PRUDENTIAL DIVERSIFIED FUNDS, 497, 1998-12-10

PRUDENTIAL DIVERSIFIED FUNDS
497, 1998-12-10

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<PAGE> 1

PRUDENTIAL DIVERSIFIED FUNDS(SM)
Prospectus dated October 5, 1998
(Revised as of December 7, 1998)
- --------------------------------------------------------------------------------

The Prudential Diversified Funds(SM) (the "Trust"), is an open-end,
management investment company currently composed of three diversified investment
portfolios (the "Funds") with the following investment objectives:

- PRUDENTIAL DIVERSIFIED CONSERVATIVE GROWTH FUND seeks to provide current
income and a reasonable level of capital appreciation.

- PRUDENTIAL DIVERSIFIED MODERATE GROWTH FUND seeks to provide capital
appreciation and a reasonable level of current income.

- PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND seeks to provide long-term
capital appreciation.

Prudential Investments Fund Management LLC ("PIFM" or the "Manager") is
responsible for the overall management of the Funds. Each Fund benefits from
discretionary advisory services provided by several highly regarded sub-advisers
(each an "Adviser") identified, retained, supervised and compensated by PIFM.

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

This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing. Additional information
about the Trust has been filed with the Securities and Exchange Commission (the
"Commission") in a Statement of Additional Information, dated October 5, 1998,
which information is incorporated herein by reference and is available without
charge upon request to the Trust 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 Trust.

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

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

AN INVESTMENT IN THE TRUST IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2

FUND HIGHLIGHTS

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

WHAT IS PRUDENTIAL DIVERSIFIED FUNDS?

Prudential Diversified Funds is an open-end management investment company
offering shares in three diversified mutual funds (the "Funds"). A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds from such sales in a portfolio of securities designed to
achieve its investment objective.

WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?

The Funds' investment objectives are as follows:

PRUDENTIAL DIVERSIFIED CONSERVATIVE GROWTH FUND (THE "CONSERVATIVE GROWTH
FUND") SEEKS TO PROVIDE CURRENT INCOME AND A REASONABLE LEVEL OF CAPITAL
APPRECIATION. The Fund pursues its objective by investing in a diversified
portfolio of debt obligations and equity securities.

PRUDENTIAL DIVERSIFIED MODERATE GROWTH FUND (THE "MODERATE GROWTH FUND")
SEEKS TO PROVIDE CAPITAL APPRECIATION AND A REASONABLE LEVEL OF CURRENT
INCOME. The Fund pursues its objective by investing in a diversified portfolio
of equity securities and debt obligations.

PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND (THE "HIGH GROWTH FUND") SEEKS TO
PROVIDE LONG-TERM CAPITAL APPRECIATION. The Fund pursues its objective by
investing in a diversified portfolio of equity securities.

Each Fund includes a mix of asset classes and investment styles consistent
with the objectives, investment horizon and risk tolerance of a particular type
of investor. See "Introducing Prudential Diversified Funds -- What Are the
Differences Between the Funds?"

WHO MANAGES THE FUNDS?

Prudential Investments Fund Management LLC ("PIFM" or the "Manager") is the
Manager of each Fund and is compensated for its services at the annual rate of
.75% of the average daily net assets of each Fund.

PIFM has contracted with several highly regarded sub-advisers (the
"Advisers") to manage the assets of each Fund. PIFM has selected each Adviser
based on its experience and proven ability to achieve superior investment
results. In selecting the Advisers, PIFM has also considered their investment
philosophies, analytical resources and other factors.

WHAT ARE THE FUNDS' RISK FACTORS AND SPECIAL CHARACTERISTICS?

The Conservative Growth and Moderate Growth Funds may invest up to 35% of
their respective total assets in debt securities rated below "investment grade."
These securities, which are often referred to as "junk bonds," are regarded as
predominantly speculative and generally entail a higher risk of default than
higher quality debt. Each Fund may invest a substantial portion of its assets in
the common stock of small and medium-sized companies. Stock issued by these
companies is generally more volatile than stocks of larger, more established
companies. Each of the Conservative Growth and Moderate Growth Funds may invest
in debt securities of foreign issuers, and each of the

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<PAGE> 3

Conservative Growth, Moderate Growth and High Growth Funds may invest in the
stock of foreign issuers. These investments may include securities of issuers
located in emerging market countries. Foreign securities involve considerations
and risks not typically associated with investments in the securities of U.S.
issuers. The risks associated with investments in foreign securities are
generally greater with respect to the securities of issuers in emerging market
countries. See "Risk Factors" below. As with an investment in any mutual fund,
an investment in a Fund can decrease in value and you can lose money.

WHO DISTRIBUTES THE TRUST'S SHARES?

Prudential Investment Management Services LLC (the "Distributor") acts as
the Distributor of the Trust's Class A, Class B, Class C and Class Z shares and
is paid a distribution and/or service fee with respect to each Fund's Class A
shares which is currently being charged at the annual rate of .25 of 1% of the
average daily net assets of each Fund's outstanding Class A shares and is paid a
distribution and service fee with respect to each Fund's Class B and Class C
shares at the annual rate of 1% of the average daily net assets of each Fund's
outstanding Class B and Class C shares. The Distributor incurs the expense of
distributing the Trust's Class Z shares under a Distribution Agreement with the
Trust, none of which is reimbursed by or paid for by the Trust. See "How the
Trust is Managed -- Distributor."

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares and
$2,500 for Class C shares. The minimum subsequent investment is $100 for Class
A, Class B and Class C shares. Class Z shares are not subject to any minimum
investment requirements. There is no minimum investment requirement for certain
employee savings plans or custodial accounts for the benefit of minors. For
purchases made through the Automatic Investment Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Guide -- How to Buy Shares of the
Trust" and "Shareholder Guide -- Shareholder Services."

HOW DO I PURCHASE SHARES?

You may purchase shares of the Funds through the Distributor, through
brokers or dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor ("Dealers") or directly from the Trust
through its transfer agent, Prudential Mutual Fund Services LLC ("PMFS" or the
"Transfer Agent"). In each case, sales are made at the net asset value per share
("NAV") next determined after receipt of your purchase order by the Transfer
Agent, a Dealer or the Distributor plus a sales charge, which may be imposed at
the time of purchase, on a deferred basis, or both. Class A shares are sold with
a front-end sales charge. Class B shares are subject to a contingent-deferred
sales charge. Class C shares are sold with a low front-end sales charge, but are
also subject to a contingent-deferred sales charge. Class Z shares are offered
to a limited group of investors at NAV without any sales charge. Dealers may
charge their customers a separate fee for handling purchase transactions.
Participants in programs sponsored by Prudential Retirement Services should
contact their client representative for more information about Class Z shares.
See "How the Trust Values its Shares" and "Shareholder Guide -- How to Buy
Shares of the Trust."

3
<PAGE> 4

WHAT ARE MY PURCHASE ALTERNATIVES?

The Trust offers four classes of shares in each Fund:

<TABLE>
<S> <C>
- - 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 to zero
from 5% of the lower of the amount invested or the
redemption proceeds), which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class B
shares will automatically convert to Class A shares
approximately seven years after purchase.
- - Class C Shares: Sold with an initial sales charge of 1% of the offering
price and are also subject to a CDSC of 1% on redemptions
for a period of 18 months after purchase. Like Class B
shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares, but Class
C shares do not convert to another class.
- - Class Z Shares: Sold without either an initial sales charge or CDSC to a
limited group of investors. Class Z shares are not subject
to any ongoing service or distribution-related expenses.
See "Shareholder Guide -- Alternative Purchase Plan."
</TABLE>

HOW DO I SELL MY SHARES?

You may redeem your shares at any time at the NAV next determined after
your Dealer, the Distributor or the Transfer Agent receives your sell order. The
proceeds of redemptions of Class B and Class C shares may be subject to a CDSC.
Dealers may charge their customers a separate fee for handling sale
transactions. See "Shareholder Guide -- How to Sell Your Shares."

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

Each Fund expects to pay dividends of net investment income, if any, as
follows:

<TABLE>
<CAPTION>
FUND DIVIDENDS DECLARED AND PAID
- ---------------------------- ----------------------------
<S> <C>
Conservative Growth......... Quarterly
Moderate Growth............. Semi-Annually
High Growth................. Annually
</TABLE>

In addition, each Fund will make distributions of any net capital gains at least
annually. Dividends and distributions will be automatically reinvested in
additional shares of a Fund at NAV without a sales charge unless you request
that they be paid to you in cash. See "Taxes, Dividends and Distributions."

4
<PAGE> 5

TRUST EXPENSES

CONSERVATIVE GROWTH FUND

<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 1% None
Maximum Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)............ None 5% during the first year, 1% on redemptions None
decreasing by 1% annually made within 18
to 1% in the fifth and months of
sixth years and 0% in the purchase
seventh year*
Sales Load Imposed on Reinvested
Dividends...................... None None None None
Redemption Fees.................. None None None None
Exchange Fee..................... None None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- ------------------------- ----------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees.................. .75% .75% .75% .75%
12b-1 Fees....................... .25%++ 1.00% 1.00% None
Other Expenses................... .38% .38% .38% .38%
------- ----- ----- -----
Total Fund Operating Expenses.... 1.38%++ 2.13% 2.13% 1.13%
======= ===== ===== =====
</TABLE>

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

* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide -- Conversion
Feature -- Class B Shares."

+ Dealers may independently charge additional fees for shareholder transactions
or advisory services. Pursuant to rules of the National Association of
Securities Dealers, Inc., the aggregate initial sales charges, deferred sales
charges and asset-based sales charges ("12b-1 fees") on shares of the Fund
may not exceed 6.25% of total gross sales, subject to certain exclusions.
This 6.25% limitation is imposed on the Fund rather than on a per shareholder
basis. Therefore, long-term Class B and Class C shareholders of the Fund may
pay more in total sales charges than the economic equivalent of 6.25% of such
shareholders' investment in such shares. See "How the Trust 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 the average daily net assets of the
Class A shares, the Distributor has agreed to limit its distribution and
service fees with respect to Class A shares of the Fund for the remainder of
the current fiscal year so as not to exceed .25 of 1% of the average daily
net assets of the Class A shares. This voluntary waiver may be terminated at
any time without notice. See "How the Trust is Managed -- Distributor." Total
Fund Operating Expenses for Class A shares without such limitation would be
1.43%.

5
<PAGE> 6

MODERATE GROWTH FUND

<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 1% None
Maximum Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower).............. None 5% during the first year, 1% on redemptions None
decreasing by 1% annually made within 18
to 1% in the fifth and months of
sixth years and 0% in the purchase
seventh year*
Sales Load Imposed on Reinvested
Dividends........................ None None None None
Redemption Fees.................... None None None None
Exchange Fee....................... None None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- ------------------------- ----------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees.................... .75% .75% .75% .75%
12b-1 Fees......................... .25%++ 1.00% 1.00% None
Other Expenses..................... .50% .50% .50% .50%
------- ----- ------ ------
Total Fund Operating Expenses...... 1.50%++ 2.25% 2.25% 1.25%
======= ===== ====== ======
</TABLE>

- ---------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide -- Conversion
Feature -- Class B Shares."

6
<PAGE> 7

HIGH GROWTH FUND

<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 1% None
Maximum Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower).............. None 5% during the first year, 1% on redemptions None
decreasing by 1% annually made within 18
to 1% in the fifth and months of
sixth years and 0% in the purchase
seventh year*
Sales Load Imposed on Reinvested
Dividends........................ None None None None
Redemption Fees.................... None None None None
Exchange Fee....................... None None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- ------------------------- ----------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees.................... .75% .75% .75% .75%
12b-1 Fees......................... .25%++ 1.00% 1.00% None
Other Expenses..................... .44% .44% .44% .44%
------- ----- ----- -----
Total Fund Operating Expenses...... 1.44% 2.19% 2.19% 1.19%
======= ===== ===== =====
</TABLE>

- ---------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide -- Conversion
Feature -- Class B Shares."

7
<PAGE> 8

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return, (2) redemption at the end of each time period and (3) with
respect to Class B and Class C shares only, no redemption at the end of each
time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Conservative Growth Fund
Class A................................................... $63 $ 92
Class B (Redemption)...................................... $72 $ 97
Class B (No Redemption)................................... $22 $ 67
Class C (Redemption)...................................... $41 $ 76
Class C (No Redemption)................................... $31 $ 76
Class Z................................................... $12 $ 36
Moderate Growth Fund
Class A................................................... $64 $ 95
Class B (Redemption)...................................... $73 $100
Class B (No Redemption)................................... $23 $ 70
Class C (Redemption)...................................... $43 $ 80
Class C (No Redemption)................................... $33 $ 80
Class Z................................................... $13 $ 40
High Growth Fund
Class A................................................... $64 $ 93
Class B (Redemption)...................................... $72 $ 99
Class B (No Redemption)................................... $22 $ 69
Class C (Redemption)...................................... $42 $ 78
Class C (No Redemption)................................... $32 $ 78
Class Z................................................... $12 $ 38
</TABLE>

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 the foregoing tables and example is to assist an investor in
understanding the various types of costs and expenses that an investor in the
Funds will bear, whether directly or indirectly. For more complete descriptions
of the various costs and expenses, see "How the Trust is Managed." "Other
Expenses" are estimated for the fiscal year ending July 31, 1999, and include
Trustees' and professional fees, registration fees, reports to shareholders and
transfer agency and custodian (domestic and foreign) fees.

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<PAGE> 9

INTRODUCING PRUDENTIAL DIVERSIFIED FUNDS

A recent study has shown that the greatest impact on long-term investment
returns is attributable to an investor's asset allocation decisions (i.e., the
mix of stocks, bonds and money market investments) rather than market timing or
individual security selection.(1) Many investors do not have the time, the
experience or the resources to implement a sound asset allocation strategy on
their own. Investors have increasingly looked to mutual funds as a way to
diversify their investments.

Prudential Diversified Funds is designed for investors who want investment
professionals to make their asset allocation decisions. The Trust offers three
Funds designed to provide investors with a means to manage their long-term
investments prudently in light of their personal investment goals and risk
tolerance. Each Fund pursues its investment objective by investing in a mix of
equity and fixed income securities appropriate for a particular type of
investor. Each Fund may serve as the cornerstone of a larger investment
portfolio.

WHAT ARE THE DIFFERENCES AMONG THE FUNDS?

Each Fund has a distinct investment objective and is situated differently
along the risk/return spectrum.

[RISK/RETURN GRAPH]

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

(1)Source: Financial Analysts Journal. May/June 1991: "Determinants of
Portfolio Performance II: An Update," by Gary Brinson, Brian Singer and Gilbert
Beebower. Results are based on the 10-year performance records of 82 pension
funds. The study updates and supports a similar study done in 1986.

9
<PAGE> 10

The risk/return balance of each Fund depends upon the proportion of assets
it allocates to different types of investments.

PIMF has developed an asset allocation strategy for the Funds designed to
provide a mix of investment types and styles that is appropriate for investors
with a conservative, moderate or aggressive investment orientation.

CONSERVATIVE GROWTH FUND may be appropriate for investors who are seeking
current income and low to moderate capital appreciation. Investors in this Fund
should have both sufficient time and tolerance for risk of investment volatility
to accept periodic declines. The Fund is generally appropriate for investors
with a reasonably long time horizon (e.g., investors who are investing during
early retirement).

MODERATE GROWTH FUND may be appropriate for investors who are seeking
capital appreciation, but who are not willing to take the substantial market
risks associated with the High Growth Fund. Investors in this Fund should have
both the time and the tolerance for investment volatility to accept possible
large declines. The Fund is generally appropriate for investors with a long time
horizon (e.g., investors in their 50s who are saving on a regular basis for
retirement and who plan to retire in their early to mid 60s).

HIGH GROWTH FUND may be appropriate for investors seeking to maximize the
potential for capital appreciation. Investors in this Fund should have both the
time and tolerance for investment volatility to accept substantial declines. The
Fund is generally appropriate for investors with a very long time horizon (e.g.,
investors in their 20s, 30s or 40s who are saving for retirement and who plan to
retire in their early to mid 60s).

