<PAGE>
RULE 497(C)
FILE NO. 2-68723
PRUDENTIAL
GROWTH OPPORTUNITY FUND, INC.
- ------------------------------------------
PROSPECTUS DATED AUGUST 1, 1994
- ----------------------------------------------------------------
Prudential Growth Opportunity Fund, Inc. (the Fund) is an open-end, diversified
management investment company whose objective is capital growth. The Fund
intends to invest principally in a carefully selected portfolio of common
stocks--generally small company stocks having prospects of a high return on
equity, increasing earnings, increasing dividends (or an expectation of
dividends) and price-earnings ratios which are not excessive. The Fund's
purchase and sale of put and call options and related short-term trading may
result in a high portfolio turnover rate. These activities may be considered
speculative and may result in higher risks and costs to the Fund. The Fund may
also buy and sell stock index futures for the purpose of hedging its securities
portfolio and may buy and sell options on stock indices, in each case in
accordance with limits described herein. There can be no assurance that the
Fund's investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies." The Fund's address is One Seaport
Plaza, New York, New York 10292, and its telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated August 1, 1994, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund, at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS PRUDENTIAL GROWTH OPPORTUNITY FUND, INC.?
Prudential Growth Opportunity Fund, Inc. is a mutual fund. A mutual fund pools
the resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is capital growth. It seeks to achieve this
objective by investing primarily in a carefully selected portfolio of common
stocks--generally small company stocks having prospects of a high return on
equity, increasing earnings, increasing dividends (or an expectation of
dividends), and price-earnings ratios which are not excessive. There can be no
assurance that the Fund's objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies" at page 7.
RISK FACTORS AND SPECIAL CHARACTERISTICS
In seeking to achieve its investment objective, the Fund has generally
invested in common stocks with smaller market capitalizations than those of the
stocks included in the Dow Jones Industrial Average or the largest stocks
included in the Standard & Poor's 500 Composite Stock Index. As a result, the
Fund's portfolio has generally been made up of common stocks issued by smaller,
less well known companies selected by the investment adviser on the basis of
fundamental investment analysis. Companies in which the Fund is likely to invest
may have limited product lines, markets or financial resources and may lack
management depth. The securities of these companies may 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. See "How the Fund Invests--Investment Objective and Policies" at page
7. The Fund may also engage in various hedging and income enhancement
strategies, including derivatives. See "How the Fund Invests--Hedging and Income
Enhancement Strategies-- Risks of Hedging and Income Enhancement Strategies" at
page 8.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager of
the Fund and is compensated for its services at an annual rate of .70 of 1% of
the Fund's average daily net assets. As of June 30, 1994, PMF served as manager
or administrator to 66 investment companies, including 37 mutual funds, with
aggregate assets of approximately $47 billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PMF. See "How the Fund is Managed--Manager" at page 11.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Fund's Class A shares and is paid an annual distribution and service fee
which is currently being charged at the rate of .25 of 1% of the average daily
net assets of the Class A shares.
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class B and Class C shares and is paid an annual
distribution and service fee at the rate of 1% of the average daily net assets
of each of the Class B and Class C shares.
See "How the Fund is Managed--Distributor" at page 12.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide--How to
Buy Shares of the Fund" at page 17 and "Shareholder Guide--Shareholder Services"
at page 25.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). See "How the Fund Values its Shares"
at page 14 and "Shareholder Guide--How to Buy Shares of the Fund" at page 17.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers three classes of shares:
-Class A Shares: Sold with an initial sales charge of up to 5% of
the offering price.
-Class B Shares: Sold without an initial sales charge but are
subject to a contingent deferred sales charge or
CDSC (declining from 5% to zero of the lower of the
amount invested or the redemption proceeds) which
will be imposed on certain redemptions made within
six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related
expenses than Class A shares, Class B shares will
automatically convert to Class A shares (which are
subject to lower ongoing distribution-related
expenses) approximately seven years after purchase.
-Class C Shares: Sold without an initial sales charge and, for one
year after purchase, are subject to a 1% CDSC on
redemptions. Like Class B shares, Class C shares
are subject to higher ongoing distribution-related
expenses than Class A shares but do not convert to
another class.
See "Shareholder Guide--Alternative Purchase Plan" at page 18.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 21.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any,
semi-annually and make distributions of any net capital gains at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that they be
paid to you in cash. See "Taxes, Dividends and Distributions" at page 15.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A
SHAREHOLDER TRANSACTION EXPENSES+ SHARES CLASS B SHARES CLASS C SHARES
------------- -------------------------- ---------------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... 5% None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends......... None None None
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
decreasing by 1% annually made within one year
to 1% in the fifth and of purchase
sixth years and 0% the
seventh year*
Redemption Fees.......................... None None None
Exchange Fee............................. None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B SHARES CLASS C SHARES**
SHARES -------------------------- ---------------------
-------------
<S> <C> <C> <C>
(as a percentage of average net assets)
Management Fees.......................... .70% .70% .70%
12b-1 Fees............................... .25++ 1.00 1.00
.27
Other Expenses........................... .27 .27 -
------------- --------------------------
Total Fund Operating Expenses............ 1.22% 1.97% 1.97%
------------- -------------------------- ---------------------
------------- -------------------------- ---------------------
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- -------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
Class A............................................................................... $ 62 $ 87 $ 114 $ 190
Class B............................................................................... $ 70 $ 92 $ 116 $ 201
Class C**............................................................................. $ 30 $ 62 $ 106 $ 230
You would pay the following expenses on the same investment, assuming no redemption:
Class A............................................................................... $ 62 $ 87 $ 114 $ 190
Class B............................................................................... $ 20 $ 62 $ 106 $ 201
Class C**............................................................................. $ 20 $ 62 $ 106 $ 230
The above example with respect to Class A and Class B shares is based on restated (Class A only) data for the Fund's fiscal year
ended September 30, 1993. The above example with respect to Class C shares is based on expenses expected to have been incurred
if Class C shares had been in existence during the fiscal year ended September 30, 1993. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various costs and expenses that an investor in the Fund
will bear, whether directly or indirectly. For more complete descriptions of the various costs and expenses, see "How the Fund
is Managed." "Other Expenses" includes operating expenses of the Fund, such as directors' and professional fees, registration
fees, reports to shareholders, transfer agency and custodian fees and franchise taxes.
<FN>
------------------
*Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."
**Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the fiscal year ended September 30,
1993.
+Pursuant to rules of the National Association of Securities Dealers,
Inc., the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation
is imposed on the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges
than the economic equivalent of 6.25% of such shareholders' investment in
such shares. See "How the Fund is Managed--Distributor."
++Although the Class A Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average
daily net assets of the Class A shares, the Distributor has agreed to
limit its distribution fees with respect to Class A shares of the Fund to
no more than .25 of 1% of the average daily net assets of the Class A
shares for the fiscal year ending September 30, 1994. Total operating
expenses without such limitation would be 1.27%. See "How the Fund is
Managed--Distributor."
</TABLE>
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)
The following financial highlights (with the exception of the six months
ended March 31, 1994) have been audited by Price Waterhouse, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class A share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements. No Class C shares were outstanding during the
periods indicated.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
JANUARY 22,
SIX MONTHS 1990*
ENDED MARCH 31, YEAR ENDED SEPTEMBER 30, THROUGH
1994 -------------------------------- SEPTEMBER 30,
(UNAUDITED) 1993***/+ 1992***/+ 1991+ 1990+
--------------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................. $ 13.06 $ 11.25 $ 10.16 $ 7.36 $ 8.55
--------------- -------- -------- -------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... -- .03 .02 .05 .09
Net realized and unrealized gain
(loss) on investment
transactions....................... (.36) 3.14 1.47 2.82 (1.20)
--------------- -------- -------- -------- ---------------
Total from investment
operations....................... (.36) 3.17 1.49 2.87 (1.11)
--------------- -------- -------- -------- ---------------
LESS DISTRIBUTIONS
Dividends from net investment
income............................. -- -- -- (.07) (.08)
Distributions from net realized
capital gains...................... (.79) (1.36) (.40) -- --
--------------- -------- -------- -------- ---------------
Total distributions................. (.79) (1.36) (.40) (.07) (.08)
--------------- -------- -------- -------- ---------------
Net asset value, end of period...... $ 11.91 $ 13.06 $ 11.25 $ 10.16 $ 7.36
--------------- -------- -------- -------- ---------------
--------------- -------- -------- -------- ---------------
TOTAL RETURN++:..................... (2.87)% 30.42% 15.39% 39.39% (13.19)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 96,161 $94,842 $44,845 $25,165 $ 17,222
Ratios to average net assets:
Expenses, including distribution
fees............................. 1.29%** 1.17% 1.33% 1.50% 1.61%**
Expenses, excluding distribution
fees............................. 1.06%** .97% 1.13% 1.30% 1.42%**
Net investment income (loss)...... (.13)%** .26% .19% .59% 1.54%**
Portfolio turnover.................. 43% 68% 99% 111% 79%
<FN>
------------------
*Commencement of offering of Class A shares.
**Annualized.
***Calculated based upon weighted average shares outstanding during the
period.
+Restated to reflect 3-for-2 stock split paid to shareholders of record on
September 17, 1993.
++Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
</TABLE>
5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)
The following financial highlights, with respect to the five-year period
ended September 30, 1993, have been audited by Price Waterhouse, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements. No Class C shares were outstanding during the
periods indicated.
<TABLE>
<CAPTION>
CLASS B
----------------
SIX MONTHS ENDED
MARCH 31, 1994
(UNAUDITED)
----------------
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period.............................. $ 12.74
--------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)......... (.05)
Net realized and unrealized gain
(loss) on investment transactions... (.35)
--------
Total from investment operations... (.40)
--------
LESS DISTRIBUTIONS
Dividends from net investment
income.............................. --
Distributions from net realized
capital gains....................... (.79)
--------
Total distributions.................. $ (.79)
--------
Net asset value, end of period....... $ 11.55
--------
--------
TOTAL RETURN ++:..................... $ (3.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........ $ 392,956
Ratios to average net assets:
Expenses, including distribution
fees.............................. 2.06%***
Expenses, excluding distribution
fees.............................. 1.06%***
Net investment income (loss)....... (.90)%***
Portfolio turnover................... 43%
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
1993**/+ 1992**/+ 1991+ 1990+ 1989*/+ 1988+ 1987+ 1986+ 1985+ 1984+
------- ------- ------- ------ ------ ------- ------ -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period.............................. $11.08 $10.11 $ 7.34 $ 9.11 $ 7.47 $ 9.58 $ 9.09 $ 8.30 $ 8.03 $ 9.67
------- ------- ------- ------ ------ ------- ------ -------- --------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)......... (.06) (.07) (.02) .07 .06 .08++ -- .02++ .04 .07
Net realized and unrealized gain
(loss) on investment transactions... 3.08 1.44 2.82 (1.75) 1.65 (1.34) 2.40 1.89 .37 (1.51)
------- ------- ------- ------ ------ ------- ------ -------- --------- -------
Total from investment operations... 3.02 1.37 2.80 (1.68) 1.71 (1.26) 2.40 1.91 .41 (1.44)
------- ------- ------- ------ ------ ------- ------ -------- --------- -------
LESS DISTRIBUTIONS
Dividends from net investment
income.............................. -- -- (.03) (.09) (.07) (.03) -- (.02) (.06) --
Distributions from net realized
capital gains....................... (1.36) (.40) -- -- -- (.82) (1.91) (1.10) (.08) (.20)
------- ------- ------- ------ ------ ------- ------ -------- --------- -------
Total distributions.................. (1.36) (.40) (.03) (.09) (.07) (.85) (1.91) (1.12) (.14) (.20)
------- ------- ------- ------ ------ ------- ------ -------- --------- -------
Net asset value, end of period....... $12.74 $11.08 $ 10.11 $ 7.34 $ 9.11 7.47 9.58 9.09 $ 8.30 $ 8.03
------- ------- ------- ------ ------ ------- ------ -------- --------- -------
------- ------- ------- ------ ------ ------- ------ -------- --------- -------
TOTAL RETURN ++:..................... 29.40% 14.27% 38.33% (18.63)% 23.20% (10.72)% 31.61% 26.22% 5.14% (15.06)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........ $376,068 $172,018 $118,660 $86,440 $160,995 $143,263 $186,655 $87,844 $58,449 $61,152
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.97% 2.13% 2.30% 2.18% 1.79% 1.66%++ 1.61% 1.40%++ 1.32% 1.32%
Expenses, excluding distribution
fees.............................. .97% 1.13% 1.30% 1.28% 1.17% 1.05%++ 1.07% 1.16%++ 1.32% 1.32%
Net investment income (loss)....... (.54)% (.61)% (.21)% .91% .74% 1.07%++ .08% .18%++ .40% .84%
Portfolio turnover................... 68% 99% 111% 79% 79% 76% 113% 139% 110% 69%
<FN>
------------------
*On January 31, 1989, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since
then has acted as manager of the Fund. See "Manager" in the Statement of
Additional Information.
**Calculated based upon weighted average shares outstanding during the year.
***Annualized.
+Restated to reflect 3-for-2 stock split paid to shareholders of record on
September 17, 1993.
++Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions.
++Net of expense reimbursement.
</TABLE>
6
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS CAPITAL GROWTH. THE FUND WILL ATTEMPT TO
ACHIEVE THIS OBJECTIVE BY INVESTING PRINCIPALLY IN A CAREFULLY SELECTED
PORTFOLIO OF COMMON STOCKS. INVESTMENT INCOME IS OF INCIDENTAL IMPORTANCE, AND
THE FUND MAY INVEST IN SECURITIES WHICH DO NOT PRODUCE ANY INCOME. HOWEVER,
THERE MAY BE PERIODS WHEN, IN THE JUDGMENT OF THE FUND'S INVESTMENT ADVISER,
MARKET OR GENERAL ECONOMIC CONDITIONS JUSTIFY A DEFENSIVE POSITION. THERE CAN BE
NO ASSURANCE THAT SUCH OBJECTIVE WILL BE ACHIEVED. See "Investment Objective and
Policies" in the Statement of Additional Information.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT FUNDAMENTAL
MAY BE MODIFIED BY THE BOARD OF DIRECTORS.
The stocks which the Fund's investment adviser generally expects to select for
the Fund's portfolio are those which, in the investment adviser's judgment, have
prospects of a high return on equity, increasing earnings, increasing dividends
(or an expectation of dividends) and price-earnings ratios that are not
excessive. These criteria are not rigid, and other stocks may be included in the
Fund's portfolio if they are expected to help the Fund attain its objective.
These criteria can be changed by the Fund's Board of Directors.
THE FUND MAY ALSO INVEST IN PREFERRED STOCKS AND BONDS, WHICH HAVE EITHER
ATTACHED WARRANTS OR A CONVERSION PRIVILEGE INTO COMMON STOCKS. IN ADDITION, THE
FUND MAY PURCHASE PUT OPTIONS ON STOCKS THAT THE FUND HOLDS AS PROTECTION
AGAINST A SIGNIFICANT PRICE DECLINE, MAY PURCHASE AND SELL STOCK INDEX OPTIONS
AND FUTURES TO HEDGE OVERALL MARKET RISK AND THE INVESTMENT OF CASH FLOWS AND
WRITE LISTED PUT AND LISTED COVERED CALL OPTIONS. SEE "HEDGING AND INCOME
ENHANCEMENT STRATEGIES" BELOW.
