PRUDENTIAL DEVELOPING MARKETS FUND, N-1A, 1998-04-17

PRUDENTIAL DEVELOPING MARKETS FUND
N-1A, 1998-04-17

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<PAGE>

As filed with the Securities and Exchange Commission on April 17, 1998
Securities Act Registration No. 33-
Investment Company Act Registration No. 811-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

PRE-EFFECTIVE AMENDMENT NO. [_]

POST-EFFECTIVE AMENDMENT NO. [_]

AND/OR

REGISTRATION STATEMENT UNDER THE

INVESTMENT COMPANY ACT OF 1940 [X]

AMENDMENT NO. [_]

(Check appropriate box or boxes)

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PRUDENTIAL DEVELOPING MARKETS FUND

(Exact name of registrant as specified in charter)

GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077

(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7530

S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET,
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE)

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT

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REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.

TITLE OF SECURITIES BEING REGISTERED.. Shares of Beneficial
Interest, $.001 Par Value

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<PAGE>

CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------- --------
<C> <S> <C>
PART A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information...... Fund Expenses; Financial
Highlights; How the Fund
Calculates Performance
Item 4. General Description of Registrant.... Cover Page; Fund Highlights;
How the Fund Invests; General
Information
Item 5. Management of Fund................... Financial Highlights; How the
Fund is Managed; General
Information; Shareholder Guide
Item 5A. Management's Discussion of Fund Not required
Performance..........................
Item 6. Capital Stock and Other Securities... Taxes, Dividends and
Distributions; General
Information; Shareholder Guide
Item 7. Purchase of Securities Being Offered. Shareholder Guide; How the
Fund Values its Shares; How
the Fund is Managed
Item 8. Redemption or Repurchase............. Shareholder Guide; How the
Fund Values its Shares; How
the Fund is Managed
Item 9. Pending Legal Proceedings............ Not Applicable
PART B
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Table of Contents
Item 12. General Information and History...... Cover Page
Item 13. Investment Objectives and Policies... Investment Objective and
Policies; Investment
Restrictions
Item 14. Management of the Fund............... Trustees and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders Trustees and Officers
of Securities........................
Item 16. Investment Advisory and Other Manager; Distributor;
Services............................. Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Portfolio Transactions and
Practices............................ Brokerage
Item 18. Capital Stock and Other Securities... Not Applicable
Item 19. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Being Offered............. Fund Shares; Shareholder
Investment Account; Net Asset
Value
Item 20. Tax Status........................... Taxes, Dividends and
Distributions
Item 21. Underwriters......................... Distributor
Item 22. Calculation of Performance Data...... Performance Information
Item 23. Financial Statements................. Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
</TABLE>
<PAGE>

Prudential Developing Markets Equity Fund

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PROSPECTUS DATED , 1998
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Prudential Developing Markets Equity Fund (the Fund) is a series of Prudential
Developing Markets Fund, an open-end, diversified, management investment
company. The Fund's investment objective is long-term growth of capital. It
seeks to achieve this objective by investing primarily in equity related
securities of companies whose principal activities are in developing markets
throughout the world. "Developing markets" include countries or markets that
are defined as emerging or developing by the International Finance
Corporation, the International Bank for Reconstruction and Development (World
Bank) or the United Nations or its authorities. See "How the Fund Invests--
Investment Objective and Policies." Under normal circumstances, the Fund
intends to invest at least 65% of its total assets in such securities in at
least the three following regions: Europe, Asia and Latin America. The Fund
may also invest in equity related securities of other companies and debt
securities, engage in various derivatives transactions, including options on
equity securities, stock indices, foreign currencies and futures contracts on
foreign currencies, and may purchase and sell futures contracts on foreign
currencies, groups of currencies and stock indices so as to hedge its
portfolio and to attempt to enhance return. There can be no assurance that the
Fund's investment objective will be achieved. See "How the Fund Invests--
Investment Objective and Policies." The Fund's address is Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and its telephone
number is (800) 225-1852.

The Fund is not intended to constitute a complete investment program. Because
of its objective and policies, including its foreign orientation and its
emphasis on developing markets, the Fund may be considered of a speculative
nature and subject to greater investment risks than are assumed by certain
other investment companies that invest solely in securities of U.S. issuers or
that do not emphasize investments in regions with developing or emerging
economies. See "How the Fund Invests--Investment Objective and Policies--
Special Considerations and Risks of Investing in Developing Market
Securities."

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated , 1998, which information is
incorporated herein by reference (is legally considered part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.

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Investors are advised to read this Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>

FUND HIGHLIGHTS

The following summary is intended to highlight certain information contained
in the Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.

WHAT IS PRUDENTIAL DEVELOPING MARKETS EQUITY FUND?

Prudential Developing Markets Equity Fund is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Fund is a series of
Prudential Developing Markets Fund, an open-end, diversified, management
investment company.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity related securities of
companies whose principal activities are in developing markets. "Developing
markets" include countries or markets that are defined as emerging or
developing by the International Finance Corporation, the International Bank
for Reconstruction and Development (World Bank) or the United Nations or its
authorities. There can be no assurance that the Fund's investment objective
will be achieved. See "How the Fund Invests--Investment Objective and
Policies" at page 5.

WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?

The Fund invests primarily in equity related securities of companies whose
principal activities are in developing markets. Unlike a mutual fund that
invests in more established economic markets, the Fund's concentration on
developing markets can result in more pronounced risks and rewards based upon
economic conditions that impact these markets more or less than other global
regions. Foreign securities in general involve certain risks and
considerations not typically associated with investments in U.S. Government
securities and securities of domestic companies, including political or
economic instability in the country of the issuer, the difficulty of
predicting international trade patterns, the possibility of imposition of
exchange controls and the risk of currency fluctuations. See "How the Fund
Invests--Special Considerations and Risks of Investing in Developing Market
Securities" at page 7. In addition, the Fund may engage in various hedging and
return enhancement strategies, including the use of derivatives transactions.
These activities may be considered speculative and may result in higher risks
and costs to the Fund. See "How the Fund Invests--Hedging and Return
Enhancement Strategies" at page 8. As with an investment in any mutual fund,
an investment in this Fund can decrease in value and you can lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
1.25% of the Fund's average daily net assets. As of January 31, 1998, PIFM
served as manager or administrator to 64 investment companies, including 42
mutual funds, with aggregate assets of approximately $63 billion. The
Prudential Investment Corporation (PIC), doing business as Prudential
Investments (PI, the Subadviser or the investment adviser), furnishes
investment advisory services in connection with the management of the Fund
under a Subadvisory Agreement with PIFM. See "How the Fund is Managed--
Manager" at page 14.

WHO DISTRIBUTES THE FUND'S SHARES?

Prudential Securities Incorporated (Prudential Securities or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Fund's Class A, Class B, Class C and
Class Z shares. Prudential Securities is paid a distribution and service fee
with respect to Class A shares which is currently being charged at the annual
rate of .25 of 1% of the average daily net assets of the Class A shares and is
paid a distribution and service fee with respect to Class B and Class C shares
at the annual rate of 1% of the average daily net assets of each of the Class
B and Class C shares. The Distributor incurs the expenses of distributing the
Fund's Class Z shares under a Distribution Agreement with the Fund, none of
which is reimbursed or paid for by the Fund. See "How the Fund is Managed--
Distributor" at page 15.

2
<PAGE>

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. The minimum subsequent investment is $100
for Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 21 and "Shareholder
Guide--Shareholder Services" at page 31.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at NAV without any sales charge. See "How the Fund
Values its Shares" at page 17 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 21.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Fund offers four classes of shares through this Prospectus:

. Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
. Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or
CDSC (declining from 5% to zero of the lower of the amount
invested or the redemption proceeds) which will be imposed
on certain redemptions made within six years of purchase.
Although Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class B
shares will automatically convert to Class A shares (which
are subject to lower ongoing distribution-related expenses)
approximately seven years after purchase.
. Class C Shares:Sold without an initial sales charge and, for one year
after purchase, are subject to a 1%
CDSC on redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related expenses than
Class A shares but do not convert to another class.
.Class Z Shares:Sold without either an initial sales charge or CDSC to a
limited group of investors. Class Z shares are not subject to
any ongoing service or distribution expenses.

See "Shareholder Guide--Alternative Purchase Plan" at page 22.

HOW DO I SELL MY SHARES?

You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 26. Participants
in programs sponsored by Prudential Retirement Services should contact their
client representative for more information about selling their Class Z shares.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

The Fund expects to pay dividends of net investment income, if any, and make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 18.

3
<PAGE>

FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)........ 5% None None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends.............. None None None None
Maximum Deferred Sales
Load (as a percentage
of original purchase
price or redemption
proceeds, whichever is
lower)................. None 5% during the 1% on redemp- None
first year, de- tions made
creasing by 1% within one
annually to 1% year of pur-
in the fifth chase
and sixth years
and 0% the sev-
enth year*
Redemption Fees........ None None None None
Exchange Fee........... None None None None
<CAPTION>
ANNUAL ESTIMATED FUND
OPERATING EXPENSES
(as a percentage of CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
average net assets) -------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Management Fees ....... 1.25% 1.25% 1.25% 1.25%
12b-1 Fees............. .25++ 1.00 1.00 None
Other Expenses......... .50 .50 .50 .50%
----- ----- ----- -----
Total Fund Operating
Expenses............... 2.00% 2.75% 2.75% 1.75%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
EXAMPLE ------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
Class A....................................................... $69 $110
Class B....................................................... $78 $115
Class C....................................................... $38 $ 85
Class Z ...................................................... $18 $ 55
You would pay the following expenses on the same investment,
assuming no redemption:
Class A....................................................... $69 $110
Class B....................................................... $28 $ 85
Class C....................................................... $28 $ 85
Class Z ...................................................... $18 $ 55
</TABLE>

The above example is based on estimated data for the Fund's fiscal year ending
July 31, 1998. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.

The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes estimated operating
expenses of the Fund for the current fiscal year, which ends July 31, 1998,
such as Trustees' and professional fees, registration fees, reports to
shareholders, transfer agency and custodian (domestic and foreign) fees and
miscellaneous fees, but excludes foreign withholding taxes.

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* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay up to an annual rate of .30 of 1% of average daily net assets of the
Class A shares, the Distributor has agreed to limit its distribution fee
with respect to Class A shares of the Fund to .25 of 1% of the average daily
net asset value of the Class A shares for the fiscal year ending July 31,
1998. Total operating expenses of Class A shares without such limitation
would be 2.05%. See "How the Fund is Managed--Distributor."

4
<PAGE>

HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND
SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN EQUITY
RELATED SECURITIES OF COMPANIES WHOSE PRINCIPAL ACTIVITIES ARE IN DEVELOPING
MARKETS THROUGHOUT THE WORLD. UNDER NORMAL CIRCUMSTANCES, THE FUND WILL INVEST
AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY RELATED SECURITIES OF DEVELOPING
MARKETS ISSUERS IN AT LEAST THE THREE FOLLOWING REGIONS: EUROPE, ASIA AND
LATIN AMERICA. THERE CAN BE NO ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE
WILL BE ACHIEVED. See "Investment Objective and Policies" in the Statement of
Additional Information.

THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF TRUSTEES WITHOUT SHAREHOLDER
APPROVAL.

For purposes of this Prospectus, "securities of developing market issuers"
and "developing market securities" are defined as: (i) securities of companies
the principal securities trading market for which is located in a developing
market country; (ii) securities, traded in any market, of companies that
derive 50% or more of their total revenue from either goods or services
produced in a developing market country or sales made in a developing market
country; (iii) securities of companies organized under the laws of, and with a
principal office in, a developing market country; or (iv) securities issued or
guaranteed by the government of a developing market country, its agencies or
instrumentalities, political subdivisions or the central bank of such a
country. As used in this Prospectus, "developing markets" include countries or
markets that are defined as emerging or developing by the International
Finance Corporation, the International Bank for Reconstruction and Development
(World Bank) or the United Nations or its authorities. These countries
generally include every country in the world except Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Iceland, Ireland, Italy,
Japan, Kuwait, Luxembourg, the Netherlands, New Zealand, Norway, Spain,
Sweden, Switzerland, the United Kingdom, and the United States. "Equity
related securities," as used in this Prospectus, generally refers to common
stock, preferred stock, warrants or rights to purchase or to subscribe to such
securities, as well as sponsored or unsponsored American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs) and Global Depositary Receipts
(GDRs and, collectively with ADRs and EDRs, Depositary Receipts), convertible
securities, trust certificates, limited partnership interests and equity
participations. See "Other Investments and Policies--Depositary Receipts."

Determinations as to the eligibility of any security to be included in the
Fund's portfolio will be made by the Fund's investment adviser, under the
supervision of the Fund's Manager and Board of Trustees, based upon publicly
available information and inquiries made to the issuer of such security.

As with an investment in any mutual fund, an investment in this Fund can
decrease in value and you can lose money.

DEVELOPING MARKET COMPANIES

The Fund's investment adviser intends to invest in equity related securities
of developing market issuers in countries in which it believes investing is
feasible and does not involve undue political risk. The issuers considered by
the investment adviser may have varying levels of net worth and may include
companies with small market capitalizations whose securities may be more
volatile than securities offered by companies with greater market
capitalizations or with higher levels of net worth.

In analyzing companies for investment, the investment adviser ordinarily
looks for one or more of the following characteristics: prospects for above-
average earnings per share growth; high return on invested capital; healthy
balance sheets; sound financial and accounting policies; overall financial
strength; strong competitive advantages; effective research and product
development and marketing; efficient service; pricing flexibility; strength of
management; and general operating

5
<PAGE>

characteristics which will enable the companies to compete successfully in
their marketplace--all in relation to the prevailing prices of the securities
of such companies.

THERE ARE CERTAIN RISKS ASSOCIATED WITH INVESTING IN SECURITIES OF
DEVELOPING MARKET COMPANIES IN GENERAL AND SMALLER DEVELOPING MARKET COMPANIES
IN PARTICULAR. INSOFAR AS THE FUND INVESTS IN THE SECURITIES OF SMALLER
COMPANIES, THERE ARE RISKS THAT THE MARKET PRICES OF SUCH SECURITIES WILL BE
MORE VOLATILE THAN THOSE OF LARGER COMPANIES. BECAUSE SMALLER COMPANIES
USUALLY HAVE FEWER SHARES OUTSTANDING THAN LARGER COMPANIES, IT MAY BE MORE
DIFFICULT FOR THE FUND TO BUY OR SELL SIGNIFICANT AMOUNTS OF SUCH SHARES
WITHOUT AN UNFAVORABLE IMPACT ON PREVAILING MARKET PRICES. THERE IS TYPICALLY
LESS PUBLICLY AVAILABLE INFORMATION CONCERNING SMALLER COMPANIES THAN FOR
LARGER, MORE ESTABLISHED ONES. BECAUSE SMALLER COMPANIES TYPICALLY HAVE
SMALLER PRODUCT LINES AND COMMAND A SMALLER MARKET SHARE THAN DO LARGER
COMPANIES, SMALLER COMPANIES MAY BE MORE VULNERABLE TO FLUCTUATIONS IN THE
ECONOMIC CYCLE. See "Special Considerations and Risks of Investing in
Developing Market Securities" below.

GENERAL

THE FUND MAY INVEST IN SECURITIES NOT LISTED ON SECURITIES EXCHANGES. These
securities will generally have an established market (such as the over-the-
counter market), the depth and liquidity of which may vary from time to time
and from security to security. The Fund may also hold up to 15% of its net
assets (determined at the time of investment) in restricted securities or
other securities that have a limited market. See "Other Investments and
Policies--Illiquid Securities" below.

The Fund intends to invest primarily in equity related securities of
companies whose principal activities are in developing markets throughout the
world. Developing market countries may have relatively unstable governments,
economies based only on a few industries and securities markets that trade a
limited number of securities. Securities of issuers located in these countries
tend to have volatile prices and offer the potential for substantial loss as
well as gain. In addition, these securities may be less liquid than
investments in securities of issuers whose principal activities are in more
established markets as a result of inadequate trading volume or restrictions
on trading imposed by the governments or securities exchanges of such
countries. See "Special Considerations and Risks of Investing in Developing
Market Securities" below.

THE FUND INTENDS TO INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY
RELATED SECURITIES OF DEVELOPING MARKET ISSUERS IN AT LEAST THE THREE
FOLLOWING REGIONS: EUROPE, ASIA AND LATIN AMERICA. UNDER NORMAL CIRCUMSTANCES,
THE REMAINDER OF THE FUND'S INVESTMENTS MAY BE IN OTHER SECURITIES OR
INVESTMENT VEHICLES, INCLUDING EQUITY RELATED SECURITIES OF OTHER COMPANIES
AND DEBT SECURITIES (INCLUDING MONEY MARKET INSTRUMENTS) OF FOREIGN AND
DOMESTIC COMPANIES. IN ADDITION, THE FUND MAY (I) PURCHASE SECURITIES ON A
WHEN-ISSUED OR DELAYED DELIVERY BASIS, (II) MAKE SHORT SALES AGAINST-THE-BOX
AND (III) ENTER INTO REPURCHASE AGREEMENTS. THE FUND MAY FROM TIME TO TIME
LEND ITS PORTFOLIO SECURITIES TO BROKERS OR DEALERS, BANKS OR OTHER RECOGNIZED
INSTITUTIONAL BORROWERS OF SECURITIES AND MAY INVEST TO A LIMITED EXTENT IN
SECURITIES OF COMPANIES THAT HAVE BEEN IN EXISTENCE FOR LESS THAN THREE YEARS,
IN SECURITIES FOR WHICH MARKET QUOTATIONS ARE NOT READILY AVAILABLE AND IN
SECURITIES OF OTHER REGISTERED INVESTMENT COMPANIES. SEE "INVESTMENT
RESTRICTIONS" IN THE STATEMENT OF ADDITIONAL INFORMATION.

When conditions dictate a temporary defensive strategy (which during periods
of market volatility could be for an extended period of time), the Fund may
invest in money market instruments (including repurchase agreements maturing
in seven days or less) without limit. The Fund will only invest in money
market instruments that are rated, or are issued by companies that have
outstanding debt securities rated, at least C by S&P or Moody's, commercial
paper rated at least A-2 or Prime-2 by S&P or Moody's, respectively, or in
unrated securities that the Fund's investment adviser has determined to be of
comparable quality. As an operating policy, which may be changed without
shareholder approval, the Fund will not invest more than 10% of its total
assets in debt securities rated BBB or lower by S&P or Baa or lower by Moody's
or, if unrated, debt securities that the Fund's investment adviser has
determined to be of comparable quality. Subsequent to its purchase by the
Fund, a security may be assigned a lower rating or cease to be rated. Such an
event would not require the elimination of the issue from the portfolio, but
the investment adviser will consider such an event in determining whether

6
<PAGE>

the Fund should continue to hold the security in its portfolio. Securities
rated Baa by Moody's, although considered to be investment grade, lack
outstanding investment characteristics and, in fact, have speculative
characteristics. Bonds rated C by S&P are of the lowest quality and may be
used when the issuer has filed a bankruptcy petition, but debt payments are
still being made. Moody's lowest rating is C, which is applied to bonds that
have extremely poor prospects of ever attaining any real investment standing.
See "Other Investments--High Yield Debt Securities (Junk Bonds)" below. See
"Description of Security Ratings" in the Statement of Additional Information.

The Fund may also invest in certain debt obligations customarily referred to
as "Brady Bonds," which are created in connection with debt restructuring
through the exchange of existing commercial bank loans to sovereign entities
for new obligations. Investments in Brady Bonds are generally considered
speculative and many Brady Bonds are rated below investment grade. As noted
above, the Fund does not currently intend to invest more than 10% of its
assets in debt securities, including Brady Bonds, rated lower than Baa by
Moody's or BBB by S&P. See "Investment Objective and Policies--Brady Bonds"
and "Description of Security Ratings" in the Statement of Additional
Information.

SPECIAL CONSIDERATIONS AND RISKS OF INVESTING IN DEVELOPING MARKET SECURITIES

DEVELOPING MARKET SECURITIES INVOLVE CERTAIN RISKS WHICH SHOULD BE
CONSIDERED CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL
OR ECONOMIC INSTABILITY IN THE COUNTRIES IN WHICH THE ISSUER'S PRINCIPAL
ACTIVITIES TAKE PLACE, THE DIFFICULTY OF PREDICTING INTERNATIONAL TRADE
PATTERNS, THE POSSIBILITY OF IMPOSITION OF EXCHANGE CONTROLS AND THE RISK OF
CURRENCY FLUCTUATIONS. Such securities may be, and in the recent past have
been, subject to greater fluctuations in price than securities issued by U.S.
corporations; securities issued or guaranteed by the U.S. Government, its
instrumentalities or agencies; or securities of companies in other markets
that are considered developed. In addition, there may be less publicly
available information about a developing market 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
domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies in developing markets than
in the United States and an increased risk, therefore, of uninsured loss due
to lost, stolen or counterfeit stock certificates. Certain countries may have
only one securities depository which, if the Fund decides to invest in
securities that are located at such depository, may result in risks to the
Fund that cannot be avoided. There is a possibility of expropriation,
nationalization, confiscatory taxation or diplomatic developments which could
affect investment in those countries. In the event of a default on debt
obligations of developing market issuers, it may be more difficult for the
Fund to obtain or to enforce a judgment against the issuers of such
securities. The Fund may encounter difficulties or be unable to vote proxies,
exercise shareholder rights, pursue legal remedies and obtain judgments in
foreign courts. Also, some countries may withhold portions of income and
dividends at the source. Finally, developing markets may have increased risks
associated with clearance and settlement as well as increased costs for
commissions, custodial services and other items associated with making an
investment. Delays in settlement could result in periods of uninvested assets,
missed investment opportunities or losses to the Fund.

ALTHOUGH THE FUND INTENDS TO INVEST PRIMARILY IN EQUITY RELATED SECURITIES,
IT MAY INVEST FROM TIME TO TIME IN DEBT SECURITIES OF DEVELOPING MARKET
ISSUERS. In many instances, debt securities of developing market issuers may
provide higher yields than securities of domestic issuers which have similar
maturities and are of similar quality. Under certain market conditions these
investments may be less liquid 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.

Shareholders should be aware that investing in the equity and fixed-income
markets of developing countries involves exposure to economies that are
generally less diverse and mature, and political systems which can be expected
to have less stability, than those of developed countries. Historical
experience indicates that the markets of developing market countries have been
more volatile than the markets of developed countries. Many developing markets
countries have economies based on only a few commodities or industries and
securities markets that trade infrequently or with low levels of volume.
Additionally markets, some developing markets countries may also restrict the
extent to which foreign investors may invest in their securities markets or in
a particular company.

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IF A SECURITY IS DENOMINATED IN A FOREIGN CURRENCY, IT WILL BE AFFECTED BY
CHANGES IN CURRENCY EXCHANGE RATES AND IN EXCHANGE CONTROL REGULATIONS, AND
COSTS WILL BE INCURRED IN CONNECTION WITH CONVERSIONS BETWEEN CURRENCIES. IN
ADDITION, IF A SECURITY IS DENOMINATED IN U.S. DOLLARS, THE ABILITY OF THE
ISSUER TO REPAY MAY BE SUBSTANTIALLY IMPAIRED BY DEVALUATION AND THE COUNTRY'S
AVAILABLE FOREIGN EXCHANGE RESERVES. 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 amount of such
currency at the time they were incurred. The Fund may, but need not, enter
into futures contracts on foreign currencies, forward foreign currency
exchange contracts and options on foreign currencies 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 interest or 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.

HEDGING AND RETURN ENHANCEMENT STRATEGIES

THE FUND MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING PURCHASING
AND SELLING DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO
ATTEMPT TO ENHANCE RETURN, BUT NOT FOR SPECULATION. THESE STRATEGIES CURRENTLY
INCLUDE THE USE OF OPTIONS, FORWARD CURRENCY EXCHANGE CONTRACTS AND FUTURES
CONTRACTS AND OPTIONS THEREON. The Fund, and thus investors, may lose money
through any unsuccessful use of these strategies. The Fund's ability to use
these strategies may be limited by market conditions, regulatory limits and
tax considerations and there can be no assurance that any of these strategies
will succeed. See "Investment Objective and Policies" and "Taxes, Dividends
and Distributions" in the Statement of Additional Information. New financial
products and risk management techniques continue to be developed, and the Fund
may use these new investments and techniques to the extent consistent with its
investment objective and policies.

OPTIONS TRANSACTIONS

THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES, FINANCIAL INDICES AND CURRENCIES THAT ARE TRADED ON U.S. OR
FOREIGN SECURITIES EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ATTEMPT TO
ENHANCE RETURN OR TO HEDGE THE FUND'S PORTFOLIO. These options will be on
equity securities, financial indices (e.g., the S&P 500) and foreign
currencies. The Fund may write covered put and call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a security that it owns against a decline in
market value and purchase call options in an effort to protect against an
increase in the price of securities (or currencies) it intends to purchase.
The Fund may also purchase put and call options to offset previously written
put and call options of the same series. See "Investment Objective and
Policies--Options Transactions" in the Statement of Additional Information.

A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT, FOR A SPECIFIED PERIOD OF TIME, TO PURCHASE THE SECURITIES OR CURRENCY
SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE
PRICE). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver to the purchaser,
depending upon the terms of the option contract, the underlying securities or
currency upon receipt of the exercise price or a specified amount of cash.
When the Fund writes a call option, it gives up the potential for gain on the
underlying securities or currency in excess of the exercise price of the
option during the period that the option is open.

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<PAGE>

A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price or deliver a specified amount of cash to the purchaser. The
Fund might, therefore, be obligated to purchase the underlying securities or
currency for more than their current market price.

THE FUND WILL WRITE ONLY "COVERED" OPTIONS. A written option is covered if,
as long as the Fund is obligated under the option, (i) it owns an offsetting
position in the underlying security or currency or (ii) it maintains in a
segregated account cash or other liquid assets in an amount equal to or
greater than its obligation under the option. There is no limitation on the
amount of covered options the Fund may write. When the Fund writes a "covered"
option as described in (i) in the first sentence of this paragraph, its losses
are limited because it owns an offsetting position of the underlying security
or currency. When the Fund otherwise writes an option, its losses are
potentially unlimited. See "Investment Objective and Policies--Options
Transactions" in the Statement of Additional Information.

OPTIONS ON SECURITIES INDICES ARE SIMILAR TO OPTIONS ON EQUITY SECURITIES,
EXCEPT THAT THE EXERCISE OF SECURITIES INDEX OPTIONS REQUIRES CASH PAYMENTS
AND DOES NOT INVOLVE THE ACTUAL PURCHASE OR SALE OF SECURITIES. Rather than
the right to take or make delivery of the securities at a specified price, an
option on a securities index gives the holder the right, in return for a
premium paid, 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. The writer of an index option, in return for the
premium, is obligated to pay the amount of cash due upon exercise of the
option.

The Fund may purchase and sell put and call options on securities indices
for hedging against a decline in the value of the securities owned by the Fund
or against an increase in the market value of the type of securities in which
the Fund may invest. Securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security. Purchasing or selling
securities index options is subject to the risk that the value of its
portfolio securities may not change as much as or more than the index because
the Fund's investments generally will not match the composition of the index.
See "Investment Objective and Policies--Risks of Options on Indices" in the
Statement of Additional Information.

OVER-THE-COUNTER OPTIONS. THE FUND MAY ALSO PURCHASE AND WRITE (I.E., SELL)
PUT AND CALL OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCIES IN THE
OVER-THE-COUNTER MARKET (OTC OPTIONS). Unlike exchange-traded options, OTC
options are contracts between the Fund and its counterparty without the
interposition of any clearing organization. Thus, the value of an OTC option
is particularly dependent on the financial viability of the OTC counterparty.
The Fund's ability to purchase and write OTC options may be limited by market
conditions, regulatory limits and tax considerations. There are certain risks
associated with investments in OTC options. See "Investment Objective and
Policies--Special Risks of OTC Options" in the Statement of Additional
Information.

FORWARD CURRENCY EXCHANGE CONTRACTS

THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. The Fund may enter into such contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market
or on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days agreed upon by the parties from the date of the contract, at a price set
on the date of the contract.

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<PAGE>

interest or dividends receivable and Fund expenses. Position hedging is the
sale of a foreign currency with respect to portfolio security positions
denominated or quoted in that currency or in a currency bearing a substantial
correlation to the value of that currency (a cross hedge). Although there are
no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge (including cross hedges) with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of the foreign currency) of the
securities held in its portfolio denominated or quoted in, or currently
convertible into, such currency. See "Investment Objective and Policies--Risks
Related to Forward Currency Exchange Contracts" in the Statement of Additional
Information.

FUTURES CONTRACTS AND OPTIONS THEREON

THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR
CERTAIN HEDGING AND RISK MANAGEMENT PURPOSES AND TO ATTEMPT TO ENHANCE RETURN
IN ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION.
The Fund, and thus investors, may lose money through any unsuccessful use of
these strategies. These futures contracts and options thereon will be on
financial indices and foreign currencies or groups of foreign currencies. A
financial futures contract is an agreement to purchase or sell an agreed
amount of securities or currency at a set price for delivery in the future. A
stock index futures contract is an agreement in which one party agrees to
deliver to another amount of 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 is made. The Fund may purchase
and sell stock index futures or related options as a hedge against changes in
market conditions.

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 LIQUIDATION 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.

THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET
AND REQUIRES SKILLS AND TECHNIQUES DIFFERENT FROM THOSE USED IN SELECTING
PORTFOLIO SECURITIES. The correlation between movements in the price of a
futures contract and movements in the index or price of the currency being
hedged is imperfect, and there is a risk that the value of the index or
currency being hedged may increase or decrease at a greater rate than the
related futures contract, resulting in losses to the Fund. Certain futures
exchanges or boards of trade have established daily limits on the amount that
the price of futures contracts or options thereon 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 options
thereon on any particular day.

The Fund's ability to enter into or close out futures contracts and options
thereof is limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.

RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES

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<PAGE>

inherent in the use of options, foreign currency exchange contracts and
futures contracts and options thereon include (1) dependence on the investment
adviser's ability to predict correctly movements in the direction of interest
rates, securities prices and currency markets; (2) imperfect correlation
between the price of options and futures contracts and options thereon and
movements in the prices of the securities or currencies being hedged; (3) the
fact that 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 possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do
so, or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Taxes,
Dividends & Distributions" in the Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

DEPOSITARY RECEIPTS

ADRs are depositary receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust companies,
and evidence ownership of underlying securities issued by either a foreign or
a U.S. corporation. Generally, depositary receipts in registered form are
designed for use in the U.S. securities market and depositary receipts in
bearer form are designed for use in securities markets outside the U.S.
Depositary receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. Depositary
receipts may be issued pursuant to sponsored or unsponsored programs. In
sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a
sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between such information and the market value of the
depositary receipts. Depositary receipts also involve the risks of other
investments in foreign securities, as discussed above. For purposes of the
Fund's investment policies, the Fund's investments in depositary receipts will
be deemed to be investments in the underlying securities.

