PRUDENTIAL SMALL CAP QUANTUM FUND INC, 497, 1999-06-03

PRUDENTIAL SMALL CAP QUANTUM FUND INC
497, 1999-06-03

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<PAGE>
FUND TYPE:
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Stock

INVESTMENT OBJECTIVE:
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Long-term capital appreciation

PRUDENTIAL
SMALL-CAP QUANTUM FUND, INC.
[LOGO]

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PROSPECTUS: MAY 27, 1999

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. [LOGO]
<PAGE>
TABLE OF CONTENTS
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<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
9 Derivative Strategies
10 Additional Strategies
11 Investment Risks

14 HOW THE FUND IS MANAGED
14 Board of Directors
14 Manager
14 Investment Adviser
14 Portfolio Manager
14 Distributor
15 Year 2000 Readiness Disclosure

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

20 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
20 How to Buy Shares
28 How to Sell Your Shares
32 How to Exchange Your Shares

34 FINANCIAL HIGHLIGHTS
34 Class A and Class B Shares
35 Class C and Class Z Shares

36 THE PRUDENTIAL MUTUAL FUND FAMILY

FOR MORE INFORMATION (Back Cover)
</TABLE>

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PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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This section highlights key information about the PRUDENTIAL SMALL-CAP QUANTUM
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 we expect to increase over several years. We normally
invest at least 80% of the Fund's total assets in equity-related securities of
small-cap U.S. companies. We consider small-cap companies to be those with
market capitalizations like those found in the Standard & Poor's SmallCap 600
Index (S&P SmallCap 600 Index). Equity-related securities in which the Fund
primarily invests are common stocks, convertible securities and nonconvertible
preferred stocks. We also may use derivatives. In addition, 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 equity-related securities, 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 companies vary more than the stock prices of large company
stocks and they may also present above-average risks. This means that when stock
prices decline overall, the Fund may decline more than the Standard & Poor's 500
Stock Price Index and may, in fact, decline more than the S&P SmallCap 600
Index. The Fund's holdings can vary significantly from broad market indexes and
the performance of the Fund can deviate from the performance of these indexes.
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

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HOW WE INVEST
We use computer-driven quantitative strategies to determine which stocks to buy
and sell to create a portfolio designed to maximize expected returns. At the
same time, we try to reduce risk. The quantitative models analyze individual
stocks using different factors like value, momentum and surprise.
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1
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RISK/RETURN SUMMARY
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to shareholders. As a result, the Fund is not likely to receive significant
dividend income on its portfolio securities.
High portfolio turnover results in higher brokerage commissions and other
costs and can affect a Fund's performance.
The Fund may use risk management techniques to try to preserve assets or
enhance return. These strategies may present above-average risks. Derivatives
may not fully offset the underlying positions and this could result in losses to
the Fund that would not otherwise have occurred.
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 SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Fund performs. The following
bar chart shows the Fund's performance for 1998. The following bar chart and
table demonstrate the risk of investing in the Fund 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 RETURNS* (CLASS A SHARES)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
1998 -10.45%

<S> <C>
BEST QUARTER: 13.86% (4th quarter of 1998)
WORST QUARTER: -23.77% (3rd quarter of 1998)
</TABLE>

* THE ANNUAL RETURN DOES NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURN WOULD BE LOWER THAN THAT SHOWN. WITHOUT THE
DISTRIBUTION AND SERVICE (12B-1) FEE WAIVER, THE ANNUAL RETURNS WOULD ALSO
HAVE BEEN LOWER. RETURN FOR THE QUARTER ENDED MARCH 31, 1999 WAS -16.22% WITH
RESPECT TO CLASS A SHARES.

AVERAGE ANNUAL RETURNS(1) (AS OF 3-31-99)

<TABLE>
<CAPTION>
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1 YR SINCE INCEPTION
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<S> <C> <C>
Class A shares -34.45% -21.23% (11/10/97)
Class B shares -36.61% -22.09% (11/10/97)
Class C shares -33.29% -20.31% (11/10/97)
Class Z shares -30.88% -18.09% (11/10/97)
S&P SmallCap 600(2) -19.13% - 6.50% (11/10/97)
Lipper Average(3) -15.48% - 1.51% (11/10/97)
</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 RETURN WOULD HAVE BEEN LOWER.
2 THE STANDARD & POOR'S SMALLCAP 600 INDEX (S&P SMALLCAP)--AN UNMANAGED
CAPITAL-WEIGHTED INDEX OF 600 SMALLER COMPANY U.S. COMMON STOCKS THAT COVER
ALL INDUSTRY SECTORS--GIVES A BROAD LOOK AT HOW SMALL-CAP STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGES.
THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES.
THE SECURITIES IN THE S&P SMALLCAP 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 SMALLCAP 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.

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3
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RISK/RETURN SUMMARY
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FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if you
buy and hold shares of each share 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>
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CLASS A CLASS B CLASS C CLASS Z
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<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>
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CLASS A CLASS B CLASS C CLASS Z
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<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 .41% .41% .41% .41%
= Total annual Fund
operating expenses 1.31% 2.01% 2.01% 1.01%
- Fee waiver .05% None None None
= NET ANNUAL FUND OPERATING
EXPENSES 1.26% 2.01% 2.01% 1.01%
</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 MARCH 31, 2000, 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.

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4 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and 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. After the first year, the example
does not take into account the Distributor's agreement to reduce distribution
and service (12b-1) fees for Class A shares. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
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1 YR 3 YRS 5 YRS 10 YRS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $622 $890 $1,178 $1,996
Class B shares $704 $930 $1,183 $2,073
Class C shares $402 $724 $1,172 $2,414
Class Z shares $103 $322 $558 $1,236
</TABLE>

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

<TABLE>
<CAPTION>
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1 YR 3 YRS 5 YRS 10 YRS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $622 $890 $1,178 $1,996
Class B shares $204 $630 $1,083 $2,073
Class C shares $302 $724 $1,172 $2,414
Class Z shares $103 $322 $558 $1,236
</TABLE>

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5
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is LONG-TERM CAPITAL APPRECIATION. This means we
seek investments whose price we expect 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 80% of the Fund's
total assets in EQUITY-RELATED SECURITIES of SMALL-CAP COMPANIES. We consider
small-cap companies to be those with market capitalizations like those found in
the S&P SmallCap 600 Index. The S&P SmallCap 600 Index consists of 600 domestic
stocks chosen for market size, liquidity and industry group representation.
Therefore, the market capitalization ranges of the Index change every month but,
as of April 30, 1999, the range was from $16 million to $3.915 billion with a
weighted average market value of $904 million. Market capitalization is measured
at the time of initial purchase; the range of market capitalization may change
at our discretion to reflect industry norms. If a company's market
capitalization grows above "small-cap," we do not have to sell that company's
security, but it would not be included in the 80% minimum for investing in
small-cap companies.
The Fund will invest in equity-related securities, principally common
stocks, convertible securities and nonconvertible preferred stocks. In addition,
equity-related securities include warrants and rights that can be exercised to
obtain stock; equity investments in various types of business ventures;
including partnerships and joint ventures; real estate investment trusts;
American Depositary Receipts (ADRs) and other similar securities.

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OUR STRATEGY
We use computer models, including one developed by Prudential Securities, to
rank approximately 1,500 small-cap stocks. We rank stocks using these factors
and subfactors, among others:

<TABLE>
<S> <C>
Value
- Book/price ratio
- Cash flow yield
- Expected growth rate
- Price/earnings ratio
Momentum
- Profitability
- Return on
invested capital
Surprise
- Revision of estimates
- Earnings surprise
</TABLE>

We use quantitative analysis to determine which stocks and the amount of those
stocks we should buy. Portfolio construction may be a combination of
quantitative techniques and the portfolio manager's qualitative judgment. We try
to maximize expected return and, at the same time, reduce risk compared to the
S&P SmallCap 600 Index.
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6 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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Convertible securities--like bonds, corporate notes and preferred stock--are
ones that we can convert into the company's common stock or some other equity
security. We buy only investment-grade convertible securities.
Generally, we consider selling a security when its expected return has
decreased and for other reasons such as risk reduction or industry or sector
considerations.
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 can change investment policies
that are not fundamental.
OTHER INVESTMENTS
In addition to the principal strategies, we may also make the following
investments to try to increase the Fund's returns or protect its assets if
market conditions warrant.
Under normal circumstances, the Fund may invest up to 20% of its total
assets in:
-- Equity securities of companies with market capitalizations of any
size
-- High-quality money market instruments
-- U.S. government or government agency obligations
-- Foreign securities.
FOREIGN SECURITIES
The Fund can invest up to 20% of total assets in stocks and other equity-related
securities of foreign issuers. For purposes of the 20% limit, we do not consider
ADRs and other similar receipts or shares to be foreign securities.
MONEY MARKET INSTRUMENTS
The Fund may hold cash or invest in high-quality MONEY MARKET INSTRUMENTS,
including commercial paper of a U.S. or foreign company, foreign government
securities, certificates of deposit, bankers' acceptances, time deposits of
domestic and foreign banks, and obligations issued or

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7
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------

guaranteed by the U.S. government or its agencies. These obligations may 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.
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, high-quality money
market instruments or repurchase agreements. 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.
U.S. GOVERNMENT SECURITIES
The Fund may invest up to 20% of its total assets in securities issued or
guaranteed by the U.S. government or by an agency or instrumentality of the U.S.
government. Not all U.S. government securities are backed by the full faith and
credit of the United States, which means that payment of principal and interest
are guaranteed, but market value is not. Some are supported only by the credit
of the issuing agency and depend entirely on their own resources to repay their
debt.
REPURCHASE AGREEMENTS
The Fund may also 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.
SHORT SALES
The Fund may use SHORT SALES, where it sells a security it does not own, with
the expectation of a decline in the market value of that security. To complete
the transaction, the Fund will borrow the security to make delivery to the
buyer. The Fund must replace the borrowed security by purchasing it at the
market price at the time of replacement. The price at that time may be more or
less than the price at which the Fund sold the security. The Fund is required to
pay the lender any dividends or interest accrued. To borrow the security, the
Fund may pay a premium which would increase the cost of the security sold. The
Fund may also make SHORT SALES "AGAINST THE BOX." In a short sale against the
box, at the time of sale, the Fund owns or

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8 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------

has the right to acquire the identical security at no additional cost. When
selling short against the box, the Fund gives up the opportunity for capital
appreciation in the security.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns or
protect its assets, although 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, 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 and
financial indexes traded on U.S. or foreign securities exchanges or on the
over-the-counter market. An option is the right to buy or sell securities in
exchange for a premium. The Fund will sell only covered options.
FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may purchase and sell financial futures contracts and related options
on stock indexes and foreign currencies. 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.
For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks--Risk Management and Return Enhancement
Strategies."

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9
<PAGE>
HOW THE FUND INVESTS
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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 (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 within or outside the United States 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.

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10 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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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-based
securities 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 investments the Fund may make.
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-CAP -- Individual stocks -- Historically, stocks
COMPANIES could lose value have outperformed
AT LEAST 80% -- The equity markets other investments
could go down, over the long term
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 increase in stock
companies are more prices, known as
volatile and may capital appreciation
decline more than -- Highly successful
those in the S&P 500 small- cap
Index companies can
-- Small-cap companies outperform larger
are more likely to ones
reinvest earnings
and not pay
dividends
-- Changes in interest
rates may affect the
securities of small
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
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- --------------------------------------------------------------------------------
STOCKS OF LARGER U.S. -- Similar risks to -- Not as likely to lose
COMPANIES small U.S. value as stocks of
UP TO 20% companies small companies
-- Companies that pay -- May be a source of
dividends may not do dividend income
so if they don't
have profits or
adequate cash flow
- --------------------------------------------------------------------------------
</TABLE>

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11
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT TYPE (CONT'D)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
FOREIGN SECURITIES -- Foreign markets, -- Investors can
UP TO 20% economies and participate in
political systems foreign markets and
may not be as stable companies operating
as in the U.S., in those markets
particularly those -- Changing value of
in developing foreign currencies
countries -- Opportunities for
-- Currency risk-- diversification
changing value of
foreign currencies
-- May be less liquid
than U.S. stocks
and bonds
-- Differences in
foreign laws,
accounting
standards, public
information, custody
and settlement
practices
-- Year 2000 conversion
may be more of a
problem for some
foreign issuers
- --------------------------------------------------------------------------------
DERIVATIVES -- Derivatives such as -- The Fund could make
UP TO 20% futures, options and money and protect
foreign currency against losses if
forward contracts the investment
may not fully offset analysis proves
the underlying correct
positions and this -- Derivatives that
could result in involve leverage
losses to the Fund could generate
that would not have substantial gains at
otherwise occurred low cost
-- Derivatives used for -- One way to manage the
risk management may Fund's risk/return
not have the balance is to lock
intended effects and in the value of an
may result in losses investment ahead of
or missed time
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
- --------------------------------------------------------------------------------
</TABLE>

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12 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT TYPE (CONT'D)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- -----------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------
U.S. GOVERNMENT -- Not all are insured or -- May preserve the Fund's
SECURITIES guaranteed by the assets
government, but only by -- Principal and interest
UP TO 20% the issuing agency may be guaranteed by
-- Limits potential for the U.S. government or
capital appreciation issuing agency
-- Interest rate risk --
the risk that the
value of most bonds
will fall when 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
- ------------------------------------------------------------------------------------
SHORT SALES -- Use of this strategy may -- May magnify underlying
magnify underlying investment gains
UP TO 25% OF NET ASSETS investment losses
-- Investment costs may
exceed potential
underlying investment
gains
- ------------------------------------------------------------------------------------
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 sell potential for growth
at the time or price than more widely traded
desired securities
- ------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS -- Limits potential for -- May preserve the Fund's
capital appreciation assets
UP TO 20% UNDER NORMAL -- Credit risk -- the risk
CONDITIONS OR 100% ON A that the default of an
TEMPORARY BASIS issuer would leave the
Fund with unpaid
interest or principal.
The lower an
instrument's quality,
the higher its
potential volatility
-- Market risk -- the risk
that the market value
of an investment may
move up or down,
sometimes rapidly or
unpredictably. Market
risk may affect an
industry, a sector or
the market as a whole
- ------------------------------------------------------------------------------------
</TABLE>

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13
<PAGE>
HOW THE FUND IS MANAGED
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BOARD OF DIRECTORS
The 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. For the fiscal year
ended March 31, 1999, the Fund paid PIFM management fees of .60 of 1% of the
Fund's average net assets.
As of April 30, 1999, PIFM served as the Manager to all 46 of the Prudential
mutual funds, and as Manager or administrator to 22 closed-end investment
companies, with aggregate assets of approximately $73 billion.

INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.

PORTFOLIO MANAGER
JOHN LEIB, CFA, a Vice President of Prudential Investments, has managed the Fund
since its inception in November 1997. John joined Prudential in 1987 as an
analyst and has been a portfolio manager since 1992. He has 15 years of
investment experience in quantitative research and analysis. He earned a B.A.
from Hamilton College and an M.B.A. from New York University. John also holds
the Chartered Financial Analyst (CFA) designation.

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

- -------------------------------------------------------------------
14 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------

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.

YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Fund and its Board receive, and have
received since early 1998, satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner or that there will be no adverse impact on the Fund. Moreover, the Fund
at this time has not considered retaining alternative service providers or
directly undertaken efforts to achieve year 2000 readiness, the latter of which
would involve substantial expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased by
the Fund, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.

- --------------------------------------------------------------------------------
15
<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 tax-deferred plan or account.
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 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 twice 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--which 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 broker, you will
receive a credit to your account. Either way, the distributions

- -------------------------------------------------------------------
16 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
may be subject to taxes, unless your shares are held in a qualified 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 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 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 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 tax identification
number and certifications as to your tax status, and you fail to do this, we
will withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. If you are subject to backup withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. 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 because

- --------------------------------------------------------------------------------
17
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
when dividends are paid out, the value of each share of the Fund decreases by
the amount of the dividend and the market changes (if any) to reflect the
payout. 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 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 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.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other 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 tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or

- -------------------------------------------------------------------
RECEIPTS FROM SALE --> +$ CAPITAL GAIN
(taxes owed)

$ OR

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

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

- -------------------------------------------------------------------
18 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------

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. 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.

- --------------------------------------------------------------------------------
19
<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 15020
NEW BRUNSWICK, NJ 08906-5020

To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Fund, see the back
cover page of this prospectus. 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 the 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

- -------------------------------------------------------------------
20 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

-- Whether you qualify for any reduction or waiver of sales charges
-- 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 $1,000 $1,000 $2,500 None
amount(1)
Minimum amount for $100 $100 $100 None
subsequent
purchases(1)
Maximum initial sales 5% of the None 1% of the None
charge public offering public offering
price price
Contingent Deferred None If sold 1% on sales None
Sales Charge (CDSC)(2) during: made within 18
Year 1 5% months of
Year 2 4% purchase(2)
Year 3 3%
Year 4 2%
Years 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 currently)
of average net
assets(3)
</TABLE>

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 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.

- --------------------------------------------------------------------------------
21
<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 you
how the sales charge decreases as the amount of your investment
increases.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF 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>

* IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A SHARES, UNLESS
YOU QUALIFY TO BUY CLASS Z SHARES.

To satisfy the purchase amounts above, you can:

-- Invest with an eligible group of related investors

-- Buy the 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 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.

BENEFIT PLANS. Benefit Plans can avoid Class A's initial sales charge if the
Benefit Plan has existing assets of at least $1 million invested in shares of
Prudential mutual funds (excluding money market funds other than those acquired
under the exchange privilege) or 250 eligible employees or

- -------------------------------------------------------------------
22 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
participants. For these purposes, a Benefit Plan is a pension, profit-sharing or
other employee benefit plan qualified under Section 401 of the Internal Revenue
Code, a deferred compensation or annuity plan under Sections 403(b) and 457 of
the Internal Revenue Code, a "rabbi" trust, or a nonqualified deferred
compensation plan sponsored by an employer that has a tax-qualified benefit plan
with Prudential. Class A shares may also be purchased without a sales charge by
participants who are repaying loans from Benefit Plans where Prudential or its
affiliates provide administrative or recordkeeping services, sponsor the product
or provide account services.
Certain Prudential retirement programs--such as PruArray Association Benefit
Plans and PruArray Savings Programs--may also be exempt from Class A's sales
charge. For more information, see the SAI or contact your financial adviser. In
addition, waivers are available to investors in certain programs sponsored by
brokers, 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

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

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 clients of
brokers that have entered into a selected 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. Benefit Plans (as defined above) may purchase Class C shares
without paying an initial sales charge. Class C shares may also be purchased
without an initial sales charge by participants who are repaying loans from
Benefit Plans where Prudential or its affiliates provide

- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
administrative or recordkeeping services, sponsor the product or provide account
services.

PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived for
purchases of Class C shares by both qualified and nonqualified retirement and
deferred compensation plans participating in a PruArray Plan and other plans if
Prudential also provides administrative or recordkeeping services.

INVESTMENTS 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 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

-- 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. The Transfer Agent may require any supporting
documents it considers appropriate.

QUALIFYING FOR CLASS Z SHARES
Class Z shares of the Fund can be purchased by any of the following:
-- Any Benefit Plan (as defined above), and certain nonqualified plans,
provided the Benefit Plan--in combination with other plans sponsored
by the same employer or group of related employers--has at least $50
million in defined contribution assets
-- Participants in any fee-based program or trust program sponsored by
Prudential or an affiliate which includes mutual funds as investment
options and the Fund as an available option

- -------------------------------------------------------------------
24 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

-- 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

-- Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and, as of September 20,
1996, were either Class Z shareholders of the Prudential mutual funds
or executed a Letter of Intent to purchase Class Z shares of the
Prudential mutual funds

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

-- 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 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 converted Class B shares 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."

- --------------------------------------------------------------------------------
25
<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 is open for trading. 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.
- -------------------------------------------------------------------

- -------------------------------------------------------------------
26 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<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 15015
NEW BRUNSWICK, NJ 08906-5015

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. This insurance is subject to various restrictions and charges and is
not available in all states.

- --------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly 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 15010
NEW BRUNSWICK, NJ 08906-5010

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

- -------------------------------------------------------------------
28 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

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. 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 check sent to
someone or some place that is not in our records, or you are a business or a
trust and if you hold your shares directly with the Transfer Agent, you will
need to have the signature on your sell order guaranteed by a financial
institution. 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.
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.

- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

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 (or one year for Class C shares if
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 owned in joint
tenancy (with rights of survivorship), 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 from 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."

WAIVER OF THE CDSC--CLASS C SHARES
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived for purchases of Class C
shares by both qualified and nonqualified retirement and deferred compensation
plans participating in a PruArray Plan and other plans if Prudential also
provides administrative or recordkeeping services. The CDSC will also be waived
on redemptions from Benefit Plans sponsored by

- -------------------------------------------------------------------
30 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
Prudential and its affiliates to the extent that the redemption proceeds are
invested in The Guaranteed Investment Account (a group annuity insurance product
sponsored by Prudential), the Guaranteed Insulated Separate Account (a separate
account offered by Prudential) and shares of The Stable Value Fund (an
unaffiliated bank collective fund).

OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit Plans
holding shares through a broker not affiliated with Prudential and for which the
broker provides administrative or recordkeeping services.

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 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 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."

- --------------------------------------------------------------------------------
31
<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 15010
NEW BRUNSWICK, NJ 08906-5010

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.

- -------------------------------------------------------------------
32 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<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 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 a 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 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.

- --------------------------------------------------------------------------------
33
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------

The financial highlights will help you evaluate the Fund's financial
performance. 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 reports 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 AND CLASS B SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.
CLASS A AND CLASS B SHARES (FISCAL PERIODS ENDED 3-31)

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Class A Class B
PER SHARE OPERATING PERFORMANCE 1999 1998(1) 1999 1998(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $10.95 $10.00 $10.93 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .02 (.06) (.01)
Net realized and unrealized gain
(loss) on investment transactions (3.41) .94 (3.37) .94
TOTAL FROM INVESTMENT OPERATIONS (3.38) .96 (3.43) .93
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions in excess of net
investment income -- (.01) -- --
Distributions from net realized
gains (.13) -- (.13) --
NET ASSET VALUE, END OF PERIOD $7.44 $10.95 $7.37 $10.93
TOTAL RETURN(2) (31.00)% 9.60% (31.61)% 9.31%
- ------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $46,736 $115,621 $102,094 $196,671
Average net assets (000) $82,332 $106,453 $158,085 $170,484
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.26% 1.22%(3) 2.01% 1.97 %(3)
Expenses, excluding distribution
fees 1.01% 0.97%(3) 1.01% 0.97 %(3)
Net investment income (loss) .16% .47%(3) (.58)% (.29)%(3)
Portfolio turnover 106% 39% 106% 39 %
</TABLE>

1 INFORMATION SHOWN IS FOR THE PERIOD 11-10-97 (WHEN SHARES WERE FIRST
OFFERED) THROUGH 3-31-98.
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.

- -------------------------------------------------------------------
34 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------

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

CLASS C AND CLASS Z SHARES (FISCAL PERIODS ENDED 3-31)

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Class C Class Z
PER SHARE OPERATING PERFORMANCE 1999 1998(1) 1999 1998(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $10.93 $10.00 $10.96 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.08) (.01) .05 .02
Net realized and unrealized gain
(loss) on investment transactions (3.35) .94 (3.42) .95
TOTAL FROM INVESTMENT OPERATIONS (3.43) .93 (3.37) .97
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions in excess of net
investment income -- -- -- (.01)
Distributions from net realized
gains (.13) -- (.13) --
NET ASSET VALUE, END OF PERIOD $7.37 $10.93 $7.46 $10.96
TOTAL RETURN(2) (31.61)% 9.31% (30.88)% 9.74%
- -----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998(1) 1999 1998(1)
- -----------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $14,951 $36,628 $4,121 $4,039
Average net assets (000) $27,182 $34,000 $5,315 $2,709
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 2.01 % 1.97 %(3) 1.01% 0.97%(3)
Expenses, excluding distribution
fees 1.01 % 0.97 %(3) 1.01% 0.97%(3)
Net investment income (loss) (.59)% (.29)%(3) .43% .51%(3)
Portfolio turnover 106 % 39 % 106% 39%
</TABLE>

- --------------------------------------------------------------------------------
35
<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 DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH
& INCOME FUND
PRUDENTIAL MID-CAP VALUE 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-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND

ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
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 DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.

GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL
INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.

- -------------------------------------------------------------------
36 PRUDENTIAL SMALL-CAP QUANTUM FUND, INC. [LOGO] (800) 225-1852
<PAGE>
- -------------------------------------

BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
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
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO 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 TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

- --------------------------------------------------------------------------------
37
<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 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)

- --------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769

- ------------------------------------
Visit Prudential's Web Site 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 20549-6009
(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call 1(800) SEC-0330.)

Via the Internet:
http://www.sec.gov

- --------------------------------
CUSIP Numbers:

Class A: 74436N-10-8
Class B: 74436N-20-7
Class C: 74436N-30-6
Class Z: 74436N-40-5

Investment Company Act File No:
811-08167

MF176A [LOGO] Printed on Recycled Paper
<PAGE>
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 27, 1999

Prudential Small-Cap Quantum Fund, Inc. (the Fund) is a diversified,
open-end, 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-related securities of small-cap U.S. companies.
The Fund's portfolio manager will use computer-driven quantitative strategies to
construct a portfolio designed to maximize expected returns while attempting to
reduce risk. 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 the Fund dated May 27, 1999, a copy
of which may be obtained from the Fund upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
Fund History....................................................................................... B-2
Description of the Fund, Its Investments and Risks................................................. B-2
Investment Restrictions............................................................................ B-12
Management of the Fund............................................................................. B-13
Control Persons and Principal Holders of Securities................................................ B-16
Investment Advisory and Other Services............................................................. B-17
Brokerage Allocation and Other Practices........................................................... B-20
Capital Shares, Other Securities and Organization.................................................. B-22
Purchase, Redemption and Pricing of Fund Shares.................................................... B-23
Shareholder Investment Account..................................................................... B-33
Net Asset Value.................................................................................... B-37
Taxes, Dividends and Distributions................................................................. B-38
Performance Information............................................................................ B-41
Financial Statements............................................................................... B-43
Report of Independent Accountants.................................................................. B-53
Appendix I--General Investment Information......................................................... I-1
Appendix II--Historical Performance Data........................................................... II-1
Appendix III--Information Relating to Prudential................................................... III-1
</TABLE>

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

MF176B
<PAGE>
FUND HISTORY

The Fund was incorporated in Maryland on February 4, 1997.

DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

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

(b) AND (c) INVESTMENT STRATEGIES, POLICIES AND RISKS. The Fund's investment
objective is long-term capital appreciation.

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 strategies
described below in seeking to achieve its objective. The Fund may not be
successful in achieving its objective and you could lose money.

SMALL-CAP MULTIFACTOR MODEL (QV MODEL)

The QV Model, developed by Prudential Securities' Quantitative Analysis
Group, is one of the primary methodologies used by the investment adviser; the
investment adviser may also use other proprietary quantitative models. The QV
Model is a multifactor stock ranking model which incorporates components
stressing valuation, momentum in earnings and surprise.

The Prudential Securities Small-Cap Research group provides quantitative
research to the small-cap and mid-cap investment communities in the form of
stock valuation and earnings surprise models as well as topical studies and
screens. The group is well known for work on the various benchmarks used to
measure small-cap and mid-cap performance.

THE PROCESS

THE QV MODEL

Approximately 1,500 stocks with market capitalizations generally between
$100 million and $1.5 billion and those used in the Standard & Poor's Small-Cap
600 Index (S&P SmallCap 600) are ranked according to eight fundamental factors
from QV1 (best) through QV5 (worst). Each fifth is given an equal weighting of
20%.

The eight factors are broken into three general categories or "blocks":
value, momentum and surprise. The components of each "block" are as follows:

<TABLE>
<S> <C>
Value Book/Price Ratio
Cash Flow Yield
Expected Growth Rate
Price/Earnings Ratio

Momentum Return on Invested Capital

Surprise Estimate Revision
Earnings Surprise
</TABLE>

Each of the factor weightings is a result of its past performance and the value
it added to the Model's overall performance. Weightings are re-balanced monthly
(but may be re-balanced more frequently) based on the results of a multiple
regression, which measures each factor's performance over the prior month
(although the Fund is rebalanced quarterly). A single score for each stock is
calculated on the weighted average of the percentile rankings of the factors.
These scores are ranked and grouped into qualities to get a QV Rank.

