of .30% of the Fund's average net assets. From May 24 through August 23,
2000, PIC was paid at the annual rate of .30% of the Fund's average net assets
up to $1 billion and .261% of the Fund's average net assets in excess of $1
billion. This is the same rate at which Jennison currently is being paid by
PIFM.
--------------------------------------------------------------------------------
                                                                              15
<PAGE>
HOW THE FUND IS MANAGED
------------------------------------------------

PORTFOLIO MANAGER
SUSAN HIRSCH, an Executive Vice President of Jennison, has managed the Fund
since it began. Prior to joining Jennison, Ms. Hirsch was a Managing Director of
PIC, which she joined in July 1996. Before that she was employed by Lehman
Brothers Global Asset Management from 1988 to 1996 and Delphi Asset Management
in 1996. She managed growth stock portfolios at both firms. During this time,
Ms. Hirsch was named as an INSTITUTIONAL INVESTOR All-American Research Team
Analyst for small growth stocks in 1991, 1992 and 1993. Ms. Hirsch holds a B.S.
from Brooklyn College and is a member of the Financial Analysts Federation and
the New York Society of Security Analysts.
    As a growth investor, Ms. Hirsch seeks companies that will produce superior
earnings.

DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's Class A, B, C and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Fees and Expenses" tables.
-------------------------------------------------------------------
16  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
-------------------------------------

Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA) or some other qualified or tax-deferred plan or account. Dividends
and distributions from the Fund also may be subject to state and local income
taxes.
    Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified or tax-deferred plan or account.
    The following briefly discusses some of the important federal tax issues you
should be aware of, but is not meant to be tax advice. For tax advice, please
speak with your tax adviser.

DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to
shareholders--typically once a year. For example, if the Fund owns ACME Corp.
stock and the stock pays a dividend, the Fund will pay out a portion of this
dividend to its shareholders, assuming the Fund's income is more than its costs
and expenses. The dividends you receive from the Fund will be taxed as ordinary
income, whether or not they are reinvested in the Fund.
    The Fund also distributes realized net CAPITAL GAINS to shareholders--
typically once a year. Capital gains are generated when the Fund sells its
assets for a profit. For example, if the Fund bought 100 shares of ACME Corp.
stock for a total of $1,000 and more than one year later sold the shares for a
total of $1,500, the Fund has net long-term capital gains of $500, which it will
pass on to shareholders (assuming the Fund's total gains are greater than any
losses it may have). Capital gains are taxed differently depending on how long
the Fund holds the security--if a security is held more than one year before it
is sold, LONG-TERM capital gains are taxed at the rate of 20%, but if the
security is held one year or less, SHORT-TERM capital gains are taxed at
ordinary income rates of up to 39.6%. Different rates apply to corporate
shareholders.
    For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a
--------------------------------------------------------------------------------
                                                                              17
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
------------------------------------------------

broker, you will receive a credit to your account. Either way, the distributions
may be subject to taxes, unless your shares are held in a qualified or tax-
deferred plan or account. For more information about automatic reinvestment and
other shareholder services, see "Step 4: Additional Shareholder Services" in the
next section.

TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified or tax-deferred plan or account, your taxes
are deferred, so you will not receive a Form 1099. However, you will receive a
Form 1099 when you take any distributions from your qualified or tax-deferred
plan or account.
    Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders generally are eligible for the 70% dividends-received deduction for
certain dividends.

WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will withhold
and pay to the U.S. Treasury 31% of your distributions and sale proceeds.
Dividends of net investment income and short-term capital gains paid to a
nonresident foreign shareholder generally will be subject to a U.S. withholding
tax of 30%. This rate may be lower, depending on any tax treaty the U.S. may
have with the shareholder's country.

IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well, since you bought shares one day and
soon thereafter received a distribution. That is not so
-------------------------------------------------------------------
18  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
------------------------------------------------

because when dividends are paid out, the value of each share of the Fund
decreases by the amount of the dividend to reflect the payout although this may
not be apparent because the value of each share of the Fund also will be
affected by the market changes, if any. The distribution you receive makes up
for the decrease in share value. However, the timing of your purchase does mean
that part of your investment came back to you as taxable income.

QUALIFIED AND TAX-DEFERRED RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax-free. Please contact your financial
adviser for information on a variety of Prudential mutual funds that are
suitable for retirement plans offered by Prudential.

IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax unless you hold shares in a qualified or tax-
deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have.
-------------------------------------------------------------------
RECEIPTS FROM SALE  $        -->        +$  CAPITAL GAIN
                                            (taxes owed)

                                            OR

RECEIPTS FROM SALE  $        -->        -$  CAPITAL LOSS
                                            (offset against gain)

-------------------------------------------------------------------

    If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before the
sale of the shares). If you acquire shares of the Fund and sell your shares
within 90 days, you may not be allowed to include certain charges incurred in
acquiring the shares for purposes of calculating gain or loss realized upon the
sale of the shares.
    Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other
--------------------------------------------------------------------------------
                                                                              19
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
------------------------------------------------

words, it's a "taxable event." Therefore, if the shares you exchanged have
increased in value since you purchased them, you have capital gains, which are
subject to the taxes described above.
    Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on Form 1099; however, proceeds from the sale or exchange will
be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified or tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.

AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale of
your Class B shares. This opinion, however, is not binding on the Internal
Revenue Service (IRS). For more information about the automatic conversion of
Class B shares, see "Class B Shares Convert to Class A Shares After
Approximately Seven Years" in the next section.
-------------------------------------------------------------------
20  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------

HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 8179
PHILADELPHIA, PA 19101

    You may purchase shares by check or wire. We do not accept cash or money
orders. To purchase by wire, call the number above to obtain an application.
After PMFS receives your completed application, you will receive an account
number. We have the right to reject any purchase order (including an exchange
into the Fund) or suspend or modify the Fund's sale of its shares.

STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
    Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge, or CDSC), but the operating expenses each year are higher
than Class A share expenses. With Class C shares, you pay a 1% front-end sales
charge and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.
    When choosing a share class, you should consider the following:
     --    The amount of your investment
     --    The length of time you expect to hold the shares and the impact of
           the varying distribution fees
     --    The different sales charges that apply to each share class--
           Class A's front-end sales charge vs. Class B's CDSC vs. Class C's low
           front-end sales charge and low CDSC
     --    Whether you qualify for any reduction or waiver of sales charges
--------------------------------------------------------------------------------
                                                                              21
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

     --    The fact that Class B shares automatically convert to Class A shares
           approximately seven years after purchase
     --    Whether you qualify to purchase Class Z shares.
    See "How to Sell Your Shares" for a description of the impact of CDSCs.

SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.

<TABLE>
<CAPTION>
                                  CLASS A         CLASS B        CLASS C       CLASS Z
<S>                             <C>             <C>            <C>             <C>
  Minimum purchase amount(1)    $1,000          $1,000         $2,500          None
  Minimum amount for            $100            $100           $100            None
   subsequent purchases(1)
  Maximum initial sales         5% of the       None           1% of the       None
   charge                       public                         public
                                offering                       offering
                                price                          price
  Contingent Deferred Sales     None            If sold        1% on sales     None
   Charge (CDSC)(2)                             during:        made within
                                                Year 1  5%     18 months of
                                                Year 2  4%     purchase(2)
                                                Year 3  3%
                                                Year 4  2%
                                                Year 5/6 1%
                                                Year 7  0%
  Annual distribution and       .30 of 1%       1%             1%              None
   service (12b-1) fees         (.25 of 1%
   shown as a percentage of     currently)
   average net assets(3)
</TABLE>

<TABLE>
<S>                     <C>
1                       THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN
                        RETIREMENT AND EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS
                        FOR MINORS. THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT
                        FOR PURCHASES MADE THROUGH THE AUTOMATIC INVESTMENT PLAN IS
                        $50. FOR MORE INFORMATION, SEE "ADDITIONAL SHAREHOLDER
                        SERVICES--AUTOMATIC INVESTMENT PLAN."
2                       FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS
                        CALCULATED, SEE "HOW TO SELL YOUR SHARES--CONTINGENT
                        DEFERRED SALES CHARGE (CDSC)." CLASS C SHARES BOUGHT BEFORE
                        NOVEMBER 2, 1998 HAVE A 1% CDSC IF SOLD WITHIN ONE YEAR.
3                       THESE DISTRIBUTION AND SERVICE FEES ARE PAID FROM THE FUND'S
                        ASSETS ON A CONTINUOUS BASIS. OVER TIME, THE FEES WILL
                        INCREASE THE COST OF YOUR INVESTMENT AND MAY COST YOU MORE
                        THAN PAYING OTHER TYPES OF SALES CHARGES. THE SERVICE FEE
                        FOR CLASS A, CLASS B AND CLASS C SHARES IS .25 OF 1%. THE
                        DISTRIBUTION FEE FOR CLASS A SHARES IS LIMITED TO .30 OF 1%
                        (INCLUDING THE .25 OF 1% SERVICE FEE) AND IS .75 OF 1% FOR
                        CLASS B AND CLASS C SHARES. FOR THE FISCAL YEAR ENDING
                        10-31-01, THE DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY
                        AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12b-1) FEES
                        FOR CLASS A SHARES TO .25 OF 1% OF THE AVERAGE DAILY NET
                        ASSETS OF THE CLASS A SHARES.
</TABLE>

-------------------------------------------------------------------
22  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid
paying Class A's initial sales charge.

INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's sales
charge by increasing the amount of your investment. This table shows how
the sales charge decreases as the amount of your investment increases.

<TABLE>
<CAPTION>
                          SALES CHARGE AS % OF   SALES CHARGE AS % OF       DEALER
   AMOUNT OF PURCHASE        OFFERING PRICE         AMOUNT INVESTED       REALLOWANCE
<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 million and above*                   None                    None            None
</TABLE>

<TABLE>
<S>                     <C>
*                       IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A
                        SHARES, UNLESS YOU QUALIFY TO BUY CLASS Z SHARES.
</TABLE>

    To satisfy the purchase amounts above, you can:

     --    Invest with an eligible group of related investors

     --    Buy Class A shares of two or more Prudential mutual funds at the same
           time

     --    Use your RIGHTS OF ACCUMULATION, which allow you to combine the
           current value of Prudential mutual fund shares you already own with
           the value of the shares you are purchasing for purposes of
           determining the applicable sales charge (note: you must notify the
           Transfer Agent if you qualify for Rights of Accumulation)

     --    Sign a LETTER OF INTENT, stating in writing that you or an eligible
           group of related investors will purchase a certain amount of shares
           in the Fund and other Prudential mutual funds within 13 months.

    The Distributor may reallow Class A's sales charge to dealers.

BENEFIT PLANS. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge if they meet the required minimum for
amount of assets, average account balance or number of
--------------------------------------------------------------------------------
                                                                              23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

eligible employees. For more information about these requirements, call
Prudential at (800) 353-2847.

MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group relating
to:

     --    Mutual fund "wrap" or asset allocation programs where the sponsor
           places Fund trades and charges its clients a management, consulting
           or other fee for its services, or

     --    Mutual fund "supermarket" programs where the sponsor links its
           clients' accounts to a master account in the sponsor's name and the
           sponsor charges a fee for its services.

    Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

OTHER TYPES OF INVESTORS. Other investors pay no sales charge, including certain
officers, employees or agents of Prudential and its affiliates, the Prudential
mutual funds, the subadvisers of the Prudential mutual funds and registered
representatives and employees of brokers that have entered into a dealer
agreement with the Distributor. To qualify for a reduction or waiver of the
sales charge, you must notify the Transfer Agent or your broker at the time of
purchase. For more information, see the SAI, "Purchase, Redemption and Pricing
of Fund Shares--Reduction and Waiver of Initial Sales Charge--Class A Shares."

WAIVING CLASS C'S INITIAL SALES CHARGE
BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at (800)
353-2847.
-------------------------------------------------------------------
24  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated (Prudential Securities) or one of its affiliates. These
purchases must be made within 60 days of the redemption. To qualify for this
waiver, you must do one of the following:

     --    purchase your shares through an account at Prudential Securities,

     --    purchase your shares through an ADVANTAGE Account or an Investor
           Account with Pruco Securities Corporation, or

     --    purchase your shares through another broker.

    This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker, who may require any supporting documents they
consider appropriate.

QUALIFYING FOR CLASS Z SHARES
BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares if
they meet the required minimum for amount of assets, average account balance or
number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.

MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
that includes the Fund as an available option. Class Z shares also can be
purchased by investors in certain programs sponsored by broker-dealers,
investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:

     --    Mutual fund "wrap" or asset allocation programs where the sponsor
           places Fund trades, links its clients' accounts to a master account
           in the sponsor's name and charges its clients a management,
           consulting or other fee for its services, or

     --    Mutual fund "supermarket" programs, where the sponsor links its
           clients' accounts to a master account in the sponsor's name and the
           sponsor charges a fee for its services.
--------------------------------------------------------------------------------
                                                                              25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

    Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:

     --    Certain participants in the MEDLEY Program (group variable annuity
           contracts) sponsored by Prudential for whom Class Z shares of the
           Prudential mutual funds are an available option,

     --    Current and former Directors/Trustees of the Prudential mutual funds
           (including the Fund), and

     --    Prudential, with an investment of $10 million or more.

    In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class A or Class Z
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.

CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you received with reinvested dividends
and other distributions. Since the 12b-1 fees for Class A shares are lower than
for Class B shares, converting to Class A shares lowers your Fund expenses.
    When we do the conversion, you will get fewer Class A shares than the number
of Class B shares converted if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."
-------------------------------------------------------------------
26  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation--it's the total value of the Fund (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the price of one
share of the fund--or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Fund's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the price of mutual funds daily.
    We determine the NAV of our shares once each business day at 4:15 p.m. New
York time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on most national holidays and Good Friday. Because the Fund
can invest in foreign securities, its NAV can change on days when you cannot buy
or sell shares. We do not determine the NAV on days when we have not received
any orders to purchase, sell or exchange Fund shares, or when changes in the
value of the Fund's portfolio do not materially affect the NAV.

WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge you a separate or additional fee for purchases
of shares.

-------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock in
its portfolio and the price of ACME stock goes up, while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.
-------------------------------------------------------------------
--------------------------------------------------------------------------------
                                                                              27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:

AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 8159
PHILADELPHIA, PA 19101

AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.

RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs or SEP-IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs,
403(b) plans, pension and profit-sharing plans), your financial adviser will
help you determine which retirement plan best meets your needs. Complete
instructions about how to establish and maintain your plan and how to open
accounts for you and your employees will be included in the retirement plan kit
you receive in the mail.

THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. Eligible investors who apply for PruTector coverage after
-------------------------------------------------------------------
28  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

the initial 6-month enrollment period will need to provide satisfactory evidence
of insurability. This insurance is subject to other restrictions and is not
available in all states.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption checks.
Remember, the sale of Class B and Class C shares may be subject to a CDSC.

REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.

HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
    When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, your broker must receive your order to sell by 4:15 p.m. New York
time to process the sale on that day. Otherwise contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 8149
PHILADELPHIA, PA 19101

    Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase
--------------------------------------------------------------------------------
                                                                              29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

shares by wire, certified check or cashier's check. Your broker may charge you a
separate or additional fee for sales of shares.

RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. As permitted by the
Securities and Exchange Commission, this may happen during unusual market
conditions or emergencies when the Fund can't determine the value of its assets
or sell its holdings. For more information, see the SAI, "Purchase, Redemption
and Pricing of Fund Shares--Sale of Shares."
    If you are selling more than $100,000 of shares, you want the redemption
proceeds payable to or sent to someone or some place that is not in our records
or you are a business or a trust and you hold your shares directly with the
Transfer Agent, you will need to have the signature on your sell order signature
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker-dealer or credit union. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale
of Shares--Signature Guarantee."

CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase (one year for Class C shares purchased before November 2,
1998), you will have to pay a CDSC. To keep the CDSC as low as possible, we will
sell amounts representing shares in the following order:

     --    Amounts representing shares you purchased with reinvested dividends
           and distributions

     --    Amounts representing the increase in NAV above the total amount of
           payments for shares made during the past six years for Class B shares
           and 18 months for Class C shares (one year for Class C shares
           purchased before November 2, 1998)

     --    Amounts representing the cost of shares held beyond the CDSC period
           (six years for Class B shares and 18 months for Class C shares).

    Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
-------------------------------------------------------------------
30  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

    Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
    As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth and 1% in the fifth and sixth years. The rate decreases on the first
day of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase (one year for Class C shares purchased
before November 2, 1998). For both Class B and Class C shares, the CDSC is
calculated based on the lesser of the original purchase price or the redemption
proceeds. For purposes of determining how long you've held your shares, all
purchases during the month are grouped together and considered to have been made
on the last day of the month.
    The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.

WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
     --    After a shareholder is deceased or disabled (or, in the case of a
           trust account, the death or disability of the grantor). This waiver
           applies to individual shareholders, as well as shares held in joint
           tenancy, provided the shares were purchased before the death or
           disability
     --    To provide for certain distributions--made without IRS penalty--from
           a tax-deferred retirement plan, IRA or Section 403(b) custodial
           account
     --    On certain sales effected through a Systematic Withdrawal Plan.

    For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charge--Class B Shares."
--------------------------------------------------------------------------------
                                                                              31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

WAIVER OF THE CDSC--CLASS C SHARES
BENEFIT PLANS. The CDSC will be waived for purchases by certain group retirement
plans for which Prudential or brokers not affiliated with Prudential provide
administrative or recordkeeping services. The CDSC also will be waived for
certain redemptions by benefit plans sponsored by Prudential and its affiliates.
For more information, call Prudential at (800) 353-2847.

REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.

SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA or some other
qualified or tax-deferred plan or account.

90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund and account
without paying an initial sales charge. Also, if you paid a CDSC when you
redeemed your shares, we will credit your new account with the appropriate
numbers of shares to reflect the amount of the CDSC you paid. In order to take
advantage of this one-time privilege, you must notify the Transfer Agent or your
broker at the time of the repurchase. See the SAI, "Purchase, Redemption and
Pricing of Fund Shares--Sale of Shares."
-------------------------------------------------------------------
32  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

RETIREMENT PLANS
To sell shares and receive a distribution from a retirement account, call your
broker or the Transfer Agent for a distribution request form. There are special
distribution and income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer or
plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.

HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in certain
other Prudential mutual funds--including certain money market funds--if you
satisfy the minimum investment requirements. For example, you can exchange
Class A shares of the Fund for Class A shares of another Prudential mutual fund,
but you can't exchange Class A shares for Class B, Class C or Class Z shares.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. After an exchange, at redemption
the CDSC will be calculated from the first day of the month after initial
purchase, excluding any time shares were held in a money market fund. We may
change the terms of the exchange privilege after giving you 60 days' notice.
    If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 8157
PHILADELPHIA, PA 19101

    There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding period for CDSC
liability.
--------------------------------------------------------------------------------
                                                                              33
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

    Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than the amount that you paid for them, you may have to pay capital
gains tax. For additional information about exchanging shares, see the SAI,
"Shareholder Investment Account--Exchange Privilege."
    If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares. We
make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained legal opinion that this exchange is not a "taxable
event" for federal income tax purposes. This opinion is not binding on the IRS.

FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When, in our opinion, such activity would have a disruptive effect on portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
into the Fund by any person, group or commonly controlled account. The decision
may be based upon dollar amount, volume or frequency of trading. The Fund may
notify a market timer of rejection of an exchange or purchase order after the
day the order is placed. If the Fund allows a market timer to trade Fund shares,
it may require the market timer to enter into a written agreement to follow
certain procedures and limitations.
-------------------------------------------------------------------
34  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must call the Fund before 4:15 p.m. New York time. You will receive a redemption
or exchange amount based on that day's NAV.
    The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
    In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail or through your broker.
    The telephone redemption or exchange privilege may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.
--------------------------------------------------------------------------------
                                                                              35
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------

The financial highlights will help you evaluate the Fund's financial performance
since its inception. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
    Review each chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI and are available
upon request. Additional performance information for each share class is
contained in the annual report, which you can receive at no charge.

CLASS A SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

 CLASS A SHARES (FISCAL PERIODS ENDED 10-31)

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE               2000(5)         1999(5)          1998           1997(1)
<S>                                        <C>             <C>             <C>             <C>
 NET ASSET VALUE, BEGINNING OF PERIOD             $19.16          $12.01          $11.92          $10.00
 INCOME FROM INVESTMENT OPERATIONS:
 Net investment loss                                (.20)           (.13)           (.11)           (.08)
 Net realized and unrealized gain on
  investment transactions                           8.37            7.61             .41            2.00
 TOTAL FROM INVESTMENT OPERATIONS                   8.17            7.48             .30            1.92
--------------------------------------------------------------------------------------------------------
 LESS DISTRIBUTIONS:
 Distributions from net realized gains             (1.64)           (.33)           (.21)             --
 NET ASSET VALUE, END OF PERIOD                   $25.69          $19.16          $12.01          $11.92
 TOTAL RETURN(2)                                  44.52%          63.65%           2.63%          19.20%
--------------------------------------------------------------------------------------------------------
 RATIOS/SUPPLEMENTAL DATA                           2000            1999            1998         1997(1)
--------------------------------------------------------------------------------------------------------
 NET ASSETS, END OF PERIOD (000)                $291,800         $85,595         $32,183         $33,124
 Average net assets (000)                       $217,712         $52,984         $33,831         $28,141
 RATIOS TO AVERAGE NET ASSETS:
 Expenses, including distribution and
  service (12b-1) fees(4)                          1.06%           1.22%           1.25%           1.46%(3)
 Expenses, excluding distribution and
  service (12b-1) fees                              .81%            .97%           1.00%           1.21%(3)
 Net investment income (loss)                     (.75)%          (.80)%          (.88)%          (.92)%(3)
 Portfolio turnover                                 347%            153%            177%            107%
</TABLE>

<TABLE>
<S>                     <C>
1                       INFORMATION SHOWN IS FOR THE PERIOD 12-31-96 (WHEN CLASS A
                        SHARES WERE FIRST OFFERED) THROUGH 10-31-97.
2                       TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
                        DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
                        CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
                        THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH PERIOD
                        REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN A FULL YEAR
                        ARE NOT ANNUALIZED.
3                       ANNUALIZED.
4                       THE DISTRIBUTOR OF THE FUND AGREED TO LIMIT ITS DISTRIBUTION
                        FEES TO .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE
                        CLASS A SHARES.
5                       CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE
                        PERIOD.
</TABLE>

-------------------------------------------------------------------
36  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

CLASS B SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

 CLASS B SHARES (FISCAL PERIODS ENDED 10-31)

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE                 2000(4)          1999(4)           1998          1997(1)
<S>                                          <C>              <C>              <C>             <C>
 NET ASSET VALUE, BEGINNING OF PERIOD               $18.72           $11.83          $11.85          $10.00
 INCOME FROM INVESTMENT OPERATIONS:
 Net investment loss                                  (.38)            (.24)           (.20)           (.14)
 Net realized and unrealized gain on
  investment transactions                             8.18             7.46             .39            1.99
 TOTAL FROM INVESTMENT OPERATIONS                     7.80             7.22             .19            1.85
-----------------------------------------------------------------------------------------------------------
 LESS DISTRIBUTIONS:
 Distributions from net realized gains               (1.64)            (.33)           (.21)             --
 NET ASSET VALUE, END OF PERIOD                     $24.88           $18.72          $11.83          $11.85
 TOTAL RETURN(2)                                    43.52%           62.39%           1.71%          18.50%
-----------------------------------------------------------------------------------------------------------
 RATIOS/SUPPLEMENTAL DATA                             2000             1999            1998         1997(1)
-----------------------------------------------------------------------------------------------------------
 NET ASSETS, END OF PERIOD (000)                  $424,815         $184,955         $83,407         $82,070
 Average net assets (000)                         $382,245         $127,249         $86,713         $67,420
 RATIOS TO AVERAGE NET ASSETS:
 Expenses, including distribution and
  service (12b-1) fees                               1.81%            1.97%           2.00%           2.21%(3)
 Expenses, excluding distribution and
  service (12b-1) fees                                .81%             .97%           1.00%           1.21%(3)
 Net investment loss                               (1.49)%          (1.55)%         (1.63)%         (1.67)%(3)
 Portfolio turnover                                   347%             153%            177%            107%
</TABLE>