CONVERTIBLE SECURITIES

A convertible security is a bond or preferred stock which may be converted
at a stated price within a specified period of time into a certain quantity of
the common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a similar nonconvertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation
dependent upon a market price advance in the convertible security's underlying
common stock.

In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
is also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of
the underlying stock declines. 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.

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<PAGE>

WHEN-ISSUED OR 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 maintain, in a segregated account of
the Fund, cash or other liquid assets, marked-to-market daily, 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. See "Investment Objective and
Policies--When-Issued or Delayed Delivery Securities" in the Statement of
Additional Information.

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 repurchase date is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money
is invested in the repurchase agreement. The Fund's repurchase agreements will
at all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value
of the instruments declines, the Fund will require additional collateral. If
the seller defaults and the value of the collateral securing the repurchase
agreement declines, the Fund may incur a loss. The Fund participates in a
joint repurchase account with other investment companies managed by Prudential
Investments Fund Management LLC pursuant to an order of the Securities and
Exchange Commission (SEC). See "Investment Objective and Policies--Repurchase
Agreements" in the Statement of Additional Information.

SECURITIES LENDING

The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets in a segregated
account or secures an irrevocable letter of credit in favor of the Fund in an
amount equal to at least 100%, determined daily, of the market value of the
securities loaned pursuant to applicable regulations. During the time
portfolio securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividend or interest paid on such securities and the Fund
may invest the cash collateral and earn additional income, or it may receive
an agreed upon amount of interest income from the borrower. As an operating
policy that may be changed without shareholder approval, the Fund will not
lend more than 30% of the value of its total assets. The Fund may pay
reasonable administration and custodial fees in connection with a loan. See
"Investment Objective and Policies--Lending of Portfolio Securities" in the
Statement of Additional Information.

INVESTMENT FUNDS

Certain developing markets are closed in whole or in part to equity
investments by foreigners except through specifically authorized investment
funds. Securities of other investment companies may be acquired by the Fund to
the extent permitted by the Investment Company Act. As a shareholder in an
investment fund, the Fund would bear not only its share of that investment
fund's expenses, including its investment advisory fee and other operating
fees, but also its own investment advisory fee and other operating expenses.

ILLIQUID SECURITIES

The Fund may hold up to 15% of its net assets (determined at the time of the
transaction) in illiquid securities, including repurchase agreements which
have a maturity of longer than seven days, securities with legal or
contractual restrictions on resale (restricted securities) and securities that
are not readily marketable in securities markets either within or outside of
the United States. Restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933, as

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<PAGE>

amended (the Securities Act), and privately placed commercial paper that have
a readily available market are not considered illiquid for purposes of this
limitation. The investment adviser will monitor the liquidity of such
restricted securities under the supervision of the Board of Trustees. 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. See "Investment
Objective and Policies--Illiquid Securities" in the Statement of Additional
Information. Repurchase agreements subject to demand are deemed to have a
maturity equal to the applicable notice period.

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

HIGH YIELD DEBT SECURITIES (JUNK BONDS)

The Fund may hold up to 35% of its total assets in debt securities rated at
least C by S&P or Moody's or, if unrated, determined to be of comparable
quality by the investment adviser. As an operating policy, which may be
changed without shareholder approval, the Fund will not invest more than 10%
of its total assets in debt securities rated BBB or lower by S&P or Baa or
lower by Moody's.

Lower-rated debt securities, including securities rated from BB to C by S&P
or Ba to C by Moody's or, if unrated, of comparable quality in the opinion of
the investment adviser, will usually offer higher yields than higher-rated
securities. However, there is more risk associated with lower-rated debt
securities due to the reduced creditworthiness and increased likelihood of
default that these securities carry. Lower-rated debt securities generally
tend to reflect short-term corporate and market developments to a greater
extent than higher-rated securities that react primarily to fluctuations in
the general level of interest rates. In addition, lower-rated debt securities
tend to demonstrate greater sensitivity to significant increases or decreases
in the level of interest rates. Also, since there may be fewer investors in
lower-rated debt securities, it may be more difficult to dispose of such
securities at times advantageous to the Fund.

The risk of loss due to default by the issuer of lower-rated securities is
significantly greater because such securities are usually unsecured and are
often subordinated to other obligations of the issuer. During an economic
downturn or a sustained period of rising interest rates, issuers of lower-
rated debt securities that are either highly leveraged companies or companies
in cyclically sensitive industries may experience deteriorated cash flow or
other financial stress that impairs the ability of the issuer to meet its
obligation to pay principal and interest to bondholders on a timely basis.
When the issuer of a lower-rated debt security that is included in the Fund's
investment portfolio is unable to honor its payment obligations to
bondholders, the Fund's net asset value may be adversely affected. In
addition, the Fund may incur additional expenses if it seeks recovery upon a
default in the payment of principal and interest on a debt security.

BORROWING

The Fund may borrow an amount equal to no more than 33 1/3% of the value of
its total assets (computed at the time the loan is made) for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If
the Fund borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net
asset value of the shares to rise faster than would otherwise be the case. On
the other hand, if the investment performance of the additional securities
purchased fails to cover their cost (including any interest paid on the money
borrowed) to the Fund, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case. This is the speculative factor known
as "leverage." See "Investment Restrictions" in the Statement of Additional
Information.

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<PAGE>

PORTFOLIO TURNOVER

As a result of the Fund's investment policies, it is estimated that the
portfolio turnover rate will be approximately 250%. The portfolio turnover
rate is calculated by dividing the lesser of sales or purchases of portfolio
securities by the average monthly value of the Fund's portfolio securities,
excluding securities having a maturity at the date of purchase of one year or
less. High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. See "Portfolio Transactions and Brokerage" in the Statement of
Additional Information. In addition, high portfolio turnover may result in
increased short-term capital gains, which, when distributed to shareholders,
are treated as ordinary income. See "Taxes, Dividends and Distributions."

INVESTMENT RESTRICTIONS

The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional Information.

HOW THE FUND IS MANAGED

THE FUND HAS A BOARD OF TRUSTEES WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF
1.25% OF THE FUND'S AVERAGE DAILY NET ASSETS. PIFM IS ORGANIZED IN NEW YORK AS
A LIMITED LIABILITY COMPANY.

PIFM may from time to time waive its management fee (or a portion thereof)
and subsidize operating expenses of the Fund. See "Fund Expenses." The Fund is
not required to reimburse PIFM for such fee waiver or expense subsidy. Fee
waivers and expense subsidies will increase the Fund's total return. See "How
the Fund Calculates Performance."

As of January 31, 1998, PIFM served as the manager to 42 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $63 billion.

UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.

UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE
SUBADVISER OR THE INVESTMENT ADVISER), PI FURNISHES INVESTMENT ADVISORY
SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY
PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH
SERVICES. Under the Management Agreement, PIFM continues to have
responsibility for all investment advisory services and supervises PI's
performance of such services.

14
<PAGE>

Fund. Ms. Carrion has been employed by PIC since 1997. Prior to joining PIC,
Ms. Carrion was employed by Bankers Trust Company as a portfolio manager
beginning in April 1993. From June 1991 to April 1993, she was employed by
Latin American Securities (London). Ms. Carrion is a Chartered Financial
Analyst.

PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.

DISTRIBUTOR

PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE
DISTRIBUTOR OF THE SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED
SUBSIDIARY OF PRUDENTIAL.

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING
THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. The Distributor also incurs
the expenses of distributing the Fund's Class Z shares under the Distribution
Agreement, none of which is reimbursed by or paid for by the Fund. These
expenses include commissions and account servicing fees paid to, or on account
of, financial advisers of Prudential Securities and representatives of Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions and
account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) 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 Prudential Securities and Prusec 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.

UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL
RATE OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES.
The Class A Plan provides that .25 of 1% of the average daily net assets of
the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and other distribution fees.

UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES AT
AN ANNUAL RATE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE
CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for the
payment to Prudential Securities of (i) an asset-based sales charge of .75 of
1% of the average daily net assets of each of the Class B and Class C shares
and (ii) a service fee of .25 of 1% of the average daily net assets of each of
the Class B and Class C shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. Prudential Securities
also receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."

The Fund records all payments made under the Plans as expenses in the
calculation of net investment income. See "Distributor" in the Statement of
Additional Information.

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

15
<PAGE>

Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Trustees of Prudential Developing
Markets Fund, including a majority of the Trustees who are not "interested
persons" of the Fund (as defined in the Investment Company Act) and who have
no direct or indirect financial interest in the operation of the Plan or any
agreement related to the Plan (the Rule 12b-1 Trustees), vote annually to
continue the Plan. Each Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or of a majority of the outstanding shares
of the applicable class of the Fund. The Fund will not be obligated to pay
distribution and service fees incurred under any Plan if it is terminated or
not continued.

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

The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges.

FEE WAIVERS

The Distributor has agreed to limit its distribution fee for the Class A
shares as described above under "Distributor." Fee waivers will increase the
Fund's total return. See "Performance Information" in the Statement of
Additional Information and "Fund Expenses" above.

PORTFOLIO TRANSACTIONS

Prudential Securities may also act as a broker or futures commission
merchant for the Fund, provided that the commissions, fees or other
remuneration it receives are fair and reasonable. See "Portfolio Transactions
and Brokerage" in the Statement of Additional Information.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Its mailing address
is P.O. Box 1713, Boston, Massachusetts 02105.

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.

YEAR 2000

The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside service
providers. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no
adverse impact on the Fund, the Manager, the Distributor, the Transfer Agent
and the Custodian have advised the Fund that they have been actively working
on necessary changes to their computer systems to prepare for the year 2000
and expect that their systems, and those of their outside service providers,
will be adapted in time for that event.

16
<PAGE>

HOW THE FUND VALUES ITS SHARES

THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF TRUSTEES HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NET ASSET VALUE TO BE
AS OF 4:15 P.M., NEW YORK TIME.

Portfolio securities are valued based on market quotations or, if not
readily available or if such quotations are deemed not representative of fair
value, at fair value as determined in good faith under procedures established
by the Fund's Board of Trustees. See "Net Asset Value" in the Statement of
Additional Information.

The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV.

Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject. The NAV of Class
Z shares will generally be higher than the NAV of the other three classes
because Class Z shares are not subject to any distribution and/or service
fees. It is expected, however, that the NAV of the four classes will tend to
converge immediately after the recording of dividends, if any, which will
differ by approximately the amount of the distribution and/or service fee
expense accrual differential among the classes.

HOW THE FUND CALCULATES PERFORMANCE

FROM TIME TO TIME THE FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL RETURN,
AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL
RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. These figures will be based on historical earnings and are not
intended to indicate future performance. The total return shows how much an
investment in the Fund would have increased (decreased) over a specified
period of time (i.e., one, five or ten years or since inception of the Fund)
assuming that all distributions and dividends by the Fund were reinvested on
the reinvestment dates during the period and less all recurring fees. The
aggregate total return reflects actual performance over a stated period of
time. Average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. Average annual total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average
annual total return nor aggregate total return takes into account any federal
or state income taxes which may be payable upon redemption. The yield refers
to the income generated by an investment in the Fund over a one-month or 30-
day period. This income is then "annualized"; that is, the amount of income
generated by the investment during that 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage
of the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period. The Fund also may include
comparative performance information in advertising or marketing the Fund's
shares. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., other industry publications,
business periodicals and market indices. See "Performance Information" in the
Statement of Additional Information. Further performance information is
contained in the Fund's annual and semi-annual reports to shareholders, which
may be obtained without charge. See "Shareholder Guide--Shareholder Services--
Reports to Shareholders."

17
<PAGE>

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE FUND INTENDS TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE FUND WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold
at market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
See "Taxes, Dividends and Distributions" in the Statement of Additional
Information.

The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders.
See "Taxes, Dividends and Distributions" in the Statement of Additional
Information. The Fund may, from time to time, invest in passive foreign
investment companies (PFICs). PFICs are foreign corporations which own mostly
passive assets or derive 75% or more of their income from passive sources. The
Fund's investments in PFICs may subject the Fund to federal income tax on
certain income and gains realized by the Fund.

TAXATION OF SHAREHOLDERS

All dividends out of net investment income, together with distributions of
net short-term gains (i.e., the excess of net short-term capital gains over
net long-term capital losses) distributed to shareholders, will be taxable as
ordinary income to the shareholder whether or not reinvested. Certain gains or
losses from fluctuations in foreign currency exchange rates ("Section 988"
gains or losses) will affect the amount of ordinary income the Fund will be
able to pay as dividends. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information. Any net capital gains (i.e., the excess
of net capital gains from the sale of assets held for more than 12 months over
net short-term capital losses) distributed to shareholders and properly
designated by the Fund will be taxable as capital gains to the shareholders,
whether or not reinvested and regardless of the length of time a shareholder
has owned his shares. The maximum capital gains rate for individuals is 28%
with respect to assets held by the Fund for more than 12 months, but not more
than 18 months, and 20% with respect to assets held by the Fund for more than
18 months. The maximum capital gains rate for corporate shareholders currently
is the same as the maximum tax rate for ordinary income.

Any gain or loss realized upon a sale or redemption (including any exchange)
of Fund shares by a shareholder who is not a dealer in securities will be
treated as capital gain or loss. In the case of any individual, any such
capital gain will be treated as short-term capital gain if the shares were
held for not more than 12 months, mid-term gain, taxable at the maximum rate
of 28%, if such shares were held for more than 12, but not more than 18
months, and long term capital gain, taxable at the maximum rate of 20%, if
such shares were held for more than 18 months. In the case of a corporation,
any such capital gain will be treated as long-term capital gain, taxable at
the same rates as ordinary income, if such shares were held for more than 12
months. Any such capital loss will be treated as long-term capital loss if the
shares have been held more than one year and otherwise as a short-term capital
gain or loss. Any such loss on shares that are held for six months or less,
however, will be treated as a long-term capital loss to the extent of any
capital gain distributions received by the shareholder.

18
<PAGE>

to interest income, capital and currency gain, gain or loss from Section 1256
contracts, dividend income from foreign corporations and income from some
other sources will not be eligible for the corporate dividends received
deduction. Since the Fund is likely to have a substantial portion of its
assets invested in securities of foreign issuers, the amount of the Fund's
dividends eligible for the corporate dividends received deduction will be
minimal. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information. Corporate shareholders should consult their tax
advisers regarding other requirements applicable to the dividends received
deduction.

The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.

Shareholders should consult their own tax advisers regarding specific
questions as to federal, state or local taxes.

WITHHOLDING TAXES

Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of certain shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Withholding at this
rate is also required from dividends and capital gains distributions (but not
redemption proceeds) payable to shareholders who are otherwise subject to
backup withholding. Dividends of net investment income and short-term capital
gains paid to a foreign shareholder will generally be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate).

DIVIDENDS AND DISTRIBUTIONS

THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, AND MAKE
DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL LOSSES
AT LEAST ANNUALLY. Dividends paid by the Fund with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount
except that each class (other than Class Z) will bear its own distribution
charges, generally resulting in lower dividends for Class B and Class C shares
in relation to Class A and Class Z shares and lower dividends for Class A
shares in relation to Class Z shares. Distributions of net capital gains, if
any, will be paid in the same amount per share for each class of shares. See
"How the Fund Values its Shares."

DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
TRUSTEES MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services LLC, Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash. The Fund will notify each shareholder
after the close of the Fund's taxable year both of the dollar amount and the
taxable status of that year's dividends and distributions on a per share
basis.

IF YOU BUY SHARES ON OR IMMEDIATELY PRIOR TO THE RECORD DATE (THE DATE THAT
DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING
OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.

19
<PAGE>

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

THE FUND WAS ORGANIZED AS A SERIES OF PRUDENTIAL DEVELOPING MARKETS FUND, A
DELAWARE BUSINESS TRUST, ON OCTOBER 23, 1997. THE FUND IS AUTHORIZED TO ISSUE
AN UNLIMITED NUMBER OF SHARES OF BENEFICIAL INTEREST, S.001 PAR VALUE PER
SHARE, DIVIDED INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. Each class of shares represents an interest in the same assets
of the Fund and is identical in all respects except that (i) each class is
subject to different sales charges and distribution and/or service fees
(except for Class Z shares, which are not subject to any sales charges and
distribution and/or service fees), which may affect performance, (ii) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"How the Fund is Managed--Distributor." In accordance with the Prudential
Developing Markets Fund's Declaration of Trust, the Board of Trustees may
authorize the creation of additional series and classes within such series,
with such preferences, privileges, limitations and voting and dividend rights
as the Board of Trustees may determine.

The Board of Trustees may increase or decrease the number of authorized
shares without approval by the shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class is equal as to earnings, assets and voting
privileges, except as noted above, and each class (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 been paid. Since Class B and Class C shares
generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders and to Class Z shareholders, whose shares are not
subject to any distribution and/or service fees. The Fund's shares do not have
cumulative voting rights for the election of Trustees.

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 TRUSTEES IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF
THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE TRUSTEES OR TO TRANSACT ANY OTHER BUSINESS.

ADDITIONAL INFORMATION

This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Prudential Developing
Markets Fund with the SEC under the Securities Act of 1933. Copies of the
Registration Statement may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the office of the SEC in Washington, D.C.

20
<PAGE>

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC OR
DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about Class Z shares. The purchase price
is the NAV next determined following receipt of an order in proper form by the
Transfer Agent or Prudential Securities plus a sales charge which, at your
option, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). Class Z shares are
offered to a limited group of investors at net asset value without any sales
charge. Payment may be made by wire, check or through your brokerage account.
See "Alternative Purchase Plan" below. See also "How the Fund Values its
Shares."

The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares, except that the minimum initial
investment for Class C shares may be waived from time to time. There is no
minimum investment requirement for Class Z shares. The minimum subsequent
investment is $100 for all classes, except for Class Z shares for which there
is no such minimum. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan,
the minimum initial and subsequent investment is $50. See "Shareholder
Services" below.

Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive stock
certificates.

The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.

Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.

Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first 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 Developing Markets Fund, Equity Fund Series, 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. See "Net Asset Value" in the
Statement of Additional Information.

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Developing
Markets Fund, Equity Fund Series, 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.

21
<PAGE>

ALTERNATIVE PURCHASE PLAN

THE FUND OFFERS THROUGH THIS PROSPECTUS FOUR CLASSES OF SHARES (CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST
BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE
AMOUNT OF THE PURCHASE, THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND
OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).

<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------------- ------------------------ --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a for certain purchases
rate of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another class
of the amount invested or the
redemption proceeds on redemptions
made within one year of purchase
CLASS Z None None Sold to a limited group of investors
</TABLE>

The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of the Class Z shares, which are not subject to any
distribution or service fees) bears the separate expenses of its Rule 12b-1
distribution and service plan, (ii) each class has exclusive voting rights on
any matter submitted to shareholders that relates solely to its arrangement
and has separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interest of any other class,
and (iii) each class has a different exchange privilege, (iv) only Class B
shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. The four classes also
have separate exchange privileges. See "How to Exchange Your Shares" below.
The income attributable to each class and the dividends payable on the shares
of each class will be reduced by the amount of the distribution fee (if any)
of each class. Class B and Class C shares bear the expense of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A and Class Z shares.

Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C or Class Z shares.

IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).

The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:

22
<PAGE>

If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales share of 5% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.

If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.

If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money
invested initially because the sales charge on Class A shares is deducted at
the time of purchase.

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in NAV, the effect of the return
on the investment over this period of time or redemptions when the CDSC is
applicable.

ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See
"Reduction and Waiver of Initial Sales Charges" and "Class Z Shares" below.

CLASS A SHARES

The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>

The Distributor may reallow the entire sales charge to dealers. Selling
dealers may be deemed to be underwriters, as that term is defined in the
Securities Act.

In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares
a finders' fee from its own resources based on a percentage of the NAV of
shares sold by such persons.

23
<PAGE>

market funds other than those acquired pursuant to the exchange privilege) may
be aggregated to determine the applicable reduction. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.

Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (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 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 serves as the
plan administrator or recordkeeper, provided that (i) the plan has at least $1
million in existing assets or 250 eligible employees and (ii) 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 or
403(b)(7) of the Internal Revenue Code and plans that participate in the
Transfer Agent's PruArray and SmartPath Programs (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan). All plans
of a company for which Prudential serves as plan administrator or recordkeeper
are aggregated in meeting the $1 million threshold. The term "existing assets"
as used herein includes stock issued by a plan sponsor, shares of Prudential
Mutual Funds and shares of certain unaffiliated mutual funds that participate
in the PruArray or Smart Path Program (Participating Funds). "Existing assets"
also include monies invested in The Guaranteed Interest Account (GIA), a group
annuity insurance product issued 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
(i) the purchase is made with the proceeds of a redemption from either GIA or
SVF and (ii) 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 the PruArray Program 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 (i)
have retirement plan assets in the aggregate of at least $1 million or 250
participants in the aggregate and (ii) 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 (i)
employees who open an IRA or Savings Accumulation Plan account with the
Transfer Agent and (ii) 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.

24
<PAGE>

Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers of the Prudential Mutual Funds (including the Fund), (b) employees of
Prudential Securities and 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, (c) employees of subadvisers of
the Prudential Mutual Funds provided that such purchases at NAV are permitted
by such person's employer, (d) Prudential employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of its subsidiaries, (e) registered
representatives and employees of dealers who have entered into a selected
dealer agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer, (f) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) 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, (ii) 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
(iii) the financial adviser served as the client's broker on the previous
purchase, and (g) investors in Individual Retirement Accounts, provided the
purchase is made with the proceeds of a tax-free rollover of assets from a
Benefit Plan for which Prudential Investments serves as the recordkeeper or
administrator.

You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation
of your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.

CLASS B AND CLASS C SHARES

The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV per share next determined
following receipt of an order by the Transfer Agent, Prudential Securities or
Prusec. Although there is no sales charge imposed at the time of purchase,
redemptions of Class B and Class C shares may be subject to a CDSC. See "How
to Sell Your Shares--Contingent Deferred Sales Charges" below. The Distributor
will pay, from its own resources, sales commissions of up to 4% of the
purchase price of Class B shares to dealers, financial advisers and other
persons who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it
will recoup its payment of sales commissions from the combination of the CDSC
and the distribution fee. See "How the Fund is Managed--Distributor." In
connection with the sale of Class C shares, the Distributor will pay, from its
own resources, dealers, financial advisers and other persons which distribute
Class C shares a sales commission of up to 1% of the purchase price at the
time of the sale.

CLASS Z SHARES

25
<PAGE>

for which Prudential Retirement Services serves as recordkeeper and that, as
of September 20, 1996, (a) were Class Z shareholders of the Prudential Mutual
Funds or (b) executed a letter of intent to purchase Class Z shares of the
Prudential Mutual Funds; (v) current and former Directors/Trustees of the
Prudential Mutual Funds (including the Fund); and (vi) employees of Prudential
and/or Prudential Securities who participate in a Prudential-sponsored
employee savings plan.

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

HOW TO SELL YOUR SHARES

YOU CAN REDEEM YOUR SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How the Fund Values its Shares."
In certain cases, however, redemption proceeds will be reduced by the amount
of any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.

IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES FINANCIAL ADVISOR. 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 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.

If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. 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 or Smart Path
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 OF THE CERTIFICATE AND/OR
WRITTEN REQUEST, EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the SEC, by order, so permits; provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.

26
<PAGE>

PURCHASE CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING
SHARES BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK.

REDEMPTION IN KIND. If the Board of Trustees determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the SEC. Securities will be readily marketable and will be
valued in the same manner as a regular redemption. See "How the Fund Values
its Shares." If your shares are redeemed in kind, you will incur transaction
costs in converting the assets into cash. The Fund, however, has elected to be
governed by Rule 18f-1 under the Investment Company Act, under which the Fund
is obligated to redeem shares solely in cash up to the lesser of $250,000 or
1% of the NAV of the Fund during any 90-day period for any one shareholder.

INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Trustees may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net asset value of less than $500 due to a redemption. The Fund
will give such shareholders 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No CDSC will be imposed
on any such involuntary redemption.

90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the 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 Fund's
Transfer Agent, either directly or through Prudential Securities, at the time
the repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege will generally not affect
the federal tax treatment of any gain realized upon redemption. However, if
the redemption was made within a 30 day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, may not be allowed for federal income tax purposes. See
"Taxes, Dividends and Distributions" in the Statement of Additional
Information.

CONTINGENT DEFERRED SALES CHARGES

Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares of the Fund to an amount which
is lower than the amount of all payments by you for shares during the
preceding six years, in the case of Class B shares, and one year, in the case
of Class C shares. A CDSC will be applied on the lesser of the original
purchase price or the current value of the shares being redeemed. Increases in
the value of your shares or shares 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. See "How the Fund is Managed--
Distributor" and "Waiver of the Contingent Deferred Sales Charges--Class B
Shares" below.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of 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. See "How to Exchange Your Shares" below.

27
<PAGE>

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

<TABLE>
<CAPTION>
YEAR SINCE CONTINGENT DEFERRED SALES CHARGE
PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR 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 net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years;
then of amounts representing the cost of shares held beyond the applicable
CDSC period; and finally, of amounts representing the cost of shares held for
the longest period of time within the applicable CDSC period.

For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
NAV had appreciated to $12 per share, the value of your Class B shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.

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

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability
of a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), 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 a Section 403(b)
custodial account. These distributions include: (i) in the case of a tax-
deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of
an excess contribution or plan distributions following the death or disability
of the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify 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

28
<PAGE>

waived upon the redemption of shares purchased with amounts used to repay
loans made from the account to the participant and from which a CDSC was
previously deducted.

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

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

You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC and provide the Transfer Agent with such
supporting documentation as it may deem appropriate. The waiver will be
granted subject to confirmation of your entitlement. See "Purchase and
Redemption of Fund Shares--Waiver of the Contingent Deferred Sales Charge--
Class B Shares" in the Statement of Additional Information.

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES

PruArray or SmartPath Plans. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the Transfer Agent's PruArray and SmartPath Programs.

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 NAVs per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10
per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (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 net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."

For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such

29
<PAGE>

shares were held in the money market fund will be excluded. For example, Class
B shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of
measuring the time period during which shares are held in a money market fund,
exchanges will be deemed to have been made on the last day of the month. Class
B shares acquired through exchange will convert to Class A shares after
expiration of the conversion period applicable to the original purchase of
such shares.

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B, Class C and Class
Z shares will not constitute "preferential dividends" under the Internal
Revenue Code and (ii) that the conversion of shares does not constitute a
taxable event. The conversion of Class B shares into Class A shares may be
suspended if such opinions or rulings are no longer available. If conversions
are suspended, Class B shares of the Fund will continue to be subject,
possibly indefinitely, to their higher annual distribution and service fee.

HOW TO EXCHANGE YOUR SHARES

AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE PRIVILEGE), INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS
OF SUCH FUNDS. CLASS A, CLASS B, CLASS C AND CLASS Z SHARES MAY BE EXCHANGED
FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER
FUND ON THE BASIS OF THE RELATIVE NAV. No sales charge will be imposed at the
time of the exchange. Any applicable CDSC payable upon the redemption of
shares exchanged will be calculated from the first day of the month after the
initial purchase, excluding the time shares were held in a money market fund.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. For purposes of calculating
the holding period applicable to the Class B conversion feature, the time
period during which Class B shares were held in a money market fund will be
excluded. See "Conversion Feature--Class B Shares" above. An exchange will be
treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account--Exchange Privilege" in the Statement of Additional
Information.

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may
call the Fund at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order. The Exchange Privilege is available
only in states where the exchange may legally be made.

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. SEE "HOW TO SELL YOUR SHARES" ABOVE.

You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 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 SHAREHOLDERS SHOULD MAKE EXCHANGES
BY MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS
NOTED ABOVE.

30
<PAGE>

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in the account of a shareholder who qualifies to
purchase Class A shares at NAV will be automatically exchanged for Class A
shares on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends
and distributions, (2) amounts representing the increase in the net asset
value above the total amount of payments for the purchase of Class B or Class
C shares and (3) amounts representing Class B or Class C shares held beyond
the applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities or Prusec 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.

The Fund reserves the right to reject any exchange order, including
exchanges (and market timing transactions) which are of a size and/or
frequency engaged in by one or more accounts acting in concert or otherwise,
that have or may have an adverse effect on the ability of the Subadviser to
manage the portfolio. The determination that such exchanges or activity may
have an adverse effect and the determination to reject any exchange order
shall be in the discretion of the Manager and the Subadviser.

The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.

FREQUENT TRADING. The Fund and other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, each Prudential Mutual Fund, including the Fund, reserves the
right to refuse purchase orders and exchanges by any person, group or commonly
controlled accounts if, in the Manager's sole judgement, such person, group or
accounts were following a market timing strategy or were otherwise engaged in
excessive trading ("Market Timers").

To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading.
The Fund may notify the Market Timer of rejection of an exchange or purchase
order subsequent to the day on which the order was placed.

SHAREHOLDER SERVICES

In addition to the Exchange Privilege, as a shareholder of the Fund, you can
take advantage of the following services and privileges:

. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have

31
<PAGE>

subsequent dividends and/or distributions sent in cash rather than reinvested.
If you hold shares through Prudential Securities, you should contact your
financial adviser.

. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.

. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.

. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."

. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition,
monthly unaudited financial data is available upon request from the Fund.

. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or
by telephone at (800) 225-1852 (toll-free) or, from outside the U.S.A., at
(908) 417-7555 (collect).

For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.

32
<PAGE>

APPENDIX

PERFORMANCE INFORMATION

Because the Fund is being offered to the public for the first time, as of
the date of this Prospectus it does not have any prior operating history or
performance. The following table illustrates the performance of [ ] (Private
Account) from January 1, 1998 to [ ] as measured against [appropriate
securities index]. This table is designed to illustrate the performance of PIC
in managing accounts substantially similar to the Fund. The performance of the
Private Account is not the past, present or future performance of the Fund.
Performance results of the Private Account do not reflect the deduction of
operating expenses of a mutual fund, such as distribution (Rule 12b-1) fees,
or any applicable sales charges.