IN SEEKING TO ACHIEVE ITS INVESTMENT OBJECTIVE, THE FUND HAS GENERALLY
INVESTED IN COMMON STOCKS WITH SMALLER MARKET CAPITALIZATIONS THAN THOSE OF THE
STOCKS INCLUDED IN THE DOW JONES INDUSTRIAL AVERAGE OR THE LARGEST STOCKS
INCLUDED IN THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX. As a result, the
Fund's portfolio has generally been made up of common stocks issued by smaller,
less well known companies (with market capitalizations typically less than $1
billion) selected by the investment adviser on the basis of fundamental
investment analysis. The Fund may, however, invest in the securities of any
issuer without regard to its size or the market capitalization of its common
stock. Companies in which the Fund is likely to invest may have limited product
lines, markets or financial resources and may lack management depth. The
securities of these companies may 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.
THE FUND MAY ALSO INVEST IN MONEY MARKET INSTRUMENTS (A) WHEN CONDITIONS
DICTATE A DEFENSIVE STRATEGY, (B) UNTIL THE PROCEEDS FROM THE SALE OF THE FUND'S
SHARES HAVE BEEN INVESTED OR (C) WHEN CASH IS OTHERWISE AVAILABLE. Such
instruments may include commercial paper of domestic corporations, certificates
of deposit, repurchase agreements, bankers' acceptances and other obligations of
domestic banks, and obligations issued or guaranteed by the U.S. Government, its
instrumentalities or its agencies.
7
<PAGE>
HEDGING AND INCOME ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING
DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE INCOME, BUT NOT FOR SPECULATION. These strategies include the purchase
and sale of put and call options, and the purchase and sale of stock index
futures and combinations thereof. The Manager will use such techniques as market
conditions warrant. The Fund's ability to use these strategies may be limited by
market conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. See "Investment Objective
and Policies" in the Statement of Additional Information. New financial products
and risk management techniques continue to be developed and the Fund may use
these new investments and techniques to the extent consistent with its
investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON EQUITY
SECURITIES OR STOCK INDICES THAT ARE TRADED ON NATIONAL SECURITIES EXCHANGES.
A CALL OPTION ON EQUITY SECURITIES GIVES THE PURCHASER, IN EXCHANGE FOR A
PREMIUM PAID, THE RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE
SECURITIES 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 to the purchaser upon receipt of
the exercise price. When the Fund writes a call option, the Fund gives up the
potential for gain on the underlying securities in excess of the exercise price
of the option during the period that the option is open.
A PUT OPTION ON EQUITY SECURITIES GIVES THE PURCHASER, IN RETURN FOR A
PREMIUM, THE RIGHT, FOR A SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES
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 underlying the option at
the exercise price. The Fund as the writer of a put option might, therefore, be
obligated to purchase underlying securities for more than their current market
price.
OPTIONS ON STOCK INDICES ARE SIMILAR TO OPTIONS ON EQUITY SECURITIES EXCEPT
THAT, rather than the right to take or make delivery of stock at a specified
price, an option on a stock index gives the holder the right, in return for a
premium paid, to receive, upon exercise of the option, an amount of cash if the
closing level of the stock index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the exercise price of
the option. The writer of an index option, in return for a premium, is obligated
to pay the amount of cash due upon exercise of the option.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so long
as the Fund is obligated under the option, it owns an offsetting position in the
underlying securities or maintains cash, U.S. Government securities or other
liquid high-grade debt obligations with a value sufficient at all times to cover
its obligations in a segregated account. See "Investment Objective and
Policies--Limitation on Purchase and Sale of Stock Options, Options on Stock
Indices and Stock Index Futures" in the Statement of Additional Information.
THERE IS NO LIMITATION ON THE AMOUNT OF CALL OPTIONS THE FUND MAY WRITE. THE
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. THE 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 SUCH OPTIONS.
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STOCK INDEX FUTURES
THE FUND MAY PURCHASE AND SELL STOCK INDEX FUTURES WHICH ARE TRADED ON A
COMMODITIES EXCHANGE OR BOARD OF TRADE FOR CERTAIN HEDGING AND RISK MANAGEMENT
PURPOSES IN ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING
COMMISSION.
A STOCK INDEX FUTURES CONTRACT IS AN AGREEMENT IN WHICH ONE PARTY AGREES TO
DELIVER TO ANOTHER AN AMOUNT OF CASH EQUAL TO A SPECIFIC DOLLAR AMOUNT TIMES THE
DIFFERENCE BETWEEN A SPECIFIC STOCK INDEX AT THE CLOSE OF THE LAST TRADING DAY
OF THE CONTRACT AND THE PRICE AT WHICH THE AGREEMENT IS MADE. No physical
delivery of the underlying stocks in the index is made.
THE FUND MAY NOT PURCHASE OR SELL STOCK INDEX FUTURES IF, IMMEDIATELY
THEREAFTER, MORE THAN ONE-THIRD OF ITS NET ASSETS WOULD BE HEDGED. IN ADDITION,
EXCEPT IN THE CASE OF A CALL WRITTEN AND HELD ON THE SAME INDEX, THE FUND WILL
WRITE CALL OPTIONS ON INDICES OR SELL STOCK INDEX FUTURES ONLY IF THE AMOUNT
RESULTING FROM THE MULTIPLICATION OF THE THEN CURRENT LEVEL OF THE INDEX (OR
INDICES) UPON WHICH THE OPTIONS OR FUTURES CONTRACT(S) IS BASED, THE APPLICABLE
MULTIPLIER(S), AND THE NUMBER OF FUTURES OR OPTIONS CONTRACTS WHICH WOULD BE
OUTSTANDING WOULD NOT EXCEED ONE-THIRD OF THE VALUE OF THE FUND'S NET ASSETS.
THE FUND'S SUCCESSFUL USE OF STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON
INDICES DEPENDS UPON ITS ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of the stock index future 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 the related futures contract,
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have established daily limits on the amount that the price of a futures contract
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict the Fund's ability to purchase
or sell certain futures contracts or related options on any particular day. In
addition, if the Fund purchases futures to hedge against market advances before
it can invest in common stock in an advantageous manner and the market declines,
the Fund might create a loss on the futures contract. In addition, the ability
of the Fund to close out a futures position or an option depends on a liquid
secondary market. There is no assurance that liquid secondary markets will exist
for any particular futures contract or option at any particular time. See
"Investment Objective and Policies" in the Statement of Additional Information.
THE FUND'S ABILITY TO ENTER INTO STOCK INDEX FUTURES AND LISTED OPTIONS IS
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 "Taxes" in the Statement of Additional Information.
RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT RISKS AND
TRANSACTION COSTS TO WHICH THE FUND WOULD NOT BE SUBJECT ABSENT THE USE OF THESE
STRATEGIES. If the investment adviser's prediction of movements in the direction
of the securities markets is inaccurate, the adverse consequences to the Fund
may leave the Fund in a worse position than if such strategies were not used.
Risks inherent in the use of options and stock index futures include (1)
dependence on the investment adviser's ability to predict correctly movements in
the direction of specific securities being hedged or the movement in stock
indicies; (2) imperfect correlation between the price of options and stock index
futures and options thereon and movements in the prices of the securities being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; and (5) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences. See "Investment Objective and Policies" and "Taxes" in the
Statement of Additional Information.
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OTHER INVESTMENTS AND POLICIES
REPURCHASE AGREEMENTS
The Fund may on occasion enter into repurchase agreements whereby the seller
of a security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money is
invested in the security. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the purchase price,
including accrued interest earned on the underlying securities. The instruments
held as collateral are valued daily, and if the value of instruments declines,
the Fund will require additional collateral. If the seller defaults and the
value of the collateral securing the repurchase agreement declines, the Fund may
incur a loss. The Fund participates in a joint repurchase account with other
investment companies managed by Prudential Mutual Fund Management, Inc. pursuant
to an order of the Securities and Exchange Commission (SEC).
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place as much as
a month or more in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. The Fund's Custodian will maintain, in a segregated account of the
Fund, cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the Fund's purchase
commitments; the Custodian will likewise segregate securities sold on a delayed
delivery basis. The securities so purchased are subject to market fluctuation
and no interest accrues to the purchaser during the period between purchase and
settlement. At the time of delivery of the securities the value may be more or
less than the purchase price and an increase in the percentage of the Fund's
assets committed to the purchase of securities on a when-issued or delayed
delivery basis may increase the volatility of the Fund's net asset value.
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks for temporary,
emergency or extraordinary purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings.
However, the Fund will not purchase portfolio securities when borrowings exceed
5% of the value of the Fund's total assets.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for an equal amount of the
securities of the same issuer as the securities sold short (a short sale
against-the-box), and that not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such sales. Short
sales will be made primarily to defer realization of gain or loss for federal
tax purposes. The Fund does not intend to have more than 5% of its net assets
(determined at the time of the short sale) subject to short sales
against-the-box during the coming year.
ILLIQUID SECURITIES
The Fund may invest up to 5% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. 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
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<PAGE>
purposes of this limitation. The investment adviser will monitor the liquidity
of such restricted securities under the supervision of the Board of Directors.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the applicable notice period.
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options are
illiquid securities unless the Fund and the counterparty have provided for the
Fund, at the Fund's election, to unwind the over-the-counter option. The
exercise of such an option ordinarily would involve the payment by the Fund of
an amount designed to reflect the counterparty's economic loss from an early
termination, but does allow the Fund to treat the assets used as "cover" as
"liquid."
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE ACTIONS
OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDES
UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.
For the fiscal year ended September 30, 1993, the Fund's total expenses as a
percentage of average net assets for the Fund's Class A and Class B shares were
1.17% and 1.97%, respectively. See "Financial Highlights." No Class C shares
were outstanding during the fiscal year ended September 30, 1993.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .70 OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS. It was incorporated in May 1987 under the laws of the State of Delaware.
For the fiscal year ended September 30, 1993, the Fund paid management fees to
PMF of .70% of the Fund's average net assets. See "Manager" in the Statement of
Additional Information.
As of June 30, 1994, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 29 closed-end investment companies with aggregate assets of
approximately $47 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISOR), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
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<PAGE>
The current portfolio manager of the Fund is Robert P. Fetch, a Managing
Director of Prudential Investment Advisors, a unit of PIC. Mr. Fetch has
responsibility for the day-to-day management of the Fund's portfolio. Mr. Fetch
has managed the Fund's portfolio since May 1984 and has been employed by PIC as
a portfolio manager since 1983.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance Company
of America (Prudential), a major diversified insurance and financial services
company.
DISTRIBUTOR
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD), ONE SEAPORT PLAZA, NEW YORK,
NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF
DELAWARE AND SERVES AS THE DISTRIBUTOR OF CLASS A SHARES OF THE FUND. IT IS A
WHOLLY-OWNED SUBSIDIARY OF PMF.
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF
THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS B AND CLASS C
SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION AGREEMENTS
(THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES (COLLECTIVELY, THE
DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND
CLASS C SHARES. These expenses include commissions and account servicing fees
paid to, or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of Prudential Securities and Prusec associated with the sale
of Fund shares, including lease, utility, communications and sales promotion
expenses. The State of Texas requires that shares of the Fund may be sold in
that state only by dealers or other financial institutions which are registered
there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service fees
to the Distributor as compensation for its distribution and service activities,
not as reimbursement for specific expenses incurred. If the Distributor's
expenses exceed its distribution and service fees, the Fund will not be
obligated to pay any additional expenses. If the Distributor's expenses are less
than such distribution and service fees, it will retain its full fees and
realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PMFD FOR ITS DISTRIBUTION-RELATED
ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO .30 OF 1%
OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The Class A Plan provides
that (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. PMFD has agreed to limit its distribution-related fees
payable under the Class A Plan to .25 of 1% of the average daily net assets of
the Class A shares for the fiscal year ending September 30, 1994.
For the fiscal year ended September 30, 1993, PMFD received payments of
$139,602 under the Class A Plan. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell Class
A shares. For the fiscal year ended September 30, 1993, PMFD also received
approximately $835,000 in initial sales charges.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B
AND CLASS C SHARES. The Class B and Class C Plans provide for the payment to
Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of each of the Class B and Class C shares, and (ii) a
service fee of .25 of 1% of
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the average daily net assets of each of the Class B and Class C shares. The
service fee is used to pay for personal service and/or the maintenance of
shareholder accounts. Prudential Securities also receives contingent deferred
sales charges from certain redeeming shareholders. See "Shareholder Guide--How
to Sell Your Shares--Contingent Deferred Sales Charges."
For the fiscal year ended September 30, 1993, Prudential Securities incurred
distribution expenses of approximately $6,227,200 under the Class B Plan and
received $2,786,595 from the Fund under the Class B Plan. In addition,
Prudential Securities received approximately $436,000 in contingent deferred
sales charges from redemptions of Class B shares during this period. No Class C
shares were outstanding during the fiscal year ended September 30, 1993.
For the fiscal year ended September 30, 1993, the Fund paid distribution
expenses of .20% and 1.00% of the average net assets of the Class A and Class B
shares, respectively. The Fund records all payments made under the Plans as
expenses in the calculation of net investment income. No Class C shares were
outstanding during the fiscal year ended September 30, 1993. Prior to the date
of this Prospectus, the Class A and Class B Plans operated as "reimbursement
type" plans and, in the case of Class B, provided for the reimbursement of
distribution expenses incurred in current and prior years. See "Distributor" in
the Statement of Additional Information.
Distribution expenses attributable to the sale of shares of the Fund will be
allocated to each class based upon the ratio of sales of each class to the sales
of all shares of the Fund other than expenses allocable to a particular class.
The distribution fee and sales charge of one class will not be used to subsidize
the sale of another class.
Each Plan provides that it shall continue in effect from year to year provided
that a majority of the Board of Directors of the Fund, including a majority of
the Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the Rule 12b-1
Directors), vote annually to continue the Plan. Each Plan may be terminated at
any time by vote of a majority of the Rule 12b-1 Directors or of a majority of
the outstanding shares of the applicable class of the Fund. The Fund will not be
obligated to pay expenses incurred under any plan if it is terminated or not
continued.
In addition to distribution and service fees paid by the Fund under the Class
A, Class B and Class C Plans, the Manager (or one of its affiliates) may make
payments out of its own resources to dealers and other persons who distribute
shares of the Fund. 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 may act as a broker or futures commission merchant for
the Fund, provided that the commissions, fees or other remuneration it receives
are fair and reasonable. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
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HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
BOARD OF DIRECTORS HAS FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE
FUND'S NAV TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class B and Class C shares will generally be lower than
the NAV of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares are subject. It is expected, however, that the
NAV of the three classes will tend to converge immediately after the recording
of dividends, which will differ by approximately the amount of the
distribution-related expense accrual differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING "AVERAGE
ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN ADVERTISEMENTS
OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS
A, CLASS B AND CLASS C SHARES. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" shows
how much an investment in the Fund would have increased (decreased) over a
specified period of time (I.E., one, five or ten years or since inception of the
Fund) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period and less all recurring fees. The
"aggregate" total return reflects actual performance over a stated period of
time. "Average annual" total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. "Average annual" total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither "average
annual" total return nor "aggregate" total return takes into account any federal
or state income taxes which may be payable upon redemption. The "yield" refers
to the income generated by an investment in the Fund over a one-month or 30-day
period. This income is then "annualized;" that is, the amount of income
generated by the investment during that 30-day period is assumed to be generated
each 30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period. The Fund also may include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., other industry publications, business
periodicals and market indices. See "Performance Information" in the Statement
of Additional Information. The Fund will include performance data for each class
of shares of the Fund in any advertisement or information including performance
data of the Fund. Further performance information is contained in the Fund's
annual and semi-annual reports to shareholders, which may be obtained without
charge. See "Shareholder Guide--Shareholder Services--Reports to Shareholders."