<TABLE>
<S>                     <C>
1                       INFORMATION SHOWN IS FOR THE PERIOD 12-31-96 (WHEN CLASS B
                        SHARES WERE FIRST OFFERED) THROUGH 10-31-97.
2                       TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
                        DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
                        CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
                        THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH PERIOD
                        REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN A FULL YEAR
                        ARE NOT ANNUALIZED.
3                       ANNUALIZED.
4                       CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE
                        PERIOD.
</TABLE>

--------------------------------------------------------------------------------
                                                                              37
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

CLASS C SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

 CLASS C SHARES (FISCAL PERIODS ENDED 10-31)

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE                   2000(4)         1999(4)          1998          1997(1)
<S>                                             <C>             <C>             <C>            <C>
 NET ASSET VALUE, BEGINNING OF PERIOD                 $18.72          $11.83         $11.85          $10.00
 INCOME FROM INVESTMENT OPERATIONS:
 Net investment loss                                    (.38)           (.24)          (.20)           (.14)
 Net realized and unrealized gain on
  investment transactions                               8.18            7.46            .39            1.99
 TOTAL FROM INVESTMENT OPERATIONS                       7.80            7.22            .19            1.85
-----------------------------------------------------------------------------------------------------------
 LESS DISTRIBUTIONS:
 Distributions from net realized gains on
  investment transactions                              (1.64)           (.33)          (.21)             --
 NET ASSET VALUE, END OF PERIOD                       $24.88          $18.72         $11.83          $11.85
 TOTAL RETURN(2)                                      43.52%          62.39%          1.71%          18.50%
-----------------------------------------------------------------------------------------------------------
 RATIOS/SUPPLEMENTAL DATA                               2000            1999           1998         1997(1)
-----------------------------------------------------------------------------------------------------------
 NET ASSETS, END OF PERIOD (000)                     $83,275         $23,578         $6,774          $6,477
 Average net assets (000)                            $65,566         $12,380         $6,949          $5,526
 RATIOS TO AVERAGE NET ASSETS:
 Expenses, including distribution and
  service (12b-1) fees                                 1.81%           1.97%          2.00%           2.21%(3)
 Expenses, excluding distribution and
  service (12b-1) fees                                  .81%            .97%          1.00%           1.21%(3)
 Net investment loss                                 (1.50)%         (1.56)%        (1.63)%         (1.69)%(3)
 Portfolio turnover                                     347%            153%           177%            107%
</TABLE>

<TABLE>
<S>                     <C>
1                       INFORMATION SHOWN IS FOR THE PERIOD 12-31-96 (WHEN CLASS C
                        SHARES WERE FIRST OFFERED) THROUGH 10-31-97.
2                       TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
                        DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
                        CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
                        THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH PERIOD
                        REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR
                        ARE NOT ANNUALIZED.
3                       ANNUALIZED.
4                       CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE
                        PERIOD.
</TABLE>

-------------------------------------------------------------------
38  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

CLASS Z SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

 CLASS Z SHARES (FISCAL PERIODS ENDED 10-31)

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE                   2000(4)         1999(4)          1998          1997(1)
<S>                                             <C>             <C>             <C>            <C>
 NET ASSET VALUE, BEGINNING OF PERIOD                 $19.28          $12.06         $11.93         $10.00
 INCOME FROM INVESTMENT OPERATIONS:
 Net investment loss                                    (.13)           (.09)          (.04)          (.03)
 Net realized and unrealized gain on
  investment transactions                               8.43            7.64            .38           1.96
 TOTAL FROM INVESTMENT OPERATIONS                       8.30            7.55            .34           1.93
----------------------------------------------------------------------------------------------------------
 LESS DISTRIBUTIONS:
 Distributions from net realized gains on
  investment transactions                              (1.64)           (.33)          (.21)            --
 NET ASSET VALUE, END OF PERIOD                       $25.94          $19.28         $12.06         $11.93
 TOTAL RETURN(2)                                      44.95%          63.97%          2.97%         19.30%
----------------------------------------------------------------------------------------------------------
 RATIOS/SUPPLEMENTAL DATA                               2000            1999           1998        1997(1)
----------------------------------------------------------------------------------------------------------
 NET ASSETS, END OF PERIOD (000)                     $76,607         $19,029         $2,439           $561
 Average net assets (000)                            $52,755          $7,796         $1,283           $261
 RATIOS TO AVERAGE NET ASSETS:
 Expenses, including distribution and
  service (12b-1) fees                                  .81%            .97%          1.00%          1.21%(3)
 Expenses, excluding distribution and
  service (12b-1) fees                                  .81%            .97%          1.00%          1.21%(3)
 Net investment loss                                  (.51)%          (.56)%         (.63)%         (.73)%(3)
 Portfolio turnover                                     347%            153%           177%           107%
</TABLE>

<TABLE>
<S>                     <C>
1                       INFORMATION SHOWN IS FOR THE PERIOD 12-31-96 (WHEN CLASS Z
                        SHARES WERE FIRST OFFERED) THROUGH 10-31-97.
2                       TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
                        DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES
                        CHARGES. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON
                        THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH PERIOD
                        REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR
                        ARE NOT ANNUALIZED.
3                       ANNUALIZED.
4                       CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE
                        PERIOD.
</TABLE>

--------------------------------------------------------------------------------
                                                                              39
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
-------------------------------------

Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Please read the prospectus carefully before you invest or
send money.

STOCK FUNDS
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL INDEX SERIES FUND
  PRUDENTIAL STOCK INDEX FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
  PRUDENTIAL FINANCIAL SERVICES FUND
  PRUDENTIAL HEALTH SCIENCES FUND
  PRUDENTIAL TECHNOLOGY FUND
  PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL COMPANY FUND, INC.
PRUDENTIAL TAX-MANAGED FUNDS
  PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL TAX-MANAGED SMALL-CAP FUND, INC.
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
PRUDENTIAL VALUE FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
  PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND
  PRUDENTIAL JENNISON GROWTH FUND
NICHOLAS-APPLEGATE FUND, INC.
  NICHOLAS-APPLEGATE GROWTH EQUITY FUND
TARGET FUNDS
  LARGE CAPITALIZATION GROWTH FUND
  LARGE CAPITALIZATION VALUE FUND
  SMALL CAPITALIZATION GROWTH FUND
  SMALL CAPITALIZATION VALUE FUND

ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL DIVERSIFIED FUNDS
  CONSERVATIVE GROWTH FUND
  MODERATE GROWTH FUND
  HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
  PRUDENTIAL ACTIVE BALANCED FUND

GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
  PRUDENTIAL GLOBAL GROWTH FUND
  PRUDENTIAL INTERNATIONAL VALUE FUND
  PRUDENTIAL JENNISON INTERNATIONAL GROWTH FUND
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
  INTERNATIONAL EQUITY FUND

GLOBAL BOND FUND
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.

-------------------------------------------------------------------
40  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
-------------------------------------

BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL SHORT-TERM CORPORATE BOND FUND, INC.
  INCOME PORTFOLIO
PRUDENTIAL TOTAL RETURN BOND FUND, INC.
TARGET FUNDS
  TOTAL RETURN BOND FUND

TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
  CALIFORNIA SERIES
  CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
  HIGH INCOME SERIES
  INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
  FLORIDA SERIES
  NEW JERSEY SERIES
  NEW YORK SERIES
  PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
  LIQUID ASSETS FUND
  NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
  MONEY MARKET SERIES
  U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
  MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.

TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
  CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
  NEW JERSEY MONEY MARKET SERIES
  NEW YORK MONEY MARKET SERIES
PRUDENTIAL TAX-FREE MONEY FUND, INC.

COMMAND FUNDS
COMMAND GOVERNMENT FUND
COMMAND MONEY FUND
COMMAND TAX-FREE FUND

INSTITUTIONAL MONEY MARKET FUND
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
  INSTITUTIONAL MONEY MARKET SERIES

--------------------------------------------------------------------------------
                                                                              41
<PAGE>
                                     Notes
-------------------------------------------------------------------
42  PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.          [GRAPHIC] (800) 225-1852
<PAGE>
YOUR FINANCIAL SECURITY, YOUR SATISFACTION & YOUR PRIVACY

 ACCESSING INFORMATION
    Access to customer information is authorized for Prudential business
purposes only. Employees who have access to customer information are required to
protect it and keep it confidential.

 COLLECTING INFORMATION TO CONDUCT BUSINESS
    Prudential collects information about you to help us serve your financial
needs, provide customer service, offer new products or services, and fulfill
legal and regulatory requirements. The type of information that Prudential
collects varies according to the products or services you request, and may
include:
    - information included on your application and related forms (such as name,
     address, Social Security number, assets and income);
    - information about your relationships with us (such as products or services
     purchased, account balances and payment history);
    - information from your employer, benefit plan sponsor, or association for
     any Prudential group product you may have (such as name, address, Social
     Security number, age and marital status);
    - information from consumer reporting agencies (such as credit relationships
     and history);
    - information from other non-Prudential sources (such as motor vehicle
     reports, medical information, and demographic information); and
    - information from visitors to Prudential websites (such as that provided
     through online forms, site visitorship data and online information
     collecting devices known as "cookies").

 SECURITY STANDARDS
    We continue to assess new technology to provide additional protection of
your personal information. We safeguard customer information in accordance with
federal standards and established security procedures. Measures we take include
implementation of physical, electronic and procedural safeguards.

 SHARING INFORMATION WITHIN PRUDENTIAL
    We may disclose the previously described information about our customers and
former customers to other Prudential businesses, such as our securities
broker-dealers, our insurance companies and agencies, our banks and our real
estate brokerage franchise company. We may share information to:
    - provide customer service or account maintenance; or
    - tell you about other products or services offered by Prudential.

 SHARING INFORMATION IN OTHER CIRCUMSTANCES
    In compliance with federal and state laws, we may disclose some or all of
the information we collect about our customers and former customers, as
described above, to non-Prudential businesses, such as:
    - companies that perform services for us or on our behalf (such as
     responding to customer requests, providing you with information about our
     products, or maintaining or developing software); or
    - financial services companies (such as banks, insurance companies,
     securities brokers or dealers) and non-financial companies (such as real
     estate brokers or financial publications) with whom we have marketing
     agreements.
    We will not share medical information or motor vehicle reports for marketing
purposes.
    Many employers or other plan sponsors restrict the information that can be
shared about their employees or members. In our business with institutions, we
always honor these restrictions. If you have a relationship with Prudential as a
result of products or services provided through an employer or other plan
sponsor, we will abide by the specific privacy rules imposed by that
organization.
    We may also disclose information to non-affiliated parties as allowed by
law, such as in responding to a subpoena, preventing fraud, or complying with an
inquiry by a government agency or regulator.

 IT'S YOUR CHOICE
    Our customers periodically receive information about products and services
available from the Prudential family of companies, as well as from select
business partners, including financial services and non-financial services
companies with whom we have marketing agreements. Many of our customers
appreciate receiving this information. However, if you do not want us to share
your information for these purposes or communicate offers to you -- either by
phone or mail -- please complete the attached form and return it to us.
    If there are multiple owners of an account, any one of them may request on
behalf of any or all of the others that their information not be disclosed and
their names be removed from our phone or mailing lists.
    While you may receive more than one copy of this notice, if you choose to
limit the sharing of your information, you only need to inform us of your choice
once. Unless you modify this decision, we will continue to honor it.

                             NOT PART OF PROSPECTUS
                                       i
<PAGE>
    THIS NOTICE IS BEING PROVIDED ON BEHALF OF THE FOLLOWING PRUDENTIAL
AFFILIATES:

Prudential Insurance Company of America, The
Prudential Property and Casualty Insurance Company
Prudential Securities Incorporated
Prudential Investment Corporation, The
Prudential Bank and Trust Company, The
Prudential 20/20 Focus Fund
Prudential California Municipal Fund
Prudential Commercial Insurance Company
Prudential Commercial Insurance Company of New Jersey, The
Prudential Direct Insurance Agency of Texas, Inc.
Prudential Direct Insurance Agency of Alabama, Inc.
Prudential Direct Insurance Agency of Massachusetts, Inc.
Prudential Direct Insurance Agency of New Mexico, Inc.
Prudential Direct Insurance Agency of Ohio, Inc.
Prudential Direct Insurance Agency of Wyoming, Inc.
Prudential Direct, Inc.
Prudential Diversified Funds
Prudential Equity Fund, Inc.
Prudential Equity Investors, Inc.
Prudential Europe Growth Fund, Inc.
Prudential General Agency of Ohio, Inc.
Prudential General Insurance Agency of Florida, Inc.
Prudential General Insurance Agency of Kentucky, Inc.
Prudential General Insurance Agency of Massachusetts, Inc.
Prudential General Insurance Agency of Mississippi, Inc.
Prudential General Insurance Agency of Nevada, Inc.
Prudential General Insurance Agency of New Mexico, Inc.
Prudential General Insurance Agency of Texas, Inc.
Prudential General Insurance Agency of Wyoming, Inc.
Prudential General Insurance Company
Prudential General Insurance Company of New Jersey, The
Prudential Global Total Return Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Index Series Fund
Prudential Institutional Liquidity Portfolio, Inc.
Prudential Insurance Brokerage, Inc.
Prudential International Bond Fund, Inc.
Prudential Investment Management Services LLC
Prudential Investment Portfolios, Inc., The
Prudential Investments Fund Management LLC
Prudential MoneyMart Assets, Inc.
Prudential Municipal Bond Fund
Prudential Municipal Series Fund
Prudential National Municipal Funds, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Property and Casualty Insurance Company of New Jersey, The
Prudential Property and Casualty New Jersey Insurance Brokerage, Inc., The
Prudential Real Estate Securities Fund
Prudential Savings Bank, F.S.B., The
Prudential Sector Funds, Inc.
Prudential Select Life Insurance Company of America
Prudential Series Fund, Inc., The
Prudential Short-Term Corporate Bond Fund, Inc.
Prudential Small Company Fund, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Tax-Free Money Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential Total Return Bond Fund, Inc.
Prudential Trust Company
Prudential U.S. Emerging Growth Fund, Inc.
Prudential Value Fund
Prudential World Fund, Inc.
Pruco Life Insurance Company
Pruco Life Insurance Company of New Jersey
Pruco Securities Corporation
Asia Pacific Fund, Inc., The
Bache Insurance Agency Incorporated
Bache Insurance Agency of Alabama, Inc.
Bache Insurance Agency of Oklahoma, Inc.
Bache Insurance Agency of Texas, Inc.
Cash Accumulation Trust
COMMAND Government Fund
COMMAND Money Fund
COMMAND Tax-Free Fund
Duff & Phelps Utilities Tax-Free Income Fund, Inc.
First Financial Fund, Inc.
Global Utility Fund, Inc.
High Yield Income Fund, Inc., The
High Yield Plus Fund, Inc., The
Hochman & Baker Investment Advisory Services
Hochman & Baker Securities
Hochman & Baker, Inc.
Jennison Associates LLC
Merastar Insurance Company
Nicholas-Applegate Fund, Inc.
Quick Sure Auto Agency
Strategic Partners Series
Target Funds
Target Portfolio Trust, The
Titan Auto Agency, Inc.
Titan Auto Insurance
Titan Auto Insurance of Arizona, Inc.
Titan Auto Insurance of New Mexico
Titan Auto Insurance of Pennsylvania
Titan Auto Insurance, Inc.
Titan Indemnity Company
Titan Insurance Company
Titan Insurance Services, Inc.
Titan National Auto Call Center, Inc.
Victoria Automobile Insurance Company
Victoria Fire & Casualty Company
Victoria Insurance Agency, Inc.
Victoria National Insurance Company
Victoria Select Insurance Company
Victoria Specialty Insurance Company
W. I. of Florida, Inc.
WHI of New York, Inc.
Whitehall Insurance Agency of Texas, Inc.

Whitehall of Indiana, Inc.

In this notice, the phrase "third party" refers to any organization that is not
a Prudential affiliate.
The words "you" and "customer," as used in this notice, mean any individual who
obtains or has obtained a financial product or service from a Prudential
affiliate that is to be used primarily for personal, family, or household
purposes.
We will process your request as quickly as possible. In some cases, 6 to 8 weeks
may be required for your request(s) to become effective. Prudential will
continue to provide you with important information about your existing accounts,
including inserts enclosed with your account statements and other notices
regarding the Prudential products that you own. You may also receive
communications from your Prudential Professional or from independently owned and
operated franchisees of The Prudential Real Estate Affiliates, Inc.
If any of your information changes, please let us know so that we can update
your records and continue to serve you as you have requested.

                             NOT PART OF PROSPECTUS
                                       ii
<PAGE>

WE WANT TO KNOW YOUR PREFERENCE
If you do not want us to share the previously described information with
Prudential businesses or non-Prudential businesses, to inform you of other
products or services we believe may be of interest to you, complete item #1. In
addition, if you do not want to receive communications regarding other products
or services by mail or phone, complete item #2.

1. / / Do not share my information to inform me of other products or services.

2. Please remove my name from Prudential's corporate marketing lists for
   receiving information:

   / / by U.S. mail      / / by telephone
TO ENABLE US TO PROCESS YOUR REQUEST, PLEASE PROVIDE YOUR ACCOUNT / POLICY
NUMBER EXACTLY AS IT APPEARS ON YOUR STATEMENT:

-
----------------------------------------
 Account/Policy Number (required for processing)

PLEASE PRINT YOUR NAME AND ADDRESS EXACTLY AS IT APPEARS ON YOUR STATEMENT:

-
----------------------------------------
 Last Name

-
-----------------------------------------------
 First Name

-
-----------------------------------------------
 Address (Line 1)

-
-----------------------------------------------
 Address (Line 2)

-
-----------------------------------------------
 City

-
-----------------------------------------------
 State                                ZIP Code

-
-----------------------------------------------
 (Area Code) Phone Number

MAIL TO:

PRUDENTIAL -- CUSTOMER PRIVACY
P.O. BOX 4600
TRENTON, NEW JERSEY 08650

NAMES OF JOINT OWNERS

-
----------------------------------------
 Last Name

-
-----------------------------------------------
 First Name

-
-----------------------------------------------
 Address (Line 1)

-
-----------------------------------------------
 Address (Line 2)

-
-----------------------------------------------
 City

-
-----------------------------------------------
 State                                ZIP Code

-
-----------------------------------------------
 Last Name

-
-----------------------------------------------
 First Name

-
-----------------------------------------------
 Address (Line 1)

-
-----------------------------------------------
 Address (Line 2)

-
-----------------------------------------------
 City

-
-----------------------------------------------
 State ZIP Code

IF THERE ARE JOINT OWNERS TO WHICH THIS REQUEST WILL APPLY PLEASE PROVIDE THEIR
INFORMATION ON THE BACK OF THIS FORM.

0001

                             NOT PART OF PROSPECTUS
                                      iii
<PAGE>
FOR MORE INFORMATION

Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 8098
PHILADELPHIA, PA 19101
(800) 225-1852
(732) 482-7555 (Calling from outside the U.S.)

Outside Brokers should contact
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
P.O. BOX 8310
PHILADELPHIA, PA 19101
(800) 778-8769

Visit Prudential's Website at
http://www.prudential.com

Additional information about the Fund can
be obtained without charge and can be
found in the following documents
STATEMENT OF ADDITIONAL INFORMATION (SAI)
  (incorporated by reference into this prospectus)
ANNUAL REPORT
  (contains a discussion of the market conditions and investment strategies that
  significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows
BY MAIL
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
BY ELECTRONIC REQUEST
[email protected]
 (The SEC charges a fee to copy documents.)
IN PERSON
Public Reference Room in Washington, DC
 (For hours of operation, call
 1-202-942-8090)
VIA THE INTERNET
on the EDGAR Database at
http://www.sec.gov

CUSIP Numbers              NASDAQ Symbols
Class A Shares--74438N106      PEEAX
Class B Shares--74438N205      PEEBX
Class C Shares--74438N304      PEGCX
Class Z Shares--74438N403      PEGZX
Investment Company Act File No. 811-07811

 MF173A
[RECYCLED LOGO]
 Printed on Recycled Paper
<PAGE>
                   PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
                      STATEMENT OF ADDITIONAL INFORMATION
                             DATED JANUARY 12, 2001

    Prudential U.S. Emerging Growth Fund, Inc. (the Fund) is an open-end,
diversified management investment company. The investment objective of the Fund
is long-term capital appreciation. The Fund seeks to achieve this 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 that is less than the largest
capitalization of the S&P 400 Mid-Cap Index. The Fund may engage in various
derivative transactions, such as using options on equity securities, stock
indexes and foreign currencies, foreign currency forward contracts and futures
contracts 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 "Description of the Fund, Its Investments and Risks."

    The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.

    This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Prudential U.S. Emerging Growth Fund,
Inc. dated January 12, 2001, a copy of which may be obtained from the Fund upon
request.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Fund History................................................  B-2
Description of the Fund, Its Investments and Risks..........  B-2
Investment Restrictions.....................................  B-18
Management of the Fund......................................  B-19
Control Persons and Principal Holders of Securities.........  B-22
Investment Advisory and Other Services......................  B-23
Brokerage Allocation and Other Practices....................  B-27
Capital Shares, Other Securities and Organization...........  B-29
Purchase, Redemption and Pricing of Fund Shares.............  B-30
Shareholder Investment Account..............................  B-38
Net Asset Value.............................................  B-42
Taxes, Dividends and Distributions..........................  B-43
Performance Information.....................................  B-46
Financial Statements........................................  B-48
Report of Independent Accountants...........................  B-68
Appendix I--General Investment Information..................  I-1
Appendix II--Historical Performance Data....................  II-1
</TABLE>

--------------------------------------------------------------------------------

MF173B
<PAGE>
                                  FUND HISTORY

    The Fund was incorporated in Maryland on August 23, 1996. Effective
June 29, 2000, the Fund's name changed from Prudential Emerging Growth
Fund, Inc. to Prudential U.S. Emerging Growth Fund, Inc.

               DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

    CLASSIFICATION.  The Fund is a diversified, open-end, management investment
company.

    INVESTMENT STRATEGIES, POLICIES AND RISKS.  The Fund's investment objective
is long-term capital appreciation. 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. The Fund may engage in
various derivative transactions, such as using options on equity securities,
stock indexes and foreign currencies, foreign currency forward contracts and the
purchase and sale of futures contracts and options thereon to hedge its
portfolio and to attempt to enhance return.

    While the principal investment policies and strategies for seeking to
achieve this objective are described in the Fund's Prospectus, the Fund may from
time to time also use the securities, instruments, policies and principal and
non-principal strategies described below in seeking to achieve its objective.
The Fund may not be successful in achieving its objective and you could lose
money.

EQUITY AND EQUITY-RELATED SECURITIES

    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 less than the largest capitalization of the Standard & Poor's
Mid-Cap 400 Stock Index. Market capitalization of the companies will be measured
at the time of purchase. The Fund will invest in equity-related securities,
including common stocks, nonconvertible preferred stocks, securities convertible
into or exchangeable for common or preferred stock, equity investments in
partnerships, joint ventures and other forms of non-corporate investment, real
estate investment trusts (REITS), American Depositary Receipts (ADRs), American
Depositary Shares (ADSs) and warrants and rights exercisable for equity
securities.

    Securities of small and medium-sized companies have historically been more
volatile than those in the Standard & Poor's 500 Composite Stock Price Index
(S&P 500 Stock 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 indexes. 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.

    AMERICAN DEPOSITARY RECEIPTS AND AMERICAN DEPOSITARY SHARES. ADRs and ADSs
are U.S. dollar-denominated certificates or shares issued by a United States
bank or trust company and represent the right to receive securities of a foreign
issuer deposited in a domestic bank or foreign branch of a United States bank
and traded on a United States exchange or in the over-the-counter market.
Generally, ADRs and ADSs are in registered form. There are no fees imposed on
the purchase or sale of ADRs and ADSs when purchased from the issuing bank or
trust company in the initial underwriting, although the issuing bank or trust
company may impose charges for the collection of dividends and the conversion of
ADRs and ADSs into the underlying securities. Investment in ADRs and ADSs has
certain advantages over direct investment in the underlying foreign securities
since: (1) ADRs and ADSs are U.S. dollar-denominated investments that are
registered domestically, easily transferable, and for which market quotations
are readily available, and (2) issuers whose securities are represented by ADRs
and ADSs are usually subject to auditing, accounting and financial reporting
standards comparable to those of domestic issuers.

    WARRANTS AND RIGHTS. A warrant or right entitles the holder to purchase
equity securities at a specific price for a specific period of time. A warrant
gives the holder thereof the right to subscribe by a specified date to a stated
number of shares of stock of the issuer at a fixed price. Warrants tend to be
more volatile than the underlying stock, and if, at a warrant's expiration date,
the stock is trading at a price below the price set in the warrant, the warrant
will expire worthless. Conversely, if, at the expiration date, the underlying
stock is trading at a price higher than the price set in the warrant, the Fund
can acquire the stock at a price below its market value. Rights are similar to
warrants but normally have a shorter duration and are distributed directly by
the issuer to shareholders. Rights and warrants have no voting rights, receive
no dividends and have no rights with respect to the corporation issuing them.