AGGREGATE TOTAL RETURN
<TABLE>
<S> <C>
Private Account(1)................................................ [ ]
[Appropriate securities index](2)................................. [ ]
</TABLE>
- ---------
(1) PIC manages the portfolio of the Private Account, which held approximately
[ ] in assets as of [ ]. The investment objectives, policies and
strategies of the Private Account are substantially similar to those of
the Fund. The performance of the Private Account is not the performance of
the Fund (which as of [ ] had not begun operations) and should not be
considered indicative of the future performance of the Fund. The Private
Account is not subject to certain investment limitations, diversification
requirements, and other restrictions imposed by the Investment Company Act
of 1940 and the Internal Revenue Code which may adversely affect
performance. The performance of the Private Account has been calculated in
compliance with the performance presentation standards of the Association
for Investment Management and Research.

The performance results assume that all dividends and distributions were
reinvested and are stated after taking into account investment advisory
fees. The performance results shown for the Private Account do not reflect
the deduction of operating expenses of a mutual fund, including
distribution (Rule 12b-1) fees, or any applicable sales charges. The net
effect of the deduction of the operating expenses of a mutual fund on the
return of the Private Account, including the compounded effect over time,
could be substantial. The Fund offers four classes of shares with different
operating expenses and sales load options which do affect performance. See
"Shareholder Guide--Alternative Purchase Plan.

(2) [describe the appropriate securities index]. The [index] is an unmanaged
index and includes the reinvestment of all dividends. Investors cannot buy
or invest directly in market indices or averages. Foreign investing
involves special risks including currency fluctuations and political,
social and economic change.

These results are unaudited

A-1
<PAGE>

THE PRUDENTIAL MUTUAL FUND FAMILY

Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone the Fund at (800) 225-
1852 for a free prospectus. Read the prospectus carefully before you invest or
send money.

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 Mortgage Income Fund, Inc.
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 Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.

GLOBAL FUNDS

Prudential Developing Market Fund

Developing Markets Equity Fund

Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.

EQUITY FUNDS

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.

Prudential Index Series Fund

Prudential Active Balanced Fund

Prudential Bond Market Index Fund

Prudential Europe Index Fund

Prudential Pacific Index Fund

Prudential Small-Cap Index Fund

Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund

Prudential Jennison Series Fund, Inc.

Prudential Jennison Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
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

B-1
<PAGE>

No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell, or a solicita-
tion of any offer to buy any of the securities offered hereby in any jurisdic-
tion to any person to whom it is unlawful to make such offer in such
jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS........................................................... 2
What are the Fund's Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................. 4
HOW THE FUND INVESTS...................................................... 5
Investment Objective and Policies........................................ 5
Special Considerations and Risks of Investing in Developing Market Secu-
rities................................................................. 7
Hedging and Return Enhancement Strategies................................ 8
Other Investments and Policies........................................... 11
Investment Restrictions.................................................. 14
HOW THE FUND IS MANAGED................................................... 14
Manager.................................................................. 14
Distributor.............................................................. 15
Fee Waivers.............................................................. 16
Portfolio Transactions................................................... 16
Custodian and Transfer and Dividend Disbursing Agent..................... 16
Year 2000................................................................ 16
HOW THE FUND VALUES ITS SHARES............................................ 17
HOW THE FUND CALCULATES PERFORMANCE....................................... 17
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 18
GENERAL INFORMATION....................................................... 20
Description of Common Stock.............................................. 20
Additional Information................................................... 20
SHAREHOLDER GUIDE......................................................... 21
How to Buy Shares of the Fund............................................ 21
Alternative Purchase Plan................................................ 22
How to Sell Your Shares.................................................. 26
Conversion Feature--Class B Shares....................................... 29
How to Exchange Your Shares.............................................. 30
Shareholder Services..................................................... 31
APPENDIX.................................................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... B-1
</TABLE>
- --------------------------------------------------------------------------------

MF 136A 4441545

<TABLE>
<S> <C>
Class A:
Class B:
CUSIP Nos.: Class C:
Class Z:
</TABLE>

PRUDENTIAL
DEVELOPING
MARKETS
EQUITY
FUND

PROSPECTUS
, 1998
--

www.prudential.com

LOGO PRUDENTIAL
Investments
<PAGE>

Prudential Latin America Equity Fund

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

PROSPECTUS DATED , 1998
- -------------------------------------------------------------------------------

Prudential Latin America Equity Fund (the Fund) is a series of Prudential
Developing Markets Fund, an open-end, diversified, management investment
company. The Fund's investment objective is long-term growth of capital. It
seeks to achieve this objective by investing primarily in equity related
securities of companies domiciled in, or doing business principally in, Latin
America. "Latin America" is defined as Mexico and all countries located in
Central America and South America. See "How the Fund Invests--Investment
Objective and Policies." Under normal circumstances, the Fund intends to
invest at least 65% of its total assets in such securities. The Fund may also
invest in equity related securities of other companies and debt securities,
engage in various derivatives transactions, including options on equity
securities, stock indices, foreign currencies and futures contracts on foreign
currencies, and may purchase and sell futures contracts on foreign currencies,
groups of currencies and stock indices so as to hedge its portfolio and to
attempt to enhance return. There can be no assurance that the Fund's
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies." The Fund's address is Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, and its telephone number is
(800) 225-1852.

The Fund is not intended to constitute a complete investment program. Because
of its objective and policies, including its emphasis on Latin America, the
Fund may be considered of a speculative nature and subject to greater
investment risks than are assumed by certain other investment companies that
invest solely in securities of U.S. issuers or that do not emphasize
investments in a particular global region. See "How the Fund Invests--
Investment Objective and Policies--Special Considerations and Risks of
Investing in Latin American Securities."

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of the Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated , 1998, which information is
incorporated herein by reference (is legally considered part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.

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

Investors are advised to read this Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------

FUND HIGHLIGHTS

The following summary is intended to highlight certain information contained
in the Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.

WHAT IS PRUDENTIAL LATIN AMERICA EQUITY FUND?

Prudential Latin America Equity Fund is a mutual fund. A mutual fund pools
the resources of investors by selling its shares to the public and investing
the proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is a series of Prudential
Developing Markets Fund, an open-end, diversified, management investment
company.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity related securities of
Latin American companies. There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective
and Policies" at page 5.

WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?

The Fund invests primarily in equity related securities of issuers domiciled
in, or doing business principally in, Latin America. Unlike a mutual fund that
invests on a global basis, the Fund's concentration on Latin American
companies can result in more pronounced risks and rewards based upon economic
conditions that impact the region more or less than other global regions.
Foreign securities in general involve certain risks and considerations not
typically associated with investments in U.S. government securities and
securities of domestic companies, including political or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of imposition of exchange controls and the risk of
currency fluctuations. See "How the Fund Invests--Special Considerations and
Risks of Investing in Latin American Securities" at page 7. In addition, the
Fund may engage in various hedging and return enhancement strategies,
including the use of derivatives transactions. These activities may be
considered speculative and may result in higher risks and costs to the Fund.
See "How the Fund Invests--Hedging and Return Enhancement Strategies" at page
8. As with an investment in any mutual fund, an investment in this Fund can
decrease in value and you can lose money.

WHO MANAGES THE FUND?

WHO DISTRIBUTES THE FUND'S SHARES?

2
<PAGE>

WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE SHARES?

You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at net asset value without any sales charge. See
"How the Fund Values its Shares" at page 17 and "Shareholder Guide--How to Buy
Shares of the Fund" at page 21.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Fund offers four classes of shares through this Prospectus:

. Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
. Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or
CDSC (declining from 5% to zero of the lower of the amount
invested or the redemption proceeds) which will be imposed
on certain redemptions made within six years of purchase.
Although Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class B
shares will automatically convert to Class A shares (which
are subject to lower ongoing distribution-related expenses)
approximately seven years after purchase.
. Class C Shares:Sold without an initial sales charge and, for one year
after purchase, are subject to a 1%
CDSC on redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related expenses than
Class A shares but do not convert to another class.
. Class Z Shares:Sold without either an initial sales charge or CDSC to a
limited group of investors.
Class Z shares are not subject to any ongoing service or
distribution expenses.

See "Shareholder Guide--Alternative Purchase Plan" at page 22.

HOW DO I SELL MY SHARES?

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

3
<PAGE>

FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)........ 5% None None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends.............. None None None None
Maximum Deferred Sales
Load (as a percentage
of original purchase
price or redemption
proceeds, whichever is
lower)................. None 5% during the 1% on redemp- None
first year, de- tions made
creasing by 1% within one
annually to 1% year of pur-
in the fifth chase
and sixth years
and 0% the sev-
enth year*
Redemption Fees........ None None None None
Exchange Fee........... None None None None
<CAPTION>
ANNUAL ESTIMATED FUND
OPERATING EXPENSES
(as a percentage of CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
average net assets) -------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Management Fees ....... 1.25% 1.25% 1.25% 1.25%
12b-1 Fees............. .25++ 1.00 1.00 None
Other Expenses......... .50 .50 .50 .50%
---- ---- ---- ----
Total Fund Operating
Expenses............... 2.00% 2.75% 2.75% 1.75%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
EXAMPLE ------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
Class A....................................................... $69 $110
Class B....................................................... $78 $115
Class C....................................................... $38 $ 85
Class Z ...................................................... $18 $ 55
You would pay the following expenses on the same investment,
assuming no redemption:
Class A....................................................... $69 $110
Class B....................................................... $28 $ 85
Class C....................................................... $28 $ 85
Class Z ...................................................... $18 $ 55
</TABLE>

4
<PAGE>

HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND
SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN EQUITY
RELATED SECURITIES OF COMPANIES DOMICILED IN, OR DOING BUSINESS PRINCIPALLY
IN, LATIN AMERICA. UNDER NORMAL CIRCUMSTANCES, THE FUND WILL INVEST AT LEAST
65% OF ITS TOTAL ASSETS IN EQUITY RELATED SECURITIES OF LATIN AMERICAN
ISSUERS. THERE CAN BE NO ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE WILL
BE ACHIEVED. See "Investment Objective and Policies" in the Statement of
Additional Information.

For purposes of this Prospectus, "securities of Latin American issuers" and
"Latin American securities" are defined as: (i) securities of companies the
principal securities trading market for which is located in Latin America;
(ii) securities, traded in any market, of companies that derive 50% or more of
their total revenue from either goods or services produced in Latin America or
sales made in Latin America; (iii) securities of companies organized under the
laws of, and with a principal office in, Latin America; or (iv) securities
issued or guaranteed by the government of a country in Latin America, its
agencies or instrumentalities, political subdivisions or the central bank of
such a country. As used in this Prospectus, "Latin America" is defined as
Mexico and all countries located in Central America and South America,
including Argentina, Brazil, Chile, Columbia, Peru and Venezuela. "Equity
related securities," as used in this Prospectus, generally refers to common
stock, preferred stock, warrants or rights to purchase or to subscribe to such
securities, as well as sponsored or unsponsored American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs) and Global Depositary Receipts
(GDRs and, collectively with ADRs and EDRs, Depositary Receipts), convertible
securities, trust certificates, limited partnership interests and equity
participations. See "Other Investments and Policies--Depositary Receipts."

As with an investment in any mutual fund, an investment in this Fund can
decrease in value and you can lose money.

LATIN AMERICAN COMPANIES

The Fund's investment adviser intends to invest in the equity related
securities of Latin American issuers in countries in which it believes
investing is feasible and does not involve undue political risk. The issuers
considered by the investment adviser may have varying levels of net worth and
may include companies with small market capitalizations whose securities may
be more volatile than securities offered by companies with greater market
capitalizations or with higher levels of net worth.

CERTAIN LATIN AMERICAN COUNTRIES, SUCH AS ARGENTINA, BRAZIL AND MEXICO, ARE
SOME OF THE WORLD'S LARGEST DEBTORS TO COMMERCIAL BANKS AND FOREIGN
GOVERNMENTS, WHICH CAN RESULT IN GREATER INVESTMENT RISK IF SUCH

5
<PAGE>

COUNTRIES DECLARE MORATORIA ON THE PAYMENT OF PRINCIPAL OR INTEREST OF THEIR
DEBT OBLIGATIONS OR INSTITUTE ECONOMIC REFORMS, AS HAS HAPPENED WITH RESPECT
TO CERTAIN LATIN AMERICAN COUNTRIES. IN ADDITION, MOST LATIN AMERICAN
COUNTRIES HAVE EXPERIENCED SUBSTANTIAL, AND IN SOME PERIODS EXTREMELY HIGH,
RATES OF INFLATION FOR MANY YEARS, THOUGH IN MANY SUCH COUNTRIES GOVERNMENTAL
POLICIES DESIGNED TO REDUCE INFLATION HAVE BEEN EFFECTIVE. THERE CAN BE NO
ASSURANCE THAT HIGH RATES OF INFLATION WILL NOT CONTINUE OR WILL NOT RETURN IN
THOSE COUNTRIES WHERE IT HAS BEEN REDUCED. INFLATION AND RAPID FLUCTUATIONS IN
INFLATION RATES HAVE HAD AND MAY CONTINUE TO HAVE VERY NEGATIVE EFFECTS ON THE
ECONOMIES OF CERTAIN LATIN AMERICAN COUNTRIES AND ON THE PRICES FOR SECURITIES
OF ISSUERS LOCATED THEREIN.

THERE ARE CERTAIN RISKS ASSOCIATED WITH INVESTING IN SECURITIES OF LATIN
AMERICAN COMPANIES IN GENERAL AND SMALLER LATIN AMERICAN COMPANIES IN
PARTICULAR. THE FUND INVESTS PRIMARILY IN SECURITIES OF LATIN AMERICAN ISSUERS
AND, UNLIKE A FUND THAT INVESTS ON A GLOBAL BASIS, ECONOMIC CONDITIONS THAT
IMPACT LATIN AMERICA SPECIFICALLY CAN RESULT IN MORE PRONOUNCED RISKS OR
REWARDS TO INVESTORS. INSOFAR AS THE FUND INVESTS IN THE SECURITIES OF SMALLER
COMPANIES, THERE ARE ADDITIONAL RISKS THAT THE MARKET PRICES OF SUCH
SECURITIES WILL BE MORE VOLATILE THAN THOSE OF LARGER COMPANIES. BECAUSE
SMALLER COMPANIES USUALLY HAVE FEWER SHARES OUTSTANDING THAN LARGER COMPANIES,
IT MAY BE MORE DIFFICULT FOR THE FUND TO BUY OR SELL SIGNIFICANT AMOUNTS OF
SUCH SHARES WITHOUT AN UNFAVORABLE IMPACT ON PREVAILING MARKET PRICES. THERE
IS TYPICALLY LESS PUBLICLY AVAILABLE INFORMATION CONCERNING SMALLER COMPANIES
THAN FOR LARGER, MORE ESTABLISHED ONES. BECAUSE SMALLER COMPANIES TYPICALLY
HAVE SMALLER PRODUCT LINES AND COMMAND A SMALLER MARKET SHARE THAN DO LARGER
COMPANIES, SMALLER COMPANIES MAY BE MORE VULNERABLE TO FLUCTUATIONS IN THE
ECONOMIC CYCLE. See "Special Considerations and Risks of Investing in Latin
American Securities" below.

GENERAL

The Fund intends to invest primarily in equity related securities of
companies domiciled in, or doing business principally in, Latin America. Latin
American countries may have relatively unstable governments, economies based
only on a few industries and securities markets that trade a limited number of
securities. Securities of issuers located in these countries tend to have
volatile prices and offer the potential for substantial loss as well as gain.
In addition, these securities may be less liquid than investments in
securities of issuers whose principal activities are in more established
markets as a result of inadequate trading volume or restrictions on trading
imposed by the governments or securities exchanges of such countries. See
"Special Considerations and Risks of Investing in Latin American Securities"
below.

THE FUND INTENDS TO INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN EQUITY
RELATED SECURITIES OF LATIN AMERICAN ISSUERS. UNDER NORMAL CIRCUMSTANCES, THE
REMAINDER OF THE FUND'S INVESTMENTS MAY BE IN OTHER SECURITIES OR INVESTMENT
VEHICLES, INCLUDING EQUITY RELATED SECURITIES OF OTHER COMPANIES AND DEBT
SECURITIES (INCLUDING MONEY MARKET INSTRUMENTS) OF FOREIGN AND DOMESTIC
COMPANIES. IN ADDITION, THE FUND MAY (I) PURCHASE SECURITIES ON A WHEN-ISSUED
OR DELAYED DELIVERY BASIS, (II) MAKE SHORT SALES AGAINST-THE-BOX AND (III)
ENTER INTO REPURCHASE AGREEMENTS. THE FUND MAY FROM TIME TO TIME LEND ITS
PORTFOLIO SECURITIES TO BROKERS OR DEALERS, BANKS OR OTHER RECOGNIZED
INSTITUTIONAL BORROWERS OF SECURITIES AND MAY INVEST TO A LIMITED EXTENT IN
SECURITIES OF COMPANIES THAT HAVE BEEN IN EXISTENCE FOR LESS THAN THREE YEARS,
IN SECURITIES FOR WHICH MARKET QUOTATIONS ARE NOT READILY AVAILABLE AND IN
SECURITIES OF OTHER REGISTERED INVESTMENT COMPANIES. SEE "INVESTMENT
RESTRICTIONS" IN THE STATEMENT OF ADDITIONAL INFORMATION.

6
<PAGE>

companies that have outstanding debt securities rated, at least C by S&P or
Moody's, commercial paper rated at least A-2 or Prime-2 by S&P or Moody's,
respectively, or in unrated securities of issuers that the Fund's investment
adviser has determined to be of comparable quality. As an operating policy,
which may be changed without shareholder approval, the Fund will not invest
more than 10% of its total assets in debt securities rated BBB or lower by S&P
or Baa or lower by Moody's or, if unrated, debt securities that the Fund's
investment adviser has determined to be of comparable quality. Subsequent to
its purchase by the Fund, a security may be assigned a lower rating or cease
to be rated. Such an event would not require the elimination of the issue from
the portfolio, but the investment adviser will consider such an event in
determining whether the Fund should continue to hold the security in its
portfolio. Securities rated Baa by Moody's, although considered to be
investment grade, lack outstanding investment characteristics and, in fact,
have speculative characteristics. Bonds rated C by S&P are of the lowest
quality and may be used when the issuer has filed a bankruptcy petition, but
debt payments are still being made. Moody's lowest rating is C, which is
applied to bonds that have extremely poor prospects of ever attaining any real
investment standing. See "Other Investments--High Yield Debt Securities (Junk
Bonds)" below. See "Description of Security Ratings" in the Statement of
Additional Information.

SPECIAL CONSIDERATIONS AND RISKS OF INVESTING IN LATIN AMERICAN SECURITIES

LATIN AMERICAN SECURITIES INVOLVE CERTAIN RISKS WHICH SHOULD BE CONSIDERED
CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL OR
ECONOMIC INSTABILITY IN THE COUNTRIES IN WHICH THE ISSUER'S PRINCIPAL
ACTIVITIES TAKE PLACE, THE DIFFICULTY OF PREDICTING INTERNATIONAL TRADE
PATTERNS, THE POSSIBILITY OF IMPOSITION OF EXCHANGE CONTROLS AND THE RISK OF
CURRENCY FLUCTUATIONS. Such securities may be, and in the recent past have
been, subject to greater fluctuations in price than securities issued by U.S.
corporations; securities issued or guaranteed by the U.S. Government, its
instrumentalities or agencies; or securities of companies in other global
regions. In addition, there may be less publicly available information about a
Latin American company than about a domestic company. Foreign companies,
including Latin American companies, generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies in Latin
America than in the United States and an increased risk, therefore, of
uninsured loss due to lost, stolen or counterfeit stock certificates. Certain
countries may have only one securities depository which, if the Fund decides
to invest in securities that are located at such depository, may result in
risks to the Fund that cannot be avoided. With respect to certain Latin
American countries, there is a possibility of expropriation, nationalization,
confiscatory taxation or diplomatic developments which could affect investment
in those countries. In the event of a default on debt obligations of Latin
American issuers, it may be more difficult for the Fund to obtain or to
enforce a judgment against the issuers of such securities. The Fund may
encounter difficulties or be unable to vote proxies, exercise shareholder
rights, pursue legal remedies and obtain judgments in foreign courts. Also,
some countries may withhold portions of income and dividends at the source.
Finally, developing markets may have increased risks associated with clearance
and settlement as well as increased costs for commissions, custodial services
and other items associated with making an investment. Delays in settlement
could result in periods of uninvested assets, missed investment opportunities
or losses to the Fund.

ALTHOUGH THE FUND INTENDS TO INVEST PRIMARILY IN EQUITY RELATED SECURITIES,
IT MAY INVEST FROM TIME TO TIME IN DEBT SECURITIES OF LATIN AMERICAN ISSUERS.
In many instances, debt securities of Latin American issuers may provide
higher yields than securities of domestic issuers which have similar
maturities and are of similar quality. Under certain market conditions these
investments may be less liquid 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.

7
<PAGE>

Shareholders should be aware that investing in the equity and fixed-income
markets of Latin American countries involves exposure to economies that are
generally less diverse and mature, and to political systems which can be
expected to have less stability, than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries and have often experienced
extremely high rates of inflation.

Many Latin American countries have economies based on only a few commodities
or industries and securities markets that trade infrequently or with low
levels of volume. Additionally, some Latin American countries may also
restrict the extent to which foreign investors may invest in their securities
markets or in a particular company.

HEDGING AND RETURN ENHANCEMENT STRATEGIES

OPTIONS TRANSACTIONS

8
<PAGE>

to purchase. The Fund may also purchase put and call options to offset
previously written put and call options of the same series. See "Investment
Objective and Policies--Options Transactions" in the Statement of Additional
Information.

9
<PAGE>

FORWARD CURRENCY EXCHANGE CONTRACTS

THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a currency bearing a substantial correlation to
the value of that currency (a cross hedge). Although there are no limits on
the number of forward contracts which the Fund may enter into, the Fund may
not position hedge (including cross hedges) with respect to a particular
currency for an amount greater than the aggregate market value (determined at
the time of making any sale of the foreign currency) of the securities held in
its portfolio denominated or quoted in, or currently convertible into, such
currency. See "Investment Objective and Policies--Risks Related to Forward
Currency Exchange Contracts" in the Statement of Additional Information.

FUTURES CONTRACTS AND OPTIONS THEREON

THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR
CERTAIN HEDGING AND RISK MANAGEMENT PURPOSES AND TO ATTEMPT TO ENHANCE RETURN
IN ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION.
The Fund, and thus investors, may lose money through any unsuccessful use of
these strategies. These futures contracts and options thereon will be on
financial indices and foreign currencies or groups of foreign currencies. A
financial futures contract is an agreement to purchase or sell an agreed
amount of securities or currency at a set price for delivery in the future. A
stock index futures contract is an agreement in which one party agrees to
deliver to another an amount of 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 is made. The Fund may purchase
and sell stock index futures or related options as a hedge against changes in
market conditions.

10
<PAGE>

RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES

PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. THE FUND, AND THUS
INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES. If
the investment adviser's predictions of movements in the direction of
securities, foreign currencies and interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than
if such strategies were not used. Risks inherent in the use of options,
foreign currency exchange contracts and futures contracts and options thereon
include (1) dependence on the investment adviser's ability to predict
correctly movements in the direction of interest rates, securities prices and
currency markets; (2) imperfect correlation between the price of options and
futures contracts and options thereon and movements in the prices of the
securities or currencies being hedged; (3) the fact that 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 possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the
possible inability of the Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need
for the Fund to sell a portfolio security at a disadvantageous time, due to
the need for the Fund to maintain "cover" or to segregate securities in
connection with hedging transactions. See "Taxes, Dividends & Distributions"
in the Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

DEPOSITARY RECEIPTS

CONVERTIBLE SECURITIES

11
<PAGE>

that afforded by a similar nonconvertible security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation dependent upon a market price advance
in the convertible security's underlying common stock.

WHEN-ISSUED OR 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 maintain, in a segregated account of
the Fund, cash or other liquid assets, marked-to-market daily, 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. See "Investment Objective and
Policies--When Issued or Delayed Delivery Securities" in the Statement of
Additional Information.

REPURCHASE AGREEMENTS

SECURITIES LENDING

12
<PAGE>

INVESTMENT FUNDS

ILLIQUID SECURITIES

The Fund may hold up to 15% of its net assets (determined at the time of
investment) in illiquid securities, including repurchase agreements which have
a maturity of longer than seven days, securities with legal or contractual
restrictions on resale (restricted securities) and securities that are not
readily marketable in securities markets either within or outside of the
United States. Restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933, as amended (the Securities Act), and
privately placed commercial paper that have a readily available market are not
considered illiquid for purposes of this limitation. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Trustees. 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. See "Investment Objective and Policies--Illiquid
Securities" in the Statement of Additional Information. Repurchase agreements
subject to demand are deemed to have a maturity equal to the applicable notice
period.

HIGH YIELD DEBT SECURITIES (JUNK BONDS)

13
<PAGE>

BORROWING

PORTFOLIO TURNOVER

INVESTMENT RESTRICTIONS

HOW THE FUND IS MANAGED

MANAGER

14
<PAGE>

The Fund's portfolio has been managed since its inception by a team of
investment professionals led by Maria Elena Carrion. Ms. Carrion oversees the
investment process and manages the overall regional and country allocations of
the Fund. Ms. Carrion has been employed by PIC since 1997. Prior to joining
PIC, Ms. Carrion was employed by Bankers Trust Company as a portfolio manager
beginning in April 1993. From June 1991 to April 1993, she was employed by
Latin American Securities (London). Ms. Carrion is a Chartered Financial
Analyst.

PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.

DISTRIBUTOR

UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL
RATE OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES.
The Class A Plan provides that up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and other distribution fees.

15
<PAGE>

used to pay for personal service and/or the maintenance of shareholder
accounts. Prudential Securities also receives contingent deferred sales
charges from certain redeeming shareholders. See "Shareholder Guide--How to
Sell Your Shares--Contingent Deferred Sales Charges."

The Fund records all payments made under the Plans as expenses in the
calculation of net investment income. See "Distributor" in the Statement of
Additional Information.

The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges.

FEE WAIVERS

PORTFOLIO TRANSACTIONS

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

16
<PAGE>

YEAR 2000

The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of their outside providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund,
the Manager, the Distributor, the Transfer Agent and the Custodian have
advised the Fund that they have been actively working on necessary changes to
their computer systems to prepare for the year 2000 and expect that their
systems, and those of their outside service providers, will be adapted in time
for that event.

HOW THE FUND VALUES ITS SHARES

HOW THE FUND CALCULATES PERFORMANCE

17
<PAGE>

Average annual total return smooths out variations in performance and takes
into account any applicable initial or contingent deferred sales charges.
Neither average annual total return nor aggregate total return takes into
account any federal or state income taxes which may be payable upon
redemption. The yield refers to the income generated by an investment in the
Fund over a one-month or 30-day period. This income is then "annualized"; that
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each 30-day period for twelve periods and is shown
as a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing
the Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

TAXATION OF SHAREHOLDERS

18
<PAGE>

Dividends received by corporate shareholders are eligible for a dividends-
received deduction of 70% to the extent the Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Dividends
attributable to interest income, capital and currency gain, gain or loss from
Section 1256 contracts, dividend income from foreign corporations and income
from some other sources will not be eligible for the corporate dividends
received deduction. Since the Fund is likely to have a substantial portion of
its assets invested in securities of foreign issuers, the amount of the Fund's
dividends eligible for the corporate dividends received deduction will be
minimal. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information. Corporate shareholders should consult their tax
advisers regarding other requirements applicable to the dividends received
deduction.

Shareholders should consult their own tax advisers regarding specific
questions as to federal, state or local taxes.

WITHHOLDING TAXES

DIVIDENDS AND DISTRIBUTIONS

19
<PAGE>

adviser to elect to receive dividends and distributions in cash. The Fund will
notify each shareholder after the close of the Fund's taxable year both of the
dollar amount and the taxable status of that year's dividends and
distributions on a per share basis.

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

THE FUND WAS ORGANIZED AS A SERIES OF PRUDENTIAL DEVELOPING MARKETS FUND, A
DELAWARE BUSINESS TRUST, ON OCTOBER 23, 1997. THE FUND IS AUTHORIZED TO ISSUE
AN UNLIMITED NUMBER OF SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE PER
SHARE, DIVIDED INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. Each class of shares represents an interest in the same assets
of the Fund and is identical in all respects except that (i) each class is
subject to different sales charges and distribution and/or service fees
(except for Class Z shares, which are not subject to any sales charges and
distribution and/or service fees), which may affect performance, (ii) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"How the Fund is Managed--Distributor." In accordance with the Prudential
Developing Markets Fund's Declaration of Trust, the Board of Trustees may
authorize the creation of additional series and classes within such series,
with such preferences, privileges, limitations and voting and dividend rights
as the Board of Trustees may determine.

ADDITIONAL INFORMATION

20
<PAGE>

with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the office of the SEC in Washington, D.C.

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.

Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first 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 Developing Markets Fund, Latin America Equity Fund
Series, 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).

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Developing
Markets Fund, Latin America Equity Fund Series, 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.

21
<PAGE>

ALTERNATIVE PURCHASE PLAN

<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------------- ------------------------ --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% Initial sales charge waived or reduced
the public offering price (currently being for certain purchases
charged at a rate
of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another class
of the amount invested or the
redemption proceeds on redemptions
made within one year of purchase
CLASS Z None None Sold to a limited group of investors
</TABLE>

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:

22
<PAGE>

CLASS A SHARES

The Distributor may reallow the entire sales charge to dealers. Selling
dealers may be deemed to be underwriters, as that term is defined in the
Securities Act.

REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable

23
<PAGE>

reduction. See "Purchase and Redemption of Fund Shares--Reduction and Waiver
of Initial Sales Charges--Class A Shares" in the Statement of Additional
Information.

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.

24
<PAGE>

Prudential Securities and 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, (c) employees of subadvisers of
the Prudential Mutual Funds provided that such purchases at NAV are permitted
by such person's employer, (d) Prudential employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of its subsidiaries, (e) registered
representatives and employees of dealers who have entered into a selected
dealer agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer, (f) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) 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, (ii) 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
(iii) the financial adviser served as the client's broker on the previous
purchase, and (g) investors in Individual Retirement Accounts, provided the
purchase is made with the proceeds of a tax-free rollover of assets from a
Benefit Plan for which Prudential Investments serves as the recordkeeper or
administrator.

You must notify the Transfer Agent either directly or through your dealer
that you are entitled to the reduction or waiver of the sales charge. The
reduction or waiver will be granted subject to confirmation of your
entitlement. No initial sales charges are imposed upon Class A shares acquired
upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.