THE OPTIMIZATION PROCESS

The Fund's portfolio manager, Mr. Leib uses the QV rankings provided by the
Prudential Securities Quantitative Analysis Group and other data in the
selection of the Fund's securities. Mr. Leib and his team apply quantitative
analysis to determine stock selections and weightings with the objective of
maximizing expected return while reducing portfolio risk relative to the S&P
SmallCap 600. As a part of this quantitative analysis, a risk/return analysis is
performed and the liquidity of the individual stock selections and sector
weightings relative to the S&P SmallCap 600 are also considered.

The Fund portfolio will be derived from stocks in all of the quintiles.
Portfolio construction may be a combination of quantitative techniques and the
portfolio manager's qualitative judgement.

The portfolio will be rebalanced periodically at the discretion of the
investment adviser. Stocks may be held or sold for several reasons, including
risk reduction, to reduce volatility and for sector representation.

B-2
<PAGE>
EQUITY AND EQUITY-RELATED SECURITIES

Equity-related securities include 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, American Depositary
Receipts (ADRs), American Depositary Shares (ADSs) and warrants and rights
exercisable for equity securities. For purposes of the 80% policy, the Fund will
not invest more than 5% of total assets in unattached rights and warrants.

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.

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 which technically are equity securities.

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). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the 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 may 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.

OBLIGATIONS 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

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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.

SPECIAL CONSIDERATIONS. U.S. government securities are considered among the
most creditworthy of fixed-income investments. The yields available from U.S.
government securities are generally lower than the yields available from
corporate debt securities. The values of U.S. government securities (like those
of fixed-income securities generally) will change as interest rates fluctuate.
During periods of falling U.S. interest rates, the values of outstanding
long-term U.S. government securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline. The
magnitude of those fluctuations will generally be greater for securities with
longer maturities. Although changes in the value of U.S. government securities
will not affect investment income from those securities, they will affect the
net asset value (NAV) of the Fund.

FOREIGN SECURITIES

The Fund is permitted to invest up to 20% of its total assets in securities
of foreign issuers. ADRs and ADSs are not considered foreign securities within
this limitation. In many instances, foreign securities may provide higher yields
but may be subject to greater fluctuations in price than securities of domestic
issuers which have similar characteristics. Under certain market conditions
these investments may be less liquid and more volatile than the securities of
U.S. corporations and are certainly less liquid than securities issued or
guaranteed by the U.S. government, its instrumentalities or agencies. In
addition, the costs attributable to foreign investing are higher than the costs
of domestic investing.

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 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, economic or
social instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange controls
and the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. government, its instrumentalities or agencies. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to U.S. companies. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States, and, for certain foreign countries, there is a
possibility of expropriation, confiscatory taxation or diplomatic developments
which could affect

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investment in those countries and potential difficulties in enforcing
contractual obligations and could be subject to extended settlement periods.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for the Fund to obtain, or to enforce a judgment against, the
issuers of such securities.

The costs attributable to foreign investing are higher than the costs of
domestic investing. For example, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for domestic securities, and
transaction and settlement costs of foreign investing are frequently higher than
those attributable to domestic investing. Costs are incurred in connection with
conversions between various currencies. In addition, foreign brokerage
commissions are generally higher than in the U.S. and foreign securities markets
may be less liquid and more volatile than in the U.S. Foreign investment income
may be subject to foreign withholding or other government taxes that could
reduce the return to the Fund on those securities. Tax treaties between the
United States and certain foreign countries may, however, reduce or eliminate
the amount of foreign tax to which the Fund would be subject.

RISK FACTORS AND 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 participating state's
currency and, on July 1, 2002, the euro is expected to become the sole currency
of the participating states. During the transition period, the Fund will treat
the euro as a separate currency from that of any participating state.

The conversion may adversely affect the Fund if the euro does not take
effect as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Fund's
service providers, or by entities with which the Fund or its service providers
do business, are not capable of recognizing the euro as a distinct currency at
the time of, and following, euro conversion. In addition, the conversion could
cause markets to become more volatile.

The overall effect of the transition of member states' currencies to the
euro is not known at this time. It is likely that more general short- and
long-term ramifications can be expected, such as changes in the economic
environment and change in the behavior of investors, which would affect the
Fund's investments and its net asset value. In addition, although U.S. Treasury
regulations generally provide that the euro conversion will not, in itself,
cause a U.S. taxpayer to realize gain or loss, other changes that may occur at
the time of the conversion, such as accrual periods, holiday conventions,
indices, and other features may require the realization of a gain or loss by the
Fund as determined under existing law.

The Fund's Manager has taken steps:(1) that it believes will reasonably
address euro-related changes to enable the Fund and its service providers to
process transactions accurately and completely with minimal disruption to
business activities and (2) to obtain reasonable assurances that appropriate
steps have been taken by the Fund's other service providers to address the
conversion. The Fund has not borne any expense relating to these actions.

RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

The Fund also 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, 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 those 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.

OPTIONS ON EQUITY SECURITIES AND SECURITIES INDICES

The Fund may purchase and sell put and call options on equity securities and
securities indices traded on U.S. or foreign securities exchanges or traded in
the over-the-counter markets. Options on securities indices are similar to
options on securities except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the multiplier). The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount. Unlike for equity securities options, all settlements 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.

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RISKS OF TRANSACTIONS IN OPTIONS

Writing options involves the risk that there will be no market in which to
effect a closing transaction. An option position may be closed out only on an
exchange which provides a secondary market for an option of the same series.
Although the Fund will generally 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 may
exist. 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. The Fund, and thus investors, may lose money through any
unsuccessful use of these strategies.

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 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 INDICES

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

Because the value of an index option depends on changes in the index and not
a particular stock, successful use of options or indices is subject to the
investment adviser's ability to predict changes in the stock market or a
particular industry. This requires different skills than in predicting
performance of individual stocks.

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

Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively illiquid. 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 stocks.

SPECIAL RISKS OF WRITING CALLS ON INDICES

Because exercises of index options are settled in cash, a call writer such
as the Fund cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, the Fund will write call options on indices only
under the circumstances described above.

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

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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 (in amounts not exceeding 20% of the Fund's
total assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.

When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the price of such 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 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 INDICES. 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
multiple) to the assigned writer. Although the Fund may be able to minimize this
risk by withholding exercise instructions until just before the daily cut off
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 cut off 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.

ADDITIONAL RISKS OF PURCHASING OTC OPTIONS. OTC options are subject to
certain risks not present with exchange traded options. It is not possible to
effect a closing transaction in OTC options in the same manner as listed options
because a clearing corporation is not interposed between the buyer and seller of
the option. In order to terminate the obligation represented by an OTC option,
the holder must agree to the termination of the OTC option and may be unable or
unwilling to do so on terms acceptable to the writer. In any event, a
cancellation, if agreed to, may require the writer to pay a premium to the
counterparty. Although it does not eliminate counterparty risk, the Fund may be
able to eliminate the market risk of an option it has written by writing or
purchasing an offsetting position with the same or another counterparty.
However, the Fund would remain exposed to each counterparty's credit risk on the
call or put option until such option is exercised or expires. There is no
guarantee that the Fund will be able to write put or call options, as the case
may be, that will effectively offset an existing position.

OTC options are issued in privately negotiated transactions exempt from
registration under the Securities Act of 1933 and, as a result, are generally
subject to substantial legal and contractual limitations on sale. As a result,
there is no secondary market for OTC options and the staff of the Securities and
Exchange Commission (the Commission) has taken the position that OTC options
held by an investment company, as well as securities used to cover OTC options
written by one, are illiquid securities, unless the Fund and its counterparty
have provided for the Fund at its option to unwind the option. Such provisions
ordinarily involve the payment by the Fund to the counterparty to compensate it
for the economic loss caused by an early termination. In the absence of a
negotiated unwind provision, the Fund may be unable to terminate its obligation
under a written option or to enter into an offsetting transaction eliminating
its market risk.

There are currently legal and regulatory limitations on the Fund's purchase
or sale of OTC options. These limitations are not fundamental policies of the
Fund and the Fund's obligation to comply with them could be changed without
approval of the Fund's shareholders in the event of modification or elimination
of such laws or regulations in the future.

There can be no assurance that the Fund's use of OTC options will be
successful and the Fund may incur losses in connection with the purchase and
sale of OTC options.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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. These futures
contracts and options thereon will be on stock indices

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and foreign currencies. The Fund may also purchase futures contracts on debt
securities, including U.S. government securities and aggregates of debt
securities. The Fund, and thus its investors, may lose money through any
unsuccessful use of these strategies.

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.

Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act are exempt from the definition of
"commodity pool operator," subject to compliance with certain conditions. The
exemption is conditioned upon the Fund's purchasing and selling futures
contracts and options thereon for BONA FIDE hedging transactions, except that
the Fund may purchase and sell futures contracts and options thereon for any
other purpose to the extent that the aggregate initial margin and option
premiums do not exceed 5% of the market value of the Fund's total assets.
Although there are no other limits applicable to futures contracts, the value of
all futures contracts sold will not exceed the total market value of the Fund's
portfolio.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS

There are several risks in connection with the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the prices of equity securities or a currency or
group of currencies, the price of a futures contract may move more or less than
the price of the equity securities or currencies being hedged. Therefore, a
correct forecast of equity prices, currency rates, market trends or
international political trends by the investment adviser may still not result in
a successful hedging transaction.

Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market or 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 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, futures
contracts are available on the Australian Dollar, British Pound, Canadian
Dollar, Japanese Yen and Swiss Franc.

The Fund will use stock index futures and currency futures and options on
futures in a manner consistent with CFTC regulations. The Fund may also enter
into futures or related options contracts for return enhancement and risk
management purposes if the aggregate initial margin and option premiums do not
exceed 5% of the market value of the Fund's total assets.

Futures contracts and related options are generally subject to segregation
requirements of the Commission and the coverage requirements of the CFTC. If the
Fund does not hold the security or currency underlying the futures contract, the
Fund will be required to segregate on an ongoing basis with its Custodian cash
or other liquid assets in an amount at least equal to the Fund's obligations
with respect to such futures contracts. The Fund may place and maintain cash,
securities and similar investments with a futures commissions merchant in
amounts necessary to effect the Fund's transactions in exchange-traded futures
contracts and options thereon, provided certain conditions are satisfied.

Successful use of futures contracts and options thereon by the Fund is also
subject to the ability of the Fund's manager or subadviser to forecast movements
in the direction of the market and interest rates and other factors affecting
equity securities and currencies generally. The correlation between movements in
the price of a futures contract and movements in the price of the securities
being hedged is imperfect and the risk from imperfect correlation increases as
the composition of the Fund's portfolio diverges from the composition of the
relevant index. For example, if the Fund has hedged against the possibility of
an increase in the price of securities in its portfolio and the price of such
securities increases instead, the Fund will lose part or all of the benefit of
the increased value of its securities because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash, to meet daily variation margin requirements, it may need to
sell securities to meet such requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it is disadvantageous to do
so.

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

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trade have 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.

POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which the Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.

RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transactions 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
being hedged; (3) the fact that the 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.

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 Fund does not currently intend to invest in repurchase agreements
whose maturities exceed one year. 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 by U.S. government
obligations 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 Fund's Directors. The investment
adviser will monitor the creditworthiness of such parties under the general
supervision of the Directors. 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, provided
that outstanding loans do not exceed in the aggregate 33 1/3% of the value of
the Fund's total assets and that the loans are callable at any time by the Fund.
The loans must at all times be secured by cash or other liquid assets or secured
by an irrevocable letter of credit in favor of the Fund in an amount equal to at
least 100%, determined daily, of the market value of the loaned securities. The
collateral is segregated pursuant to applicable regulations. During the time
portfolio securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividend or interest paid on such securities and the Fund may
invest the cash collateral and earn additional income, or it may receive an
agreed-upon amount of interest income from the

B-9
<PAGE>
borrower. The advantage of such loans is that the Fund continues to receive
payments in lieu of the interest and dividends on the loaned securities, while
at the same time earning interest either directly from the borrower or on the
collateral which will be invested in short-term obligations.

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

Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Fund may 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'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.

ILLIQUID SECURITIES

The Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Repurchase agreements subject to
demand are deemed to have a maturity equal to the 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 (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

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

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

B-10
<PAGE>
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.

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 of 1986, as amended (Internal Revenue
Code). To qualify, a REIT must distribute at least 85% 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 that direct ownership of a handful of properties, as well as
greater income potential than an investment in common stock. 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.

SHORT SELLING

The Fund may sell a security it does not own in anticipation of a decline in
the market value of that security (short sales). To complete such a transaction,
the Fund must borrow the security to make delivery to the buyer. The Fund then
is obligated to replace the security borrowed by purchasing it at market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay to the lender any dividends or interest
which accrued during the period of the loan. To borrow the security, the Fund
also may be required to pay a premium, which would increase the cost of the
security sold. The proceeds of the short sale will be retained by the broker, to
the extent necessary to meet margin requirements, until the short position is
closed out. Until the Fund replaces a borrowed security, the Fund will segregate
with the Fund's custodian cash or other liquid assets, at such a level that (i)
the amount segregated plus the amount deposited with the broker as collateral
will equal the current value of the security sold short and (ii) the amount
segregated plus the amount deposited with the broker as collateral will not be
less than the market value of the security at the time it was sold short. The
Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. This result is the opposite of
what one would expect from a cash purchase of a long position in a security. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with a short sale. No more than 25% of the Fund's net assets will
be, when added together: (i) deposited as collateral for the obligation to
replace securities borrowed to effect short sales; and (ii) segregated in
connection with short sales. Short sales against-the-box are not subject to this
25% limit.

The Fund also may make short sales "against-the-box," in which the Fund
enters into a short sale of a security which the Fund owns or has the right to
obtain at no added cost. Not more than 25% of the Fund's net assets (determined
at the time of the short sale against-the-box) may be subject to such sales.

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.

B-11
<PAGE>
SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest up to 10% of its total assets in securities of other
non-affiliated investment companies. The Fund expects to invest less than 5% in
securities of other 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.

(d) DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in high quality money market instruments, including
commercial paper of corporations, certificates of deposit, bankers' acceptances
and other obligations of domestic and foreign banks, non-convertible debt
securities (corporate and government), obligations issued or guaranteed by the
U.S. government, its agencies or its instrumentalities, repurchase agreements
(described more fully above) and cash (foreign currencies or U.S. dollars).
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.

In addition, the portfolio manager may invest in equity securities other
than as recommended by the quantitative models when adverse market or economic
conditions warrant a temporary defensive strategy.

The Fund may also temporarily hold cash or invest in high quality foreign or
domestic money market instruments pending investment of proceeds from new sales
of Fund shares subject to the 80% policy.