An investor can choose any of these three Funds, depending on his or her
financial situation, personal investment objectives, investment horizon and
level of risk tolerance.

HOW ARE THE FUNDS MANAGED?

The Manager has contracted with several highly regarded sub-advisers (the
"Advisers") to manage the assets of each Fund. Each Adviser manages a portion of
a Fund's assets, focusing on a particular type and style of investing. The
Manager monitors the performance of each Fund's Advisers and allocates the
Fund's assets among its Advisers.

The Manager believes that its asset allocation strategy and multi-Adviser
approach will enhance the performance of the Funds and reduce their volatility.
First, the Manager believes that it can identify Advisers who will achieve
superior investment performance. Although each Adviser will focus the management
of its Fund segment in a particular type and style of investing, the Manager
believes that the combined efforts of several Advisers will result in prudently
diversified Funds. Lastly, the Manager believes that at any given time, certain
investment types and styles will generate higher returns than others.
Accordingly, the Manager believes that diversifying each Fund among a variety of
investment types and styles will reduce volatility.

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<PAGE> 11

DESCRIPTION OF THE FUNDS

INVESTMENT OBJECTIVES AND POLICIES

Set forth below is a description of the investment objective and policies
of each Fund. Except for certain investment restrictions described in the
Statement of Additional Information, the investment objective and policies of
each Fund may be modified by the Board of Trustees. There can be no assurance
that a Fund will achieve its investment objective. As with an investment in any
mutual fund, an investment in a Fund can decrease in value and you can lose
money. Further information about the investment policies of each Fund appears in
the Statement of Additional Information.

CONSERVATIVE GROWTH FUND

The Conservative Growth Fund's investment objective is to seek to provide
current income and a reasonable level of capital appreciation. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
fixed income and equity securities. The table below identifies the Fund's
Advisers and their respective Fund segments.

<TABLE>
<CAPTION>
INITIAL ALLOCATION
OF FUND'S
ADVISER ASSETS ASSET CLASS INVESTMENT TYPE/STYLE
- ------- ------------------ ----------- ---------------------
<S> <C> <C> <C>
Jennison Associates LLC 15%
Equities Growth-oriented, focusing on
large-cap stocks
The Prudential Investment 15%
Corporation
Equities Value-oriented, focusing on
large-cap stocks
Franklin Advisers, Inc. 5%
Equities Growth-oriented, focusing on
small-cap and mid-cap stocks
The Dreyfus Corporation 5%
Equities Value-oriented, focusing on
small-cap and mid-cap stocks
Pacific Investment Management 40%
Company
Fixed Mostly high-quality debt
Income instruments
The Prudential Investment 20%
Corporation
Fixed High yield debt, including junk
Income bonds and emerging market debt
</TABLE>

In response to market developments, the Manager may rebalance the allocation of
the Fund's assets among the portfolio segments identified above, or may add or
eliminate portfolio segments, in accordance with the Fund's investment objective
and the policies described below.

Under normal market conditions, approximately 60% of the Fund's total
assets will be invested in fixed income securities of varying maturities with a
dollar-weighted average portfolio maturity of between four and fifteen years.
The fixed income securities in which the Fund may invest include obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities,
corporate and other debt obligations, mortgage-backed securities (including
privately issued mortgage-related securities), asset-backed securities,
inflation-indexed bonds of governments and corporations, obligations of
quasi-governmental entities, commercial paper, certificates of deposit, money
market instruments and loan participations.

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<PAGE> 12

The Fund may invest up to 25% of its total assets in debt obligations
issued or guaranteed by foreign governments, their agencies and
instrumentalities, by supranational organizations and entities and by foreign
corporations or financial institutions. Up to 10% of the Fund's total assets may
be invested in debt obligations of issuers in emerging markets. Foreign debt
securities may be denominated in foreign currency or in the European Currency
Unit ("ECU"), a multinational currency unit which represents specified amounts
of currencies of certain member states of the European Economic Community.

The fixed income securities held by the Fund will generally be investment
grade (rated at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or
"BBB" by Standard & Poor's Ratings Group ("S&P") or the equivalent by another
nationally recognized statistical rating organization ("NRSRO") or determined to
be of comparable quality by the Adviser). However, up to 35% of the Fund's total
assets may be invested in fixed income securities rated below investment grade
but rated at least B by Moody's or S&P or the equivalent by another NRSRO, or
determined by the Adviser to be of comparable quality. Securities rated "Baa" or
lower by Moody's or "BBB" or lower by S&P have speculative characteristics and
are subject to greater risks, including the risk of default. A description of
corporate bond ratings is contained in Appendix I to the Statement of Additional
Information. See "Risk Factors" below.

The Fund may purchase and write (i.e., sell) put and call options on debt
securities, on U.S. Government securities, on aggregates of debt securities, and
on financial indices. The Fund may also purchase and sell futures contracts on
interest rates, on debt securities, on financial indices, on U.S. Government
securities, and on related options which are traded on a commodities exchange or
board of trade for certain bona fide hedging, return enhancement and risk
management purposes.

Under normal market conditions, approximately 40% of the Fund's total
assets will be invested in equity securities issued by U.S. and foreign
companies. The Fund's equity investments may include common stock, securities
convertible into common stock and preferred stock. The Fund may invest up to 15%
of its total assets in equity securities issued by foreign companies, including
companies based in emerging markets.

The Fund intends to invest in the securities of foreign companies whose
securities are traded on exchanges located in the countries in which the issuers
are principally based. The Fund may invest in securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"), which are U.S.
dollar-denominated receipts typically issued by U.S. banks or trust companies
that represent the deposit with those entities of securities of a foreign
issuer. ADRs are publicly traded on exchanges or over-the-counter in the United
States. Global Depositary Receipts ("GDRs") may also be purchased by the Fund.
GDRs are generally issued by foreign banks and evidence ownership of either
foreign or domestic securities. The Fund may also invest in European Depositary
Receipts ("EDRs"), which are receipts issued in Europe, typically by foreign
banks and trust companies, that evidence ownership of either foreign or domestic
underlying securities.

12
<PAGE> 13

investments in developing countries where both liquidity and sovereign risk are
high. Historical experience indicates that the markets of developing countries
have been more volatile than the markets of developed countries. For a
discussion of the risks associated with investing in foreign securities, see
"Risk Factors."

The Fund may attempt to hedge against unfavorable changes in currency,
exchange and other rates by engaging in foreign currency exchange contracts,
purchasing and writing put and call options on foreign currencies and trading
currencies futures contracts and options thereon and in other hedging
techniques. There can be no assurance that any technique or strategy will be
successful. The use of these techniques and strategies entails certain risks.
See "Risk Factors -- Foreign Securities and Currency Risks" and "Other
Investments and Policies -- Special Risks of Hedging and Return Enhancement
Strategies."

When market or economic conditions indicate, in the view of an Adviser,
that a temporary defensive investment strategy is appropriate, the Adviser may
invest its portion of the Fund without limitation in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, corporate
and other debt obligations and high quality money market instruments.

Percentage and quality limitations applicable to the Fund's investments are
generally measured at the time a transaction is entered into. Any subsequent
change in a rating assigned by any NRSRO to a security, or change in the
percentage of Fund assets invested in certain securities or other instruments
resulting from market fluctuations or other changes in the Fund's total assets
will not require the Fund to dispose of an investment unless the Adviser
determines that it is practicable to dispose of the investment without undue
market or tax consequences to the Fund. If different NRSROs assign different
ratings to the same security, the Adviser will determine which rating it
believes best reflects the security's quality and risk at that time, which may
be the higher of the several assigned ratings.

13
<PAGE> 14

MODERATE GROWTH FUND

The Moderate Growth Fund's investment objective is to seek to provide
capital appreciation and a reasonable level of current income. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
equity and fixed income securities. The table below identifies the Fund's
Advisers and their respective Fund segments.

<TABLE>
<CAPTION>
INITIAL ALLOCATION
OF FUND'S
ADVISER ASSETS ASSET CLASS INVESTMENT TYPE/STYLE
- ------- ------------------ ----------- ---------------------
<S> <C> <C> <C>
Jennison Associates LLC 20%
Equities Growth-oriented, focusing on
large-cap stocks
The Prudential Investment 20%
Corporation
Equities Value-oriented, focusing on
large-cap stocks
Franklin Advisers, Inc. 7.5%
Equities Growth-oriented, focusing on
small-cap and mid-cap stocks
The Dreyfus Corporation 7.5%
Equities Value-oriented, focusing on
small-cap and mid-cap stocks
Lazard Asset Management 10%
International Stocks of foreign companies
Equities
Pacific Investment Management 20%
Company
Fixed Income Mostly high-quality debt
instruments
The Prudential Investment 15%
Corporation
Fixed Income High yield debt, including
junk bonds and emerging
markets debt
</TABLE>

In response to market developments, the Manager may rebalance the allocation of
the Fund's assets among the portfolio segments identified above, or may add or
eliminate portfolio segments in accordance with the Fund's investment objective
and the policies described below.

Under normal market conditions, approximately 65% of the Fund's total
assets will be invested in equity securities of U.S. and foreign companies. The
Fund's equity investments may include common stock, securities convertible into
common stock and preferred stock. The Fund may invest up to 25% of its total
assets in equity securities issued by foreign companies, including companies
based in emerging markets.

The Fund intends to invest in the securities of foreign companies whose
securities are traded on exchanges located in the countries in which the issuers
are principally based. The Fund also may invest in securities of foreign issuers
in the form of American Depositary Receipts ("ADRs"), which are U.S.
dollar-denominated receipts typically issued by U.S. banks or trust companies
that represent the deposit with those entities of securities of a foreign
issuer. ADRs are publicly traded on exchanges or over-the-counter in the United
States. Global Depositary Receipts ("GDRs") may also be purchased by the Fund.
GDRs are generally issued by foreign banks and evidence ownership of either
foreign or domestic securities. The Fund may also invest in European Depositary
Receipts ("EDRs"), which are receipts issued in Europe, typically by foreign
banks and trust companies, that evidence ownership of either foreign or domestic
underlying securities.

Under normal market conditions, approximately 35% of the Fund's total
assets will be invested in fixed income securities of varying maturities with a
dollar-weighted average maturity of between

14
<PAGE> 15

four and fifteen years. The fixed income securities in which the Fund may invest
include obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities, corporate and other debt obligations, convertible
securities, mortgage-backed securities (including privately issued
mortgage-related securities), asset-backed securities, inflation-indexed bonds
of governments and corporations, obligations of quasi-governmental entities,
commercial paper, certificates of deposit, money market instruments and loan
participations.

The Fund may invest up to 25% of its total assets in debt obligations
issued or guaranteed by foreign governments, their agencies and
instrumentalities, by supranational organizations and entities and by foreign
corporations or financial institutions. Up to 10% of the Fund's total assets may
be invested in debt obligations of issuers in emerging markets. Foreign
securities may be denominated in foreign currencies or in the European Currency
Unit ("ECU"), a multi-national currency unit which represents specified amounts
of currencies of certain member states of the European Economic Community.

The fixed income securities held by the Fund will generally be investment
grade. However, up to 35% of the Fund's total assets may be invested in fixed
income securities rated below investment grade but rated at least B by Moody's
or S&P or the equivalent by another NRSRO, or determined by the Adviser to be of
comparable quality. Securities rated Baa or lower by Moody's or "BBB" or lower
by S&P have speculative characteristics and are subject to greater risks,
including the risk of default. A description of corporate bond ratings is
contained in Appendix I to the Statement of Additional Information. See "Risk
Factors" below.

The Fund may attempt to hedge against unfavorable changes in currency
exchange rates by engaging in forward currency transactions, purchasing and
writing put and call options on foreign currencies and trading currency futures
contracts and options thereon.

The Fund may invest in securities of issuers in developed as well as
developing or "emerging market" countries. Investing in the markets of
developing countries involves exposure to economies that are generally less
diverse and mature, and to political systems that can be expected to have less
stability than those of developed countries. The Advisers will attempt to limit
exposure to investments in developing countries where both liquidity and
sovereign risk are high. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of developed
countries. For a discussion of the risks associated with investing in foreign
securities, see "Risk Factors."

15
<PAGE> 16

Percentage and quality limitations applicable to the Fund's investments are
generally measured at the time a transaction is entered into. Any subsequent
change in a rating assigned by any NRSRO to a security, or change in the
percentage of Fund assets invested in certain securities or other instruments
resulting from market fluctuations or other changes in the Fund's total assets
will not require the Fund to dispose of an investment unless the Adviser
determines that it is practicable to dispose of the security without undue
market or tax consequences to the Fund. If different NRSROs assign different
ratings to the same security, the Adviser will determine which rating it
believes best reflects the security's quality and risk at that time, which may
be the higher of the several assigned ratings.

HIGH GROWTH FUND

The High Growth Fund's investment objective is to seek to provide long-term
capital appreciation. The Fund seeks to achieve its investment objective by
investing in a diversified portfolio of equity securities issued by U.S. and
foreign companies. Under normal market conditions, substantially all of the
Fund's assets will be invested in equity securities, including common stock,
securities convertible into common stock and preferred stock. The Fund may
invest up to 35% of its total assets in the equity securities of foreign
companies, including companies based in emerging markets. The table below
identifies the Fund's Advisers and their respective Fund segments.

<TABLE>
<CAPTION>
INITIAL ALLOCATION
OF FUND'S
ADVISER ASSETS ASSET CLASS INVESTMENT TYPE/STYLE
------- ------------------ ----------- ---------------------
<S> <C> <C> <C>
Jennison Associates LLC 25%
Equities Growth-oriented, focusing on
large-cap stocks
The Prudential Investment 25%
Corporation
Equities Value-oriented, focusing on
large-cap stocks
Franklin Advisers, Inc. 15%
Equities Growth-oriented, focusing on
small-cap and mid-cap stocks
The Dreyfus Corporation 15%
Equities Value-oriented, focusing on
small-cap and mid-cap stocks
Lazard Asset Management 20%
International Stocks of foreign companies
Equities
</TABLE>

In response to market developments, the Manager may rebalance the allocation of
the Fund's assets among the portfolio segments identified above, or may add or
eliminate portfolio segments in accordance with the Fund's investment objective
and the policies described below.

The Fund intends to invest in the securities of foreign companies whose
securities are traded on exchanges located in the countries in which the issuers
are principally based. The Fund also may invest in securities of foreign issuers
in the form of American Depositary Receipts ("ADRs"), which are U.S.
dollar-denominated receipts typically issued by U.S. banks or trust companies
that represent the deposit with those entities of securities of a foreign
issuer. ADRs are publicly traded on exchanges or over-the-counter in the United
States. Global Depositary Receipts ("GDRs") may also be purchased by the Fund.
GDRs are generally issued by foreign banks and evidence ownership of either
foreign or domestic securities. The Fund may also invest in European

16
<PAGE> 17

Depositary Receipts ("EDRs"), which are receipts issued in Europe, typically by
foreign banks and trust companies, that evidence ownership of either foreign or
domestic underlying securities.

Percentage limitations applicable to the Fund's investments are generally
measured at the time a transaction is entered into. Any subsequent change in the
percentage of Fund assets invested in certain securities or other instruments
resulting from market fluctuations or other changes in the Fund's total assets
will not require the Fund to dispose of an investment unless the Adviser
determines that it is practicable to dispose of the security without undue
market or tax consequences to the Fund.

INTRODUCING THE ADVISERS

In addition to diversifying your investment across various asset classes,
the Trust provides investors with diversification among the Advisers'
distinctive investment styles.

JENNISON ASSOCIATES LLC (Large-Cap Growth Equity Adviser). Jennison seeks
to select attractive growth companies. Under normal market conditions, Jennison
intends to invest assets allocated to it primarily in equity securities of large
capitalization companies. The Jennison portfolio managers' challenge is to
select about 60 stocks that are believed to have the potential to be the best
performers among the larger universe of growth stocks. Consequently, a growth
stock portfolio managed by Jennison normally consists of companies that the firm
believes will experience superior earnings growth over the next 12 to 18 months,
on both an absolute and relative basis, and which appear reasonably valued
relative to growth expectations. Jennison looks for companies that have
demonstrated growth in earnings and sales, high returns on equity and assets, or
other strong financial characteristics and, in the judgment of Jennison, are
attractively valued. These companies tend to have a unique market niche, a
strong new product profile or superior management. Stocks will be selected on a
company-by-company basis through the use of fundamental analysis. Of course,
there can be no assurance that these stocks will achieve their growth potential.