CLASS B AND CLASS C SHARES

The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV per share next determined
following receipt of an order by the Transfer Agent, Prudential Securities or
Prusec. Although there is no sales charge imposed at the time of purchase,
redemptions of Class B and Class C shares may be subject to a CDSC. See "How
to Sell Your Shares--Contingent Deferred Sales Charges" below. The Distributor
will pay from its own resources, sales commissions of up to 4% of the purchase
price of Class B shares to dealers, financial advisers and other persons who
sell Class B shares at the time of sale. This facilitates the ability of the
Fund to sell the Class B shares without an initial sales charge being deducted
at the time of purchase. The Distributor anticipates that it will recoup its
payment of sales commissions from the combination of the CDSC and the
distribution fee. See "How the Fund is Managed--Distributor." In connection
with the sale of Class C shares, the Distributor will pay, from its own
resources, dealers, financial advisers and other persons which distribute
Class C shares a sales commission of up to 1% of the purchase price at the
time of the sale.

CLASS Z SHARES

Class Z shares of the Fund are currently available for purchase by the
following categories of investors: (i) 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;
(ii) participants in any fee-based program or trust program sponsored by
Prudential Securities, The Prudential Savings Bank, F.S.B. or any affiliate
which includes mutual funds as investment options and for which the Fund is an
available option; (iii) certain participants in the MEDLEY Program (group
variable annuity contracts) sponsored by Prudential for whom Class Z shares of
the Prudential Mutual Funds are an available investment option; (iv) Benefit
Plans for which Prudential Retirement Services serves as recordkeeper and
that, as of September 20, 1996, (a) were Class Z shareholders of the
Prudential Mutual Funds or (b) executed a letter of intent to purchase Class Z
shares of the Prudential Mutual Funds; (v) current and former
Directors/Trustees of the Prudential Mutual Funds (including the Fund); and
(vi) employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee savings plan.

25
<PAGE>

HOW TO SELL YOUR SHARES

PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY
WIRE OR BY CERTIFIED OR CASHIER'S CHECK.

26
<PAGE>

with applicable rules of the SEC. Securities will be readily marketable and
will be valued in the same manner as a regular redemption. See "How the Fund
Values its Shares." If your shares are redeemed in kind, you will 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.

CONTINGENT DEFERRED SALES CHARGES

27
<PAGE>

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

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.

28
<PAGE>

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.

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

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES

CONVERSION FEATURE--CLASS B SHARES

29
<PAGE>

or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase
of such shares.

HOW TO EXCHANGE YOUR SHARES

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. SEE "HOW TO SELL YOUR SHARES" ABOVE.

You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.

30
<PAGE>

The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.

SHAREHOLDER SERVICES

In addition to the Exchange Privilege, as a shareholder of the Fund, you can
take advantage of the following services and privileges:

31
<PAGE>

subsequent dividends and/or distributions sent in cash rather than reinvested.
If you hold shares through Prudential Securities, you should contact your
financial adviser.

For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.

32
<PAGE>

APPENDIX

PERFORMANCE INFORMATION

(1) PIC manages the portfolio of the Private Account, which held approximately
[ ] in assets as of [ ]. The investment objectives, policies and
strategies of the Private Account are substantially similar to those of
the Fund. The performance of the Private Account is not the performance of
the Fund (which as of [ ] had not begun operations) and should not be
considered indicative of the future performance of the Fund. The Private
Account is not subject to certain investment limitations, diversification
requirements, and other restrictions imposed by the investment Company Act
of 1940 and the Internal Revenue Code which may adversely affect
performance. The performance of the Private Account has been calculated in
compliance with the performance presentation standards of the Association
for Investment Management and Research.

These results are unaudited

A-1
<PAGE>

THE PRUDENTIAL MUTUAL FUND FAMILY

TAXABLE BOND FUNDS

TAX-EXEMPT BOND
FUNDS

GLOBAL FUNDS

Prudential Developing Markets Fund

Developing Markets Equity Fund

Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series

The Global Total Return Fund, Inc.
Global Utility Fund, Inc.

EQUITY FUNDS

Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.

Prudential Index Series Fund

Prudential Active Balanced Fund

Prudential Bond Market Index Fund

Prudential Europe Index Fund

Prudential Pacific Index Fund

Prudential Small-Cap Index Fund

Prudential Stock Index Fund

Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund

Prudential Jennison Series Fund, Inc.

Prudential Jennison Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.

Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS

. Taxable Money Market Funds

Cash Accumulation Trust

Liquid Assets Fund

B-1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS........................................................... 2
What are the Fund's Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................. 4
HOW THE FUND INVESTS...................................................... 5
Investment Objective and Policies........................................ 5
Special Considerations and Risks of Investing in Latin American
Securities............................................................. 7
Hedging and Return Enhancement Strategies................................ 8
Other Investments and Policies........................................... 11
Investment Restrictions.................................................. 14
HOW THE FUND IS MANAGED................................................... 14
Manager.................................................................. 14
Distributor.............................................................. 15
Fee Waivers.............................................................. 16
Portfolio Transactions................................................... 16
Custodian and Transfer and Dividend Disbursing Agent..................... 16
Year 2000................................................................ 17
HOW THE FUND VALUES ITS SHARES............................................ 17
HOW THE FUND CALCULATES PERFORMANCE....................................... 17
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 18
GENERAL INFORMATION....................................................... 20
Description of Common Stock.............................................. 20
Additional Information................................................... 20
SHAREHOLDER GUIDE......................................................... 21
How to Buy Shares of the Fund............................................ 21
Alternative Purchase Plan................................................ 22
How to Sell Your Shares.................................................. 26
Conversion Feature--Class B Shares....................................... 29
How to Exchange Your Shares.............................................. 30
Shareholder Services..................................................... 31
APPENDIX.................................................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... B-1
</TABLE>
- --------------------------------------------------------------------------------

MF 136A 4441545

<TABLE>
<S> <C>
Class A:
Class B:
CUSIP Nos.: Class C:
Class Z:
</TABLE>

PRUDENTIAL
LATIN
AMERICA
EQUITY
FUND

PROSPECTUS

_____, 1998

www.prudential.com

LOGO PRUDENTIAL
Investments

<PAGE>

PRUDENTIAL DEVELOPING MARKETS FUND

PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND

Statement of Additional Information
dated , 1998

Prudential Developing Markets Fund (the Fund) is an open-end, diversified
management company presently consisting of two series: Prudential Developing
Markets Equity Fund and Prudential Latin America Fund (each, a Series and
collectively, the Series). The Fund has no prior history.

Prudential Developing Markets Equity Fund's investment objective is long-
term growth of capital. The Developing Markets Equity Fund seeks to achieve
its objective by investing primarily in equity related securities of companies
whose principal activities are in developing markets throughout the world.
Under normal circumstances, the Series will invest at least 65% of its total
assets in equity related securities of developing market issuers in at least
the three following regions: Europe, Asia and Latin America. "Developing
markets" include countries or markets that are defined as emerging or
developing by the International Finance Corporation, the International Bank
for Reconstruction and Development (World Bank) or the United Nations or its
authorities. The Series may also invest in equity related securities of other
companies and debt securities, engage in various derivatives transactions,
including options on equity securities, stock indices, foreign currencies and
futures contracts on foreign currencies, and may purchase and sell futures
contracts on foreign currencies, groups of currencies and stock indices so as
to hedge its portfolio and to attempt to enhance return. There can be no
assurance that the Series' investment objective will be achieved. See
"Investment Objective and Policies."

Prudential Latin America Equity Fund's investment objective is long term
growth of capital. It seeks to achieve this objective by investing primarily
in equity related securities of companies domiciled in, or doing business
principally in Latin America. "Latin America" is defined as Mexico and all
countries located in Central America and South America. Under normal
circumstances the Series intends to invest at least 65% of its total assets in
such securities. The Series may also invest in equity related securities of
other companies and debt securities, engage in various derivatives
transactions, including options on equity securities, stock indices, foreign
currencies and futures contracts on foreign currencies, and may purchase and
sell futures contracts on foreign currencies, groups of currencies and stock
indices so as to hedge its portfolio and to attempt to enhance return. There
can be no assurance that the Series' investment objective will be achieved.
See "Investment Objective and Policies."

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 for the relevant Series dated ,
1998, a copy of which may be obtained from the Fund upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
----- ---------------
<S> <C> <C>
Investment Objective and Policies........................ B-2 5
Investment Restrictions.................................. B-12 14
Trustees and Officers.................................... B-13 14
Manager.................................................. B-16 14
Distributor.............................................. B-17 15
Portfolio Transactions and Brokerage..................... B-18 16
Purchase and Redemption of Fund Shares................... B-19 22
Shareholder Investment Account........................... B-21 32
Net Asset Value.......................................... B-25 17
Taxes, Dividends and Distributions....................... B-25 18
Performance Information.................................. B-28 19
Custodian, Transfer and Dividend Disbursing Agent and In-
dependent Accountants................................... B-29 16
Appendix I--Description of Security Ratings.............. I-1 --
Appendix II--General Investment Information.............. II-1 --
Appendix III--Historical Performance Data................ III-1 --
Appendix IV--Information Relating to Prudential.......... IV-1 --
</TABLE>

- -------------------------------------------------------------------------------
MF136B 444-1553
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

PRUDENTIAL DEVELOPING MARKETS EQUITY FUND SERIES: The Prudential Developing
Markets Equity Fund's investment objective is long-term growth of capital. The
Developing Markets Equity Fund seeks to achieve its objective by investing
primarily in equity related securities of companies whose principal activities
are in developing markets throughout the world. "Developing markets" include
countries or markets that are defined as emerging or developing by the
International Finance Corporation, the International Bank for Reconstruction
and Development (World Bank) or the United Nations or its authorities. Under
normal circumstances, the Series intends to invest at least 65% of its total
assets in such securities in at least the three following regions: Europe,
Asia and Latin America. There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective
and Policies" in the Series' Prospectus.

PRUDENTIAL LATIN AMERICA EQUITY FUND SERIES: Prudential Latin America Equity
Fund's investment objective is long term growth of capital. It seeks to
achieve this objective by investing primarily in equity related securities of
companies domiciled in, or doing business principally in Latin America. "Latin
America" is defined as Mexico and all countries located in Central America and
South America. Under normal circumstances, the Series intends to invest at
least 65% of its total assets in such securities. There can be no assurance
that the Series investment objective will be achieved. See "Investment
Objective and Policies" in the Series' Prospectus.

PORTFOLIO STRATEGY

In selecting portfolio securities, The Prudential Investment Corporation
(PIC), doing business as Prudential Investments (PI or the Subadviser),
focuses on individual companies with the potential for long-term capital
growth, including established companies with the potential for high earnings
growth and smaller and medium-sized companies that are well positioned to
adapt to market and industry changes. The Subadviser identifies such companies
on the basis of fundamental analysis, which involves assessing a company and
its business environment, management, balance sheet, income statement,
anticipated earnings and dividends and other related measures of value.
Although the primary portfolio management approach is company analysis, the
Subadviser also analyzes foreign currency movements against the U.S. dollar in
order to manage the foreign currency exposure of each Series and performs an
analysis of individual countries. The Subadviser uses a variety of sources and
techniques in analyzing these companies and countries and maintains strong
local contacts in securities markets around the world. The Subadviser monitors
and evaluates the economic and political climate and principal securities
markets of the country in which each company is located. The Subadviser has
broad access to international research and financial reports, data retrieval
services and industry analysts. In addition, the Subadviser maintains
relationships with the management of corporate issuers and from time to time
visits companies overseas in whose securities a Series may invest.

OPTIONS TRANSACTIONS

OPTIONS ON EQUITY SECURITIES. Each Series intends to purchase and write
(i.e., sell) put and call options that are traded on U.S. or foreign
securities exchanges or that are listed on NASDAQ or that are traded over-the-
counter. A call option is a short-term contract (having a duration of nine
months or less) pursuant to which the purchaser, in return for a premium paid,
has the right to buy the security underlying the option at a specified
exercise price at any time during the term of the option. The writer of the
call option, who receives the premium, has the obligation, upon exercise of
the option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract which gives the purchaser, in return
for a premium, the right to sell the underlying security at a specified price
during the term of the option. The writer of the put, who receives the
premium, has the obligation to buy the underlying security upon exercise at
the exercise price. The premium paid by the purchaser of an option will
reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates. Each Series will write put
options only when the investment adviser desires to invest in the underlying
security.

A call option written by a Series is "covered" if such Series owns the
security underlying the option or has an absolute and immediate right to
acquire that security without additional consideration (or for additional
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if a Series holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or is greater
than the exercise price of the call written if the difference is maintained by
such Series in cash or other liquid assets in a segregated account with its
Custodian. A put option written by a Series is "covered" if the Series either
maintains in a segregated account with its Custodian cash, U.S. Government
obligations, equity securities or other liquid, unencumbered assets with a
value, marked to market daily, equal to the exercise price or holds on a
share-for-share basis a put of the same security as the put written if the
exercise price of the put held is equal to or greater than the exercise price
of the put written.

"Liquid Assets," as used in each Series' Prospectus and this Statement of
Additional Information, include U.S. Government securities, equity securities
(including foreign securities), investment grade debt obligation and other
liquid unencumbered assets.

B-2
<PAGE>

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

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

A Series may also purchase a "protective put," i.e., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, such Series
acquires the right to sell the underlying security at the exercise price of
the put regardless of the extent to which the underlying security declines in
value. The loss to such Series is limited to the premium paid for, and
transaction costs in connection with, the put plus the initial excess, if any,
of the market price of the underlying security over the exercise price.
However, if the market price of the security underlying the put rises, the
profit such Series realizes on the sale of the security will be reduced by the
premium paid for the put option less any amount (net of transaction costs) for
which the put may be sold. Similar principles apply to the purchase of puts on
stock indices, as described below.

OPTIONS ON STOCK INDICES. In addition to options on equity securities, a
Series may also purchase and sell put and call options on stock indices traded
on securities exchanges, listed on NASDAQ or traded over-the-counter. Options
on stock indices are similar to options on stock except that, rather than the
right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the stock 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 stock options, all
settlements are in cash, and gain or loss depends on price movements in the
stock market generally (or in a particular industry or segment of the market)
rather than price movements in individual stocks.

The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an
option and the current level of the underlying index. A multiplier of 100
means that a one-point difference will yield $100. Options on different
indices may have different multipliers.

Because exercises of index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific stocks, cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. In addition, unless a Series has other liquid assets which are
sufficient to satisfy the exercise of a call, such Series would be required to
liquidate portfolio securities or borrow in order to satisfy the exercise.

Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether a Series will
realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of stock prices in the stock market
generally or in an industry or market segment rather than movements in the
price of a particular stock. Accordingly, successful use by a Series of
options on indices would be subject to the Subadviser's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. The Subadviser currently
uses such techniques in conjunction with the management of other mutual funds.

B-3
<PAGE>

RISKS OF TRANSACTIONS IN OPTIONS

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

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) 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. Each Series 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

Each Series' 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.

Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, a Series 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 a Series. It is each Series' 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.

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. Each
Series will not purchase or sell any index option contract unless and until,
in the Subadviser'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 either Series 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, each Series will write call options on indices only under
the circumstances described below under "Limitations on Purchase and Sale of
Stock Options and Options on Stock Indices, Foreign Currencies and Futures
Contracts on Foreign Currencies."

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

B-4
<PAGE>

Unless a Series has other liquid assets which are sufficient to satisfy the
exercise of a call, such Series 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 a Series fails
to anticipate an exercise, it may have to borrow from a bank (in amounts not
exceeding 20% of such Series' total assets) pending settlement of the sale of
securities in its portfolio and would incur interest charges thereon.

When a Series has written a call on an index, there is also a risk that the
market may decline between the time such Series 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 such Series is able to sell stocks in its portfolio
to generate cash to settle the exercise. As with stock options, a Series will
not learn that an index option has been exercised until the day following the
exercise date but, unlike a call on stock where a Series would be able to
deliver the underlying securities in settlement, a Series may have to sell
part of its investment portfolio in order to make settlement in cash, and the
price of such investments 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 a Series has written is "covered" by an index call held by
such Series with the same strike price, such Series 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 such Series exercises the call it holds or the time such
Series sells the call which, in either case, would occur no earlier than the
day following the day the exercise notice was filed.

If a Series 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, a Series will be
required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer. Although a Series may be able to minimize this risk by withholding
exercise instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the
cutoff times for index options may be earlier than those fixed for other types
of options and may occur before definitive closing index values are announced.

SPECIAL RISKS OF OTC OPTIONS

When a Series writes an OTC option, it generally will be able to close out
the OTC option prior to its expiration only by entering into a closing
purchase transaction with the dealer with which the relevant Series originally
wrote the OTC option. Any such cancellation if agreed to, may require the
relevant Series to pay a premium to the counterparty. While a Series will
enter into OTC options only with dealers which agree to, and which are
expected to be capable of, entering into closing transactions with such
Series, there can be no assurance that such Series will be able to liquidate
an OTC option at a favorable price at any time prior to expiration. Until a
Series is able to effect a closing purchase transaction in a covered OTC call
option that such Series has written, it will not be able to liquidate
securities used as cover until the option expires or is exercised or different
cover is substituted. Alternatively, a Series could write an OTC call option
to, in effect, close an existing OTC call option or write an OTC put option to
close its position on an OTC put option. However, the Series would remain
exposed to each counterparty's credit risk on the put or call until such
option is exercised or expires. There is no guarantee that a Series will be
able to write put or call options, as the case may be, that would effectively
close an existing position. In the event of insolvency of the counterparty, a
Series may be unable to liquidate an OTC option.

In entering into OTC options, a Series will be exposed to the risk that the
counterparty will default on, or be unable to complete, due to bankruptcy or
otherwise, its obligation on the option. In such event, a Series may lose the
benefit of the transaction. The value of an OTC option to a Series is
dependent upon the financial viability of the counterparty. If a Series
decides to enter into transactions in OTC options, the Subadviser will take
into account the credit quality of counterparties in order to limit the risk
of default by the counterparty.

RISKS OF OPTIONS ON FOREIGN CURRENCIES

Because there are two currencies involved, developments in either or both
countries can affect the values of options on foreign currencies. Risks
include those described in the Prudential Developing Markets Equity Fund
Prospectus under "How the Fund Invests--Investment Objective and Policies--
Special Considerations and Risks of Investing in Developing Market Securities"
and the Prudential Latin America Fund Prospectus under "How the Fund Invests--
Investment Objective and Policies--Special Considerations and Risks of
Investing in Latin American Securities," including government actions
affecting currency valuation and the movements of currencies from one country
to another. The quantities of currency underlying option contracts represent
odd lots in a market dominated by transactions between banks; this can mean
extra transaction costs upon exercise. Option markets may be closed while
round-the-clock interbank currency markets are open, which can create price
and rate discrepancies.

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<PAGE>

RISKS RELATED TO FORWARD CURRENCY EXCHANGE CONTRACTS

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

Additionally, when the Subadviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, a
Series may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
such Series' portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in denominated foreign currencies will change as a consequence of
market movements in the value of those securities between the date on which
the forward contract is entered into and the date it matures. The projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain. A
Series does not intend to enter into such forward contracts to protect the
value of its portfolio securities on a regular or continuous basis. A Series
will also not enter into such forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate such
Series to deliver an amount of foreign currency in excess of the value of such
Series' portfolio securities or other assets denominated in that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made
with regard to overall diversification strategies. However, the Manager and
Subadviser believe that it is important to have the flexibility to enter into
such forward contracts when they determine that the best interests of a Series
will thereby be served. If a Series enters into a position hedging
transaction, the transaction will be "covered" by the position being hedged,
or the Series' Custodian or subcustodian will place cash or other liquid
assets in a segregated account of such Series (less the value of the
"covering" positions, if any) in an amount equal to the value of such Series'
total assets committed to the consummation of the given forward contract. The
assets placed in the segregated account will be marked to market daily, and if
the value declines, additional cash or securities will be placed in the
account so that the value of the account will, at all times, equal the amount
of a Series' net commitment with respect to the forward contract. A Series'
ability to enter into forward foreign currency exchange contracts may be
limited by certain requirements for qualification as a regulated investment
company under the Internal Revenue Code. See "Taxes, Dividends and
Distributions."

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

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

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

A Series' dealings in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, a Series is not
required to enter into such transactions with regard to its foreign currency-
denominated securities. It also should be realized that this method of
protecting the value of a Series' portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying
prices of the securities which are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result should the value of such currency increase.

B-6
<PAGE>

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

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

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 currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. In the case of futures contracts on stock indices, the correlation
between the price of the futures contract and the movements in the index may
not be perfect. Therefore, a correct forecast of currency rates, market trends
or international political trends by the Subadviser may still not result in a
successful hedging transaction.

Although each Series will purchase or sell futures contracts only on
exchanges where there appears to be an adequate secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular contract or at any particular time. Accordingly, there can be no
assurance that it will be possible, at any particular time, to close a futures
position. In the event a Series could not close a futures position and the
value of such position declined, such Series would be required to continue to
make daily cash payments of variation margin. There is no guarantee that the
price movements of the portfolio securities denominated in foreign currencies
will, in fact, correlate with the price movements in the futures contract 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, Swiss Franc, German Mark and Euro, among others. Futures
contracts are also available on the S&P 500 Stock Index, the NYSE Composite
Index and the Major Market Index, and other global exchanges.

Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the
Investment Company Act), are exempt from the definition of "commodity pool
operator," subject to compliance with certain conditions. The exemption is
conditioned upon a Series' purchasing and selling futures contracts and
options thereon for bona fide hedging transactions, except that a Series 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 liquidation value of the relevant Series' total assets. Each
Series will use currency futures and options on futures or commodity options
contracts in a manner consistent with these requirements.

Successful use of futures contracts by a Series is also subject to the
ability of such Series' Subadviser to predict correctly movements in the
direction of markets and other factors affecting currencies or the stock
market generally. For example, if a Series has hedged against the possibility
of an increase in currency rates which would adversely affect the price of
securities in its portfolio and the price of such securities increases
instead, such Series 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 a Series 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. A Series
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 a Series may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be
reflected in the futures markets.

OPTIONS ON FUTURES CONTRACTS

An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of
the option is required upon exercise to assume an offsetting futures position
(a short position if the option is a call and a long position if the option is
a put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin
account which represents the amount by which the market price of the futures
contract, at exercise, exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
Currently options can be purchased or written with respect to futures
contracts on the Australian Dollar, British Pound, Canadian Dollar, Japanese
Yen, Swiss Franc, German Mark and Euro, among others. With respect to stock
indices, options are traded on futures contracts for the S&P 500 Stock Index
and the NYSE Composite Index and other global indices.

B-7
<PAGE>

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

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

Each Series may write put and call options on stocks only if they are
covered, and such options must remain covered so long as the Fund is obligated
as a writer. Each Series will write put options on stock indices and foreign
currencies and futures contracts on foreign currencies only if they are
covered by segregating with the Fund's Custodian an amount of cash, short-term
investments or other liquid assets equal to the aggregate exercise price of
the puts. During the coming fiscal year, neither Series intends to purchase or
sell options on equity securities or stock indices if the aggregate premiums
paid for such outstanding options would exceed 5% of the relevant Series'
total assets.

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

If a Series has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," all of which
are stocks of issuers in such industry or market segment, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such stocks will
include stocks which represent at least 50% of the weighting of the industry
or market segment index and will represent at least 50% of the relevant
Series' holdings in that industry or market segment. No individual security
will represent more than 15% of the amount so segregated, pledged or escrowed
in the case of broadly-based stock market index options or 25% of such amount
in the case of industry or market segment index options. If at the close of
business on any day the market value of such qualified securities so
segregated, escrowed or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, a Series will so
segregate, escrow or pledge an amount in cash, or other liquid assets equal in
value to the difference. In addition, when a Series writes a call on an index
which is in-the-money at the time the call is written, such Series will
segregate with its Custodian or pledge to the broker as collateral cash or
other liquid assets equal in value to the amount by which the call is in-the-
money times the multiplier times the number of contracts. Any amount
segregated pursuant to the foregoing sentence may be applied to a Series'
obligation to segregate additional amounts in the event that the market value
of the qualified securities falls below 100% of the current index value times
the multiplier times the number of contracts. A "qualified security" is an
equity security which is listed on a national securities exchange or listed on
NASDAQ against which the relevant Series has not written a stock call option
and which has not been hedged by such Series by the sale of stock index
futures. However, if a Series holds a call on the same index as the call
written and the exercise price of the call held either is equal to or less
than the exercise price of the call written or is greater than the exercise
price of the call written but the difference is maintained by such Series in
cash or other liquid assets in a segregated account with its Custodian, it
will not be subject to the requirements described in this paragraph.

Each Series intends to engage in futures contracts and options on futures
transactions as a hedge against changes, resulting from market or political
conditions, in the value of the currencies to which such Series is subject or
to which such Series expects to be subject in connection with future
purchases. Each Series also intends to engage in such transactions when they
are economically appropriate for the reduction of risks inherent in the
ongoing management of such Series. Each Series may write options on futures
contracts to realize through the receipt of premium income a greater return
than would be realized in a Series' portfolio securities alone.

POSITION LIMITS. Transactions by a Series 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 a Series may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
Manager or Subadviser. An exchange, board of trade or other trading facility
may order the liquidation of positions found to be in excess of these limits,
and it may impose certain other sanctions.

B-8
<PAGE>

BRADY BONDS

Each Series may invest in certain debt obligations customarily referred to
as "Brady Bonds," which are created in connection with debt restructuring
through the exchange of existing commercial bank loans to sovereign entities
for new obligations under a plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented in a number of countries to date including Argentina,
Brazil, Bulgaria, Costa Rica, Croatia, the Dominican Republic, Ecuador, Ivory
Coast, Jordan, the former Yugoslav Republic of Macedonia, Mexico, Nigeria,
Panama, Peru, the Philippines, Poland, Russia, Slovenia, Uruguay, Venezuela
and Vietnam (collectively, the "Brady Countries"). In addition, some countries
have reached an agreement in principle to restructure their bank debt
according to a Brady Plan and other countries are expected to negotiate
similar restructurings in the future. In some cases countries have
restructured or are planning to restructure their external bank debt into new
loans or promissory notes.

Many of the Brady Bonds have been issued relatively recently, and,
accordingly, do not have a long payment history. They may be collateralized or
uncollateralized and issued in various currencies (although most are U.S.
dollar-denominated), and they have been actively traded in the over-the-
counter secondary market.

U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in
full as to principal by U.S. Treasury zero coupon bonds which have the same
maturity as the Brady Bonds. Interest payments on these Brady Bonds generally
are collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest
payments. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). There can be
no assurance that Brady Bonds in which a Series may invest will not be subject
to restructuring arrangements or to requests for new credit, which may cause
such Series to suffer a loss of interest or principal on any of its holdings.

Most Brady Bonds issued by Mexico to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or
comparable collateral denominated in other currencies) and interest coupon
payments collateralized on an 18-month rolling-forward basis by funds held in
escrow by an agent for the bondholders. A significant portion of Brady Bonds
issued by Venezuela and Argentina to date have principal repayments at final
maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New
York as collateral agent.

In light of the residual risk of Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady Bonds
are generally considered speculative. In addition, many Brady Bonds currently
are rated below investment grade. These securities are subject to each Series'
current operating policy of not investing more than 10% of its assets in debt
securities rated lower than Baa by Moody's or BBB by S&P.

DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

When conditions dictate a temporary defensive strategy (which during periods
of market volatility could be for an extended period of time), a Series may
invest in money market instruments, including commercial paper of domestic
corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, obligations issued or guaranteed by
the U.S. Government, its agencies or its instrumentalities and repurchase
agreements (described more fully below). 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.

WHEN-ISSUED OR DELAYED DELIVERY SECURITIES

From time to time, in the ordinary course of business, a Series may purchase
securities on a when-issued or delayed delivery basis; that is, delivery and
payment can take place a month or more after the date of the transaction. A
Series will make commitments for such when-issued or delayed delivery
transactions only with the intention of actually acquiring the securities. The
Fund's Custodian will maintain, in a separate account of the relevant Series,
cash, or other liquid, unencumbered assets, marked-to-market daily, having a
value equal to or greater than such commitments. If a Series chooses to
dispose of the right to acquire a when-issued or delayed delivery security
prior to its acquisition, it could, as with the disposition of any other
portfolio security, incur

B-9
<PAGE>

a gain or loss due to market fluctuations. The Series do not intend to have
more than 5% of their respective net assets (determined at the time of
entering into the transaction) involved in transactions on a when-issued or
delayed delivery basis during the coming year.

SHORT SALES AGAINST-THE-BOX

Each Series may make short sales of securities or maintain a short position,
provided that (i) at all times when a short position is open the relevant
Series owns an equal amount of such securities or securities convertible into
or exchangeable, without payment of any further consideration, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box) and (ii) not more than 25% of the relevant Series'
net assets (determined at the time of the short sale) may be subject to such
sales. The Series do not intend to have more than 5% of their respective net
assets (determined at the time of the short sale) subject to short sales
against-the-box during the coming year.

REPURCHASE AGREEMENTS

Each Series' repurchase agreements will be collateralized by U.S. Government
obligations. A Series' will enter into repurchase transactions only with
parties meeting creditworthiness standards approved by the Fund's Board of
Trustees. Each Series' Subadviser will monitor the creditworthiness of such
parties, under the general supervision of the Board of Trustees. In the event
of a default or bankruptcy by a seller, a Series will promptly seek to
liquidate the collateral. To the extent that the proceeds from any sale of
such collateral upon a default in the obligation to repurchase are less than
the repurchase price, a Series will suffer a loss.

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

LENDING OF PORTFOLIO SECURITIES

Consistent with applicable regulatory requirements, a Series may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 30% of the value of the
relevant Series' total assets and provided that such loans are callable at any
time by such Series and are at all times secured by cash or equivalent
collateral (or a letter of credit) that is equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is
that a Series continues to receive payments in lieu of the interest and
dividends of the loaned securities, while at the same time earning interest
either directly from the borrower or on the collateral which will be invested
in short-term obligations.

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

Since voting or consent rights which accompany loaned securities pass to the
borrower, each Series 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 relevant Series'
investment in the securities which are the subject of the loan. Each Series
will pay reasonable finders', administrative and custodial fees in connection
with a loan of its securities or may share the interest earned on collateral
with the borrower.

SECURITIES OF OTHER INVESTMENT COMPANIES

A Series may invest up to 5% of its total assets in securities of other
registered investment companies. Each Series does not intend to invest in such
securities during the coming fiscal year. If a Series does invest in
securities of other registered investment companies, shareholders of such
Series may be subject to duplicate management and advisory fees.

SEGREGATED ACCOUNTS

The Fund will establish a segregated account with its Custodian, State
Street Bank and Trust Company, in which it will maintain 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

B-10
<PAGE>

covered). If collateralized or otherwise covered, in accordance with SEC
guidelines, these will not be deemed to be senior securities. The assets
deposited in the segregated account will be marked-to-market daily.