(e) PORTFOLIO TURNOVER

As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions. 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 long-term 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, forward foreign currency

B-12
<PAGE>
exchange contracts and collateral arrangements relating thereto, and collateral
arrangements with respect to futures contracts and options thereon and with
respect to the writing of options and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed to be a pledge of
assets 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 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>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST 5 YEARS
- ---------------------------------- ---------------------------- ----------------------------------------------------------
<S> <C> <C>
Edward D. Beach (74) Director President and Director of BMC Fund, Inc., a closed-end
investment company; formerly, Vice Chairman of Broyhill
Furniture Industries, Inc.; Certified Public Accountant;
Secretary and Treasurer of Broyhill Family Foundation,
Inc.; Member of the Board of Trustees of Mars Hill
College and Director or Trustee of 44 funds within the
Prudential Mutual Funds.

Delayne Dedrick Gold (60) Director Marketing and Management Consultant and Director or
Trustee of 44 funds within the Prudential Mutual Funds.
</TABLE>

B-13
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST 5 YEARS
- ---------------------------------- ---------------------------- ----------------------------------------------------------
<S> <C> <C>
*Robert F. Gunia (52) Vice President and Director 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); Senior
Vice President (since March 1987) 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.; Vice President and Director (since May
1989) of The Asia Pacific Fund, Inc. and Director or
Trustee of 44 other funds within the Prudential Mutual
Funds.

Douglas H. McCorkindale (59) Director Vice Chairman (since March 1984) and President (since
September 1997) of Gannett Co. Inc. (publishing and
media); Director of Gannett Co. Inc., Frontier
Corporation and Continental Airlines, Inc. and Director
or Trustee of 23 funds within the Prudential Mutual
Funds.

Thomas T. Mooney (57) Director President of the Greater Rochester Metro Chamber of
Commerce; former Rochester City Manager; Trustee of
Center for Governmental Research, Inc.; Director of Blue
Cross of Rochester, The Business Council of New York
State, Monroe County Water Authority, Rochester Jobs,
Inc., Monroe County Industrial Development Corporation,
Northeast Midwest Institute; President, Director and
Treasurer of First Financial Fund, Inc. and The High
Yield Plus Fund, Inc. and Director or Trustee of 33 other
funds within the Prudential Mutual Funds.

Stephen P. Munn (56) Director Chairman (since January 1994), Director and President
(since 1988) and Chief Executive Officer (1988-December
1993) of Carlisle Companies Incorporated (manufacturer of
industrial products) and Director or Trustee of 18 funds
within the Prudential Mutual Funds.

*Richard A. Redeker (55) 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. and Director or Trustee of 30 funds within
the Prudential Mutual Funds.
</TABLE>

B-14
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) POSITION WITH FUND DURING PAST 5 YEARS
- ---------------------------------- ---------------------------- ----------------------------------------------------------
<S> <C> <C>
Robin B. Smith (59) Director Chairman and Chief Executive Officer (since August 1996),
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 and
Director or Trustee of 32 funds with the Prudential
Mutual Funds.

John R. Strangfeld, Jr. (45) President and Director Chief Executive Officer, Chairman, President and Director
(since January 1990), of The Prudential Investment
Corporation, Executive Vice President (since February
1998), Prudential Global Asset Management Group of
Prudential, and Chairman (since August 1989), Pricoa
Capital Group; formerly various positions to Chief
Executive Officer (November 1994-December 1998), Private
Asset Management Group of Prudential and Senior Vice
President (January 1986-August 1989), Prudential Capital
Group, a unit of Prudential; and President and Director
or Trustee of 44 funds within the Prudential Mutual
Funds.

Louis A. Weil, III (58) Director Chairman (since January 1999), President and Chief
Executive Officer (since January 1996) and Director
(since September 1991) of Central Newspapers, Inc.;
Chairman of the Board (since January 1996), Publisher and
Chief Executive Officer (August 1991-December 1995) of
Phoenix Newspapers, Inc.; formerly Publisher (May
1989-March 1991) of Time Magazine; President, Publisher &
Chief Executive Officer (February 1986-August 1989) of
The Detroit News and member of the Advisory Board, Chase
Manhattan Bank-Westchester and Director or Trustee of 30
funds within the Prudential Mutual Funds.

Clay T. Whitehead (60) Director President (since May 1983) of National Exchange Inc. (new
business development firm) and Director or Trustee of 18
funds within the Prudential Mutual Funds.

Grace C. Torres (39) Treasurer and Principal First Vice President (since December 1996) of PIFM; First
Financial and Accounting Vice President (since March 1993) of Prudential
Officer Securities; formerly First Vice President (March
1994-September 1996) of Prudential Mutual Fund
Management, Inc. and Vice President (July 1989-March
1994) of Bankers Trust Corporation.

Marguerite E. H. Morrison (43) Secretary Vice President and Associate General Counsel (since
December 1996) of PIFM; Vice President and Associate
General Counsel (since September 1997) of Prudential
Securities; formerly Vice President and Associate General
Counsel (June 1991-September 1996) of Prudential Mutual
Fund Management, Inc.

Stephen M. Ungerman (45) Assistant Treasurer Tax Director (since March 1996) of Prudential Investments
and the Private Asset Group of The Prudential Insurance
Company of America (Prudential); formerly First Vice
President (February 1993-September 1996) of Prudential
Mutual Fund Management, Inc. and Senior Tax Manager
(1981-January 1993) of Price Waterhouse LLP.
</TABLE>

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

** Unless otherwise indicated, 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.

B-15
<PAGE>
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," oversee such actions and decide on general policy.

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 72, except that retirement is being phased in for Directors of Prudential
Mutual Funds who were age 68 or older as of December 31, 1993. Under this
phase-in provision, Mr. Beach is scheduled to retire on December 31, 1999.

Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Directors of the Fund who are affiliated persons of the
Manager. The Fund currently pays each of its Directors who is not an affiliated
person of the Manager or investment adviser annual compensation of $2,000 in
addition to certain out-of-pocket expenses. The amount of annual compensation
paid to each Director may change as a result of the introduction of additional
funds on the boards of which the Director will 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 an SEC exemptive
order, at the daily rate of return of the 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 following table sets forth the estimated aggregate compensation paid by
the Fund for the fiscal year ended March 31, 1999 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's Board and the boards of all other investment
companies managed by PIFM (Fund Complex) for the calendar year ended December
31, 1998.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL 1998
COMPENSATION
FROM FUND
AGGREGATE AND FUND
COMPENSATION COMPLEX PAID
NAME OF DIRECTOR FROM FUND TO DIRECTORS
- --------------------------------------------------------------------------------------- ------------- ------------------
<S> <C> <C>
Edward D. Beach........................................................................ $ 2,000 $ 135,000(44/71)*
Delayne Dedrick Gold................................................................... 2,000 $ 135,000(44/71)*
Robert F. Gunia+....................................................................... None None
Douglas H. McCorkindale**.............................................................. 2,000 $ 70,000(23/40)*
Thomas T. Mooney**..................................................................... 2,000 $ 115,000(35/70)*
Stephen P. Munn........................................................................ 2,000 $ 45,000(18/24)*
Richard A. Redeker+.................................................................... None None
Robin B. Smith**....................................................................... 2,000 $ 90,000(32/41)*
John R. Strangfeld, Jr.+............................................................... None None
Louis A. Weil, III..................................................................... 2,000 $ 90,000(30/54)*
Clay T. Whitehead...................................................................... 2,000 $ 45,000(18/24)*
</TABLE>

- ------------------------
* Indicates number of funds/portfolios in Fund Complex to which aggregate
compensation relates.

** Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1998, includes amounts deferred at the
election of Directors under the funds' deferred compensation plans.
Including accrued interest, total compensation amounted to $71,145, $119,740
and $116,225 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. Redeker is no longer an interested
Director.

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 May 11, 1999, the Directors
and officers of the Fund, as a group, owned less than 1% of the outstanding
shares of the Fund.

As of May 11, 1999, Oakbrook Realty & Investment, LLC, 1000 Royce Blvd.,
Oakbrook Terrace, IL 60181 was the beneficial owner of 75,865 Class Z shares of
the Fund (approximately 14.6% of the outstanding Class Z shares).

B-16
<PAGE>
As of May 11, 1999, Prudential Securities was the record holder for other
beneficial owners of 5,090,937 Class A shares (approximately 88.8% of such
shares outstanding), 11,412,287 Class B shares (approximately 88.7% of such
shares outstanding), 1,721,209 Class C shares (approximately 94.7% of such
shares outstanding) and 511,799 Class Z shares (approximately 98.8% 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

(A) 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 April 30, 1999,
PIFM managed and/or administered open-end and closed-end management investment
companies with assets of approximately $73 billion. According to the Investment
Company Institute, as of December 31, 1998, the Prudential Mutual Funds were the
18th largest family of mutual funds in the United States.

PIFM is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). Prudential Mutual Fund
Services LLC (PMFS or the Transfer Agent), a wholly owned subsidiary of PIFM,
serves as the transfer 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. In
connection therewith, PIFM is obligated to keep certain books and records of the
Fund. PIFM also administers the Fund's business 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. The fee
is computed daily and payable monthly.

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 investment adviser;

(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 Prudential Investment Corporation,
doing business as Prudential Investments (PI, the subadviser or the investment
adviser) pursuant to the subadvisory agreement between PIFM and PI (the
Subadvisory Agreement).

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

B-17
<PAGE>
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 year ended March 31, 1999 and the fiscal period ended March 31,
1998, PIFM received management fees of $1,637,480 and $726,972, respectively.

PIFM has entered into the Subadvisory Agreement with PI (the Subadviser) a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
PI will furnish investment advisory services in connection with the management
of the Fund. In connection therewith, PI is obligated to keep certain books and
records of the Fund. Under the Subadvisory Agreement, the Subadviser, 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. The
Subadviser 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 and supervises its
performance of such services. PI is reimbursed by PIFM for the reasonable costs
and expenses incurred by PI in furnishing those services.

The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PIFM or PI upon not more than 60 days', nor less than 30
days', written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the Investment Company Act.

(B) 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. Prior to June 1, 1998, Prudential
Securities Incorporated (Prudential Securities) was the Fund's distributor. PIMS
and Prudential Securities are subsidiaries of Prudential.

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, respectively. The
Distributor also 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.

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 .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

B-18
<PAGE>
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 limited 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 through
March 31, 2000.

For the fiscal year ended March 31, 1999, the Distributor and Prudential
Securities collectively received payments of $205,830, under the Class A Plan
and spent $205,830 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 March 31, 1999, the
Distributor and Prudential Securities collectively also received approximately
$320,200 in initial sales charges in connection with the sale of Class A shares.

CLASS B AND CLASS B 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 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.

CLASS B PLAN. For the fiscal year ended March 31, 1999, the Distributor and
Prudential Securities collectively received $1,580,847 from the Fund under the
Class B Plan and spent $1,442,300 in distributing the Fund's Class B shares. It
is estimated that of the latter total amount approximately 1.0% ($14,100) was
spent on printing and mailing of prospectuses to other than current
shareholders; 15.9% ($229,500) 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 83.1% ($1,198,700) on the
aggregate of (1) payments of commissions and account servicing fees to financial
advisers 36.9% or $531,900) and (2) an allocation on account of overhead and
other branch office distribution-related expenses (46.2% or $666,800). 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 (and Prudential Securities as its predecessor) also receives
the proceeds of contingent deferred sales charges paid by investors upon certain
redemptions of Class B shares. For the fiscal year ended March 31, 1999, the
Distributor and Prudential Securities collectively received approximately
$974,500 in contingent deferred sales charges attributable to Class B shares.

CLASS C PLAN. For the fiscal year ended March 31, 1999, the Distributor and
Prudential Securities collectively received $271,815 under the Class C Plan and
spent $112,800 in distributing Class C shares. It is estimated that of the
latter total amount approximately 2.4% ($2,700) 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 97.6% ($110,100) on the aggregate
of (1) payments of commissions and account servicing fees to financial advisers
(52.2% $58,900) and (2) an allocation on account of overhead and other branch
office distribution-related expenses (45.4% $51,200).

The Distributor (and Prudential Securities as its predecessor) also receives
the proceeds of contingent deferred sales charges paid by investors upon certain
redemptions of Class C shares. For the fiscal year ended March 31, 1999, the
Distributor and Prudential Securities collectively received approximately
$1,014,900 in contingent deferred sales charges attributable to Class C shares.
For the fiscal year ended March 31, 1999, the Distributor received approximately
$5,100 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 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 (the Rule 12b-1 Directors), at a meeting called for the purpose of
voting on such continuance. A Plan may be

B-19
<PAGE>
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 the 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 distribute shares of the Fund (including Class Z shares). Such payments
may be calculated by reference to the net asset value of securities 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
and service (12b-1) fees for the Class A shares as described above. Fee waivers
and subsidies 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 charge
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 required to be included in the calculation
of the 6.25% limitation. The annual asset-based sales charge on 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.

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the portfolio securities of the
Fund 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, Raritan Plaza One, Edison, New Jersey 06837, 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, payment of
dividends and distributions and related functions. For these services, PMFS
receives an annual fee per shareholder account of $9.50, 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 annual financial statements of the Fund.

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

B-20
<PAGE>
securities upon the exercise of options. 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. Brokerage
commissions on United States securities, options and futures exchanges or boards
of trade are subject to negotiation between the Manager and the broker or
futures commission merchant.

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

Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities, or an affiliate, during the existence
of the syndicate, is a principal underwriter (as defined in the Investment
Company Act), except in accordance with rules of the 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.

In placing orders for portfolio securities of the Fund, the Manager's
overriding objective is to obtain the best possible combination of price and
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 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 databases, 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 provide 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 of lower brokerage commissions and efficient execution.
In such event, allocation of the transactions, as well as the expenses incurred
in the transaction, will be made by the Manager in the manner it considers to be
most equitable and consistent with its fiduciary obligations to its clients. The
allocation of orders among firms and the commission rates paid are reviewed
periodically by the Fund's Directors. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which Prudential Securities or any
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.

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<PAGE>
Subject to the above considerations, Prudential Securities 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 non-interested
Directors have 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 the Fund unless the Fund has expressly authorized the
retention of such compensation. Prudential Securities must furnish to the 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 (or any affiliate) are also subject to such fiduciary standards as
may be imposed upon Prudential Securities (or such affiliate) by applicable law.