                                      B-2
<PAGE>
    CONVERTIBLE SECURITIES. A convertible security is typically a bond,
debenture, corporate note, preferred stock or other similar security that may be
converted at a stated price within a specified period of time into a specified
number of shares of common stock or other equity securities of the same or a
different issuer. The Fund will only invest in investment-grade convertible
securities. Convertible securities are generally 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 attendant upon a market price advance in
the convertible security's underlying common stock. Convertible securities may
also include preferred stocks.

    In general, the market value of a convertible security is at least the
higher of its "investment value" (that is, its value as a fixed-income security)
or its "conversion value" (that is, its value upon conversion into its
underlying stock). 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 underlying stock. The price of a convertible security tends to
increase as the market value of the underlying stock rises, whereas it tends to
decrease as the market value of the underlying stock declines. While no
securities investment is without some risk, investments in convertible
securities generally entail less risk than investments in the common stock of
the same issuer.

    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.

U.S. GOVERNMENT SECURITIES

    U.S. TREASURY SECURITIES. The Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
government and, as such, are backed by the "full faith and credit" of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances.

    SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in securities issued by agencies of the
U.S. government or instrumentalities of the U.S. government. These obligations,
including those which are guaranteed by Federal agencies or instrumentalities,
may or may not be backed by the full faith and credit of the United States.
Obligations of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Small Business Administration are backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Fund must look principally
to the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations such as those issued by the Federal Home Loan Bank, the
Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage
Association, the Student Loan Marketing Association, Resolution Funding
Corporation and the Tennessee Valley Authority, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. FHLMC investments may include
collateralized mortgage obligations.

    Obligations issued or guaranteed as to principal and interest by the U.S.
government may be acquired by the Fund in the form of custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain U.S. Treasury notes or bonds. Such notes and bonds are held in custody
by a bank on behalf of the owners. These custodial receipts are commonly
referred to as Treasury strips.

    MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in mortgage-backed securities, including
those which represent undivided ownership interests in pools of mortgages. The
U.S. government or the issuing agency or instrumentality guarantees the payment
of interest on and principal of these securities. However, the guarantees do not
extend to the yield or value of the securities nor do the guarantees extend to
the yield or value of the Fund's shares. These securities are in most cases
"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees.

    Because the prepayment characteristics of the underlying mortgages vary, it
is not possible to predict accurately the average life of a particular issue of
pass-through certificates. Mortgage-backed securities are often subject to more
rapid

                                      B-3
<PAGE>
repayment than their maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying mortgage obligations.
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. During periods of
declining interest rates, prepayment of mortgages underlying mortgage-backed
securities can be expected to accelerate. The Fund's ability to invest in
high-yielding mortgage-backed securities will be adversely affected to the
extent that prepayments of mortgages must be reinvested in securities which have
lower yields than the prepaid mortgages. Moreover, prepayments of mortgages
which underlie securities purchased at a premium could result in capital losses.

    The Fund may purchase collateralized mortgage obligations (CMO) issued by
agencies or instrumentalities of the U.S. government. A CMO is backed by a
portfolio of mortgages or mortgage-backed securities. The issuer's obligation to
make interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. The issuer of a series of CMOs may
elect to be treated as a Real Estate Mortgage Investment Conduit (REMIC). All
future references to CMOs include REMICs.

    In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the underlying mortgage assets may cause the CMOs
to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. The principal and interest on the
underlying mortgage assets may be allocated among the several classes of a CMO
series in a number of different ways. Generally, the purpose of the allocation
of the cash flow of a CMO to the various classes is to obtain a more predictable
cash flow to the individual tranches than exists with the underlying collateral
of the CMO. As a general rule, the more predictable the cash flow is on a CMO
tranche, the lower the anticipated yield will be on that tranche at the time of
issuance relative to prevailing market yields on mortgage-backed securities.

    The Fund may also invest in mortgage-backed security strips (MBS strips)
issued by the U.S. government or its agencies or instrumentalities. MBS strips
are usually structured with two classes that receive different proportions of
the interest and principal distributions on a pool of mortgage assets. A common
type of stripped mortgage security will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yields to maturity on IOs and
POs are sensitive to the expected or anticipated rate of principal payments
(including prepayments) on the related underlying mortgage assets, and principal
payments may have a material effect on yield to maturity. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may not fully recoup its initial investment in IOs. Conversely, if the
underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially adversely affected.

    In reliance on rules and interpretations of the Securities and Exchange
Commission (Commission), the Fund's investments in certain qualifying CMOs and
REMICs are not subject to the Investment Company Act's limitation on acquiring
interests in other investment companies.

    The Fund may invest in both Adjustable Rate Mortgage Securities (ARMs),
which are pass-through mortgage securities collateralized by adjustable rate
mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are collateralized
by fixed-rate mortgages.

    The values of U.S. government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods of
falling U.S. interest rates, the values of U.S. government securities generally
rise and, conversely, during periods of rising interest rates, the values of
such securities generally decline. The magnitude of these fluctuations will
generally be greater for securities with longer-term maturities.

REAL ESTATE INVESTMENT TRUSTS

    The Fund may invest in securities of real estate investment trusts or REITs.
Unlike corporations, REITs do not have to pay income taxes if they meet certain
requirements of the Internal Revenue Code. To qualify, a REIT must distribute at
least 95% of its taxable income to its shareholders and receive at least 75% of
that income from rents, mortgages and sales of property. REITs offer investors
greater liquidity and diversification than direct ownership of a handful of
properties, as well as greater income

                                      B-4
<PAGE>
potential than an investment in common stocks. Like any investment in real
estate, though, a REIT's performance depends on several factors, such as its
ability to find tenants for its properties, to renew leases and to finance
property purchases and renovations.

FOREIGN SECURITIES

    The Fund is permitted to invest in foreign corporate and government
securities. "Foreign government securities" include debt securities issued or
guaranteed, as to payment of principal and interest, by governments,
semi-governmental entities, governmental agencies, supranational entities and
other governmental entities (collectively, Government Entities) of foreign
countries denominated in the currencies of such countries or in U.S. dollars
(including debt securities of a Government Entity in any such country
denominated in the currency of another such country).

    A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of "semi-governmental entities" are
issued by entities owned by a national, state, or equivalent government or are
obligations of a political unit that are not backed by the national government's
"full faith and credit" and general taxing powers. Examples of semi-government
issuers include, among others, the Province of Ontario and the City of
Stockholm.

    If the security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of income
the Fund is required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time the Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred. The Fund may, but need
not, enter into foreign currency forward contracts, options on foreign
currencies and futures contracts on foreign currencies and related options, for
hedging purposes, including: locking-in the U.S. dollar price of the purchase or
sale of securities denominated in a foreign currency; locking-in the U.S. dollar
equivalent of dividends to be paid on such securities which are held by the
Fund; and protecting the U.S. dollar value of such securities which are held by
the Fund.

    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 U.S. 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.

                                      B-5
<PAGE>
    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.

    SPECIAL CONSIDERATIONS OF INVESTING IN EURO-DENOMINATED SECURITIES. On
January 1, 1999, 11 of the 15 member states of the European Monetary Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each member state's national currency. By
July 1, 2002, the euro is expected to become the sole legal tender of the member
states. During the transition period, the Fund will treat the euro as a separate
currency from the national currency of any member state.

    The adoption by the member states of the euro will eliminate the substantial
currency risk among member states and will likely affect the investment process
and considerations of the Fund's investment adviser. To the extent the Fund
holds non-U.S. dollar-denominated securities, including those denominated in the
euro, the Fund will still be subject to currency risk due to fluctuations in
those currencies as compared to the U.S. dollar.

    The medium- to long-term impact of the introduction of the euro in member
states cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general long-term ramifications
can be expected, such as changes in economic environment and changes in behavior
of investors, all of which will impact the Fund's investments.

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. 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 investment adviser, 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.

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.

RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

    The Fund may engage in various portfolio strategies, including using
derivatives to seek to reduce certain risks of its investments and to enhance
return. The Fund, and thus its investors, may lose money through any
unsuccessful use of these strategies. These strategies currently include the use
of options, foreign currency forward contracts, futures contracts, and options
on such contracts. The Fund's ability to use these strategies may be limited by
various factors, such as market conditions, regulatory limits and tax
considerations, and there can be no assurance that any of these strategies will
succeed. If new financial products and risk management techniques are developed,
the Fund may use them to the extent consistent with its investment objective and
policies.

                                      B-6
<PAGE>
    OPTIONS TRANSACTIONS

    The Fund may purchase and write (that is, sell) put and call options on
securities, stock indexes and currencies that are traded on U.S. or foreign
securities exchanges or in the over-the-counter market to seek to enhance return
or to protect against adverse price fluctuations in securities in the Fund's
portfolio. These options will be on equity securities, financial indexes (for
example, S&P 500 Stock Index) 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 also may purchase put and call
options to offset previously written put and call options of the same series.

    A call option gives the purchaser, in exchange for a premium paid, the right
for a specified period of time to purchase the securities 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. There is
no limitation on the amount of call options the Fund may write.

    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 as the writer of a put option, might, therefore, be
obligated to purchase the underlying securities or currency for more than their
current market price. The Fund will generally write put options when its
investment adviser desires to invest in the underlying security. The premium
paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand and
interest rates.

    The Fund will write only "covered" options. An option is covered if, as long
as the Fund is obligated under the option it (1) owns an offsetting position in
the underlying security or currency or (2) segregates cash or other liquid
assets in an amount equal to or greater than its obligation under the option.
Under the first circumstance, the Fund's losses are limited because it owns the
underlying security; under the second circumstance, in the case of a written
call option, the Fund's losses are potentially unlimited.

    If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she had been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is generally required to pledge
for the benefit of the broker the underlying security or other assets in
accordance with the rules of the relevant exchange or clearinghouse, such as The
Options Clearing Corporation (OCC), an institution created to interpose itself
between buyers and sellers of options in the United States. Technically, the
clearinghouse assumes the other side of every purchase and sale transaction on
an exchange and, by doing so, guarantees the transaction.

    The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option may be offset in whole or in
part if the Fund holds the underlying security by appreciation of the underlying
security owned by the Fund.

    The Fund may also purchase a "protective put," that is, a put option
acquired for the purpose of protecting a portfolio security from a decline in
market value. In exchange for the premium paid for the put option, the Fund
acquires the right to sell the underlying security at the exercise price of the
put regardless of the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and transaction costs
in connection with, the put plus the initial excess, if any,

                                      B-7
<PAGE>
of the market price of the underlying security over the exercise price. However,
if the market price of the security underlying the put rises, the profit the
Fund realizes on the sale of the security will be reduced by the premium paid
for the put option less any amount (net of transaction costs) for which the put
may be sold. Similar principles apply to the purchase of puts on stock indexes,
as described below.

    OPTIONS ON SECURITIES INDEXES. In addition to options on securities, the
Fund may also purchase and sell put and call options on securities indexes
traded on U.S. or foreign securities exchanges or traded in the over-the-counter
markets. Options on securities indexes are similar to options on securities
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the multiplier). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. All
settlements on options on indexes are in cash, and gain or loss depends on price
movements in the securities market generally (or in a particular industry or
segment of the market) rather than price movements in individual securities.

    The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indexes may have
different multipliers. Because exercises of index options are settled in cash, a
call writer cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. In addition, unless the Fund has other liquid assets
which are sufficient to satisfy the exercise of a call, the Fund would be
required to liquidate portfolio securities or borrow in order to satisfy the
exercise.

    Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of security prices in the market generally or in an
industry or market segment rather than movements in the price of a particular
security. Accordingly, successful use by the Fund of options on indexes would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the securities market generally or of a particular industry.
This requires different skills and techniques than predicting changes in the
price of individual stocks.

    RISKS OF TRANSACTIONS IN STOCK OPTIONS

    An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying securities acquired through the
exercise of call options or upon the purchase of underlying securities for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers the
underlying security upon exercise, and the Fund may lose money.

    Reasons for the absence of a liquid secondary market on an exchange include
the following: (1) there may be insufficient trading interest in certain
options; (2) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (3) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (4) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (5) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (6) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render

                                      B-8
<PAGE>
certain of the facilities of any of the clearing corporations inadequate, and
thereby result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. The Fund intends to
purchase and sell only those options which are cleared by clearinghouses whose
facilities are considered to be adequate to handle the volume of options
transactions.

    RISKS OF OPTIONS ON INDEXES

    The Fund's purchase and sale of options on indexes will be subject to risks
described above under "Risks of Transactions in Stock Options." In addition, the
distinctive characteristics of options on indexes create certain risks that are
not present with stock options.

    Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the policy of the Fund to
purchase or write options only on indexes which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.

    The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is no greater
than the risk in connection with options on securities in the index.

    SPECIAL RISKS OF WRITING CALLS ON INDEXES

    Because exercises of index options are settled in cash, a call writer such
as the Fund cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, the Fund will write call options on indexes only
under the circumstances described below under "Limitations on Purchase and Sale
of Stock Options, Options on Stock Indexes and Foreign Currencies and Futures
Contracts and Related Options."

    Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience a loss on
the call which is not offset by an increase in the value of its portfolio and
might also experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.

    Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of
such Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.

    When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the price of such securities might decline before they can be sold.
This timing risk makes certain strategies involving more than one option
substantially more risky with index options than with stock options. For
example, even if an index call which the Fund has written is "covered" by an
index call held by the Fund with the same strike price, the Fund will bear the
risk that the level of the index may

                                      B-9
<PAGE>
decline between the close of trading on the date the exercise notice is filed
with the clearing corporation and the close of trading on the date the Fund
exercises the call it holds or the time the Fund sells the call which, in either
case, would occur no earlier than the day following the day the exercise notice
was filed.

    SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON INDEXES. If the Fund holds an
index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiplier) to the assigned writer. Although the Fund may be able to minimize
this risk by withholding exercise instructions until just before the daily
cutoff time or by selling rather than exercising an option when the index level
is close to the exercise price, it may not be possible to eliminate this risk
entirely because the cutoff times for index options may be earlier than those
fixed for other types of options and may occur before definitive closing index
values are announced.

    FOREIGN CURRENCY FORWARD CONTRACTS

    The Fund may enter into foreign currency forward contracts to protect the
value of its portfolio against future changes in the level of currency exchange
rates. The Fund may enter into such contracts on a spot, that is, cash, basis at
the rate then prevailing in the currency exchange market or on a forward basis,
by entering into a forward contract to purchase or sell currency. A forward
contract on foreign currency is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days agreed upon by
the parties from the date of the contract at a price set on the date of the
contract.

    The Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross hedge). Although there
are no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge (including cross hedges) with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of forward currency) of the
securities being hedged.

    SPECIAL RISKS RELATED TO FOREIGN CURRENCY FORWARD CONTRACTS. The Fund may
enter into foreign currency forward contracts in several circumstances. When the
Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, or when the Fund anticipates the receipt in a foreign
currency of dividends or interest payments on a security which it holds, the
Fund may desire to "lock-in" the U.S. dollar price of the security or the U.S.
dollar equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for a fixed amount of dollars, for the purchase
or sale of the amount of foreign currency involved in the underlying
transactions, the Fund may be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payment is made or received.

    Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. The Fund does not intend to
enter into such forward contracts to protect the value of its portfolio
securities on a regular or continuous basis. The Fund will also not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the long-term investment decisions made with regard to overall diversification
strategies. However, the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interest of the Fund will thereby be served. If a Fund enters into a
position hedging

                                      B-10
<PAGE>
transaction, the transaction will be "covered" by the position being hedged, or
the Fund's Custodian will segregate cash or other liquid assets (less the value
of the "covering" positions, if any) in an amount equal to the value of the
Fund's total assets committed to the consummation of the given forward contract.

    The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.

    It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency that
the Fund is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency.

    If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent that the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward contract prices increase,
the Fund will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.

    The Fund's dealing in foreign currency forward contracts will generally be
limited to the transactions described above. Of course, the Fund is not required
to enter into such transactions with regard to its foreign currency-denominated
securities. Also this method of protecting the value of the Fund's portfolio
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities which are unrelated to
exchange rates. Additionally, although such contracts tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they also tend to
limit any potential gain which might result should the value of such currency
increase. The Fund's ability to enter into foreign currency forward contracts
may be limited by certain requirements for qualification as a regulated
investment company under the Internal Revenue Code. See "Taxes, Dividends and
Distributions."

    Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.

    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 indexes 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 market 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 (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.

                                      B-11
<PAGE>
    Futures contracts and related options are generally subject to coverage
requirements of the CFTC or segregation requirements of the Commission. 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 indexes 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 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.

    FUTURES CONTRACTS. As a purchaser of a futures contract, the Fund incurs an
obligation to take delivery of a specified amount of the obligation underlying
the futures contract at a specified time in the future for a specified price. As
a seller of a futures contract, the Fund incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price. The Fund may purchase futures contracts on debt
securities, including U.S. Government securities, aggregates of debt securities,
stock indexes and foreign currencies.

    The Fund will purchase or sell futures contracts for the purpose of hedging
its portfolio (or anticipated portfolio) securities against changes in
prevailing interest rates. If the investment adviser anticipates that interest
rates may rise and, concomitantly, the price of the Fund's portfolio securities
may fall, the Fund may sell a futures contract. If declining interest rates are
anticipated, the Fund may purchase a futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by the Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts. In addition, futures contracts will
be bought or sold in order to close out a short or long position in a
corresponding futures contract.

    Although most futures contracts call for actual delivery or acceptance of
securities or cash, the contracts usually are closed out before the settlement
date without the making or taking of delivery. A futures contract sale is closed
out by effecting a futures contract purchase for the same aggregate amount of
the specific type of security and the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would pay the difference and would realize a loss. Similarly,
a futures contract purchase is closed out by effecting a futures contract sale
for the same aggregate amount of the specific type of security (or currency) and
the same delivery date. If the offsetting sale price exceeds the purchase price,
the purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that the Fund will be able to enter into a closing transaction.

    When the Fund enters into a futures contract it is initially required to
segregate with its Custodian, in the name of the broker performing the
transaction, an "initial margin" of cash or other liquid assets equal to
approximately 2-3% of the contract amount. Initial margin requirements are
established by the exchanges on which futures contracts trade and may, from time
to time, change. In addition, brokers may establish margin deposit requirements
in excess of those required by the exchanges.

    Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on a futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked-to-market daily and the
Fund may be required to make subsequent deposits segregated at its Custodian for
that purpose, of cash or liquid securities, called "variation margin," in the
name of the broker, which are reflective of price fluctuations in the futures
contract.

    RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

    There are several risks in connection with the use of futures contracts as a
hedging device. In the case of futures contracts on securities indexes, the
correlation between the price of the futures contract and the movements in the
index may not be perfect. Therefore, a correct forecast of market trends by the
investment adviser may still not result in a successful hedging transaction, and
the Fund may lose money. Certain futures exchanges or boards of trade have
established daily limits on the

                                      B-12
<PAGE>
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.

    Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance that
it will be possible, at any particular time, to close a futures position. In the
event the Fund could not close a futures position and the value of such position
declined, the Fund would be required to continue to make daily cash payments of
variation margin. However, in the event a futures contract has been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price movements of the
securities will, in fact, correlate with the price movements in the futures
contracts and thus provide an offset to losses on a futures contract. Currently,
index futures contracts are available on various U.S. and foreign securities
indexes.

    Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of markets and other factors affecting the securities market
generally. If the Fund has insufficient cash to meet daily variation margin
requirements, it may need to sell securities to meet such requirements. Such
sales of securities may be at a time when it is advantageous or disadvantageous
to do so.

    The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.

    OPTIONS ON FUTURES CONTRACTS

    An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. With respect to stock
indexes, options are traded on futures contracts for various U.S. and foreign
stock indexes including the S&P 500 Stock Index and the NYSE Composite Index.

    The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.

    RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

    Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the Fund
would not be subject absent the use of these strategies. The Fund, and thus its
investors, may lose money through any unsuccessful use of these strategies. If
the investment adviser'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 these strategies
include (1) dependence on the investment adviser's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the risk that the counterparty may be unable to complete the transaction;
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 assets in
connection with hedging transactions.

                                      B-13
<PAGE>
    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.

    LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS, OPTIONS ON STOCK INDEXES
    AND FOREIGN CURRENCIES AND FUTURES CONTRACTS AND RELATED OPTIONS

    The Fund may write put and call options on stocks only if they are covered
as described above, and such options must remain covered so long as the Fund is
obligated as a writer. The Fund will write put options on stock indexes and
foreign currencies only if there is segregated with the Fund's Custodian an
amount of cash or other liquid assets equal to or greater than the aggregate
exercise price of the puts. The aggregate value of the securities underlying
call options and the obligations underlying put options (as of the date the
options are sold) will not exceed 25% of the Fund's net assets. In addition, the
Fund will not enter into futures contracts or related options if the aggregate
initial margin and premiums exceed 5% of the market value of the Fund's total
assets, taking into account unrealized profits and losses on such contracts,
provided, however, that in the case of an option that is in-the-money, the
in-the-money amount may be excluded in computing such 5%. The above restriction
does not apply to the purchase or sale of futures contracts and related options
for BONA FIDE hedging purposes, within the meaning of regulations of the CFTC.
The Fund does not intend to purchase options on equity securities or securities
indexes if the aggregate premiums paid for such outstanding options would exceed
10% of the Fund's total assets.

    Except as described below, the Fund will write call options on indexes only
if it holds a portfolio of stocks at least equal to the value of the index times
the multiplier times the number of contracts. When the Fund writes a call option
on a broadly-based stock market index, the Fund will segregate with its
Custodian, or pledge to a broker as collateral for the option, cash or other
liquid assets, with a market value at the time the option is written of not less
than 100% of the current index value times the multiplier times the number of
contracts.

    If the Fund has written an option on an industry or market segment index, it
will segregate with its Custodian, or pledge to a broker as collateral for the
option, at least ten "qualified securities," all of which are stocks of issuers
in such industry or market segment, and that, in the judgment of the investment
adviser, substantially replicate the movement of the index with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such stocks will
include stocks which represent at least 50% of the weighting of the industry or
market segment index and will represent at least 50% of the Fund's holdings in
that industry or market segment. No individual security will represent more than
15% of the amount so segregated or pledged in the case of broadly-based stock
market index options or 25% of such amount in the case of industry or market
segment index options.

    If at the close of business on any day the market value of such qualified
securities so segregated or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, the Fund will so segregate
or pledge an amount in cash or other liquid assets equal in value to the
difference. In addition, when the Fund writes a call on an index which is
in-the-money at the time the call is written, the Fund will segregate with its
Custodian or pledge to the broker as collateral cash or other liquid assets
equal in value to the amount by which the call is in-the-money times the
multiplier times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a national securities exchange or listed on NASDAQ against
which the Fund has not written a stock call option and which has not been hedged
by the Fund by the sale of stock index futures. However, if the Fund holds a
call on the same index as the call written where the exercise price of the call
held is equal to or less than the exercise price of the call written or greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash or other liquid assets segregated with its Custodian, it will
not be subject to the requirements described in this paragraph.

    POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which the

                                      B-14
<PAGE>
Fund may write or purchase may be affected by the futures contracts and options
written or purchased by other investment advisory clients of the investment
adviser. An exchange, board of trade or other trading facility may order the
liquidations of positions found to be in excess of these limits, and it may
impose certain other sanctions.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

    The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund's Custodian will segregate cash or other liquid assets having a value equal
to or greater than the Fund's purchase commitments. The securities so purchased
are subject to market fluctuation and no interest accrues to the purchaser
during the period between purchase and settlement. At the time of delivery of
the securities the value may be more or less than the purchase price and an
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value.

SHORT SALES AGAINST-THE-BOX

    The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an equal
amount of such securities or securities convertible into or exchangeable for,
without payment of any further consideration, an equal amount of the securities
of the same issuer as the securities sold short (a short sale against-the-box).
As a non-fundamental investment restriction, not more than 25% of the Fund's net
assets (determined at the time of the short sale) may be subject to short sales
other than short sales against-the-box. However, as a matter of current
operating policy, the Fund does not intend to engage in short sales other than
short sales against-the-box.

REPURCHASE AGREEMENTS

    The Fund may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money is
invested in the repurchase agreement. The Fund's repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value of
the instruments declines, the Fund will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines, the Fund may incur a loss.