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TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE FUND WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL
GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See "Taxes" in the
Statement of Additional Information.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
short-term capital gains, will be taxable as ordinary income to the shareholder
whether or not reinvested. Any net long-term capital gains (I.E., the excess of
net long-term capital gains over net short-term capital losses) distributed to
shareholders will be taxable as such 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 individuals is 28%. The
maximum long-term capital gains rate for corporate shareholders is currently the
same as the maximum tax rate for ordinary income.
Dividends paid by the Fund will be eligible for the 70% dividends-received
deduction for corporate shareholders to the extent that the Fund's income is
derived from certain dividends received from domestic corporations. Capital
gains distributions are not eligible for the 70% dividends-received deduction.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will be treated as a long-term
capital gain or loss if the shares have been held for more than one year and
otherwise as a short-term capital gain or loss. Any such loss, however, on
shares that are held for six months or less, will be treated as a long-term
capital loss to the extent of any capital gain distributions received by the
shareholder.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of Class
B or Class C shares for Class A shares constitutes a taxable event for federal
income tax purposes. However, such opinions are not binding on the Internal
Revenue Service.
Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state or local taxes.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit to
the U.S. Treasury 31% of dividends, capital gain distributions and redemption
proceeds payable to individuals and certain noncorporate shareholders who fail
to furnish correct tax identification numbers on IRS Form W-9 (or IRS Form W-8
in the case of certain foreign shareholders) or who are otherwise subject to
backup withholding. Dividends of net investment income and short-term capital
gains to a foreign shareholder will generally be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY,
SEMI-ANNUALLY AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY NET CAPITAL GAINS.
Dividends paid by the Fund with respect to each class of shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same time,
on the same day and will be in the same amount except that
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<PAGE>
each class will bear its own distribution charges, generally resulting in lower
dividends for Class B and Class C shares. Distributions of net capital gains, if
any, will be paid in the same amount for each class of shares. See "How the Fund
Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE, OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year of both the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
WHEN THE FUND GOES "EX-DIVIDEND," THE NAV OF EACH CLASS IS REDUCED BY THE
AMOUNT OF THE DIVIDEND OR DISTRIBUTION ALLOCABLE TO EACH CLASS. IF YOU BUY
SHARES JUST PRIOR TO THE EX-DIVIDEND DATE (WHICH GENERALLY OCCURS FOUR BUSINESS
DAYS PRIOR TO THE RECORD DATE), THE PRICE YOU PAY WILL INCLUDE THE DIVIDEND OR
DISTRIBUTION AND A PORTION OF YOUR INVESTMENT WILL BE RETURNED TO YOU AS A
TAXABLE DIVIDEND OR DISTRIBUTION. YOU SHOULD, THEREFORE, CONSIDER THE TIMING OF
DIVIDENDS AND DISTRIBUTIONS WHEN MAKING YOUR PURCHASES.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON JULY 28, 1980. THE FUND IS AUTHORIZED
TO ISSUE 750 MILLION SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE, DIVIDED
INTO THREE CLASSES, DESIGNATED CLASS A, CLASS B AND CLASS C COMMON STOCK, EACH
OF WHICH CONSISTS OF 250 MILLION AUTHORIZED SHARES. Each class of common stock
represents an interest in the same assets of the Fund and is identical in all
respects except that (i) each class bears different distribution expenses, (ii)
each class has exclusive voting rights with respect to its distribution and
service plan (except that the Fund has agreed with the SEC in connection with
the offering of a conversion feature on Class B shares to submit any amendment
of the Class A Plan to both Class A and Class B shareholders), (iii) each class
has a different exchange privilege and (iv) only Class B shares have a
conversion feature. See "How the Fund is Managed--Distributor." The Fund has
received an order from the SEC permitting the issuance and sale of multiple
classes of common stock. Currently, the Fund is offering three classes,
designated Class A, Class B and Class C shares. In accordance with the Fund's
Articles of Incorporation, the Board of Directors may authorize the creation of
additional series of common stock and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the Board
may determine.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debt and expenses of the Fund have been paid. Since Class B and Class C
shares generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders. The Fund's shares do not have cumulative voting
rights for the election of Directors.
16
<PAGE>
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC OR
DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum initial
investment for Class A and Class B shares is $1,000 per class and $5,000 for
Class C shares. The minimum subsequent investment is $100 for all classes. All
minimum investment requirements are waived for certain retirement and employee
savings plans or custodial accounts for the benefit of minors. For purchases
made through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Services" below.
THE PURCHASE PRICE IS THE NAV NEXT DETERMINED FOLLOWING RECEIPT OF AN ORDER BY
THE TRANSFER AGENT OR PRUDENTIAL SECURITIES PLUS A SALES CHARGE WHICH, AT YOUR
OPTION, MAY BE IMPOSED EITHER (I) AT THE TIME OF PURCHASE (CLASS A SHARES) OR
(II) ON A DEFERRED BASIS (CLASS B OR CLASS C SHARES). SEE "ALTERNATIVE PURCHASE
PLAN" BELOW. SEE ALSO "HOW THE FUND VALUES ITS SHARES."
Application forms can be obtained from PMFS, Prudential Securities or Prusec.
If a stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who hold
their shares through Prudential Securities will not receive stock certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired, and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company, Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Growth Opportunity Fund, Inc., specifying on the wire the account number
assigned by PMFS and your name and identifying the sales charge alternative
(Class A, Class B or Class C shares).
17
<PAGE>
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Growth
Opportunity Fund, Inc., Class A, Class B or Class C shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing Federal Funds. The minimum amount which may be
invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C SHARES)
WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR
INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH OF TIME
YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE
PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------------- ----------------------- --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another class
the amount invested or the redemption
proceeds on redemptions made within
one year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading "General Information--Description of Common Stock"), and
(iii) only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and distribution-related fees, as noted above, (3) whether you qualify for any
reduction or waiver of any applicable sales charge, (4) the various exchange
privileges among the different classes of shares (see "How to Exchange Your
Shares" below) and (5) the fact that Class B shares automatically convert to
Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).
18
<PAGE>
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to a maximum initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6 year period, you should
consider purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during which 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.
SEE "REDUCTION AND WAIVER OF INITIAL SALES CHARGES" BELOW.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A shares" in the
Statement of Additional Information.
BENEFIT PLANS. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the plan has existing
19
<PAGE>
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 1,000 eligible employees or members. In the case of Benefit Plans
whose accounts are held directly with the Transfer Agent or Prudential
Securities and for which the Transfer Agent or Prudential Securities does
individual account record keeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are repaying
loans made from such plans to the participant.
PRUDENTIAL RETIREMENT ACCUMULATION PROGRAM 401(K) PLAN.__Class A shares may be
purchased at net asset value, with a waiver of the initial sales charge, by or
on behalf of participants in the Prudential Retirement Accumulation Program
401(k) Plan for which the Transfer Agent or Prudential Securities provides
recordkeeping services (PruRap Plan) provided that (i) for existing plans, the
plan has existing assets of $1 million or more, as measured on the last business
day of the month, invested in shares of Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege) held
at the Transfer Agent or Prudential Securities and (ii) for new plans, the plan
initially invests $1 million or more in shares of non-money market Prudential
Mutual Funds or has at least 1,000 eligible employees or members.
PRUDENTIAL VISTA PROGRAM.__Class A shares are offered at net asset value to
certain qualified employee retirement benefit plans under section 401 of the
Internal Revenue Code of 1986, as amended, for which Prudential Defined
Contribution Services serves as the recordkeeper provided that such plan is also
participating in the Prudential Vista Program (PruVista Plan), and provided
further that (i) for existing plans, the plan has existing assets of at least $1
million and at least 100 eligible employees or members, and (ii) for new plans,
the plan has at least 500 eligible employees or members. The term "existing
assets" for this purpose includes transferable cash and GICs (guaranteed
investment contracts) maturing within 4 years.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS.__After a Benefit Plan or the
PruRap or PruVista Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
MISCELLANEOUS WAIVERS. In addition, Class A shares may be purchased at NAV,
through Prudential Securities or the Transfer Agent, by the following persons:
(a) Directors and officers of the Fund and other Prudential Mutual Funds, (b)
employees of Prudential Securities and PMF 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 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, (d) registered
representatives and employees of dealers who have entered into a selected dealer
agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares of
any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service fee
of .25 of 1% or less) on which no deferred sales load, fee or other charge was
imposed on redemption and (iii) the financial adviser served as the client's
broker on the previous purchases.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or waiver
of the sales charge. The reduction or waiver will be granted subject to
confirmation of your entitlement. No initial sales charges are imposed upon
Class A shares purchased upon the reinvestment of dividends and distributions.
See "Purchase and Redemption of Fund Shares--Reduction and Waiver of Initial
Sales Charges--Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one of
the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
20
<PAGE>
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT DETERMINED
AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE TRANSFER AGENT OR
PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES." In certain cases,
however, redemption proceeds will be reduced by the amount of any applicable
contingent deferred sales charge, as described below. See "Contingent Deferred
Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE
PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR
FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST
BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power, must be guaranteed by
an "eligible guarantor institution." An "eligible guarantor institution"
includes any bank, broker, dealer or credit union. The Transfer Agent reserves
the right to request additional information from and make reasonable inquiries
of, any eligible guarantor institution. For clients of Prusec, a signature
guarantee may be obtained from the agency or office manager of most Prudential
Insurance and Financial Services or Preferred Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST, EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the SEC, by
order, so permits; provided that applicable rules and regulations of the SEC
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How the Fund Values its Shares." If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund, however, has elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board of
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset
21
<PAGE>
value of less than $500 due to a redemption. The Fund will give such
shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any involuntary redemption.
30-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not previously
exercised the repurchase privilege, you may reinvest any portion or all of the
proceeds of such redemption in shares of the Fund at the NAV next determined
after the order is received, which must be within 30 days after the date of the
redemption. No sales charge will apply to such repurchases. You will receive PRO
RATA credit for any contingent deferred sales charge paid in connection with the
redemption of Class B or Class C shares. You must notify the Fund's Transfer
Agent, either directly or through Prudential Securities or Prusec, at the time
the repurchase privilege is exercised that you are entitled to credit for the
contingent deferred sales charge previously paid. Exercise of the repurchase
privilege will generally not affect federal income tax treatment of any gain
realized upon redemption. If the redemption resulted in a loss, some or all of
the loss, depending on the amount reinvested, will generally not be allowed for
federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares to an amount which is lower than the amount of
all payments by you for shares during the preceding six years, in the case of
Class B shares, and one year, in the case of Class C shares. A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of your shares or shares purchased
through reinvestment of dividends or distributions are not subject to a CDSC.
The amount of any contingent deferred sales charge will be paid to and retained
by the Distributor. See "How the Fund is Managed--Distributor" and "Waiver of
the Contingent Deferred Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund. See "How
to Exchange Your Shares."
The following table sets forth the rates of the CDSC applicable to redemptions
of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES
CHARGE AS A PERCENTAGE
OF THE DOLLARS
YEAR SINCE PURCHASE INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
- ---------------------------------------------------------------------- ----------------------
<S> <C>
First................................................................. 5.0%
Second................................................................ 4.0%
Third................................................................. 3.0%
Fourth................................................................ 2.0%
Fifth................................................................. 1.0%
Sixth................................................................. 1.0%
Seventh............................................................... None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years
(five years for Class B shares purchased prior to
22
<PAGE>
January 22, 1990); then of amounts representing the cost of shares held beyond
the applicable CDSC period; then of amounts representing the cost of shares
acquired prior to July 1, 1985; and finally, of amounts representing the cost of
shares held for the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of your Class B shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be applied to
the value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be charged at a rate of 4% (the applicable rate in the second year
after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code for a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (I.E.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above. In the case of
Direct Account and PSI 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.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Fund.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC and provide the Transfer Agent with such
supporting documentation as it may deem appropriate. The waiver will be granted
subject to confirmation of your entitlement. See "Purchase and Redemption of
Fund Shares -- Waiver of the Contingent Deferred Sales Charge -- Class B Shares"
in the Statement of Additional Information.
A quantity discount may apply to redemptions of Class B shares purchased prior
to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement of
Additional Information.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. It is currently anticipated that
conversions will occur during the months of February, May, August and November
commencing in or about February 1995. Conversions will be effected at relative
net asset value without the imposition of any additional sales charge.
23
<PAGE>
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares then in your account. Each time any Eligible Shares in
your account convert to Class A shares, all shares or amounts representing Class
B shares then in your account that were acquired through the automatic
reinvestment of dividends and other distributions will convert to Class A
shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than Class
B shares, the per share net asset value of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions, all
payments for Class B shares during a month will be deemed to have been made on
the last day of the month, or for Class B shares acquired through exchange, or a
series of exchanges, on the last day of the month in which the original payment
for purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund, the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares. The
conversion feature described above will not be implemented and, consequently,
the first conversion of Class B shares will not occur before February, 1995, but
as soon thereafter as practicable. At that time all amounts representing Class B
shares then outstanding beyond the applicable conversion period will
automatically convert to Class A shares together with all shares or amounts
representing Class B shares acquired through the automatic reinvestment of
dividends and distributions then held in your account.
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, and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN OTHER
PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET FUNDS,
SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A, CLASS B
AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B AND CLASS C SHARES,
RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. No sales charge
will be imposed at the time of the exchange. Any applicable CDSC payable upon
the redemption of shares exchanged will be calculated from the first day of the
month after the initial
24
<PAGE>
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. For purposes of calculating the holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded. See
"Conversion Feature -- Class B Shares" above. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. The Exchange Privilege is available only in states where the
exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGE. Commencing in or about February 1995, 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. Under this exchange privilege, amounts
representing any Class B and Class C shares (which are not subject to a CDSC)
held in such a shareholder's account will be automatically exchanged for Class A
shares on a quarterly basis, unless the shareholder elects otherwise. It is
currently anticipated that this exchange will occur quarterly in February, May,
August and November. Eligibility for this exchange privilege will be calculated
on the business day prior to the date of the exchange. Amounts representing
Class B or Class C shares which are not subject to a CDSC include the following:
(1) amounts representing Class B or Class C shares acquired pursuant to the
automatic reinvestment of dividends and distributions, (2) amounts representing
the increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares and (3) amounts representing Class B or
Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities or Prusec that they are eligible for this special exchange
privilege.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
- AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
25
<PAGE>
- AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make regular
purchases of the Fund's shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
- TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares-- Contingent Deferred Sales Charges."
- REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.
- SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
26
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Funds at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
TAXABLE BOND FUNDS
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible-R- Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
-TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
-TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
-COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
-INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
-------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
FUND HIGHLIGHTS................................. 2
Risk Factors and Special Characteristics...... 2
FUND EXPENSES................................... 4
FINANCIAL HIGHLIGHTS............................ 5
HOW THE FUND INVESTS............................ 7
Investment Objective and Policies............. 7
Hedging and Income Enhancement Strategies..... 8
Other Investments and Policies................ 10
Investment Restrictions....................... 11
HOW THE FUND IS MANAGED......................... 11
Manager....................................... 11
Distributor................................... 12
Portfolio Transactions........................ 13
Custodian and Transfer and Dividend Disbursing
Agent........................................ 13
HOW THE FUND VALUES ITS SHARES.................. 14
HOW THE FUND CALCULATES PERFORMANCE............. 14
TAXES, DIVIDENDS AND DISTRIBUTIONS.............. 15
GENERAL INFORMATION............................. 16
Description of Common Stock................... 16
Additional Information........................ 17
SHAREHOLDER GUIDE............................... 17
How to Buy Shares of the Fund................. 17
Alternative Purchase Plan..................... 18
How to Sell Your Shares....................... 21
Conversion Feature--Class B Shares............ 23
How to Exchange Your Shares................... 24
Shareholder Services.......................... 25
THE PRUDENTIAL MUTUAL FUND FAMILY............... A-1
</TABLE>
- -------------------------------------------
MF109A 44401I
74435E 10
Class A: 9
74435E 20
CUSIP Nos.: Class B: 8
74435E 30
Class C: 7
PRUDENTIAL
GROWTH OPPORTUNITY
FUND, INC.