The table below sets forth information concerning the payment of commissions
by the Fund, including commissions paid to Prudential Securities,

<TABLE>
<CAPTION>
FISCAL
YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31,
1999 1998
------------- -------------
<S> <C> <C>
Total brokerage commissions paid by the Fund.......................... $ 1,176,539 $ 982,575
Total brokerage commissions paid to Prudential Securities and its
foreign affiliates.................................................. $ 4,806 $ 0
Percentage of total brokerage commissions paid to Prudential
Securities and its foreign affiliates............................... .41% 0%
</TABLE>

The Fund effected approximately 0.41% of the total dollar amount of its
transactions involving the payment of commissions to Prudential Securities
during the year ended March 31, 1999. Of the total brokerage commissions paid
during that period, 186,760 (or 15.84%) were paid to firms which provide
research, statistical or other services to PI. 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 March 31, 1999. As of March 31, 1999, the Fund held
securities of Bear Stearns & Co. Inc., Morgan Stanley Dean Witter and SBC
Warburg Dillon Read LLC in the aggregate amounts of $2,724,000, $2,724,000 and
$718,000, respectively.

CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

The Fund is authorized to issue 2 billion shares of common stock, $.001 per
share divided into four classes, designated Class A, Class B, Class C and Class
Z shares, initially all of one series. Each class of common stock 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 for 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 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
Directors may authorize the creation of additional series and classes within
such series, with such preferences, privileges, limitations and voting and
dividend rights as the Directors may determine. The voting rights of the
shareholders of a series or class can be modified only the majority vote of
shareholders of that series or class.

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 is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares (with the exception of Class Z shares,
which are not subject to any distribution or service fees) bears the expenses
related to the distribution of its shares. Except for the conversion feature
applicable to the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of the Fund is
entitled to its portion of all of the Fund's assets after all debt and expenses
of the Fund have

B-22
<PAGE>
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 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 the vote of 10% 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.

Under the Articles of Incorporation, the Directors may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset value
procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Directors may determine. All consideration received by
the Fund for shares of any additional series, and all assets in which such
consideration is invested, would belong to that series (subject only to the
rights of creditors of that series) and would be subject to the liabilities
related thereto. Under the Investment Company Act, shareholders of any
additional series of shares would normally have to approve the adoption of any
advisory contract relating to such series and of any changes in the investment
policies related therein. The Directors do not intend to authorize the creation
of additional series at the present time.

The Directors have the power to alter the number and the terms of office of
the Directors and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Directors have been elected by the
shareholders of the Fund. The voting rights of shareholders are not cumulative,
so that holders of more than 50 percent of the shares voting can, if they
choose, elect all Directors being selected, while the holders of the remaining
shares would be unable to elect any Directors.

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) 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 NAV 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, 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 Small-Cap Quantum Fund, Inc., specifying on the
wire the account number assigned by PMFS and your name and identifying the class
in which you are eligible to invest (Class A, Class B, Class C or Class Z
shares).

If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day.

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Small-Cap Quantum
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.

B-23
<PAGE>
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 NAV. Using the NAV of the Fund at March 31, 1999, 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............ $ 7.44
Maximum sales charge (5% of offering price)....................... .39
-----
Maximum offering price............................................ $ 7.83
-----
-----
CLASS B
Net asset value, offering price and redemption price to public per
Class B share*................................................... $ 7.37
-----
-----
CLASS C
Net asset value and redemption price per Class C share*........... $ 7.37
Sales charge (1% of offering price)............................... $ .07
-----
Offering price to public.......................................... $ 7.44
-----
-----
CLASS Z
Net asset value, offering price and redemption price per Class Z
share............................................................ $ 7.46
-----
-----
</TABLE>

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

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

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 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.

B-24
<PAGE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGE--CLASS A SHARES

BENEFIT PLANS. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code, deferred compensation
or annuity plans under Sections 401(a), 403(b) and 457 of the Internal Revenue
Code, "rabbi" trusts and non-qualified deferred compensation plans that are
sponsored by an employer that has a tax-qualified plan with Prudential
(collectively, Benefit Plans), provided that the Benefit Plan has existing
assets of at least $1 million invested in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) or 250 eligible employees or participants. In the case of Benefit
Plans whose accounts are held directly with the Transfer Agent or Prudential
Securities and for which the Transfer Agent or Prudential Securities does
individual account recordkeeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by Prudential, Prudential Securities or its subsidiaries
(Prudential Securities or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from such
plans to the participant.

PRUDENTIAL RETIREMENT PROGRAMS. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or
non-qualified under the Internal Revenue Code, for which Prudential provides
administrative or recordkeeping services, provided that (1) the plan has at
least $1 million in existing assets or 250 eligible employees and (2) the Fund
is an available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 and
403(b)(7) of the Internal Revenue Code and plans that participate in a PruArray
Program (benefit plan recordkeeping service) (hereafter referred to as a
PruArray Plan). All Benefit Plans of a company (or affiliated companies under
common control) for which Prudential serves as plan administrator or
recordkeeper are aggregated in meeting the $1 million threshold, provided that
Prudential has been notified in advance of the entitlement to the waiver of the
sales charge based on the aggregated assets. The term "existing assets" includes
stock issued by a plan sponsor, shares of Prudential Mutual Funds and shares of
certain unaffiliated mutual funds that participate in a PruArray Plan
(Participating Funds). "Existing assets" also include monies invested in The
Guaranteed Investment Account (GIA), a group annuity insurance product issued by
Prudential, the Guaranteed Insulated Separate Account, a separate account
offered by Prudential, and units of The Stable Value Fund (SVF), an unaffiliated
bank collective fund. Class A shares may also be purchased at NAV by plans that
have monies invested in GIA and SVF, provided (1) the purchase is made with the
proceeds of a redemption from either GIA or SVF and (2) Class A shares are an
investment option of the plan.

PRUARRAY ASSOCIATION BENEFIT PLANS. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are members
of a common trade, professional or membership association (Association) that
participate in a PruArray Plan provided that the Association enters into a
written agreement with Prudential. Such Benefit Plans or non-qualified plans may
purchase Class A shares at NAV without regard to the assets or number of
participants in the individual employer's qualified Plan(s) or non-qualified
plans so long as the employers in the Association (1) have retirement plan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (2) maintain their accounts with the Transfer Agent.

PRUARRAY SAVINGS PROGRAM. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for purchase
at NAV by Individual Retirement Accounts and Savings Accumulation Plans of the
company's employees. The Program is available only to (1) employees who open an
IRA or Savings Accumulation Plan account with the Transfer Agent and (2) spouses
of employees who open an IRA account with the Transfer Agent. The program is
offered to companies that have at least 250 eligible employees.

SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.

OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
the 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, directors, 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,

B-25
<PAGE>
- 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,

- 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 of 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").

For an investor to obtain any reduction or waiver of the initial sales
charge 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 charge is 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 charge 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, and

- one or more employee benefit plans of a company controlled by an
individual.

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

The 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 do not apply
to individual participants in any retirement or group plans.

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

B-26
<PAGE>
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. 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 (NAV 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 investor 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.

LETTER OF INTENT. Reduced sales charges are also available to investors (or
an eligible group of related investors), including retirement and group plans,
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 may also
qualify to purchase Class A shares at NAV by entering into a Letter of Intent
whereby they agree to enroll, within a thirteen-month period, a specified number
of eligible employees or participants (Participant 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,
Prudential or its affiliates and through your broker will not be aggregated to
determine the reduced sales charge.

A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number of
investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the reduced
sales charge applicable to the amount represented by the goal, as if it were a
single investment. In the case of a Participant Letter of Intent, each
investment made during the period will be made at net asset value. 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 purchaser, except in the case of
retirement and group plans where the employer or plan sponsor will be
responsible for paying any applicable sales charge. The effective date of an
Investment Letter of Intent (except in the case of retirement and group plans),
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. Similarly, the Participant Letter of
Intent does not obligate the retirement or group plan to enroll the indicated
number of eligible employees or participants. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser (or the
employer or plan sponsor in the case of any retirement or group plan) 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. 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, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. 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 who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee.

B-27
<PAGE>
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. Class C shares may be purchased at NAV, without payment of an
initial sales charge, by Benefit Plans (as defined above). In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential Securities
does individual account recordkeeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by Prudential, Prudential Securities or its subsidiaries
(Prudential Securities or Subsidiary Prototype Benefit Plans), Class C shares
may be purchased at NAV by participants who are repaying the loans made from
such plans to the participant.

PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived with
respect to purchases of Class C shares by qualified and non-qualified retirement
and deferred compensation plans participating in a PruArray Plan and other plans
for which Prudential provides administrative or recordkeeping services.

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

Class Z shares of the Fund currently are available for purchase by the
following categories of investors:

- pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code, deferred compensation and
annuity plans under Sections 457 and 403(b)(7) of the Internal Revenue
Code and non-qualified plans for which the Fund is an available option
(collectively, Benefit Plans), provided such Benefit Plans (in combination
with other plans sponsored by the same employer or group of related
employers) have at least $50 million in defined contribution assets,

- participants in any fee-based program or trust program sponsored by an
affiliate of the Distributor which includes mutual funds as investment
options and for which the Fund is an available option,

- certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by an affiliate of the Distributor for whom Class Z
shares of the Prudential Mutual Funds are an available investment option,

- Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and as of September 20, 1996, (1)
were Class Z shareholders of the Prudential Mutual Funds or (2) executed a
letter of intent to purchase Class Z shares of the Prudential Mutual
Funds,

- current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund), and

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

After a Benefit Plan qualifies to purchase Class Z shares, all subsequent
purchases will be for Class Z shares.

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 finder's fee, from its own resources, based on a
percentage of the net asset value of shares sold by such persons.

Class Z shares of the Fund may also be purchased by certain savings,
retirement and deferred compensation plans, qualified or non-qualified under the
Internal Revenue Code, provided that (1) the plan purchases shares of the Fund
pursuant to an investment management agreement with The Prudential Insurance
Company of America or its affiliates, (2) the Fund is an available investment
option under the agreement and (3) the plan will participate in the PruArray and
SmartPath Programs (benefit

B-28
<PAGE>
plan recordkeeping services) sponsored by PMFS. These plans include pension,
profit-sharing, stock-bonus or other employee benefit plans under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 or 403(b)(7) of the Internal Revenue Code.

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, signed in the name(s) shown on the face of 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 15010, New Brunswick, New
Jersey 08906-5010, 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 Directors determine 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
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.

B-29
<PAGE>
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of 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 in the case of shares bought
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 or shares acquired through reinvestment of
dividends or distributions are not subject to a CDSC. The amount of any CDSC
will be paid to and retained by the Distributor.

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 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 rate of 4% (the applicable rate in the second year after purchase)
for a total CDSC of $9.60.

B-30
<PAGE>
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.

WAIVER OF CONTINGENT DEFERRED SALES 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
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.

The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions are:

(1) in the case of a tax-deferred retirement plan, a lump-sum or other
distribution after retirement;

(2) in the case of an IRA (including a Roth IRA), a lump-sum or other
distribution after attaining age 59 1/2 or a periodic distribution based on life
expectancy;

(3) in the case of a Section 403(b) custodial account, a lump sum or other
distribution after attaining age 59 1/2; and

(4) a tax-free return of an excess contribution or plan distributions
following the death or disability of the shareholder, provided that the shares
were purchased prior to death or disability.

The waiver does not apply in the case of a tax-free rollover or transfer of
assets, other than one following a separation from service (that is, following
voluntary or involuntary termination of employment or following retirement).
Under no circumstances will the CDSC be waived on redemptions resulting from the
termination of a tax-deferred retirement plan, unless such redemptions otherwise
qualify for a waiver as described above. In the case of Direct Account and
Prudential Securities or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.

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 Fund's 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.

B-31
<PAGE>
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) is
medically determinable physical or permanently disabled. The letter must also indicate
mental impairment which can be expected the date of disability.
to result in death or to be of
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

PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in a PruArray Plan and other plans for which Prudential provides
administrative or recordkeeping services. The CDSC will also be waived on
redemptions from Benefit Plans sponsored by Prudential and its affiliates to the
extent that the redemption proceeds are invested in The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account and units of The Stable Value
Fund.

OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit
Plans holding shares through a broker not affiliated with Prudential and for
which the broker provides administrative or recordkeeping services.

CONVERSION FEATURE--CLASS B SHARES

Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.

Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.

For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert

B-32
<PAGE>
approximately seven years from the initial purchase (I.E., $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 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 NAV on the
record date. 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 a cash payment representing a dividend or distribution
may reinvest such dividend or distribution at NAV by returning the check or the
proceeds to the Transfer Agent within 30 days after the payment date. Such
investment will be made at the NAV per share next determined after receipt of
the check or proceeds by the Transfer Agent. Such shareholder will receive
credit for any CDSC paid in connection with the amount of proceeds being
reinvested.

EXCHANGE PRIVILEGE

The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of the 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. 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 non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to

B-33
<PAGE>
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, signed in the name(s) shown on
the face of 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 Funds
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.

In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services 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, shares of Prudential Government
Securities Trust (Short-Intermediate Term Series) and shares of the money market
funds specified below. No fee or sales load will be imposed upon the exchange.
Shareholders of money market funds who acquired such shares upon exchange of
Class A shares may use the exchange privilege only to acquire Class A shares of
the Prudential Mutual Funds participating in the exchange privilege.

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

Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets, 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 date of the initial purchase, rather than the date of the
exchange.

Class B and Class C shares of the Fund may also be exchanged for Class B and
Class C shares, respectively, of Prudential Special Money Market Fund, Inc.
without imposition of any CDSC at the time of exchange. Upon subsequent
redemption from such money market fund or after re-exchange into the Fund, such
shares will be subject to the CDSC calculated without regard to the time such
shares were held in the money market fund. In order to minimize the period of
time in which shares are subject to a CDSC, shares exchanged out of the money
market fund will be exchanged on the basis of their remaining holding periods,
with the longest remaining holding periods being transferred first. In measuring
the time period shares are held in a money market fund and "tolled" for purposes
of calculating the CDSC holding period, exchanges are deemed to have been made
on the last day of the month. Thus, if shares are exchanged into the Fund from a
money market fund during the month (and are held in the Fund at the end of the
month), the entire month will be included in the CDSC holding period.
Conversely, if shares are exchanged into a money market fund prior to the last
day of the month (and are held in the money market fund on the last day of the
month), the entire month will be excluded from the CDSC holding period. 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,

B-34
<PAGE>
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 for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value.

Additional details about the exchange privilege and prospectuses for each of
the Prudential Mutual Funds are available from the 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)

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
</TABLE>

See "Automatic Investment Plan."

- ------------------------
(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.