ILLIQUID SECURITIES

A Series may not hold more than 15% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market (either within or outside of the United
States) or legal or contractual restrictions on resale. 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.

Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Trustees. In reaching liquidity decisions, the Subadviser will
consider, inter alia, 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 (e.g., 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, (i) 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 (ii) it must not be "traded
flat" (i.e., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.

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

PORTFOLIO TURNOVER

As a result of the investment policies described above, a Series may engage
in a substantial number of portfolio transactions, but such Series' portfolio
turnover rate is not expected to exceed 250%. 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 dates at acquisition were one year or less) by the
monthly average value of the portfolio. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs,
which are borne directly by such Series. 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
"Portfolio Transactions and Brokerage" and "Taxes, Dividends and
Distributions."

B-11
<PAGE>

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without (i) in the case of the Prudential
Developing Markets Equity Fund, the approval of the holders of a majority of
such Series outstanding voting securities and (ii) in the case of the
Prudential Latin America Equity Fund, the approval of the holders of a
majority of such Series' outstanding voting securities. A "majority of such
Series' outstanding voting securities," when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting
shares are present in person or represented by proxy or (ii) more than 50% of
the outstanding voting shares.

A Series may not:

1. Purchase securities on margin (but a Series may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Series 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, except to
the extent permitted by applicable law. The Fund currently does not intend to
engage in short sales.

3. Issue senior securities, borrow money or pledge its assets, except that a
Series may borrow up to 33 1/3% 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. A Series 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 exchange contracts and collateral 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 a Series to Trustees pursuant to
deferred compensation arrangements are not deemed to be a pledge of assets or
the issuance of a senior security.

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 a
Series' total assets, more than 5% of such 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 investment)
would be invested in a single industry.

5. Purchase any security if as a result such Series would then hold more
than 10% of the outstanding voting securities of an issuer.

6. Buy or sell real estate or interests in real estate, except that a Series
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.

7. Purchase or sell commodities or contracts on commodities, except to the
extent that such Series may do so in accordance with applicable law and the
Series' Prospectus and this Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.

8. 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.

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

10. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities.

Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Series' assets or net assets, it is intended that if
the percentage limitation is met at the time the investment is made, then 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
a Series' asset coverage for borrowings falls below 300%, such Series will
take prompt action to reduce its borrowings, as required by applicable law.

B-12
<PAGE>

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
<S> <C> <C>
Edward Trustee President and Director of BMC Fund, Inc., a closed-end
D. Beach investment company; previously, Vice Chairman of
(73) 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 of The High Yield
Income Fund, Inc.
Stephen Trustee Executive Director (May 1985 through December 1997) of
C. Eyre The John A. Hartford Foundation, Inc. (charitable
(75) foundation); Director of Faircom, Inc.; and Trustee
Emeritus of Pace University.
Delayne Trustee Marketing and Management Consultant; Director of The
Dedrick High Yield Income Fund, Inc.
Gold
(59)
*Robert Trustee Vice President, of Prudential Investments since
F. Gunia September 1997; Executive Vice President and Treasurer
(51) (since December 1996), 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. (PMF); Vice President and Director (since May
1989) of The Asia Pacific Fund, Inc.; Director of The
High Yield Income Fund, Inc.
Don G. Trustee Chairman and Chief Executive Officer (since 1980) of
Hoff Intertec, Inc. (investments); Chairman and Chief
(62) Executive Officer of The Lamaur Corporation, Inc.;
Director of Innovative Capital Management, Inc. and The
Greater China Fund, Inc.; and Chairman and Director of
The Asia Pacific Fund, Inc.
Robert Trustee President (since 1981) of Robert E. LaBlanc Associates,
E. Inc. (telecommunications); formerly General Partner at
LaBlanc Salomon Brothers and Vice-Chairman of Continental
(63) Telecom; Director of Storage Technology Corporation,
Titan Corporation, Salient 3 Communications, Inc. and
Tribune Company; and Trustee of Manhattan College.
*Mendel Trustee Chief Investment Officer (since October 1996) of
A. Prudential Mutual Funds; formerly Chief Financial
Melzer, Officer (November 1995-September 1996) of Prudential
CFA (37) Investments, Senior Vice President and Chief Financial
751 Officer (April 1993-November 1995) of Prudential
Broad Preferred Financial Services, Managing Director (April
Street 1991-April 1993) of Prudential Investment Advisors and
Newark, Senior Vice President (July 1989-April 1991) of
NJ 07102 Prudential Capital Corporation; Chairman and Director
of Prudential Series Fund, Inc.; and Director of The
High Yield Income Fund, Inc.
*Richard President and Employee of Prudential Investments; formerly President,
A. Trustee Chief Executive Officer and Director (October 1993-
Redeker September 1996) Prudential Mutual Fund Management,
(54) Inc., Executive Vice President, Director and Member of
751 Operating Committee (October 1993-September 1996),
Broad Prudential Securities, Director (October 1993-September
Street 1996) of Prudential Securities Group, Inc., Executive
Newark, Vice President (January 1994-September 1996) of The
NJ 07102 Prudential Investment Corporation, Director (January
1994-September 1996) of Prudential Mutual Fund
Distributors, Inc. and Prudential Mutual Fund Services,
Inc. and Senior Executive Vice President and Director
(September 1978-September 1993) of Kemper Financial
Services, Inc.; President and Director of The High
Yield Income Fund, Inc.
</TABLE>

B-13
<PAGE>

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
<S> <C> <C>
Robin B. Trustee Chairman (since August 1996) and Chief Executive Officer
Smith (since January 1988), formerly President (September
(58) 1981-August 1996) and Chief Operating Officer
(September 1981-December 1988) of Publishers Clearing
House; Director of BellSouth Corporation, Texaco Inc.,
Springs Industries Inc. and Kmart Corporation.
Stephen Trustee President and Chief Executive Officer (since June 1996)
Stoneburn of Quadrant Media Corp. (a publishing company);
(54) formerly President (June 1995-June 1996) of Argus
Integrated Media, Inc., Senior Vice President and
Managing Director (January 1993-1995) of Cowles
Business Media, Senior Vice President (January 1991-
1992) and Publishing Vice President (May 1989-December
1990) of Gralla Publications (a division of United
Newspapers, U.K.) and Senior Vice President of
Fairchild Publications, Inc.
Nancy H. Trustee Economist; Director of Inland Steel Industries,
Teeters director/trustee of other Prudential Mutual Funds;
(67) formerly, Vice President and Chief Economist of
International Business Machines; Member of the Board of
Governors of the Federal Reserve System; Governor of
the Horace H. Rackham School of Graduate Studies of the
University of Michigan; Assistant Director of the
Committee on the Budget of the US House of
Representatives; Senior Fellow at the Library of
Congress; Senior Fellow at the Brookings Institution;
staff at Office of Management and Budget, Council of
Economic Advisors and the Federal Reserve Board.
S. Jane Secretary Senior Vice President (since December 1996) of PIFM;
Rose (52) Senior Vice President and Senior Counsel (since July
1992) of Prudential Securities; formerly Senior Vice
President (January 1991-September 1996) and Senior
Counsel (June 1987-September 1996) of Prudential Mutual
Fund Management, Inc.
Robert C. Assistant Assistant General Counsel (since September 1997) of
Rosselot Secretary PIFM; formerly a partner with the firm of Howard &
(37) Howard, Bloomfield Hills, Michigan (December 1995-
September 1997) and Corporate Counsel of Federated
Investors (1990-1995).
Grace C. Treasurer and First Vice President (since December 1996) of PIFM;
Torres Principal First Vice President (since March 1994) of Prudential
(38) Financial and Securities; formerly First Vice President (March 1994-
Accounting Officer September 1996) of Prudential Mutual Fund Management,
Inc. and Vice President (July 1989-March 1994) of
Bankers Trust.
Stephen Assistant Vice President and Tax Director (since March 1996) of
M. Treasurer Prudential Investments; formerly First Vice President
Ungerman (February 1993-March 1996).
(44)
</TABLE>
- ---------
(1) Unless otherwise stated, the address is c/o Prudential Investments Fund
Management LLC, Gateway Center Three, Newark, New Jersey 07102-4077.

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

Trustees and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities.

B-14
<PAGE>

The officers conduct and supervise the daily business operations of the
Fund, while the Trustees, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy
of the Fund.

The Board of Trustees has adopted a retirement policy which calls for the
retirement of Trustees on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Trustees who were age 68
or older as of December 31, 1993. Under the phase-in provision, Messrs. Beach
and Eyre are scheduled to retire on December 31, 1999 and 1998, respectively.

Pursuant to the terms of the Management Agreement with the Fund on behalf of
the Series, the Manager pays all compensation of officers and employees of
each Series as well as the fees and expenses of all Trustees of the Fund who
are affiliated persons of the Manager. The Fund pays each of its Trustees who
is not an affiliated person of PIFM annual compensation of $ , in addition
to certain out-of-pocket expenses. Such amount is allocated [describe
allocation] to each Series. The amount of annual compensation paid to each
Trustee may change as a result of the introduction of additional funds upon
which the Trustee will be asked to serve.

Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Trustees' fees 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 Trustee. The
Fund's obligation to make payments of deferred Trustees' fees, together with
interest thereon, is a general obligation of the Fund.

The following table sets forth the aggregate compensation paid by the Fund
to the Trustees who are not affiliated with the Manager for the fiscal year
ended July 31, 1998 and the aggregate compensation paid to such Trustees for
service on the Fund's Board and that of all other investment companies managed
by PIFM (Fund Complex) for the calendar year ended December 31, 1997.

COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM FUND
AGGREGATE BENEFITS ACCRUED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES(2)
----------------- ------------ ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Edward D. Beach--
Trustee................ --0-- None N/A $
Stephen C. Eyre--
Trustee................ --0-- None N/A
Delayne D. Gold--
Trustee................ --0-- None N/A
Robert F. Gunia(1)--
Trustee................ --0-- None N/A
Don G. Hoff--Trustee.... --0-- None N/A
Robert F. LaBlanc--
Trustee................ --0-- None N/A
Mendel A. Melzer(1)--
Trustee................ --0-- None N/A
Richard A. Redeker(1)--
Trustee................ --0-- None N/A
Robin B. Smith--Trustee. --0-- None N/A
Stephen Stoneburn--
Trustee................ --0-- None N/A
Nancy H. Teeters--
Trustee................ --0-- None N/A
</TABLE>
- ---------
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
(1) Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are
interested Trustees, do not receive compensation from the Fund or any fund
in the Fund Complex.
(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1997, including amounts deferred at the election
of Trustees under the funds' deferred compensation plans. Including
accrued interest, total deferred compensation amounted to $ for
Trustee Robin Smith. Currently, Ms. Smith has agreed to defer some of her
fees at the T-Bill rate and other fees at the Fund rate.

B-15
<PAGE>

MANAGER

The manager of each Series is Prudential Investments Fund Management LLC
(formerly Prudential Mutual Fund Management LLC), as successor to Prudential
Mutual Fund Management, Inc. (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 Series, comprise the
Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
relevant Series' Prospectus. As of January 31, 1998, PIFM managed and/or
administered open-end and closed-end management investment companies with
assets of approximately $63 billion. According to the Investment Company
Institute, as of December 31, 1997, the Prudential Mutual Funds were the 17th
largest family of mutual funds in the United States.

PIFM is a subsidiary of Prudential Securities and 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 with respect to the
Series (the Management Agreement), PIFM, subject to the supervision of the
Fund's Board of Trustees and in conformity with the stated policies of each
Series, manages both the investment operations of the Series and the
composition of the Series' portfolio, including the purchase, retention,
disposition and loan of securities. In connection therewith, PIFM is obligated
to keep certain books and records of the Series. PIFM also administers the
Trust's business affairs and, in connection therewith, furnishes the Series
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, and PMFS, the Fund's transfer and dividend disbursing
agent. The management services of PIFM for the Series 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 1.25% of each Series' average daily net assets. The fee
is computed daily and payable monthly.

In connection with its management of the business affairs of each Series,
PIFM bears the following expenses:

(a) the salaries and expenses of all of its and each Series personnel except
the fees and expenses of Trustees who are not affiliated persons of PIFM or
the Series' Subadviser;

(b) all expenses incurred, by PIFM or a Series in connection with managing
the ordinary course of such Series' business, other than those assumed by a
Series 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, each Series is responsible for
the payment of the following expenses: (a) the fees payable to the Manager,
(b) the fees and expenses of Trustees who are not affiliated persons of the
Manager or such Series' Subadviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation to maintain
required records of each Series and to price such Series' shares, (d) the
charges and expenses of legal counsel and independent accountants for such
Series, (e) brokerage commissions and any issue or transfer taxes chargeable
to such Series in connection with its securities transactions, (f) all taxes
and corporate fees payable by such Series to governmental agencies, (g) the
fees of any trade associations of which such Series may be a member, (h) the
cost of stock certificates representing shares of such Series, (i) the cost of
fidelity and liability insurance, (j) the fees and expenses involved in
registering and maintaining registration of such Series and 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 Trustees' 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 such Series' 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 a Series 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. The Management Agreement was last approved by the Board of
Trustees of the Fund, including a majority of the Trustees who are not parties
to the contract or interested persons of any such party, as defined in the
Investment Company Act, on October 25, 1997.

B-16
<PAGE>

PIFM has entered into a Subadvisory Agreement with PI. The Subadvisory
Agreement provides that PI will furnish investment advisory services in
connection with the management of each Series. In connection therewith, PI is
obligated to keep certain books and records of the Series. PIFM continues to
have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PI's 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 was last approved by the Board of Trustees,
including a majority of the Trustees who are not parties to the contract or
interested persons of any such party, as defined in the Investment Company
Act, on October 25, 1997.

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 a Series, 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.

DISTRIBUTOR

Prudential Securities Incorporated (Prudential Securities or the
Distributor), One Seaport Plaza, New York, New York 10292 acts as the
distributor of the shares of the Series.

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 on behalf of the Series under Rule 12b-1 under the Investment Company Act
and a distribution agreement (the Distribution Agreement), the Distributor
incurs the expenses of distributing the Series' Class A, Class B and Class C
shares. The Distributor also incurs the expenses of distributing the Series'
Class Z shares under the Distribution Agreement, none of which are reimbursed
by or paid for by either Series. See "How the Fund is Managed--Distributor" in
the relevant Series' Prospectus.

Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class B and Class
C shares. See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred
Sales Charges" in the relevant Series' Prospectus.

The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Trustees, including a majority vote of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Class A, Class B, or Class C Plans (the Rule
12b-1 Trustees), cast in person at a meeting called for the purpose of voting
on such continuance. The Plans may each be terminated at any time, without
penalty, by the vote of a majority of the Rule 12b-1 Trustees, or by the vote
of the holders of a majority of the outstanding shares of the applicable class
of a Series on not more than 30 days' written notice to any other party to the
Plans. 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 (by both Class A and Class B shareholders, voting
separately, in the case of material amendments to the Class A Plan), and all
material amendments are required to be approved by the Board of Trustees in
the manner described above. Each Plan will automatically terminate in the
event of its assignment. A Series will not be contractually obligated to pay
expenses incurred under any Plan if it is terminated or not continued.

Pursuant to each Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of a Series by the Distributor. The report includes 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 Trustees shall be committed to the Rule 12b-1 Trustees.

Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against
certain liabilities under the federal securities laws. The Distribution
Agreement was approved by the Board of Trustees, including a majority of the
Rule 12b-1 Trustees, on October 25, 1997.

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

B-17
<PAGE>

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Series, 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 a Series' portfolio transactions,
including options and the purchase and sale of underlying securities upon the
exercise of options. On foreign securities exchanges, commissions may be
fixed. Orders may be directed to any broker or futures commission merchant
including, to the extent and in the manner permitted by applicable law,
Prudential Securities and its affiliates. 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. A Series will not deal with
Prudential Securities in any transaction in which Prudential Securities acts
as principal. Thus, it will not deal with Prudential Securities acting as
market maker, and it will not execute a negotiated trade with Prudential
Securities if execution involves Prudential Securities' acting as principal
with respect to any part of a Series' order.

In placing orders for portfolio securities or futures contracts of the
Series, the Manager is required to give primary consideration to obtaining the
most favorable price and efficient execution. Within the framework of this
policy, the Manager will consider the research and investment services
provided by brokers, dealers or futures commission merchants who effect or are
parties to portfolio transactions of a Series, the Manager or the Manager's
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and industries.
Such services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the
execution of transactions for a Series may be used in managing other
investment accounts. Conversely, brokers, dealers or futures commission
merchants furnishing such services may be selected for the execution of
transactions of such other accounts, whose aggregate assets are far larger
than the Series', and the services furnished by such brokers, dealers or
futures commission merchants may be used by the Manager in providing
investment management for the Series. Commission rates are established
pursuant to negotiations with the broker, dealer or futures commission
merchant based on the quality and quantity of execution services provided by
the broker, dealer or futures commission merchant in the light of generally
prevailing rates. The Manager's policy is to pay higher commissions to
brokers, other than Prudential Securities, for particular transactions than
might be charged if a different broker had been selected, on occasions when,
in the Manager's opinion, this policy furthers the objective of obtaining best
price and execution. In addition, the Manager is authorized to pay higher
commissions on brokerage transactions for the Series to brokers other than
Prudential Securities in order to secure research and investment services
described above, subject to review by the Fund's Board of Trustees from time
to time as to the extent and continuation of this practice. The allocation of
orders among brokers and the commission rates paid are reviewed periodically
by the Trust's Board of Trustees.

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 SEC. This
limitation, in the opinion of each Series, will not significantly affect the
Series' ability to pursue its present investment objective. However, in the
future in other circumstances, a Series may be at a disadvantage because of
this limitation in comparison to other funds with similar objectives but not
subject to such limitations.

Subject to the above considerations, Prudential Securities may act as a
securities broker or futures commission merchant for the Series. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for a Series, 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 brokers or
futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
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 broker or futures
commission merchant in a commensurate arm's-length transaction. Furthermore,
the Board of Trustees of the Fund, including a majority of the non-interested
Trustees, has adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to Prudential Securities (or
any affiliate) are consistent with the foregoing standard. In accordance with
Section 11(a) of the Securities Exchange Act of 1934, Prudential Securities
may not retain

B-18
<PAGE>

compensation for effecting transactions on a national securities exchange for
a Series unless such Series has expressly authorized the retention of such
compensation. Prudential Securities must furnish to each Series at least
annually a setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for such Series 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.

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

PURCHASE AND REDEMPTION OF FUND SHARES

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

Each class of shares represents an interest in the same assets of such
Series and is identical in all respects except that (i) 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, (ii) each class has
exclusive voting rights with respect to 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, (iii) each class has a different
exchange privilege, (iv) only Class B shares have a conversion feature and (v)
Class Z shares are offered exclusively for sale to a limited group of
investors. See "Distributor" and "Shareholder Investment Account--Exchange
Privilege."

ISSUANCE OF SERIES SHARES FOR SECURITIES

Transactions involving the issuance of Series shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of such Series, (b) are liquid and not subject to
restrictions on resale and (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 Series investment adviser.

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between each Series and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B*, Class C* and Class Z shares are sold at net asset value. Using each
Series' initial net asset value of $10.00 per share, the maximum offering
price of each Series' shares is as follows:

<TABLE>
<CAPTION>
DEVELOPING
LATIN AMERICA MARKETS
EQUITY FUND EQUITY FUND
------------- -----------
<S> <C> <C>
CLASS A
Net asset value and redemption price per Class
A share....................................... $10.00 $10.00
Maximum sales charge (5% of offering price).... .50 .50
------ ------
Maximum offering price to public............... $10.50 $10.50
====== ======
CLASS B
Net asset value, offering price and redemption
price per Class B share*...................... $10.00 $10.00
====== ======
CLASS C
Net asset value, offering price and redemption
price per Class C share*...................... $10.00 $10.00
====== ======
CLASS Z
Net asset value, offering price and redemption
price per Class Z share....................... $10.00 $10.00
====== ======
</TABLE>
---------
*Class B and Class C shares are subject to a contingent
deferred sales charge on certain redemptions. See "Shareholder
Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in either Prospectus.

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

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of a Series
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See the table of breakpoints under
"Shareholder Guide--Alternative Purchase Plan" in the relevant Prospectus.

B-19
<PAGE>

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

(a) an individual;

(b) the individual's spouse, their children and their parents;

(d) 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);

(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;

(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and

(g) one or more employee benefits plans of a company controlled by an
individual.

In addition, an eligible group of related Series investors may include an
employer (or group of related employers) and one or more retirement or group
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 Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be
granted subject to confirmation of the investor's holdings. The Combined
Purchase and Cumulative Purchase Privilege does not apply to individual
participants in any retirement or group plans.

RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
shares of the Series 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. However, the value of shares
held directly with the Transfer Agent and through Prudential Securities will
not be aggregated to determine the reduced sales charge. All shares must be
held either directly with the Transfer Agent or through Prudential Securities.
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. See "How the Fund Values its Shares"
in either Prospectus.

The Distributor must be notified at the time of purchase that the
shareholder is entitled to a reduced sales charge. The reduced sales charges
will be granted subject to confirmation of the investors' 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 a Series 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 Series
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 and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly
with the Transfer Agent or through Prudential Securities.

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.

B-20
<PAGE>

The Investment Letter of Intent does not obligate the investor to purchase,
nor a Series 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
charges 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 a
Series 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.

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

The contingent deferred sales charge is waived under circumstances described
in each Series' Prospectus. See "Shareholder Guide--How to Sell Your Shares--
Waiver of the Contingent Deferred Sales Charges--Class B Shares" in either
Prospectus. 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 A copy of the Social Security Administration
be considered disabled if he or award letter or a letter from a physician on
she is unable to engage in any the physician's letterhead stating that the
substantial gainful activity by shareholder (or, in the case of a trust, the
reason of any medically grantor) is permanently disabled. The letter
determinable physical or mental must also indicate the date of disability.
impairment which can be expected
to result in death or to be of
long-continued and indefinite
duration.
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Distribution from an IRA or A copy of the distribution form from the
403(b) Custodial Account custodial firm indicating (i) the date of
birth of the shareholder and (ii) that the
shareholder is over age 59 1/2 and is taking
a normal distribution--signed by the
shareholder.
Distribution from Retirement A letter signed by the plan
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.

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of a Series' shares, a Shareholder Investment
Account is established for each investor under which the shares are held for
the investor 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 the issuance of a certificate. Each Series 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 applicable
Series at the NAV per share at the close of business 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 dealer. Any
shareholder who receives a cash payment representing a dividend or

B-21
<PAGE>

distribution may reinvest such 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 net asset value per share next determined after
receipt of the check or proceeds by the Transfer Agent. Such shareholder will
receive credit for any contingent deferred sales charge paid in connection
with the amount of proceeds being reinvested.

EXCHANGE PRIVILEGE

Each Series makes available to its shareholders the privilege of exchanging
their shares of such Series 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. Shares may be exchanged for shares
of another fund only if shares of such fund may legally be sold under
applicable state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those funds
eligible for investment in the particular program.

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

CLASS A. Shareholders of a Series may exchange their Class A shares for
Class A 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 Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A Shares)
Prudential Tax-Free Money Fund, Inc.

CLASS B AND CLASS C. Shareholders of a Series may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds. 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 an exchange. The applicable sales charge will be that
imposed by the fund in which shares were initially purchased and the purchase
date will be deemed to be the first day of the month after the initial
purchase, rather than the date of the exchange.

Class B and Class C shares of a Series may also be exchanged for shares 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 by excluding 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 a Series from a money market fund
during the month (and are held in a Series at the end of 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.

B-22
<PAGE>

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 a Series, respectively, without subjecting such shares to any CDSC upon the
exchange. 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, respectively, of
other funds without being subject to any CDSC.

CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.

Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including either
Series, 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 beginning in 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.............................. $ 110 $ 165 $ 220 $ 275
20 years.............................. 176 264 352 440
15 years.............................. 296 444 592 740
10 years.............................. 555 833 1,110 1,388
5 years.............................. 1,371 2,057 2,742 3,428
</TABLE>

See "Automatic Savings Accumulation 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 a Series.
The investment return and principal value of an investment will fluctuate so
that an investor's shares when redeemed may be worth more or less than their
original cost.

AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)

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

Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. 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. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in either Series' Prospectus.

In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and
(iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in

B-23
<PAGE>

additional full and fractional shares at NAV on shares held under this plan.
See "Shareholder Investment Account-- Automatic Reinvestment of Dividends
and/or Distributions" above.

Prudential Securities and the Transfer Agent act as agents 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 generally recognized for federal income tax
purposes. In addition, withdrawals made concurrently with purchases of
additional shares are inadvisable because of the sales charges applicable to
(i) the purchase of Class A shares and (ii) the 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 systematic withdrawal plan,
particularly if used in connection with a retirement plan.

TAX-DEFERRED RETIREMENT PLANS

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

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

TAX-DEFERRED RETIREMENT ACCOUNTS

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

TAX-DEFERRED COMPOUNDING/1/

<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 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 a Series 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, a Series 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, e.g., to seek greater
diversification, protection from interest rate movements or access to
different management styles. In the event such a program is instituted, there
may be a minimum investment requirement for the program as a whole. A Series
may waive or reduce its 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, individuals should consult their Prudential
Securities Financial Advisor or Prudential/Pruco Securities Representative
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.

B-24
<PAGE>

NET ASSET VALUE

Under the Investment Company Act, with respect to securities for which
market quotations are not readily available, the Board of Trustees is
responsible for determining in good faith the fair value of securities of the
Fund. In accordance with procedures adopted by the Board of Trustees, 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 sale 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 or principal market maker. 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 to be over-the-counter,
are valued on the basis of valuations provided by a pricing service 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 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. 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 forward
currency exchange 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 Manager of
Subadviser under procedures established by and under the general supervision
of the Fund's Board of Trustees.

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 Trustees), does not represent fair value, are valued by
the Valuation Committee or Board in consultation with the Manager and
Subadviser, under procedures established by the Board of Trustees.

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 Trustees 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.

A Series will compute its net asset value at 4:15 P.M., New York time, on
each day the New York Stock Exchange is open for trading except on days on
which no orders to purchase, sell or redeem such Series' shares have been
received or days on which changes in the value of such Series' portfolio
securities do not affect net asset value. In the event the New York Stock
Exchange closes early on any business day, the net asset value of a Series'
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.

Net asset value (NAV) is calculated separately for each class of each
Series. The NAV of Class B and Class C shares of a Series will generally be
lower than the NAV of Class A shares and Class Z shares of such Series 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 of a Series will generally be
higher than the NAV of Class A, Class B or Class C shares of such Series as a
result of the fact that 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 Series has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves a Series (but not its shareholders) from paying federal income
tax on income which is distributed to shareholders and permits net capital
gains of a Series (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 shares in such Series are held.

Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of a Series' annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans,
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of
investing

B-25
<PAGE>

in such securities or currencies; (b) a Series diversifies its holdings so
that, at the end of each quarter of the taxable year, (i) at least 50% of the
value of a Series' 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 assets of such Series 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) a Series 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.

The Fund is required under the Internal Revenue Code to distribute 98% of
its ordinary income in the same calendar year in which it is earned. Each
Series is also required to distribute during the calendar year 98% of the
capital gain net income it earned during the twelve months ending on October
31 of such calendar year. In addition, each Series must distribute during the
calendar year any undistributed ordinary income and undistributed capital gain
net income from the prior 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, a Series will be subject to a non-deductible
4% excise tax on the undistributed amount. For purposes of this excise tax,
income on which a Series pays income tax is treated as distributed.

Gains or losses on sales of securities by a Series will generally be treated
as long-term capital gains or losses if the securities have been held by it
for more than one year, except in certain cases where a Series 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 generally be treated
as gains and losses from the sale of securities. If an option written by a
Series on securities lapses or is terminated through a closing transaction,
such as a repurchase by such Series of the option from its holder, such Series
will generally realize capital gain or loss. If securities are sold by a
Series pursuant to the exercise of a call option written by it, such Series
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 a
Series' transactions may be subject to wash sale, short sale and straddle
provisions of the Internal Revenue Code which may, among other things, require
such Series to defer recognition of losses. In addition, debt securities
acquired by a Series may be subject to original issue discount and market
discount rules which, respectively, may cause such Series to accrue income in
advance of the receipt of cash with respect to interest or cause gains to be
treated as ordinary income.

Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which a
Series may invest. See "Investment Objective and Policies." 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 Series'
taxable year; that is, treated as having been sold at market value. Except
with respect to certain forward foreign currency exchange contracts, sixty
percent 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.

Forward currency contracts, options and futures contracts entered into by a
Series may create "straddles" for federal income tax purposes. Positions which
are part of a straddle will be subject to certain wash sale and short sale
provisions of the Internal Revenue Code. In the case of a straddle, a Series
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 such
Series. Straddles may also result in the loss of the holding period of the
underlying property and therefore a Series' ability to enter into forward
currency contracts, options and futures contracts may be limited by the short-
short rule.

Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Series accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time
such Series actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or losses on
forward foreign currency exchange 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 or
losses, referred to under the Internal Revenue Code as "Section 988" gains or
losses, increase or decrease the amount of a Series' investment company
taxable income available to be distributed to its shareholders as ordinary
income, rather than increasing or decreasing the amount of a Series' net
capital gain. If Section 988 losses exceed other investment company taxable
income during a taxable year, a Series 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
Series shares.

Shareholders of a Series 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
such Series on the reinvestment date.

B-26
<PAGE>

Any dividends 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. Furthermore, such dividends, although
in effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of a Series, the investor should carefully consider
the impact of dividends, including capital gains distributions, which are
expected to be or have been announced.

Any loss realized on a sale, redemption or exchange of shares of a Series 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.

If a shareholder who acquires shares of a Series sells or otherwise disposes
of such shares within 90 days of acquisition, certain sales charges incurred
in acquiring such shares may not be included in the basis of such shares for
purposes of calculating gain or loss realized upon such sale or disposition.

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 of such Series 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 of a Series. See "Net
Asset Value."

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. Capital gain dividends paid to
a foreign shareholder generally are 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.

Income received by a Series 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 a Series will be subject, since the amount of a
Series' assets to be invested in various countries is not known.

If a Series is liable for foreign income taxes, and if more than 50% of the
value of such Series' assets consists of securities of foreign corporations,
such Series may elect to "pass through" to such Series' shareholders the
amount of foreign income taxes paid by such Series. For the taxable year ended
, 1998, the Series did not elect under the Internal Revenue Code to
"pass-through" to their respective shareholders foreign income taxes paid by
the Series, since at the close of their respective taxable year less than 50%
of the value of the Series' total assets consisted of securities of foreign
corporations. If a Series elects to "pass through" the foreign taxes,
shareholders will be required to: (i) include in gross income (in addition to
taxable dividends actually received) their pro rata share of the foreign
income taxes paid by such Series; and (ii) treat their pro rata share of
foreign income taxes as paid by them. Shareholders will then be permitted
either to deduct their pro rata share of foreign income taxes in computing
their taxable income or to claim a foreign tax credit against U.S. income
taxes. No deduction for foreign taxes may be claimed by a shareholder who does
not itemize deductions. Foreign shareholders may not deduct or claim a credit
for foreign tax unless the dividends paid to them by a Series are effectively
connected with a U.S. trade or business. Accordingly, a foreign shareholder
may recognize additional taxable income as a result of a Series' election to
"pass through" the foreign income taxes to shareholders.