17
<PAGE> 18

THE PRUDENTIAL INVESTMENT CORPORATION (Large-Cap Value Equity Adviser).
Prudential Investment Corporation seeks to achieve long-term growth of capital
by investing primarily in larger-capitalization common stocks of major,
established corporations. These companies are believed to be in sound financial
condition and have prospects of price appreciation greater than broadly-based
stock indices. Value investing is a disciplined approach which attempts to
identify strong companies selling at a discount from their perceived true worth.
Management uses a "deep value" investment style to buy stocks which are believed
to be under-valued when compared with the company's sales, earnings, book value
and cash flow.

THE PRUDENTIAL INVESTMENT CORPORATION (High Yield Bond Adviser). Prudential
Investment Corporation seeks to maximize current income by investing in a
diversified portfolio of high yield fixed income securities. Capital
appreciation is a secondary investment objective. In seeking these objectives,
management will invest primarily in high yield fixed income securities rated
BBB/Baa or lower by an NRSRO. Ordinarily, management will not invest in
securities rated below B. Prudential's High Yield team, supported by a group of
sophisticated research analysts, screens all bonds for positive sales, earnings
trends, strong management and the potential for a credit rating upgrade.
Intensive research and diversification help to reduce risk.

FRANKLIN ADVISERS, INC. (Small- and Mid-Cap Growth Equity Adviser).
Franklin Advisers, Inc. ("Franklin") seeks to achieve long-term capital growth
by investing primarily in stocks of small- and mid-cap companies that Franklin
believes to be positioned for rapid growth. Franklin employs a disciplined,
bottom-up approach to investing, focusing on companies that it believes to have
potential to rapidly grow revenues, earnings or cash flow. Although Franklin may
discover many of these companies in growing industries, its strategy emphasizes
companies with sustainable competitive advantages, such as unique products or
proprietary technology, which may provide these companies with growth
opportunities regardless of the growth outlook of the industry. In addition,
Franklin generally looks for companies that are selling at earnings multiples,
which represent significant discounts to their sustainable growth rates.

THE DREYFUS CORPORATION (Small- and Mid-Cap Value Equity Adviser). Dreyfus
utilizes computer techniques to construct and track its Fund segments. Dreyfus
employs statistical models designed to identify stocks of companies that are
undervalued and should be purchased and retained. Undervalued securities are
normally characterized by relatively low price to earnings ratios, low ratios of
market price to book value, or underlying asset values that Dreyfus feels are
not fully reflected in the securities' current market price. The models analyze
how a stock is priced relative to both its current and longer-term intrinsic
worth. In each economic sector, Dreyfus identifies stocks that have the best
relative undervaluation. Through this extensive quantitative system, each stock
is then ranked according to its relative attractiveness. Once undervalued common
stocks are identified, Dreyfus' experienced investment analysts construct each
Fund segment so that, in the aggregate, it resembles the Russell 2000 Value
Index, but is weighted toward the stocks that Dreyfus deems most attractive.

LAZARD ASSET MANAGEMENT (International Equity Adviser). Lazard seeks
capital appreciation by investing in financially productive non-U.S. companies
which sell at a discount to local and world market valuations. In searching for
undervalued securities, Lazard utilizes a stock selection process incorporating
three levels of investment research. First, Lazard applies screening techniques
to identify attractive candidates from a universe of approximately 9,000
companies worldwide. Lazard

18
<PAGE> 19

looks for companies offering a high return on capital with characteristics that
indicate undervaluation versus local and world indices. Next, intensive
accounting validation follows to examine whether a company's stated financial
statistics and business value are real. Finally, fundamental analysis is applied
in order to evaluate the future outlook for the company. An in-depth analysis,
including on-site visits to company management, is critical in order to ensure
the sustainability of returns, to discover hidden value and to identify a
catalyst for price revaluation. By team consensus, the securities presenting the
best investment opportunities are purchased.

A distinctive characteristic of Lazard's investment approach is its belief
in teamwork. The portfolio managers and research analysts work closely together
and meet frequently in the decision-making process. Ideas are internally
generated and Lazard's exhaustive in-house research process allows the team to
develop strong convictions in their decisions. The firm emphasizes a team
approach to investing so that each portfolio manager and analyst benefits from
his peers, and Lazard's clients receive Lazard's best thinking, not that of a
single individual.

PACIFIC INVESTMENT MANAGEMENT COMPANY (Fixed Income Adviser). Pacific
Investment Management Company (PIMCO) seeks to achieve maximum total return
consistent with preservation of capital and prudent investment management by
investing in a wide range of bonds and money market securities while maintaining
a duration within two years of that of the Lehman Brothers Aggregate Bond Index.
In seeking this objective, PIMCO employes a disciplined, top-down process of
investing driven by a long-term outlook for interest rates and bond market
trends. PIMCO will evaluate investment opportunities in all sectors of the fixed
income markets, including government bonds, mortgage-backed securities,
corporate bonds and foreign bonds. PIMCO seeks to assemble portfolio segments
comprised of the most attractively valued sectors and securities within each
sector.

RISK FACTORS

GENERAL. As with all mutual funds, investments in the Funds involve
certain risks. Investing in stocks involves the risk of market volatility, which
may cause stocks to decline in value. As noted below, certain types of equity
securities, such as the stocks of small and mid-sized companies and the stocks
of foreign companies, are generally more volatile than the stocks of large U.S.
companies.

The market value of fixed-income obligations held by the Funds will be
affected by general changes in interest rates, which will result in increases or
decreases in the value of such obligations. The market value of the obligations
held by a Fund can be expected to vary inversely with changes in prevailing
interest rates. Investors also should recognize that, in periods of declining
interest rates, the yield of a Fund's fixed income component will tend to be
somewhat higher than prevailing market rates and, in periods of rising interest
rates, the yield of a Fund's fixed income component will tend to be somewhat
lower. Also, when interest rates are falling, the proceeds of new sales of a
Fund's shares will tend to be invested in instruments producing lower yields
than the balance of its portfolio, thereby reducing the current yield of the
Fund's fixed income component. In periods of rising interest rates, the opposite
can be expected to occur. In addition, securities in which a Fund may invest may
not yield as high a level of current income as might be achieved by investing in
securities with less liquidity, lower quality or longer maturities.

19
<PAGE> 20

Ratings made available by S&P, Moody's and other NRSRO's are relative and
subjective and are not absolute standards of quality. Although these ratings are
initial criteria for selection of portfolio investments, each Adviser will also
make its own evaluation of these securities on behalf of the Funds. Among the
factors that will be considered are the long-term ability of the issuers to pay
principal and interest and general economic trends.

MEDIUM- AND LOWER-RATED SECURITIES. The Conservative Growth and Moderate
Growth Funds may each invest in medium-rated securities, (i.e., rated "Baa" by
Moody's or "BBB" by S&P or the equivalent by another NRSRO) and in lower-rated
securities (i.e., rated lower than "Baa" by Moody's or lower than "BBB" by S&P
or the equivalent by another NRSRO). Securities rated "Baa" by Moody's or "BBB"
by S&P or the equivalent by another NRSRO, although considered investment grade,
possess speculative characteristics, including the risk of default, and changes
in economic or other conditions are more likely to impair the ability of issuers
of these securities to make interest and principal payments than is the case
with respect to issuers of higher-grade bonds.

Generally, medium- or lower-rated securities and unrated securities of
comparable quality, sometimes referred to as "junk bonds" (i.e., securities
rated lower than "Baa" by Moody's or "BBB" by S&P or the equivalent by another
NRSRO), offer a higher current yield than is offered by higher-rated securities,
but also (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality bonds. In addition, medium-and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by these issuers is significantly greater
because medium-and lower-rated securities and unrated securities of comparable
quality generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness. The Advisers, under the supervision of the
Manager and the Trustees, in evaluating the creditworthiness of an issue whether
rated or unrated, take various factors into consideration, which may include, as
applicable, the issuer's financial resources, its sensitivity to economic
conditions and trends, the operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters.

In addition, the market value of securities in lower-rated categories is
more volatile than that of higher-quality securities, and the markets in which
medium- and lower-rated or unrated securities are traded are more limited than
those in which higher-rated securities are traded. The existence of limited
markets may make it more difficult for each Fund to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Moreover, the lack of a liquid trading market may restrict the
availability of securities for a Fund to purchase and may also have the effect
of limiting the ability of a Fund to sell securities at their fair value either
to meet redemption requests or to respond to changes in the economy or the
financial markets.

Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Fund may have
to replace the security with a lower-yielding security, resulting in a decreased
return for investors. Also, as the principal value of bonds moves

20
<PAGE> 21

inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by a Fund may decline proportionately
more than a portfolio consisting of higher-rated securities. If a Fund
experiences unexpected net redemptions, it may be forced to sell its
higher-rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Fund and increasing the exposure of the Fund to the risks
of lower-rated securities. Investments in zero coupon bonds may be more
speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.

SMALL AND MEDIUM CAPITALIZATION COMPANIES. Investments in the stocks of
small and medium capitalization companies (i.e., companies with a market
capitalization of under $5 billion) involve special risks. Small- and mid-cap
companies may have limited product lines, markets or financial resources and may
lack management depth. The securities of those issuers may also have limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general.

FOREIGN SECURITIES AND CURRENCY RISKS. The Conservative Growth and
Moderate Growth Funds may each invest in foreign debt securities, and each of
the Funds may invest in foreign equity securities, including securities of
issuers in emerging market countries.

Investing in securities issued by foreign governments and companies
involves considerations and potential risks not typically associated with
investing in obligations issued by the U.S. Government or by U.S. corporations.
Less information may be available about foreign companies than about domestic
companies and foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic companies.

The values of foreign investments are affected by changes in currency rates
or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions and
custody fees are generally higher than those charged in the United States, and
foreign securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, lack of uniform accounting and
auditing standards and potential difficulties in enforcing contractual
obligations and could be subject to extended clearance and settlement periods.

Investing in the fixed-income markets of emerging market countries involves
exposure to economies that are generally less diverse and mature, and to
political systems which can be expected to have less stability than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of developed
countries. The risks associated with investments in foreign securities described
above, may be greater with respect to investments in developing countries.

Because some of the securities purchased by the Funds are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchanges
rates may affect the Funds' net asset

21
<PAGE> 22

value; gains and losses realized on the sale of securities; and net investment
income and capital gain, if any, to be distributed to shareholders by the Funds.
If the value of a foreign currency rises against the U.S. dollar, the value of a
Fund's assets denominated in that currency will increase; correspondingly, if
the value of a foreign currency declines against the U.S. dollar, the value of a
Fund's assets denominated in that currency will decrease. Under the Internal
Revenue Code, the Funds are required to separately account for the foreign
currency component of gains or losses, which will usually be viewed under the
Internal Revenue Code as items of ordinary and distributable income or loss,
thus affecting the Funds' distributable income.

The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental interpretation, speculation and
other economic and political conditions. Although the Funds value their assets
daily in U.S. dollars, the Funds will not convert their holdings of foreign
currencies to U.S. dollars daily. When a Fund converts its holdings to another
currency it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.

OTHER INVESTMENTS AND POLICIES

MONEY MARKET INSTRUMENTS

Each Fund may invest in high-quality money market instruments, including
commercial paper of a U.S. or non-U.S. company or foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic and
foreign banks, and obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. These obligations generally will be U.S. dollar
denominated. Commercial paper will be rated, at the time of purchase, at least
"A-2" by S&P or "Prime-2" by Moody's, or the equivalent by another NRSRO or, if
not rated, issued by an entity having an outstanding unsecured debt issue rated
at least "A" or "A-2" by S&P or "A" or "Prime-2" by Moody's or the equivalent by
another NRSRO.

U.S. GOVERNMENT SECURITIES

Each Fund may invest in U.S. Government securities.

U.S. TREASURY SECURITIES. U.S. Treasury securities include bills, notes,
bonds and other debt securities issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. They differ primarily in their
interest rates, the length of their maturities and the date of their issuances.

SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. Securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government include, but are not limited to,
securities issued by the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Obligations of GNMA, the Federal Housing
Administration, Farmers Home Administration and the Export-Import Bank are
backed by the full faith and credit of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
Funds must look principally to the agency issuing or guaranteeing the obligation
for ultimate repayment and may not be able to assert a claim against the United
States itself in the event

22
<PAGE> 23

the agency or instrumentality does not meet its commitments. Such securities
include obligations issued by the Student Loan Marketing Association ("SLMA"),
FNMA and FHLMC, each of which may borrow from the U.S. Treasury to meet its
obligations, although the U.S. Treasury is under no obligation to lend to such
entities. GNMA, FNMA and FHLMC may also issue collateralized mortgage
obligations. See "Mortgage Backed Securities -- Collateralized Mortgage
Obligations and Multiclass Pass-Through Securities" below.

STRIPPED U.S. GOVERNMENT SECURITIES. A Fund may invest in component parts
of U.S. Government securities, namely either the corpus ("principal") of such
obligations or one of the interest payments scheduled to be paid on such
obligations. These obligations may take the form of (i) obligations from which
the interest coupons have been stripped; (ii) the interest coupons that are
stripped; and (iii) book-entries at a Federal Reserve member bank representing
ownership of obligation components.

MORTGAGE-RELATED SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES AND INSTRUMENTALITIES. A Fund may invest in mortgage-backed securities
and other derivative mortgage products, including those representing an
undivided ownership interest in a pool of mortgages, e.g., GNMA, FNMA and FHLMC
certificates where the U.S. Government or its agencies or instrumentalities
guarantees the payment of interest and principal of these securities. See
"Mortgage-Backed Securities" below. However, these guarantees do not extend to
the securities' yield or value, which are likely to vary inversely with
fluctuations in interest rates, nor do these guarantees extend to the yield or
value of a Fund's shares. See "Additional Investment Information -- U.S.
Government Securities" in the Statement of Additional Information. These
certificates are in most cases "pass-through" instruments, through which the
holder receives a share of all interest and principal payments from the
mortgages underlying the certificate, net of certain fees. See "Mortgage-Backed
Securities" below.

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

ZERO COUPON SECURITIES. Zero coupon U.S. Government securities are debt
obligations that are issued or purchased at a significant discount from face
value. The discount approximates the total amount of interest the security will
accrue and compound over the period until maturity or the

23
<PAGE> 24

particular interest payment date at a rate of interest reflecting the market
rate of the security at the time of issuance. Zero coupon U.S. Government
securities do not require the periodic payment of interest. These investments
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of cash. These investments may experience greater volatility in
market value than U.S. Government securities that make regular payments of
interest. A Fund accrues income on these investments for tax and accounting
purposes, which is distributable to shareholders and which, because no cash is
received at the time of accrual, may require the liquidation of other portfolio
securities to satisfy the Fund's distribution obligations, in which case the
Fund will forego the purchase of additional income producing assets with these
funds. Zero coupon U.S. Government securities include STRIPS and CUBES, which
are issued by the U.S. Treasury as component parts of U.S. Treasury bonds and
represent scheduled interest and principal payments on the bonds.

CORPORATE AND OTHER DEBT OBLIGATIONS

The Conservative Growth and Moderate Growth Funds may each invest in
corporate and other debt obligations. These debt securities may have adjustable
or fixed rates of interest and in certain instances may be secured by assets of
the issuer. Adjustable rate corporate debt securities may have features similar
to those of adjustable rate mortgage-backed securities, but corporate debt
securities, unlike mortgage-backed securities, are not subject to prepayment
risk other than through contractual call provisions which generally impose a
penalty for prepayment. Fixed-rate debt securities may also be subject to call
provisions.