B-35
<PAGE>
AUTOMATIC INVESTMENT PLAN (AIP)

Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
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 or quarterly checks in any amount, except as provided below, up to
the value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares 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 NAV 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 periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.

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

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

TAX-DEFERRED RETIREMENT PLANS

Various qualified retirement plans, including a 401(k) plan, self-directed
individual retirement accounts and "tax-deferred accounts" under Section
403(b)(7)of the Internal Revenue Code of 1986, as amended (the Internal Revenue
Code) are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, and the administration,
custodial fees and other details is available from the Distributor or the
Transfer Agent.

B-36
<PAGE>
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.

TAX-DEFERRED RETIREMENT ACCOUNTS

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

<TABLE>
<CAPTION>
TAX-DEFERRED COMPOUNDING(1)

CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 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. The 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
Fund will compute its NAV 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 NAV. In the event
the New York Stock Exchange closes early on any business day, the NAV of a
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 indices) are valued at the
last sales price on such exchange system on the day of valuation, or, if there
was no sale on such day, the mean between the last bid and asked prices on such
day, or at the bid price on such day in the absence of an asked price. Corporate
bonds (other than convertible debt securities) and U.S. government securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Manager in
consultation with the Subadviser to be over-the-

B-37
<PAGE>
counter, are valued on the basis of valuations provided by an independent
pricing agent or principal market maker which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed by the Manager in consultation with the Subadviser to
be over-the-counter, are valued at the mean between the last reported bid and
asked prices provided by principal market makers. Options on stock and stock
indices traded on an exchange are valued at the mean between the most recently
quoted bid and asked prices on the respective exchange and futures contracts and
options thereon are valued at their last sale prices as of the close of trading
on the applicable commodities exchange or board of trade or, if there was no
sale on the applicable commodities 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. Quotations of foreign securities 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 judgment 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 of Directors in consultation with the Manager or the
Subadviser, including its portfolio manager, traders, and its research and
credit analysts, on the basis of the following factors: cost of the security,
transactions in comparable securities, relationships among various securities
and such other factors as may be determined by the Manager, Subadviser, Board of
Directors or Valuation Committee to materially affect the value of the security.
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 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 because Class Z shares are not subject to any distribution or
service fee. [It is expected, however, that the NAV per share of each class will
tend to converge immediately after the recording of dividends, if any, which
will differ by approximately the amount of the distribution and/or service fee
expense accrual differential among the classes].

TAXES, DIVIDENDS AND DISTRIBUTIONS

The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves the Fund (but not its shareholders) from paying federal income tax
on income and capital gains which are distributed to shareholders and permits
net capital gains of the Fund (I.E., the excess of net long-term capital gains
over net short-term capital losses) to be treated as long-term capital gains of
the shareholders, regardless of how long shareholders have held their shares in
the Fund. 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. The Fund had a capital loss carryforward for federal
income tax purposes at March 31, 1999 of approximately $3,890,973 which expires
in 2007.

Qualification of the Fund as a regulated investment company requires, among
other things, that (a) the Fund derive at least 90% of the Fund's annual gross
income (without reduction for losses from the sale or other disposition of
securities or foreign currencies) from interest, dividends, payments with
respect to securities loans and gains from the sale or other disposition of
securities or options thereon or foreign currencies, or other income (including
but not limited to gains from options, futures or forward contracts) derived
with respect to its business of investing in such securities or currencies; (b)
the Fund 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 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
gains (I.E., the excess of net short-term capital gains over net long-term
capital losses) in each year.

B-38
<PAGE>
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where the Fund acquires a put or
writes a call thereon or 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. In addition, debt securities acquired by the Fund may
be subject to original issue discount and market discount rules.

Special rules apply to most options on stock indices, futures contracts and
options thereon, and foreign currency forward exchange contracts in which the
Fund may invest. See "Description of the Fund, Its Investments and Risks." These
investments will generally constitute Section 1256 contracts and will be
required to be "marked to market" for federal income tax purposes at the end of
the Fund's taxable year; that is, treated as having been sold at market value.
Except with respect to 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 upon 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 net asset value 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. 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.

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 dividends

B-39
<PAGE>
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 gain
net income, 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 gains 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 ended 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 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.

Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.

B-40
<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:

n
P(1+T) = ERV

Where: P = a hypothetical initial payment of $1,000.

T = average annual total return.

n = number of years.

ERV = ending redeemable value of a hypothetical $1,000 investment 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 March 31, 1999.

<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
---------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C>
Class A -34.45% N/A N/A -21.23% (11-10-97)
Class B -36.61 N/A N/A -22.09 (11-10-97)
Class C -33.29 N/A N/A -20.31 (11-10-97)
Class Z -30.88 N/A N/A -18.09 (11-10-97)
</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. See "How the Fund Calculates Performance" in the
Prospectus of the Fund.

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
-------

Where: P = a hypothetical initial payment of $1,000.

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

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

Below are the aggregate total returns for the Fund's share classes for the
periods ended March 31, 1999.

<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
---------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C>
Class A -31.00% N/A N/A -24.37% (11-10-97)
Class B -31.61 N/A N/A -25.24 (11-10-97)
Class C -31.61 N/A N/A -25.24 (11-10-97)
Class Z -30.88 N/A N/A -24.15 (11-10-97)
</TABLE>

YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B, Class C
and Class Z shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
6
YIELD=2[(a-b+1) -1]
---
cd

<TABLE>
<C> <S>
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
</TABLE>

Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.

B-41
<PAGE>
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE
COMPARISON OF
DIFFERENT
TYPES OF INVESTMENTS
OVER THE LONG TERM
(1/1926-12/31/1998)
<S> <C> <C>
Common Stocks Long-Term Govt. Bonds Inflation
11.2% 5.3% 3.1%
</TABLE>

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

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

B-42
<PAGE>

PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1999

PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--94.5%
COMMON STOCKS
- ------------------------------------------------------------
BASIC INDUSTRY--11.0%
21,600 Alaska Air Group, Inc. $ 1,026,000
10,800 Alliant Techsystems, Inc.(a) 839,025
103,100 AMCOL International Corp. 1,031,000
74,900 BE Aerospace, Inc.(a) 1,104,775
76,000 Building Materials Holdings Corp. 769,500
7,700 Castle (A.M.) & Co. 92,881
21,500 Cleveland-Cliffs, Inc. 732,344
30,700 Coach USA, Inc. 844,250
29,100 Commercial Intertech Corp. 323,738
14,000 Commercial Metals Co 280,000
86,300 JLG Industries, Inc. 1,175,837
21,800 Landstar Systems, Inc.(a) 722,125
18,200 Lone Star Industries, Inc. 564,200
9,500 Olympic Steel, Inc.(a) 66,500
62,300 Oregon Steel Mills, Inc. 650,256
21,100 Pentair, Inc. 712,125
18,600 Precision Castparts Corp. 748,650
49,700 Republic Group, Inc. 748,606
4,900 Roanoke Electric Steel Corp. 54,513
6,100 Rock-Tenn Co. 93,788
36,700 Schulman (A.), Inc. 500,037
34,200 Skywest, Inc. 987,525
35,500 Texas Industries, Inc. 880,844
7,900 Tredegar Industries, Inc. 244,406
3,100 Universal Forest Products, Inc. 63,550
67,800 USFreightways Corp. 2,228,925
7,700 Werner Enterprises, Inc. 121,275
42,300 Wolverine Tube, Inc.(a) 893,587
------------
18,500,262
- ------------------------------------------------------------
BUSINESS SERVICES--1.6%
4,900 CSS Industries, Inc.(a) 109,025
13,000 Henry Jack & Associates, Inc.(a) 477,750
15,400 Interim Services, Inc.(a) 231,000
48,600 Merrill Corp. 650,025
60,400 Norrell Corp. 788,975
27,600 Romac International, Inc.(a) 234,600
29,000 Staffmark, Inc.(a) 228,375
------------
2,719,750
CAPITAL SPENDING--3.4%
42,100 Juno Lighting, Inc. $ 944,619
52,800 Manitowoc Co., Inc. 2,211,000
29,700 SPS Technologies, Inc.(a) 1,165,725
15,000 Superior Telecom, Inc. 283,125
52,500 Varlen Corp. 1,155,000
------------
5,759,469
- ------------------------------------------------------------
CONSUMER CYCLICAL--10.4%
39,400 Arvin Industries, Inc. 1,327,287
66,300 Champion Enterprises, Inc. 1,284,562
88,300 D.R. Horton, Inc. 1,479,025
67,400 Intermet Corp. 901,475
88,000 Kaufman & Broad Home Corp. 1,985,500
100,000 Lennar Corp. 2,237,500
74,200 Lo Jack Corp.(a) 570,413
45,500 MascoTech, Inc. 705,250
70,400 Meritor Automotive, Inc. 1,091,200
8,400 Miller (Herman), Inc. 153,300
50,400 OshKosh B'Gosh, Inc. 891,450
29,100 Pier 1 Imports, Inc 236,438
34,100 Pulaski Furniture Corp. 699,050
72,850 Smith AO Corp. 1,384,150
39,900 Standard Products Co. 648,375
97,200 Tower Automotive, Inc.(a) 1,810,350
------------
17,405,325
- ------------------------------------------------------------
CONSUMER SERVICES--18.5%
107,400 ADVO, Inc. 2,074,162
15,300 Anchor Gaming 669,375
9,200 Ann Taylor Stores Corp.(a) 406,525
142,900 Arctic Cat, Inc. 1,420,069
121,400 Brightpoint, Inc. 717,019
75,800 Cato Corp. 705,888
33,860 CKE Restaurants, Inc. 668,735
26,300 Claire's Stores, Inc. 792,287
44,000 CPI Corp. 984,500
51,900 Dress Barn, Inc.(a) 720,113
119,300 Foodmaker, Inc. 3,042,150
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-43

<PAGE>
PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1999
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ------------------------------------------------------------
CONSUMER SERVICES (CONT'D.)
37,800 Galey & Lord, Inc. $ 167,738
32,600 Genesco, Inc.(a) 301,550
65,300 Group 1 Automotive, Inc. 1,603,931
74,200 Guilford Mills, Inc. 649,250
3,900 Insight Enterprises, Inc.(a) 96,525
2,300 Interface, Inc. (Class "A" Stock) 22,138
6,200 Justin Industries, Inc. 68,200
70,900 Kellwood Co. 1,564,231
104,100 Luby's Cafeterias, Inc. 1,756,687
4,100 Mohawk Industries, Inc.(a) 123,000
72,600 Musicland Stores Corp.(a) 639,788
84,200 Nash Finch Co. 705,175
76,800 Nautica Enterprises, Inc. 868,800
37,700 North Face, Inc. 471,250
32,400 Pillowtex Corp. 459,675
20,200 Polaris Industries, Inc. 641,350
53,900 Pomeroy Computer Resources, Inc. 700,700
37,200 Pre-Paid Legal Services, Inc.(a) 911,400
34,500 Russ Berrie & Co., Inc. 901,312
102,000 Ryan's Family Steak Houses, Inc.(a) 1,230,375
8,900 Shuffle Master, Inc. 58,406
53,100 Sonic Automatic, Inc.(a) 823,050
35,400 Tech Data Corp.(a) 811,987
26,200 Timberland Co. (Class "A" Stock) 1,652,237
1,600 Trans World Entertainment Corp.(a) 17,600
11,100 Travel Services International,
Inc.(a) 116,550
42,500 Zale Corp. 1,452,969
------------
31,016,697
- ------------------------------------------------------------
CONSUMER STAPLES--3.3%
53,400 Canandaigua Brands, Inc. (Class "A"
Stock) 2,690,025
49,100 Herbalife International, Inc. (Class
"A" Stock) 604,544
65,500 Schweitzer-Mauduit International,
Inc. 753,250
51,900 Smithfield Foods Inc. 1,177,481
44,500 Windmere Durable Holdings, Inc. 311,500
------------
5,536,800
- ------------------------------------------------------------
ENERGY--2.5%
29,200 Barrett Resources Corp.(a) 731,825
36,100 New Jersey Resources Corp. 1,283,806
37,500 Newfield Exploration Co.(a) 848,437
17,700 Seitel, Inc.(a) $ 246,694
68,500 UGI Corp. 1,143,094
------------
4,253,856
- ------------------------------------------------------------
FINANCE--17.3%
70,200 Allied Capital Corp. 1,289,925
90,200 Americredit Corp. 1,183,875
78,700 Amerus Life Holdings, Inc. ( Class
"A" Stock) 1,888,800
39,700 Arthur J. Gallagher & Co. 1,826,200
34,400 Astoria Financial Corp. 1,720,000
1,160 Bank United Corp. (Class "A" Stock) 47,415
34,000 Banknorth Group, Inc. 960,500
38,600 CMAC Investment Corp. 1,505,400
50,700 Cullen/Frost Bankers, Inc. 2,430,431
36,100 Delta Financial Corp.(a) 203,063
2,200 Doral Financial Corp. 40,425
36,500 Downey Financial Corp. 668,406
91,200 Enhance Financial Services Group,
Inc. 2,074,800
88,583 Fidelity National Financial, Inc. 1,328,745
142,150 First American Financial Corp. 2,247,747
74,000 Fremont General Corp.(b) 1,410,625
70,864 HUBCO, Inc. 2,378,373
35,300 IPC Holdings Ltd., ADR (Bermuda) 701,587
27,800 Morgan Keegan, Inc. 460,438
33,900 People's Bank 1,008,525
4,200 Protective Life Corp. 159,075
67,300 Rollins Truck Leasing Corp. 635,144
100,700 Selective Insurance Group, Inc. 1,774,837
197,200 World Acceptance Corp. 1,059,950
------------
29,004,286
- ------------------------------------------------------------
Health Care--5.8%
69,100 Ameripath, Inc. 621,900
51,000 Cooper Cos., Inc. 784,125
40,500 Empi, Inc. 875,812
5,500 ESC Medical Systems Ltd., ADR
(Israel)(a) 37,813
97,500 Genesis Health Ventures, Inc. 475,313
100,100 Integrated Health Services, Inc. 550,550
24,000 Medimmune, Inc.(a) 1,420,500
75,700 Orthodontic Ctrs. of America,
Inc.(a) 1,192,275
51,100 PhyCor, Inc.(a) 242,725
2,600 Polymedica Corp.(a) 19,500
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-44