    The Fund will enter into repurchase transactions only with parties meeting
creditworthiness standards approved by the investment adviser. In the event of a
default or bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral.

    The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (PIFM) pursuant
to an order of the Commission. On a daily basis, any uninvested cash balances of
the Fund may be aggregated with those of such investment companies and invested
in one or more repurchase agreements. Each fund participates in the income
earned or accrued in the joint account based on the percentage of its
investment.

LENDING OF SECURITIES

    Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions or other
recognized institutional borrowers of securities, provided that outstanding
loans do not exceed in the aggregate 33 1/3% of the value of the Fund's total
assets and provided that such loans are callable at any time by the Fund and are
at all times secured by cash or equivalent collateral (including a letter of
credit) that is equal to at least 100%, determined daily, of the market value of
the loaned securities. During the time portfolio securities are on loan, the
borrower will pay the Fund an amount equivalent to any dividend or interest paid
on such securities and the Fund may invest the cash collateral and earn
additional income, or it may receive an agreed-upon amount of interest income
from the borrower. The advantage of such loans is that the Fund continues to
receive payments in lieu of the interest and dividends of the loaned securities,
while at the same time earning interest either directly from the borrower or on
the collateral which will be invested in short-term obligations.

                                      B-15
<PAGE>
    A loan may be terminated by the borrower or the Fund at any time. If the
borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates, and the Fund can use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases loss of rights in the collateral should the borrower
of the securities fail financially. However, these loans of portfolio securities
will only be made to firms determined to be creditworthy pursuant to procedures
approved by the Board of Directors of the Fund. On termination of the loan, the
borrower is required to return the securities to the Fund, and any gain or loss
in the market price during the loan would inure to the Fund.

    Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.

BORROWING

    The Fund may borrow up to 20% of the value of its total assets (calculated
when the loan is made) from banks for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20% of
its total assets to secure these borrowings. If the Fund borrows to invest in
securities, any investment gains made on the securities in excess of interest
paid on the borrowing will cause the net asset value of the shares to rise
faster than would otherwise be the case. On the other hand, if the investment
performance of the additional securities purchased fails to cover their cost
(including any interest paid on the money borrowed) to the Fund, the net asset
value of the Fund's shares will decrease faster than would otherwise be the
case. This is the speculative factor known as "leverage." If the Fund's asset
coverage for borrowings falls below 300%, the Fund will take prompt action
(within 3 days) to reduce its borrowings. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, the Fund may be
required to sell portfolio securities to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. The Fund will not purchase portfolio
securities when borrowings exceed 5% of the value of its total assets.

ILLIQUID SECURITIES

    The Fund may hold up to 15% of its net assets in illiquid securities. If the
Fund were to exceed this limit, the investment adviser would take prompt action
to reduce the Fund's holdings in illiquid securities to no more than 15% of its
net assets, as required by applicable law. Illiquid securities include
repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Repurchase agreements subject to
demand are deemed to have a maturity equal to the applicable notice period.

    Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

    In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.

                                      B-16
<PAGE>
    Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).

    Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and privately placed commercial paper for which there is a
readily available market are treated as liquid only when deemed liquid under
procedures established by the Directors. The 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. The investment adviser will monitor the
liquidity of such restricted securities subject to the supervision of the Board
of Directors. In reaching liquidity decisions, the investment adviser will
consider, among others, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security and (4) the nature of the security
and the nature of the marketplace trades (for example, the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (a) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (b) it must not be "traded
flat" (that is, without accrued interest) or in default as to principal or
interest.

    The staff of the Commission has taken the position that purchased
over-the-counter options and the assets used as "cover" for written
over-the-counter options are illiquid securities unless the Fund and the
counterparty have provided for the Fund, at the Fund's election, to unwind the
over-the-counter option. The exercise of such an option ordinarily would involve
the payment by the Fund of an amount designed to reflect the counterparty's
economic loss from an early termination, but does allow the Fund to treat the
assets used as "cover" as "liquid."

SECURITIES OF OTHER INVESTMENT COMPANIES

    The Fund may invest up to 10% of its total assets in securities of other
non-affiliated investment companies. If the Fund does invest in securities of
other investment companies, shareholders of the Fund may be subject to duplicate
management and advisory fees. See "Investment Restrictions."

SEGREGATED ASSETS

    The Fund will segregate with its Custodian, State Street Bank and Trust
Company (State Street), cash, U.S. government securities, equity securities
(including foreign securities), debt securities or other liquid, unencumbered
assets equal in value to its obligations in respect of potentially leveraged
transactions. These include forward contracts, when-issued and delayed delivery
securities, futures contracts, written options and options on futures contracts
(unless otherwise covered). If collateralized or otherwise covered, in
accordance with Commission guidelines, these will not be deemed to be senior
securities. The assets segregated will be marked-to-market daily.

DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

    When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in cash or 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, certificates of deposit, bankers' acceptances and
time deposits of domestic and foreign banks, obligations issued or guaranteed by
the U.S. government, its agencies or its instrumentalities subject to its
investment policies. These instruments will be U.S. dollar denominated or
denominated in a foreign currency. Such investments may be subject to certain
risks, including future political and economic developments, the possible
imposition of withholding taxes on interest income, the seizure or
nationalization of foreign deposits and foreign exchange controls or other
restrictions.

                                      B-17
<PAGE>
PORTFOLIO TURNOVER

    As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions, but the Fund's portfolio
turnover rate generally is not expected to exceed 200%. The portfolio turnover
rate for the fiscal years ended October 31, 2000 and 1999 was 347% and 153%,
respectively. The unusually high portfolio turnover rate in fiscal year 2000 was
primarily due to the volatility of the market in technology stocks. The
portfolio turnover rate is generally the percentage computed by dividing the
lesser of portfolio purchases or sales (excluding all securities, including
options, whose maturities or expiration date at acquisition were one year or
less) by the monthly average value of the portfolio. High portfolio turnover
(100% or more) involves correspondingly greater brokerage commissions and other
transaction costs, which are borne directly by the Fund. In addition, high
portfolio turnover may also mean that a proportionately greater amount of
distributions to shareholders will be taxed as ordinary income rather than
long-term capital gains compared to investment companies with lower portfolio
turnover. See "Brokerage Allocation and Other Practices" and "Taxes, Dividends
and Distributions."

                            INVESTMENT RESTRICTIONS

    The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means with respect to the Fund, the lesser of (1) 67% of the shares
represented at a meeting at which more than 50% of the outstanding voting shares
are present in person or represented by proxy or (2) more than 50% of the
outstanding voting shares.

    The Fund may not:

     1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a security
on margin.

     2. Make short sales of securities or maintain a short position if, when
added together, more than 25% of the value of the Fund's net assets would be (i)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales and (ii) allocated to segregated accounts in connection with
short sales. Short sales "against-the-box" are not subject to this limitation.

     3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks up to 20% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20% of
the value of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a when-issued or delayed
delivery basis, foreign currency forward contracts and collateral arrangements
relating thereto, and collateral arrangements with respect to futures contracts
and options thereon and with respect to the writing of options and obligations
of the Fund to Directors pursuant to deferred compensation arrangements are not
deemed to be a pledge of assets subject to this restriction.

     4. Purchase any security (other than obligations of the U.S. government,
its agencies or instrumentalities) if as a result: (i) with respect to 75% of
the Fund's total assets, more than 5% of the Fund's total assets (determined at
the time of investment) would then be invested in securities of a single issuer,
or (ii) 25% or more of the Fund's total assets (determined at the time of the
investment) would be invested in a single industry.

     5. Buy or sell real estate or interests in real estate, except that the
Fund may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Fund may not purchase interests
in real estate limited partnerships which are not readily marketable.

     6. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon, and forward
foreign currency exchange contracts.

     7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.

     8. Make investments for the purpose of exercising control or management.

     9. Invest in securities of other non-affiliated investment companies,
except by purchases in the open market involving only customary brokerage
commissions and as a result of which the Fund will not hold more than 3% of the
outstanding voting

                                      B-18
<PAGE>
securities of any one investment company, will not have invested more than 5% of
its total assets in any one investment company and will not have invested more
than 10% of its total assets (determined at the time of investment) in such
securities of one or more investment companies, or except as part of a merger,
consolidation or other acquisition.

    10. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 33 1/3% of the Fund's total assets.

    11. Purchase more than 10% of all outstanding voting securities of any one
issuer.

    Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.

                             MANAGEMENT OF THE FUND

<TABLE>
<CAPTION>
                                     POSITION                         PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE)             WITH FUND                         DURING PAST 5 YEARS
------------------------             ---------                        ---------------------
<S>                           <C>                      <C>
Saul K. Fenster, Ph.D. (67)   Director                 President (since December 1978) of New Jersey
                                                        Institute of Technology; Commissioner (since 1998)
                                                        of the Middle States Association, Commission on
                                                        Higher Education; member (since 1985) of the New
                                                        Jersey Commission on Science and Technology;
                                                        formerly a director or trustee (1987-1999) of the
                                                        New Jersey State Chamber of Commerce, the Society
                                                        of Manufacturing Engineering Education Foundation,
                                                        the Research and Development Council of New
                                                        Jersey, Prosperity New Jersey, Inc., the Edison
                                                        Partnership, National Action Council for
                                                        Minorities in Engineering and IDT Corporation.
Delayne Dedrick Gold (63)     Director                 Marketing and Management Consultant.
*Robert F. Gunia (54)         Vice President and       Executive Vice President and Chief Administrative
                               Director                 Officer (since June 1999) of Prudential
                                                        Investments; Corporate Vice President (since
                                                        September 1997) of The Prudential Insurance
                                                        Company of America (Prudential); Executive Vice
                                                        President and Treasurer (since December 1996) of
                                                        Prudential Investments Fund Management LLC (PIFM);
                                                        President (since April 1999) of Prudential
                                                        Investment Management Services LLC (PIMS);
                                                        formerly Senior Vice President (March 1987-May
                                                        1999) of Prudential Securities Incorporated
                                                        (Prudential Securities); formerly Chief
                                                        Administrative Officer (July 1990-September 1996),
                                                        Director (January 1989-September 1996), and
                                                        Executive Vice President, Treasurer and Chief
                                                        Financial Officer (June 1987-September 1996) of
                                                        Prudential Mutual Fund Management, Inc.
Douglas H. McCorkindale (61)  Director                 Chairman (since June 2000) and President (since
                                                        September 1997) of Gannett Co. Inc. (publishing
                                                        and media); President and Chief Executive Officer
                                                        (since August 2000) of Central Newspapers, Inc.;
                                                        formerly Vice Chairman (March 1984-May 2000) of
                                                        Gannett Co. Inc.; Director of Continental
                                                        Airlines, Inc., Gannett Co. Inc. and Global
                                                        Crossing Ltd.
W. Scott McDonald, Jr. (63)   Director                 Vice President (since 1997) of Kaludis Consulting
                                                        Group, Inc., a Sallie Mae company serving higher
                                                        education; formerly Principal (1995-1997) of Scott
                                                        McDonald & Associates; Chief Operating Officer
                                                        (1991-1995) of Fairleigh Dickinson University and
                                                        Executive Vice President and Chief Operating
                                                        Officer (1975-1991) of Drew University; Interim
                                                        President (1988-1990), Drew University; and a
                                                        founding director of School, College and
                                                        University Underwriters Ltd.
</TABLE>

                                      B-19
<PAGE>

<TABLE>
<CAPTION>
                                     POSITION                         PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE)             WITH FUND                         DURING PAST 5 YEARS
------------------------             ---------                        ---------------------
<S>                           <C>                      <C>
Thomas T. Mooney (59)         Director                 President of the Greater Rochester Metro Chamber of
                                                        Commerce; former Rochester City Manager; former
                                                        Deputy Monroe County Executive; Trustee of Center
                                                        for Governmental Research, Inc.; Director of Blue
                                                        Cross of Rochester, Monroe County Water Authority
                                                        and Executive Service Corps of Rochester.
Stephen P. Munn (58)          Director                 Chairman (since January 1994), Director and Chief
                                                        Executive Officer (since 1988) and former
                                                        President of Carlisle Companies Incorporated
                                                        (manufacturer of industrial products).
*David R. Odenath, Jr. (43)   President and Director   President (since June 1999) of Prudential
                                                        Investments; President, Chief Executive Officer
                                                        and Chief Operating Officer (since June 1999) of
                                                        PIFM; Senior Vice President (since June 1999) of
                                                        Prudential; formerly Senior Vice President (August
                                                        1993-May 1999) of PaineWebber Group, Inc.
Richard A. Redeker (57)       Director                 Formerly President, Chief Executive Officer and
                                                        Director (October 1993-September 1996) of
                                                        Prudential Mutual Fund Management, Inc.; Executive
                                                        Vice President, Director and Member of the
                                                        Operating Committee (October 1993-September 1996)
                                                        of Prudential Securities; Director (October
                                                        1993-September 1996) of Prudential Securities
                                                        Group, Inc.; Executive Vice President (January
                                                        1994-September 1996) of The Prudential Investment
                                                        Corporation; Director (January 1994-September
                                                        1996) of Prudential Mutual Fund Distributors, Inc.
                                                        and Prudential Mutual Fund Services, Inc.; Senior
                                                        Executive Vice President and Director (September
                                                        1978-September 1993) of Kemper Financial Services,
                                                        Inc.
*Judy A. Rice (52)            Director                 Executive Vice President (since 1999) of Prudential
                                                        Investments; Executive Vice President (since 1999)
                                                        of PIFM; formerly various positions to Senior Vice
                                                        President (1992-1999) of Prudential Securities;
                                                        and various positions to Managing Director
                                                        (1975-1992) of Shearson Lehman Advisors; Governor
                                                        of the Money Management Institute and member of
                                                        the Prudential Securities Operating Council and
                                                        the National Association for Variable Annuities.
Robin B. Smith (61)           Director                 Chairman and Chief Executive Officer (since August
                                                        1996) of Publishers Clearing House; formerly
                                                        President and Chief Executive Officer (January
                                                        1988-August 1996) and President and Chief
                                                        Operating Officer (September 1981-December 1988)
                                                        of Publishers Clearing House; Director of
                                                        BellSouth Corporation, Texaco Inc., Springs
                                                        Industries Inc. and Kmart Corporation.
Louis A. Weil, III (59)       Director                 Formerly Chairman (January 1999-July 2000),
                                                        President and Chief Executive Officer (January
                                                        1996-July 2000) and Director (September 1991-July
                                                        2000) of Central Newspapers, Inc.; Chairman of the
                                                        Board (January 1996-July 2000), Publisher and
                                                        Chief Executive Officer (August 1991-December
                                                        1995) of Phoenix Newspapers, Inc.; Publisher (May
                                                        1989-March 1991) of Time Magazine; President,
                                                        Publisher and Chief Executive Officer (February
                                                        1986-August 1989) of The Detroit News and member
                                                        of the Advisory Board, Chase Manhattan Bank-
                                                        Westchester.
Clay T. Whitehead (62)        Director                 President (since May 1983) of National Exchange
                                                        Inc. (new business development firm).
</TABLE>

                                      B-20
<PAGE>

<TABLE>
<CAPTION>
                                     POSITION                         PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE)             WITH FUND                         DURING PAST 5 YEARS
------------------------             ---------                        ---------------------
<S>                           <C>                      <C>
Grace C. Torres (41)          Treasurer and Principal  First Vice President (since December 1996) of PIFM;
                               Financial and            First Vice President (since March 1994) of
                               Accounting Officer       Prudential Securities; formerly First Vice
                                                        President (March 1994-September 1996) of
                                                        Prudential Mutual Fund Management, Inc.
Marguerite E.H. Morrison      Secretary                Vice President and Corporate Counsel of Prudential
(44)                                                    and Chief Legal Officer (since August 2000) of the
                                                        Mutual Funds Division of Prudential; Vice
                                                        President and Associate General Counsel (since
                                                        December 1996) of PIFM; formerly Vice President
                                                        and Associate General Counsel (September
                                                        1987-September 1996) of Prudential Securities;
                                                        Vice President and Associate General Counsel (June
                                                        1991-September 1996) of Prudential Mutual Fund
                                                        Management, Inc.
William V. Healey (47)        Assistant Secretary      Assistant Secretary, Vice President and Corporate
                                                        Counsel of Prudential and Chief Legal Officer
                                                        (since August 1998) of Prudential Investments, a
                                                        business unit of Prudential; Director, ICI Mutual
                                                        Insurance Company (since June 1999); formerly
                                                        Associate General Counsel of The Dreyfus
                                                        Corporation (Dreyfus), a subsidiary of Mellon
                                                        Bank, N.A. (Mellon Bank), and an officer and/or
                                                        director of various affiliates of Mellon Bank and
                                                        Dreyfus.
Jonathan D. Shain (42)        Assistant Secretary      Vice President and Corporate Counsel (since August
                                                        1998) of Prudential; formerly Attorney with Fleet
                                                        Bank, N.A. (January 1997-July 1998) and Associate
                                                        Counsel (August 1994-January 1997) of New York
                                                        Life Insurance Company.
</TABLE>

------------
 * "Interested" Director, as defined in the Investment Company Act, by reason of
   his or her affiliation with Prudential, Prudential Securities or PIFM.

** The address of the Directors and officers is c/o Prudential Investments Fund
   Management LLC, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
   07102-4077.

    The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, Subadviser and Distributor, decide upon matters of general
policy. The Directors also review the actions of the Fund's officers, who
conduct and supervise the daily business operations of the Fund.

    Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
The amount of annual compensation paid to each Director who is not an affiliated
person of PIFM or the investment adviser may change as a result of the
introduction of additional funds on the boards of which the Director may be
asked to serve.

    Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees in installments which accrue interest at a
rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills
at the beginning of each calendar quarter or, pursuant to a Commission exemptive
order, at the daily rate of return of any Prudential mutual fund. Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund.

    The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 75.

                                      B-21
<PAGE>
    The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended October 31, 2000 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the boards of all other investment companies managed by
PIFM (Fund Complex) for the calendar year ended December 31, 2000.

                               COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                              TOTAL 2000
                                                             COMPENSATION
                                  AGGREGATE              PAID TO BOARD MEMBERS
                                 COMPENSATION                  FROM FUND
NAME OF DIRECTOR                  FROM FUND                     COMPLEX
----------------                 ------------            ---------------------
<S>                              <C>                     <C>
Edward D. Beach (++)                $ 150                        None
Saul K. Fenster (+++)               $ 375                   $  36,700(27/82)*
Delayne Dedrick Gold                $1,958                  $ 173,000(38/58)*
Robert F. Gunia (+)                   --                         None
Douglas H. McCorkindale**           $1,958                  $ 110,000(21/42)*
W. Scott McDonald, Jr.
 (+++)                              $ 375                   $  36,700(27/82)*
Thomas T. Mooney**                  $1,958                  $ 173,000(32/65)*
Stephen P. Munn                     $2,142                  $ 114,000(24/41)*
David R. Odenath, Jr. (+)             --                         None
Richard A. Redeker                  $1,958                  $ 110,000(24/41)*
Judy A. Rice (+)                      --                         None
Robin B. Smith**                    $1,958                  $ 114,000(27/35)*
Louis A. Weil, III                  $1,958                  $ 114,000(24/41)*
Clay T. Whitehead                   $2,225                  $ 173,000(35/59)*
</TABLE>

------------
  * Indicates number of funds/portfolios in Fund Complex to which aggregate
compensation relates.
 ** Total compensation from all funds in the Fund Complex for the calendar year
ended December 31, 2000 includes amounts deferred at the election of Directors
under the funds' deferred compensation plans. Including accrued interest, total
compensation amounted to approximately $124,810, $179,810 and $106,992 for
Messrs. McCorkindale and Mooney and Ms. Smith, respectively.
  + Directors who are "interested" do not receive compensation from the Fund or
any fund in the Fund Complex.
 ++ Mr. Beach retired on December 31, 1999.
+++ Messrs. Fenster and McDonald joined the Board of Directors in August 2000.

              CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

    Directors of the Fund are eligible to purchase Class Z shares of the Fund,
which are sold without either an initial sales charge or contingent deferred
sales charge to a limited group of investors.

    As of December 15, 2000, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of the Fund.

    As of December 15, 2000, beneficial owners, directly or indirectly, of more
than 5% of any class of shares of the Fund were:

<TABLE>
<CAPTION>
                                                                                        NUMBER OF SHARES
NAME                                           ADDRESS                  CLASS             (% OF CLASS)
----                                   -----------------------   --------------------   ----------------
<S>                                    <C>                       <C>                    <C>
Pru Defined Contributions               30 Scranton Office           Z                   196,259 (5.7%)
FBO PRU DC QUALIFIED Clients            Park
Attn: John Surdy                        Moosic, PA 18507
Prudential Trust Company                30 Scranton Office           Z                  353,998 (10.2%)
FBO PRU DC Clients                      Park
Attn: John Surdy                        Moosic, PA 18507
</TABLE>

    As of December 15, 2000, Prudential Securities was the record holder for
other beneficial owners of 7,564,758 Class A shares (approximately 57% of such
shares outstanding), 13,416,497 Class B shares (approximately 69% of such shares

                                      B-22
<PAGE>
outstanding), 3,353,004 Class C shares (approximately 84% of such shares
outstanding) and 2,524,594 Class Z shares (approximately 73% of such shares
outstanding) of the Fund. In the event of any meetings of shareholders,
Prudential Securities will forward, or cause the forwarding of, proxy materials
to beneficial owners for which it is the record holder.

                     INVESTMENT ADVISORY AND OTHER SERVICES

MANAGER AND INVESTMENT ADVISER

    The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM serves as manager to all of the other investment companies
that, together with the Fund, comprise the Prudential mutual funds. See "How the
Fund is Managed--Manager" in the Prospectus of the Fund. As of December 31,
2000, PIFM managed and/or administered open-end and closed-end management
investment companies with assets of approximately $76 billion. According to the
Investment Company Institute, as of November 30, 2000, the Prudential mutual
funds were the 23rd largest family of mutual funds in the United States.

    PIFM is a wholly-owned subsidiary of PIFM HoldCo, Inc., which is a
wholly-owned subsidiary of Prudential Asset Management Holding Company, which is
a wholly-owned subsidiary of Prudential. Prudential Mutual Fund Services LLC
(PMFS or the Transfer Agent), an affiliate of PIFM, serves as the transfer agent
and dividend distribution agent for the Prudential mutual funds and, in
addition, provides customer service, recordkeeping and management and
administration services to qualified plans.

    Pursuant to the Management Agreement with the Fund (the Management
Agreement), PIFM, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities and other
assets. In connection therewith, PIFM is obligated to keep certain books and
records of the Fund. PIFM has hired Jennison Associates LLC (Jennison, the
investment adviser or the Subadviser), to provide subadvisory services to the
Fund. PIFM also administers the Fund's corporate affairs and, in connection
therewith, furnishes the Fund with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Fund's custodian (the Custodian), and
PMFS, the Fund's transfer and dividend disbursing agent. The management services
of PIFM for the Fund are not exclusive under the terms of the Management
Agreement and PIFM is free to, and does, render management services to others.

    For its services PIFM receives, pursuant to the Management Agreement, a fee
at an annual rate of .60 of 1% of the Fund's average daily net assets up to
$1 billion and .55 of 1% of the Fund's average daily net assets over
$1 billion. Until May 24, 2000, PIFM received a management fee at the annual
rate of .60 of 1% of the Fund's average daily net assets. The fee is computed
daily and payable monthly. The Management Agreement also provides that, in the
event the expenses of a Fund (including the fees of PIFM, but excluding
interest, taxes, brokerage commissions, distribution fees and litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business) for any fiscal year exceed the lowest
applicable annual expense limitation established and enforced pursuant to the
statutes or regulations of any jurisdiction in which the Fund's shares are
qualified for offer and sale, the compensation due to PIFM will be reduced by
the amount of such excess. Reductions in excess of the total compensation
payable to PIFM will be paid by PIFM to the Fund. No jurisdiction currently
limits the Fund's expenses.

    In connection with its management of the corporate affairs of the Fund, PIFM
bears the following expenses:

    (a) the salaries and expenses of all personnel of the Fund and the Manager,
except the fees and expenses of Directors who are not affiliated persons of PIFM
or the Fund's subadviser;

    (b) all expenses incurred by PIFM or by the Fund in connection with managing
the ordinary course of a Fund's business, other than those assumed by the Fund
as described below; and

    (c) the costs and expenses payable to the investment adviser pursuant to the
Subadvisory Agreement between PIFM and the investment adviser (the Subadvisory
Agreement).

    Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated with PIFM or the Fund's
Subadviser, (c) the fees and certain expenses of the Custodian and Transfer
Agent, including the cost of providing records to the Manager in connection with
its obligation of maintaining required records of the Fund and of pricing the
Fund's shares, (d) the charges and expenses of legal counsel and independent
accountants for the Fund, (e) brokerage commissions and any issue or transfer
taxes chargeable to the Fund in connection with its securities transactions,
(f) all taxes and corporate fees payable by the Fund to governmental agencies,
(g) the fees of any trade associations of which the Fund may be a member,
(h) the cost of stock

                                      B-23
<PAGE>
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) certain organization expenses of the Fund and the fees
and expenses involved in registering and maintaining registration of the Fund
and of its shares with the Commission, including the preparation and printing of
the Fund's registration statements and prospectuses for such purposes,
(k) allocable communications expenses with respect to investor services and all
expenses of shareholders' and Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.

    The Management Agreement provides that PIFM will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act.

    For the fiscal years ended October 31, 2000, 1999 and 1998, PIFM received
management fees of $4,309,669, $1,202,452 and $772,662, respectively, from the
Fund.

    PIFM has entered into an interim Subadvisory Agreement with Jennison, a
wholly-owned subsidiary of The Prudential Investment Corporation (PI). The
Subadvisory Agreement provides that Jennison will furnish investment advisory
services in connection with the management of the Fund. In connection therewith,
Jennison is obligated to keep certain books and records of the Fund. Under the
Subadvisory Agreement, Jennison, subject to the supervision of PIFM, is
responsible for managing the assets of the Fund in accordance with its
investment objectives, investment program and policies. Jennison determines what
securities and other instruments are purchased and sold for the Fund and is
responsible for obtaining and evaluating financial data relevant to the Fund.
PIFM continues to have responsibility for all investment advisory services
pursuant to the Management Agreement. PI was the Fund's subadviser until
August 23, 2000 and PI formerly was paid by PIFM for the reasonable costs and
expenses incurred by PI in furnishing these services. Effective January 1, 2000,
PI was paid by PIFM at an annual rate of .30 of 1% of the Fund's average daily
net assets. Effective May 24, 2000, PI was paid by PIFM at an annual rate of .30
of 1% of the Fund's average net assets up to $1 billion and .261 of 1% of the
Fund's average net assets in excess of $1 billion. Jennison will be paid at this
rate only upon shareholder approval of the new Subadvisory Agreement, which has
been submitted for vote at a meeting to be held in January 2001.

    The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The interim Subadvisory Agreement will
continue in effect for a period of up to 150 days from its effectiveness on
August 24, 2000, until a new subadvisory agreement is approved by a majority of
the Fund's outstanding voting securities. If this occurs, the new subadvisory
agreement, like the interim Subadvisory Agreement, will provide that it will
terminate in the event of its assignment (as defined in the Investment Company
Act) or upon termination of the Management Agreement. The Fund, PIFM or Jennison
will be able to terminate the new subadvisory agreement upon not more than
60 days', nor less than 30 days', written notice. Once approved by the Fund's
shareholders, that subadvisory agreement will continue in effect for a period of
more than two years from its execution only so long as such continuance is
specifically approved at least annually in accordance with the requirements of
the Investment Company Act.

PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLANS

    Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. See "How the Fund is Managed --
Distributor" in the Prospectus.

    Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the Distribution Agreement), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares. The Distributor
incurs the expenses of distributing the Class Z shares under the Distribution
Agreement with the Fund, none of which are reimbursed by or paid for by the
Fund.

                                      B-24
<PAGE>
    The expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of brokers or financial institutions which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of the Distributor associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses.

    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 brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.

    CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor for
its distribution-related activities with respect to Class A shares at an annual
rate of up to .30 of 1% of the average daily net assets of the Class A shares.
The Class A Plan provides that (1) .25 of 1% of the average daily net assets of
the Class A shares may be used to pay for personal service and the maintenance
of shareholder accounts (service fee) and (2) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1%. The Distributor has
contractually 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, 2001 and contractually limited its
distribution-related fees for the fiscal year ended October 31, 2000 to .25 of
1% of the average daily net assets of the Class A shares.

    For the fiscal year ended October 31, 2000, the Distributor received
payments of $544,280 under the Class A Plan and spent approximately $544,280 in
distributing the Class A shares. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell
Class A shares. For the fiscal year ended October 31, 2000, the Distributor also
received approximately $1,094,200 in initial sales charges attributable to
Class A shares.

    CLASS B AND CLASS C PLANS. Under the Class B and Class C Plans, the Fund
pays the Distributor for its distribution-related activities with respect to
Class B and Class C shares at an annual rate of up to 1% of the average daily
net assets of each of the Class B and Class C shares. The Class B and Class C
Plans provide that (1) .25 of 1% of the average daily net assets of the Class B
and Class C shares, respectively, may be paid as a service fee and (2) .75 of 1%
(not including the service fee) may be paid for distribution-related expenses
with respect to the Class B and Class C shares, respectively (asset-based sales
charge). The service fee (.25 of 1% of average daily net assets) is used to pay
for personal service and/or the maintenance of shareholder accounts. The
Distributor also receives contingent deferred sales charges from certain
redeeming shareholders and, with respect to Class C shares, initial sales
charges.

    CLASS B PLAN. For the fiscal year ended October 31, 2000, the Distributor
received $3,822,454 from the Fund under the Class B Plan and spent approximately
$6,139,450 in distributing the Fund's Class B shares. It is estimated that of
the latter total amount, approximately 0.5% ($28,100) was spent on printing and
mailing of prospectuses to other than current shareholders; 22.0% ($1,350,900)
was spent on compensation to broker-dealers for commissions to representatives
and other expenses, including an allocation on account of overhead and other
branch office distribution-related expenses, incurred for distribution of Fund
shares; and 77.5% ($4,760,400) on the aggregate of (1) payments of commissions
and account servicing fees to financial advisers (26.0% or $1,597,900) and
(2) an allocation on account of overhead and other branch office
distribution-related expenses (51.5% or $3,162,500). The term "overhead and
other branch office distribution-related expenses" represents (a) the expenses
of operating Prudential Securities' and Pruco Securities Corporation's
(Prusec's) branch offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) expenses of mutual fund
sales coordinators to promote the sale of Fund shares and (d) other incidental
expenses relating to branch promotion of Fund sales.

    The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. For the
fiscal year ended October 31, 2000, the Distributor received approximately
$586,300 in contingent deferred sales charges attributable to Class B shares.

    CLASS C PLAN. For the fiscal year ended October 31, 2000, the Distributor
received $655,655 under the Class C Plan and spent approximately $811,300 in
distributing Class C shares. It is estimated that of the latter total amount,
approximately 0.5%

                                      B-25
<PAGE>
($4,300) was spent on printing and mailing of prospectuses to other than current
shareholders; 1.6% ($13,000) on compensation to broker-dealers for commissions
to representatives and other expenses, including an allocation of overhead and
other branch office distribution-related expenses incurred for distribution of
Fund shares; and 97.9% ($794,000) on the aggregate of (1) payments of
commissions and account servicing fees to financial advisers (54.3% or $440,700)
and (2) an allocation on account of overhead and other branch office
distribution-related expenses (43.6% or $353,300).

    The Distributor also receives an initial sales charge and the proceeds of
contingent deferred sales charges paid by investors upon certain redemptions of
Class C shares. For the fiscal year ended October 31, 2000, the Distributor
received approximately $43,500 in contingent deferred sales charges attributable
to Class C shares. For the fiscal year ended October 31, 2000, the Distributor
also received approximately $476,900 in initial sales charges attributable to
Class C shares.

    Distribution expenses attributable to the sale of Class A, Class B and
Class C shares of the Fund are allocated to each such class based upon the ratio
of sales of each such class to the sales of Class A, Class B and Class C shares
of the Fund other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize the
sale of another class.

    The Class A, Class B and Class C Plans will continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the Class A, Class B or Class C Plan or in any agreement
related to the Plans (Rule 12b-1 Directors), cast in person at a meeting called
for the purpose of voting on such continuance. A Plan may be terminated at any
time, without penalty, by the vote of a majority of the Rule 12b-1 Directors or
by the vote of the holders of a majority of the outstanding shares of the
applicable class of the Fund on not more than 60 days', nor less than 30 days'
written notice to any other party to the Plan. The Plans may not be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of the applicable class, and all material
amendments are required to be approved by the Board of Directors in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Fund will not be obligated to pay expenses incurred under any
Plan if it is terminated or not continued.

    Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report will include an itemization
of the distribution expenses and the purposes of such expenditures. In addition,
as long as the Plans remain in effect, the selection and nomination of
Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.

    Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under federal securities laws.

    In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers (including Prudential Securities) and other persons
which distributes shares of the Fund (including Class Z shares). Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.

FEE WAIVERS/SUBSIDIES

    PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has contractually agreed to waive a portion of its distribution
fees for the Class A shares as described above. Fee waivers and subsidies will
increase the Fund's total return.

NASD MAXIMUM SALES CHARGE RULE

    Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. Interest charges
on unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not included in the calculation of the 6.25%
limitation. The annual asset-based sales charge on shares of the Fund may not
exceed .75 of 1% per class. The 6.25% limitation applies to each class of the
Fund rather than on a per shareholder basis. If aggregate sales charges were to
exceed 6.25% of total gross sales of any class, all sales charges on shares of
that class would be suspended.

                                      B-26
<PAGE>
OTHER SERVICE PROVIDERS

    State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States.

    PMFS, 194 Wood Avenue South, Iselin, New Jersey 08830, serves as the
transfer and dividend disbursing agent of the Fund. PMFS is a wholly-owned
subsidiary of PIFM. PMFS provides customary transfer agency services to the
Fund, including the handling of shareholder communications, the processing of
shareholder transactions, the maintenance of shareholder account records, the
payment of dividends and distributions and related functions. For these
services, PMFS receives an annual fee per shareholder account of $9.00, a new
account set-up fee of $2.00 for each manually established account and a monthly
inactive zero balance account fee of $.20 per shareholder account. PMFS is also
reimbursed for its out-of-pocket expenses, including but not limited to postage,
stationery, printing, allocable communication expenses and other costs.

    PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.

CODES OF ETHICS

    The Board of Directors of the Fund has adopted a Code of Ethics. In
addition, PIFM, PI, Jennison and PIMS have each adopted a Code of Ethics (the
Codes). The Codes permit personnel subject to the Codes to invest in securities,
including securities that may be purchased or held by the Fund. However, the
protective provisions of the Codes prohibit certain investments and limit such
personnel from making investments during periods when the Fund is making such
investments. The Codes are on public file with, and are available from, the
Commission.

                    BROKERAGE ALLOCATION AND OTHER PRACTICES

    The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. The term "Manager" as used in this
section includes the Subadviser. Broker-dealers may receive negotiated brokerage
commissions on Fund portfolio transactions, including options and the purchase
and sale of underlying securities upon the exercise of options. On foreign
securities exchanges, commissions may be fixed. Orders may be directed to any
broker or futures commission merchant including, to the extent and in the manner
permitted by applicable law, Prudential Securities and its affiliates.

    Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. A Fund will not deal with Prudential
Securities or any affiliate in any transaction in which Prudential Securities or
any affiliate acts as principal, except in accordance with rules of the
Commission. Thus, it will not deal in the over-the-counter market with
Prudential Securities acting as market maker, and it will not execute a
negotiated trade with Prudential Securities if execution involves Prudential
Securities' acting as principal with respect to any part of a Fund's order.

    In placing orders for portfolio securities of the Fund, the Manager's
overriding objective is to obtain the best possible combination of favorable
price and efficient execution. The Manager seeks to effect each transaction at a
price and commission that provides the most favorable total cost or proceeds
reasonably attainable in the circumstances. The factors that the Manager may
consider in selecting a particular broker, dealer or futures commission merchant
(firms) are the Manager's knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the portfolio
transaction; the size of the transaction; the desired timing of the trade; the
activity existing and expected in the market for the particular transaction;
confidentiality; the execution, clearance and settlement capabilities of the
firms; the availability of research and research related services provided
through such firms; the Manager's knowledge of the financial stability of the
firms; the

                                      B-27
<PAGE>
Manager's knowledge of actual or apparent operational problems of firms; and the
amount of capital, if any, that would be contributed by firms executing the
transaction. Given these factors, the Fund may pay transaction costs in excess
of that which another firm might have charged for effecting the same
transaction.

    When the Manager selects a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research related products and/or services,
such as research reports, research compilations, statistical and economic data,
computer data bases, quotation equipment and services, research oriented
computer software, hardware and services, reports concerning the performance of
accounts, valuations of securities, investment related periodicals, investment
seminars and other economic services and consultants. Such services are used in
connection with some or all of the Manager's investment activities; some of such
services, obtained in connection with the execution of transactions for one
investment account, may be used in managing other accounts, and not all of these
services may be used in connection with the Fund.

    The Manager maintains an internal allocation procedure to identify those
firms who have provided it with research and research related products and/or
services, and the amount that was provided, and to endeavor to direct sufficient
commissions to them to ensure the continued receipt of those services that the
Manager believes provides a benefit to the Fund and its other clients. The
Manager makes a good faith determination that the research and/or service is
reasonable in light of the type of service provided and the price and execution
of the related portfolio transactions.

    When the Manager deems the purchase or sale of equities to be in the best
interests of the Fund or its other clients, including Prudential, the Manager
may, but is under no obligation to, aggregate the transactions in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the transactions, as well as the
expenses incurred in the transaction, will be made by the Manager in the manner
it considers to be most equitable and consistent with its fiduciary obligations
to its clients. The allocation of orders among firms and the commission rates
paid are renewed periodically by the Fund's Directors. Portfolio securities may
not be purchased from any underwriting or selling syndicate of which Prudential
Securities, or an affiliate during the existence of the syndicate, is a
principal underwriter (as defined in the Investment Company Act), except in
accordance with rules of the Commission. This limitation, in the opinion of the
Fund, will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other funds
with similar objectives but not subject to such limitations.

    Subject to the above considerations, Prudential Securities (or any
affiliate) may act as a securities broker or futures commission merchant for the
Fund. In order for Prudential Securities (or any affiliate) to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities (or any affiliate) must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other firms in
connection with comparable transactions involving similar securities or futures
being purchased or sold on an exchange or board of trade during a comparable
period of time. This standard would allow Prudential Securities (or any
affiliate) to receive no more than the remuneration which would be expected to
be received by an unaffiliated firm in a commensurate arm's-length transaction.
Furthermore, the Board of Directors of the Fund, including a majority of the
Directors who are not "interested" persons, has adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to Prudential Securities (or any affiliate) are consistent with the
foregoing standard. In accordance with Section 11(a) of the Securities Exchange
Act of 1934, as amended, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for a Fund unless the
Fund has expressly authorized the retention of such compensation. Prudential
Securities must furnish to a Fund at least annually a statement setting forth
the total amount of all compensation retained by Prudential Securities from
transactions effected for the Fund during the applicable period. Brokerage and
futures transactions with Prudential Securities are also subject to such
fiduciary standards as may be imposed by applicable law.

    Transactions in options by the Fund will be subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same or
different exchanges or are written or held in one or more accounts or through
one or more brokers. Thus, the number of options which the Fund may write or
hold may be affected by options written or held by the Manager and other
investment advisory clients of the Manager. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.

                                      B-28
<PAGE>
    The table below sets forth information concerning the payment of commissions
by the Fund, including the amount of such commissions paid to Prudential
Securities for the fiscal periods ended October 31, 2000.

<TABLE>
<CAPTION>
                                                               FISCAL             FISCAL              FISCAL
                                                             YEAR ENDED         YEAR ENDED          YEAR ENDED
                                                          OCTOBER 31, 2000   OCTOBER 31, 1999    OCTOBER 31, 1998
                                                          ----------------   -----------------   -----------------
<S>                                                       <C>                <C>                 <C>
Total brokerage commissions paid by the Fund............     $3,011,791         $2,883,176           $414,498
Total brokerage commissions paid to Prudential
 Securities and its foreign affiliates..................     $  211,200         $   35,000           $  7,744
Percentage of total brokerage commissions paid to
 Prudential Securities and its foreign affiliates.......           7.01%              1.20%               1.9%
</TABLE>

    The Fund effected 8.33% of the total dollar amount of its transactions
involving the payment of commissions through Prudential Securities during the
year ended October 31, 2000. Of the total brokerage commissions paid during that
period, $1,469,794 (or 48.8%) were paid to firms which provide research,
statistical or other services to PIFM. PIFM has not separately identified a
portion of such brokerage commissions as applicable to the provision of such
research, statistical or other services.

    The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents at October 31, 2000. As of October 31, 2000, the Fund held
securities of ABN AMRO; Bear, Stearns & Co. Inc.; Lehman Brothers, Inc.; Merrill
Lynch, Pierce, Fenner & Smith, Inc.; and UBS Warburg in the amounts of
$9,856,000, $11,499,000, $3,999,000, $2,877,000 and $11,499,000, respectively.

               CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

    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 (1) 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, (2) 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, (3) each class has a different exchange privilege, (4) only
Class B shares have a conversion feature and (5) Class Z shares are offered
exclusively for sale to a limited group of investors. In accordance with the
Fund's Articles of Incorporation, the Board of Directors may authorize the
creation of additional series of common stock and classes within such series,
with such preferences, privileges, limitations and voting and dividend rights as
the Board may determine.

    The Board of Directors may increase or decrease the number of authorized
shares 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. 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.

                                      B-29
<PAGE>
                PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

    Shares of a Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (1) at the time of purchase (Class A or Class C
shares) or (2) on a deferred basis (Class B or Class C shares). Class Z shares
of the Fund are offered to a limited group of investors at net asset value
without any sales charges. See "How to Buy, Sell and Exchange Shares of the
Fund" in the Prospectus.

    PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone PMFS at (800) 225-1852 (toll-free) to
receive an account number. The following information will be requested: your
name, address, tax identification number, fund and 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 U.S. Emerging Growth Fund, Inc.,
specifying on the wire the account number assigned by PMFS and your name and
identifying the class in which you are investing (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.

    In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential U.S. 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.

ISSUANCE OF FUND SHARES FOR SECURITIES

    Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations, (2) statutory mergers, or
(3) other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) are approved by the Fund's investment adviser.

SPECIMEN PRICE MAKE-UP

    Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold with a maximum sales charge of 5%,
Class C* shares are sold with a 1% sales charge and Class B* and Class Z shares
are sold at net asset value. Using the net asset value of the Fund at
October 31, 2000, the maximum offering price of the Fund's shares is as follows:

<TABLE>
<S>                                                           <C>
CLASS A
Net asset value and redemption price per Class A share......      $25.69
Maximum sales charge (5% of offering price).................        1.35
                                                                  ------
Maximum offering price to public............................      $27.04
                                                                  ======
CLASS B
Net asset value, redemption price and offering price to
 public per Class B share*..................................      $24.88
                                                                  ======
CLASS C
Net asset value and redemption price per Class C share*.....      $24.88
Sales charge (1% of offering price).........................         .25
                                                                  ------
Offering price to public....................................      $25.13
                                                                  ======

CLASS Z
Net asset value, offering price and redemption price per
 Class Z share..............................................      $25.94
                                                                  ======
</TABLE>

------------
 * Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions.

                                      B-30
<PAGE>
SELECTING A PURCHASE ALTERNATIVE

    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 4 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 longer than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, you
should consider purchasing Class B or Class C shares over Class A shares. This
is because the initial sales charge plus the cumulative annual
distribution-related fee on Class A shares would exceed those of the Class B and
Class C shares if you redeem your investment during this time period. In
addition, more of your money would be invested initially in the case of Class C
shares, because of the relatively low initial sales charge, and all of your
money would be invested initially in the case of Class B shares, which are sold
at NAV.

    If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual distribution
related fee on Class A shares would be less than those of the Class B and
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 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 for more than 5 years in the
case of Class C shares for the higher cumulative annual distribution-related fee
on those shares plus, in the case of Class C shares, the 1% initial sales charge
to exceed the initial sales charge plus the 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.

REDUCTION AND WAIVER OF INITIAL SALES CHARGE--CLASS A SHARES

    BENEFIT PLANS. Certain group retirement and savings plans may purchase
Class A shares without the initial sales charge if they meet the required
minimum for amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential at
(800) 353-2847.

    OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, without
the initial sales charge, through the Distributor or the Transfer Agent, by:

    - officers of the Prudential mutual funds (including the Fund),

    - employees of the Distributor, Prudential Securities, PIFM and their
      subsidiaries and members of the families of such persons who maintain an
      "employee related" account at Prudential Securities or the Transfer Agent,

    - employees of subadvisers of the Prudential mutual funds provided that
      purchases at NAV are permitted by such person's employer,

    - 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,

    - members of the Board of Directors of Prudential,

    - real estate brokers, agents and employees of real estate brokerage
      companies affiliated with The Prudential Real Estate Affiliates who
      maintain an account at Prudential Securities, Prusec or with the Transfer
      Agent,

    - registered representatives and employees of brokers who have entered into
      a selected dealer agreement with the Distributor provided that purchases
      at NAV are permitted by such person's employer,

                                      B-31
<PAGE>
    - investors who have a business relationship with a financial adviser who
      joined Prudential Securities from another investment firm, provided that
      (1) the purchase is made within 180 days of the commencement of the
      financial adviser's employment at Prudential Securities, or within one
      year in the case of Benefit Plans, (2) the purchase is made with proceeds
      of a redemption of shares of any open-end non-money market fund sponsored
      by the financial adviser's previous employer (other than a fund which
      imposes a distribution or service fee of .25 or 1% or less) and (3) the
      financial adviser served as the client's broker on the previous purchase,

    - investors in Individual Retirement Accounts, provided the purchase is made
      in a directed rollover to such Individual Retirement Account or with the
      proceeds of a tax-free rollover of assets from a Benefit Plan for which
      Prudential provides administrative or recordkeeping services and further
      provided that such purchase is made within 60 days of receipt of the
      Benefit Plan distribution,

    - orders placed by broker-dealers, investment advisers or financial planners
      who have entered into an agreement with the Distributor, who place trades
      for their own accounts or the accounts of their clients and who charge a
      management, consulting or other fee for their services (for example,
      mutual fund "wrap" or asset allocation programs), and

    - orders placed by clients of broker-dealers, investment advisers or
      financial planners who place trades for customer accounts if the accounts
      are linked to the master account of such broker-dealer, investment adviser
      or financial planner and the broker-dealer, investment adviser or
      financial planner charges its clients a separate fee for its services (for
      example, mutual fund "supermarket" programs).

    Broker-dealers, investment advisers or financial planners sponsoring
fee-based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" programs) may offer their clients more than one class
of shares in the Fund in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.

    For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions.

    COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential mutual funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See "How to Buy, Sell and Exchange Shares of the Fund--How to
Buy Shares--Reducing or Waiving Class A's Initial Sales Charge" in the
Prospectus.

    An eligible group of related Fund investors includes any combination of the
following:

    - an individual
    - the individual's spouse, their children and their parents
    - the individual's and spouse's Individual Retirement Account (IRA)
    - any company controlled by the individual (a person, entity or group that
      holds 25% or more of the outstanding voting securities of a company will
      be deemed to control the company, and a partnership will be deemed to be
      controlled by each of its general partners)
    - a trust created by the individual, the beneficiaries of which are the
      individual, his or her spouse, parents or children
    - a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
      created by the individual or the individual's spouse
    - one or more employee benefit plans of a company controlled by an
      individual.

    In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).

                                      B-32
<PAGE>
    The Transfer Agent, the Distributor or your broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charge will be granted subject to confirmation of the investor's
holdings. The Combined Purchase and Cumulative Purchase Privilege does not apply
to individual participants in any retirement or group plans.

    LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors) who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of the
Fund and shares of other Prudential mutual funds (Investment Letter of Intent).
Retirement and group plans no longer qualify to purchase Class A shares at net
asset value by entering into a Letter of Intent.

    For purposes of the Investment Letter of Intent, all shares of the Fund and
shares of other Prudential mutual funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent or
its affiliates and through your broker will not be aggregated to determine the
reduced sales charge.

    An Investment Letter of Intent permits a purchaser to establish a total
investment goal to be achieved by any number of investments over a
thirteen-month period. Each investment made during the period will receive the
reduced sales charge applicable to the amount represented by the goal, as if it
were a single investment. Escrowed Class A shares totaling 5% of the dollar
amount of the Letter of Intent will be held by the Transfer Agent in the name of
the investor. The effective date of an Investment Letter of Intent may be
back-dated up to 90 days, in order that any investments made during this 90-day
period, valued at the purchaser's cost, can be applied to the fulfillment of the
Letter of Intent goal.