NON-PUBLICLY TRADED SECURITIES. The Funds may each invest in non-publicly
traded securities, which may be less liquid than publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized from these sales could be less than those originally paid by
the Funds. In addition, companies whose securities are not publicly traded are
not subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded.

MORTGAGE-BACKED SECURITIES

The Conservative Growth and Moderate Growth Funds may each invest in
mortgage-backed securities. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property. There are currently three
basic types of mortgage-backed securities: (i) those issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities, such as GNMA, FNMA
and FHLMC, described under "U.S. Government Securities" above; (ii) those issued
by private issuers that represent an interest in or are collateralized by
mortgage-backed securities issued or guaranteed by the U.S. Government or one of
its agencies or instrumentalities; and (iii) those issued by private issuers
that represent an interest in or are collateralized by whole mortgage loans or
mortgage-backed securities without a government guarantee but usually having
some form of private credit enhancement.

ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMs") are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates. ARMs eligible for inclusion in a mortgage
pool generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve, thirteen, thirty-six or sixty scheduled monthly

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payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes to a designated benchmark index.

ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Alternatively, certain ARMs
contain limitations on changes in the required monthly payment. In the event
that a monthly payment is not sufficient to pay the interest accruing on an ARM,
any such excess interest is added to the principal balance of the mortgage loan,
which is repaid through future monthly payments. If the monthly payment for such
an instrument exceeds the sum of the interest accrued at the applicable mortgage
interest rate and the principal payment required at such point to amortize the
outstanding principal balance over the remaining term of the loan, the excess is
utilized to reduce the then outstanding principal balance of the ARM.

PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private mortgage pass-through
securities are structured similarly to GNMA, FNMA and FHLMC mortgage
pass-through securities and are issued by originators of and investors in
mortgage loans, including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing. These securities
usually are backed by a pool of conventional fixed-rate or adjustable rate
mortgage loans. Since private mortgage pass-through securities typically are not
guaranteed by an entity having the credit status of GNMA, FNMA and FHLMC, such
securities generally are structured with one or more types of credit
enhancement. Types of credit enhancements are described under "Types of Credit
Enhancement" below.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES. CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC Certificates, but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral collectively
hereinafter referred to as "Mortgage Assets"). Multiclass pass-through
securities are equity interests in a trust composed of Mortgage Assets. Payments
of principal and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. CMOs may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including depository institutions, mortgage
banks, investment banks and special purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a real estate mortgage
investment conduit ("REMIC"). All future references to CMOs include REMICs.

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

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<PAGE> 26

cash flow on a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on
mortgage-backed securities.

A Fund also may invest in, among other things, parallel pay CMOs and
planned amortization class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.

In reliance on rules and interpretations of the Commission, a Fund's
investments in certain qualifying CMOs and REMICs are not subject to the
Investment Company Act's limitation on acquiring interests in other investment
companies. See "Additional Investment Information -- Mortgage-Backed
Securities -- Collateralized Mortgage Obligations" in the Statement of
Additional Information.

STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities or
"MBS strips" are derivative multiclass mortgage securities. In addition to MBS
strips issued by agencies or instrumentalities of the U.S. Government, a Fund
may purchase MBS strips issued by private originators of, or investors in,
mortgage loans, including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing. See "U.S. Government
Securities -- Mortgage-Related Securities Issued or Guaranteed by U.S.
Government Agencies and Instrumentalities" above.

ASSET-BACKED SECURITIES

The Conservative Growth and Moderate Growth Funds may each invest in
asset-backed securities. Through the use of trusts and special purpose
corporations, various types of assets, primarily automobile and credit card
receivables and home equity loans, have been securitized in pass-through
structures similar to the mortgage pass-through structures or in a pay-through
structure similar to the CMO structure. A Fund may invest in these and other
types of asset-backed securities that may be developed in the future.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of a security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, some of which may reduce the ability
to obtain full payment. In the case of automobile receivables, the security
interests in the underlying automobiles are often not transferred when the pool
is created, with the resulting possibility that the collateral could be resold.
In general, these types of loans are of shorter average life than mortgage loans
and are less likely to have substantial prepayments.

TYPES OF CREDIT ENHANCEMENT

Mortgage-backed securities and asset-backed securities are often backed by
a pool of assets representing the obligations of a number of different parties.
To lessen the effect of failures by obligors on underlying assets to make
payments, those securities may contain elements of credit

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<PAGE> 27

support which fall into two categories: (i) liquidity protection and (ii)
protection against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to seek to ensure that
the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from default seeks to ensure ultimate
payment of the obligations on at least a portion of the assets in the pool. This
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in a security. A
Fund will not pay any additional fees for credit support, although the existence
of credit support may increase the price of a security.

RISK FACTORS RELATING TO INVESTING IN MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES

The yield characteristics of mortgage-backed and asset-backed securities
differ from traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other assets generally may be prepaid at any time. As a result, if a Fund
purchases such a security at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Alternatively, if a Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Moreover, slower than expected prepayments may
effectively change a security which was considered short- or intermediate-term
at the time of purchase into a long-term security. Long-term securities
generally lead to increased volatility of net asset value because they tend to
fluctuate more widely in response to changes in interest rates than short- or
intermediate-term securities. A Fund may invest a portion of its assets in
derivative mortgage-backed securities such as MBS Strips which are highly
sensitive to changes in prepayment and interest rates. Each Adviser will seek to
manage these risks (and potential benefits) by diversifying its investments in
such securities and, in certain circumstances, through hedging techniques.

In addition, mortgage-backed securities which are secured by manufactured
(mobile) homes and multi-family residential properties, such as GNMA and FNMA
certificates, are subject to a higher risk of default than are other types of
mortgage-backed securities. See "Additional Investment Information" in the
Statement of Additional Information. See "Asset-Backed Securities."

Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed-rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by a Fund are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Asset-backed
securities, although less likely to experience the same prepayment rates as
mortgage-backed securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors will
predominate. Mortgage-backed securities

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<PAGE> 28

and asset-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed-income securities from
declining interest rates because of the risk of prepayment. During periods of
rising interest rates, the rate of prepayment of mortgages underlying
mortgage-backed securities can be expected to decline, extending the projected
average maturity of the mortgage-backed securities. This maturity extension risk
may effectively change a security which was considered short- or
intermediate-term at the time of purchase into a long-term security. Long-term
securities generally fluctuate more widely in response to changes in interest
rates than short- or intermediate-term securities.

ADJUSTABLE RATE SECURITIES

The Conservative Growth and Moderate Growth Funds may each invest in
adjustable rate securities. Adjustable rate securities are debt securities
having interest rates which are adjusted or reset at periodic intervals ranging
from one month to three years. The interest rate of an adjustable rate security
typically responds to changes in general market levels of interest. The interest
paid on any particular adjustable rate security is a function of the index upon
which the interest rate of that security is based.

The adjustable rate feature of the securities in which a Fund may invest
will tend to reduce sharp changes in a Fund's net asset value in response to
normal interest rate fluctuations. As the coupon rates of a Fund's adjustable
rate securities are reset periodically, yields of these portfolio securities
will reflect changes in market rates and should cause the net asset value of a
Fund's shares to fluctuate less dramatically than that of a fund invested in
long-term fixed-rate securities. However, while the adjustable rate feature of
such securities will tend to limit sharp swings in a Fund's net asset value in
response to movements in general market interest rates, it is anticipated that
during periods of fluctuations in interest rates, the net asset value of a Fund
will fluctuate.

INFLATION-INDEXED BONDS

The Conservative Growth and Moderate Growth Funds may invest in
inflation-indexed bonds issued by governmental entities and corporations.
Inflation-indexed bonds are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation. Such bonds generally
are issued at an interest rate lower than typical bonds, but are expected to
retain their principal value over time. The interest rate on these bonds is
fixed at issuance, but over the life of the bond this interest may be paid on an
increasing principal value, which has been adjusted for inflation.

Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.

CUSTODIAL RECEIPTS

Each Fund may invest in receipts evidencing the component parts (corpus or
coupons) of U.S. Government obligations that have not actually been stripped.
Such receipts evidence ownership of component parts (corpus or coupons) of U.S.
Government obligations purchased by a third party (typically an investment
banking firm) and held on behalf of the third party in physical or book entry
form by a major commercial bank or trust company pursuant to a custody agreement
with the third

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party. Custodial receipts held by a third party are not issued or guaranteed by
the United States Government and are not considered U.S. Government securities.
Each Fund may also invest in such custodial receipts. See "Additional Investment
Information -- Other Investments" in the Statement of Additional Information.

CONVERTIBLE SECURITIES

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

In general, the market value of a convertible security is at least the
higher of its "investment value" (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 common stock.
The price of a convertible security tends to increase as the market value of the
underlying common 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.

HEDGING AND RETURN ENHANCEMENT STRATEGIES

The Funds may each engage in various portfolio strategies, including using
derivatives, to reduce certain risks of its investments and to attempt to
enhance return. A Fund, and thus its investors, may lose money through any
unsuccessful use of these strategies. These strategies include the use of
forward exchange contracts, options, futures contracts and options thereon. The
Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations and there can be no assurance that any
of these strategies will succeed. See "Additional Investment Information" and
"Taxes, Dividends and Distributions" in the Statement of Additional Information.
New financial products and risk management techniques continue to be developed
and each Fund may use these new investments and techniques to the extent
consistent with its investment objectives and policies.

OPTIONS TRANSACTIONS. A Fund may purchase and write (i.e., sell) put and
call options on securities and financial indices that are traded on national
securities exchanges or in the over-the-counter ("OTC") market to attempt to
enhance return or to hedge its portfolio. These investments may include options
on equity securities, debt securities, aggregates of debt securities, financial

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<PAGE> 30

indices (e.g., S&P 500) and U.S. Government securities. The Funds may also
purchase and write put and call options on foreign currencies and foreign
currency futures. A Fund may write covered put and call options to attempt 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 price of securities or currencies it intends to purchase. A Fund may
also purchase put and call options to offset previously written put and call
options of the same series. See "Additional Investment Information -- Options on
Securities" 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, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When a Fund writes a call option,
the Fund gives up the potential for gain on the underlying securities or
currency in excess of the exercise price of the option during the period that
the option is open. There is no limitation on the amount of call options a Fund
may write.

A put option gives the purchaser, in return for a premium, the right, for a
specified period of time, to sell the securities or currency subject to the
option to the writer of the put at the specified exercise price. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities for more than their current market price.

A Fund will write only "covered" options. A written option is covered if,
so long as the Fund is obligated under the option, it (i) owns an offsetting
position in the underlying security or currency or (ii) segregates cash or other
liquid assets, in an amount equal to or greater than its obligation under the
option. Under the first circumstance, the Fund's losses are limited because it
owns the underlying security; under the second circumstance, in the case of a
written call option, the Fund's losses are potentially unlimited. See
"Additional Investment Information" in the Statement of Additional Information.
A Fund may only write covered put options to the extent that cover for such
options does not exceed 25% of the Fund's net assets. A Fund will not purchase
an option if, as a result of such purchase, more than 20% of its total assets
would be invested in premiums for options and options on futures.

OVER-THE-COUNTER OPTIONS. A Fund may also purchase and write (i.e., sell)
put and call options on equity and debt securities and on stock indexes 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 "Additional Investment
Information -- Additional Risks -- Options Transactions and Related Risks" in
the Statement of Additional Information.

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FOREIGN CURRENCY EXCHANGE CONTRACTS. The Funds may each enter into foreign
currency exchange contracts to protect the value of its portfolio against future
changes in the level of currency exchange rates. A 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.

A 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 (1) 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
(cross-currency hedge) or (2) the purchase of a foreign currency when the
Adviser believes that the U.S. dollar may decline against that foreign currency.
Although there are no limits on the number of forward contracts which a Fund may
enter into, a Fund may not position hedge with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time of
making any purchase or sale of foreign currency) of the securities being hedged.
The Adviser may use foreign currency hedging techniques, including
cross-currency hedges, to attempt to protect against declines in the U.S. dollar
value of income available for distribution to shareholders and declines in the
net asset value of a Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated in
a particular foreign currency would diminish in the event the value of the U.S.
dollar increased against such currency. Such a decline could be partially or
completely offset by an increase in value of a position hedge involving a
forward exchange contract to (A) sell the currency in which the position being
hedged is denominated, or a currency bearing a substantial correlation to the
value of such currency, or (B) purchase either the U.S. dollar or a foreign
currency expected to perform better than the currency being sold. Position
hedges may, therefore, provide protection of net asset value in the event of a
general rise in the U.S. dollar against foreign currencies. However, a
cross-currency hedge cannot protect against exchange rates risks perfectly, and
if the Adviser is incorrect in its judgment of future exchange rate
relationships, the Fund could be in a less advantageous position than if such a
hedge had not been established.

INDEXED COMMERCIAL PAPER. The Funds may each invest in commercial paper
which is indexed to certain specific foreign currency exchange rates. The terms
of such commercial paper provide that its principal amount is adjusted upwards
or downwards (but not below zero) at maturity to reflect changes in the exchange
rate between two currencies while the obligation is outstanding. A Fund will
purchase such commercial paper with the currency in which it is denominated and,
at maturity, will receive interest and principal payments thereon in that
currency, but the amount of principal payable by the issuer at maturity will
change in proportion to the change (if any) in the exchange rate between the two
specified currencies between the date the instrument is issued and the date the
instrument matures. With respect to its investments in this type of commercial
paper, a Fund will segregate cash or other liquid assets having a value at least
equal to the aggregate

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<PAGE> 32

principal amount of outstanding commercial paper of this type. While such
commercial paper entails the risk of loss of principal, the potential for
realizing gains as a result of changes in foreign currency exchange rates
enables the Fund to hedge (or cross-hedge) against a decline in the U.S. dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return. See "Additional Investment
Information -- Forward Foreign Currency Exchange Contracts" in the Statement of
Additional Information.

FUTURES CONTRACTS AND OPTIONS THEREON. The Funds may each purchase and sell
financial futures contracts and options thereon which are traded on a
commodities exchange or board of trade for hedging purposes, to reduce and
manage certain risks of its investments and to attempt to enhance return, in
each case in accordance with regulations of the Commodity Futures Trading
Commission. The Funds, and thus their investors, may lose money through any
unsuccessful use of these strategies. Futures contracts purchased by the Funds
may entitle a Fund to purchase or accept for future delivery debt securities,
aggregates of debt securities, currencies, financial indices or U.S. Government
securities, and include futures contracts which are linked to the London
Interbank Offered Rate ("LIBOR").

A Fund's successful use of futures contracts and related options depends upon
the investment adviser's ability to predict the direction of the market and is
subject to various additional risks. The correlation between movements in the
price of a futures contract and the price of the securities being hedged is
imperfect and there is a risk that the value of the securities being hedged may
increase or decrease at a greater rate than a specified futures contract
resulting in losses to a Fund.

A Fund's ability to enter into or close out futures contracts and options
thereon may also be limited by the requirements of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code") for qualification as a regulated
investment company. See "Additional Investment Information -- Futures Contracts"
and "Taxes, Dividends and Distributions" in the Statement of Additional
Information.

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 on a Fund 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 purposes
to the extent that the aggregate initial margin and option premiums do not
exceed 5% of the market value of the Fund's total assets.

RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES. Participation in the
options or futures markets involves investment risks and transaction costs to
which a Fund would not be subject absent the use of these strategies. A Fund,
and thus its investors, may lose money through any unsuccessful use of these
strategies. If an Adviser's predictions of movements in the direction of the
securities, foreign currency or interest rate markets are inaccurate, the
adverse consequences to a Fund may leave the Fund in a worse position than if
such strategies were not used. Risks inherent in the use of options and futures
contracts and options on futures contracts include (1) dependence on the
Adviser's ability to predict correctly movements in the direction of interest
rates and securities prices; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices of
the securities being hedged; (3) the fact that skills

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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 a 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 a
Fund to sell a portfolio security at a disadvantageous time, due to the need for
a Portfolio to maintain "cover" or to segregate securities in connection with
hedging transactions. See "Taxes, Dividends and Distributions" in the Statement
of Additional Information.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from a Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time a Fund's money is
invested in the repurchase agreement. A 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
instruments declines, a Fund will require additional collateral. In the event of
a default, insolvency or bankruptcy by a seller, the Fund will promptly seek to
liquidate the collateral. In such circumstances, the Fund could experience a
delay or be prevented from disposing of 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 resale price, the Fund will suffer a loss. See
"Additional Investment Information -- Repurchase Agreements" in the Statement of
Additional Information.