<PAGE>
PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 1999
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ------------------------------------------------------------
HEALTH CARE (CONT'D.)
124,300 Prime Medical Services, Inc.(a) $ 916,712
33,400 Quadramed Corp. 254,675
39,000 RehabCare Corp. 587,438
18,400 Sierra Health Services, Inc.(a) 239,200
34,100 Universal Health Services, Inc.
(Class "B" Stock)(a) 1,474,825
------------
9,693,363
- ------------------------------------------------------------
TECHNOLOGY--16.0%
33,200 Advanced Digital Information, Corp. 549,875
2,500 Alpha Industries, Inc.(a) 45,938
48,450 Apex Pc Solutions, Inc.(b) 675,272
11,200 Avant Corp.(a) 198,800
33,100 Avid Technology, Inc.(a) 577,181
159,900 Box Hill Systems Corp. 819,488
2,700 Brady (W.H.) Co. 56,531
6,400 Cerner Corp.(a) 102,800
61,300 CIBER, Inc.(a) 1,176,194
28,400 Complete Busines Solutions, Inc.(a) 557,350
28,800 Computer Horizons Corp. 315,000
10,800 Computer Task Group, Inc. 230,850
28,400 Concord Communications, Inc.(b) 1,618,800
7,600 Consolidated Graphics, Inc.(a) 438,900
6,000 DII Group, Inc.(a) 175,500
5,700 General Semiconductor Inc. 41,325
22,900 GenRad, Inc.(a) 329,188
19,600 Geotel Communications Corp.(a) 899,150
15,000 Hyperion Solutions Corp.(a) 217,500
42,500 Inacom Corp.(a) 329,375
70,600 Integrated Circuit Systems, Inc. 1,275,212
116,900 Invision Technologies, Inc. 611,898
30,900 Keane, Inc.(a) 658,556
36,400 Kellstrom Industries, Inc.(a) 577,850
13,600 Legato Systems, Inc.(a) 702,100
68,500 Mail-Well, Inc.(a) 916,187
42,200 Mapics, Inc. 324,413
93,700 Mastech Corp.(a) 1,218,100
7,100 Micros Systems, Inc.(a) 234,300
55,200 MicroTouch Systems, Inc.(a) 655,500
47,500 Park Electrochemical Corp. 1,116,250
106,500 Pioneer-Standard Electronics, Inc. 698,906
63,600 Platinum Software Corp. 469,050
107,700 Platinum Technology, Inc.(a) 2,746,350
19,900 Plexus Corp.(a) 554,713
4,600 Polycom, Inc.(a) $ 86,250
10,000 Powerhouse Technologies, Inc.(a) 171,875
11,500 Shared Medical Systems Corp. 640,406
2,500 Sterling Software, Inc.(a) 59,375
4,000 Structural Dynamics Research
Corp.(a) 76,250
35,200 Symantec Corp.(a) 596,200
49,300 Systems & Computer Technology
Corp.(a) 493,000
58,900 Technitrol, Inc. 1,358,381
38,900 United Stationers, Inc.(a) 593,225
5,800 Vicor Corp.(a) 72,500
24,900 Xircom, Inc.(a) 625,613
------------
26,887,477
- ------------------------------------------------------------
UTILITIES--4.7%
31,700 Cleco Corp. 935,150
11,500 Connecticut Energy Corp. 278,875
52,500 Energen Corp. 784,219
28,300 Madison Gas & Electric Co. 551,850
26,900 Otter Tail Power Co. 1,072,637
35,700 Sierra Pacific Resources 1,256,194
72,100 United Illuminating Co. 3,023,694
------------
7,902,619
Total long-term investments
(cost $208,985,660) 158,679,904
------------

PRINCIPAL
AMOUNT
(000)
- -----
SHORT-TERM INVESTMENT--5.3%
REPURCHASE AGREEMENT
$ 8,891 Joint Repurchase Agreement Account,
4.91%, 4/1/99
(cost $8,891,000; Note 5) 8,891,000
- ------------------------------------------------------------
TOTAL INVESTMENTS--99.8%
(cost $217,876,660; Note 4) 167,570,904
Other assets in excess of
liabilities--0.2% 331,501
------------
Net Assets--100% $167,902,405
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-45

<PAGE>
STATEMENT OF ASSETS AND LIABILITIES PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1999
--------------
<S> <C>
Investments, at value (cost $217,876,660).................................................................. $167,570,904
Cash....................................................................................................... 464,403
Receivable for investments sold............................................................................ 2,179,110
Dividends and interest receivable.......................................................................... 153,242
Deferred organization expenses and other assets............................................................ 113,917
Receivable for Fund shares sold............................................................................ 59,055
--------------
Total assets............................................................................................ 170,540,631
--------------
LIABILITIES
Payable for Fund shares reacquired......................................................................... 2,191,742
Accrued expenses........................................................................................... 180,293
Distribution fees payable.................................................................................. 117,056
Management fee payable..................................................................................... 91,935
Due to broker - variation margin........................................................................... 57,200
--------------
Total liabilities....................................................................................... 2,638,226
--------------
NET ASSETS................................................................................................. $167,902,405
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................................... $ 22,718
Paid-in capital in excess of par........................................................................ 244,360,919
--------------
244,383,637
Accumulated net realized loss on investments............................................................ (26,249,463)
Net unrealized depreciation on investments.............................................................. (50,231,769)
--------------
Net assets, March 31, 1999................................................................................. $167,902,405
--------------
--------------
Class A:
Net asset value and redemption price per share
($46,735,854 divided by 6,281,463 shares of common stock issued and outstanding)..................... $7.44
Maximum sales charge (5% of offering price)............................................................. .39
--------------
Maximum offering price to public........................................................................ $7.83
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($102,093,958 divided by 13,855,137 shares of common stock issued and outstanding)................... $7.37
--------------
--------------
Class C:
Net asset value and redemption price per share
($14,951,286 divided by 2,029,136 shares of common stock issued and outstanding)..................... $7.37
Sales charge (1% of offering price)..................................................................... .07
--------------
Offering price to public................................................................................ $7.44
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($4,121,307 divided by 552,115 shares of common stock issued and outstanding)........................ $7.46
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-46

<PAGE>
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
STATEMENT OF OPERATIONS
- ------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
ENDED
NET INVESTMENT INCOME MARCH 31, 1999
--------------

<S> <C>
Income
Dividends................................ $ 3,385,738
Interest................................. 493,705
--------------
Total income.......................... 3,879,443
--------------
Expenses
Distribution fee--Class A................ 205,830
Distribution fee--Class B................ 1,580,847
Distribution fee--Class C................ 271,815
Management fee........................... 1,637,480
Transfer agent's fees and expenses....... 380,000
Registration fees........................ 258,000
Reports to shareholders.................. 200,000
Custodian's fees and expenses............ 120,000
Legal fees and expenses.................. 60,000
Amortization of deferred organization
expenses.............................. 31,248
Audit fee and expenses................... 25,000
Directors' fees.......................... 16,000
Miscellaneous............................ 21,606
--------------
Total expenses........................ 4,807,826
--------------
Net investment loss......................... (928,383)
--------------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS
Net realized gain (loss) on:
Investment transactions.................. (26,325,270)
Financial futures transactions........... 75,807
--------------
(26,249,463)
--------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. (77,224,428)
Financial futures transactions........... 73,987
--------------
(77,150,441)
--------------
Net loss on investments..................... (103,399,904)
--------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS................... $(104,328,287)
--------------
--------------
</TABLE>

PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR NOVEMBER 10, 1997(a)
ENDED THROUGH
INCREASE (DECREASE) MARCH 31, MARCH 31,
IN NET ASSETS 1999 1998
------------- ---------------------
<S> <C> <C>
Operations
Net investment loss....... $ (928,383) $ (31,882)
Net realized gain (loss)
on investments......... (26,249,463) 4,191,233
Net change in unrealized
appreciation
(depreciation)
on investments......... (77,150,441) 26,918,672
------------- --------------------
Net increase (decrease) in
net assets resulting
from operations........ (104,328,287) 31,078,023
------------- --------------------
Dividends and distributions
(Note 1)
Distributions in excess of
net investment income
Class A................... -- (97,677)
Class B................... -- (16,994)
Class C................... -- (3,484)
Class Z................... -- (3,733)
------------- --------------------
-- (121,888)
------------- --------------------
Distributions from net
realized gains
Class A................... (1,145,659) --
Class B................... (2,301,304) --
Class C................... (390,070) --
Class Z................... (87,222) --
------------- --------------------
(3,924,255) --
------------- --------------------
Fund share transactions (net
of share conversions)
(Note 6)
Net proceeds from shares
sold................... 70,366,132 349,199,926
Net asset value of shares
issued in reinvestment
of distributions....... 3,790,396 118,604
Cost of shares
reacquired............. (150,960,828) (27,415,418)
------------- --------------------
Net increase (decrease) in
net assets from Fund
share transactions..... (76,804,300) 321,903,112
------------- --------------------
Total increase (decrease).... (185,056,842) 352,859,247
NET ASSETS
Beginning of period.......... 352,959,247 100,000
------------- --------------------
End of period................ $ 167,902,405 $352,959,247
------------- --------------------
------------- --------------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-47

<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------------------------------------
Prudential Small-Cap Quantum Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund was incorporated in Maryland on February 4, 1997. The Fund
issued 2,500 shares each of Class A, Class B, Class C and Class Z common stock
for $100,000 on August 1, 1997 to Prudential Investments Fund Management LLC
("PIFM"). Investment operations commenced on November 10, 1997. The investment
objective of the Fund is long-term capital appreciation which is sought by
investing primarily in equity securities of small-cap U.S. companies.
- ------------------------------------------------------------
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 and Nasdaq
National Market System securities are valued at the last sales price on the day
of valuation, or, if there was no sale on such day, the mean between the last
bid and asked prices on such day, as provided by a pricing service. Corporate
bonds and U.S. Government securities are valued on the basis of valuations
provided by a pricing service or principle market makers. Options traded on an
exchange are valued at the mean between the most recently quoted bid and asked
prices on the respective exchange, and futures contracts and options thereon are
valued at their last sales prices as of the close of trading on the applicable
commodities exchange. Any security for which a reliable market quotation is
unavailable is valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.

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 which approximates market value.

In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, 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 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 investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and 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 (other than distribution fees) and unrealized and realized
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: The Fund expects to pay dividends of net investment
income and distributions of net realized capital gains, if any, annually.
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.

TAXES: It is the Fund's policy 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 $154,000 of expenses were incurred
in connection with the organization of the Fund. These costs have been deferred
and are being amortized ratably over a period of 60 months from the date the
Fund commenced investment operations.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Fund accounts for and reports
distributions to shareholders in accordance with "Statement of Position 93-2:
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 accumulated net investment
loss by $928,383, increase accumulated net realized loss investments by $197,412
and decrease paid in capital in excess of par by $730,971 for redemptions
utilized as distributions for federal income tax purposes during the year and a
tax operating loss for the year ended March 31, 1999. Net investment loss, net
realized gains and net assets were not affected by this change.
- ------------------------------------------------------------
NOTE 2. AGREEMENTS

The Fund has a management agreement with (PIFM). Pursuant to this agreement,
PIFM has responsibility for all investment advisory services
- --------------------------------------------------------------------------------
B-48

<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------------------------------------
and supervises the subadviser's performance of such services. PIFM has entered
into a subadvisory agreement with The Prudential Investment Corporation ("PIC").
PIC furnishes investment advisory services in connection with the management of
the Fund. PIFM pays for the cost of the subadviser's services, 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 PIFM is computed daily and payable monthly at an annual
rate of .60 of 1% of the average daily net assets of the Fund.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential Investment
Management Services LLC ("PIMS") became the distributor of the Fund effective
June 1, 1998 and is serving the Fund under the same terms and conditions as
under the arrangement with PSI. The Fund compensated PSI and 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
of 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 average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Class A, Class B and Class C Plans were .25%, 1% and 1%,
respectively, of the average daily net assets of Class A, Class B and Class C
shares for the year ended March 31, 1999.

PSI and PIMS have advised the Fund that they received approximately $320,200 and
$5,100 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the year ended March 31, 1999. From these
fees, PSI and PIMS paid such sales charges to dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.

PSI and PIMS have advised the Fund that for the year ended March 31, 1999, they
received approximately $974,500 and $40,400 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PIFM, PIC, PSI and PIMS are wholly owned subsidiaries of The Prudential
Insurance Company of America.

As of March 11, 1999, 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. The
Funds pay a commitment fee at an annual rate of .065 of 1% on the unused portion
of the credit facility, which is accrued and paid quarterly on a pro rata basis
by the Funds. The SCA expires on March 9, 2000. Prior to March 11, 1999, the
Funds had a credit agreement with a maximum commitment of $200,000,000. The
commitment fee was .055 of 1% on the unused portion of the credit facility. The
Fund did not borrow any amounts pursuant to either agreement during the six
months ended March 31, 1999. The purpose of the agreements are to serve as an
alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
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 March 31, 1999, the
Fund incurred fees of approximately $339,200 for the services of PMFS. As of
March 31, 1999, approximately $26,700 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.

For the year ended March 31, 1999, PSI earned approximately $4,800 in brokerage
commissions from portfolio transactions executed on behalf of the Fund.
- ------------------------------------------------------------
NOTE 4. PORTFOLIO SECURITIES

Purchases and sales of investment securities, other than short-term investments,
for the year ended March 31, 1999 were $277,679,925 and $357,389,073,
respectively.

The federal income tax basis of the Fund's investments at March 31, 1999 was
$217,882,523 and, accordingly, net unrealized depreciation for federal income
tax purposes was $50,311,619 (gross unrealized appreciation--$6,011,226; gross
unrealized depreciation--$56,322,845).

For federal income tax purposes, the Fund had a capital loss carryforward as of
March 31, 1999, of $3,890,973 which expires in 2007. Accordingly, no capital
gains distributions are expected to be paid to shareholders until future net
gains have been realized in excess of such carryforward.

The Fund will elect, for United States Federal income tax purposes, to treat
short-term capital losses of $14,333,055 and long-term capital losses of
$7,945,585 incurred in the five months ended March 31, 1999 as having been
incurred in the following fiscal year.