- ---------------------
[LOGO]
<PAGE>
PROSPECTUS
AUGUST 1,
1994
<PAGE>
RULE 497(C)
FILE NO. 2-68723
PRUDENTIAL GROWTH OPPORTUNITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1994
Prudential Growth Opportunity Fund, Inc. (the Fund), is an open-end
diversified management investment company whose objective is capital growth. The
Fund intends to invest principally in a carefully selected portfolio of common
stocks, generally stocks having prospects of a high return on equity, increasing
earnings, increasing dividends (or an expectation of dividends), and price
earnings ratios which are not excessive. The Fund's purchase and sale of put and
call options and related short-term trading may result in a high portfolio
turnover rate. These activities may be considered speculative and may result in
higher risks and costs to the Fund. The Fund may also buy and sell stock index
futures for the purpose of hedging its securities portfolio and may buy and sell
options on stock indices, in each case pursuant to limits described herein.
There can be no assurance that the Fund's investment objective will be achieved.
See "Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated August 1, 1994. A copy of
the Prospectus may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ---------------
<S> <C> <C>
General Information................................... B-2 16
Investment Objective and Policies..................... B-2 7
Investment Restrictions............................... B-7 11
Directors and Officers................................ B-8 11
Manager............................................... B-10 11
Distributor........................................... B-12 12
Portfolio Transactions and Brokerage.................. B-14 13
Purchase and Redemption of Fund Shares................ B-15 17
Shareholder Investment Account........................ B-18 25
Net Asset Value....................................... B-21 14
Performance Information............................... B-22 14
Taxes................................................. B-24 15
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants.............................. B-25 13
Financial Statements.................................. B-26 --
Report of Independent Accountants..................... B-49 --
</TABLE>
- --------------------------------------------------------------------------------
MF109B 444081A
<PAGE>
GENERAL INFORMATION
At a special meeting held on July 19, 1994, shareholders approved an
amendment to the Fund's Articles of Incorporation to change the Fund's name from
Prudential-Bache Growth Opportunity Fund, Inc. to Prudential Growth Opportunity
Fund, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is capital growth. It attempts to achieve
such objective by investing principally in a carefully selected portfolio of
common stocks. There can be no assurance that the Fund's investment objective
will be achieved. See "How the Fund Invests--Investment Objective and Policies"
in the Prospectus.
The investment adviser believes that, in seeking to attain capital
appreciation, it is important to attempt to minimize losses. Accordingly, the
investment adviser will attempt to anticipate periods when stock prices
generally decline. When, in the investment adviser's judgment, such a period is
imminent, the Fund will take defensive measures, such as investing all or part
of the Fund's assets in money market instruments during this period. The Fund
may also purchase put options on stocks that the Fund holds as protection
against a significant price decline and may purchase and sell stock index
options and futures to hedge overall market risk and the investment of cash
flows.
The Fund may invest in money market instruments (a) when conditions dictate
a defensive strategy, (b) until the proceeds from the sale of the Fund's shares
have been invested or (c) when cash is otherwise available. Such instruments may
include commercial paper of domestic corporations, certificates of deposit,
repurchase agreements, bankers' acceptances and other obligations of domestic
banks, and obligations issued or guaranteed by the United States Government, its
instrumentalities or its agencies.
LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS, OPTIONS ON STOCK INDICES AND
STOCK INDEX FUTURES
The Fund may write put and call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. The Fund will not write put options on indices. The Fund has undertaken
with certain state securities commissions that, so long as shares of the Fund
are registered in those states, it will not (a) write puts having aggregate
exercise prices greater than 25% of total net assets; or (b) purchase (i) put
options on stocks not held in the Fund's portfolio, (ii) put options on stock
indices or (iii) call options on stocks or stock indices if, after any such
purchase, the aggregate premiums paid for such options would exceed 20% of the
Fund's total net assets.
CALL OPTIONS ON STOCK. The Fund may, from time to time, write call options
on its portfolio securities. The Fund may write only call options which are
"covered," meaning that the Fund either owns the underlying security or has an
absolute and immediate right to acquire that security, without additional cash
consideration, upon conversion or exchange of other securities currently held in
its portfolio. In addition, the Fund will not permit the call to become
uncovered prior to the expiration of the option or termination through a closing
purchase transaction as described below. If the Fund writes a call option, the
purchaser of the option has the right to buy (and the Fund has the obligation to
sell) the underlying security at the exercise price throughout the term of the
option. The amount paid to the Fund by the purchaser of the option is the
"premium." The Fund's obligation to deliver the underlying security against
payment of the exercise price would terminate either upon expiration of the
option or earlier if the Fund were to effect a "closing purchase transaction"
through the purchase of an equivalent option on an exchange. There can be no
assurance that a closing purchase transaction can be effected.
The Fund would not be able to effect a closing purchase transaction after it
had received notice of exercise. In order to write a call option, the Fund is
required to comply with the rules of The Options Clearing Corporation and the
various exchanges with respect to collateral requirements. The Fund may not
purchase call options except in connection with a closing purchase transaction.
It is possible that the cost of effecting a closing purchase transaction may be
greater than the premium received by the Fund for writing the option.
Generally, the investment adviser intends to write listed covered call
options during periods when it anticipates declines in the market values of
portfolio securities because the premiums received may offset to some extent the
decline in the Fund's net asset value occasioned by such declines in market
value. Except as part of the "sell discipline" described below, the investment
adviser will generally not write listed covered call options when it anticipates
that the market values of the Fund's portfolio securities will increase.
B-2
<PAGE>
One reason for the Fund to write call options is as part of a "sell
discipline." If the investment adviser decides that a portfolio security would
be overvalued and should be sold at a certain price higher than the current
price, the Fund could write an option on the stock at the higher price. Should
the stock subsequently reach that price and the option be exercised, the Fund
would, in effect, have increased the selling price of that stock, which it would
have sold at that price in any event, by the amount of the premium. In the event
the market price of the stock declined and the option were not exercised, the
premium would offset all or some portion of the decline. It is possible that the
price of the stock could increase beyond the exercise price; in that event, the
Fund would forego the opportunity to sell the stock at that higher price.
In addition, call options may be used as part of a different strategy in
connection with sales of portfolio securities. If, in the judgment of the
investment adviser, the market price of a stock is overvalued and it should be
sold, the Fund may elect to write a call option with an exercise price
substantially below the current market price. As long as the value of the
underlying security remains above the exercise price during the term of the
option, the option will, in all probability, be exercised, in which case the
Fund will be required to sell the stock at the exercise price. If the sum of the
premium and the exercise price exceeds the market price of the stock at the time
the call option is written, the Fund would, in effect, have increased the
selling price of the stock. The Fund would not write a call option in these
circumstances if the sum of the premium and the exercise price were less than
the current market price of the stock.
PUT OPTIONS ON STOCK. The Fund may also write listed put options. If the
Fund writes a put option, it is obligated to purchase a given security at a
specified price at any time during the term of the option.
Writing listed put options is a useful portfolio investment strategy when
the Fund has cash or other reserves available for investment as a result of
sales of Fund shares or, more importantly, because the investment adviser
believes a more defensive and less fully invested position is desirable in light
of market conditions. If the Fund wishes to invest its cash or reserves in a
particular security at a price lower than current market value, it may write a
put option on that security at an exercise price which reflects the lower price
it is willing to pay. The buyer of the put option generally will not exercise
the option unless the market price of the underlying security declines to a
price near or below the exercise price. If the Fund writes a listed put, the
price of the underlying stock declines and the option is exercised, the premium,
net of transaction charges, will reduce the purchase price paid by the Fund for
the stock. The price of the stock may decline by an amount in excess of the
premium, in which event the Fund would have foregone an opportunity to purchase
the stock at a lower price.
If, prior to the exercise of a put option, the investment adviser determines
that it no longer wishes to invest in the stock on which the put option had been
written, the Fund may be able to effect a closing purchase transaction on an
exchange by purchasing a put option of the same series as the one which it has
previously written. The cost of effecting a closing purchase transaction may be
greater than the premium received on writing the put option and there is no
guarantee that a closing purchase transaction can be effected.
At the time a put option is written, the Fund will be required to establish,
and will maintain until the put is exercised or has expired, a segregated
account with its custodian consisting of cash, short-term U. S. Government
securities or other high-grade short-term debt obligations equal in value to the
amount the Fund will be obligated to pay upon exercise of the put option.
STOCK INDEX OPTIONS. Except as described below, the Fund will write call
options on indices only if on such date it holds a portfolio of stocks at least
equal to the value of the index times the multiplier times the number of
contracts. When the Fund writes a call option on a broadly-based stock market
index, the Fund will segregate or put into escrow with its Custodian, or pledge
to a broker as collateral for the option, one or more "qualified securities"
with a market value at the time the option is written of not less than 100% of
the current index value times the multiplier times the number of contracts.
If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," which are
securities of an issuer in such industry or market segment, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such securities will
include stocks which represent at least 50% of the weighting of the industry or
market segment index and will represent at least 50% of the Fund's holdings in
that industry or market segment. No individual security will represent more than
25% of the amount so segregated, pledged or escrowed. If at the close of
business on any day the market value of such qualified securities so segregated,
escrowed or pledged falls below 100% of the current index value times the
multiplier times the number of contracts, the Fund will so segregate, escrow or
pledge an amount in cash, Treasury bills or other high-grade short-term
obligations equal in value to the difference. In addition, when the Fund writes
a call on an index which is in-the-money at the time the call is written, the
Fund will segregate with its Custodian or
B-3
<PAGE>
pledge to the broker as collateral cash, short-term U.S. Government securities
or other high-grade short-term debt obligations equal in value to the amount by
which the call is in-the-money times the multiplier times the number of
contracts. Any amount segregated pursuant to the foregoing sentence may be
applied to the Fund's obligation to segregate additional amounts in the event
that the market value of the qualified securities falls below 100% of the
current index value times the multiplier times the number of contracts. A
"qualified security" is an equity security which is listed on a national
securities exchange or listed on the National Association of Securities Dealers
Automated Quotation System against which the Fund has not written a stock call
option and which has not been hedged by the Fund by the sale of stock index
futures. However, if the Fund holds a call on the same index as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written or greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, Treasury bills or other
high-grade short-term obligations in a segregated account with its Custodian, it
will not be subject to the requirements described in this paragraph.
STOCK INDEX FUTURES. The Fund will engage in transactions in stock index
futures contracts as a hedge against changes resulting from market conditions in
the values of securities which are held in the Fund's portfolio or which it
intends to purchase. The Fund will engage in such transactions when they are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund. The Fund may not purchase or sell stock index futures
if, immediately thereafter, more than one-third of its net assets would be
hedged and, in addition, except as described above in the case of a call written
and held on the same index, will write call options on indices or sell stock
index futures only if the amount resulting from the multiplication of the then
current level of the index (or indices) upon which the option or future
contract(s) is based, the applicable multiplier(s), and the number of futures or
options contracts which would be outstanding, would not exceed one-third of the
value of the Fund's net assets. In instances involving the purchase of stock
index futures contracts by the Fund, an amount of cash, short-term
U.S.Government securities or other high-grade short-term debt obligations, equal
to the market value of the futures contracts, will be deposited in a segregated
account with the Fund's Custodian and/or in a margin account with a broker to
collateralize the position and thereby insure that the use of such futures is
unleveraged.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the Investment
Company Act), are exempt from the definition of "commodity pool operator,"
provided all of the Fund's commodity futures or commodity options transactions
constitute BONA FIDE hedging transactions within the meaning of the CFTC's
regulations. The Fund will use stock index futures and options on futures as
described herein in a manner consistent with this requirement.
RISKS OF TRANSACTIONS IN STOCK OPTIONS. Writing options involves the risk
that there will be no market in which to effect a closing transaction. An option
position may be closed out only on an exchange which provides a secondary market
for an option of the same series. Although the Fund will generally write only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange may exist. If the Fund as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
RISKS OF OPTIONS ON INDICES. The Fund's purchase and sale of options on
indices will be subject to risks described above under "Risks of Transactions in
Stock Options." In addition, the distinctive characteristics of options on
indices create certain risks that are not present with stock options.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the Fund's policy to purchase or
write options only on indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index.
B-4
<PAGE>
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced including options on industry indices.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Fund will not
purchase or sell any index option contract unless and until, in the investment
adviser's opinion, the market for such options has developed sufficiently that
such risk in connection with such transactions is no greater than such risk in
connection with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDICES. Because exercises of index
options are settled in cash, a call writer such as the Fund cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described above under "Limitations on Purchase and Sale of Stock
Options, Options on Stock Indices, Stock Index Futures and Options on Stock
Index Futures."
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience a loss on
the call which is not offset by an increase in the value of its portfolio and
might also experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow (in amounts not exceeding 20% of the Fund's
total assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its stock portfolio in order to make settlement in cash,
and the price of such stocks might decline before they can be sold. This timing
risk makes certain strategies involving more than one option substantially more
risky with index options than with stock options. For example, even if an index
call which the Fund has written is "covered" by an index call held by the Fund
with the same strike price, the Fund will bear the risk that the level of the
index may decline between the close of trading on the date the exercise notice
is filed with the clearing corporation and the close of trading on the date the
Fund exercises the call it holds or the time the Fund sells the call which in
either case would occur no earlier than the day following the day the exercise
notice was filed.
SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON INDICES. If the Fund holds an
index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiple) to the assigned writer. Although the Fund may be able to minimize this
risk by withholding exercise instructions until just before the daily cut off
time or by selling rather than exercising an option when the index level is
close to the exercise price, it may not be possible to eliminate this risk
entirely because the cut off times for index options may be earlier than those
fixed for other types of options and may occur before definitive closing index
values are announced.
B-5
<PAGE>
ILLIQUID SECURITIES
The Fund may not invest more than 5% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, INTER ALIA, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (I.E., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
PORTFOLIO TURNOVER
The Fund anticipates that its annual portfolio turnover rate will not exceed
150% in normal circumstances. For the years ended September 30, 1992 and 1993,
the Fund's portfolio turnover rate was 99% and 68%, respectively.
B-6
<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
The Fund may not:
(1) With respect to 75% of the Fund's total assets, invest more than 5% of
the value of its total assets in the securities of any one issuer (other than
obligations issued or guaranteed by the United States Government, its agencies
or instrumentalities). It is the current policy (but not a fundamental policy)
of the Fund not to invest more than 5% of the value of its total assets in
securities of any one issuer.
(2) Purchase more than 10% of the outstanding voting securities of any one
issuer.
(3) Invest more than 25% of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
(4) Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
(5) Purchase or sell real estate or interests therein, although the Fund may
purchase securities of issuers which engage in real estate operations and
securities which are secured by real estate or interests therein.
(6) Purchase or sell commodities or commodity futures contracts, except
financial futures contracts as described under "Investment Objective and
Policies" in the Prospectus and this Statement of Additional Information.
(7) Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in the
securities of companies which operate, invest in or sponsor such programs.