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

Each Fund may enter into reverse repurchase agreements, and the
Conservative Growth and Moderate Growth Funds may enter into dollar rolls. The
proceeds from such transactions will be used for the clearance of transactions
or to take advantage of investment opportunities.

Reverse repurchase agreements involve sales by a Fund of securities
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. During the reverse repurchase agreement period, the
Fund continues to receive principal and interest payments on these securities.

Dollar rolls involve sales by a Fund of securities for delivery in the
current month and a simultaneous contract to repurchase substantially similar
(same type and coupon) securities on a specified future date from the same
party. During the roll period, a Fund forgoes principal and interest paid on the
securities. A Fund is compensated by the difference between the current sales
price and the forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction.

A Fund will segregate with its custodian cash or other liquid assets equal
in value to its obligations in respect of reverse repurchase agreements and
dollar rolls. Reverse repurchase

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<PAGE> 34

agreements and dollar rolls involve the risk that the market value of the
securities retained by a Fund may decline below the price of the securities a
Fund has sold but is obligated to repurchase under the agreement. If the buyer
of securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, a Fund's use of the proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce a Fund's obligation to repurchase the securities.

Reverse repurchase agreements and dollar rolls, including covered dollar
rolls, are speculative techniques involving leverage and are considered
borrowings by a Fund for purposes of the percentage limitations applicable to
borrowings. See "Borrowing" below.

SECURITIES LENDING

Each Fund may lend portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets or secures an
irrevocable letter of credit in favor of a Fund in an amount equal to at least
100% of the market value, determined daily, of the securities loaned. During the
time portfolio securities are on loan, the borrower will pay a Fund an amount
equivalent to any dividend or interest paid on such securities and a 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 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. A Fund
cannot lend more than 33 1/3% of the value of its total assets (including the
amount of the loan collateral). See "Additional Investment Information --
Lending of Securities" in the Statement of Additional Information.

INTEREST RATE SWAP TRANSACTIONS

The Conservative Growth and Moderate Growth Funds may each enter into
interest rate swaps. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, for
example, an exchange of floating rate payments for fixed-rate payments. Each
Fund expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities a Fund anticipates purchasing at
a later date. Each Fund intends to use these transactions as a hedge and not as
a speculative investment. See "Additional Investment Information--Interest Rate
Swap Transactions" in the Statement of Additional Information. The risk of loss
with respect to interest rate swaps is limited to the net amount of interest
payments that the Fund is contractually obligated to make and will not exceed 5%
of a Fund's net assets. The use of interest rate swaps may involve investment
techniques and risks different from those associated with ordinary portfolio
transactions. If an Adviser is incorrect in its forecast of market values,
interest rates and other applicable factors, the investment performance of the
Fund would diminish compared to what it would have been if this investment
technique was never used.

INVESTMENT COMPANY SECURITIES

The Funds may invest in securities issued by other investment companies
which invest in short-term debt securities and which seek to maintain a $1.00
net asset value per share (money market funds). The Funds may also invest in
securities issued by other investment companies with similar

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<PAGE> 35

investment objectives. The Funds may also purchase shares of investment
companies investing primarily in foreign securities, including so-called
"country funds." Country funds have portfolios consisting primarily of
securities of issuers located in one foreign country. Each Fund will not hold
more than 3% of the outstanding voting securities of any one investment company,
will not have invested more than 5% of its total assets in any one investment
company and will not have invested more than 10% of its total assets (determined
at the time of investment) in investment company securities in the aggregate. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the expenses
each Fund bears in connection with its own operations.

ILLIQUID SECURITIES

Each Fund may hold up to 15% of its net assets in illiquid securities.
Illiquid securities include repurchase agreements which have a maturity of
longer than seven days, securities with legal or contractual restrictions on
resale ("restricted securities") and securities that are not readily marketable.
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 Funds' investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
Rule 144A securities. The Manager and the Advisers will monitor the liquidity of
such restricted securities under the supervision of the Trustees. Repurchase
agreements subject to demand are deemed to have a maturity equal to the
applicable notice period.

The staff of the Commission has taken the position that purchased OTC
options and the assets used as "cover" for written OTC options are illiquid
securities. However, with respect to U.S. Government securities, a Fund may
treat the securities it uses as "cover" for written OTC options on U.S.
Government securities as liquid provided it follows a specified procedure. A
Fund may sell such OTC options only to qualified dealers who agree that a Fund
may repurchase any options it writes for a maximum price to be calculated by a
predetermined formula. In such cases, OTC options would be considered liquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option. See "Additional Investment
Information -- Illiquid Securities" in the Statement of Additional Information.

When a Fund enters into interest rate swaps on other than a net basis, the
entire amount of the Fund's obligations, if any, with respect to such interest
rate swaps will be treated as illiquid. To the extent that a Fund enters into
interest rate swaps on a net basis, the net amount of the excess, if any, of the
Fund's obligations over its entitlements with respect to each interest rate swap
will be treated as illiquid. The Funds will also treat non-U.S. Government POs
and IOs as illiquid securities so long as the staff of the Commission maintains
its position that such securities are illiquid.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES

Each 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 a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an

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<PAGE> 36

advantageous price and yield to a Fund at the time of entering into the
transaction. While a Fund will only purchase securities on a when-issued or
delayed-delivery basis with the intention of acquiring the securities, a Fund
may sell the securities before the settlement date, if it is deemed advisable by
the Adviser. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed-delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Fund. 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
a 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. The Trust's Custodian will segregate cash or other liquid assets having a
value equal to or greater than a Fund's purchase commitments. The securities so
purchased are subject to market fluctuations and no interest accrues to the
purchaser during the period between purchase and settlement.

One form of when-issued or delayed-delivery security that the Funds may
purchase is a "to be announced" mortgage-backed security. A "to be announced"
mortgage-backed security transaction arises when a mortgage-backed security,
such as a GNMA pass-through security, is purchased or sold with the specific
pools that will constitute that GNMA pass-through security to be announced on a
future settlement date.

SHORT SALES

Each Fund may sell a security it does not own in anticipation of a decline
in the market value of that security (i.e., make short sales). Generally, to
complete the transaction, a Fund will borrow the security to make delivery to
the buyer. The Fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The price at such
time may be more or less than the price at which the security was sold by the
Fund. Until the security is replaced, the Fund is required to pay to the lender
any interest which accrues during the period of the loan. To borrow the
security, the Fund may be required to pay a premium which would increase the
cost of the security sold. The proceeds of the short sale will be retained by
the broker to the extent necessary to meet margin requirements until the short
position is closed out. Until the Fund replaces the borrowed security, it will
(a) segregate with its custodian cash or other liquid assets at such a level
that the amount deposited in the account plus the amount deposited with the
broker as collateral will equal the current market value of the security sold
short and will not be less than the market value of the security at the time it
was sold short or (b) otherwise cover its short position.

A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. This result is the opposite of
what one would expect from a cash purchase of a long position in a security. The
amount of any gain will be decreased, and the amount of any loss will be
increased, by the amount of any premium or interest paid in connection with the
short sale. No more than 5% of any Fund's net assets will be, when added
together: (i) deposited as collateral for the obligation to replace securities
borrowed to effect short sales and (ii) segregated in connection with short
sales.

Each Fund may also make short sales against-the-box. A short sale
against-the-box is a short sale in which a Fund owns an equal amount of the
securities sold short or securities convertible into or exchangeable for, with
or without payment of any further consideration, such securities; provided

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<PAGE> 37

that if further consideration is required in connection with the conversion or
exchange, cash or other liquid assets, in an amount equal to such consideration
must be segregated for an equal amount of the securities of the same issuer as
the securities sold short.

BORROWING

Each Fund may borrow from banks or through dollar rolls or reverse
repurchase agreements an amount equal to no more than 33 1/3% of the value of
its total assets (calculated when the loan is made) for temporary, extraordinary
or emergency purposes, for the clearance of transactions or to take advantage of
investment opportunities. Each Fund may pledge its total assets to secure these
borrowings.

If a Fund borrows to invest in securities, or if a Fund purchases
securities at a time when borrowings exceed 5% of its total assets, 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 a Fund, the net asset value of the
Fund's shares will decrease faster than would otherwise be the case. This is the
speculative characteristic known as "leverage." See "Reverse Repurchase
Agreements and Dollar Rolls" above.

If any Fund's asset coverage for borrowings falls below 300%, such Fund
will take prompt action to reduce its borrowings even though it may be
disadvantageous from an investment standpoint to sell securities at that time.

PORTFOLIO TURNOVER

The portfolio turnover rate for each of the Funds may exceed 100%, although
the rate for each Fund is not expected to exceed 150%. High portfolio turnover
(100% or more) may involve correspondingly greater brokerage commissions and
other transaction costs, which will be borne directly by each 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 Funds are subject to certain investment restrictions which constitute
fundamental policies. Fundamental policies cannot be changed with respect to any
Fund without the approval of a majority of the outstanding voting securities of
that Fund, as defined in the Investment Company Act. See "Investment
Restrictions" in the Statement of Additional Information.

MANAGEMENT OF THE TRUST

The Trustees, in addition to overseeing the actions of the Trust's Manager
and Advisers, as set forth below, decide upon matters of general policy. The
Trust's Manager conducts and supervises

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<PAGE> 38

the daily business operations of the Trust. The Funds' Advisers furnish 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 Trust. PIFM is organized in New York as a limited liability
company. It is an indirect, wholly-owned subsidiary of The Prudential Insurance
Company of America ("Prudential"), a major diversified insurance and financial
services company.

As of January 31, 1998, PIFM served as 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.

Pursuant to a Management Agreement ("Management Agreement") with the Trust,
PIFM manages the investment operations of the Trust, administers the Trust's
affairs and is responsible for the selection, subject to review and approval of
the Trustees, of Advisers for each of the Funds and the review of their
continued performance. See "Manager" in the Statement of Additional Information.

Pursuant to separate sub-advisory agreements (the "Advisory Agreements")
between PIFM and the Advisers, the Advisers furnish investment advisory services
in connection with the management of the Trust. Each Adviser is paid a fee for
its services by the Manager out of the fee it collects from a Fund based upon
the portion of assets the Adviser manages. Under the Management Agreement, PIFM
continues to have responsibility for all investment advisory services and
supervises the Advisers' performance of such services.

Subject to the supervision and direction of the Trustees, the Manager
provides to the Trust investment management evaluation services principally by
selecting Advisers for each Fund and thereafter monitoring their performance. In
evaluating prospective Advisers, the Manager considers, among other factors,
each Adviser's level of expertise, relative performance, consistency of
performance, and investment discipline or philosophy. The Manager has
responsibility for communicating performance expectations and evaluations to the
Advisers and ultimately recommending to the Trustees whether the Advisers'
contracts should be renewed, modified or terminated. The Manager provides
reports to the Trustees regarding the results of its evaluation and monitoring
functions. The Manager is also responsible for conducting all operations of the
Trust except those operations contracted to the Advisers, custodian and transfer
agent. Each Fund pays the Manager a fee for its services that is computed daily
and paid monthly at the annual rate specified below based on the value of the
average net assets of the Fund.

<TABLE>
<CAPTION>
FUND MANAGER'S FEE
---- -------------
<S> <C>
Conservative Growth......................................... .75%
Moderate Growth............................................. .75%
High Growth................................................. .75%
</TABLE>

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<PAGE> 39

The Manager pays the Advisers' fees, computed daily and paid monthly, equal
to the annual rate specified below based on the average daily net assets of the
Fund segments they manage.

<TABLE>
<CAPTION>
FEE PAID BY PIFM
ADVISERS FUNDS TO ADVISERS
-------- ----- ----------------
<S> <C> <C>
Jennison Associates LLC Conservative Growth .30% with respect to the first
Moderate Growth $300 million; .25% for amounts
High Growth in excess of $300 million
The Prudential Investment Corporation Conservative Growth N/A(1)
Moderate Growth
High Growth
Lazard Asset Management Moderate Growth .40%
High Growth
Pacific Investment Management Company Conservative Growth .25%
Moderate Growth
Franklin Advisers, Inc. Conservative Growth .50%
Moderate Growth
High Growth
The Dreyfus Corporation Conservative Growth .45%
Moderate Growth
High Growth
</TABLE>

- ---------------
(1)Under the Advisory Agreement between PIFM and PIC, PIC is reimbursed by PIFM
for its reasonable costs and expenses incurred in providing advisory services
to the Fund segments PIC manages.

The Manager and the Trust operate under an exemptive order from the
Commission which permits the Manager, subject to certain conditions, to enter
into or amend Advisory Agreements without obtaining shareholder approval each
time. On October 1, 1998, the sole shareholder of the Trust voted affirmatively
to give the Trust this ongoing authority. With Board approval, the Manager is
permitted to replace Advisers or employ additional Advisers for the Funds,
change the terms of the Funds' Advisory Agreements or enter into a new Advisory
Agreement with an existing Adviser after events that cause an automatic
termination of the old Advisory Agreement with that Adviser. Shareholders of a
Fund continue to have the right to terminate an Advisory Agreement for the Fund
at any time by a vote of the majority of the outstanding voting securities of
the Fund. Shareholders will be notified of any Adviser changes or other material
amendments to Advisory Agreements that occur under these arrangements.

ADVISERS

Subject to the supervision and direction of the Manager and, ultimately,
the Trustees, each Adviser is responsible for managing the securities held in
the Fund segment the Adviser manages in accordance with the Fund's stated
investment objective and policies, making investment decisions for such Fund
segment, placing orders to purchase and sell securities on behalf of such Fund
segment, and performing various administrative functions associated with serving
as an Adviser.

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<PAGE> 40

The Advisers furnish investment advisory services in connection with the
management of the Funds and are paid their fees by PIFM, not the Trust.

Each Adviser manages a discrete segment of the assets of a Fund. Daily cash
inflows (i.e., subscriptions and reinvested distributions) and outflows (i.e.,
redemptions and expenses items) will be allocated among the Advisers of each
Fund as the Manager deems it appropriate. By using several Advisers for the
Funds, and by periodically rebalancing a Fund in accordance with the allocation
strategy described above, the Manager seeks long-term benefits from a balance of
different investment disciplines, which is intended to achieve a certain
continuity in each Fund's performance. Reallocations may result in additional
transaction costs to the extent that sales of securities as part of such
reallocations result in higher portfolio turnover. In addition, if one Adviser
buys a security as the other Adviser sells it, the net position of the Fund in
the security may be approximately the same as it would have been with a single
Adviser and no such sale and purchase, but the Fund will have incurred
additional transaction costs and other expenses. The Manager will consider these
costs in determining the allocation and reallocation of assets.

The following sets forth certain information about each of the Advisers:

JENNISON ASSOCIATES LLC

Jennison is a Delaware limited liability company located at 466 Lexington
Avenue, New York, NY 10017. Jennison is a wholly-owned subsidiary of The
Prudential Insurance Company of America ("Prudential"), a major diversified
insurance and financial services company.

As of June 30, 1998, Jennison had over $42.7 billion in assets under
management for institutional and mutual fund clients. David Poiesz, CFA, is
responsible for the day-to-day management of the Fund segments managed by
Jennison. Mr. Poiesz, a Director and Executive Vice President of Jennison,
joined Jennison in 1983 as an equity research analyst and has been an equity
portfolio manager since 1991. Mr. Poiesz also serves as the portfolio manager of
the Prudential Jennison Portfolio of the Prudential Series Fund, Inc. and the
Prudential Jennison Growth Fund of The Prudential Investment Portfolios, Inc.