The amount of foreign taxes for which a shareholder may claim a credit in
any year will generally be subject to a separate limitation for "passive
income," which includes, among other things, dividends, interest and certain
foreign currency gains. Gain from the sale of a security and gain or loss from
a Section 988 transaction which is treated as ordinary income or loss (or
would have been so treated absent an election by the applicable Series) will
be treated as derived from sources within the United States, potentially
reducing the amount allowable as a credit under the limitation.

Each shareholder will be notified within 60 days after the close of the
Series' taxable year whether the foreign taxes paid by the applicable Series
will "pass through" for that year and, if so, such notification will designate
(a) the shareholder's portion of the foreign taxes paid by such Series and (b)
the portion of the dividend which represents income derived from foreign
sources.

The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a
Series.

B-27
<PAGE>

PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN. A Series 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. See "How the Fund
Calculates Performance" in the applicable Prospectus.

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

P(1+T)n = ERV

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

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

AGGREGATE TOTAL RETURN. A Series 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
applicable Prospectus.

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

ERV-P
-----
P

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

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

YIELD. A Series 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. This yield will be computed by dividing a Series' net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of the period. Yield is calculated
according to the following formula:

a - b
________
YIELD = 2 [( +1)/6/ - 1]
cd

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.

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

B-28
<PAGE>

From time to time, the performance of a Series 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/

BAR GRAPH

A LOOK AT PERFORMANCE OVER THE LONG-TERM
AVERAGE ANNUAL RETURNS
1/1/26 - 12/31/97

COMMON STOCK LONG-TERM GOV'T BONDS INFLATION
11.0% 5.2% 3.1%

/1/Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1997
Yearbook", (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). 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.

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS

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

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of each
Series. It is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to the Series, 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, a new account set-up fee for each manually established
account and a monthly inactive zero balance account fee 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.

Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Series' independent accountants and in that capacity audits each
Series' annual financial statements.

B-29
<PAGE>

APPENDIX I--DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE, INC.

BOND RATINGS

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e. (they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issuances may be
in default or there may be present elements of danger with respect to
principal or interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.

SHORT-TERM DEBT RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.

PRIME-1: Issues rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations.

PRIME-2: Issues rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

I-1
<PAGE>

AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

BB: Debt rated B has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.

B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B-rating.

CC: The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.

C: The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

C1: The rating C1 is reserved for income bonds on which no interest is being
paid.

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.

COMMERCIAL PAPER RATINGS

S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high for issues
designated A-1.

I-2
<PAGE>

APPENDIX II--GENERAL INVESTMENT INFORMATION

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.

II-1
<PAGE>

APPENDIX III--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.

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

HISTORICAL PERFORMANCE DATA

GRAPH

Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago, Illinois (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 mainly to reinvesting interest. Also, stock
prices are usually 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 U.S. government as to the
timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).

III-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 1987
through 1997. 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 a Series or of any sector in which a
Series 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 applicable prospectus. The net
effect of the deduction of the operating expenses of a mutual fund on these
historical total returns, including the compounded effect over time, could be
substantial.

Historical Total Returns of Different Bond Market Sectors
<TABLE>
<CAPTION>
YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS/1/ 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4% 2.7% 9.6%
- -------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
MORTGAGE
SECURITIES/2/ 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% -1.6% 16.8% 5.4% 9.5%
- -------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE BONDS/3/ 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3% 3.3% 10.2%
- -------------------------------------------------------------------------------------------------------------
U.S. HIGH YIELD
CORPORATE BONDS/4/ 5.0% 12.5% 0.8% -9.6% 46.2% 15.8% 17.1% -1.0% 19.2% 11.4% 12.8%
- -------------------------------------------------------------------------------------------------------------
WORLD GOVERNMENT
BONDS/5/ 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% -6.0% 19.6% 4.1% (4.3%)
- -------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST AND LOWEST 33.2% 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1%
RETURNS PERCENT
- -------------------------------------------------------------------------------------------------------------
</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.
/5/ SALOMON BROTHERS 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.

III-2
<PAGE>

This chart illustrates the This chart shows the growth of a
performance of major world stock hypothetical $10,000 investment made
markets for the period from in the stocks representing the S&P
12/31/85 through 12/31/97. It does 500 stock index with and without
not represent the performance of reinvested dividends.
any Prudential Mutual Fund. (12/31/69-12/31/97)

FOREIGN STOCK MARKETS HAVE OFTEN
OUTPERFORMED THOSE IN THE U.S.

Average Annual Total Returns of
Major World

Stock Markets (12/31/85-12/31/97)

Netherlands 20.5%

Spain 20.4%

Sweden 20.4%

Hong Kong 19.7%

Belgium 19.5% CHART

Switzerland 17.9%

USA 17.1%

UK 16.6%

France 15.6%

Germany 12.1%

Austria 9.6%

Japan 6.6%

Source: Morgan Stanley Capital Source: Stocks, Bonds, Bills, and
International (MSCI) based on data Inflation 1997 Yearbook, Ibbotson
retrieved from Lipper Analytical Associates, Chicago (annually
New Application (LANA) as of updates work by Roger G. Ibbotson
12/31/97. Used with permission. and Rex A. Sinquefield). Used with
Morgan Stanley Country indices are permission. All rights reserved.
unmanaged indices which include This chart is used for illustrative
those stocks making up the largest purposes only and is not intended to
two-thirds of each country's total represent the past, present or
stock market capitalization. future performance of any Prudential
Returns reflect the reinvestment Mutual Fund. Common stock total
of all distributions. This chart return is based on the Standard &
is for illustrative purposes only Poor's 500 Stock Index, a market-
and is not indicative of the past, value-weighted index made up of 500
present or future performance of of the largest stocks in the U.S.
any specific investment. Investors based upon their stock market value.
cannot invest directly in stock Investors cannot invest directly in
indices. indices.

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

WORLD STOCK MARKET CAPITALIZATION BY
REGION
World Total: $12.7 Trillion

EUROPE PACIFIC BASIN CANADA U.S.
32.1% 15.6% 2.5% 49.8%

Source: Morgan Stanley Capital
International, December 31, 1997.
Used with permission. This chart
represents the capitalization of
major world stock markets as
measured by the Morgan Stanley
Capital International (MSCI) World
Index. The total market
capitalization is based on the value
of approximately 1,600 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.

III-3
<PAGE>

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

LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1997)

CHART

- ---------------------------------------
Source: Stocks, Bonds, Bills, and Inflation 1997 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. The chart illustrates
the historical yield of the long-term U.S. Treasury Bond from 1926-1996.
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.

III-4
<PAGE>

APPENDIX IV--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 "Management of the Fund--Manager" in
either 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, 1996 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, 1996. 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 13,000 agents
and 5,600 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. The 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 50 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 22 million life insurance policies in force today with a face
value of $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 1.6 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, 1996, Prudential had more than $332 billion in
assets under management. Prudential Investments, a business group of
Prudential (of which Prudential Mutual Funds is a key part) manages over $190
billion in assets of institutions and individuals. In Pensions & Investments,
May 12, 1996, Prudential was ranked third in terms of total assets under
management.

Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers
and agents across the United States./2/

Healthcare. Over two decades ago, Prudential introduced the first federally-
funded, for-profit HMO in the country. Today, approximately 4.6 million
Americans receive healthcare from a Prudential managed care membership.

Financial Services. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has over $4 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 is 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.

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.
- ---------
/1/ Prudential Investments, a business group of 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 Capital Corp. as the subadviser to Prudential
Jennison Series Fund, Inc. and Prudential Active Balanced Fund, a portfolio
of Prudential Index Series Fund, Mercator Asset Management LP as the
Subadviser to International Stock Series, a portfolio of Prudential World
Fund, Inc. and BlackRock Financial Management, Inc. as the subadviser to The
BlackRock Government Income Trust. There are multiple subadvisers for The
Target Portfolio Trust.
/2/ As of December 31, 1996.

IV-1
<PAGE>

Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual
fund in both bull and bear markets as well as a fund's risk profile.
Prudential Equity Fund is managed with a "value" investment style by PIC. In
1995, Prudential Securities introduced Prudential Jennison Fund, a growth-
style equity fund managed by Jennison Associates Capital Corp., 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 monitor the 167
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./3/ 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. Fourteen 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 approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, 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.

Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.

Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).

Trading Data./4/ On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing
over 3.8 million shares with nearly 200 different firms. Prudential Mutual
Funds' bond trading desks traded $157 million in government and corporate
bonds on an average day. That represents more in daily trading than most bond
funds tracked by Lipper even have in assets./5/ Prudential Mutual Funds' money
market desk traded $3.2 billion in money market securities on an average day,
or over $800 billion a year. They made a trade every 3 minutes of every
trading day. In 1994, the Prudential Mutual Funds effected more than 40,000
trades in money market securities and held on average $20 billion of money
market securities./6/

Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On
an annual basis, that represents approximately 1.8 million telephone calls
answered.
- ---------
/3/ As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
/4/ Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund Investment Management, a division of PIC, for the
year ended December 31, 1995.
/5/ Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage Funds.
/6/ As of December 31, 1994.

IV-2
<PAGE>

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, 1997, assets held by Prudential Securities for
its clients approximated $235 billion. During 1997, over 29,000 new customer
accounts were opened each month at Prudential Securities./7/

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 areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program.

In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey.
Three Prudential Securities analysts were ranked as first-team finishers./8/

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 Architects /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.

Standard & Poor's rates Prudential Securities Incorporated BBB+ with a
"Stable Outlook."

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.

- ---------
/7/ As of December 31, 1994.
/8/ On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.

IV-3
<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS:

(1) Financial statements included in the Prospectus constituting Part A
of the Registration Statement:

None.

(2) Financial statements included in the Statement of Additional
Information constituting Part B of the Registration Statement:

(a) Statement of Assets and Liabilities.**

(b) Report of Independent Auditors.**
- ---------
**To be filed by future pre-effective amendment.

(B) EXHIBITS:

1.(a) Declaration of Trust.*

2.By-Laws of the Registrant.*

3.Not applicable.

4.Instruments defining rights of shareholders.**

5.(a) Management Agreement between the Registrant and Prudential
Investments Fund Management LLC.**

(b) Subadvisory Agreement between Prudential Investments Fund
Management LLC** and The Prudential Investment Corporation.**

6.(a) Distribution Agreement between the Registrant and Prudential
Securities Incorporated.**

(b) Selected Dealer Agreement.**

7.Not applicable.

8.Custodian Contract between the Registrant and State Street Bank and
Trust Company.**

9.Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services LLC.**

10.Opinion of Morris, Nichols, Arsht & Tunnell.*

11.Consent of Independent Accountants.**

12.Not applicable.

13.Purchase Agreement.**

14.Not applicable.

15.(a) Distribution and Service Plan for Class A shares.**

(b) Distribution and Service Plan for Class B shares.**

C-1
<PAGE>

16.Schedule of Computation of Performance Quotations for Class A, Class
B, Class C and Class Z shares.**

18.Rule 18f-3 Plan.**
- ---------
* Filed herewith.
** To be filed by future pre-effective amendment.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of November 30, 1997, the Registrant had no shareholders.

ITEM 27. INDEMNIFICATION.

As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (the 1940 Act) and pursuant to Article VI of the Fund's By-
Laws (Exhibit 2 to the Registration Statement), officers, directors, employees
and agents of the Registrant will not be liable to the Registrant, any
stockholder, officer, director, employee, agent or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be indemnified
against liabilities in connection with the Registrant, subject to the same
exceptions. Section 2-418 of Maryland General Corporation Law permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant. As permitted by
Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution
Agreement (Exhibit 6 to the Registration Statement), the Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed
by the final adjudication of such issue.

The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.

Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under
the agreements.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner
consistent with Release No. 11330 of the Securities and Exchange Commission
under the 1940 Act so long as the interpretation of Sections 17(h) and 17(i)
of such Act remains in effect and is consistently applied.

C-2
<PAGE>

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

(I) PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)

See "How the Fund Is Managed-Manager" in each Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.

The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).

The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, New Jersey 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
<S> <C> <C>
Frank W. Giordano Executive Vice President, Executive Vice President, Secretary and General Counsel,
Secretary and PIFM; Senior Vice President, Prudential Securities Incorporated
General Counsel (Prudential Securities)
Robert F. Gunia Executive Vice President Comptroller, Prudential Investments; Executive Vice President and
and Treasurer Treasurer, PIFM; Senior Vice President, Prudential Securities
Neil A. McGuinness Executive Vice President Executive Vice President and Director of Marketing, PMF&A;
Executive Vice President, PIFM
Brian Storms Officer-in-Charge, President, President, Prudential Mutual Funds & Annuities (PMF&A);
Chief Executive Officer and Officer-in-Charge, President, Chief Executive Officer and
Chief Operating Officer Chief Operating Officer, PIFM
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice President, PIFM
</TABLE>

(II) THE PRUDENTIAL INVESTMENT CORPORATION (PIC)

See "How the Fund is Managed--Manager" in each Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.

The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, New Jersey 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential
President and Chief Executive Investments of The Prudential Insurance
Officer and Director Company of America (Prudential)
Jonathan M. Greene Senior Vice President and Director President--Investment Management of Prudential
Investments of Prudential; Senior Vice Presi-
dent and Director, PIC
John R. Strangfeld Vice President and Director President of Private Asset Management Group of
Prudential; Senior Vice President,
Prudential; Vice President and Director, PIC
</TABLE>

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Prudential Securities Incorporated is distributor for Command Money
Fund, Command Government Fund, Command Tax-Free Fund, The Global Total Return
Fund, Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Bond Fund, Inc., Prudential Emerging Growth Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Government Income Fund, Inc.,
Prudential Government Securities Trust, Prudential High Yield Fund, Prudential
Index Series Fund, Prudential Institutional Liquidity Portfolio, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential International
Bond Fund, Inc., Prudential Jennison Series Fund, Inc., Prudential MoneyMart
Assets, Inc., Prudential Mortgage Income Fund, Inc., Prudential Multi-Sector
Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Inc., Prudential Natural Resources Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Small-Cap Quantum Fund,
Inc., Prudential Small Company Value Fund, Inc., Prudential Special Money
Market Fund, Inc., Prudential

C-3
<PAGE>

Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund, Inc.,
Prudential Utility Fund, Inc., Prudential World Fund, Inc., and The Target
Portfolio Trust. Prudential Securities is also a depositor for the following
unit investment trusts:

The Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust

(b) Information concerning the officers and directors of Prudential
Securities Incorporated is set forth below.

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME* UNDERWRITER REGISTRANT
- ----- ------------- -------------
<S> <C> <C>
Alan D. Hogan........... Executive Vice President and Director None
William Horan........... Chief Financial Officer None
George A. Murray........ Executive Vice President and Director None
Leland B. Paton......... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Martin Pfinsgraff....... Executive Vice President, Chief Financial Officer and Director None
Vincent T. Pica, II..... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Hardwick Simmons........ Chief Executive Officer, President and Director None
Lee B. Spencer, Jr. .... Executive Vice President, Secretary, General Counsel and Director None
Brian Storms............ Director None
751 Broad Street
Newark, NJ 07102
</TABLE>
- ---------
* The address of each person named is One Seaport Plaza, New York, New York
10292.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices
of State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171 The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey, 07102 the Registrant, Gateway Center
Three, Newark, New Jersey 07102, and Prudential Mutual Fund Services LLC,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules 31a-
1(b)(4), (5), (6), (7), (9), (10) and (11) and 31a-1(d) and (f) will be kept
at Gateway Center Three and the remaining accounts, books and other documents
required by such other pertinent provisions of Section 31(a) and the Rules
promulgated thereunder will be kept by State Street Bank and Trust Company and
Prudential Mutual Fund Services LLC.

ITEM 31. MANAGEMENT SERVICES

Other than as set forth under the captions "How the Fund is Managed--
Manager" and "How the Fund is Managed--Distributor" in each Prospectus and the
captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.

ITEM 32. UNDERTAKINGS

The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of Registrant's latest annual report to shareholders
upon request and without charge.

C-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Newark, and State of New Jersey, on
the 17th day of April, 1998.

PRUDENTIAL DEVELOPING MARKETS FUND

/s/ Richard A. Redeker
---------------------------------
(RICHARD A. REDEKER, PRESIDENT)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Edward D. Beach Trustee April 17, 1998
- ----------------------
EDWARD D. BEACH
/s/ Stephen C. Eyre Trustee April 17, 1998
- ----------------------
STEPHEN C. EYRE
/s/ Delayne D. Gold Trustee April 17, 1998
- ----------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Trustee April 17, 1998
- ----------------------
ROBERT F. GUNIA
/s/ Don G. Hoff Trustee April 17, 1998
- ----------------------
DON G. HOFF
/s/ Robert E. LaBlanc Trustee April 17, 1998
- ----------------------
ROBERT E. LABLANC
/s/ Mendel A. Melzer Trustee April 17, 1998
- ----------------------
MENDEL A. MELZER
/s/ Richard A. Redeker President and Trustee April 17, 1998
- ----------------------
RICHARD A. REDEKER
/s/ Robin B. Smith Trustee April 17, 1998
- ----------------------
ROBIN B. SMITH
/s/ Stephen Stoneburn Trustee April 17, 1998
- ----------------------
STEPHEN STONEBURN
/s/ Nancy H. Teeters Trustee April 17, 1998
- ----------------------
NANCY H. TEETERS
/s/ Grace C. Torres Treasurer and April 17, 1998
- ---------------------- Principal Financial and
Accounting Officer
GRACE C. TORRES
</TABLE>

C-5
<PAGE>

PRUDENTIAL DEVELOPING MARKETS FUND

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
-------------- ----------- -----------
<C> <S> <C>
1(a) Declaration of Trust.* --
2 By-Laws of the Registrant.* --
3 Not applicable --
4 Instruments defining rights of shareholders.**
5(a) Management Agreement between the Registrant and
Prudential Investments Fund Management LLC.**
5(b) Subadvisory Agreement between Prudential
Investments Fund Management LLC** and The
Prudential Investment Corporation.**
6(a) Distribution Agreement between the Registrant and --
Prudential Securities Incorporated.**
6(b) Selected Dealer Agreement.** --
7 Not applicable. --
8 Custodian Contract between the Registrant and
State Street Bank and Trust Company.**
9 Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services
LLC.**
10 Opinion of Morris, Nichols, Arsht & Tunnell.*
11 Consent of Independent Accountants.**
12 Not applicable.
13 Purchase Agreement.** --
15(a) Distribution and Service Plan for Class A --
shares.**
15(b) Distribution and Service Plan for Class B --
shares.**
15(c) Distribution and Service Plan for Class C --
shares.**
16 Schedule of Computation of Performance Quotations
for Class A, Class B, Class C and Class Z
shares.**
18 Rule 18f-3 Plan.** --
</TABLE>

- ---------
*Filed herewith.
**To be filed by future pre-effective amendment.

<PAGE>

EXHIBIT 1(a)

Agreement and Declaration of Trust

AGREEMENT AND DECLARATION OF TRUST

PRUDENTIAL DEVELOPING MARKETS FUND
----------------------------------

a Delaware Business Trust

Principal Place of Business:

Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077
<PAGE>

TABLE OF CONTENTS

AGREEMENT AND DECLARATION OF TRUST

Page
----

ARTICLE I Name and Definitions ........................... 1
1. Name .................................................. 1
2. Definitions ........................................... 1
(a) By-Laws........................................... 1
(b) Certificate of Trust.............................. 1
(c) Class............................................. 2
(d) Commission and Principal Underwriter ............. 2
(e) Declaration of Trust ............................. 2
(f) Delaware Act...................................... 2
(g) Interested Person................................. 2
(h) Investment Manager or Manager .................... 2
(i) 1940 Act.......................................... 2
(j) Person............................................ 2
(k) Series............................................ 2
(1) Shareholder........................................ 2
(m) Shares............................................ 2
(n) Trust............................................. 2
(o) Trust Property.................................... 3
(p) Trustees.......................................... 3

ARTICLE II Purpose of Trust .............................. 3

ARTICLE III Shares ....................................... 3
1. Division of Beneficial Interest ..................... 3
2. Ownership of Shares ................................. 4
3. Transfer of Shares .................................. 5
4. Investments in the Trust ............................ 5
5. Status of Shares and Limitation of
Personal Liability .................................. 5
6. Establishment and Designation of Series.............. 6
(a) Assets Held with Respect to a
Particular Series .............................. 6
(b) Liabilities Held with Respect to a
Particular Series .............................. 7
(c) Dividends, Distributions, Redemptions,
and Repurchases ................................ 7
(d) Equality........................................ 7
(e) Fractions....................................... 8
(f) Exchange Privilege ............................. 8
(g) Combination of Series .......................... 8
(h) Elimination of Series .......................... 8
7. Indemnification of Shareholders ..................... 8

ARTICLE IV The Board of Trustees........................... 9
<PAGE>

1. Number, Election and Tenure ........................ 9
2. Effect of Death, Resignation, etc.
of a Trustee ....................................... 9
3. Powers ............................................. 10
4. Payment of Expenses by the Trust ................... 14
5. Payment of Expenses by Shareholders ................ 14
6. Ownership of Assets of the Trust ................... 15
7. Service Contracts .................................. 15
8. Trustees and Officers as Shareholders .............. 17

ARTICLE V Shareholders' Voting Powers and Meetings 17
1. Voting Powers, Meetings, Notice and
Record Dates ....................................... 17
2. Quorum and Required Vote ........................... 18
3. Record Dates ....................................... 19
4. Additional Provisions .............................. 19

ARTICLE VI Net Asset Value, Distributions and Redemptions. 19
1. Determination of Net Asset Value,
Net Income and Distributions ....................... 19
2. Redemptions and Repurchases ........................ 19

ARTICLE VII Compensation and Limitation of Liability of
Trustees ................................................ 21
1. Compensation ....................................... 21
2. Indemnification and Limitation of
Liability .......................................... 21
3. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety .......................... 22
4. Insurance .......................................... 22

ARTICLE VIII Miscellaneous ............................... 23
1. Liability of Third Persons Dealing
with Trustees ...................................... 23
2. Termination of Trust or Series ..................... 23
3. Reorganization and Master/Feeder.................... 24
4. Amendments ......................................... 25
5. Filing of Copies, References,
Headings ........................................... 25
6. Applicable Law ..................................... 26
7. Provisions in Conflict with Law or Regulations...... 27
8. Business Trust Only ................................ 27
9. Derivative Actions ................................. 27

<PAGE>

AGREEMENT AND DECLARATION OF TRUST

PRUDENTIAL DEVELOPING MARKETS FUND

THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of the
date set forth below by the Trustees named hereunder for the purpose of forming
a Delaware business trust in accordance with the provisions hereinafter set
forth,

NOW, THEREFORE, the Trustees hereby direct that the Certificate of Trust be
filed with the Office of the Secretary of State of the State of Delaware and do
hereby declare that the Trustees will hold IN TRUST all cash, securities and
other assets which the Trust now possesses or may hereafter acquire from time to
time in any manner and manage and dispose of the same upon the following terms
and conditions for the benefit of the holders of Shares in this Trust.

ARTICLE I

Name and Definitions

Section 1. Name. This Trust shall be known as PRUDENTIAL DEVELOPING MARKETS
FUND and the Trustees shall conduct the business of the Trust under that name or
any other name as they may from time to time determine.

Section 2. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:

(a) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time, which By-Laws are expressly herein incorporated by reference as part of
the "governing instrument" within the meaning of the Delaware Act;

(b) "Certificate of Trust" means the certificate of trust, as amended or
restated from time to time, filed by the Trustees in the Office of the Secretary
of State of the State of Delaware in accordance with the Delaware Act;
<PAGE>

(c) "Class" means a class of Shares of a Series of the Trust established in
accordance with the provisions of Article III hereof;

(d) "Commission" and "Principal Underwriter" shall have the meanings given
them in the 1940 Act;

(e) "Declaration of Trust" means this Agreement and Declaration of Trust,
as amended or restated from time to time;

(f) "Delaware Act" means the Delaware Business Trust Act, 12 Del. C. ss.ss.
3801 et seq., as amended from time to time;

(g) "Interested Person" shall have the meaning given it in Section 2(a)
(19) of the 1940 Act;

(h) "Investment Manager" or "Manager" means a party furnishing services to
the Trust pursuant to any contract described in Article IV, Section 7(a) hereof;

(i) "1940 Act" means the Investment Company Act of 1940 and the Rules and
Regulations thereunder, all as amended from time to time;

(j) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures, estates and other entities, whether or
not legal entities, and governments and agencies and political subdivisions
thereof, whether domestic or foreign;

(k) "Series" means each Series of Shares established and designated under
or in accordance with the provisions of Article III;

(l) "Shareholder" means a record owner of outstanding Shares;

(m) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares;

(n) "Trust" means the Delaware Business Trust established under the
Delaware Act by this Declaration of Trust and the filing of the Certificate of
Trust in the Office of the Secretary of State of the State of Delaware;

(o) "Trust Property" means any and all property, real or personal, tangible
or intangible, which is from time to time owned or held by or for the account of
the Trust; and

-2-
<PAGE>

(p) "Trustees" means the persons who have signed this Declaration of Trust
and all other Persons who may from time to time be duly elected or appointed to
serve as Trustees in accordance with the provisions hereof, in each case so long
as such Person shall continue in office in accordance with the terms of this
Declaration of Trust, and reference herein to a Trustee or the Trustees shall
refer to such Person or Persons in his or their capacity as trustees hereunder.

ARTICLE II

Purpose of Trust

The purpose of the Trust is to conduct, operate and carry on the business
of a management investment company registered under the 1940 Act through one or
more Series investing primarily in securities, and to carry on such other
business as the Trustees may from time to time determine pursuant to their
authority under this Declaration of Trust.

ARTICLE III

Section 1. Division of Beneficial Interest. The beneficial interest in the
Trust shall be divided into one or more Series. Each Series may be divided into
two or more Classes. Subject to the further provisions of this Article III and
any applicable requirements of the 1940 Act, the Trustees shall have full power
and authority, in their sole discretion, and without obtaining any authorization
or vote of the Shareholders of any Series or Class thereof, (i) to divide the
beneficial interest in each Series or Class thereof into Shares, with or without
par value as the Trustees shall determine, (ii) to issue Shares without
limitation as to number (including fractional Shares), to such Persons and for
such amount and type of consideration, subject to any restriction set forth in
the By-Laws, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, (iii) to establish and designate and
to change in any manner any Series or Class thereof and to fix such preferences,
voting powers, rights, duties and privileges and business purpose of each Series
or Class thereof as the Trustees may from time to time determine, which
preferences, voting powers, rights, duties and privileges may be senior or
subordinate to (or in the case of business purpose, different from) any existing
Series or Class thereof and may be limited to specified property or obligations
of the Trust or profits and losses associated with specified property or
obligations of the Trust, (iv) to divide or combine the Shares of any Series or
Class thereof into a greater or lesser number without

-3-
<PAGE>

thereby materially changing the proportionate beneficial interest of the Shares
of such Series or Class in the assets held with respect to that Series, (v) to
classify or reclassify any issued Shares of any Series or Class thereof into
shares of one or more Series or Classes thereof and (vi) to take such other
action with respect to the Shares as the Trustees may deem desirable.

Subject to the distinctions permitted among Classes of the same Series as
established by the Trustees consistent with the requirements of the 1940 Act,
each Share of a Series of the Trust shall represent an equal beneficial interest
in the net assets of such Series, and each holder of Shares of a Series shall be
entitled to receive such holder's pro rata share of distributions of income and
capital gains, if any, made with respect to such Series. Upon redemption of the
Shares of any Series, the applicable Shareholder shall be paid solely out of the
funds and property of such Series of the Trust.

All references to Shares in this Declaration of Trust shall be deemed to be
Shares of any or all Series or Classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust and each Class thereof, except as the context otherwise requires.

All Shares issued hereunder, including, without limitation, Shares issued
in connection with a dividend in Shares or a split or reverse split of Shares,
shall be fully paid and non-assessable. Except as otherwise provided by the
Trustees, Shareholders shall have no preemptive or other right to subscribe to
any additional Shares or other securities issued by the Trust.

Section 2. Ownership of Shares. The Ownership of Shares shall be recorded
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series (or Class).
No certificates certifying the ownership of Shares shall be issued except as the
Board of Trustees may otherwise determine from time to time. The Trustees may
make such rules as they consider appropriate for the issuance of Share
certificates, the transfer of Shares of each Series (or Class) and similar
matters. The record books of the Trust as kept by the Trust or any transfer or
similar agent, as the case may be, shall be conclusive as to the identity of the
Shareholders of each Series (or Class) and as to the number of Shares of each
Series (or Class) held from time to time by each Shareholder.

Section 3. Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the books of the Trust only by the
record holder thereof or by his duly authorized agent upon delivery to the
Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together

-4-
<PAGE>

with a Share certificate if one is outstanding, and such evidence of the
genuineness of each such execution and authorization and of such other matters
as may be required by the Trustees. Upon such delivery, and subject to any
further requirements specified by the Trustees or contained in the By-Laws, the
transfer shall be recorded on the books of the Trust. Until a transfer is so
recorded, the Shareholder of record of Shares shall be deemed to be the holder
of such Shares for all purposes hereunder and neither the Trustees nor the
Trust, nor any transfer agent or registrar or any officer, employee or agent of
the Trust, shall be affected by any notice of a proposed transfer.

Section 4. Investments in the Trust. Investments may be accepted by the
Trust from such Persons, at such times, on such terms, and for such
consideration as the Trustees from time to time may authorize.

Section 5. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof. The death,
incapacity, dissolution, termination or bankruptcy of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust, nor entitle the
representative of any such Shareholder to an accounting or to take any action in
court or elsewhere against the Trust or the Trustees, but entitles such
representative only to the rights of such Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust Property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholders, nor, except as specifically provided herein, to
call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.

Section 6. Establishment and Designation of Series. The establishment and
designation of any Series (or Class) of Shares shall be effective upon the
adoption by a majority of the then Trustees of a resolution that sets forth such
establishment and designation and the relative rights and preferences of such
Series (or Class), whether directly in such resolution or by reference to
another document including, without limitation, any registration statement of
the Trust, or as otherwise provided in such resolution.