(8) Purchase securities of other investment companies except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(9) Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow up to 20% of the value of the total assets (calculated when
the loan is made) for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings. Secured borrowings may take the form of
reverse repurchase agreements, pursuant to which the Fund would sell portfolio
securities for cash and simultaneously agree to repurchase them at a specified
date for the same amount of cash plus an interest component. For purposes of
this restriction, obligations of the Fund to Directors pursuant to deferred
compensation arrangements, the purchase and sale of securities on a when-issued
or delayed delivery basis, the purchase and sale of financial futures contracts
and options and collateral arrangements with respect to margins for financial
futures contracts and with respect to options are not deemed to be the issuance
of a senior security or a pledge of assets.
(10) Make loans of money or securities, except by the purchase of debt
obligations in which the Fund may invest consistently with its investment
objective and policies or by investment in repurchase agreements.
(11) Make short sales of securities except short sales against-the-box.
(12) Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities. (For the
purpose of this restriction, the deposit or payment by the Fund of initial or
maintenance margin in connection with financial futures contracts is not
considered the purchase of a security on margin.)
(13) Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended (the
"Securities Act"), in disposing of a portfolio security.
(14) Invest for the purpose of exercising control or management of any other
issuer.
B-7
<PAGE>
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
In order to comply with certain state "blue sky" restrictions, the Fund will
not as a matter of operating policy:
1. Purchase warrants if as a result the Fund would then have more than 5% of
its net assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange will be limited to 2% of the Fund's net assets (determined at the time
of investment). For the purpose of this limitation, warrants acquired in units
or attached to securities are deemed to be without value.
2. Purchase the securities of any one issuer if, to the knowledge of the
Fund, any officer or director of the Fund or the Manager or Subadviser owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers
and directors who own more than 1/2 of 1% own in the aggregate more than 5% of
the outstanding securities of such issuer.
3. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities of
issuers which are restricted as to disposition, if more than 15% of its total
assets would be invested in such securities. This restriction shall not apply to
mortgage-backed securities, asset-backed securities or obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
4. Invest more than 5% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, and in equity securities of issuers which are not readily
marketable.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
- --------------------------- ----------------------- -----------------------------------------------------------------
<S> <C> <C>
Delayne Dedrick Gold Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, New York
Arthur Hauspurg Director Trustee and former President, Chief Executive Officer and
c/o Prudential Mutual Fund Chairman of the Board of Consolidated Edison Company of New
Management, Inc. York, Inc.; Director of COMSAT Corp.
One Seaport Plaza
New York, New York
*Harry A. Jacobs, Jr. Director Senior Director (since January 1986) of Prudential Securities
One Seaport Plaza Incorporated (Prudential Securities); formerly Interim Chairman
New York, NY and Chief Executive Officer of Prudential Mutual Fund
Management, Inc. (PMF), (June-September 1993); formerly Chairman
of the Board of Prudential Securities (1982-1985) and Chairman
of the Board and Chief Executive Officer of Bache Group Inc.
(1977-1982); Director of The First Australia Fund, Inc., The
First Australia Prime Income Fund, Inc., The Global Government
Plus Fund, Inc. and The Global Yield Fund, Inc., and the Center
for National Policy; Trustee of The Trudeau Institute.
Thomas J. McCormack Director Chairman, Chief Executive Officer and Editorial Director (since
175 Fifth Avenue 1987) and President (1970-1987), St. Martin's Press, Inc.;
New York, NY Director of Macmillan Publishers Limited (London) and Pan Books
Limited (London).
</TABLE>
<TABLE>
<S> <C> <C>
<FN>
- ------------------------
* "Interested" director, as defined in the Investment Company Act, by reason of his affiliation
with Prudential Securities or PMF.
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
- --------------------------- ----------------------- -----------------------------------------------------------------
<S> <C> <C>
*Lawrence C. McQuade President and Vice Chairman of PMF (since 1988); Managing
One Seaport Plaza Director Director, Investment Banking, Prudential Securities
New York, NY (1988-1991); Director of Quixote Corporation (since
February 1992), BUNZL, P .L.C. (since June 1991);
formerly Director of Crazy Eddie Inc. (1987-1990)
and Kaiser Tech., Ltd. and Kaiser Aluminum and
Chemical Corp. (March 1987-November 1988); formerly
Executive Vice President and Director of WR Grace &
Company; President and Director of The High Yield
Income Fund, Inc., The Global Government Plus Fund,
Inc. and The Global Yield Fund, Inc.
Stephen P. Munn Director Chairman (since January 1994), Director and
101 South Salina President (since 1988) and Chief Executive Officer
Street (1988-December 1993) of Carlisle Companies
Syracuse, NY Incorporated.
Louis A. Weil, III Director Publisher and Chief Executive Officer, Phoenix
120 East Van Buren Newspapers, Inc. (since August 1991); Director of
Phoenix, AZ Central Newspapers, Inc. (since September 1991);
prior thereto, Publisher Time Magazine (May
1989-March 1991); formerly, President, Publisher
and Chief Executive Officer, The Detroit News
(February 1986-August 1989); formerly member of the
Advisory Board, Chase Manhattan Bank-Westchester;
Director of The Global Government Plus Fund,Inc.
*Richard A. Redeker Director President, Chief Executive Officer and Director
One Seaport Plaza (since October 1993), Prudential Mutual Fund
New York, NY Management, Inc. (PMF); Executive Vice President,
Director and Member of the Operating Committee
(since October 1993), Prudential Securities;
Director (since October 1993) of Prudential
Securities Group, Inc.; formerly Senior Executive
Vice President and Director of Kemper Financial
Services, Inc. (September 1978-September 1993);
Director of The Global Government Plus Fund, Inc.
and The High Yield Income Fund, Inc.
David W. Drasnin Vice President Vice President and Branch Manager of Prudential
39 Public Square Suite Securities.
500
Wilkes-Barre, PA
Robert F. Gunia Vice President Chief Administrative Officer (since July 1990),
One Seaport Plaza Director (since January 1989), Executive Vice
New York, NY President, Treasurer and Chief Financial Officer
(since June 1987) of PMF; Senior Vice President
(since March 1987) of Prudential Securities; Vice
President and Director of The Asia Pacific Fund,
Inc. (since May 1989).
Susan C. Cote Treasurer Senior Vice President (since January 1989) and First
One Seaport Plaza Vice President (June 1987-December 1988) of PMF;
New York, NY Senior Vice President (since January 1992) and Vice
President (January 1986-December 1991) of
Prudential Securities.
</TABLE>
<TABLE>
<S> <C> <C>
<FN>
- ------------------------
* "Interested" director, as defined in the Investment Company Act, by reason of his affiliation
with Prudential Securities or PMF.
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
- --------------------------- ----------------------- -----------------------------------------------------------------
<S> <C> <C>
S. Jane Rose Secretary Senior Vice President (since January 1991), Senior
One Seaport Plaza Counsel (since June 1987) and First Vice President
New York, NY (June 1987-December 1990) of PMF; Senior Vice
President, and Senior Counsel of Prudential
Securities (since July 1992); formerly, Vice
President and Associate General Counsel of
Prudential Securities.
Ronald Amblard Assistant First Vice President (since January 1994) and
One Seaport Plaza Secretary Associate General Counsel (since January 1992) of
New York, NY PMF; Vice President and Associate General Counsel
of Prudential Securities (since January 1992);
formerly, Assistant General Counsel (August
1988-December 1991), Associate Vice President
(January 1989-December 1990) and Vice President
(January 1991-December 1993) of PMF.
</TABLE>
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Mutual Fund Distributors, Inc. (PMFD).
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its Directors who is not an affiliated person of PMF
annual compensation of $6,000, in addition to certain out-of-pocket expenses.
The Chairman of the Audit Committee receives an additional $200 per year.
Directors may receive their Director's fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fee which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills at
the beginning of each calendar quarter or, pursuant to an SEC exemptive order,
at the daily rate of return of the Fund (the Fund rate). Payment of the interest
so accrued is also deferred and accruals become payable at the option of the
Director. The Fund's obligation to make payments of deferred Director's fees,
together with interest thereon, is a general obligation of the Fund.
As of June 17, 1994, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
As of June 17, 1994, Prudential Securities was the record holder for other
beneficial owners of 2,370,144 Class A shares (or 29% of the outstanding Class A
shares) and 25,366,447 Class B shares (or 73% of the outstanding Class B shares)
of the Fund. In the event of any meetings of shareholders, Prudential Securities
will forward, or cause the forwarding of, proxy materials to the beneficial
owners for which it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other open-end management investment companies that, together with
the Fund, comprise the Prudential Mutual Funds. See "How the Fund Is
Managed--Manager" in the Prospectus. As of June 30, 1994, PMF managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $47 billion. According to the Investment Company Institute, as
of April 30, 1994, the Prudential Mutual Funds were the 12th largest family of
mutual funds in the United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian, and
B-10
<PAGE>
Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), the Fund's
transfer and dividend disbursing agent. The management services of PMF for the
Fund are not exclusive under the terms of the Management Agreement and PMF is
free to, and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .70 of 1% of the Fund's average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that, in the event the expenses of the Fund (including the fees of PMF, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PMF will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PMF will be paid by PMF to the Fund. No such reductions
were required during the fiscal year ended September 30, 1993. Currently, the
Fund believes that the most restrictive expense limitation of state securities
commissions is 2 1/2% of the Fund's average daily net assets up to $30 million,
2% of the next $70 million of such assets and 1 1/2% of such assets in excess of
$100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Directors who are not affiliated persons of PMF or the
Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the Fund
as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to the subadvisory agreement between PMF and PIC (the Subadvisory
Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the Fund may be a member, (h) the cost of stock
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the Securities and
Exchange Commission, registering the Fund and qualifying its shares under state
securities laws, including the preparation and printing of the Fund's
registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business, and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually inconformity with the Investment Company Act. The Management Agreement
was last approved by the Board of Directors of the Fund, including a majority of
the Directors who are not parties to the contract or interested persons of any
such party as defined in the Investment Company Act on May 2, 1994 and by
shareholders of the Fund on April 28, 1988.
For the fiscal years ended September 30, 1993, 1992 and 1991, the Fund paid
management fees to PMF of $2,439,222, $1,334,281 and $876,107, respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser).
The Subadvisory Agreement provides that PIC will furnish investment advisory
services in connection with the management of the Fund. In connection therewith,
PIC is
B-11
<PAGE>
obligated to keep certain books and records of the Fund. PMF continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises PIC's performance of such services. PIC is reimbursed
by PMF for the reasonable costs and expenses incurred by PIC in furnishing those
services.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act,
on May 2, 1994, and by shareholders of the Fund on April 28, 1988.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less than 30
days', written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the Investment Company Act.
The Manager and the Subadviser (The Prudential Investment Corporation) are
subsidiaries of The Prudential Insurance Company of America (Prudential) which,
as of December 31, 1993, is one of the largest financial institutions in the
world and the largest insurance company in North America. Prudential has been
engaged in the insurance business since 1875. In July 1993, INSTITUTIONAL
INVESTOR ranked Prudential the third largest institutional money manager of the
300 largest money management organizations in the United States as of December
31, 1992.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities Incorporated, One Seaport Plaza, New York, New York 10292
(Prudential Securities), acts as the distributor of the Class B and Class C
shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), PMFD and Prudential Securities
(collectively, the Distributor) incur the expenses of distributing the Fund's
Class A, Class B and Class C shares. See "How the Fund is Managed--Distributor"
in the Prospectus.
Prior to January 22, 1990, the Fund offered only one class of shares (the
then existing Class B shares). On October 6, 1989, the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Class A or Class B Plan or in any agreement related to either Plan (the Rule
12b-1 Directors), at a meeting called for the purpose of voting on each Plan,
adopted a new plan of distribution for the Class A shares of the Fund (the Class
A Plan) and approved an amended and restated plan of distribution with respect
to the Class B shares of the Fund (the Class B Plan). On February 8, 1993, the
Board of Directors, including a majority of the Rule 12b-1 Directors, at a
meeting called for the purpose of voting on each Plan, approved modifications to
the Fund's Class A and Class B Plans and Distribution Agreements to conform them
to recent amendments to the National Association of Securities Dealers, Inc.
(NASD) maximum sales charge rule described below. As so modified, 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 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%. As so modified, the
Class B Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class B shares may be paid as a service fee and (ii) up to.75 of 1% (not
including the service fee) of the average daily net assets of the Class B shares
(asset-based sales charge) may be used as reimbursement for distribution-related
expenses with respect to the Class B shares. On May 3, 1993, the Board of
Directors, including a majority of the Rule 12b-1 Directors, at a meeting called
for the purpose of voting on each Plan, adopted a plan of distribution for the
Class C shares of the Fund and approved further amendments to the plans of
distribution for the Fund's Class A and Class B shares changing them from
reimbursement type plans to compensation type plans. The Plans were last
approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on May 2, 1994. The Class A Plan, as amended, was approved by Class A
and Class B shareholders, and the Class B Plan, as amended, was approved by
Class B shareholders on July 19, 1994. The Class C Plan was approved by the sole
shareholder of Class C shares on August 1, 1994.
B-12
<PAGE>
CLASS A PLAN. For the fiscal year ended September 30, 1993 PMFD received
payments of $139,602 under the Class A Plan. This amount was primarily expended
for payment of account servicing fees to financial advisers and other persons
who sell Class A shares. For the fiscal year ended September 30, 1993, PMFD also
received approximately $835,000 in initial sales charges.
CLASS B PLAN. For the fiscal year ended September 30, 1993, Prudential
Securities received $2,786,595 from the Fund under the Class B Plan and spent
approximately $6,227,200 in distributing the Fund's Class B shares. It is
estimated that of the latter amount, approximately $57,000 (0.9%) was spent on
printing and mailing of prospectuses to other than current shareholders;
$111,000 (1.8%) on interest and/or carrying costs; $620,000 (10.0%) on
compensation to Pruco Securities Corporation, an affiliated broker-dealer, for
commissions to its representatives and other expenses, including an allocation
on account of overhead and other branch office distribution-related expenses,
incurred by it for distribution of Fund shares; and $5,439,200 (87.3%) on the
aggregate of (i) payments of commissions and account servicing fees to financial
advisers ($2,119,400 or 34.0%) and (ii) an allocation on account of overhead and
other branch office distribution-related expenses ($3,319,800 or 53.3%). The
term "overhead and other branch office distribution-related expenses" represents
(a) the expenses of operating Prudential Securities' branch offices in
connection with the sale of Fund shares, including lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) expenses of mutual fund sales coordinators to promote
the sale of Fund shares; and (d) other incidental expenses relating to branch
promotion of Fund shares.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class B shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges"
in the Prospectus. For the fiscal year ended September 30, 1993, Prudential
Securities received approximately $436,000 in contingent deferred sales charges.
CLASS C PLAN. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class C
shares. See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred
Sales Charges" in the Prospectus. Prior to the date of this Statement of
Additional Information, no distribution expenses were incurred under the Class C
Plan.
The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Directors, including a majority vote of the Rule 12b-1 Directors,
cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class on not more than
30 days' written notice to any other party to the Plans. The Plans may not be
amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class
(by both Class A and Class B shareholders, voting separately, in the case of
material amendments to the Class A Plan), and all material amendments are
required to be approved by the Board of Directors in the manner described above.
Each Plan will automatically terminate in the event of its assignment. The Fund
will not be contractually obligated to pay expenses incurred under any Plan if
it is terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report will include an itemization
of the distribution expenses and the purposes of such expenditures. In addition,
as long as the Plans remain in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act of 1933, as amended. Each
Distribution Agreement was last approved by the Board of Directors, including a
majority of the Rule 12b-1 Directors, on May 2, 1994.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Fund may not exceed .75 of 1% per class. The 6.25% limitation
applies to the Fund rather than on a per shareholder basis. If aggregate sales
charges were to exceed 6.25% of total gross sales of any class, all sales
charges on shares of that class would be suspended.