THE PRUDENTIAL INVESTMENT CORPORATION

PIC is a New Jersey corporation located at Prudential Plaza, Newark, NJ
07102-3777. PIC is a wholly-owned subsidiary of Prudential, a major diversified
insurance and financial services company.

Thomas R. Jackson, a Managing Director of PIC, is responsible for the
day-to-day management of the large-cap value equity Fund segments managed by
PIC. Mr. Jackson also serves as the portfolio manager of the Common Stock
Portfolio of The Prudential Series Fund, Inc., which is one of the investment
options in a Prudential variable life and annuity product, and the Prudential
Equity Fund, Inc. Mr. Jackson joined PIC in 1990 and has over 30 years of
professional equity investment management experience. He was formerly co-chief
investment officer of Red Oak Advisers and Century Capital Associates, each a
private money management firm, where he managed pension and other accounts for
institutions and individuals. He was also with The Dreyfus Corporation where he
managed and served as president of the Dreyfus Fund. Mr. Jackson also managed an
equity pension investment group at Chase Manhattan Bank.

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<PAGE> 41

George Edwards, CFA, oversees the team responsible for the day-to-day
management of the high yield bond segments managed by PIC. Mr. Edwards is also a
co-manager of Prudential High Yield Fund and the Prudential Distressed
Securities Fund and the manager of the Prudential Series Fund/High Yield Bond
Portfolio. Before joining the mutual fund group in 1989, Mr. Edwards worked in
Prudential's investment grade bond unit. He was previously and analyst at
McCarthy, Crisanti & Maffei (now MCM-Duff & Phelps).

FRANKLIN ADVISERS, INC.

Franklin is a California corporation located at 777 Mariners Island Blvd.,
San Mateo, CA 94404. Franklin is a wholly-owned subsidiary of Franklin
Resources, Inc., a publicly-owned company engaged in the financial services
industry through its subsidiaries. Franklin advises 97 domestic equity and fixed
income mutual funds in the Franklin Templeton Group of funds. As of June 30,
1998, Franklin and its affiliates managed over $230 in assets.

Edward B. Jamieson, Michael McCarthy and Aidan O'Connell are responsible
for the day-to-day management of the small/mid-cap growth equity Fund segments
managed by Franklin. Mr. Jamieson is an Executive Vice President of Franklin and
Managing Director of Franklin's equity and high yield groups and has been with
Franklin since 1987. Mr. McCarthy joined Franklin in 1992 and is a vice
president and portfolio manager specializing in research analysis of several
technology groups. Mr. O'Connell joined Franklin in 1998 and is a research
analyst specializing in research analysis of the semiconductor and semiconductor
capital equipment industries. Prior thereto, Mr. O'Connell was a research
associate and a corporate finance associate with Hambrecht & Quist.

THE DREYFUS CORPORATION

The Dreyfus Corporation has its headquarters at 200 Park Avenue, New York,
NY 10166. Dreyfus is a subsidiary of Mellon Bank corporation, a broad-based
financial services company with a bank at its core, and over $300 billion under
management or administration. Dreyfus currently manages over $100 billion in
assets in both equity and fixed income mutual funds.

William P. Rydell, CFA and Mark W. Sikorski, CFA, co-manage the Fund
segments managed by Dreyfus. Mr. Rydell is a portfolio manager of Dreyfus and is
the President and Chief Executive Officer of Mellon Equity Associates LLP. Mr.
Rydell has been in the Mellon organization since 1973. Mr. Sikorski is a
portfolio manager of Dreyfus and a Vice President of Mellon Equity Associates
LLP. Mr. Sikorski has been in the Mellon organization since 1996. Prior thereto,
Mr. Sikorski managed various corporation treasury projects for Northeast
Utilities, including bond refinancing and investment evaluations.

LAZARD ASSET MANAGEMENT

Lazard is a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New
York limited liability company located at 30 Rockefeller Plaza, New York, NY
10112. Lazard provides investment management services to both individual and
institutional clients and as of December 31, 1997, had more than $60 billion in
assets under management. In addition to portfolio management, Lazard Freres
provides a wide variety of investment banking and related services. Lazard also
manages the International Equity Portfolio and half of the Small Capitalization
Value Portfolio of The Target Portfolio Trust.

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<PAGE> 42

Herbert W. Gullquist and John R. Reinsberg are primarily responsible for
the day-to-day management of the international equity Fund segments managed by
Lazard. Mr. Gullquist is a Managing Director and a Vice-Chairman of Lazard
Freres, is the Chief Investment Officer of LAM and has been employed with both
since 1982. Mr. Reinsberg is a Managing Director of Lazard Freres and has been
employed there since 1991. Prior thereto, he was Executive Vice President of
General Electric Investment Corporation.

PACIFIC INVESTMENT MANAGEMENT COMPANY

PIMCO is a Delaware general partnership located at 840 Newport Center
Drive, Newport Beach, CA 92660. PIMCO is a subsidiary of PIMCO Advisors L.P.
("PIMCO Advisors"). The general partners of PIMCO Advisors are PIMCO Partners,
G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO Partners, G.P. is a general
partnership between PIMCO Holding LLC, a Delaware limited liability company and
indirect wholly-owned subsidiary of Pacific Life Insurance Company, and PIMCO
Partners LLC, a California limited liability company controlled by the PIMCO
Managing Directors. PIMCO Partners, G.P. is the sole general partner of PAH.
PIMCO is registered as an investment advisor with the Commission and as a
commodity trading advisor with the CFTC. As of December 31, 1997, PIMCO had
approximately $118 billion of assets under management. PIMCO also manages the
Intermediate-Term Bond and Total Return Bond Portfolios of The Target Portfolio
Trust.

John L. Hague is responsible for the day-to-day management of the fixed
income Fund segments managed by PIMCO. Mr. Hague is a Managing Director of
PIMCO, and has managed fixed income assets for PIMCO and its predecessor since
1989.

FEE WAIVERS AND SUBSIDIES

PIFM may from time to time agree to waive all or a portion of its
management fee and subsidize certain operating expenses of the Funds. Fee
waivers and expense subsidies will increase a Fund's yield or total return. See
"General Information -- Performance Information."

DISTRIBUTOR

PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (THE "DISTRIBUTOR"), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS A LIMITED
LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE THAT SERVES
AS THE DISTRIBUTOR OF THE CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF THE
TRUST. IT IS A 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
TRUST UNDER RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION
AGREEMENT (THE "DISTRIBUTION AGREEMENT"), THE DISTRIBUTOR INCURS THE EXPENSES OF
DISTRIBUTING THE TRUST'S CLASS A, CLASS B AND CLASS C SHARES. The Distributor
also incurs the expenses of distributing the Trust's Class Z shares under the
Distribution Agreement, none of which is reimbursed by or paid for by the Trust.
These expenses include commissions and account servicing fees paid to, or on
account of, Dealers or financial institutions which have entered into agreements
with the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of the
Distributor associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.

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<PAGE> 43

Under the Plans, each 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 with respect to
a Fund, the Fund will not be obligated to pay any additional expenses. If the
Distributor's expenses are less than such distribution and service fees, it will
retain its full fees and realize a profit.

The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis Dealers in consideration for the distribution,
marketing, administrative and other services and activities provided by Dealers
with respect to the promotion of the sale of each Fund's shares and the
maintenance of related shareholder accounts.

UNDER THE CLASS A PLAN, EACH FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts ("service fee") and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. The Distributor has voluntarily
limited its distribution-related fees payable under the Class A Plan to .25 of
1% of the average daily net assets of the Class A shares. This voluntary waiver
may be terminated at any time without notice.

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

Each 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 a 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 Portfolio other than expenses allocable to a particular class.
Each Fund bears its own expenses under the Plans, and the distribution fee and
sales charge of one class of a Fund will not be used to subsidize the sale of
the Fund's other classes.

Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Trustees of the Trust, including a
majority of the Trustees who are not "interested persons" of the Trust (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 a Fund. A
Fund will not be obligated to pay expenses incurred under any Plan if it is
terminated or not continued.

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<PAGE> 44

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

The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.

PORTFOLIO TRANSACTIONS

Prudential Securities Incorporated ("Prudential Securities"), which is an
affiliate of the Manager and the Distributor, an Adviser or an affiliate thereof
(each an "affiliated broker") may each act as a broker or futures commission
merchant for a Fund. In order for an affiliated broker to effect any portfolio
transactions for a Fund on an exchange or board of trade, the commissions, fees
or other remuneration received by the affiliated broker 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 being purchased or sold on an exchange
or board of trade during a comparable period of time. This standard would allow
an affiliated broker 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.

YEAR 2000

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

NET ASSET VALUE

Net asset value per share is calculated separately for each class of each
Portfolio by dividing the value of all securities and other assets owned by a
Fund that are allocated to a particular class of shares, less the liabilities
charged to that class, by the number of shares of the class that are
outstanding. The Trustees have fixed the specific time of day for the
computation of each Fund's net asset value to be as of 4:15 p.m., New York time.

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<PAGE> 45

Portfolio securities are valued based on market quotations or, if such
quotations are not readily available, at fair value as determined in good faith
under procedures established by the Trustees. For valuation purposes, quotations
of foreign securities in a foreign currency are converted to U.S. dollar
equivalents. See "Net Asset Value" in the Statement of Additional Information.

The Trust will compute its net asset value 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 Trust or days on which
changes in the value of portfolio securities do not materially affect the net
asset value of a Fund.

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUNDS

YOU MAY PURCHASE SHARES OF THE FUNDS THROUGH THE DISTRIBUTOR, THROUGH
DEALERS OR DIRECTLY FROM THE TRUST THROUGH THE TRANSFER AGENT, ATTENTION:
INVESTMENT SERVICES, P.O. BOX 15035, NEW BRUNSWICK, NEW JERSEY 08906-5035.
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 (in accordance with procedures established by the Transfer Agent in
connection with investors' accounts) by the Distributor, your Dealer or the
Transfer Agent, plus a sales charge which, at your option, may be imposed either
at the time of purchase, on a deferred basis, or both. Class A shares are sold
with a front-end sales charge. Class B shares are subject to a
contingent-deferred sales charge. Class C shares are sold with a low front-end
sales charge, but are also subject to a contingent-deferred sales charge. Class
Z shares are offered to a limited group of investors at net asset value without
any sales charge. Payments may be made by wire, check or through your brokerage
account. See "Alternative Purchase Plan" and "Net Asset Value."

In order to receive that day's NAV, your order must be received before the
Fund's NAV is computed (currently 4:15 P.M., New York time). If you purchase
shares through your Dealer, the Dealer must receive your order before each
Fund's NAV is computed that day and must transmit the order to the Distributor
that same day for you to receive that day's NAV.

The minimum initial investment is $1,000 for Class A and Class B shares and
$2,500 for Class C shares, except that the minimum initial investment for Class
C shares may be waived from time to time. The minimum subsequent investment is
$100 for Class A, Class B and Class C shares. There are no minimum investment
requirements for Class Z shares. All minimum investment requirements are waived
for certain employee savings plans or custodial accounts for the benefit of
minors. For purchases through the Automatic Investment Plan, the minimum initial
and subsequent investment is $50. See "Shareholder Services" below.

Application forms can be obtained from the Transfer Agent, the Distributor
or a Dealer. If a stock certificate is desired, it must be requested in writing
for each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares in street name with their Dealers will not receive stock
certificates.

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<PAGE> 46

The Trust reserves the right to reject any purchase order (including an
exchange into a 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 Trust.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the third business day following the placement
of the order.

Dealers may charge their customers a separate fee for processing purchases
and redemptions. In addition, transactions in shares of the Funds may be subject
to postage and handling charges imposed by your Dealer. Any such charges are
retained by the Dealer and are not remitted to the Funds.

Purchase by Wire. For an initial purchase of shares of a Fund by wire, you
must complete an application and telephone the Transfer Agent to receive an
account number at (800) 225-1852 (toll-free). The following information will be
requested: your name, address, tax identification number, the Fund and class of
shares you are selecting, 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
Diversified Funds, specifying on the wire the account number assigned by the
Transfer Agent and your name and the Fund in which you want to invest 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 a 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 the relevant Fund, share
class 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.

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<PAGE> 47

ALTERNATIVE PURCHASE PLAN

THE TRUST OFFERS FOUR CLASSES OF SHARES IN EACH FUND (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 .30 of 1% (currently Initial sales charge
charge of 5% of the public being charged at a rate waived or reduced for
offering price of .25 of 1%) certain purchases
CLASS B.... Maximum CDSC of 5% of the 1% Shares convert to Class A
lesser of the amount shares approximately seven
invested or the redemption years after purchase
proceeds; declines to zero
after six years
CLASS C.... Initial sales charge of 1% 1% Shares do not convert to
of the public offering another class
price and maximum CDSC of
1% of the lesser of the
amount invested or the
redemption proceeds on
redemptions made within 18
months of purchase
CLASS Z.... None None Sold to a limited group of
investors
</TABLE>

The four classes of shares in each Fund represent interests in the same
portfolio of investments of the Trust and have the same rights, except that (i)
each class (with the exception of Class Z shares, which are not subject to any
distribution and/or service fees) bears the separate expenses of its Rule 12b-1
distribution and service plan, (ii) each class has exclusive voting rights on
any matter submitted to shareholders that relates solely to its arrangement and
has separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class; (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 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 of each Fund bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A and Class Z shares of the Fund.

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

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<PAGE> 48

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 information 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 Funds.

If you intend to hold your investment in a Fund for less than 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6-year period, you should
consider purchasing Class C shares over either Class A or Class B shares.

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

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

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 5 years for the higher cumulative annual distribution-related fee on
those shares plus, in the case of Class C shares, the 1% initial sales charge to
exceed the initial sales charge plus cumulative annual distribution-related fees
on Class A shares. This does not take into account the time value of money,
which further reduces the impact of the higher Class B or Class C
distribution-related fee on the investment, fluctuations in NAV, the effect of
the return on the investment over this period of time or redemptions when the
CDSC is applicable.

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

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<PAGE> 49

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 AS
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ --------------- --------------- --------------------
<S> <C> <C> <C>
Less than $25,000.......... 5.00% 5.26% 4.75%
$25,000 to $49,999......... 4.50% 4.71% 4.25%
$50,000 to $99,999......... 4.00% 4.17% 3.75%
$100,000 to $249,999....... 3.25% 3.36% 3.00%
$250,000 to $499,999....... 2.50% 2.56% 2.40%
$500,000 to $999,999....... 2.00% 2.04% 1.90%
$1,000,000 and above....... None None None
</TABLE>

The Distributor may reallow the entire sales charge to Dealers. Dealers may
be deemed to be underwriters, as that term is defined under the federal
securities laws. The Distributor reserves the right, without prior notice to any
Dealer, to suspend or eliminate Dealer concessions or commissions.

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

REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Funds and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares -- Reduction and Waiver of Initial Sales Charges -- Class A Shares" in
the Statement of Additional Information.

You must notify the Transfer Agent either directly or through your Dealer
that you are entitled to the waiver of the sales charge. The reduction or waiver
will be granted subject to confirmation of your entitlement.

Benefit Plans. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by retirement and deferred compensation plans and
trusts to fund those plans, including, but not limited to, those defined in
Section 401(a), 403(b) or 457 of the Internal Revenue Code and "rabbi trusts"
(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 and for which the
Transfer Agent does individual account recordkeeping ("Direct Account Benefit
Plans"), Class A shares may be purchased at NAV by participants who are repaying
loans made from such plans to the participant.

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<PAGE> 50

Special Rules Applicable to Retirement Plans. After a Benefit Plan
qualifies to purchase Class A shares at NAV, all subsequent purchases will be
made at NAV.