    The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. In the event the Letter of Intent
goal is not satisfied within the thirteen-month period, the investor is required
to pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charge actually paid. Such payment
may be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain such difference. If the goal is
exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the investor the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.

    The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. Letters of Intent are not
available to individual participants in any retirement or group plans.

CLASS B SHARES

    The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, your broker or the
Distributor. Although there is no sales charge imposed at the time of purchase,
redemptions of Class B shares may be subject to a CDSC. See "Sale of Shares--
Contingent Deferred Sales Charge" below.

    The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to brokers, financial advisers and
other persons which sell Class B shares at the time of sale. This facilitates
the ability of the Fund to sell the Class B shares without an initial sales
charge being deducted at the time of purchase. The Distributor anticipates that
it will recoup its advancement of sales commissions from the combination of the
CDSC and the distribution fee.

CLASS C SHARES

    The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

    BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.

                                      B-33
<PAGE>
    INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. Investors
may purchase Class C shares at NAV, without the initial sales charge, with the
proceeds from the redemption of shares of any unaffiliated registered investment
company which were not held through an account with any Prudential affiliate.
Such purchases must be made within 60 days of the redemption. Investors eligible
for this waiver include: (1) investors purchasing shares through an account at
Prudential Securities; (2) investors purchasing shares through an ADVANTAGE
Account or an Investor Account with Prusec; and (3) investors purchasing shares
through other brokers. This waiver is not available to investors who purchase
shares directly from the Transfer Agent. You must notify the Transfer Agent
directly or through your broker if you are entitled to this waiver and provide
the Transfer Agent with such supporting documents as it may deem appropriate.

CLASS Z SHARES

    BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares if
they meet the required minimum for amount of assets, average account balance or
number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.

    MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate that includes mutual funds as investment options and the Fund as an
available option. Class Z shares also can be purchased by investors in certain
programs sponsored by broker-dealers, investment advisers and financial planners
who have agreements with Prudential Investments Advisory Group relating to:

    - Mutual fund "wrap" or asset allocation programs where the sponsor places
      Fund trades, links its clients' accounts to a master account in the
      sponsor's name and charges its clients a management, consulting or other
      fee for its services

    - Mutual fund "supermarket" programs where the sponsor links its clients'
      accounts to a master account in the sponsor's name and the sponsor charges
      a fee for its services

    Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

    OTHER TYPES OF INVESTORS. Class Z shares also are available for purchase by
the following categories of investors:

    - certain participants in the MEDLEY Program (group variable annuity
      contracts) sponsored by Prudential for whom Class Z shares of the
      Prudential mutual funds are an available investment option

    - current and former Director/Trustees of the Prudential mutual funds
      (including the Fund)

    - Prudential, with an investment of $10 million or more.

    In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay brokers, financial advisers and other persons
which distribute shares a finders' fee, from its own resources, based on a
percentage of the net asset value of shares sold by such persons.

RIGHTS OF ACCUMULATION

    Reduced sales charges are also available through rights of accumulation,
under which an investor or an eligible group of related investors, as described
above under "Combined Purchase and Cumulative Purchase Privilege," may aggregate
the value of their existing holdings of shares of the Fund and shares of other
Prudential mutual funds (excluding money market funds other than those acquired
pursuant to the exchange privilege) to determine the reduced sales charge.
Rights of accumulation may be applied across the classes of the Prudential
mutual funds. However, the value of shares held directly with the Transfer Agent
and through your broker will not be aggregated to determine the reduced sales
charge. The value of existing holdings for purposes of determining the reduced
sales charge is calculated using the maximum offering price (net asset value
plus maximum sales charge) as of the previous business day.

    The Distributor or the Transfer Agent must be notified at the time of
purchase that the shareholder is entitled to a reduced sales charge. The reduced
sales charge will be granted subject to confirmation of the investor's holdings.
Rights of accumulation are not available to individual participants in any
retirement or group plans.

                                      B-34
<PAGE>
SALE OF SHARES

    You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described below. See "Contingent Deferred Sales Charge"
below. If you are redeeming your shares through a broker, your broker must
receive your sell order before the Fund computes its NAV for that day (that is,
4:15 P.M., New York time) in order to receive that day's NAV. Your broker will
be responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the Fund.

    If you hold shares of the Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.

    If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates must be received by the Transfer Agent, the
Distributor or your broker in order for the redemption request to be processed.
If redemption is requested by a corporation, partnership, trust or fiduciary,
written evidence of authority acceptable to 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
8149, Philadelphia, PA 19101, the Distributor, or to your broker.

    SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $100,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or
(4) are to be paid to a corporation, partnership, trust or fiduciary, and your
shares are held directly with the Transfer Agent, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices. In the case of redemptions from a PruArray Plan, if the proceeds of the
redemption are invested in another investment option of the plan in the name of
the record holder and at the same address as reflected in the Transfer Agent's
records, a signature guarantee is not required.

    Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your broker
of the certificate and/or written request, except as indicated below. If you
hold shares through a broker, payment for shares presented for redemption will
be credited to your account at your broker, unless you indicate otherwise. Such
payment may be postponed or the right of redemption suspended at times (1) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (2) when trading on such Exchange is restricted, (3) when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (4) during any other period
when the Commission, by order, so permits; provided that applicable rules and
regulations of the Commission shall govern as to whether the conditions
prescribed in (2), (3) or (4) exist.

    REDEMPTION IN KIND. If the 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 in a regular redemption. If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, under which the Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any
one shareholder.

    INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the 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
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.

    90-DAY REPURCHASE PRIVILEGE. If 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 same Fund at the NAV
next determined after

                                      B-35
<PAGE>
the order is received, which must be within 90 days after the date of the
redemption. Any CDSC paid in connection with such redemption will be credited
(in shares) to 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 the Distributor or your broker, at the time the repurchase
privilege is exercised to adjust your account for the CDSC you previously paid.
Thereafter, any redemptions will be subject to the CDSC applicable at the time
of the redemption. See "Contingent Deferred Sales Charge" below. Exercise of the
repurchase privilege will generally not affect federal tax treatment of any gain
realized upon redemption. However, if the redemption was made within a 30 day
period of the repurchase and if the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, may not be allowed for federal
income tax purposes.

CONTINGENT DEFERRED SALES CHARGE

    Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within 18 months of purchase (one year for Class C shares purchased
before November 2, 1998) 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 18 months, in the case of Class C shares (one year for
Class C shares purchased before November 2, 1998). A CDSC will be applied on the
lesser of the original purchase price or the current value of the shares being
redeemed. Increases in the value of your shares acquired through reinvestment of
dividends or distributions are not subject to a CDSC. The amount of any CDSC
will be paid to and retained by the Distributor.

    The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund.

    The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:

<TABLE>
<CAPTION>
                                                              CONTINGENT DEFERRED SALES
                                                               CHARGE AS A PERCENTAGE
                    YEAR SINCE PURCHASE                        OF DOLLARS INVESTED OR
                        PAYMENT MADE                             REDEMPTION PROCEEDS
                        ------------                             -------------------
<S>                                                           <C>
First.......................................................             5.0%
Second......................................................             4.0%
Third.......................................................             3.0%
Fourth......................................................             2.0%
Fifth.......................................................             1.0%
Sixth.......................................................             1.0%
Seventh.....................................................             None
</TABLE>

    In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Fund shares made during the preceding six years for Class B
shares and 18 months for Class C shares (one year for Class C shares bought
before November 2, 1998); then of amounts representing the cost of shares held
beyond the applicable CDSC period; and finally, of amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.

    For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 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 CHARGE--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, at the time of death or initial determination of disability, provided
that the shares were purchased prior to death or disability.

                                      B-36
<PAGE>
    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. For more information, call Prudential at (800)353-2847.

    Finally, the CDSC will be waived to the extent that the proceeds from shares
redeemed are invested in Prudential mutual funds, The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account or units of The Stable Value
Fund.

    SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase or, for shares purchased prior
to March 1, 1997, on March 1 of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.

    In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.

    You must notify the Transfer Agent either directly or through your broker,
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.

    In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.

<TABLE>
<CAPTION>
CATEGORY OF WAIVER                              REQUIRED DOCUMENTATION
<S>                                             <C>
Death                                           A copy of the shareholder's death certificate or,
                                                in the case of a trust, a copy of the grantor's
                                                death certificate, plus a copy of the trust
                                                agreement identifying the grantor.

Disability - An individual will be              A copy of the Social Security Administration award
considered disabled if he or she is             letter or a letter from a physician on the
unable to engage in any substantial             physician's letterhead stating that the shareholder
gainful activity by reason of any               (or, in the case of a trust, the grantor (a copy of
medically determinable physical or              the trust agreement identifying the grantor will be
mental impairment which can be expected         required as well)) is permanently disabled. The
to result in death or to be of                  letter must also indicate the date of disability.
long-continued and indefinite duration.

Distribution from an IRA or 403(b)              A copy of the distribution form from the custodial
Custodial Account                               firm indicating (i) the date of birth of the
                                                shareholder and (ii) that the shareholder is over
                                                age 59 and is taking a normal distribution--signed
                                                by the shareholder.

Distribution from Retirement Plan               A letter signed by the plan administrator/trustee
                                                indicating the reason for the distribution.

Excess Contributions                            A letter from the shareholder (for an IRA) or the
                                                plan administrator/ trustee on company letterhead
                                                indicating the amount of the excess and whether or
                                                not taxes have been paid.
</TABLE>

    The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.

    WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES

    BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC also will be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.

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

                                      B-37
<PAGE>
following formula: (1) 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
(2) multiplied by the total number of Class B shares purchased and then held in
your account. Each time any Eligible Shares in your account convert to Class A
shares, all shares or amounts representing Class B shares then in your account
that were acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.

    For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately 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 were
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (that is, $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.

    Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion. Thus, although the aggregate
dollar value will be the same, you may receive fewer Class A shares than
Class B shares converted.

    For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately 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 may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (2) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.

                         SHAREHOLDER INVESTMENT ACCOUNT

    Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.

    AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For the
convenience of investors, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at net asset value per
share. An investor may direct the Transfer Agent in writing not less than five
full business days prior to the record date to have subsequent dividends or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the broker. Any
shareholder who receives dividends or distributions in cash may subsequently
reinvest any such dividend or distribution at net asset value by returning the
check or the proceeds to the Transfer Agent within 30 days after the payment
date. Such reinvestment will be made at the net asset value per share next
determined after receipt of the check by the Transfer Agent. Shares purchased
with reinvested dividends and/or distributions will not be subject to any CDSC
upon redemption.

    EXCHANGE PRIVILEGE. The Fund makes available to its shareholders the
privilege of exchanging their shares of the Fund for shares of certain other
Prudential mutual funds, including one or more specified money market funds,
subject in each case to the

                                      B-38
<PAGE>
minimum investment requirements of such funds. Shares of such other Prudential
mutual funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative NAV next determined after receipt of an order in
proper form. An exchange will be treated as a redemption and purchase for tax
purposes. Shares may be exchanged for shares of another fund only if shares of
such fund may legally be sold under applicable state laws. For retirement and
group plans having a limited menu of Prudential mutual funds, the exchange
privilege is available for those funds eligible for investment in the particular
program.

    It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.

    In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in noncertificate 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 shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.

    If you hold certificates, the certificates must be returned in order for the
shares to be exchanged.

    You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 8157,
Philadelphia, PA 19101.

    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 LLC, at the address noted above.

    CLASS A. Shareholders of the Fund may exchange their Class A shares for
shares of certain other Prudential mutual funds and shares of the money market
funds specified below. No fee or sales load will be imposed upon the exchange.
Shareholders of money market funds who acquired such shares upon exchange of
Class A shares may use the exchange privilege only to acquire Class A shares of
the Prudential mutual funds participating in the exchange privilege.

    The following money market funds participate in the Class A exchange
privilege:

       Prudential California Municipal Fund
         (California Money Market Series)

       Prudential Government Securities Trust
         (Money Market Series)
         (U.S. Treasury Money Market Series)

       Prudential Municipal Series Fund
         (New Jersey Money Market Series)
         (New York Money Market Series)

       Prudential MoneyMart Assets, Inc. (Class A shares)

       Prudential Tax-Free Money Fund, Inc.

    CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares of the Fund for Class B and Class C shares, respectively, of
certain other Prudential mutual funds and shares of Prudential Special Money
Market Fund, Inc. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of the Class B and Class C shares acquired as a
result of the exchange. The applicable sales charge will be that imposed by the
fund in which shares were initially purchased and the purchase date will be
deemed to be the first day of the month after the initial purchase, rather than
the date of the exchange.

    Class B and Class C shares of the Fund may also be exchanged for shares of
an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after re-
exchange into the Fund, such shares will be subject to the CDSC calculated
without regard to the time such shares were held in

                                      B-39
<PAGE>
the money market fund. In order to minimize the period of time in which shares
are subject to a CDSC, shares exchanged out of the money market fund will be
exchanged on the basis of their remaining holding periods, with the longest
remaining holding periods being transferred first. In measuring the time period
shares are held in a money market fund and "tolled" for purposes of calculating
the CDSC holding period, exchanges are deemed to have been made on the last day
of the month. Thus, if shares are exchanged into the Fund from a money market
fund during the month (and are held in the Fund at the end of the month), the
entire month will be included in the CDSC holding period. Conversely, if shares
are exchanged into a money market fund prior to the last day of the month (and
are held in the money market fund on the last day of the month), the entire
month will be excluded from the CDSC holding period. For purposes of calculating
the seven year holding period applicable to the Class B conversion feature, the
time period during which Class B shares were held in a money market fund will be
excluded.

    At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.

    CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential mutual funds.

    SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. Under this exchange privilege, amounts
representing any Class B and Class C shares which are not subject to a CDSC held
in such a shareholder's account will be 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.

    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 Prudential Securities, Prusec or
another broker 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 or Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value.

    Additional details about the exchange privilege and prospectuses for each of
the Prudential mutual funds are available from the Fund's Transfer Agent, the
Distributor or your broker. The exchange privilege may be modified, terminated
or suspended on 60 days' notice, and any fund, including the Fund, or the
Distributor, has the right to reject any exchange application relating to such
fund's shares.

DOLLAR COST AVERAGING

    Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.

    Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)

                                      B-40
<PAGE>
    The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS:                                   $100,000   $150,000   $200,000   $250,000
--------------------                                   --------   --------   --------   --------
<S>                                                    <C>        <C>        <C>        <C>
25 Years.............................................   $  105     $  158     $  210     $  263
20 Years.............................................      170        255        340        424
15 Years.............................................      289        433        578        722
10 Years.............................................      547        820      1,093      1,366
 5 Years.............................................    1,361      2,041      2,721      3,402
See "Automatic Investment Plan."
</TABLE>

------------

    (1)Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees,
room and board for the 1993-1994 academic year.

    (2)The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.

    AUTOMATIC INVESTMENT PLAN (AIP). Under AIP, an investor may arrange to have
a fixed amount automatically invested in shares of a Fund monthly by authorizing
his or her bank account or brokerage account (including a Prudential Securities
Command Account) to be debited to invest specified dollar amounts in shares of
the Fund. The investor's bank must be a member of the Automatic Clearing House
System. Stock certificates are not issued to AIP participants.

    Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.

    SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through the Transfer Agent, the Distributor or your broker. Such
withdrawal plan provides for monthly, quarterly, semi-annual or annual
redemption checks in any amount, except as provided below, up to the value of
the shares in the shareholder's account. Withdrawals of Class B or Class C
shares may be subject to a CDSC.

    In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) withdrawals may not be for less than $100 and (3) the
shareholder must elect to have all dividends and/or distributions automatically
reinvested in additional full and fractional shares at net asset value on shares
held under this plan.

    The Transfer Agent, the Distributor or your broker acts as an agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate a
fee of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.

    Withdrawal payments should not be considered as dividends, yield or income.
If systematic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.

    Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to (1) the purchase of Class
A and Class C shares and (2) the redemption of Class B and Class C shares. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly if used in connection with a retirement
plan.

    TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-deferred accounts" under Section 403(b)(7) of the Internal Revenue Code are
available through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-direction of
accounts by participants, or a pooled account arrangement. Information regarding
the establishment of these plans, and the administration, custodial fees and
other details are available from the Distributor or the Transfer Agent.

    Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.

                                      B-41
<PAGE>
TAX-DEFERRED RETIREMENT ACCOUNTS

    INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.

                          TAX-DEFERRED COMPOUNDING(1)

<TABLE>
<CAPTION>
CONTRIBUTIONS                           PERSONAL
MADE OVER:                              SAVINGS                   IRA
-------------                           --------                --------
<S>                                     <C>                     <C>
10 years................                $ 26,165                $ 31,291
15 years................                  44,676                  58,649
20 years................                  68,109                  98,846
25 years................                  97,780                 157,909
30 years................                 135,346                 244,692
</TABLE>

------------

(1)The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA which meet the conditions required under
the Internal Revenue Code will not be subject to tax upon withdrawal from the
account.

MUTUAL FUND PROGRAMS

    From time to time, the Fund may be included in a mutual fund program with
other Prudential mutual funds. Under such a program, a group of portfolios will
be selected and thereafter marketed collectively. Typically, these programs are
created with an investment theme, such as, to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. A Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.

    The mutual funds in the program may be purchased individually or as part of
a program. Since the allocation of portfolios included in the program may not be
appropriate for all investors, investors should consult their financial adviser
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.

                                NET ASSET VALUE

    The Fund's net asset value per share or NAV is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Board of Directors has fixed the specific time of day for the computation of the
Fund's net asset value to be as of 4:15 P.M., New York time. The Fund will
compute its net asset value at 4:15 P.M., New York time, on each day the New
York Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem Fund shares have been received or days on which changes
in the value of the Fund's portfolio securities do not affect net asset value.
In the event the New York Stock Exchange closes early on any business day, the
net asset value of the Fund's shares shall be determined at a time between such
closing and 4:15 P.M., New York time. The New York Stock Exchange is closed on
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

    Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indexes) are valued at the
last sale price on such exchange or market on the day of valuation or, if there
was no sale on such day, at the mean between the last bid and asked prices on
such day or at the last bid price on such day in the absence of an asked price.
Corporate bonds (other than convertible debt securities) that are actively
traded in the over-the-counter market, including listed securities and
securities eligible for resale pursuant to Rule 144A under the Securities Act
for which the primary market is believed by the Manager in consultation with the
Subadviser to be over-the-counter, are valued on the basis of valuations
provided by an

                                      B-42
<PAGE>
independent pricing agent or more than one principal market maker that use
information with respect to transactions in bonds, quotations from bond dealers,
agency ratings, market transactions in comparable securities and various
relationships between securities in determining value. U.S. government
securities for which market quotations are available shall be valued at a price
provided by an independent pricing agent or primary dealer. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed convertible debt securities for which the primary market is believed by
the Manager in consultation with the Subadviser to be over-the-counter, are
valued at the mean between the last reported bid and asked prices (or at the
last bid price in the absence of an asked price) provided by more than one
principal market maker (if available, otherwise a primary market dealer).
Options on stock and stock indexes that are listed on an exchange and futures
contracts and options on futures contracts traded on an exchange or board of
trade are valued at the last sale price on such exchange or board of trade or,
if there was no sale on the applicable exchange or board of trade on such day,
at the mean between the most recently quoted bid and asked prices on such
exchange or board of trade (or at the last bid price in the absence of an asked
price). Quotations of foreign securites in a foreign currency are converted to
U.S. dollar equivalents at the current rate obtained from a recognized bank or
dealer and foreign currency forward contracts are valued at the current cost of
covering or offsetting such contracts. Should an extraordinary event, which is
likely to affect the value of the security, occur after the close of an exchange
on which a portfolio security is traded, such security will be valued at fair
value considering factors determined in good faith by the investment adviser
under procedures established by and under the general supervision of the Fund's
Board of Directors.

    Securities or other assets for which reliable market quotations are not
readily available, or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgement of the Manager or Subadviser (or Valuation Committee or
Board of Directors), does not represent fair value are valued by the Valuation
Committee or Board in consultation with the Manager and Subadviser, including
its portfolio manager, traders, and its research and credit analysts, on the
basis of some or all of the following factors: the nature of any restrictions on
disposition of the securities; assessment of the general liquidity/illiquidity
of the securities; the issuer's financial condition and the markets in which it
does business; the cost of the investment; the size of the holding and the
capitalization of issuer; the prices of any recent transactions or bids/offers
for such securities or any comparable securities; any available analyst, media
or other reports or information deemed reliable by the Manager or Subadviser
regarding the issuer or the markets or industry in which it operates; other
analytical data; and consistency with valuation of similar securities held by
other Prudential mutual funds. Short-term debt securities are valued at cost,
with interest accrued or discount amortized to the date of maturity, if their
original maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of more than 60 days, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or more than one principal market maker.

    Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class Z shares will generally be higher than the NAV of Class A, Class B
or Class C shares as a result of the fact that Class Z shares are not subject to
any distribution and/or service fee.

                       TAXES, DIVIDENDS AND DISTRIBUTIONS

    The Fund is qualified as, intends to remain qualified as, and has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code. This relieves the Fund (but not its shareholders) from paying
federal income tax on income and capital gains which are distributed to
shareholders, and permits net capital gains of the Fund (that is, the excess of
net long-term capital gains over net short-term capital losses) to be treated as
long-term capital gains of the shareholders, regardless of how long shareholders
have held their shares in the Fund. Net capital gains of the Fund which are
available for distribution to shareholders will be computed by taking into
account any capital loss carryforward of the Fund.

    Qualification of the Fund as a regulated investment company under the
Internal Revenue Code requires, among other things, that (a) the Fund derive at
least 90% of its annual gross income (without reduction for losses from the sale
or other disposition of securities or foreign currencies) from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of securities or options thereon or foreign currencies, or
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities or currencies; (b) the Fund diversify its holdings so that, at the
end of each quarter of the taxable year, (i) at least 50% of the value of the
Fund's assets is represented by cash, U.S. government securities and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the value of the Fund's assets and 10% of the outstanding voting securities
of such issuer, and (ii) not more

                                      B-43
<PAGE>
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. government securities); and (c) the Fund distribute to
its shareholders at least 90% of its net investment income and net short-term
capital gains (that is, the excess of net short-term capital gains over net
long-term capital losses) in each year.

    Gains or losses on sales of securities by the Fund will generally be treated
as long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Fund acquires a put or
writes a call thereon or otherwise holds an offsetting position with respect to
the securities. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize short-term capital
gain or loss. If securities are sold by the Fund pursuant to the exercise of a
call option written by it, the Fund will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. Certain of the Fund's transactions may be subject to wash
sale, short sale, constructive sale, anti-conversion and straddle provisions of
the Internal Revenue Code which may, among other things, require the Fund to
defer recognition of losses. In addition, debt securities acquired by the Fund
may be subject to original issue discount and market discount rules which,
respectively, may cause the Fund to accrue income in advance of the receipt of
cash with respect to interest or cause gains to be treated as ordinary income.

    Certain futures contracts and certain listed options (referred to as Section
1256 contracts) held by the Fund will be required to be "marked to market" for
federal income tax purposes at the end of the Fund's taxable year; that is,
treated as having been sold at their fair market value on the last day of the
Fund's taxable year. Except with respect to certain foreign currency forward
contracts, 60% of any gain or loss recognized on such deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.

    Gain or loss on the sale, lapse or other termination of options on stock and
on narrowly-based stock indices will be capital gain or loss and will be
long-term or short-term depending on the holding period of the option. In
addition, positions which are part of a "straddle" will be subject to certain
wash sale, short sale and constructive sale provisions of the Internal Revenue
Code. In the case of a "straddle", the Fund may be required to defer the
recognition of losses on positions it holds to the extent of any unrecognized
gain on offsetting positions held by the Fund.

    Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on foreign currency
forward contracts or dispositions of debt securities denominated in a foreign
currency attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of disposition also
are treated as ordinary gain or loss. These gains, referred to under the
Internal Revenue Code as "Section 988" gains or losses, increase or decrease the
amount of the Fund's investment company taxable income available to be
distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If Section 988 losses
exceed other investment company taxable income during a taxable year, the Fund
would not be able to make any ordinary dividend distributions, or distributions
made before the losses were realized would be recharacterized as a return of
capital to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares.

    Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the NAV of a share of the Fund on the reinvestment
date.

    Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the dividends or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to federal income taxes. In addition, dividends and capital gains
distributions also may be subject to state and local income taxes. Therefore,
prior to purchasing shares of the Fund, the investor should carefully consider
the impact of dividends or capital gains distributions which are expected to be
or have been announced.

    Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period beginning 30 days before the disposition of shares. Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.

                                      B-44
<PAGE>
    A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.

    Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Net capital gain distributions paid to a foreign
shareholder are generally not subject to withholding tax. A foreign shareholder
will, however, be required to pay U.S. income tax on any dividends and capital
gain distributions which are effectively connected with a U.S. trade or business
of the foreign shareholder.

    Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to foreign corporations, interest income, capital and
currency gain, gain or loss from Section 1256 contracts (described above) and
income from certain other sources will not constitute qualified dividends.
Individual shareholders are not eligible for the dividends-received deduction.

    The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A and Class Z shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares and lower
on Class A shares in relation to Class Z shares. The per share distributions of
net capital gains, if any, will be paid in the same amount for Class A,
Class B, Class C and Class Z shares. See "Net Asset Value."

    The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year. In addition, the Fund
must distribute during the calendar year all undistributed ordinary income and
undistributed capital gain net income from the prior calendar year or the
twelve-month period ending on October 31 of such prior calendar year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a nondeductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which the Fund pays income
tax is treated as distributed.

    The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations that, in general, meet either
of the following tests: (a) at least 75% of its gross income is passive or
(b) an average of at least 50% of its assets produce, or are held for the
production of, passive income. If the Fund acquires and holds stock in a PFIC
beyond the end of the year of its acquisition, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain from disposition of the stock (collectively, PFIC income),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. The
Fund may make a "mark-to-market" election with respect to any marketable stock
it holds of a PFIC. If the election is in effect, at the end of the Fund's
taxable year, the Fund will recognize the amount of gains, if any, as ordinary
income with respect to PFIC stock. No loss will be recognized on PFIC stock,
except to the extent of gains recognized in prior years. Alternatively, the
Fund, if it meets certain requirements, may elect to treat any PFIC in which it
invests as a "qualified electing fund," in which case, in lieu of the foregoing
tax and interest obligation, the Fund will be required to include in income each
year its PRO RATA share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the Fund;
those amounts would be subject to the distribution requirements applicable to
the Fund described above.

    Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary. The Fund does not expect
to meet the requirements of the Internal Revenue Code for "passing-through" to
its shareholders any foreign income taxes paid.

    Shareholders are advised to consult their own tax advisers with respect to
the federal, state and local income tax consequences resulting from their
investment in the Fund.

                                      B-45
<PAGE>
                            PERFORMANCE INFORMATION

    AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.

    Average annual total return is computed according to the following formula:

                         P(1+T)TO THE POWER OF n = ERV

Where: P = a hypothetical initial payment of $1,000.
       T = average annual total return.
       n = number of years.
       ERV = ending redeemable value of a hypothetical $1,000 payment made at
             the beginning of the 1, 5 or 10 year periods at the end of the 1, 5
             or 10 year periods (or fractional portion thereof).

    Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.

    Below are the average annual total returns for the Fund's share classes for
the periods ended October 31, 2000.

<TABLE>
<CAPTION>
                                                                         SINCE
                                       1 YEAR    5 YEARS    10 YEARS   INCEPTION
                                      --------   --------   --------   ---------
<S>                                   <C>        <C>        <C>        <C>         <C>
Class A.............................     37.30%    N/A        N/A         30.19%   (12-31-96)
Class B.............................     38.52     N/A        N/A         30.68    (12-31-96)
Class C.............................     41.09     N/A        N/A         30.58    (12-31-96)
Class Z.............................     44.95     N/A        N/A         32.25    (12-31-96)
</TABLE>

    AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares.

    Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:

                                    ERV - P
                                    -------
                                       P

Where: P = a hypothetical initial payment of $1,000.
       ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
             (or fractional portion thereof) of a hypothetical $1,000 payment
             made at the beginning of the 1, 5 or 10 year periods.

    Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.

    Below are the aggregate total returns for the Fund's share classes for the
periods ended October 31, 2000.

<TABLE>
<CAPTION>
                                                                         SINCE
                                       1 YEAR    5 YEARS    10 YEARS   INCEPTION
                                      --------   --------   --------   ---------
<S>                                   <C>        <C>        <C>        <C>         <C>
Class A.............................     44.52%    N/A        N/A        189.35%   (12-31-96)
Class B.............................     43.52     N/A        N/A        180.89    (12-31-96)
Class C.............................     43.52     N/A        N/A        180.89    (12-31-96)
Class Z.............................     44.95     N/A        N/A        191.99    (12-31-96)
</TABLE>

    ADVERTISING. Advertising materials for the Fund may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Fund's manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for the Fund also may
include mention of The Prudential Insurance Company of America, its affiliates
and subsidiaries, and reference the assets, products and services of those
entities.

                                      B-46
<PAGE>
    From time to time, advertising materials for the Fund may include
information concerning retirement and investing for retirement, may refer to the
approximate number of Fund shareholders and may refer to Lipper rankings or
Morningstar ratings, other related analysis supporting those ratings, other
industry publications, business periodicals and market indexes. In addition,
advertising materials may reference studies or analyses performed by the Manager
or its affiliates. Advertising materials for sector funds, funds that focus on
market capitalizations, index funds and international/global funds may discuss
the potential benefits and risks of that investment style. Advertising materials
for fixed-income funds may discuss the benefits and risks of investing in the
bond market including discussions of credit quality, duration and maturity.

    Set forth below is a chart which compares the performance of different types
of investments over the long term and the rate of inflation.(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S>                      <C>                     <C>
PERFORMANCE
COMPARISON OF DIFFERENT
TYPES OF INVESTMENTS
OVER THE LONG TERM
(12/31/192512/31/2000)
COMMON STOCKS            LONG-TERM GOV'T. BONDS  INFLATION
11.1%                                      5.3%       3.1%
</TABLE>

------------

    (1)Source: Ibbotson Associates. All rights reserved. Common stock returns
are based on the Standard & Poor's 500 Composite Stock Price Index, a
market-weighted, unmanaged index of 500 common stocks in a variety of industry
sectors. It is a commonly used indicator of broad stock price movements. This
chart is for illustrative purposes only and is not intended to represent the
performance of any particular investment or fund. Investors cannot invest
directly in an index. Past performance is not a guarantee of future results.

                                      B-47
<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Portfolio of Investments as of October 31, 2000
<TABLE>
<CAPTION>
SHARES         DESCRIPTION                                            VALUE (NOTE 1)
-------------------------------------------------------------------------------------
<C>            <S>                                                    <C>
LONG-TERM INVESTMENTS  93.7%
COMMON STOCKS  93.7%
-------------------------------------------------------------------------------------
ADVERTISING  4.6%
     329,300   Interpublic Group of Companies, Inc.                   $   14,139,319
     375,100   TMP Worldwide, Inc.(a)                                     26,110,476
                                                                      --------------
                                                                          40,249,795
-------------------------------------------------------------------------------------
BIOTECHNOLOGY  4.9%
     124,200   Abgenix, Inc.(a)                                            9,796,275
     106,200   Aviron(a)                                                   6,942,825
      67,500   Ciphergen Biosystems, Inc.(a)                               2,092,500
      51,200   Human Genome Sciences, Inc.(a)                              4,525,600
     137,900   MedImmune, Inc.(a)                                          9,015,212
      75,900   Protein Design Labs, Inc.(a)                               10,252,430
                                                                      --------------
                                                                          42,624,842
-------------------------------------------------------------------------------------
BROADCASTING  5.5%
     133,400   Cablevision Systems Corp.(a)                                9,938,300
     359,620   Gemstar-TV Guide International, Inc.(a)                    24,656,446
     660,500   USA Networks, Inc.(a)                                      13,375,125
                                                                      --------------
                                                                          47,969,871
-------------------------------------------------------------------------------------
CELLULAR COMMUNICATIONS  3.3%
      80,600   Powertel, Inc.(a)                                           7,032,350
      50,300   VoiceStream Wireless Corp.(a)                               6,614,450
     321,500   Western Wireless Corp. (Class A)(a)                        15,271,250
                                                                      --------------
                                                                          28,918,050
-------------------------------------------------------------------------------------
CHEMICALS  1.2%
      23,800   Eden Bioscience Corp.(a)                                      901,425
     366,200   Monsanto Company(a)                                         9,338,100
                                                                      --------------
                                                                          10,239,525
-------------------------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES  14.0%
     424,200   Cadence Design Systems, Inc.(a)                            10,896,637
     251,500   Commerce One, Inc.(a)                                      16,143,156
</TABLE>
    See Notes to Financial Statements
                                     B-48

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
SHARES         DESCRIPTION                                            VALUE (NOTE 1)
------------------------------------------------------------------------------------
<C>            <S>                                                    <C>
     208,300   Digex, Inc.(a)                                         $    8,175,775
     173,100   Electronic Arts, Inc.(a)                                    8,655,000
     151,100   Exodus Communications, Inc.(a)                              5,071,294
     241,000   HNC Software, Inc.(a)                                       4,895,313
     208,700   Macromedia, Inc.(a)                                        16,082,944
     201,900   PeopleSoft, Inc.(a)                                         8,811,042
     487,967   Retek, Inc.(a)                                             19,244,199
     167,400   RSA Security, Inc.(a)                                       9,709,200
      54,800   SignalSoft Corp.(a)                                         1,558,375
      84,425   Verisign, Inc.                                             11,144,100
      90,800   Vignette Corp.(a)                                           2,706,975
                                                                      --------------
                                                                         123,094,010
-------------------------------------------------------------------------------------
COMPUTER HARDWARE  0.6%
      65,400   Extreme Networks, Inc.                                      5,424,113
-------------------------------------------------------------------------------------
DATA PROCESSING/REPRODUCTION  2.7%
     507,200   CSG Systems International, Inc.(a)                         23,553,100
-------------------------------------------------------------------------------------
ELECTRIC UTILITIES  1.0%
     204,900   Public Service Enterprise Group, Inc.                       8,503,350
-------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT  5.5%
     120,000   Celestica, Inc.(a)                                          8,625,000
     173,600   Harman International Industries, Inc.                       8,332,800
     166,000   Sanmina Corp.(a)                                           18,975,875
     283,100   Solectron Corp.(a)                                         12,456,400
                                                                      --------------
                                                                          48,390,075
-------------------------------------------------------------------------------------
ELECTRONICS  12.6%
     155,000   Altera Corp.(a)                                             6,345,313
     138,000   Analog Devices, Inc.(a)                                     8,970,000
     160,400   ASM Lithography Holding N.V.(a)                             4,461,125
      79,500   Lattice Semiconductor Corp.(a)                              2,320,406
     759,400   LSI Logic Corp.(a)                                         24,965,275
     271,000   Micrel, Inc.(a)                                            12,262,750
</TABLE>
                                           See Notes to Financial Statements
                                      B-49

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
SHARES         DESCRIPTION                                            VALUE (NOTE 1)
-------------------------------------------------------------------------------------
<C>            <S>                                                    <C>
     423,700   Microchip Technology, Inc.(a)                          $   13,399,512
     369,300   Vitesse Semiconductor Corp.(a)                             25,827,919
     166,300   Xilinx, Inc.(a)                                            12,046,356
                                                                      --------------
                                                                         110,598,656
-------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS  5.5%
     212,900   Flextronics International Ltd.(a)                           8,090,200
     249,400   Jabil Circuit, Inc.(a)                                     14,231,388
     227,400   Linear Technology Corp.                                    14,681,512
     101,900   Newport Corp.                                              11,637,298
                                                                      --------------
                                                                          48,640,398
-------------------------------------------------------------------------------------
FINANCIAL SERVICES  5.2%
     211,900   CheckFree Corp.(a)                                         10,542,025
     391,100   Fiserv, Inc.(a)                                            20,508,306
      62,000   Lehman Brothers Holdings, Inc.                              3,999,000
     233,200   Stilwell Financial, Inc.                                   10,450,275
                                                                      --------------
                                                                          45,499,606
-------------------------------------------------------------------------------------
FOOD/DRUG RETAIL  1.0%
     120,700   Andrx Corp.(a)                                              8,690,400
-------------------------------------------------------------------------------------
HEALTH CARE  3.8%
     129,500   Dyax Corp.(a)                                               4,807,687
     689,300   HEALTHSOUTH Corp.(a)                                        8,271,600
     147,600   QLT PhotoTherapeutics, Inc.(a)                              7,340,794
     130,500   Quest Diagnostics, Inc.(a)                                 12,560,625
                                                                      --------------
                                                                          32,980,706
-------------------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES  2.2%
     131,300   Affymetrix Inc.(a)                                          7,270,738
      83,700   Laboratory Corporation of America Holdings(a)              11,289,037
      39,300   Syncor International Corp.(a)                               1,009,519
                                                                      --------------
                                                                          19,569,294
</TABLE>
    See Notes to Financial Statements
                                      B-50

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
SHARES         DESCRIPTION                                            VALUE (NOTE 1)
-------------------------------------------------------------------------------------
<C>            <S>                                                    <C>
OIL & GAS-PRODUCTION/PIPELINE  1.0%
     145,800   El Paso Energy Corp.                                   $    9,139,838
-------------------------------------------------------------------------------------
PHARMACEUTICALS  12.7%
     148,100   Allergan, Inc.                                             12,449,656
     191,100   Express Scripts, Inc. Class A(a)                           12,839,531
     295,200   Incyte Pharmaceuticals, Inc.(a)                            10,811,700
     364,400   Mylan Laboratories                                         10,203,200
     106,000   Millenium Pharmaceuticals, Inc.(a)                          7,691,625
     131,700   OSI Pharmaceuticals, Inc.                                   9,482,400
     162,000   Sepracor Inc.(a)                                           11,036,250
     272,200   Teva Pharmaceutical Industries Ltd. (Israel) (ADR)         16,093,825
     332,500   Watson Pharmaceuticals, Inc.(a)                            20,802,032
                                                                      --------------
                                                                         111,410,219
-------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST  0.2%
      48,500   Boston Properties, Inc.                                     1,964,250
-------------------------------------------------------------------------------------
RETAIL/SPECIALTY  0.5%
     100,700   Tiffany & Co.                                               4,298,631
-------------------------------------------------------------------------------------
TELECOMMUNICATIONS  5.7%
     521,900   ADC Telecommunications, Inc.(a)                            11,155,613
     539,100   American Tower Corp.                                       22,069,406
     137,900   CIENA Corp.(a)                                             14,496,737
      99,000   Metromedia Fiber Network, Inc.                              1,881,000
                                                                      --------------
                                                                          49,602,756
                                                                      --------------
               Total long-term investments (cost $742,508,553)           821,361,485
                                                                      --------------
</TABLE>

                                           See Notes to Financial Statements
                                      B-51

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000)         DESCRIPTION                                            VALUE (NOTE 1)
-------------------------------------------------------------------------------------
<C>           <S>                                                    <C>
SHORT-TERM INVESTMENTS  4.9%
REPURCHASE AGREEMENT  4.9%
$    43,287   Joint Repurchase Agreement Account,
               6.55%, 11/1/00
               (cost $43,287,000; Note 5)                            $   43,287,000
                                                                     --------------
-----------------------------------------------------------------------------------
              TOTAL INVESTMENTS  98.6%
               (COST $785,795,553; NOTE 4)                              864,648,485
              Other assets in excess of liabilities  1.4%                11,848,276
                                                                     --------------
              NET ASSETS  100%                                       $  876,496,761
                                                                     --------------
                                                                     --------------
</TABLE>
------------------------------
(a) Non-income producing security.
ADR--American Depository Receipt.
    See Notes to Financial Statements
                                      B-52

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Statement of Assets and Liabilities
<TABLE>
<CAPTION>
                                                                  OCTOBER 31, 2000
-----------------------------------------------------------------------------------
<S>                                                               <C>
ASSETS
Investments, at value (cost $785,795,553)                           $864,648,485
Cash                                                                   1,892,281
Receivable for investments sold                                       24,885,224
Receivable for Fund shares sold                                        4,083,033
Deferred expenses and other assets                                        34,387
Dividends and interest receivable                                         13,180
                                                                  ----------------
      TOTAL ASSETS                                                   895,556,590
                                                                  ----------------
LIABILITIES
Payable for investments purchased                                     16,157,690
Payable for Fund shares reacquired                                     1,739,227
Distribution fee payable                                                 482,490
Management fee payable                                                   433,322
Accrued expenses and other liabilities                                   247,100
                                                                  ----------------
      TOTAL LIABILITIES                                               19,059,829
                                                                  ----------------
NET ASSETS                                                          $876,496,761
                                                                  ----------------
                                                                  ----------------
Net assets were comprised of:
   Common stock, at par                                             $     34,731
   Paid-in capital in excess of par                                  701,237,559
                                                                  ----------------
                                                                     701,272,290
   Accumulated net realized gain on investments                       96,371,539
   Net unrealized appreciation/depreciation on investments            78,852,932
                                                                  ----------------
Net assets, October 31, 2000                                        $876,496,761
                                                                  ----------------
                                                                  ----------------
</TABLE>

                                           See Notes to Financial Statements
                                      B-53

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Statement of Assets and Liabilities Cont'd.
<TABLE>
<CAPTION>
                                                                  OCTOBER 31, 2000
-----------------------------------------------------------------------------------
<S>                                                               <C>
Class A:
   Net asset value and redemption price per share
      ($291,799,849 DIVIDED BY 11,356,409 shares of common
      stock issued and outstanding)                                       $25.69
   Maximum sales charge (5% of offering price)                              1.35
                                                                  ----------------
   Maximum offering price to public                                       $27.04
                                                                  ----------------
                                                                  ----------------
Class B:
   Net asset value, offering price and redemption price per
      share
      ($424,814,942 DIVIDED BY 17,074,395 shares of common
      stock issued and outstanding)                                       $24.88
                                                                  ----------------
                                                                  ----------------
Class C:
   Net asset value and redemption price per share
      ($83,274,770 DIVIDED BY 3,347,018 shares of common
      stock issued and outstanding)                                       $24.88
   Sales charge (1% of offering price)                                       .25
                                                                  ----------------
   Offering price to public                                               $25.13
                                                                  ----------------
                                                                  ----------------
Class Z:
   Net asset value, offering price and redemption price per
      share ($76,607,200 DIVIDED BY 2,952,784 shares of
      common stock issued and outstanding)                                $25.94
                                                                  ----------------
                                                                  ----------------
</TABLE>

    See Notes to Financial Statements
                                      B-54

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Statement of Operations
<TABLE>
<CAPTION>
                                                                        YEAR
                                                                       ENDED
                                                                  OCTOBER 31, 2000
-----------------------------------------------------------------------------------
<S>                                                               <C>
NET INVESTMENT LOSS
Income
   Interest                                                         $  1,993,069
   Dividends (net of foreign withholding taxes of $5,552)                242,812
                                                                  ----------------
      TOTAL INCOME                                                     2,235,881
                                                                  ----------------
Expenses
   Management fee                                                      4,309,669
   Distribution fee--Class A                                             544,280
   Distribution fee--Class B                                           3,822,454
   Distribution fee--Class C                                             655,655
   Transfer agent's fees and expenses                                    977,000
   Registration fees                                                     145,000
   Reports to shareholders                                               145,000
   Custodian's fees and expenses                                         120,000
   Legal fees and expenses                                                45,000
   Amortization of deferred organizational costs                          24,460
   Audit fees                                                             20,000
   Directors' fees and expenses                                           15,000
   Miscellaneous                                                          12,022
                                                                  ----------------
      TOTAL EXPENSES                                                  10,835,540
                                                                  ----------------
Net investment loss                                                   (8,599,659)
                                                                  ----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions                         127,986,985
Net change in unrealized appreciation/depreciation on
   investments                                                           643,815
                                                                  ----------------
NET GAIN ON INVESTMENTS                                              128,630,800
                                                                  ----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                $120,031,141
                                                                  ----------------
                                                                  ----------------
</TABLE>

                                           See Notes to Financial Statements
                                      B-55

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Statement of Changes in Net Assets
<TABLE>
<CAPTION>
                                                       YEAR                YEAR
                                                      ENDED               ENDED
                                                 OCTOBER 31, 2000    OCTOBER 31, 1999
-------------------------------------------------------------------------------------
<S>                                              <C>                 <C>
INCREASE IN NET ASSETS
OPERATIONS
   Net investment loss                            $   (8,599,659)      $ (2,636,144)
   Net realized gain on investments                  127,986,985         30,331,339
   Net change in unrealized
      appreciation/depreciation on investments           643,815         62,358,936
                                                 ----------------    ----------------
   Net increase in net assets resulting from
      operations                                     120,031,141         90,054,131
                                                 ----------------    ----------------
   Distributions from net realized gains (Note 1)
      Class A                                         (7,442,557)          (871,485)
      Class B                                        (16,826,102)        (2,298,027)
      Class C                                         (2,229,103)          (187,922)
      Class Z                                         (1,745,526)           (67,704)
                                                 ----------------    ----------------
                                                     (28,243,288)        (3,425,138)
                                                 ----------------    ----------------
FUND SHARE TRANSACTIONS (NET OF SHARE
   CONVERSION)
   (NOTE 6)
   Net proceeds from shares sold                     881,684,622        182,256,028
   Net asset value of shares issued in
      reinvestment of distributions                   27,019,148          3,294,708
   Cost of shares reacquired                        (437,151,603)       (83,825,537)
                                                 ----------------    ----------------
   Net increase in net assets from Fund share
      transactions                                   471,552,167        101,725,199
                                                 ----------------    ----------------
Total increase                                       563,340,020        188,354,192
NET ASSETS
Beginning of year                                    313,156,741        124,802,549
                                                 ----------------    ----------------
End of year                                       $  876,496,761       $313,156,741
                                                 ----------------    ----------------
                                                 ----------------    ----------------
</TABLE>

    See Notes to Financial Statements
                                      B-56

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Notes to Financial Statements

      Prudential U.S. Emerging Growth Fund, Inc. (the "Fund"), formerly known as
Prudential Emerging Growth Fund, Inc., is registered under the Investment
Company Act of 1940 as a diversified, open-end, management investment company.
The Fund was incorporated in Maryland on August 23, 1996. The Fund issued 2,500
shares each of Class A, Class B, Class C and Class Z common stock for $100,000
on October 21, 1996 to Prudential Investments Fund Management LLC ("PIFM").
Investment operations commenced on December 31, 1996.

      The Fund's investment objective is to achieve long-term capital
appreciation. It invests primarily in equity securities of small and
medium-sized U.S. companies, which will generally have a market capitalization
less than the largest capitalization of the Standard & Poor's Mid-Cap 400 Stock
Index, with the potential for above-average growth.

NOTE 1. ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.

      SECURITIES VALUATION:    Securities listed on a securities exchange (other
than options on stock and stock indices) are valued at the last sales price on
the day of valuation, or, if there was no sale on such day, at the mean between
the last bid and asked prices on such day, or at the last bid price on such day
in the absence of an asked price. Securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued by more than one principal
market maker or independent pricing agent. Securities for which reliable market
quotations are not available or for which the pricing agent or principal market
maker does not provide a valuation or methodology or provides a valuation or
methodology that does not represent fair value are valued in accordance with
procedures adopted by the Board of Directors of the Fund.

      Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost.

      REPURCHASE AGREEMENTS:    In connection with transactions in repurchase
agreements, it is the Fund's policy that its custodian or designated
subcustodians under triparty repurchase agreements, as the case may be, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction, including accrued interest.
To the extent that any repurchase transaction exceeds one business day, the
value of the collateral is marked-to-market on a daily basis to ensure the
adequacy of the collateral. If the seller defaults, and the value of the
collateral declines, or if bankruptcy proceedings are commenced with

                                      B-57

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Notes to Financial Statements Cont'd.

respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.

      All securities are valued as of 4:15 p.m., New York time.

      SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME:    Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of securities are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date; interest income is recorded on the accrual
basis. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management.

      Net investment income (loss), other than distribution fees, and realized
and unrealized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of the
day.

      DIVIDENDS AND DISTRIBUTIONS:    Dividends from net investment income are
declared and paid annually. The Fund will distribute at least annually net
capital gains in excess of loss carryforwards, if any. Dividends and
distributions are recorded on the ex-dividend date.

      Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.

      RECLASSIFICATION OF CAPITAL ACCOUNTS:    The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants Statement of Position 92-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease net investment loss by $8,599,659, decrease
accumulated net realized gain on investments by $29,828,890, and increase
paid-in capital by $21,229,231, due to the Fund experiencing net operating
losses and redemptions utilized as distributions for federal income tax purposes
during the fiscal year ended October 31, 2000. Net investment income, paid-in
capital and net assets were not affected by this change.