B-13
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities, options
on securities and futures contracts for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section, the
term "Manager" includes the "Subadviser." Purchases and sales of securities or
futures contracts on a securities exchange or board of trade are effected
through brokers or futures commission merchants who charge a commission for
their services. Orders may be directed to any broker or futures commission
merchant, including, to the extent and in the manner permitted by applicable
law, Prudential Securities and its affiliates. Brokerage commissions on United
States securities, options and futures exchanges or boards of trade are subject
to negotiation between the Manager and the broker or futures commission
merchant.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Fund will not deal with Prudential
Securities in any transaction in which Prudential Securities acts as principal.
Thus it will not deal in over-the-counter securities with Prudential Securities
acting as market maker, and it will not execute a negotiated trade with
Prudential Securities if execution involves Prudential Securities acting as
principal with respect to any part of the Fund's order. In placing orders for
portfolio securities or futures contracts of the Fund, the Manager is required
to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of the Fund, the Manager or the Manager's other clients. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by the
Manager in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for the Fund
may be used in managing other investment accounts. Conversely, brokers, dealers
or futures commission merchants furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than the Fund, and the services furnished by such brokers, dealers or
futures commission merchants may be used by the Manager in providing investment
management for the Fund. Commission rates are established pursuant to
negotiations with the broker, dealer or futures commission merchant based on the
quality and quantity of execution services provided by the broker, dealer or
futures commission merchant in the light of generally prevailing rates. The
Manager's policy is to pay higher commissions to brokers, other than Prudential
Securities, for particular transactions than might be charged if a different
broker had been selected, on occasions when, in the Manager's opinion, this
policy furthers the objective of obtaining best price and execution. In
addition, the Manager is authorized to pay higher commissions on brokerage
transactions for the Fund to brokers, dealers or futures commission merchants
other than Prudential Securities in order to secure research and investment
services described above, subject to review by the Fund's Board of Directors
from time to time as to the extent and continuation of this practice. The
allocation of orders among brokers, dealers and futures commission merchants and
the commission rates paid are reviewed periodically by the Fund's Board of
Directors. Portfolio securities may not be purchased from any underwriting or
selling syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Fund, will not significantly affect the Fund's
ability to pursue its present investment objective. However, in the future in
other circumstances, the Fund may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not subject
to such limitations.
Subject to the above considerations, the Manager may use Prudential
Securities as a broker or futures commission merchant for the Fund. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by Prudential
Securities (or any affiliate) must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers or futures
commission merchants in connection with comparable transactions involving
similar securities or futures being purchased or sold on a securities or
commodities exchange during a comparable period of time. This standard would
allow Prudential Securities (or any affiliate) to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker or
futures commission merchant in a commensurate arm's-length transaction.
Furthermore, the Board of Directors of the Fund, including a majority of the
noninterested Directors, has adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Prudential
Securities (or any affiliate) are consistent with the foregoing standard. In
accordance with
B-14
<PAGE>
Section 11(a) of the Securities Exchange Act of 1934, Prudential Securities may
not retain compensation for effecting transactions on a national securities
exchange for the Fund unless the Fund has expressly authorized the retention of
such compensation. Prudential Securities must furnish to the Fund at least
annually a statement setting forth the total amount of all compensation retained
by Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential Securities
(or any affiliate) are also subject to such fiduciary standards as may be
imposed upon Prudential Securities (or such affiliate) by applicable law.
Transactions in options by the Fund will be subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same or
different exchanges or are written or held in one or more accounts or through
one or more brokers. Thus, the number of options which the Fund may write or
hold may be affected by options written or held by the Manager and other
investment advisory clients of the Manager. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
The table presented below shows certain information regarding the payment of
commissions by the Fund, including the amount of such commissions paid to
Prudential Securities for the three-year period ended September 30, 1993.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Total brokerage commissions paid by the
Fund................................... $889,308 $641,051 $508,421
Total brokerage commissions paid to
Prudential Securities.................. $ 10,875 $ 18,268 $ 19,790
Percentage of total brokerage
commissions paid to Prudential
Securities............................. 1.22% 2.85% 3.89%
</TABLE>
The Fund effected approximately .01% of the total dollar amounts of its
transactions involving the payment of commissions through Prudential Securities
during the fiscal year ended September 30, 1993. Of the total brokerage
commissions paid by the Fund for the fiscal year ended September 30, 1993,
approximately $733,516 (81.74% of gross brokerage transactions) was paid to
firms which provided research, statistical or other services provided to PMF.
PMF has not separately identified a portion of such brokerage commissions as
applicable to the provision of such research, statistical or other service.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). See "Shareholder
Guide--How to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except
that the Fund has agreed with the SEC in connection with the offering of a
conversion feature on Class B shares to submit any amendment of the Class A
distribution and service plan to both Class A and Class B shareholders) and
(iii) only Class B shares have a conversion feature. See "Distributor." Each
class also has separate exchange privileges. See "Shareholder Investment
Account--Exchange Privilege."
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B* and Class C* shares are sold at net asset value. Using the Fund's net asset
value at September 30, 1993, the maximum offering price of the Fund's shares is
as follows:
<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share.................. $ 13.06
Maximum sales charge (5% of offering price)............................. .69
---------
Offering price to public................................................ $ 13.75
---------
---------
CLASS B
Net asset value, offering price and redemption price per Class B
share*................................................................. $ 12.74
---------
---------
CLASS C
Net asset value, offering price and redemption price per Class C
share*................................................................. $ 12.74
---------
---------
<FN>
--------------------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus. Class C
shares did not exist on September 30, 1993.
</TABLE>
B-15
<PAGE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in any
retirement or group plans.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (net asset value plus maximum sales charge) as
of the previous business day. See "How the Fund Values its Shares" in the
Prospectus. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges will
be granted subject to confirmation of the investor's holdings. Rights of
accumulation are not available to individual participants in any retirement or
group plans.
LETTERS OF INTENT. Reduced sales charges are also available to investors (or
an eligible group of related investors) who enter into a written Letter of
Intent providing for the purchase, within a thirteen-month period, of shares of
the Fund and shares of other Prudential Mutual Funds. All shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the Transfer
Agent or through Prudential Securities. The Distributor must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charges will be granted subject to confirmation of the investor's
holdings. Letters of Intent are not available to individual participants in any
retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter
B-16
<PAGE>
of Intent will be held by the Transfer Agent in the name of the purchaser. The
effective date of a Letter of Intent may be back-dated up to 90 days, in order
that any investments made during this 90-day period, valued at the purchaser's
cost, can be applied to the fulfillment of the Letter of Intent goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding to the purchaser the amount of excess sales charge, if any, paid
during the thirteen-month period. Investors electing to purchase Class A shares
of the Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
The Contingent Deferred Sales Charge is waived under circumstances described
in the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit the
supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death certificate or,
in the case of a trust, a copy of the grantor's
death certificate, plus a copy of the trust
agreement identifying the grantor.
Disability - An individual will be A copy of the Social Security Administration award
considered disabled if he or she is letter or a letter from a physician on the
unable to engage in any substantial physician's letterhead stating that the shareholder
gainful activity by reason of any (or, in the case of a trust, the grantor) is
medically determinable physical or permanently disabled. The letter must also indicate
mental impairment which can be expected the date of disability.
to result in death or to be of
long-continued and indefinite duration.
Distribution from an IRA or 403(b) A copy of the distribution form from the custodial
Custodial Account firm indicating (i) the date of birth of the
shareholder and (ii) that the shareholder is over
age 59 1/2 and is taking a normal
distribution--signed by the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the
plan administrator/ trustee on company letterhead
indicating the amount of the excess and whether or
not taxes have been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994
The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchase an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares of
the Fund following the second
B-17
<PAGE>
purchase was $550,000, the quantity discount would be available for the second
purchase of $450,000 but not for the first purchase of $100,000. The quantity
discount will be imposed at the following rates depending on whether the
aggregate value exceeded $500,000 or $1 million:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
YEAR SINCE PURCHASE ------------------------------------------
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
- ------------------------- ----------------------- ----------------
<S> <C> <C>
First.................... 3.0% 2.0%
Second................... 2.0% 1.0%
Third.................... 1.0% 0%
Fourth and thereafter.... 0% 0%
</TABLE>
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to the
shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund. An investor
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. In the case of recently purchased shares for
which registration instructions have not been received on the record date, cash
payment will be made directly to the dealer. Any shareholder who receives a cash
payment representing a dividend or distribution may reinvest such distribution
at net asset value by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Such investment will be made at the net
asset value per share next determined after receipt of the check or proceeds by
the Transfer Agent. Such shareholder will receive credit for any contingent
deferred sales charge paid in connection with the amount of proceeds being
reinvested.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form. An exchange will be treated as a redemption and
purchase for tax purposes. Shares may be exchanged for shares of another fund
only if shares of such fund may legally be sold under applicable state laws. For
retirement and group plans having a limited menu of Prudential Mutual Funds, the
Exchange Privilege is available for those funds eligible for investment in the
particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Intermediate Term Series) and shares of the money
market funds specified below. No fee or sales load will be imposed upon the
exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire Class
A shares of the Prudential Mutual Funds participating in the Exchange Privilege.
B-18
<PAGE>
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of the Class B and Class C shares acquired as a
result of an exchange. The applicable sales charge will be that imposed by the
fund in which shares were initially purchased and the purchase date will be
deemed to be the first day of the month after the initial purchase, rather than
the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares of
Prudential Special Money Market Fund without imposition of any CDSC at the time
of exchange. Upon subsequent redemption from such money market fund or after re-
exchange into the Fund, such shares will be subject to the CDSC calculated by
excluding the time such shares were held in the money market fund. In order to
minimize the period of time in which shares are subject to a CDSC, shares
exchanged out of the money market fund will be exchanged on the basis of their
remaining holding periods, with the longest remaining holding periods being
transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, respectively, without subjecting such shares to any CDSC. Shares of
any fund participating in the Class B or Class C exchange privilege that were
acquired through reinvestment of dividends or distributions may be exchanged for
Class B or Class C shares of other funds, respectively, without being subject to
any CDSC.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages
B-19
<PAGE>
around $14,000 at a private college and around $4,800 at a public university.
Assuming these costs increase at a rate of 7% a year, as has been projected, for
the freshman class of 2007, the cost of four years at a private college could
reach $163,000 and over $97,000 at a public university.(1)
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 Years.......................................................... $ 110 $ 165 $ 220 $ 275
20 Years.......................................................... 176 264 352 440
15 Years.......................................................... 296 444 592 740
10 Years.......................................................... 555 833 1,110 1,388
5 Years.......................................................... 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
<FN>
- ------------------------
(1)Source information concerning the costs of education at public
universities is available from The College Board Annual Survey of Colleges,
1992. Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics; and
the U.S. Department of Education. Average costs for private institutions include
tuition, fees, room and board.
(2)The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
</TABLE>
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
Prudential Securities account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Fund. The investor's bank must
be a member of the Automatic Clearing House System. Share certificates are not
issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly or
quarterly checks in any amount, except as provided below, up to the value of the
shares in the shareholder's account. Withdrawals of Class B or Class C shares
may be subject to a CDSC. See "Shareholder Guide-- How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment Account--
Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may
be, terminated at any time, and the Distributor reserves the right to initiate a
fee of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must generally be recognized for federal income tax
purposes. In addition, withdrawals made concurrently with purchases of
additional shares are
B-20
<PAGE>
inadvisable because of the sales charge applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the systematic withdrawal plan, particularly if used in connection with a
retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax-deferred retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-sheltered accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details is available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
<TABLE>
<CAPTION>
TAX-DEFERRED COMPOUNDING(1)
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ------------------------ ---------- ----------
<S> <C> <C>
10 years................ $ 26,165 $ 31,291
15 years................ 44,675 58,649
20 years................ 68,109 98,846
25 years................ 97,780 157,909
30 years................ 135,346 244,692
<FN>
- ------------------------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
the IRA account will be subject to tax when withdrawn from the account.
</TABLE>
NET ASSET VALUE
The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. Net asset value is calculated separately for each class. The
value of securities, other than options listed on national securities exchanges,
is based on the last sale prices on national securities exchanges as of the
close of the New York Stock Exchange (which is currently 4:00 P.M., New York
time), or, in the absence of recorded sales, at the average of readily closing
bid and asked prices on such exchanges or over-the-counter. If no quotations are
available, securities will be valued at fair value as determined in good faith
by the Board of Directors. Options on stocks and stock indices traded on
national securities exchanges are valued as of the close of options trading on
such exchanges (which is currently 4:10 P.M., New York time), and stock index
futures and options thereon, which are traded on commodities exchanges, are
valued at their last sale price as of the close of such commodities exchanges
(which is currently 4:15 P.M., New York time). If there was no sale on the
applicable options or commodities exchange, options on stocks and stock indices
and stock index futures and options thereon are valued at the average of the
quoted bid and asked prices as of the close of the respective exchange.
Short-term investments which mature in 60 days or less are valued at amortized
cost, if their original maturity was 60 days or less, or by amortizing their
value on the 61st day prior to maturity if their original maturity when acquired
by the Fund was more than 60 days, unless this is determined not to represent
fair value by the Board of Directors. The Fund will compute its net asset value
once daily as of 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to
B-21
<PAGE>
purchase, sell or redeem Fund shares have been received or days on which changes
in the value of the Fund's portfolio securities do not affect the net asset
value. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
In the event that the New York Stock Exchange or the national securities
exchanges on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Board of Directors of the Fund will
reconsider the time at which net asset value is computed. In addition, the Fund
may compute its net asset value as of any time permitted pursuant to any
exemption, order or statement of the Securities and Exchange Commission or its
staff.
The net asset value of Class B and Class C shares will generally be lower
than the net asset value of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. It is
expected, however, that the net asset value per share of each class will tend to
converge immediately after the recording of dividends which will differ by
approximately the amount of the distribution expense accrual differential among
the classes.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund Calculates
Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)to the power of n = ERV
Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1000 investment
made at the beginning of the 1, 5 or 10 year periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that maybe payable upon redemption.
The average annual total return for Class A shares for the one year and
since inception periods ended March 31, 1994 was 2.12% and 13.13%, respectively.
The average annual total return for Class B shares for the one, five and ten
year periods ended on March 31, 1994 was 1.89%, 13.07% and 12.67%, respectively.
During these periods, no Class C shares were outstanding. Without the expense
reimbursement (resulting from state expense limitations) the average annual
total return with respect to the Class B shares of the Fund for these periods
would have been 1.89%, 13.07% and 12.66%, respectively.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B and
Class C shares. See "How the Fund Calculates Performance" in the Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1000.
ERV = Ending Redeemable Value at the end of the 1, 5, or 10 year
periods (or fractional portion thereof) of a hypothetical $1000
investment made at the beginning of the 1, 5 or 10 year
periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total return for Class A shares for the one year and since
inception periods ended on March 31, 1994 was 7.78% and 76.93%, respectively.
The aggregate total return for Class B shares for the one, five and ten year
periods ended on March 31, 1994 was 6.89%, 85.89% and 229.82%, respectively.
During these periods, no Class C shares were outstanding.
B-22
<PAGE>
YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B and Class C
shares. This yield will be computed by dividing the Fund's net investment income
per share earned during this 30-day period by the maximum offering price per
share on the last day of this period. Yield is calculated according to the
following formula:
a - b
YIELD = 2[( ------- +1)to the power of 6 - 1]
cd
Where: a=dividends and interest earned during the period.
b=expenses accrued for the period (net of reimbursements).
c=the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d=the maximum offering price per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.