Other Waivers. In addition, Class A shares may be purchased at NAV,
through the Distributor or the Transfer Agent, by the following persons: (a)
officers of the Prudential Mutual Funds (including the Trust), (b) employees of
the Distributor and PIFM and their subsidiaries and members of the families of
such persons who maintain an "employee related" account at Prudential Securities
or the Transfer Agent, (c) employees of subadvisers of the Prudential Mutual
Funds provided that purchases at NAV are permitted by such person's employer,
(d) Prudential, employees and special agents of Prudential and its subsidiaries
and all persons who have retired directly from active service with Prudential or
one of its subsidiaries, (e) registered representatives and employees of Dealers
who have entered into a selected dealer agreement with the Distributor, provided
that purchases at NAV are permitted by such person's employer, (f) investors in
IRAs, provided the purchase is made with the proceeds of a tax-free, rollover of
assets from a Benefit Plan for which Prudential Investments serves as the
recordkeeper or administrator (g) investors previously eligible to purchase
Class A shares at NAV because of their participation in programs sponsored by an
affiliate of the Distributor for certain retirement plan or deferred
compensation plan participants, (h) orders placed by broker-dealers, investment
advisers or financial planners who have entered into an agreement with the
Distributor, who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services
(e.g., mutual fund "wrap" or asset allocation programs), and (i) broker-dealers,
investment advisers or financial planners who place trades for customer accounts
if the accounts are linked to the master account of such broker-dealer,
investment adviser or financial planner and such clients are charged a fee for
services of the broker-dealer, investment adviser or financial planner (e.g.,
mutual fund "supermarket" programs).

For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the Dealer
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Trust 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 shares is the NAV next determined following
receipt of an order in proper form by the Transfer Agent, your Dealer or the
Distributor. The offering price of Class C shares is the NAV next determined
following receipt of an order in proper form by the Transfer Agent, your Dealer
or the Distributor plus a sales charge equal to 1% of the public offering price.
Redemption of Class B and Class C shares may be subject to a CDSC. See "How to
Sell Your Shares -- Contingent Deferred Sales Charges."

The Distributor will pay, from its own resources, sales commissions of up
to 4% of the purchase price of Class B shares to Dealers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Trust to sell the Class B shares of the Funds without an initial
sales charge being deducted at the time of purchase. The Distributor anticipates
that it will

50
<PAGE> 51

recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee. In connection with the sale of Class C shares, the
Distributor will pay, partially from its own resources, Dealers, financial
advisers and other persons which distribute Class C shares a sales commission of
up to 2% of the purchase price at the time of the sale. The Distributor
anticipates that it would recoup its advancement of sales commissions from the
combination of the CDSC and the distribution fee. See "How the Trust is
Managed -- Distributor."

Waiver of Initial Sales Charge -- Class C Shares

Benefit Plans. Class C shares may be purchased at NAV, without payment of
an initial sales charge, by Benefit Plans (as defined above). In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent and for
which the Transfer Agent does individual account recordkeeping (Direct Account
Benefit Plans), Class C shares may be purchased at NAV by participants who are
repaying the loans made from such plans to the participant.

Investments of Redemption Proceeds from Other Investment Companies.
Investors may purchase Class C shares at NAV, without the initial sales charge,
with the proceeds from the redemption of shares of any unaffiliated investment
company which were not held through an account with any Prudential affiliate.
Such purchases must be made within 60 days of the redemption. This waiver is
not available to investors who purchase shares directly from the Transfer
Agent. You must notify the Transfer Agent directly or through your Dealer if
you are entitled to this waiver and provide the Transfer Agent with such
supporting documents as it may deem appropriate.

CLASS Z SHARES

Class Z shares of each Fund are currently available for purchase by: (i)
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code, deferred compensation plans and annuity plans
under Sections 457 and 403(b)(7) of the Internal Revenue Code, and non-qualified
plans for which the Fund is an available option (collectively, "Benefit Plans"),
provided that such Benefit Plans (in combination with other plans sponsored by
the same employer or group of related employers) have at least $50 million in
defined contribution assets; (ii) participants in any fee-based program or trust
program sponsored by an affiliate of the Distributor which includes mutual funds
as investment options and for which the Fund is an available option; (iii)
certain participants in the MEDLEY Program (group variable annuity contracts)
sponsored by an affiliate of the Distributor for whom Class Z shares of the
Prudential Mutual Funds are an available investment option; (iv) Benefit Plans
for which an affiliate of the Distributor serves as recordkeeper and as of
September 20, 1996, (a) were Class Z shareholders of the Prudential Mutual
Funds, or (b) executed a letter of intent to purchase Class Z shares of the
Prudential Mutual Funds; (v) current and former Directors/Trustees of the
Prudential Mutual Funds (including the Trust); (vi) employees of certain
affiliates of the Distributor who participate in an employer-sponsored employee
savings plan and (vii) Prudential with an investment of $10 million or more.
After a Benefit Plan qualifies to purchase Class Z shares, all subsequent
purchases will be for Class Z shares.

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

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<PAGE> 52

HOW TO SELL YOUR SHARES

YOU CAN REDEEM SHARES OF THE FUNDS AT ANY TIME FOR CASH AT THE NAV PER
SHARE NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM
(IN ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN CONNECTION
WITH INVESTORS' ACCOUNTS) BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER.
See "Net Asset Value." In certain cases, however, redemption proceeds will be
reduced by the amount of any applicable CDSC, as described below. See
"Contingent Deferred Sales Charges" below. If you are redeeming your shares of a
Fund through a Dealer, your Dealer must receive your sell order before the Fund
computes its NAV for that day (i.e., 4:15 P.M., New York time) in order to
receive that day's NAV. Your Dealer will be responsible for furnishing all
necessary documentation to the Distributor and may charge you for its services
in connection with redeeming shares of the Funds.

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 NAMES(S) SHOWN ON THE FACE
OF THE CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR
YOUR DEALER IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION
IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE
OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH
REQUEST WILL BE ACCEPTED. All correspondence and documents concerning
redemptions should be sent to the Trust in care of its Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15035, New Brunswick, New Jersey 08906-5035, the Distributor or to your Dealer.

If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution.

PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER
OF THE CERTIFICATE AND/OR WRITTEN REQUEST EXCEPT AS INDICATED BELOW. If you hold
shares through a Dealer, payment for shares presented for redemption will be
credited to your account at your Dealer unless you indicate otherwise. Such
payment may be postponed or the right of redemption suspended at times (a) when
the New York Stock Exchange (the "Exchange") is closed for other than customary
weekends and holidays, (b) when trading on the Exchange is restricted, (c) when
an emergency exists as a result of which disposal by a Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) during any other
period when the Commission, by order, so permits; provided that applicable rules
and regulations of the Commission shall govern as to whether the conditions
prescribed in (b), (c) or (d) exist.

PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE TRUST OR THE TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, WHICH MAY TAKE UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF
THE PURCHASE CHECK BY THE FUND OR THE TRANSFER

52
<PAGE> 53

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 a Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the Commission. Securities will be readily marketable and will be valued in the
same manner as a regular redemption. See "Net Asset Value." If your shares are
redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Trust has, however, elected to be governed by Rule 18f-1 under
the Investment Company Act, under which each 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 Funds, 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
investment in a Fund has a net asset value of less than $500 due to a
redemption. The Trust will give any such shareholder 60 days' prior written
notice in which to purchase sufficient additional shares of the Fund 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 Funds at the NAV next
determined after the order is received, which must be within 90 days after the
date of redemption. Any CDSC paid in connection with such redemption will be
credited (in shares) to your account. (If less than a full repurchase is made,
the credit will be on a pro rata basis.) You must notify the Transfer Agent,
either directly or through your Dealer or the Distributor, at the time the
repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege will generally not affect
the federal tax treatment of any gain realized upon redemption. However, if the
redemption was made within a 30 day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss depending on the amount
reinvested, may not be allowed for federal income tax purposes. For more
information on the rule which disallows a loss on the sale or exchange of shares
of the Funds which are replaced, see "Taxes, Dividends and Distributions" in the
Statement of Additional Information.

Contingent Deferred Sales Charges

Redemptions of Class B shares will be subject to a contingent deferred
sales charge ("CDSC") declining to zero from 5% over a six-year period. Class C
shares redeemed within 18 months 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 a Fund to an amount which is lower
than the amount of all payments by you for shares of that Fund during the
preceding six years, in the case of Class B shares, and 18 months, 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

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<PAGE> 54

being redeemed. Increases in the value of your shares and shares purchased
through reinvestment of dividends or distributions are not subject to CDSC. The
amount of any contingent deferred sales charge will be paid to and retained by
the Distributor. See "How the Trust is Managed -- Distributor" and "Waiver of
Contingent Deferred Sales Charges" below.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The 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.

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR SINCE PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR REDEMPTION PROCEEDS (WHICHEVER IS LOWER)
------------------- -------------------------------------------
<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 generally in the lowest
possible rate. It will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in NAV 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 of a Fund 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.

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<PAGE> 55

WAIVER OF CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust, at the time of death or initial
determination or disability, provided that the shares were purchased prior to
death or disability.

The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions are: (i) in the case of a tax-deferred
retirement plan, a lump-sum or other distribution after retirement; (ii) in the
case of an IRA (including a Roth IRA), a lump-sum or other distribution after
attaining age 59 1/2 or a periodic distribution based on life expectancy; (iii)
in the case of a Section 403(b) custodial account, a lump sum or other
distribution after attaining age 59 1/2 and (iv) a tax-free return of an excess
contribution or plan distributions following the death or disability of the
shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service, i.e.,
following voluntary or involuntary termination of employment or following
retirement. Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan unless such
redemptions otherwise qualify as a waiver as described above. In the case of
Direct Account and Prudential Securities or Subsidiary Prototype Benefit Plans,
the CDSC will be waived on redemptions which represent borrowings from such
plans. Shares purchased with amounts used to repay a loan from such plans on
which a CDSC was not previously deducted will thereafter be subject to a CDSC
without regard to the time such amounts were previously invested. In the case of
a 401(k) plan, the CDSC will also be waived upon the redemption of shares
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.

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.

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

WAIVER OF CLASS C CONTINGENT DEFERRED SALES CHARGES

The CDSC will be waived on redemptions from Benefit Plans holding shares
through a Dealer not affiliated with Prudential and for whom the Dealer provides
administrative or recordkeeping services.

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<PAGE> 56

CONVERSION FEATURE -- CLASS B SHARES

Class B shares of a Fund will automatically convert to Class A shares of
the same Fund 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 Trust 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 of a Fund purchased at
least seven years prior to the conversion date to (b) the total amount paid for
all Class B shares of the same Fund purchased and then held in your account (ii)
multiplied by the total number of Class B shares of that Fund purchased and then
held in your account. Each time any Eligible Shares of a Fund in your account
convert to Class A shares, all shares or amounts representing Class B shares of
the same Fund then in your account that were acquired through the automatic
reinvestment of dividends and other distributions will convert to Class A
shares.

For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares of a Fund were initially purchased
at $10 per share (for a total of $1,000) and a second purchase of 100 shares of
the same Fund was subsequently made at $11 per share (for a total of $1,100),
95.24 shares of that Fund would convert approximately seven years from the
initial purchase (i.e., $1,000 divided by $2,100 or 47.62% multiplied by 200
shares or 95.24 shares). The Manager reserves the right to modify the formula
for determining the number of Eligible Shares in the future as it deems
appropriate on notice to shareholders.

Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B shares of the same Fund 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 "Net Asset Value."

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

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<PAGE> 57

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

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the
Trust 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 TRUST 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. (The Trust or its agents could be subject to
liability if they fail to employ reasonable procedures.) All exchanges will be
made on the basis of the relative NAV of the two funds next determined after the
request is received in good order.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15035, New Brunswick, New
Jersey 08906-5035.

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<PAGE> 58

IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED ABOVE.

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 of a Fund which
are not subject to a CDSC held in such a shareholder's account will be
automatically exchanged for Class A shares of that Fund for shareholders who
qualify to purchase Class A shares at NAV on a quarterly basis, unless the
shareholder elects otherwise. Similarly, shareholders who qualify to purchase
Class Z shares of a Fund, will have their Class B and Class C shares of that
Fund which are not subject to a CDSC and their Class A shares of that Fund
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through their Dealer that they are eligible
for this special exchange privilege.

Participants in any fee-based program for which a Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares of
the Fund 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 of
the Portfolio at NAV.

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

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

To implement this authority to protect the Funds and their shareholders
from excessive trading, the Trust will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Trust 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
Trust may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.

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<PAGE> 59

SHAREHOLDER SERVICES

In addition to the exchange privilege, as a shareholder in the Funds, you
can take advantage of the following additional 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 relevant Fund at NAV without a
sales charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
your Dealer, you should contact your Dealer.

- AUTOMATIC INVESTMENT PLAN ("AIP"). Under AIP you may make regular
purchases of a Fund's shares in amounts as little as $50 via an automatic debit
to a bank account or brokerage account (including a Command Account). For
additional information about this service, you may contact the Distributor, your
Dealer 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 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 of a Portfolio may be subject to a CDSC. See "How to
Sell Your Shares -- Contingent Deferred Sales Charges." See also "Shareholder
Investment Account -- Systematic Withdrawal Plan" in the Statement of Additional
Information.

- REPORTS TO SHAREHOLDERS. The Trust 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 Trust will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 (toll-free) or by writing to the Trust at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In
addition, monthly unaudited financial data are available upon request from the
Trust.

- SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Trust at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone, at (800) 225-1852 (toll-free) or, from outside the U.S.A. at (732)
417-7555 (collect).

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

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<PAGE> 60

TAXES, DIVIDENDS AND DISTRIBUTIONS

Each Fund intends to elect to be, and to qualify for treatment as, a
regulated investment company under the Internal Revenue Code. Each Fund will not
be subject to federal income taxes on its net investment income and net capital
gains (i.e., the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to its shareholders.

Any 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. To the extent a
Fund's income is derived from certain dividends received from domestic
corporations, a portion of the dividends paid to corporate shareholders of the
Fund will be eligible for the 70% dividends received deduction. Any net capital
gains distributed to shareholders will be taxable as long-term capital gains to
the shareholders, whether or not reinvested and regardless of the length of time
a shareholder has owned his or her shares. The maximum long-term capital gains
rate for individual shareholders is currently 20%. The maximum tax rate for
ordinary income is 39.6%. The maximum long-term capital gains rate for corporate
shareholders currently is the same as the maximum tax rate for ordinary income.

Both regular and capital gains dividends are taxable to shareholders in the
year in which received, whether they are received in cash or additional shares.
In addition, certain dividends declared by the Trust will be treated as received
by shareholders on December 31 of the year the dividends are declared. This rule
applies to dividends declared by the Trust in October, November or December of a
calendar year, payable to shareholders of record on a date in any such month, if
such dividends are paid during January of the following calendar year.

Dividends attributable to the net investment income of each Fund will be
declared and paid quarterly with respect to the Conservative Growth Fund,
semi-annually with respect to the Moderate Growth Fund and annually with respect
to the High Growth Fund. Distributions of any net realized long-term and
short-term capital gains earned by a Fund will be made at least annually.
Dividends paid by each Fund with respect to each class of shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same time,
on the same day and will be in the same amount except that each class (other
than Class Z) will bear its own distribution and/or service fee charges,
generally resulting in lower dividends for Class B and Class C shares in
relation to Class A and Class Z shares and lower dividends for Class A shares in
relation to Class Z shares. Distribution of net capital gains, if any, will be
paid in the same amount per share for each class of shares of a Portfolio. See
"Net Asset Value."

Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will generally be treated as
long-term capital gain or loss if the shares have been held more than one year
and otherwise as short-term capital gain or loss. Any such loss with respect to
shares that are held 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. Gain or loss on shares held more than 12 months will be
considered in determining a holder's adjusted net capital

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<PAGE> 61

gain subject to a maximum tax rate of 20%. Additionally, a capital loss realized
upon a sale or redemption of shares in a Fund will be deferred under the "wash
sale" rules of the Internal Revenue Code if the shareholder acquires shares in
such Fund during the 61-day period beginning 30 days before and ending 30 days
after the sale which gave rise to the loss.