During the year ended March 31, 1999, the Series entered into financial futures
contracts. Details of open contracts at March 31, 1999 are as follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION MARCH 31, TRADE APPRECIATION/
CONTRACTS TYPE DATE 1999 DATE (DEPRECIATION)
- -------------- ------------- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Long Positions:
10 Russell 2000 June 1999 $1,992,500 $1,911,351 $ 81,149
4 Russell 2000 June 1999 797,000 788,040 8,960
4 Russell 2000 June 1999 797,000 791,841 5,159
8 Russell 2000 June 1999 1,594,000 1,615,281 (21,281)
-------
$ 73,987
-------
-------
</TABLE>
- --------------------------------------------------------------------------------
B-49

<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------------------------------------
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 March 31, 1999, the Fund
has a 1.6% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represents $8,891,000 principal amount. As
of such date, the repurchase agreements in the joint account and the value of
the collateral therefore were as follows:

Bear Stearns & Co. Inc., 4.92%, in the principal amount of $170,000,000,
repurchase price $170,023,233, due 4/1/99. The value of the collateral including
accrued interest was $174,282,442.

Salomon Smith Barney Inc., 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $174,947,170.

Morgan Stanley Dean Witter, 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $173,474,773.

Warburg Dillon Read LLC, 4.97%, in the principal amount of $44,773,000,
repurchase price $44,779,181, due 4/1/99. The value of the collateral including
accrued interest was $45,668,747.
- ------------------------------------------------------------
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 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. Prior to November 2, 1998, Class C shares were sold with a contingent
deferred sales charge of 1% during the first year. 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 qualified to purchase Class A shares at net asset value. Class
Z shares are not subject to any sales charge and are offered exclusively for
sale to a limited group of investors.

There are 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, each of which consists of 500 million authorized shares.

Transactions in shares of common stock were as follows:

CLASS A SHARES AMOUNT
- ------------------------------------- ---------- ------------
<S> <C> <C>
Year ended March 31, 1999:
Shares sold.......................... 2,696,758 $ 25,459,881
Shares issued in reinvestment of
distributions...................... 133,662 1,122,758
Shares reacquired.................... (7,130,641) (63,483,930)
---------- ------------
Net decrease in shares outstanding
before conversion.................. (4,300,221) (36,901,291)
Shares issued upon conversion from
Class B............................ 25,488 213,899
---------- ------------
Net decrease in shares outstanding... (4,274,733) $(36,687,392)
---------- ------------
---------- ------------
November 10, 1997(a) through
March 31, 1998:
Shares sold.......................... 11,854,211 $118,541,655
Shares issued in reinvestment of
distributions...................... 9,833 95,083
Shares reacquired.................... (1,310,348) (13,297,055)
---------- ------------
Net increase in shares outstanding... 10,553,696 $105,339,683
---------- ------------
---------- ------------
CLASS B
- -------------------------------------
Year ended March 31, 1999:
Shares sold.......................... 3,544,591 $ 33,771,230
Shares issued in reinvestment of
distributions...................... 264,099 2,202,587
Shares reacquired.................... (7,920,628) (67,279,455)
---------- ------------
Net decrease in shares outstanding
before conversion.................. (4,111,938) (31,305,638)
Shares reacquired upon conversion
into Class A....................... (25,646) (213,899)
---------- ------------
Net decrease in shares outstanding... (4,137,584) $(31,519,537)
---------- ------------
---------- ------------
November 10, 1997(a) through
March 31, 1998:
Shares sold.......................... 18,843,085 $188,337,566
Shares issued in reinvestment of
distributions...................... 1,695 16,395
Shares reacquired.................... (854,559) (8,722,973)
---------- ------------
Net increase in shares outstanding... 17,990,221 $179,630,988
---------- ------------
---------- ------------
CLASS C
- -------------------------------------
Year ended March 31, 1999:
Shares sold.......................... 477,990 $ 4,468,986
Shares issued in reinvestment of
distributions...................... 45,585 380,178
Shares reacquired.................... (1,845,359) (15,689,617)
---------- ------------
Net decrease in shares outstanding... (1,321,784) $(10,840,453)
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
B-50

<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
- ------------------------------------- ---------- ------------
<S> <C> <C>
November 10, 1997(a) through
March 31, 1998:
Shares sold.......................... 3,713,146 $ 37,077,480
Shares issued in reinvestment of
distributions...................... 354 3,426
Shares reacquired.................... (365,080) (3,723,232)
---------- ------------
Net increase in shares outstanding... 3,348,420 $ 33,357,674
---------- ------------
---------- ------------
CLASS Z
- -------------------------------------
Year ended March 31, 1999:
Shares sold.......................... 703,945 $ 6,666,035
Shares issued in reinvestment of
distributions...................... 10,080 84,873
Shares reacquired.................... (530,522) (4,507,826)
---------- ------------
Net increase in shares outstanding... 183,503 $ 2,243,082
---------- ------------
---------- ------------
November 10, 1997(a) through
March 31, 1998:
Shares sold.......................... 528,277 $ 5,243,225
Shares issued in reinvestment of
distributions...................... 383 3,700
Shares reacquired.................... (162,548) (1,672,158)
---------- ------------
Net increase in shares outstanding... 366,112 $ 3,574,767
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of investment operations.

- --------------------------------------------------------------------------------
B-51

<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------ ------------------------------ -------------
NOVEMBER 10, NOVEMBER 10,
YEAR 1997(a) YEAR 1997(a) YEAR
ENDED THROUGH ENDED THROUGH ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999 1998 1999
------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.95 $ 10.00 $ 10.93 $ 10.00 $ 10.93
------ ------------ ------------- ------------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)......... .03 .02 (.06) (.01) (.08)
Net realized and unrealized gain
(loss) on investment
transactions...................... (3.41) .94 (3.37) .94 (3.35)
------ ------------ ------------- ------------ ------
Total from investment
operations..................... (3.38) .96 (3.43) .93 (3.43)
------ ------------ ------------- ------------ ------
LESS DISTRIBUTIONS
Distributions in excess of net
investment income................. -- (.01) -- -- --
Distributions from net realized
gains............................. (.13) -- (.13) -- (.13)
------ ------------ ------------- ------------ ------
Net asset value, end of period....... $ 7.44 $ 10.95 $ 7.37 $ 10.93 $ 7.37
------ ------------ ------------- ------------ ------
------ ------------ ------------- ------------ ------
TOTAL RETURN(c):..................... (31.00)% 9.60% (31.61)% 9.31% (31.61)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $46,736 $115,621 $ 102,094 $196,671 $14,951
Average net assets (000)............. $82,332 $106,453 $ 158,085 $170,484 $27,182
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.26% 1.22%(b) 2.01% 1.97%(b) 2.01%
Expenses, excluding distribution
fees........................... 1.01% 0.97%(b) 1.01% 0.97%(b) 1.01%
Net investment income (loss)...... .16% .47%(b) (.58)% (.29)%(b) (.59)%
Portfolio turnover rate.............. 106% 39% 106% 39% 106%

<CAPTION>
CLASS Z
------------------------------
NOVEMBER 10, NOVEMBER 10,
1997(a) YEAR 1997(a)
THROUGH ENDED THROUGH
MARCH 31, MARCH 31, MARCH 31,
1998 1999 1998
------------ ------------- ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.00 $ 10.96 $10.00
------ ------------- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)......... (.01) .05 .02
Net realized and unrealized gain
(loss) on investment
transactions...................... .94 (3.42) .95
------ ------------- -----
Total from investment
operations..................... .93 (3.37) .97
------ ------------- -----
LESS DISTRIBUTIONS
Distributions in excess of net
investment income................. -- -- (.01)
Distributions from net realized
gains............................. -- (.13) --
------ ------------- -----
Net asset value, end of period....... $ 10.93 $ 7.46 $10.96
------ ------------- -----
------ ------------- -----
TOTAL RETURN(c):..................... 9.31% (30.88)% 9.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 36,628 $ 4,121 $4,039
Average net assets (000)............. $ 34,000 $ 5,315 $2,709
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.97%(b) 1.01% 0.97%(b)
Expenses, excluding distribution
fees........................... 0.97%(b) 1.01% 0.97%(b)
Net investment income (loss)...... (.29)%(b) .43% .51%(b)
Portfolio turnover rate.............. 39% 106% 39%
</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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-52

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Small-Cap Quantum 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 Small-Cap Quantum Fund,
Inc. (the "Fund") at March 31, 1999, the results of its operations for the year
then ended, and the changes in its net assets and the financial highlights for
the year then ended and for the period November 10, 1997 (commencement of
operations) through March 31, 1998, in conformity with generally accepted
accounting principles. 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 generally accepted auditing standards
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 March 31, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
May 20, 1999

- --------------------------------------------------------------------------------
B-53
<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 CHART
VALUE OF $1.00 INVESTED
ON 1/1/26 THROUGH 12/31/98
SMALL STOCKS--$5,116.95
COMMON STOCKS--$2,350.89
LONG TERM BONDS--$44.18
TREASURY BILLS--$14.94
INFLATION $9.16
Source: Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson
and Rex A. Sinquefield). Used with permission. 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
Composite 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>
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 1988
through 1998. 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 "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.

<TABLE>
<CAPTION>
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0%
- ---------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0%
- ---------------------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6%
- ---------------------------------------------------------------------------------------------------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6%
- ---------------------------------------------------------------------------------------------------------------------------
WORLD
GOVERNMENT
BONDS(5) 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST
AND LOWEST RETURN PERCENT 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7 17.1 8.4
</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.

(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.
Source: Lipper, Inc.

(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-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 31, 1985 through December 31, 1998. It does not represent
the performance of any Prudential Mutual Fund.

EDGAR REPRESENTATION OF CHART
BELGIUM 22.7%
SPAIN 22.5%
THE NETHERLANDS 20.8%
SWEDEN 19.9%
SWITZERLAND 18.3%
USA 18.1%
HONG KONG 17.8%
FRANCE 17.4%
UK 16.7%
GERMANY 13.4%
AUSTRIA 8.9%
JAPAN 6.5%

Source: Morgan Stanley Capital International (MSCI) and Lipper, Inc. as of
12/31/98. Used with permission. Morgan Stanley Country indices are unmanaged
indices 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 indices.

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

EDGAR REPRESENTATION OF CHART
CAPITAL APPRECIATION AND
REINVESTING DIVIDENDS -$391,707
CAPITAL APPRECIATION ONLY $133,525

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 Stock 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
indices.

II-3
<PAGE>
WORLD STOCK MARKET CAPITALIZATION BY REGION

WORLD TOTAL: $15.8 TRILLION

EDGAR REPRESENTATION OF CHART
CANADA--1.8%
U.S.--51.0%
EUROPE--34.7%
PACIFIC BASIN--12.5%

Source: Morgan Stanley Capital International, December 31, 1998. 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 1577 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.

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

[CHART]

Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1998. 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-4
<PAGE>
APPENDIX III--INFORMATION RELATING TO PRUDENTIAL

Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1997 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.

INFORMATION ABOUT PRUDENTIAL

The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1997. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 81,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and nearly
6,500 domestic and international financial advisors. Prudential is a major
issuer of annuities, including variable annuities. Prudential seeks to develop
innovative products and services to meet consumer needs in each of its business
areas. Prudential uses the Rock of Gibraltar as its symbol. Prudential rock is a
recognized brand name throughout the world.

INSURANCE. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to nearly 40 million people worldwide.
Long one of the largest issuers of life insurance, Prudential has 25 million
life insurance policies in force today with a face value of almost $1 trillion.
Prudential has the largest capital base ($12.1 billion) of any life insurance
company in the United States. Prudential provides auto insurance for
approximately 1.5 million cars and insures approximately 1.2 million homes.

MONEY MANAGEMENT. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It manages
$36 billion of individual retirement plan assets, such as 401(k) plans. As of
December 31, 1997, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part), manages over $211 billion in assets of
institutions and individuals. In INSTITUTIONAL INVESTOR, July 1998, Prudential
was ranked eighth in terms of total assets under management as of December 31,
1997.

REAL ESTATE. The Prudential Real Estate Affiliates is one of the leading
real estate residential and commercial brokerage networks in North America and
has more than 37,000 real estate brokers and agents with over 1,400 offices
across the United States.(2)

HEALTHCARE. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care
membership.(3)

FINANCIAL SERVICES. The Prudential Savings Bank FSB, a wholly-owned
subsidiary of Prudential, has over $1 billion in assets and serves nearly 1.5
million customers across 50 states.

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

As of December 31, 1997, Prudential Investments Fund Management was the
eighteenth largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.

The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.

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

(1) PIC serves as the Subadviser to substantially all of the Prudential Mutual
Funds. Wellington Management Company serves as the subadviser to Global
Utility Fund, Inc., Nicholas-Applegate Capital Management as the subadviser
to Nicholas-Applegate Fund, Inc., Jennison Associates LLC as one of the
subadvisers to Prudential Diversified Funds, Prudential 20/20 Focus Fund,
Prudential Sector Funds, Inc. and Prudential Investment Portfolios, Inc.,
Mercator Asset Management LP, as the subadviser to International Stock
Series, a portfolio of Prudential World Fund, Inc. There are multiple
subadvisers for The Target Portfolio Trust.

(2) As of December 31, 1996.

(3) On December 10, 1998, Prudential announced its intention to sell Prudential
Health Care to Aetna for $1 billion.

III-1
<PAGE>
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.

EQUITY FUNDS. Prudential Equity Fund is managed with a "value" investment
style by PIC. In 1995, Prudential Securities introduced Prudential Jennison
Growth Fund, a growth-style equity fund managed by Jennison Associates LLC, a
premier institutional equity manager and a subsidiary of Prudential.

HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitors
approximately 200 issues held in the Prudential High Yield Fund (currently the
largest fund of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchase.(4) Non-investment grade bonds, also
known as junk bonds or high yield bonds, are subject to a greater risk of loss
of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.

Prudential's portfolio managers are supported by a large and sophisticated
research organization. Investment grade bond analysts monitor the financial
viability of approximately 1,750 different bond issuers in the investment grade
corporate and municipal bond markets--from IBM to small municipalities, such as
Rockaway Township, New Jersey. These analysts consider among other things
sinking fund provisions and interest coverage ratios.

Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from PULP AND PAPER FORECASTER to WOMEN'S
WEAR DAILY--to keep them informed of the industries they follow.

Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential Mutual
Fund.

Prudential Mutual Funds trade billions in U.S. and foreign government
securities a year. PIC seeks information from government policy makers.
Prudential's portfolio managers met with several senior U.S. and foreign
government officials, on issues ranging from economic conditions in foreign
countries to the viability of index-linked securities in the United States.

INFORMATION ABOUT PRUDENTIAL SECURITIES

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1998, assets held by Prudential Securities for its
clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities.(5)

Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university," which
provides advanced education in a wide array of investment and financial planning
areas.

In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect-SM-, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.

For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.

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

(4) As of December 31, 1997. The number of bonds and the size of the Fund are
subject to change.

(5) As of December 31, 1998.

III-2