      TAXES:    It is the Fund's policy to continue to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income and net capital gains, if any, to its
shareholders. Therefore, no federal income tax provision is required.

      Withholding taxes on foreign dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.

      DEFERRED ORGANIZATION EXPENSES:    Approximately $122,000 of expenses were
incurred in connection with the organization of the Fund. These costs have been

                                      B-58

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Notes to Financial Statements Cont'd.

deferred and are being amortized ratably over a period of sixty months from the
date the Fund commenced investment operations.

NOTE 2. AGREEMENTS

The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. Pursuant to a subadvisory agreement between PIFM and The Prudential
Investment Corporation ("PIC"), PIC furnished investment advisory services in
connection with the management of the Fund from November 1, 1999 through August
23, 2000. Effective August 24, 2000, the Board of Directors terminated the
subadvisory agreement with PIC, and PIFM entered into a subadvisory agreement
with Jennison Associates LLC ("Jennison"), pursuant to which Jennison is paid
under the same terms as PIC was paid by PIFM. PIFM paid for the services of PIC
and Jennison, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.

      The management fee paid to PIFM is computed daily and payable monthly, at
an annual rate of .60 of 1% of the Fund's average daily net assets up to $1
billion and .55 of 1% of the average daily net assets in excess of $1 billion.
Prior to May 24, 2000, the management fee paid to PIFM was computed daily and
payable monthly, at an annual rate of .60 of 1% of the Fund's average daily net
assets.

      Prior to January 1, 2000, PIC was reimbursed by PIFM for reasonable costs
and expenses incurred in furnishing investment advisory services. From January
1, through August 23, 2000, the subadvisory fee paid to PIC, and from August 24
through October 31, 2000, the subadvisory fee paid to Jennison, by PIFM, was
computed daily and payable monthly at an annual rate of .30 of 1% of the Fund's
average daily net assets up to $1 billion and .261 of 1% of the average daily
net assets in excess of $1 billion. The change in subadvisory fee structure has
no impact on the management fee charged to the Fund or its shareholders.

      The Fund has a distribution agreement with Prudential Investment
Management Services LLC ("PIMS"), which acts as the distributor of the Class A,
Class B, Class C and Class Z shares of the Fund. The Fund compensates PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of distribution (the "Class A, B and C Plans"), regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PIMS as distributor
for the Class Z shares of the Fund.

      Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the

                                      B-59

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Notes to Financial Statements Cont'd.

average daily net assets of the Class A, B and C shares, respectively. Such
expenses under the Plans were charged at an annual rate of .25 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively,
for the year ended October 31, 2000.

      PIMS has advised the Fund that it received approximately $1,094,200 and
$476,900 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the year ended October 31, 2000. From these
fees, PIMS paid such sales charges to affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.

      PIMS has advised the Fund that for the year ended October 31, 2000, it
received approximately $586,300 and $43,500 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

      PIFM, PIC, PIMS and Jennison are wholly owned subsidiaries of The
Prudential Insurance Company of America ("Prudential").

      The Fund, along with other affiliated registered investment companies (the
"Funds"), entered into a syndicated credit agreement ("SCA") with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion
of the credit facility. The Fund did not borrow any amounts pursuant to the SCA
during the year ended October 31, 2000.

NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended October 31, 2000, the
Fund incurred fees of approximately $838,800 for the services of PMFS. As of
October 31, 2000, approximately $90,300 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations also include certain
out-of-pocket expenses paid to nonaffiliates.

      For the year ended October 31, 2000, Prudential Securities Incorporated,
which is an indirect, wholly owned subsidiary of Prudential, earned
approximately $211,200 in brokerage commissions from portfolio transactions
executed on behalf of the Fund.

                                      B-60

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Notes to Financial Statements Cont'd.

NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 2000 were $2,769,635,862 and $2,376,560,296,
respectively.

      The cost basis of investments for federal income tax purposes at October
31, 2000 was $798,087,356 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $66,561,129 (gross unrealized
appreciation --$107,685,442; gross unrealized depreciation--$41,124,313).

NOTE 5. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or Federal agency obligations. As of October 31, 2000, the Fund
had a 6.6% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represented $43,287,000 in principal amount.
As of such date, each repurchase agreement in the joint account and the value of
the collateral therefore were as follows:

      ABN AMRO, Inc., 6.56%, in the principal amount of $150,000,000, repurchase
price $150,027,333, due 11/1/00. The value of the collateral including accrued
interest was $153,000,176.

      Bear, Stearns & Co. Inc., 6.56%, in the principal amount of $175,000,000,
repurchase price $175,031,889, due 11/1/00. The value of the collateral
including accrued interest was $184,628,570.

      Chase Securities Inc., 6.56%, in the principal amount of $115,000,000,
repurchase price $115,020,956, due 11/1/00. The value of the collateral
including accrued interest was $117,304,831.

      Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.375%, in the principal
amount of $43,782,000, repurchase price $43,789,753, due 11/1/00. The value of
the collateral including accrued interest was $44,659,885.

      UBS Warburg, Inc., 6.56%, in the principal amount of $175,000,000,
repurchase price $175,031,889, due 11/1/00. The value of the collateral
including accrued interest was $178,501,724.

NOTE 6. CAPITAL
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time

                                      B-61

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Notes to Financial Statements Cont'd.

the shares are held. Class C shares are sold with a front-end sales charge of 1%
and a contingent deferred sales charge of 1% during the first 18 months. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase. A special exchange privilege is also
available for shareholders who qualify to purchase Class A shares at net asset
value. Class Z shares are not subject to any sales or redemption charge and are
offered exclusively for sale to a limited group of investors.

      There are 2 billion shares of $.001 par value common stock authorized
divided into four classes, designated Class A, Class B, Class C and Class Z,
which consists of 1 billion, 500 million, 300 million and 200 million authorized
shares, respectively.

      Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
CLASS A                                                       SHARES          AMOUNT
----------------------------------------------------------  -----------    -------------
<S>                                                         <C>            <C>
Year ended October 31, 2000:
Shares sold                                                  18,021,106    $ 473,670,408
Shares issued in reinvestment of distributions                  337,254        7,120,860
Shares reacquired                                           (12,579,993)    (328,357,959)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding before
  conversion                                                  5,778,367      152,433,309
Shares issued upon conversion from Class B                    1,111,429       31,498,175
                                                            -----------    -------------
Net increase (decrease) in shares outstanding                 6,889,796    $ 183,931,484
                                                            -----------    -------------
                                                            -----------    -------------
Year ended October 31, 1999:
Shares sold                                                   4,765,399    $  81,090,986
Shares issued in reinvestment of distributions                   67,007          844,294
Shares reacquired                                            (3,244,391)     (55,188,028)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding before
  conversion                                                  1,588,015       26,747,252
Shares issued upon conversion from Class B                      198,946        3,220,362
                                                            -----------    -------------
Net increase (decrease) in shares outstanding                 1,786,961    $  29,967,614
                                                            -----------    -------------
                                                            -----------    -------------
</TABLE>




                                      B-62

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
CLASS B                                                       SHARES          AMOUNT
----------------------------------------------------------  -----------    -------------
<S>                                                         <C>            <C>
Year ended October 31, 2000:
Shares sold                                                  10,338,639    $ 267,311,408
Shares issued in reinvestment of distributions                  782,642       16,109,133
Shares reacquired                                            (2,780,498)     (70,304,915)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding before
  conversion                                                  8,340,783      213,115,626
Shares reacquired upon conversion into Class A               (1,144,343)     (31,498,175)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding                 7,196,440    $ 181,617,451
                                                            -----------    -------------
                                                            -----------    -------------
Year ended October 31, 1999:
Shares sold                                                   4,299,581    $  70,231,079
Shares issued in reinvestment of distributions                  177,561        2,201,763
Shares reacquired                                            (1,444,215)     (22,492,386)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding before
  conversion                                                  3,032,927       49,940,456
Shares reacquired upon conversion into Class A                 (202,843)      (3,220,362)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding                 2,830,084    $  46,720,094
                                                            -----------    -------------
                                                            -----------    -------------

CLASS C
Year ended October 31, 2000:
Shares sold                                                   2,535,417    $  65,495,924
Shares issued in reinvestment of distributions                  106,238        2,186,792
Shares reacquired                                              (553,865)     (13,910,800)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding                 2,087,790    $  53,771,916
                                                            -----------    -------------
                                                            -----------    -------------
Year ended October 31, 1999:
Shares sold                                                     861,899    $  14,471,091
Shares issued in reinvestment of distributions                   14,915          184,941
Shares reacquired                                              (189,985)      (3,042,506)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding                   686,829    $  11,613,526
                                                            -----------    -------------
                                                            -----------    -------------

CLASS Z
-------
Year ended October 31, 2000:
Shares sold                                                   2,837,518    $  75,206,882
Shares issued in reinvestment of distributions                   75,388        1,602,363
Shares reacquired                                              (947,081)     (24,577,929)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding                 1,965,825    $  52,231,316
                                                            -----------    -------------
                                                            -----------    -------------
Year ended October 31, 1999:
Shares sold                                                     967,643    $  16,462,871
Shares issued in reinvestment of distributions                    5,036           63,710
Shares reacquired                                              (188,018)      (3,102,616)
                                                            -----------    -------------
Net increase (decrease) in shares outstanding                   784,661    $  13,423,965
                                                            -----------    -------------
                                                            -----------    -------------
</TABLE>


                                      B-63

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Financial Highlights
<TABLE>
<CAPTION>
                                                           CLASS A
                                     ---------------------------------------------------
                                                                            DECEMBER 31,
                                                                              1996(a)
                                           YEAR ENDED OCTOBER 31,             THROUGH
                                     ----------------------------------     OCTOBER 31,
                                      2000(d)       1999(d)      1998           1997
-----------------------------------------------------------------------------------------
<S>                                  <C>            <C>         <C>         <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
  period                              $  19.16      $ 12.01     $ 11.92       $  10.00
                                     ----------     -------     -------     ------------
INCOME FROM INVESTMENT
  OPERATIONS
Net investment loss                       (.20)        (.13)       (.11)          (.08)
Net realized and unrealized gain
   on investment transactions             8.37         7.61         .41           2.00
                                     ----------     -------     -------     ------------
   Total from investment
      operations                          8.17         7.48         .30           1.92
                                     ----------     -------     -------     ------------
LESS DISTRIBUTIONS
Distributions from net realized
  gains                                  (1.64)        (.33)       (.21)            --
                                     ----------     -------     -------     ------------
Net asset value, end of period        $  25.69      $ 19.16     $ 12.01       $  11.92
                                     ----------     -------     -------     ------------
                                     ----------     -------     -------     ------------
TOTAL RETURN(c):                         44.52%       63.65%       2.63%         19.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)       $291,800      $85,595     $32,183       $ 33,124
Average net assets (000)              $217,712      $52,984     $33,831       $ 28,141
Ratios to average net assets:
   Expenses, including
      distribution and service
      (12b-1) fees(e)                     1.06%        1.22%       1.25%          1.46%(b)
   Expenses, excluding
      distribution and service
      (12b-1) fees                         .81%         .97%       1.00%          1.21%(b)
   Net investment loss                    (.75)%       (.80)%      (.88)%         (.92)%(b)
For Class A, B, C and Z shares:
   Portfolio turnover rate                 347%         153%        177%           107%
</TABLE>

------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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.
(d) Based on average shares outstanding during the period.
(e) The distributor of the Fund agreed to limit its distribution fees to .25 of
    1% of the average daily net assets of the Class A shares.


    See Notes to Financial Statements
                                      B-64

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Financial Highlights Cont'd.
<TABLE>
<CAPTION>
                                                           CLASS B
                                     ----------------------------------------------------
                                                                             DECEMBER 31,
                                                                               1996(a)
                                           YEAR ENDED OCTOBER 31,              THROUGH
                                     -----------------------------------     OCTOBER 31,
                                      2000(d)       1999(d)       1998           1997
-----------------------------------------------------------------------------------------
<S>                                  <C>            <C>          <C>         <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
  period                              $  18.72      $  11.83     $ 11.85       $  10.00
                                     ----------     --------     -------     ------------
INCOME FROM INVESTMENT
  OPERATIONS
Net investment loss                       (.38)         (.24)       (.20)          (.14)
Net realized and unrealized gain
   on investment transactions             8.18          7.46         .39           1.99
                                     ----------     --------     -------     ------------
   Total from investment
      operations                          7.80          7.22         .19           1.85
                                     ----------     --------     -------     ------------
LESS DISTRIBUTIONS
Distributions from net realized
  gains                                  (1.64)         (.33)       (.21)            --
                                     ----------     --------     -------     ------------
Net asset value, end of period        $  24.88      $  18.72     $ 11.83       $  11.85
                                     ----------     --------     -------     ------------
                                     ----------     --------     -------     ------------
TOTAL RETURN(c):                         43.52%        62.39%       1.71%         18.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)       $424,815      $184,955     $83,407       $ 82,070
Average net assets (000)              $382,245      $127,249     $86,713       $ 67,420
Ratios to average net assets:
   Expenses, including
      distribution and service
      (12b-1) fees                        1.81%         1.97%       2.00%          2.21%(b)
   Expenses, excluding
      distribution and service
      (12b-1) fees                         .81%          .97%       1.00%          1.21%(b)
   Net investment loss                   (1.49)%       (1.55)%     (1.63)%        (1.67)%(b)
</TABLE>

------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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.
(d) Based on average shares outstanding during the period.


                                           See Notes to Financial Statements
                                      B-65

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Financial Highlights Cont'd.
<TABLE>
<CAPTION>
                                                           CLASS C
                                     ---------------------------------------------------
                                                                            DECEMBER 31,
                                                                              1996(a)
                                           YEAR ENDED OCTOBER 31,             THROUGH
                                     ----------------------------------     OCTOBER 31,
                                      2000(d)       1999(d)      1998           1997
----------------------------------------------------------------------------------------
<S>                                  <C>            <C>         <C>         <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
  period                              $  18.72      $ 11.83     $11.85         $10.00
                                     ----------     -------     -------     ------------
INCOME FROM INVESTMENT
  OPERATIONS
Net investment loss                       (.38)        (.24)      (.20 )         (.14)
Net realized and unrealized gain
   on investment transactions             8.18         7.46        .39           1.99
                                     ----------     -------     -------     ------------
   Total from investment
      operations                          7.80         7.22        .19           1.85
                                     ----------     -------     -------     ------------
LESS DISTRIBUTIONS
Distributions from net realized
  gains on investment transactions       (1.64)        (.33)      (.21 )           --
                                     ----------     -------     -------     ------------
Net asset value, end of period        $  24.88      $ 18.72     $11.83         $11.85
                                     ----------     -------     -------     ------------
                                     ----------     -------     -------     ------------
TOTAL RETURN(c):                         43.52%       62.39%      1.71 %        18.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)       $ 83,275      $23,578     $6,774         $6,477
Average net assets (000)              $ 65,566      $12,380     $6,949         $5,526
Ratios to average net assets:
   Expenses, including
      distribution and service
      (12b-1) fees                        1.81%        1.97%      2.00 %         2.21%(b)
   Expenses, excluding
      distribution and service
      (12b-1) fees                         .81%         .97%      1.00 %         1.21%(b)
   Net investment loss                   (1.50)%      (1.56)%    (1.63)%        (1.69)%(b)
</TABLE>

------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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.
(d) Based on average shares outstanding during the period.


    See Notes to Financial Statements
                                      B-66

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Financial Highlights Cont'd.
<TABLE>
<CAPTION>
                                                           CLASS Z
                                     ---------------------------------------------------
                                                                            DECEMBER 31,
                                                                              1996(a)
                                           YEAR ENDED OCTOBER 31,             THROUGH
                                     ----------------------------------     OCTOBER 31,
                                      2000(d)       1999(d)      1998           1997
-----------------------------------------------------------------------------------------
<S>                                  <C>            <C>         <C>         <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
  period                              $  19.28      $ 12.06     $11.93         $10.00
                                     ----------     -------     -------     ------------
INCOME FROM INVESTMENT
  OPERATIONS
Net investment loss                       (.13)        (.09)      (.04 )         (.03)
Net realized and unrealized gain
   on investment transactions             8.43         7.64        .38           1.96
                                     ----------     -------     -------     ------------
   Total from investment
      operations                          8.30         7.55        .34           1.93
                                     ----------     -------     -------     ------------
LESS DISTRIBUTIONS
Distributions from net realized
   gains on investment
   transactions                          (1.64)        (.33)      (.21 )           --
                                     ----------     -------     -------     ------------
Net asset value, end of period        $  25.94      $ 19.28     $12.06         $11.93
                                     ----------     -------     -------     ------------
                                     ----------     -------     -------     ------------
TOTAL RETURN(c):                         44.95%       63.97%      2.97 %        19.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)       $ 76,607      $19,029     $2,439         $  561
Average net assets (000)              $ 52,755      $ 7,796     $1,283         $  261
Ratios to average net assets:
   Expenses, including
      distribution and service
      (12b-1) fees                         .81%         .97%      1.00 %         1.21%(b)
   Expenses, excluding
      distribution and service
      (12b-1) fees                         .81%         .97%      1.00 %         1.21%(b)
   Net investment loss                    (.51)%       (.56)%     (.63)%         (.73)%(b)
</TABLE>

------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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.
(d) Based on average shares outstanding during the period.


                                           See Notes to Financial Statements
                                      B-67

<PAGE>
       PRUDENTIAL U.S. EMERGING GROWTH FUND, INC.
             Report of Independent Accountants

To the Shareholders and Board of Directors of
Prudential U.S. Emerging Growth Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential U.S. Emerging Growth
Fund, Inc. (the "Fund"), formerly Prudential Emerging Growth Fund, Inc., at
October 31, 2000, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 15, 2000


                                      B-68

<PAGE>
                   APPENDIX I--GENERAL INVESTMENT INFORMATION

    The following terms are used in mutual fund investing.

ASSET ALLOCATION

    Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.

DIVERSIFICATION

    Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.

DURATION

    Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.

    Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).

MARKET TIMING

    Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.

POWER OF COMPOUNDING

    Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

STANDARD DEVIATION

    Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.

                                      I-1
<PAGE>
                    APPENDIX II--HISTORICAL PERFORMANCE DATA

    The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.

    This chart shows the long-term performance of various asset classes and the
rate of inflation.

                EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>

VALUE OF $1.00 INVESTED ON
1/1/1926 THROUGH 12/31/2000  SMALL STOCKS  COMMON STOCKS  LONG-TERM BONDS  TREASURY BILLS  INFLATION
<S>                          <C>           <C>            <C>              <C>             <C>
1926
1936
1946
1956
1966
1976
1986
2000                            $6,402.23      $2,586.52           $48.86          $16.56      $9.75
</TABLE>

Source: Ibbotson Associates. Used with permission. All righs reserved. This
chart is for illustrative purposes only and is not indicative of the past,
present, or future performance of any asset class or any Prudential Mutual Fund.

Generally, stock returns are due to capital appreciation and the reinvestment of
any gains. Bond returns are due to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the
S&P 500 Composite Stock Price Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.

Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).

                                      II-1
<PAGE>
    The chart below shows the growth over 15 years of a $1,000 investment made
in the S&P 400 Mid-Cap Index and the S&P 500 Composite Stock Price Index on
December 31, 1985 with an ending value on December 31, 2000.

12/31/00 -- $10,825 S&P 400 Midcap
12/31/00 -- $9,267 S&P 500

Source: Lipper Inc. Past performance is not indicative of future results. This
chart is for illustrative purposes only and is not intended to represent the
past, present or future performance of any Prudential mutual fund. The S&P 400
Mid-Cap Index consists of 400 domestic stocks chosen for market size, liquidity
and industry group representation. It is a market-value-weighted index (stock
price times shares outstanding) and with each stock affecting the index in
proportion to its market value. The index is comprised of industrials,
utilities, financials and transportation in size order. The S&P 500 Composite
Stock Price Index is a market-value-weighted index made up of 500 of the largest
stocks in the U.S. based on their stock market value. Investors cannot invest
directly in indexes.

                                      II-2
<PAGE>
    Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1990
through 2000. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.

    All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Risk/Return Summary--Fund Expenses" in the prospectus. The
net effect of the deduction of the operating expenses of a mutual fund on these
historical total returns, including the compounded effect over time, could be
substantial.

           HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS

<TABLE>
<CAPTION>
YEAR                 1990    1991    1992    1993    1994    1995    1996    1997    1998     1999      2000
<S>                  <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>       <C>
--------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
TREASURY
BONDS(1)              8.5%   15.3%    7.2%   10.7%   (3.4)%  18.4%    2.7%    9.6%   10.0%    (2.56)%   13.52%
--------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2)        10.7%   15.7%    7.0%    6.8%   (1.6)%  16.8%    5.4%    9.5%    7.0%     1.86%    11.16%
--------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT
GRADE
CORPORATE BONDS(3)    7.1%   18.5%    8.7%   12.2%   (3.9)%  22.3%    3.3%   10.2%    8.6%    (1.96)%    9.39%
--------------------------------------------------------------------------------------------------------------
U.S. HIGH YIELD
BONDS(4)             (9.6)%  46.2%   15.8%   17.1%   (1.0)%  19.2%   11.4%   12.8%    1.6%     2.39%    (5.86)%
--------------------------------------------------------------------------------------------------------------
WORLD GOVERNMENT
BONDS(5)             15.3%   16.2%    4.8%   15.1%    6.0%   19.6%    4.1%   (4.3)%   5.3%    (6.07)%   (2.63)%
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST AND LOWEST
RETURN PERCENT       24.9    30.9    11.0    10.3     9.9     5.5     8.7    17.1     8.4      7.46     19.10%
</TABLE>

(1)LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.
(2)LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15-and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
(3)LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year. Source: Lipper Inc.
(4)LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
(5)SALOMON SMITH BARNEY WORLD GOVERNMENT INDEX (Non U.S.) includes over 800
bonds issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.

                                      II-3
<PAGE>
    This chart illustrates the performance of major world stock markets for the
period from December 31, 1985 through December 31, 2000. It does not represent
the performance of any Prudential mutual fund.

AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS
(12/31/1985-12/31/2000)(IN U.S. DOLLARS)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S>          <C>
SWEDEN       19.12%
HONG KONG    17.63%
SPAIN        17.30%
NETHERLAND   16.96%
FRANCE       16.08%
BELGIUM      15.65%
USA          15.08%
SWITZERLAND  14.91%
EUROPE       14.44%
UK           14.30%
DENMARK      13.93%
SING/MLYSIA  11.55%
GERMANY      11.09%
CANADA       10.71%
ITALY        10.49%
AUSTRALIA    10.09%
NORWAY        8.23%
JAPAN         6.55%
AUSTRIA       5.70%
</TABLE>

Source: Morgan Stanley Capital International (MSCI), and Lipper Inc. as of
12/31/00. Used with permission. Morgan Stanley Country indexes are unmanaged
indexes which include those stocks making up the largest two-thirds of each
country's total stock market capitalization. Returns reflect the reinvestment of
all distributions. This chart is for illustrative purposes only and is not
indicative of the past, present or future performance of any specific
investment. Investors cannot invest directly in stock indexes.

    This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 Composite Stock Price Index with and without
reinvested dividends.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S>   <C>                        <C>
           Capital Appreciation  Capital Appreciation only
      and Reinvesting Dividends
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2000                   $414,497                   $143,308
</TABLE>

Source: Lipper Inc. Used with permission. All rights reserved. This chart is
used for illustrative purposes only and is not intended to represent the past,
present or future performance of any Prudential mutual fund. Common stock total
return is based on the Standard & Poor's 500 Composite Stock Price Index, a
market-value-weighted index made up of 500 of the largest stocks in the U.S.
based upon their stock market value. Investors cannot invest directly in
indexes.

                                      II-4
<PAGE>
                  WORLD STOCK MARKET CAPITALIZATION BY REGION
                          WORLD TOTAL: $19.0 TRILLION

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S>            <C>
U.S.           50.6%
Europe         33.6%
Pacific Basin  13.4%
Canada          2.4%
</TABLE>

Source: Morgan Stanley Capital International, December 31, 2000. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of approximately
1600 companies in 22 countries (representing approximately 60% of the aggregate
market value of the stock exchanges). This chart is for illustrative purposes
only and does not represent the allocation of any Prudential mutual fund.

    The chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

1926
1936
1946
1956
1966
1976
1986
1996
2000

-------------------------------------------

Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-2000. Yields represent that of an annually renewed one-bond portfolio with
a remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
mutual fund.

                                      II-5


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