Net investment income or capital gains earned by the Funds from foreign
securities may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries that
entitle the Funds to a reduced rate of tax or exemption from tax on this related
income and gains. It is impossible to determine the effective rate of foreign
tax in advance since the amount of the Funds' assets to be invested within
various countries is not known. The Funds intend to operate so as to qualify for
treaty-reduced rates of tax where applicable. Furthermore, if a Fund qualifies
as a regulated investment company, if certain distribution requirements are
satisfied, and if more than 50% of the value of the Fund's assets at the close
of the taxable year consists of stocks or securities of foreign corporations,
the Fund may elect, for U.S. federal income tax purposes, to treat foreign
income taxes paid by the Fund that can be treated as income taxes under U.S.
income tax principles as paid by its shareholders. If the Fund were to make an
election, an amount equal to the foreign income taxes paid by the Fund would be
included in the income of its shareholders and the shareholders would be
entitled to credit their portions of this amount against their U.S. tax
liabilities, if any, or to deduct such portions from their U.S. taxable income,
if any. Shortly after any year for which it makes an election, the Fund will
report to its shareholders, in writing, the amount per share of foreign tax that
must be included in each shareholder's gross income and the amount which will be
available for deduction or credit. No deduction for foreign taxes may be claimed
by a non-corporate shareholder who does not itemize deductions. Certain
limitations will be imposed on the extent to which the credit for foreign taxes
may be claimed. As a result of the election, shareholders who are non-resident
alien individuals or foreign entities may be subject to additional U.S.
withholding tax on the foreign taxes deemed distributed pursuant thereto, but be
unable to claim a deduction or credit for such taxes in the U.S. It is not
anticipated that any Fund will satisfy the requirements for making the election
to treat shareholders as having paid foreign taxes paid by the Fund.

A Fund may, from time to time, invest in Passive Foreign Investment
Companies ("PFICs"). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, a Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized and unrealized by the Fund.

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 a Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold at
market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions may be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss. See
"Taxes, Dividends and Distributions" in the Statement of Additional Information.

Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition may be
treated as ordinary gain or loss. These gains or losses increase or

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<PAGE> 62

decrease the amount of a Fund's investment company taxable income available to
be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency fluctuation
losses exceed other investment company taxable income during a taxable year,
distributions made by the Fund during the year would be characterized as a
return of capital to shareholders, reducing the shareholder's basis in their
Fund shares.

Under the Internal Revenue Code, each Fund is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of certain shareholders who fail to furnish their
correct tax identification 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, or otherwise are subject
to backup withholding.

Any dividends out of net investment income and short-term capital gains
paid to a foreign shareholder will generally be subject to U.S. withholding tax
of 30% (or lower treaty rate if applicable).

As a result of the allocation and any rebalancing of assets among the
Advisers of each of the Funds, there may be tax ramifications relating to the
sale of assets in the form of increased short-term or long-term capital gains.
As described above, net short-term gains derived by a Fund are taxed as ordinary
income. Additionally, Funds may also be subject to the "wash sale" rules of the
Internal Revenue Code as described above.

Dividends and distributions will be paid in additional Fund shares, at net
asset value computed on the payment date and record date, respectively, or such
other date as the 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
the Trust or the investor's financial advisor. Each Fund will notify each
shareholder after the close of each Fund's taxable year of both the dollar
amount and the taxable status of that year's dividends and distributions.

If you buy shares on or immediately before the record date (the date that
determines who receives the dividend), you will receive a portion of the money
you invested as a taxable dividend. Therefore you should consider the timing of
dividends when buying shares of a Fund.

The foregoing is a general summary of the U.S. federal income tax
consequences of investing in a Fund. Shareholders are advised to consult their
own tax advisers regarding specific questions as to federal, state, local or
foreign taxes. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.

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GENERAL INFORMATION

PERFORMANCE INFORMATION

FROM TIME TO TIME THE TRUST MAY ADVERTISE A FUND'S AVERAGE ANNUAL TOTAL
RETURN AND AGGREGATE TOTAL RETURN IN ADVERTISEMENTS OR SALES LITERATURE. These
figures are based on historical earnings and are not intended to indicate future
performance. The total return shows how much an investment in a Fund of the
Trust 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 paid 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. 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 Trust may also include comparative performance information for
its Funds in advertising or marketing the Trust'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 Trust's annual
report to shareholders which is available without charge. You may request copies
of such reports by calling (800) 225-1852 or by writing to the Trust at Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.

DESCRIPTION OF SHARES

The Trust was organized as a Delaware business trust on July 29, 1998 under
an Agreement and Declaration of Trust. The Agreement and Declaration of Trust
permits the Board of Trustees to issue an unlimited number of shares of
beneficial interest (par value $.001 per share) of one or more separate series
and classes representing interests in different investment portfolios and share
classes thereof.

The shareholders of the Funds are each entitled to a full vote for each
full share of beneficial interest held and fractional votes for fractional
shares. Shares of each Fund are entitled to vote as a class only to the extent
required by the provisions of the Investment Company Act or as otherwise
permitted by the Trustees in their sole discretion. Pursuant to the Investment
Company Act, shareholders of each Fund have to approve changes in certain
investment policies of a Fund.

It is the intention of the Trust not to hold Annual Meetings of
Shareholders. The Trustees may call Special Meetings of Shareholders for action
by shareholder vote as may be required by the Investment Company Act or the
Declaration of Trust. Shareholders have certain rights, including the right to
call a meeting upon a vote of 10% of the Trust's outstanding shares for the
purpose of voting on the removal of one or more Trustees. The Trust may from
time to time, in its discretion and pursuant to applicable regulations, add
additional Funds to the Trust or, with the approval of the Shareholders of an
existing Fund, if necessary, terminate one or more of the Funds.

63
<PAGE> 64

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 Trust's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Trust. Its mailing address is P.O.
Box 9131, 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 Trust. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15035, New
Brunswick, New Jersey 08906-5035.

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

INFORMATION ON PERFORMANCE OF ADVISERS

Each of the Advisers also serves as the investment adviser of other funds.
Unless otherwise noted, the performance information shown below depicts the only
other registered investment company portfolios with investment objectives,
policies and strategies that are substantially similar to those of the
respective Fund segments managed by the same portfolio manager. The portfolio
managers of the accounts constituting the Small Cap Russell 2000 Value Equity
Composite ("Russell 2000 Composite") and the Franklin Management Small Cap
Growth Composite ("Franklin Composite") served as such since inception of each
account. In addition, the respective portfolio managers of Lazard International
Equity Portfolio, Target International Equity Portfolio, Target Total Return
Bond Portfolio, Prudential Jennison Growth Fund, Franklin Small Cap Growth Fund,
DG International Equity Fund and Prudential Series Fund, Inc.
(PSF) -- Prudential Jennison Portfolio have served as such since the inception
of each fund. Each of the portfolio managers of the other funds shown below has
served as such since the following dates: Prudential Equity Fund, April, 1990;
PSF Equity Portfolio, April, 1990; PSF High Yield Bond Portfolio, May, 1997; and
Prudential High Yield Fund, March, 1998. As described in this prospectus, each
Adviser will have responsibility for a portion of each Fund; in contrast, the
respective Advisers have sole responsibility for the funds shown below. With the
exception of the Russell 2000 Composite and the Franklin Composite, the
performance information shown in the table below reflects the expense ratio of
each fund presented. With respect to funds with multiple share classes,
performance information is included for the share class with the highest total
expense ratio and for a class with a lower total expense ratio. The expense
ratios for certain of these funds are generally lower than the expense ratios
for certain classes of the Funds. See "Trust Expenses" above and "Expense
Ratios" below. If the expense ratios for those funds had been as high as those
for certain classes of the Funds, their performance would have been lower.

64
<PAGE> 65

The accounts comprising the Russell 2000 Composite and the Franklin
Composite include accounts that were not registered under the 1940 Act and
therefore were not subject to the diversification and other requirements of the
1940 Act and the Internal Revenue Code. If these accounts had been subject to
these requirements, their performance might have been adversely affected. The
performance of each of the Russell 2000 Composite and the Franklin Composite was
computed using a method based on the standards developed by the Association of
Investment Management & Research ("AIMR"), which differs from the performance
standards required by the Securities and Exchange Commission for registered
mutual funds. The performance information for each of the Russell 2000 Composite
and the Franklin Composite has been adjusted to give effect to an expense ratio
of 1.25% and 2.25%, which is expected to apply to Class Z and Class B Shares,
respectively, of the Moderate Growth Fund, as well as the CDSC applicable to
Class B Shares.

The performance information below should not be viewed as a substitute for
the Funds' own performance. The performance of the Funds will differ from the
performance of the funds and composites shown below. Past performance of the
funds and composites should not be considered a prediction of future performance
of the Funds. Unless otherwise noted, the performance data below reflects the
imposition of applicable sales loads.

The Advisers were selected based on their adherence to an investment style
that was desired for their portion of the Funds, as well as their performance
track records in the following funds and accounts:

<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURNS AS OF 6/30/98
---------------------------------------- SINCE INCEPTION
FUND NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION DATE
- --------- ------ ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Adviser: Prudential Investment Corporation
Prudential Equity Fund A Shares* 16.81% 20.50% 17.79% NA 16.68% 1/22/90
Prudential Equity Fund A Shares (no-load)** 22.96 22.58 19.01 NA 17.39 1/22/90
Prudential Equity Fund B Shares* 17.11 21.00 18.01 16.19% 17.28 3/10/82
Prudential Equity Fund B Shares (no-load)** 22.11 21.67 18.11 16.19 17.28 3/10/82
Prudential Series Fund Inc., Equity
Portfolio 23.78 23.22 19.39 17.04 15.90 5/13/83
Prudential High Yield Fund A Shares* 6.70 10.85 9.19 NA 11.08 1/22/90
Prudential High Yield Fund A Shares (no-
load)** 11.14 12.37 10.09 NA 11.62 1/22/90
Prudential High Yield Fund B Shares* 5.43 10.85 9.31 9.33 10.30 2/21/79
Prudential High Yield Fund B Shares (no-
load)** 10.43 11.66 9.45 9.33 10.30 2/21/79
Prudential Series Fund Inc., High Yield Bond
Portfolio 13.06 12.69 10.31 10.35 9.36 2/23/87
Adviser: Jennison Associates
Prudential Jennison Growth Fund Z Shares*** 35.84 26.42 21.48 NA 21.75 11/5/92
Prudential Jennison Growth Fund B Shares* 29.49 NA NA NA 23.23 11/2/95
Prudential Jennison Growth Fund B Shares
(no-load)** 34.49 NA NA NA 24.03 11/2/95
Prudential Series Fund Inc., Prudential
Jennison Portfolio 35.95 26.52 NA NA 29.64 4/25/95
Adviser: Lazard Asset Management Lazard
International Equity Inst. Shares 18.11 18.70 16.13 NA 12.39 10/1/91
Lazard International Equity Opn Shares 17.74 NA NA NA 23.49 1/23/97
</TABLE>

65
<PAGE> 66

<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURNS AS OF 6/30/98
---------------------------------------- SINCE INCEPTION
FUND NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION DATE
- --------- ------ ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Target International Equity Portfolio 17.00 18.25 16.57 NA 16.52 1/5/93
DG International Equity NA NA NA NA 12.43 8/18/97
Adviser: PIMCO
Target Total Return Bond Fund 10.52 8.51 7.22 NA 7.88 1/5/93
Adviser: Franklin Advisors Franklin Sm-Cap
Growth Class I* 8.72 18.70 22.70 NA 19.57 2/14/92
Franklin Sm-Cap Growth Class I (no-load)** 13.85 20.53 23.84 NA 20.43 2/14/92
Franklin Sm-Cap Growth Class II* 11.90 NA NA NA 16.92 10/2/95
Franklin Sm-Cap Growth Class II (no-load)** 13.03 NA NA NA 17.43 10/2/95
Franklin Management Small Cap Growth
Composite(1) NA NA NA NA 4.30 12/31/97
Franklin Management Small Cap Growth
Composite(2)* NA NA NA NA -0.21 12/31/97
Franklin Management Small Cap Growth
Composite(3)** NA NA NA NA 3.80 12/31/97
Adviser: Dreyfus Small Cap Russell 2000 Value
Equity Composite(1) 31.85 NA NA NA 32.65 12/31/96
Small Cap Russell 2000 Value Equity
Composite(2)* 25.85 NA NA NA 29.32 12/31/96
Small Cap Russell 2000 Value Equity
Composite(3)** 30.85 NA NA NA 31.65 12/31/96
----- ----- ----- ----- ----- --------
</TABLE>

- ---------------
* Total returns reflect the imposition of the maximum applicable sales charges

** Total returns do not reflect the imposition of any sales charges

*** On September 20, 1996, Prudential Institutional-Growth Stock Fund merged
into Prudential Jennison Growth Fund, Class Z Shares. Performance prior to
September 20, 1996 is for Prudential Institutional-Growth Stock Fund, which
had an inception date of November 5, 1992.

(1) Composite adjusted for an annual expense ratio of 1.25 %.

(2) Composite adjusted for an annual expense ratio of 2.25 % and the applicable
CDSC for Class B Shares of the Funds.

(3) The Composite was adjusted for an annual expense ratio of 2.25 %, but
assumes the investment is not sold (No CDSC).

Total Return Sources: Morningstar, Lipper, Prudential, Franklin and Dreyfus.
Expenses from Lipper and Prudential

66
<PAGE> 67

EXPENSE RATIOS. According to Lipper Analytical Services, the expense ratio
for each of the funds listed above as of September 16, 1998 was as follows:

<TABLE>
<CAPTION>
EXPENSE
FUND RATIO
---- -------
<S> <C>
Prudential Equity Fund A Shares 0.88%
Prudential Equity Fund B Shares 1.63
PSF Equity Portfolio 0.46
Prudential Jennison Growth Fund Z
Shares 0.84
Prudential Jennison Growth Fund B
Shares 1.84
PSF Prudential Jennison Portfolio 0.64
Prudential High Yield Fund A Shares 0.69
Prudential High Yield Fund B Shares 1.29
</TABLE>

<TABLE>
<CAPTION>
EXPENSE
FUND RATIO
---- -------
<S> <C>
PSF High Yield Bond Portfolio 0.57%
Lazard International Equity Inst.
Shares 0.89
Lazard International Equity Opn
Shares 1.25
DG International Equity 1.77
Target International Equity
Portfolio 0.93
Target Total Return Bond Portfolio 0.91
Franklin Sm-Cap Growth (Class I) 0.89
Franklin Sm-Cap Growth (Class II) 1.64
</TABLE>

67
<PAGE> 68

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 information or representations must not be relied upon as having been
authorized by the Trust or the Distributor. This Prospectus does not constitute
an offer by the Trust or by the Distributor to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer in such jurisdiction.
------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fund Highlights........................... 2
Trust Expenses............................ 5
Description of the Funds.................. 11
Investment Objectives and Policies...... 11
Other Investments and Policies.......... 22
Investment Restrictions................. 37
Management of the Trust................... 37
Manager................................. 38
Advisers................................ 39
Distributor............................. 42
Portfolio Transactions.................. 44
Year 2000............................... 44
Net Asset Value........................... 44
Shareholder Guide......................... 45
How to Buy Shares of the Funds.......... 45
Alternative Purchase Plan............... 47
How to Sell Your Shares................. 52
How to Exchange Your Shares............. 57
Shareholder Services.................... 59
Taxes, Dividends and Distributions........ 60
General Information....................... 63
Performance Information................. 63
Description of Shares................... 63
Custodian and Transfer and Dividend
Disbursing Agent...................... 64
Additional Information.................. 64
Information on Performance of
Advisers.............................. 64
</TABLE>

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

MF186P

<TABLE>
<S> <C>
CUSIP NOS.:
Conservative Growth Fund
Class A: 74432F-10-9 Class C: 74432F-30-7
Class B: 74432F-20-8 Class Z: 74432F-40-6
Moderate Growth Fund
Class A: 74432F-50-5 Class C: 74432F-70-3
Class B: 74432F-60-4 Class Z: 74432F-80-2
High Growth Fund
Class A: 74432F-88-5 Class C: 74432F-86-9
Class B: 74432F-87-7 Class Z: 74432F-85-1
</TABLE>

[PRUDENTIAL GRAPHIC]

[PRUDENTIAL PHOTO]

OCTOBER 5, 1998
[REVISED AS OF DECEMBER 7, 1998]

[PRUDENTIAL LOGO]