-5-
<PAGE>

Shares of each Series (or Class) established pursuant to this Article III,
unless otherwise provided in the resolution establishing such Series, shall have
the following relative rights and preferences:

(a) Assets Held with Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably be held with respect to that Series for all purposes, subject only
to the rights of creditors of such Series, and shall be so recorded upon the
books of account of the Trust. Such consideration, assets, income, earnings,
profits and proceeds thereof, from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
held with respect to" that Series. In the event that there are any assets,
income, earnings, profits and proceeds thereof, funds or payments which are not
readily identifiable as assets held with respect to any particular Series
(collectively "General Assets"), the Trustees shall allocate such General Assets
to, between or among any one or more of the Series in such manner and on such
basis as the Trustees, in their sole discretion, deem fair and equitable, and
any General Assets so allocated to a particular Series shall be held with
respect to that Series. Each such allocation by the Trustees shall be conclusive
and binding upon the Shareholders of all Series for all purposes. Separate and
distinct records shall be maintained for each Series and the assets held with
respect to each Series shall be held and accounted for separately from the
assets held with respect to all other Series and the General Assets of the Trust
not allocated to such Series.

(b) Liabilities Held with Respect to a Particular Series. The assets of the
Trust held with respect to each particular Series shall be charged against the
liabilities of the Trust held with respect to that Series and all expenses,
costs, charges and reserves attributable to that Series. Any general liabilities
of the Trust which are not readily identifiable as being held with respect to
any particular Series shall be allocated and charged by the Trustees to and
among any one or more of the Series in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. All liabilities,
expenses, costs, charges, and reserves so charged to a Series are herein
referred to as "liabilities held with respect to" that Series. Each

-6-
<PAGE>

allocation of liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the holders of all Series for all purposes.
All liabilities held with respect to a particular Series shall be enforceable
against the assets held with respect to such Series only and not against the
assets of the Trust generally or against the assets held with respect to any
other Series. Notice of this contractual limitation on the liability of each
Series shall be set forth in the Certificate of Trust or in an amendment thereto
prior to the issuance of any Shares of a Series.

(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article VI, no dividend or distribution, including, without
limitation, any distribution paid upon termination of the Trust or of any Series
(or Class) with respect to, nor any redemption or repurchase of, the Shares of
any Series (or Class) shall be effected by the Trust other than from the assets
held with respect to such Series, nor shall any Shareholder of any particular
Series otherwise have any right or claim against the assets held with respect to
any other Series except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series. The Trustees shall have
full discretion, to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders.

(d) Equality. All the Shares of each particular Series shall represent an
equal proportionate interest in the assets held with respect to that Series
(subject to the liabilities held with respect to that Series and such rights and
preferences as may have been established and designated with respect to Classes
of Shares within such Series), and each Share of any particular Series shall be
equal to each other Share of that Series.

(e) Fractions. Any fractional Share of a Series shall carry proportionately
all the rights and obligations of a whole Share of that Series, including rights
with respect to voting, receipt of dividends and distributions, redemption of
Shares and termination of the Trust.

(f) Exchange Privilege. The Trustees shall have the authority to provide
that the holders of Shares of any Series shall have the right to exchange said
Shares for Shares of one or more other Series of Shares in accordance with such
requirements and procedures as may be established by the Trustees.

-7-
<PAGE>

(g) Combination of Series. The Trustees shall have the authority, without
the approval of the Shareholders of any Series unless otherwise required by
applicable law, to combine the assets and liabilities held with respect to any
two or more Series into assets and liabilities held with respect to a single
Series.

(h) Elimination of Series. At any time that there are no Shares outstanding
of any particular Series (or Class) previously established and designated, the
Trustees may by resolution of a majority of the then Trustees abolish that
Series (or Class) and rescind the establishment and designation thereof.

Section 7. Indemnification of Shareholders. If any Shareholder or former
Shareholder shall be exposed to liability by reason of a claim or demand
relating to such Person being or having been a Shareholder, and not because of
such Person's acts or omissions, the Shareholder or former Shareholder (or such
Person's heirs, executors, administrators, or other legal representatives or in
the case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified out of the
assets of the Trust against all loss and expense arising from such claim or
demand, but only out of the assets held with respect to the particular Series of
Shares of which such Person is or was a Shareholder and from or in relation to
which such liability arose.

ARTICLE IV

The Board of Trustees

Section 1. Number, Election and Tenure. The number of Trustees shall
initially be three, who shall be Marguerite E. H. Morrison, S. Jane Rose and
Robert C. Rosselot. Hereafter, the number of Trustees shall at all times be at
least one and no more than fifteen as determined, from time to time, by the
Trustees pursuant to Section 3 of this Article IV. Each Trustee shall serve
during the continued lifetime of the Trust until the earlier of his or her
death, resignation, declared bankruptcy or incompetentcy by a court of
appropriate jurisdiction, or removal or until the next meeting of Shareholders
called for the purpose of electing Trustees and until the election and
qualification of his or her successor. In the event that less than the majority
of the Trustees holding office have been elected by the Shareholders, the
Trustees then in office shall call a Shareholders' meeting for the election of
Trustees. Any Trustee may resign at any time by

-8-
<PAGE>

written instrument signed by him and delivered to any officer of the Trust or to
a meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee resigning
and no Trustee removed shall have any right to any compensation for any period
following the effective date of his or her resignation or removal, or any right
to damages on account of such removal. The Shareholders may elect Trustees at
any meeting of Shareholders called by the Trustees for that purpose. Any Trustee
may be removed at any meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of the Trust.

Section 2. Effect of Death, Resignation, etc. of a Trustee. The death,
declination to serve, resignation, retirement, removal, or incapacity of one or
more Trustees, or all of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
Whenever there shall be fewer than the designated number of Trustees, until
additional Trustees are elected or appointed as provided herein to bring the
total number of Trustees equal to the designated number, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust. As conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an officer of the
Trust or by a majority of the Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then Trustees within
a short period of time and without the opportunity for at least one Trustee
being able to appoint additional Trustees to replace those no longer serving,
the Trust's Investment Manager(s) are empowered to appoint new Trustees subject
to the provisions of Section 16(a) of the 1940 Act.

Section 3. Powers. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Trustees, and the Trustees
shall have all powers necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all kinds on behalf
of the Trust. Without limiting the foregoing, the Trustees may: adopt By-Laws
not inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust and may amend and repeal them to the
extent that such By-Laws do not reserve that right to the Shareholders; enlarge
or reduce their number; remove any Trustee with or without cause at any time by
written instrument signed by

-9-
<PAGE>

at least two-thirds of the number of Trustees prior to such removal, specifying
the date when such removal shall become effective, and fill vacancies caused by
enlargement of their number or by the death, resignation or removal of a
Trustee; elect and remove, with or without cause, such officers and appoint and
terminate such agents as they consider appropriate; appoint from their own
number and establish and terminate one or more committees consisting of two or
more Trustees (or one Trustee if necessary pursuant to Article VIII, Section 9
hereof) which may exercise the powers and authority of the Board of Trustees to
the extent that the Trustees determine; employ one or more custodians of the
assets of the Trust and authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities or with a Federal Reserve Bank; retain a transfer agent
or a shareholder servicing agent, or both; provide for the issuance and
distribution of Shares by the Trust directly or through one or more Principal
Underwriters or otherwise; redeem, repurchase and transfer Shares pursuant to
applicable law; set record dates for the determination of Shareholders with
respect to various matters; declare and pay dividends and distributions to
Shareholders of each Series from the assets of such Series; and in general
delegate such authority as they consider desirable to any officer of the Trust,
to any committee of the Trustees and to any agent or employee of the Trust or to
any such custodian, transfer or Shareholder servicing agent, or Principal
Underwriter. Any determination as to what is in the interests of the Trust made
by the Trustees in good faith shall be conclusive. In construing the provisions
of this Declaration of Trust, the presumption shall be in favor of a grant of
power to the Trustees. Unless otherwise specified herein or in the By-Laws or
required by law, any action by the Trustees shall be deemed effective if
approved or taken by a majority of the Trustees present at a meeting of Trustees
at which a quorum (as defined in the By-Laws as may be amended from time to
time) of Trustees is present, within or without the State of Delaware.

Without limiting the foregoing, the Trustees shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):

(a) To invest and reinvest cash, to hold cash uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge,
sell, assign, transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and securities of every nature and kind,
including, without limitation, all

-10-
<PAGE>

types of bonds, debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed, or sponsored by any and all
Persons, including, without limitation, states, territories, and possessions of
the United States and the District of Columbia and any political subdivision,
agency, or instrumentality thereof, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the United States or of
any state, territory, or possession thereof, or by any corporation or
organization organized under any foreign law, or in "when issued" contracts for
any such securities, to change the investments of the assets of the Trust; and
to exercise any and all rights, powers, and privileges of ownership or interest
in respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons, to exercise any of
said rights, powers, and privileges in respect of any of said instruments;

(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write
options (including, options on futures contracts) with respect to or otherwise
deal in any property rights relating to any or all of the assets of the Trust or
any Series;

(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such Person or Persons as the Trustees shall
deem proper, granting to such Person or Persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;

(d) To exercise powers and right of subscription or otherwise which in any
manner arise out of ownership of securities;

(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own name or
in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;

(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease,

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mortgage, purchase or sale of property by such corporation or issuer; and to pay
calls or subscriptions with respect to any security held in the Trust;

(g) To join with other security holders in acting through a committee,
depository, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depository or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depository or trustee as the Trustees shall deem
proper;

(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including, but not limited to,
claims for taxes;

(i) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;

(j) To borrow funds or other property in the name of the Trust exclusively
for Trust purposes and in connection therewith issue notes or other evidence of
indebtedness; and to mortgage and pledge the Trust Property or any part thereof
to secure any or all of such indebtedness;

(k) To endorse or guarantee the payment of any notes or other obligations
of any Person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof; and to mortgage and pledge the Trust Property or
any part thereof to secure any of or all of such obligations;

(1) To purchase and pay for entirely out of Trust Property such insurance
as the Trustees may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding Shares, holding, being
or having held any such office or position, or by reason of any action alleged
to have been taken or omitted by any such Person as Trustee, officer, employee,
agent, investment adviser, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify such
Person against liability;

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(m) To adopt, establish and carry out pension, profit-sharing, share bonus,
share purchase, savings, thrift and other retirement, incentive and benefit
plans and trusts, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any or
all of the Trustees, officers, employees and agents of the Trust;

(n) To operate as and carry out the business of an investment company, and
exercise all the powers necessary or appropriate to the conduct of such
operations;

(o) To enter into contracts of any kind and description;

(p) To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Declaration or Trust or in the By-Laws;

(q) To interpret the investment policies, practices or limitations of any
Series or Class; and

(r) To invest part or all of the Trust Property (or part or all of the
assets of any Series), or to dispose of part or all of the Trust Property (or
part or all of the assets of any Series) and invest the proceeds of such
disposition, in securities issued by one or more other investment companies
registered under the 1940 Act (including investment by means of transfer of part
or all of the Trust Property in exchange for an interest or interests in such
one or more investment companies) all without any requirement of approval by
Shareholders unless required by the 1940 Act. Any such other investment company
may (but need not) be a trust (formed under the laws of the State of Delaware or
of any other state) which is classified as a partnership for federal income tax
purposes.

(s) Subject to the 1940 Act, to engage in any other lawful act or activity
in which a business trust organized under the Delaware Act may engage.

The Trust shall not be limited to investing in obligations maturing before
the possible termination of the Trust or one or more of its Series. The Trust
shall not in any way be bound or limited by any present or future law or custom
in regard to investment by fiduciaries. The Trust shall not be required to
obtain any court order to deal with any assets of the Trust or take any other
action hereunder.

Section 4. Payment of Expenses by the Trust. The Trustees are authorized to
pay or cause to be paid out of the principal or income of the Trust, or partly
out of the principal and partly out of income, as

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they deem fair, all expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the Trust, or in connection with the management
thereof, including, but not limited to, the Trustees compensation and such
expenses and charges for the services of the Trust's officers, employees,
investment adviser or manager, Principal Underwriter, auditors, counsel,
custodian, transfer agent, shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur, which expenses, fees, charges, taxes and
liabilities shall be allocated in accordance with Article III, Section 6 hereof.

Section 5. Payment of Expenses by Shareholders. The Trustees shall have the
power, as frequently as they may determine, to cause each Shareholder, or each
Shareholder of any particular Series, to pay directly, in advance or arrears,
for charges of the Trust's custodian or transfer, Shareholder servicing or
similar agent, an amount fixed from time to time by the Trustees, by setting off
such charges due from such Shareholder from declared but unpaid dividends owed
such Shareholder and/or by reducing the number of Shares in the account of such
Shareholder by that number of full and/or fractional Shares which represents the
outstanding amount of such charges due from such Shareholder.

Section 6. Ownership of Assets of the Trust. Title to all of the assets of
the Trust shall at all times be considered as vested in the Trust, except that
the Trustees shall have power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the resignation, removal or death of a Trustee, he or she shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.

Section 7. Service Contracts

(a) Subject to such requirements and restrictions as may be set forth under
federal and/or state law and in the By-Laws, including, without limitation, the
requirements of Section 15 of the 1940 Act, the Trustees may, at any time and
from time to time, contract for exclusive or nonexclusive advisory, management
and/or administrative services for the Trust or for any Series (or Class
thereof) with any

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corporation, trust, association or other organization; and any such contract may
contain such other terms as the Trustees may determine, including, without
limitation, authority for the Investment Manager or administrator to delegate
certain or all of its duties under such contracts to qualified investment
advisers and administrators and to determine from time to time without prior
consultation with the Trustees what investments shall be purchased, held, sold
or exchanged and what portion, if any, of the assets of the Trust shall be held
uninvested and to make changes in the Trust's investments, or such other
activities as may specifically be delegated to such party.

(b) The Trustees may also, at any time and from time to time, contract with
any corporation, trust, association or other organization, appointing it
exclusive or nonexclusive distributor or Principal Underwriter for the Shares of
one or more of the Series (or Classes) or other securities to be issued by the
Trust. Every such contract shall comply with such requirements and restrictions
as may be set forth under federal and/or state law and in the By-Laws,
including, without limitation, the requirements of Section 15 of the 1940 Act;
and any such contract may contain such other terms as the Trustees may
determine.

(c) The Trustees are also empowered, at any time and from time to time, to
contract with any corporations, trusts, associations or other organizations,
appointing it or them the custodian, transfer agent and/or Shareholder servicing
agent for the Trust or one or more of its Series. Every such contract shall
comply with such requirements and restrictions as may be set forth under federal
and/or state law and in the By-Laws or stipulated by resolution of the Trustees.

(d) Subject to applicable law, the Trustees are further empowered, at any
time and from time to time, to contract with any entity to provide such other
services to the Trust or one or more of the Series, as the Trustees determine to
be in the best interests of the Trust and the applicable Series.

(e) The fact that:

(i) any of the Shareholders, Trustees, or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, Manager,
adviser, Principal Underwriter, distributor, or affiliate or agent of or
for any corporation, trust, association, or other organization, or for any
parent or affiliate of any organization with which an advisory, management
or administration contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other type of

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<PAGE>

service contract may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder or has
an interest in the Trust, or that

(ii) any corporation, trust, association or other organization with
which an advisory, management or administration contract or principal
underwriter's or distributor's contract, or transfer, shareholder servicing
or other type of service contract may have been or may hereafter be made
also has an advisory, management or administration contract, or principal
underwriter's or distributor's contract, or transfer, shareholder servicing
or other service contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing
the same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to
the requirements of the 1940 Act.

Section 8. Trustees and Officers as Shareholders. Any Trustee, officer or
agent of the Trust may acquire, own and dispose of Shares to the same extent as
if he were not a Trustee, officer or agent; and the Trustees may issue and sell
and cause to be issued and sold Shares to, and redeem such Shares from, any such
Person or any firm or company in which such Person is interested, subject only
to the general limitations contained herein or in the By-Laws relating to the
sale and redemption of such Shares.

ARTICLE V

Shareholders' Voting Powers and Meetings

Section 1. Voting Powers, Meetings, Notice and Record Dates. The
Shareholders shall have power to vote only (i) for the election or removal of
Trustees as provided in Article IV, Section 1, and (ii) with respect to such
additional matters relating to the Trust as may be required by applicable law,
this Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. As determined by the Trustees without the vote
or consent of Shareholders (except as required by the 1940 Act), on any matter
submitted to a vote of Shareholders, either (i) each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote or (ii)
each

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dollar of Net Asset Value (number of Shares owned times Net Asset Value per
share of such Series or Class, as applicable) shall be entitled to one vote on
any matter on which such Shares are entitled to vote and each fractional dollar
amount shall be entitled to a proportionate fractional vote. Without limiting
the power of the Trustees in any way to designate otherwise in accordance with
the preceding sentence, the Trustees hereby establish that each whole Share
shall be entitled to one vote as to any matter on which it is entitled to vote
and each fractional Share shall be entitled to a proportionate fractional vote.

Notwithstanding any other provision of this Declaration of Trust, on any
matter submitted to a vote of the Shareholders, all Shares of the Trust then
entitled to vote shall be voted in aggregate, except (i) when required by the
1940 Act, Shares shall be voted by individual Series; (ii) when the matter
involves the termination of the Trust, Shares shall be voted by individual
Series; (iii) when the matter involves the termination of a Series or any other
action that the Trustees have determined will affect only the interests of one
or more Series, then only Shareholders of such Series shall be entitled to vote
thereon; and (iv) when the matter involves any action that the Trustees have
determined will affect only the interests of one or more Classes, then only the
Shareholders of such Class or Classes shall be entitled to vote thereon. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy. A proxy may be given in writing. The By-Laws may provide
that proxies may also, or may instead, be given by any electronic or
telecommunications device or in any other manner. Notwithstanding anything else
contained herein or in the By-Laws, in the event a proposal by anyone other than
the officers or Trustees of the Trust is submitted to a vote of the shareholders
of one or more Series or Classes thereof or of the Trust, or in the event of any
proxy contest or proxy solicitation or proposal in opposition to any proposal by
the officers or Trustees of the Trust, Shares may be voted only in person or by
written proxy at a meeting. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by law, this
Declaration of Trust or the By-Laws to be taken by the Shareholders. Meetings of
the Shareholders shall be called and notice thereof and record dates therefor
shall be given and set as provided in the By-Laws.

Section 2. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
forty percent (40%) of the Shares entitled to vote shall constitute a quorum at
a Shareholders' meeting. When any one or more Series (or Class) is to vote as a
single class separate from any other Shares, forty percent (40%) of the Shares
of each such Series (or Class)

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entitled to vote shall constitute a quorum at a Shareholders' meeting of that
Series (or Class). Except when a larger vote is required by any provision of
this Declaration of Trust or the By-Laws or by applicable law, when a quorum is
present at any meeting, a majority of the Shares voted shall decide any
questions and a plurality of the Shares voted shall elect a Trustee, provided
that where any provision of law or of this Declaration of Trust requires that
the holders of any Series shall vote as a Series (or that holders of a Class
shall vote as a Class), then a majority of the Shares of that Series (or Class)
voted on the matter (or a plurality with respect to the election of a Trustee)
shall decide that matter insofar as that Series (or Class) is concerned.

Section 3. Record Dates. For the purpose of determining the Shareholders of
any Series (or Class) who are entitled to receive payment of any dividend or of
any other distribution, the Trustees may from time to time fix a date, which
shall be before the date for the payment of such dividend or such other payment,
as the record date for determining the Shareholders of such Series (or Class)
having the right to receive such dividend or distribution. Without fixing a
record date, the Trustees may for distribution purposes close the register or
transfer books for one or more Series (or Classes) at any time prior to the
payment of a distribution. Nothing in this Section shall be construed as
precluding the Trustees from setting different record dates for different Series
(or Classes).

Section 4. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.

ARTICLE VI

Net Asset Value, Distributions and Redemptions

Section 1. Determination of Net Asset Value, Net Income, and Distributions.
Subject to applicable law and Article III, Section 6 hereof, the Trustees, in
their absolute discretion, may prescribe and shall set forth in a duly adopted
vote of the Trustees such bases and time for determining the per Share or net
asset value of the Shares of any Series (or Class) or net income attributable to
the Shares of any Series (or Class), or the declaration and payment of dividends
and distributions on the Shares of any Series (or Class), as they may deem
necessary or desirable.

Section 2. Redemptions and Repurchases.

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(a) The Trust shall purchase such Shares as are offered by any Shareholder
for redemption, upon the presentation of a proper instrument of transfer
together with a request directed to the Trust or a Person designated by the
Trust that the Trust purchase such Shares or in accordance with such other
procedures for redemption as the Trustees may from time to time authorize; and
the Trust will pay therefor the net asset value thereof as determined by the
Trustees (or on their behalf), in accordance with any applicable provisions of
the By-Laws and applicable law, less any fees imposed on such redemption. Unless
extraordinary circumstances exist, payment for said Shares shall be made by the
Trust to the Shareholder within seven (7) days after the date on which the
request is made in proper form. The obligation set forth in this Section 2 is
subject to the provision that in the event that any time the New York Stock
Exchange (the "Exchange") is closed for other than weekends or holidays, or if
permitted by the rules and regulations or an order of the Commission during
periods when trading on the Exchange is restricted or during any emergency which
makes it impracticable for the Trust to dispose of the investments of the
applicable Series or to determine fairly the value of the net assets held with
respect to such Series or during any other period permitted by order of the
Commission for the protection of investors, such obligations may be suspended or
postponed by the Trustees. In the case of a suspension of the right of
redemption as provided herein, a Shareholder may either withdraw the request for
redemption or receive payment based on the net asset value per share next
determined after the termination of such suspension, less any fees imposed on
such redemption.

(b) The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the interest
of the remaining Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection and quantity of
securities or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the Trustees. In no
case shall the Trust be liable for any delay of any corporation or other Person
in transferring securities selected for delivery as all or part of any payment
in kind.

(c) The Trustees may require Shareholders to redeem Shares for any reason
under terms set by the Trustees, including, but not limited to, (i) the
determination of the Trustees that direct or indirect ownership of Shares of any
Series has or may become concentrated in such Shareholder to an extent that
would disqualify any Series as a regulated investment company under the Internal
Revenue Code of 1986, as

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amended (or any successor statute thereto), (ii) the failure of a Shareholder to
supply a tax identification number if required to do so, or to have the minimum
investment required (which may vary by Series), or (iii) the failure of a
Shareholder to pay when due for the purchase of Shares issued to him. Any such
redemption shall be effected at the redemption price and in the manner provided
in this Article VI.

(d) The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the provisions of the Internal
Revenue Code of 1986, as amended (or any successor statute thereto), or to
comply with the requirements of any other taxing authority.

ARTICLE VII

Compensation and Limitation of
Liability of Trustees

Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.

Section 2. Indemnification and Limitation of Liability. A Trustee, when
acting in such capacity, shall not be personally liable to any Person, other
than the Trust or a Shareholder to the extent provided in this Article VII, for
any act, omission or obligation of the Trust, of such Trustee or of any other
Trustee. The Trustees shall not be responsible or liable in any event for any
neglect or wrongdoing of any officer, agent, employee, Manager or Principal
Underwriter of the Trust. The Trust shall indemnify each Person who is, or has
been, a Trustee, officer, employee or agent of the Trust and any Person who is
serving or has served at the Trust's request as a director, officer, trustee,
employee or agent of another organization in which the Trust has any interest as
a shareholder, creditor or otherwise to the extent and in the manner provided in
the By-Laws.

All persons extending credit to, contracting with or having any claim
against the Trust or the Trustees shall look only to the assets of the Series
that such person extended credit to, contracted with or has a claim against, or,
if the Trustees have yet to establish Series, of the Trust for payment under
such

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credit, contract or claim; and neither the Trustees nor the Shareholders, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor.

Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees by any of them in connection with the Trust shall
conclusively be deemed to have been executed or done only in or with respect to
his or their capacity as Trustee or Trustees, and such Trustee or Trustees shall
not be personally liable thereon. At the Trustees' discretion, any note, bond,
contract, instrument, certificate or undertaking made or issued by the Trustees
or by any officer or officers may give notice that the Certificate of Trust is
on file in the Office of the Secretary of State of the State of Delaware and
that a limitation on liability of Series exists and such note, bond, contract,
instrument, certificate or undertaking may, if the Trustees so determine, recite
that the same was executed or made on behalf of the Trust by a Trustee or
Trustees in such capacity and not individually or by an officer or officers in
such capacity and not individually and that the obligations of such instrument
are not binding upon any of them or the Shareholders individually but are
binding only on the assets and property of the Trust or a Series thereof, and
may contain such further recital as such Person or Persons may deem appropriate.
The omission of any such notice or recital shall in no way operate to bind any
Trustees, officers or Shareholders individually.

Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable to the Trust and to
any Shareholder solely for his or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice nor
for failing to follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.

Section 4. Insurance. The Trustees shall be entitled and empowered to the
fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee, officer, employee or agent of the Trust in connection with
any claim,

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action, suit or proceeding in which he or she becomes involved by virtue of his
or her capacity or former capacity with the Trust.

ARTICLE VIII

Miscellaneous

Section 1. Liability of Third Persons Dealing with Trustees. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.

Section 2. Termination of Trust or Series.

(a) Unless terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by vote of a
majority of the Shares of each Series entitled to vote, voting separately by
Series, or by the Trustees by written notice to the Shareholders. Any Series of
Shares or Class thereof may be terminated at any time by vote of a majority of
the Shares of such Series or Class entitled to vote or by the Trustees by
written notice to the Shareholders of such Series or Class.

(b) Upon the requisite Shareholder vote or action by the Trustees to
terminate the Trust or any one or more Series of Shares or any Class thereof,
after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular Series or any Class thereof as may be determined by the Trustees, the
Trust shall in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets of the Trust or of the affected Series
or Class to distributable form in cash or Shares (if any Series remain) or other
securities, or any combination thereof, and distribute the proceeds to the
Shareholders of the Series or Classes involved, ratably according to the number
of Shares of such Series or Class held by the several Shareholders of such
Series or Class on the date of distribution. Thereupon, the Trust or any
affected Series or Class shall terminate and the Trustees and the Trust shall be
discharged of any and all further liabilities and duties relating thereto or
arising therefrom, and the right, title and interest of all parties with respect
to the Trust or such Series or Class shall be canceled and discharged.

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<PAGE>

(c) Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's Certificate of Trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.

Section 3. Reorganization and Master/Feeder

(a) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval unless such approval is required by applicable law, (i)
cause the Trust to merge or consolidate with or into one or more trusts (or
series thereof to the extent permitted by law), partnerships, associations,
corporations or other business entities (including trusts, partnerships,
associations, corporations or other business entities created by the Trustees to
accomplish such merger or consolidation) so long as the surviving or resulting
entity is an open-end management investment company under the 1940 Act, or is a
series thereof, that will succeed to or assume the Trust's registration under
the 1940 Act and that is formed, organized or existing under the laws of the
United States or of a state, commonwealth, possession or colony of the United
States, (ii) cause the Shares to be exchanged under or pursuant to any state or
federal statute to the extent permitted by law or (iii) cause the Trust to
incorporate under the laws of Delaware. Any agreement of merger or consolidation
or exchange or certificate of merger may be signed by a majority of the Trustees
and facsimile signatures conveyed by electronic or telecommunication means shall
be valid.

(b) Pursuant to and in accordance with the provisions of Section 3815(f) of
the Delaware Act, and notwithstanding anything to the contrary contained in this
Declaration of Trust, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 3 may effect any amendment to the
governing instrument of the Trust or effect the adoption of a new trust
instrument of the Trust if the Trust is the surviving or resulting trust in the
merger or consolidation.

(c) The Trustees may create one or more business trusts to which all or any
part of the assets, liabilities, profits or losses of the Trust or any Series or
class thereof may be transferred and may provide for the conversion of Shares in
the Trust or any Series or Class thereof into beneficial interests in any such
newly created trust or trusts or any series or classes thereof.

(d) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval, invest all or a portion of the Trust Property of any
Series, or dispose of all or a portion of the Trust Property of any Series, and
invest the proceeds of such disposition in interests issued by one or more other
investment

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companies registered under the 1940 Act. Any such other investment company may
(but need not) be a trust (formed under the laws of the State of Delaware or any
other state or jurisdiction) (or subtrust thereof) which is classified as a
partnership for federal income tax purposes. Notwithstanding anything else
herein, the Trustees may, without Shareholder approval unless such approval is
required by applicable law, cause a Series that is organized in the
master/feeder fund structure to withdraw or redeem its Trust Property from the
master fund and cause such series to invest its Trust Property directly in
securities and other financial instruments or in another master fund.

Section 4. Amendments. Except as specifically provided in this Section, the
Trustees may, without Shareholder vote, restate, amend or otherwise supplement
this Declaration of Trust. Shareholders shall have the right to vote (i) on any
amendment that would affect their right to vote granted in Article V, Section 1
hereof, (ii) on any amendment to this Section 4 of Article VIII, (iii) on any
amendment that may be required by applicable law or by the Trust's registration
statement filed with the Commission and (iv) on any amendment submitted to them
by the Trustees. Any amendment required or permitted to be submitted to the
Shareholders that, as the Trustees determine, shall affect the Shareholders of
one or more Series shall be authorized by a vote of the Shareholders of each
Series affected and no vote of Shareholders of a Series not affected shall be
required. Notwithstanding anything else herein, no amendment hereof shall limit
the rights to insurance provided by Article VII, Section 4 with respect to any
acts or omissions of Persons covered thereby prior to such amendment nor shall
any such amendment limit the rights to indemnification referenced in Article
VII, Section 2 hereof as provided in the By-Laws with respect to any actions or
omissions of Persons covered thereby prior to such amendment. The Trustees may,
without Shareholder vote, restate, amend, or otherwise supplement the
Certificate of Trust as they deem necessary or desirable.

Section 5. Filing of Copies, References, Headings. The original or a copy
of this instrument and of each restatement and/or amendment hereto shall be kept
at the office of the Trust where it may be inspected by any Shareholder. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such restatements and/or amendments have been made and as
to any matters in connection with the Trust hereunder; and, with the same effect
as if it were the original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such restatements and/or
amendments. In this instrument and in any such restatements and/or amendments,
references to this

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<PAGE>

instrument, and all expressions such as "herein", "hereof" and "hereunder",
shall be deemed to refer to this instrument as amended or affected by any such
restatements and/or amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. Whenever the singular number
is used herein, the same shall include the plural; and the neuter, masculine and
feminine genders shall include each other, as applicable. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.

Section 6. Applicable Law.