The Fund's 30-day yields for the period ended March 31, 1994 were .01% and
- -.77% for Class A and Class B shares, respectively. During this period, no Class
C shares were outstanding.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.(1)
[GRAPHIC]
(1)Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500 Stock
Index, a market-weighted, unmanaged index of 500 common stocks in a variety of
industry sectors. It is a commonly used indicator of broad stock price
movements. This chart is for illustrative purposes only, and is not intended to
represent the performance of any particular investment or fund.
B-23
<PAGE>
TAXES
The Fund expects to pay dividends of net investment income, if any,
semi-annually. The Board of Directors of the Fund will determine at least once a
year whether to distribute any net long-term capital gains in excess of any net
short-term capital losses. In determining amounts of capital gains to be
distributed, any capital loss carryforwards from prior years will offset capital
gains. Distributions will be paid in additional Fund shares based on the net
asset value at the close of business on the record date, unless the shareholder
elects in writing not less than five full business days prior to the record date
to receive such distributions in cash.
The Fund is qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code.
Qualification as a regulated investment company under the Internal Revenue Code
requires, among other things, that (a) at least 90% of the Fund's annual gross
income (without offset for losses from the sale or other disposition of
securities or foreign currencies) from dividends, interest, proceeds from loans
of securities and gains from the sale or other disposition of securities or
foreign currencies and certain financial futures, options and forward contracts;
(b) the Fund derives less than 30% of its gross income from gains (without
offset for losses) from the sale or other disposition of securities or options
thereon held for less than three months; and (c) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than government
securities). In addition, in order not to be subject to federal income tax, the
Fund must distribute to its shareholders as ordinary dividends at least 90% of
its net investment income other than net long-term capital gains earned in each
year. A 4% nondeductible excise tax will be imposed on the Fund to the extent
the Fund does not meet certain minimum distribution requirements by the end of
each calendar year. For this purpose, any income or gain retained by the Fund
which is subject to tax will be considered to have been distributed by year-end.
In addition, dividends declared in October, November and December payable to
shareholders of record on a specified date in October, November and December and
paid in the following January will be treated as having been paid by the Fund
and received by each shareholder in such prior year. Under this rule, therefore,
a shareholder may be taxed in one year on dividends or distributions actually
received in January of the following year.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by it for more than one year,
except in certain cases where the Fund acquires a put or writes a call thereon.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. If an option written by the Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction. If securities are sold by the Fund pursuant to the
exercise of a call option written by it, the Fund will add the premium received
to the sale price of the securities delivered in determining the amount of gain
or loss on the sale. If securities are purchased by the Fund pursuant to the
exercise of a put option written by it, the Fund will subtract the premium
received from its cost basis in the securities purchased. The requirement that
the Fund derive less than 30% of its gross income from gains from the sale of
securities held for less than three months may limit the Fund's ability to write
options.
Certain futures contracts and certain listed options held by the Fund will
be required to be "marked to market" for federal income tax purposes, i.e.,
treated as having been sold at their fair market value on the last day of the
Fund's taxable year (referred to as Section 1256 Contracts). 60% of any gain or
loss recognized on actual or deemed sales of such Section 1256 Contracts will be
treated as long-term capital gain or loss, and 40% of such gain or loss will be
treated as short-term capital gain or loss. The Fund may be required to defer
the recognition of losses on securities and options and futures contracts to the
extent of any recognized gain on offsetting positions held by the Fund.
Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend or distribution will
constitute a replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.
B-24
<PAGE>
The per share dividends on Class B and Class C shares, if any, will be lower
than the per share dividends on Class A shares as a result of the higher
distribution-related fee applicable with the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B and Class C shares. See "Net Asset Value."
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the dividends or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to federal income taxes. Prior to purchasing shares of the Fund,
therefore, the investor should carefully consider the impact of dividends or
capital gains distributions which are expected to be or have been announced.
Dividends and distributions may also be subject to state and local taxes.
PENNSYLVANIA PERSONAL PROPERTY TAX. The Fund has received a written letter
of determination from the Pennsylvania Department of Revenue that the Fund will
be subject to the Pennsylvania foreign franchise and corporate net income tax.
Accordingly, it is believed that Fund shares are exempt from Pennsylvania
personal property taxes. The Fund anticipates that it will continue such
business activities but reserves the right to suspend them at any time,
resulting in the termination of the exemption.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. See "How the Fund Is
Managed--Custodian and Transfer and Dividend Disbursing Agent" in the
Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
It is a wholly-owned subsidiary of PMF. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions, and related functions. For
these services, PMFS receives an annual fee per shareholder account, a new
account set-up fee for each manually-established account and a monthly inactive
zero balance account fee per shareholder account. PMFS is also reimbursed for
its out-of-pocket expenses, including, but not limited to, postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended September 30,1993, the Fund incurred fees of approximately $423,000 for
the services of PMFS.
Price Waterhouse, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Fund's independent accountants and in that capacity examines the
Fund's annual financial statements.
B-25
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS
MARCH 31, 1994 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--97.7%
COMMON STOCKS--97.7%
AEROSPACE/DEFENSE--0.8%
114,800 Precision Castparts
Corp.................... $ 3,860,150
------------
AUTOMOTIVE--1.3%
200,000+ Jason, Inc.*
(cost $2,200,000;
purchase date -
1/21/94)................ 1,997,500
220,000 Mascotech, Inc.*.......... 4,510,000
------------
6,507,500
------------
BANKING--10.3%
217,100 Bank South Corp........... 3,934,937
99,750 Charter One Financial,
Inc..................... 1,870,312
75,000 Citfed Bancorp, Inc.*..... 1,856,250
92,300 Citizens First Bancorp,
Inc.*................... 807,625
85,000 Commerce Bancshares,
Inc..................... 2,539,375
172,300 Commercial Federal
Corp.*.................. 3,122,937
270,000 Community First
Bankshares, Inc......... 3,543,750
135,000 Dauphin Deposit Corp...... 3,172,500
100,000 First Commerce Corp....... 2,412,500
53,400 First Eastern Corp.*...... 1,398,413
95,000 First Security Corp....... 2,648,125
12,900 First Virginia Banks,
Inc..................... 466,013
120,000 Hawkeye Bancorporation.... 2,205,000
272,900 Riggs National Corp.*..... 2,643,719
108,000 Rochester Community
Savings Bank*........... 1,782,000
130,000 SouthTrust Corp........... 2,396,875
99,000 Summit Bancorporation..... 1,942,875
87,500 TCF Financial Corp........ 2,668,750
90,000 Union Planters Corp....... 2,238,750
225,000 Washington Mutual Savings
Bank.................... 4,331,250
85,000 West One Bancorp.......... 2,305,625
------------
50,287,581
------------
CABLE & PAY TV SYSTEMS--1.3%
172,500 Comcast Corp.............. $ 3,105,000
145,000 TCA Cable TV, Inc......... 3,153,750
------------
6,258,750
------------
COMMERCIAL SERVICES--2.4%
113,100 AAR Corp.................. 1,753,050
40,000 Banner Aerospace, Inc.*... 235,000
160,000 Borg Warner Security
Corp.*.................. 2,700,000
66,800 Flightsafety
International, Inc...... 2,488,300
215,000 Pinkertons, Inc.*......... 4,300,000
12,300 Sterling Software,
Inc.*................... 355,163
------------
11,831,513
------------
COMPUTER HARDWARE--5.5%
243,700 Adaptec, Inc.*............ 4,401,831
275,000 Electronics for Imaging,
Inc.*................... 3,953,125
264,700 Exabyte Corp.*............ 5,062,387
90,500 Hutchinson Technology,
Inc.*................... 2,839,438
96,800 Norand Corp.*............. 3,037,100
15,900 Quixote Corp.............. 258,375
330,000 Telxon Corp............... 4,248,750
200,000 Verifone, Inc.*........... 3,450,000
------------
27,251,006
------------
COMPUTER SOFTWARE & SERVICES--4.7%
325,000 American Management
Systems, Inc.*.......... 6,439,062
213,800 Continuum, Inc.*.......... 4,543,250
39,700 Control Data Systems,
Inc..................... 334,969
24,000 INTERLINQ Software
Corp.*.................. 189,000
64,300 LEGENT Corp.*............. 1,631,613
275,000 Primark Corp.*............ 3,712,500
</TABLE>
- -------------------------------------------------------------------------------
B-26 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE & SERVICES (CONT'D)
300,000 Structural Dynamics
Research Corp.*......... $ 3,975,000
67,000 SunGard Data Systems...... 2,378,500
------------
23,203,894
------------
CONSTRUCTION--1.3%
193,400 Calmat Co................. 3,940,525
60,000 Southdown, Inc.*.......... 1,545,000
148,000 Willcox & Gibbs Inc.*..... 999,000
------------
6,484,525
------------
CONSUMER PRODUCTS--1.1%
200,900 Fedders Corp.*............ 1,556,975
104,800 Russell Corp.............. 2,973,700
62,800 Sealright Co., Inc........ 910,600
------------
5,441,275
------------
CONSUMER SERVICES--0.5%
161,300 Regis Corp.*.............. 2,217,875
------------
DRUGS & MEDICAL SUPPLIES--3.4%
274,900 Biomet, Inc.*............. 2,834,906
138,700 Carter Wallace, Inc....... 2,912,700
207,200 Endosonics Corp.*......... 1,605,800
75,000 Maxxim Medical, Inc.*..... 1,237,500
109,700 Medex, Inc................ 1,851,188
155,000 Nellcor, Inc.*............ 3,875,000
71,400 Sybron Corp.*............. 2,284,800
------------
16,601,894
------------
ELECTRICAL EQUIPMENT--0.9%
149,000 Reliance Electric Co.*.... 2,514,375
116,500 Thomas Industries, Inc.... 1,776,625
------------
4,291,000
------------
ELECTRONICS--6.1%
100,000 Augat, Inc.*.............. 2,000,000
263,100 Kemet Corp.*.............. 4,209,600
290,000 Laser Precision Corp.*.... 1,667,500
102,600 Lattice Semiconductor
Corp.*.................. 1,654,425
380,000 Marshall Industries,
Inc.*................... $ 9,452,500
440,000 Methode Eletronics,
Inc..................... 7,205,000
15,100 Robinson Nugent, Inc...... 96,263
62,300 Tektronix, Inc............ 1,900,150
102,100 Woodhead Industries,
Inc..................... 1,620,837
------------
29,806,275
------------
ENVIRONMENTAL SERVICES--0.2%
200 Air & Water Technologies
Corp.*.................. 1,775
91,500 BHA Group, Inc............ 937,875
------------
939,650
------------
FINANCIAL SERVICES--2.0%
120,062 Edwards (A.G.), Inc....... 2,146,108
215,000 McDonald & Co.
Investments, Inc........ 3,198,125
309,300 Piper Jaffray, Inc........ 4,600,838
------------
9,945,071
------------
FOOD & BEVERAGES--2.4%
67,200 Dreyers Grand Ice Cream,
Inc..................... 1,604,400
87,300 Performance Food Group
Co.*.................... 1,713,262
393,400 Rykoff-Sexton, Inc........ 7,572,950
69,800 Sanderson Farms, Inc...... 1,081,900
------------
11,972,512
------------
FOREST PRODUCTS--1.5%
270,000 Mercer International,
Inc.*................... 3,290,625
139,600 Mosinee Paper Corp........ 4,153,100
------------
7,443,725
------------
HEALTH CARE SERVICES--2.8%
146,800 Living Centers of America,
Inc.*................... 3,780,100
188,800 Multicare Cos, Inc.*...... 3,233,200
215,000 Novacare, Inc.*........... 3,493,750
14,700 Safeguard Health
Enterprises............. 207,637
100,000 Salick Health Care,
Inc..................... 1,625,000
61,000 Universal Health Services,
Inc.*................... 1,433,500
------------
13,773,187
------------
HOUSEHOLD PRODUCTS--1.4%
265,400 Libbey, Inc.*............. 4,578,150
- -------------------------------------------------------------------------------
</TABLE>
B-27 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------
<C> <S> <C>
HOUSEHOLD PRODUCTS (CONT'D)
145,600 Mr. Coffee, Inc.*......... $ 2,038,400
------------
6,616,550
------------
INDUSTRIALS--7.7%
225,000 Amcast Industrial Corp.... 5,625,000
216,000 Carlisle Companies,
Inc..................... 6,912,000
200,550 Diebold, Inc.............. 7,320,075
40,100 ESSEF Corp.*.............. 646,613
36,200 Harmon Industries,
Inc.*................... 730,787
81,000 Insituform Mid-America,
Inc..................... 1,164,375
17,000 KENETECH Corp.*........... 393,125
145,000 Mark IV Industries,
Inc..................... 2,664,375
195,000 Medalist Inds., Inc.*..... 2,608,125
48,600 Park Ohio Inds., Inc.*.... 707,737
50,000 Schulman, Inc............. 1,587,500
160,000 Shorewood Packaging
Corp.*.................. 2,460,000
65,000 Thermotrex Corp.*......... 950,625
25,000 Tyco Labs, Inc............ 1,246,875
109,250 Varlen Corp............... 2,594,687
------------
37,611,899
------------
INFORMATION SERVICES--0.6%
165,500 American Business
Information*............ 2,751,437
------------
Insurance--2.8%
135,400 Amvestors Financial
Corp.*.................. 1,354,000
75,000 CCP Insurance, Inc........ 1,631,250
110,000 First Colony Corp......... 2,667,500
500,000 I. C. H. Corp.*........... 2,937,500
221,400 Philadelphia Consolidated
Holding Corp.*.......... 2,352,375
125,500 SCOR U.S. Corp............ 1,302,062
136,080 Statesman Group, Inc...... 1,496,880
------------
13,741,567
------------
LEISURE--1.4%
86,000 American Recreation Co.
Hldgs, Inc.............. 1,161,000
82,300 Johnson Worldwide
Associates, Inc.*....... $ 1,944,338
525,000 Topps Co.................. 3,609,375
------------
6,714,713
------------
MACHINERY & EQUIPMENT--7.2%
52,300 Bearings, Inc............. 1,667,063
184,800 Brenco, Inc............... 1,778,700
64,500 GATX Corp................. 2,709,000
268,800 Gerber Scientific, Inc.... 3,998,400
160,000 Kaydon Corp............... 3,740,000
53,400 Lamson & Sessions Co.*.... 347,100
46,200 Lindsay Manufacturing
Co.*.................... 1,472,625
150,000 Lufkin Industries, Inc.... 2,737,500
255,000 Measurex Corp............. 4,653,750
199,400 Regal Beloit Corp......... 4,985,000
14,400 Speizman Industries,
Inc..................... 165,600
94,100 Thermo Electron Corp.*.... 3,658,138
130,000 Watts Industries, Inc..... 3,103,750
------------
35,016,626
------------
MEDIA--0.8%
155,000 Scripps (E.W.) Co......... 3,875,000
------------
NATURAL RESOURCES--0.2%
176,900 Nord Resources Corp.*..... 1,017,175
------------
OFFICE EQUIPMENT & SUPPLIES--0.7%
159,900 Interface, Inc............ 2,048,719
125,000 Tokheim Corp.*............ 1,531,250
------------
3,579,969
------------
OIL & GAS EXPLORATION & PRODUCTION--5.5%
447,000 American Oil & Gas
Corp.*.................. 4,470,000
128,500 Basin Exploration,
Inc.*................... 1,172,562
12,900 Belden & Blake Corp....... 161,250
15,000 Cabot Oil & Gas Corp...... 292,500
120,000 Diamond Shamrock, Inc..... 3,300,000
243,000 Dreco Energy Services
Ltd.*................... 2,217,375
900,000 Energy Service, Inc.*..... 3,262,500
</TABLE>
------------------------------------------------------------------------------
B-28 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------
<C> <S> <C>
OIL & GAS EXPLORATION &
PRODUCTION (CONT'D)
20,600 Enterra Corp.*............ $ 401,700
39,400 Evergreen Resources,
Inc.*................... 320,125
145,000 International Colin Energy
Co...................... 1,866,875
148,000 Lomak Petroleum, Inc.*.... 1,063,750
56,700 Mitchell Energy & Dev.