(a) The Trust is created under, and this Declaration of Trust is to be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware. The Trust shall be of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust specifically
reserves the right to exercise any of the powers or privileges afforded to
business trusts or actions that may be engaged in by business trusts under the
Delaware Act, and the absence of a specific reference herein to any such power,
privilege or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.

(b) Notwithstanding the first sentence of Section 6(a) of this Article
VIII, there shall not be applicable to the Trust, the Trustees or this
Declaration of Trust (x) the provisions of Section 3540 of Title 12 of the
Delaware Code or (y) any provisions of the laws (statutory or common) of the
State of Delaware (other than the Delaware Act) pertaining to trusts that relate
to or regulate: (i) the filing with any court or governmental body or agency of
trustee accounts or schedules of trustee fees and charges, (ii) affirmative
requirements to post bonds for trustees, officers, agents or employees of a
trust, (iii) the necessity for obtaining a court or other governmental approval
concerning the acquisition, holding or disposition of real or personal property,
(iv) fees or other sums applicable to trustees, officers, agents or employees of
a trust, (v) the allocation of receipts and expenditures to income or principal,
(vi) restrictions or limitations on the permissible nature, amount or
concentration of trust investments or requirements relating to the titling,
storage or other manner of holding of trust assets, or (vii) the establishment
of fiduciary or other standards or responsibilities or limitations on the acts
or powers of trustees that are inconsistent with the limitations or liabilities
or authorities and powers of the Trustees set forth or referenced in this
Declaration of Trust.

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<PAGE>

Section 7. Provisions in Conflict with Law or Regulations.

(a) The provisions of the Declaration of Trust are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such provision
is in conflict with the 1940 Act, the regulated investment company provisions of
the Internal Revenue Code of 1986, as amended (or any successor statute
thereto), and the regulations thereunder, the Delaware Act or with other
applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of the Declaration of Trust; provided, however, that
such determination shall not affect any of the remaining provisions of the
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.

(b) If any provision of the Declaration of Trust shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration of Trust in any jurisdiction.

Section 8. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the Delaware Act. It is not the intention of
the Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, or any form of legal relationship other than
a business trust pursuant to the Delaware Act. Nothing in this Declaration of
Trust shall be construed to make the Shareholders, either by themselves or with
the Trustees, partners or members of a joint stock association.

Section 9. Derivative Actions. In addition to the requirements set forth
in Section 3816 of the Delaware Act, a Shareholder may bring a derivative action
on behalf of the Trust only if the following conditions are met:

(a) The Shareholder or Shareholders must make a pre-suit demand upon the
Trustees to bring the subject action unless an effort to cause the Trustees to
bring such an action is not likely to succeed. For purposes of this Section
9(a), a demand on the Trustees shall only be deemed not likely to succeed and
therefore excused if a majority of the Board of Trustees, or a majority of any
committee established to consider the merits of such action, has a personal
financial interest in the transaction at issue, and a Trustee shall not be
deemed interested in a transaction or otherwise disqualified from ruling on the
merits of a Shareholder demand by virtue of the fact that such Trustee receives
remuneration for his service on the

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<PAGE>

Board of Trustees of the Trust or on the boards of one or more trusts that are
under common management with or otherwise affiliated with the Trust.

(b) Unless a demand is not required under paragraph (a) of this Section 9,
Shareholders eligible to bring such derivative action under the Delaware Act who
collectively hold at least 10% of the Outstanding Shares of the Trust, or who
collectively hold at least 10% of the Outstanding Shares of the Series or Class
to which such action relates, shall join in the request for the Trustees to
commence such action; and

(c) Unless a demand is not required under paragraph (a) of this Section 9,
the Trustees must be afforded a reasonable amount of time to consider such
shareholder request and to investigate the basis of such claim. The Trustees
(or any committee established to consider such shareholder request) shall be
entitled to retain counsel or other advisors in considering the merits of the
request and shall require an undertaking by the Shareholders making such request
to reimburse the Trust for the expense of any such advisors in the event that
the Trustees determine not to bring such action.

For purposes of this Section 9, the Board of Trustees may designate a
committee of one Trustee to consider a Shareholder demand if necessary to create
a committee with a majority of Trustees who do not have a personal financial
interest in the transaction at issue.

[The remainder of this page has been
left blank intentionally.]

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<PAGE>

IN WITNESS WHEREOF, the Trustees named below does hereby make and enter
into this Declaration of Trust as of the 22nd day of October 1997.

/s/ Marguerite E.H. Morrison
- ----------------------------
Marguerite E. H. Morrison

/s/ S. Jane Rose
- -----------------------------
S. Jane Rose

/s/ Robert C. Rosselot
- -----------------------------
Robert C. Rosselot

THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS:

Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077

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<PAGE>

EXHIBIT 2

BY-LAWS

PRUDENTIAL DEVELOPING MARKETS FUND
<PAGE>

TABLE OF CONTENTS

Page

ARTICLE I - AGREEMENT AND DECLARATION OF TRUST....................... 1
Section 1. Agreement and Declaration
of Trust........................................... 1
Section 2. Definitions........................................ 1

ARTICLE II - OFFICES................................................. 1
Section 1. Principal Office................................... 1
Section 2. Registered Office and Other Office................. 1

ARTICLE III - SHAREHOLDERS........................................... 1
Section 1. Meetings........................................... 1
Section 2. Notice of Meetings................................. 2
Section 3. Record Date for Meetings........................... 2
Section 4. Proxies............................................ 2
Section 5. Inspection of Books................................ 3
Section 6. Action without Meeting............................. 3
Section 7. Application of this Article........................ 4

ARTICLE IV - TRUSTEES................................................ 4
Section 1. Meetings of the Trustees........................... 4
Section 2. Quorum and Manner of Acting........................ 5

ARTICLE V - COMMITTEES............................................... 5
Section 1. Executive and Other Committees..................... 5
Section 2. Meetings, Quorum and Manner of Acting.............. 5

ARTICLE VI - OFFICERS................................................ 6
Section 1. General Provisions................................. 6
Section 2. Term of Office and Qualifications.................. 6
Section 3. Removal............................................ 6
Section 4. Powers and Duties of the Chairman.................. 6
Section 5. Powers and Duties of the President................. 7
Section 6. Powers and Duties of the Vice President............ 7
Section 7. Powers and Duties of the Treasurer................. 7
Section 8. Powers and Duties of the Secretary................. 8
Section 9. Powers and Duties of Assistant Treasurers.......... 8
Section 10. Powers and Duties of Assistant Secretaries......... 8
Section 11. Compensation of Officers and Trustees.............. 8

ARTICLE VII - FISCAL YEAR............................................ 9

ARTICLE VIII - SEAL.................................................. 9

(i)
<PAGE>

ARTICLE IX - WAIVERS OF NOTICE....................................... 9

ARTICLE X - CUSTODY OF SECURITIES.................................... 9
Section 1. Employment of a Custodian.......................... 9
Section 2. Action upon Termination of Custodian Agreement..... 9
Section 3. Provisions of Custodian Contract................... 10
Section 4. Central Certificate System......................... 10

ARTICLE XI - INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND OTHER
AGENTS............................................................. 11
Section 1. Agents, Proceedings, Expenses...................... 11
Section 2. Indemnification.................................... 11
Section 3. Limitations, Settlements........................... 11
Section 4. Insurance, Rights Not
Exclusive.......................................... 12
Section 5. Advance of Expenses................................ 12
Section 6. Fiduciaries of Employee
Benefit Plan....................................... 13

ARTICLE XII - AMENDMENTS............................................. 13

(ii)
<PAGE>

BY-LAWS

PRUDENTIAL DEVELOPING MARKETS FUND

ARTICLE I

Agreement and Declaration of Trust

Section 1. Agreement and Declaration of Trust. These By-Laws shall be
subject to the Agreement and Declaration of Trust, as from time to time amended,
supplemented or restated (the "Declaration of Trust") of Prudential Developing
Markets Fund (the "Trust").

Section 2. Definitions. Unless otherwise defined herein, the terms used
herein have the respective meanings given them in the Declaration of Trust.

ARTICLE II

Offices

Section 1. Principal Office. The principal office of the Trust shall be
located in the City of Newark, State of New Jersey, or such other location as
the Trustees may from time to time determine. Section 2. Registered Office and
Other Offices. The registered office of the Trust shall be located in the City
of Wilmington, State of Delaware or such other location within the State of
Delaware as the Trustees may from time to time determine. The Trust may
establish and maintain such other offices and places of business as the Trustees
may from time to time determine.

ARTICLE III

Shareholders

Section 1. Meetings. Meetings of the Shareholders shall be held at the
principal executive offices of the Trust or at such other place within the
United States of America as the Trustees shall designate. Meetings of the
Shareholders shall be called by the Secretary whenever (i) ordered by the
Trustees or (ii) for the purpose of voting on the removal of any Trustee,
requested in writing by Shareholders holding at least ten percent (10%) of the
outstanding Shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than 10 days to call such meetings, the
Trustees or the Shareholders so requesting, may, in the name of the Secretary,
call the meeting by giving notice thereof in the manner required when notice is
given by the Secretary.
<PAGE>

Section 2. Notice of Meetings. Except as otherwise herein provided, notice
of all meetings of the Shareholders, stating the time, place and purposes of the
meeting, shall be given by the Secretary by delivering or mailing, postage
prepaid, to each Shareholder entitled to vote at said meeting at his or her
address as recorded on the register of the Trust at least ten (10) days and not
more than ninety (90) days before the meeting. Only the business stated in the
notice of the meeting shall be considered at such meeting. Notice of adjournment
of a Shareholders' meeting to another time or place need not be given, if such
time and place are announced at the meeting and the adjourned meeting is held
within a reasonable time after the date set for the original meeting. No notice
need be given to any Shareholder who shall have failed to inform the Trust of
his or her current address or if a written waiver of notice, executed before or
after the meeting by the Shareholder or his or her attorney thereunto
authorized, is filed with the records of the meeting.

Section 3. Record Date for Meetings. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than ninety (90) days
prior to the date of any meeting of Shareholders as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.

Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote either in person or by written proxy signed by
the Shareholder, provided that no proxy shall be voted at any meeting unless it
shall have been placed on file with the Secretary, or with such other officer or
agent of the Trust as the Secretary may direct, for verification prior to the
time at which such vote shall be taken; provided, however, that notwithstanding
any other provision of this Section 4 to the contrary, the Trustees may at any
time adopt one or more electronic, telecommunication, telephonic, computerized
or other alternatives to execution of a written instrument that will enable
holders of Shares entitled to vote at any meeting to appoint a proxy to vote
such holders' Shares at such meeting. Proxies may be solicited in the name of
one or more Trustees or one or more of the officers of the Trust. Only
Shareholders of record shall be entitled to vote. When any Share is held jointly
by several persons, any one of them may vote at any meeting in person or by
proxy in respect of such Share, but if more than one of them shall be present at
such

2
<PAGE>

meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such Share is a minor or a person of unsound mind, and subject to
guardianship or the legal control of any other person as regards the charge or
management of such Share, he or she may vote by his or her guardian or such
other person appointed or having such control, and such vote may be given in
person or by proxy. At all meetings of the Shareholders, unless the voting is
conducted by inspectors, all questions relating to the qualifications of voters,
the validity of proxies, and the acceptance or rejection of votes shall be
decided by the chairman of the meeting. Except as otherwise provided herein or
in the Declaration of Trust, all matters relating to the giving, voting or
validity of proxies shall be governed by the General Corporation Law of the
State of Delaware relating to proxies, and judicial interpretations thereunder,
as if the Trust were a Delaware corporation and the Shareholders were
shareholders of a Delaware corporation.

Section 5. Inspection of Books. The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions and regulations the accounts and books of the Trust or any of
them shall be open to the inspection of the Shareholders; and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees or by resolution of the
Shareholders.

Section 6. Action without Meeting. Any action that may be taken at any
meeting of Shareholders may be taken without a meeting and without prior notice
if a consent in writing setting forth the action so taken is signed by the
holders of outstanding Shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all Shares entitled to vote on that action were present and voted. All such
consents shall be filed with the records of Shareholder meetings. Such consents
shall be treated for all purposes as a vote taken at a meeting of Shareholders.

Section 7. Application of this Article. Meetings of Shareholders shall
consist of Shareholders of any Series (or Class thereof) or of all Shareholders,
as determined pursuant to the Declaration of Trust, and this Article shall be
construed accordingly.

ARTICLE IV

3
<PAGE>

Trustees

Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairman, the President,
or by any two of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustees calling
the meeting and shall be delivered or mailed, postage prepaid, to each Trustee
at least two days before the meeting, or shall be telegraphed, cabled, or wired
to each Trustee at his or her business address, or personally delivered to him
or her, at least one day before the meeting. Such notice may, however, be waived
by any Trustees. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the
meeting without protesting prior thereto or at its commencement the lack of
notice to him or her. A notice or waiver of notice need not specify the purpose
of any meeting. The Trustees may meet by means of a telephone conference circuit
or similar communications equipment by means of which all persons participating
in the meeting are connected, which meeting shall be deemed to have been held at
a place designated by the Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person at such meeting. Any
action required or permitted to be taken at any meeting of the Trustees may be
taken by the Trustees without a meeting if a majority of the Trustees then in
office (or such higher number of Trustees as would be required to act on the
matter under the Declaration of Trust, these By-Laws or applicable law if a
meeting were held) consent to the action in writing and the written consents are
filed with the records of the Trustees' meetings. Such consents shall be treated
for all purposes as a vote taken at a meeting of the Trustees. Notwithstanding
the foregoing, all actions of the Trustees shall be taken in compliance with the
provisions of the Investment Company Act of 1940, as amended.

Section 2. Quorum and Manner of Acting. A majority of the Trustees then in
office shall constitute a quorum for the transaction of business. If at any
meeting of the Trustees there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum shall be

4
<PAGE>

obtained. Notice of an adjourned meeting need not be given. The act of the
majority of the Trustees present at any meeting at which there is a quorum shall
be the act of the Trustees, except as may be otherwise specifically provided by
law or by the Declaration of Trust or by these By-Laws.

ARTICLE V

Committees

Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers by law, the Declaration of Trust or these By-laws they are prohibited
from delegating. The Trustees may also elect from their own number or otherwise
other Committees from time to time, the number composing such Committees, the
powers conferred upon the same (subject to the same limitations as with respect
to the Executive Committee), the terms of membership on such Committees and the
termination or circumstances giving rise to the termination of such Committees
to be determined by the Trustees. The Trustees may designate a chairman of any
such Committee. In the absence of such designation the Committee may elect its
own chairman.

Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committees, (2) specify the manner of calling
and notice required for special meeting of any Committee, (3) specify the number
of members of a Committee required to constitute a quorum and the numbers of
members of a Committee required to exercise specified powers delegated to such
Committee, (4) authorize the making of decisions to exercise specified powers by
written assent of the requisite number of members of a Committee without a
meeting, and (5) authorize the members of a Committee to meet by means of a
telephone conference circuit. Each Committee shall keep regular minutes of its
meetings and records of decisions taken without a meeting and cause them to be
recorded in a book designated for that purpose and kept at the principal
executive offices of the Trust.

ARTICLE VI

5
<PAGE>

Officers

Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including a Chairman of the Board ("Chairman"), one or
more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents.

Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration of Trust or these By-Laws, the President, the Treasurer
and the Secretary, and all other officers shall hold office at the pleasure of
the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or a Vice President and the Secretary may be the
same person, but the offices of Vice President, Secretary and Treasurer shall
not be held by the same person. The President shall hold no other office, but
may be a Trustee of the Trust. Except as above provided, any two offices may be
held by the same person. The Chairman, if there be one, shall be a Trustee and
may but need not be a Shareholder. Any other officer may be but none need be a
Trustee or Shareholder.

Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.

Section 4. Powers and Duties of the Chairman. The Chairman, if such an
officer is elected, shall if present preside at meetings of the Shareholders and
the Trustees, shall be the chief executive officer of the Trust and shall,
subject to the control of the Trustees, have general supervision, direction and
control of the business and the officers of the Trust and exercise and perform
such other powers and duties as may be from time to time assigned to him by the
Trustees or prescribed by the Declaration of Trust or these By-Laws.

Section 5. Powers and Duties of the President. Subject to the powers of the
Chairman, if there be such an officer, the President shall be the principal
executive officer of the Trust. He or she may call meetings of the Trustees and
of any Committee thereof when he or she deems it necessary and, in the

6
<PAGE>

absence of the Chairman, shall preside at all meetings of the Shareholders and
the Trustees. Subject to the control of the Trustees, the Chairman and any
Committees of the Trustees, within their respective spheres, as provided by the
Trustees, the President shall at all times exercise a general supervision and
direction over the affairs of the Trust. The President shall have the power to
employ attorneys, accountants and other advisers and agents for the Trust and to
employ such subordinate officers, agents, clerks and employees as he or she may
find necessary to transact the business of the Trust. He or she shall also have
the power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties as
from time to time may be conferred upon or assigned to him or her by the
Trustees.

Section 6. Powers and Duties of the Vice President. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him or her from time to time by the Trustees or the
President.

Section 7. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his or her hands to such
Custodian as the Trustees may employ pursuant to Article X of these By-Laws. He
or she shall render a statement of condition of the finances of the Trust to the
Trustee as often as they shall require the same and he or she shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her by the Trustees. The
Treasurer shall give a bond for the faithful discharge of his or her duties, if
required so to do by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.

Section 8. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he or she shall have custody of the seal of the
Trust; he or she shall have charge of the Share transfer books, lists and
records unless the same are in the charge of the Transfer Agent. The Secretary
shall attend to the giving and serving of all notices by the Trust in accordance
with the provisions of these By-laws and as required by law; and

7
<PAGE>

subject to these By-Laws, he or she shall in general perform all duties incident
to the office of the Secretary and such other duties as from time to time may be
assigned to him or her by the Trustees.

Section 9. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him or her by the Trustees. Each Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties, if required
so to do by the Trustees, in such sum and with such surety or sureties as the
Trustees shall require.

Section 10. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him or her by the Trustees.

Section 11. Compensation of Officers and Trustees. Subject to any
applicable provisions of the Declaration of Trust, the compensation of the
officers and Trustees shall be fixed from time to time by the Trustees or, in
the case of officers, by any Committee or officer upon whom such power may be
conferred by the Trustees. No officer shall be prevented from receiving such
compensation as such officer by reason of the fact that he or she is also a
Trustee.

ARTICLE VII

Fiscal Year

The fiscal year of the Trust shall end on such date as the Trustees shall
from time to time determine.

ARTICLE VIII

Seal

The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.

8
<PAGE>

ARTICLE IX

Waivers of Notice

Whenever any notice whatever is required to be given by law, the
Declaration of Trust or these By-laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed to
have been telegraphed, cabled or wired for the purposes of these By-Laws when it
has been delivered to a representative of any telegraph, cable or wire company
with instructions that it be telegraphed, cabled or wired.

ARTICLE X

Custody of Securities

Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank having not
less than $20,000,000 aggregate capital, surplus and undivided profits and shall
be appointed from time to time by the Trustees, who shall fix its remuneration.

Section 2. Action upon Termination of Custodian Agreement. Upon termination
of a Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor custodian, but in the event that no
successor custodian can be found who has the required qualifications and is
willing to serve, the Trustees shall call as promptly as possible a special
meeting of the Shareholders to determine whether the Trust shall function
without a custodian or shall be liquidated. If so directed by a vote of holders
of the majority of the outstanding Shares entitled to vote, the Custodian shall
deliver and pay over all Trust Property held by it as specified in such vote.

Section 3. Provisions of Custodian Contract. The following provisions shall
apply to the employment of a Custodian and to any contract entered into with the
Custodian so employed: The Trustees shall cause to be delivered to the Custodian
all securities included in the Trust Property or to which the Trust may become
entitled, and shall order the same to be delivered by the Custodian only in
completion of a sale, exchange, transfer, pledge, loan of portfolio securities
to another person, or other disposition thereof,

9
<PAGE>

all as the Trustees may generally or from time to time require or approve or to
a successor Custodian; and the Trustees shall cause all funds included in the
Trust Property or to which it may become entitled to be paid to the Custodian,
and shall order the same disbursed only for investment against delivery of the
securities acquired (including securities acquired under a repurchase
agreement), or the return of cash held as collateral for loans of portfolio
securities, or in payment of expenses, including management compensation, and
liabilities of the Trust, including distributions to Shareholders, or to a
successor Custodian. Notwithstanding anything to the contrary to these By-Laws,
upon receipt of proper instructions, which may be standing instructions, the
Custodian may deliver funds in the following cases: In connection with
repurchase agreements, the Custodian shall transmit prior to receipt on behalf
of the Fund of any securities or other property, funds from the Fund's custodian
account to a special custodian approved by the Trustees of the Fund, which funds
shall be used to pay for securities to be purchased by the Fund subject to the
Fund's obligation to sell and the seller's obligation to repurchase such
securities (in such case, the securities shall be held in the custody of the
special custodian);. in connection with the Trust's purchase or sale of
financial futures contracts, the Custodian shall transmit, prior to receipt on
behalf of the Fund of any securities or other property, funds from the Trust's
custodian account in order to furnish and to maintain funds with brokers as
margin to guarantee the performance of the Trust's futures obligations in
accordance with the applicable requirements of commodities exchanges and
brokers.

Section 4. Central Certificate System. Subject to applicable rules,
regulations and orders adopted by the Commission, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.

ARTICLE XI

Indemnification of Trustees, Officers,

10
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Employees and Other Agents

Section 1. Agents, Proceedings, Expenses. For the purpose of this Article,
"agent" means any Person who is or was a Trustee, officer, employee or other
agent of the Trust or is or was serving at the request of the Trust as a
trustee, director, officer, employee or agent of another organization in which
the Trust has any interest as a shareholder, creditor or otherwise; "proceeding"
means any threatened, pending or completed claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative (including appeals);
and "expenses" includes, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and all other liabilities
whatsoever.

Section 2. Indemnification. Subject to the exceptions and limitation
contained in Section 3 below, every agent shall be indemnified by the Trust to
the fullest extent permitted by law against all liabilities and against all
expenses reasonably incurred or paid by him or her in connection with any
proceeding in which he or she becomes involved as a party or otherwise by virtue
of his or her being or having been an agent.

Section 3. Limitations, Settlements. No indemnification shall be provided
hereunder to an agent:

(a) who shall have been adjudicated by the court or other body before which
the proceeding was brought to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office (collectively,
"disabling conduct"); or

(b) with respect to any proceeding disposed of (whether by settlement,
pursuant to a consent decree or otherwise) without an adjudication by the court
or other body before which the proceeding was brought that such agent was liable
to the Trust or its Shareholders by reason of disabling conduct, unless there
has been a determination that such agent did not engage in disabling conduct:

(i) by the court or other body before which the proceeding was brought;

(ii) by at least a majority of those Trustees who are neither Interested
Persons of the Trust nor are parties to the proceeding based upon a review of
readily available facts (as opposed to a full trial-type inquiry); or

(iii) by written opinion of independent legal counsel based upon a review
of readily available facts (as opposed to a full trial-type inquiry); provided,
however, that indemnification shall be provided

11
<PAGE>

hereunder to an agent with respect to any proceeding in the event of (1) a final
decision on the merits by the court or other body before which the proceeding
was brought that the agent was not liable by reason of disabling conduct, or (2)
the dismissal of the proceeding by the court or other body before which it was
brought for insufficiency of evidence of any disabling conduct with which such
agent has been charged.

Section 4. Insurance, Rights Not Exclusive. The rights of indemnification
herein provided may be insured against by policies maintained by the Trust on
behalf of any agent, shall be severable, shall not be exclusive of or affect any
other rights to which any agent may now or hereafter be entitled and shall inure
to the benefit of the heirs, executors and administrators of any agent.

Section 5. Advance of Expenses. Expenses incurred by an agent in connection
with the preparation and presentation of a defense to any proceeding may be paid
by the Trust from time to time prior to final disposition thereof upon receipt
of an undertaking by or on behalf of such agent that such amount will be paid
over by him or her to the Trust if it is ultimately determined that he or she is
not entitled to indemnification under this Article XI; provided, however, that
(a) such agent shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance payments
or (c) either a majority of the Trustees who are neither Interested Persons of
the Trust nor parties to the proceedings, or independent legal counsel in a
written opinion, shall have determined, based upon a review of readily available
facts (as opposed to a trial-type inquiry or full investigation), that there is
reason to believe that such agent will be found entitled to indemnification
under this Article XI.

Section 6. Fiduciaries of Employee Benefit Plan. The Article does not apply
to any proceeding against any Trustee, investment manager or other fiduciary of
an employee benefit plan in that person's capacity as such, even though that
person may also be an agent of this Trust as defined in Section 1 of this
Article. Nothing contained in this Article shall limit any right to
indemnification to which such Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.

ARTICLE XII

Amendments

These By-Laws, or any of them, may be altered, amended or repealed, or new
By-laws may be adopted by (a) a vote of holders of the majority of the
outstanding Shares entitled to vote or (b) by the

12
<PAGE>

Trustees, provided, however, that no By-law may be amended, adopted or repealed
by the Trustees if such amendment, adoption or repeal is required by applicable
law, the Declaration of Trust or these By-Laws, to be submitted to a vote of the
Shareholders.

<PAGE>

Exhibit 10

[Letterhead of Morris, Nichols, Arsht & Tunnell]

April 17, 1998

Prudential Developing Markets Fund
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077

Re: Prudential Developing Markets Fund
----------------------------------

Ladies and Gentlemen:

We have acted as special Delaware counsel to Prudential Developing
Markets Fund, a Delaware business trust (the "Trust"), in connection with
certain matters relating to the proposed issuance of Class A, Class B, Class C
and Class Z Shares of the Trust (the "Applicable Shares"). Capitalized terms
used herein and not otherwise herein defined are used as defined in the
Agreement and Declaration of Trust of the Trust dated October 22, 1997 (the
"Governing Instrument").

In rendering this opinion, we have examined copies of the following
documents, each in the form provided to us: the Certificate of Trust of the
Trust as filed in the Office of the Secretary of State of the State of Delaware
(the "State Office") on October 24, 1997 (the "Certificate"); the Governing
Instrument; the By-Laws of the Trust; certain resolutions of the Trustees of the
Trust dated October 25, 1997 and February 10, 1998 (the "Resolutions"); the
Notification of Registration Filed Pursuant to Section 8(a) of the Investment
Company Act of 1940 on Form N-8A of the Trust filed with the Securities and
Exchange Commission on April 17, 1998; the Registration Statement on Form N-1A
of the Trust filed with the Securities and Exchange Commission on April 17, 1998
(the "Registration Statement"); and a certification of good standing of the
Trust obtained as of a recent date from the State Office. In such examinations,
we have assumed the genuineness of all signatures, the conformity to original
documents of all documents submitted to us as copies or drafts of documents to
be executed, and the legal capacity of natural persons to complete the execution
of documents. We have further assumed for the purpose
<PAGE>

Prudential Developing Markets Fund
April 17, 1998
Page 2

of this opinion: (i) the due adoption, authorization, execution and delivery by,
or on behalf of, each of the parties thereto of the above-referenced
resolutions, instruments, certificates and other documents, and of all
documents contemplated by the Governing Instrument, the By-laws, the Resolutions
and the Registration Statement (including the Prospectus and Statement of
Additional Information forming a part thereof) (collectively, the "Operative
Documents") to be executed by investors acquiring Applicable Shares (the
"Shareholders" and each, individually, a "Shareholder"); (ii) the payment of
consideration for Applicable Shares, and the application of such consideration,
as provided in the Governing Instrument, and compliance with the other terms,
conditions and restrictions set forth in the Operative Documents in connection
with the issuance of Applicable Shares (including, without limitation, the
taking of all appropriate action by the Trustees to designate Series of
Applicable Shares and the rights and preferences attributable thereto as
contemplated by the Governing Instrument); (iii) that appropriate notation of
the names and addresses of, the number of Applicable Shares held by, and the
consideration paid by, Shareholders will be maintained in the appropriate
registers and other books and records of the Trust in connection with the
issuance, redemption or transfer of Applicable Shares; (iv) that no event has
occurred subsequent to the filing of the Certificate that would cause a
termination or reorganization of the Trust under Section 2 or Section 3 of
Article VIII of the Governing Instrument; (v) that the activities of the Trust
have been and will be conducted in accordance with the terms of the Governing
Instrument and the Delaware Business Trust Act, 12 Del. C. (S)(S) 3801 et seq.
--- - -- ---
(the "Delaware Act"); and (vi) that each of the documents examined by us is in
full force and effect and has not been amended, supplemented or otherwise
modified. No opinion is expressed herein with respect to the requirements of,
or compliance with, federal or state securities or blue sky laws. Further, we
have not participated in the preparation of the Registration Statement or any
other offering documentation relating to the Trust, the Applicable Shares or the
related Series, and we assume no responsibility for their contents. As to any
facts material to our opinion, other than those assumed, we have relied without
independent investigation on the above-referenced documents and on the accuracy,
as of the date hereof, of the matters therein contained.

Based on and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:

1. The Trust is a duly created and validly existing business trust
in good standing under the laws of the State of Delaware.

2. The issuance of the Applicable Shares has been duly authorized
on behalf of the Trust and, when issued to Shareholders in accordance with the
terms, conditions, requirements and procedures and for the consideration set
forth in the Operative Documents, will constitute legally issued, fully paid and
non-assessable Shares of beneficial interest in the Trust

3. Under the Delaware Act and the terms of the Governing
Instrument, each Shareholder of the Trust, in such capacity, will be entitled to
the same limitation of personal liability

<PAGE>

Prudential Developing Markets Fund
April 17, 1998
Page 3

as that extended to stockholders of private corporations for profit organized
under the general corporation law of the State of Delaware; provided, however,
that we express no opinion with respect to the liability of any Shareholder who
is, was or may become a named Trustee of the Trust. Neither the existence nor
exercise of the voting rights granted to Shareholders under the Governing
Instrument will, or itself, cause a Shareholder to be deemed a trustee of the
Trust under the Delaware Act. Notwithstanding the foregoing or the opinion
expressed in paragraph 2 above, we note that, pursuant to Section 4 of Article
IV of the Governing Instrument, the Trustees have the power to cause
Shareholders, or Shareholders of a particular Series, to pay certain custodian,
transfer, servicing or similar agent charges by setting off the same against
declared but unpaid dividends or by reducing Share ownership (or by both means).

We hereby consent to the filing of a copy of this opinion with the
Securities and Exchange Commission with the Registration Statement or as part of
a pre-effective amendment thereto. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. Except as
provided in this paragraph, the opinion set forth above is expressed solely for
the benefit of the addressee hereof in connection with the matters contemplated
hereby and may not be relied upon for any other purpose or by any other person
or entity without our prior written consent.

Sincerely,

MORRIS, NICHOLS, ARSHT & TUNNELL