Corp., Class A.......... 1,013,513
128,550 Mitchell Energy & Dev.
Corp., Class B.......... 2,313,900
200,000 Smith International,
Inc.*................... 2,125,000
87,000 USX -Delhi Group.......... 1,185,375
100,000 Weatherford
International*.......... 837,500
100,000 Wheatley TXT Corp......... 1,000,000
------------
27,003,925
------------
PUBLISHING--1.6%
150,000 Lee Enterprises, Inc...... 5,268,750
195,700 Western Publishing Group,
Inc.*................... 2,727,569
------------
7,996,319
------------
RAILROADS--1.8%
169,700 Kansas City Southern
Industries, Inc......... 8,591,063
------------
REALTY INVESTMENT TRUST--0.3%
39,600 Manufactured Home
Community, Inc.......... 1,638,450
------------
RESTAURANTS--0.6%
80,000 Sbarro, Inc............... 3,070,000
------------
RETAIL--3.8%
262,000 Babbage's, Inc.*.......... 2,816,500
63,000 Brauns Fashions Corp...... 476,437
89,900 Michael Anthony Jewelers,
Inc.*................... 561,875
389,000 Software Et Cetera Stores,
Inc..................... 4,570,750
220,000 Stride Rite Corp.......... 3,245,000
172,700 Tiffany & Co.............. 5,267,350
19,200 Today's Man, Inc.......... 326,400
70,200 Younkers, Inc.*........... $ 1,246,050
------------
18,510,362
------------
SPECIALTY CHEMICALS--3.8%
165,800 Cabot Corp................ 8,953,200
63,400 Ferro Corp................ 1,965,400
60,000 Lesco, Inc................ 787,500
60,000 Potash Corp............... 1,522,500
170,000 Vigoro Corp............... 5,227,500
------------
18,456,100
------------
STEEL--4.1%
155,000 Oregon Steel Mills,
Inc..................... 3,565,000
85,000 Quanex Corp............... 1,700,000
19,500 Rouge Steel Co............ 419,250
375,800 Trinity Industries,
Inc..................... 14,280,400
------------
19,964,650
------------
TELECOMMUNICATIONS EQUIPMENT--2.6%
244,800 Digital Microwave
Corp.*.................. 3,641,400
120,000 Intermediate Telephone,
Inc..................... 1,117,500
175,000 Intertrans Corp........... 2,362,500
7,400 Keptel, Inc............... 72,150
135,000 LDDS Communications,
Inc.*................... 3,223,125
119,800 National Data Corp........ 2,246,250
------------
12,662,925
------------
TRANSPORTATION--2.3%
75,000 Air Express International
Corp.................... 1,678,125
325,000 Expeditors International
of Washington, Inc...... 5,850,000
205,000 OMI Corp.*................ 1,358,125
416,200 WorldCorp, Inc.*.......... 2,445,175
------------
11,331,425
------------
Total common stocks
(cost $454,392,412)..... 478,267,538
------------
</TABLE>
------------------------------------------------------------------------------
B-29 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS--1.5%
REPURCHASE AGREEMENT--1.4%
$ 6,673 Joint Repurchase Agreement Account,
3.46%, 4/4/94, (Note 5)
(cost $6,673,000)....... $ 6,673,000
------------
TIME DEPOSIT--0.1%
383 Chemical Bank, N.A.,
3.50%, 4/1/94
(cost $383,000)........... 383,000
------------
CONTRACTS# PUT OPTION PURCHASED
---------
2,500 S & P 100 Index,
expiring April 1994
(cost $19,137).......... 70,000
------------
Total short-term
investments
(cost $7,075,137)....... 7,126,000
------------
TOTAL INVESTMENTS--99.2%
(cost $461,467,549; Note
4)...................... 485,393,538
Other assets in excess of
liabilities--0.8%....... 3,723,186
------------
NET ASSETS--100%.......... $489,116,724
------------
------------
<FN>
- ------------
* Non-income producing security.
# One contract relates to 100 units.
+ Private placement restricted as to resale. The value ($1,997,500) is 0.4% of
net assets. The restricted security held by the Fund at March 31, 1994
includes registration rights under which the Fund may demand registration by
the issuer.
</TABLE>
- -------------------------------------------------------------------------------
B-30 See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
PRUDENTIAL GROWTH OPPORTUNITY FUND
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1994
--------------
<S> <C>
Investments, at value (cost $461,467,549). . . . . $485,393,538
Cash . . . . . . . . . . . . . . . . . . . . . . . 16,164
Receivable for investments sold. . . . . . . . . . 14,139,153
Receivable for Fund shares sold. . . . . . . . . . 2,530,715
Dividends and interest receivable. . . . . . . . . 455,263
Deferred expenses and other assets . . . . . . . . 16,125
--------------
Total assets . . . . . . . . . . . . . . . . . . 502,550,958
--------------
LIABILITIES
Payable for investments purchased. . . . . . . . . 9,029,365
Payable for Fund shares reacquired . . . . . . . . 3,547,280
Distribution fee payable . . . . . . . . . . . . . 380,281
Management fee payable . . . . . . . . . . . . . . 311,944
Accrued expenses . . . . . . . . . . . . . . . . . 165,364
--------------
Total liabilities. . . . . . . . . . . . . . . . 13,434,234
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . $489,116,724
--------------
--------------
Net assets were comprised of:
Common stock, at par . . . . . . . . . . . . . . $ 421,072
Paid-in capital in excess of par . . . . . . . . 434,135,342
--------------
434,556,414
Accumulated net investment income. . . . . . . . 419,374
Accumulated net realized gains on investments. . 30,214,947
Net unrealized appreciation on investments . . . 23,925,989
--------------
Net assets, March 31,1994. . . . . . . . . . . . . $489,116,724
--------------
--------------
Class A:
Net asset value and redemption price per share
($96,161,054 DIVIDED BY 8,075,719 shares of
common stock issued and outstanding) . . . . . $11.91
Maximum sales charge (5.25% of offering price) . .66
--------------
Maximum offering price to public . . . . . . . . $12.57
--------------
--------------
Class B:
Net asset value, offering price and redemption
price per share
($392,955,670 DIVIDED BY 34,031,470 shares of
common stock issued and outstanding) . . . . . $11.55
--------------
--------------
</TABLE>
See Notes to Financial Statements.
B-31
<PAGE>
- -------------------------------------------------------------------------------
PRUDENTIAL GROWTH OPPORTUNITY FUND
STATEMENT OF OPERATIONS
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31,
NET INVESTMENT INCOME 1994
------------
<S> <C>
Income
Dividends............................ $ 2,446,069
Interest............................. 434,693
------------
Total income....................... 2,880,762
------------
Expenses
Distribution fee--Class A............ 110,052
Distribution fee--Class B............ 1,993,972
Management fee....................... 1,737,529
Transfer agent's fees and expenses... 517,000
Custodian's fees and expenses........ 127,000
Registration fees.................... 125,000
Reports to shareholders.............. 41,000
Audit fee............................ 25,500
Franchise taxes...................... 20,000
Directors' fees...................... 15,000
Legal fees........................... 15,000
Miscellaneous........................ 11,199
------------
Total expenses..................... 4,738,252
------------
Net investment loss.................... (1,857,490)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on investment
transactions......................... 39,236,335
Net decrease in unrealized appreciation
of investments....................... (53,872,448)
------------
Net loss on investments................ (14,636,113)
------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS.............. $(16,493,603)
------------
------------
</TABLE>
See Notes to Financial Statements.
- -------------------------------------------------------------------------------
PRUDENTIAL GROWTH OPPORTUNITY FUND
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
INCREASE (DECREASE) MARCH 31, SEPTEMBER 30,
IN NET ASSETS 1994 1993
------------ -------------
<S> <C> <C>
Operations
Net investment loss.... $ (1,857,490) $ (1,311,418)
Net realized gain on
investment
transactions......... 39,236,335 23,835,926
Net change in
unrealized
appreciation of
investments.......... (53,872,448) 64,901,994
------------ -------------
Net increase (decrease)
in net assets
resulting from
operations........... (16,493,603) 87,426,502
------------ -------------
Net equalization
credits................ 45,227 90,512
------------ -------------
Distributions to
shareholders from net
realized gain (Note 1)
Class A................ (5,775,787) (5,979,973)
Class B................ (24,227,795) (24,035,427)
------------ -------------
(30,003,582) (30,015,400)
------------ -------------
Fund share transactions
(Note 6)
Net proceeds from
shares subscribed.... 219,850,826 453,141,309
Net asset value of
shares issued in
reinvestment of
distributions........ 28,758,329 28,283,287
Cost of shares
reacquired........... (183,950,165) (284,879,535)
------------ -------------
Net increase in net
assets from Fund
share transactions... 64,658,990 196,545,061
------------ -------------
Total increase........... 18,207,032 254,046,675
NET ASSETS
Beginning of period...... 470,909,692 216,863,017
------------ -------------
End of period............ $489,116,724 $ 470,909,692
------------ -------------
------------ -------------
</TABLE>
See Notes to Financial Statements.
B-32
<PAGE>
- -------------------------------------------------------------------------------
PRUDENTIAL GROWTH OPPORTUNITY FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
Prudential Growth Opportunity Fund (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is to achieve capital growth,
consistent with reasonable risk, by investing in a carefully selected portfolio
of common stocks having prospects of a high return on equity, increasing
earnings, increasing dividends and price-earnings ratios which are not
excessive.
NOTE 1. ACCOUNTING The following is a summary of significant
POLICIES accounting policies followed by the Fund in the
preparation of its financial statements.
SECURITIES VALUATIONS: Investments traded on a national securities exchange are
valued at the last reported sales price on the primary exchange on which they
are traded. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) and listed securities for which no sale was reported on that
date are valued at the mean between the last reported bid and asked prices. Any
security for which a reliable market quotation is unavailable is valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
Short-term securities which mature in more than 60 days are valued based upon
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian takes possession of the
underlying collateral securities, the value of which exceeds the principal
amount of the repurchase transaction, including accrued interest. If the seller
defaults and the value of the collateral declines or if bankruptcy proceedings
are commenced with respect to the seller of the security, realization of the
collateral by the Fund may be delayed or limited.
All securities are valued as of 4:15 P.M., New York time.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis.
Net investment income (loss), other than distribution fees, and unrealized
and realized gains or losses are allocated daily to each class of shares of the
Fund based upon the relative proportion of net assets of each class at the
beginning of the day.
FEDERAL INCOME TAXES: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
EQUALIZATION: The Fund follows the accounting practice known as equalization, by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
DIVIDENDS AND DISTRIBUTIONS: The Fund expects to pay dividends of net investment
income, if any, semi-annually and make distributions at least annually of any
net capital gains. Dividends and distributions are recorded on the ex-dividend
date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Fund accounts and reports for
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.
During the six months ended March 31, 1994, the reclassification of $3,168,908
of net operating losses increased paid-in capital by $1,311,418, increased
undistributed net investment income by $1,857,490 and decreased accumulated net
realized gains by $3,168,908. Net investment income, net realized gains, and net
assets were not affected by this change.
NOTE 2. AGREEMENTS The Fund has a management agreement with
Prudential Mutual Fund Management, Inc. ("PMF").
Pursuant to this agreement, PMF has responsibility for all investment advisory
services and supervises the subadviser's performance of such services. PMF has
entered into a subadvisory agreement
B-33
<PAGE>
with The Prudential Investment Corporation ("PIC"); PIC furnishes investment
advisory services in connection with the management of the Fund. PMF pays for
the cost of the subadviser's services, the compensation of officers of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .70 of 1% of the Fund's average daily net assets.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. ("PMFD"), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated ("PSI"), which
acts as distributor of the Class B shares of the Fund (collectively the
"Distributors"). To reimburse the Distributors for their expenses incurred in
distributing the Fund's Class A and B shares, the Fund, pursuant to plans of
distribution, pays the Distributors a reimbursement accrued daily and payable
monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its 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. Such expenses under the Class A Plan
were .20 of 1% of the average daily net assets of the Class A shares for the
three months ended December 31, 1993. Effective January 1, 1994, the Class A
Plan distribution expenses were increased to .25 of 1% of the average daily net
assets. PMFD pays various broker-dealers including PSI and Pruco Securities
Corporation ("Prusec"), affiliated broker-dealers, for account servicing fees
and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payment of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $283,000 in
front-end sales charges resulting from sales of Class A shares during the six
months ended March 31, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total payments made by the Fund pursuant to
the Class B Plan. PSI advised the Fund that for the six months ended March 31,
1994, it received approximately $337,000 in contingent deferred sales charges
imposed upon certain redemptions by investors. PSI, as distributor, has also
advised the Fund that at March 31, 1994, the amount of distribution expenses
incurred by PSI and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges approximated $4,910,000. This amount may be
recovered through future payments under the Class B Plan or contingent deferred
sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned sudsidiary of PMF; PSI, PMF and PIC are indirect
wholly-owned subsidiaries of The Prudential Insurance Company of America.
NOTE 3. OTHER Prudential Mutual Fund Services, Inc. ("PMFS"),
TRANSACTIONS a wholly-owned subsidiary of PMF, serves as the
WITH AFFILIATES Fund's transfer agent. During the six months
ended March 31, 1994, the Fund incurred fees of
approximately $357,000 for the services of PMFS. As of March 31, 1994,
approximately $64,000 of such fees were due to PMFS.
For six months ended March 31, 1994, PSI earned approximately $9,125 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
NOTE 4. PORTFOLIO Purchases and sales of investment securities,
SECURITIES other than short-term investments, for the six
months ended March 31, 1994 were $244,176,398 and
$201,112,320, respectively.
The federal income tax basis of the Fund's investments at March 31, 1994 was
$461,873,410 and, accordingly, net unrealized appreciation for federal income
tax purposes was
B-34
<PAGE>
$23,520,128 (gross unrealized appreciation--$52,098,670 gross unrealized
depreciation--$28,578,542).
NOTE 5. JOINT The Fund, along with other affiliated registered
REPURCHASE affiliated registered investment companies,
AGREEMENT transfers uninvested cash balances into a single
ACCOUNT a single joint account, the daily aggregate
balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. As of March 31, 1994, the Fund had a 0.7% undivided interest in
the repurchase agreements in the joint account. The undivided interest for the
Fund represented $6,673,000 in principal amount. As of such date, each
repurchase agreement in the joint account and the collateral therefor were as
follows:
Bear, Stearns & Co., Inc., 3.30%, dated 3/31/94, in the principal amount of
226,643,000, repurchase price $226,726,102, due 4/4/94; collateralized by
$7,965,000 U.S. Treasury Note, 7.625%, due 4/30/96; $89,000,000 U.S. Treasury
Note, 5.125%, due 6/30/98 and $140,230,000 U.S. Treasury Note, 5.125%, due
3/31/98; aggregate value including accrued interest--$231,552,457.
BT Securities, 3.55%, dated 3/31/94, in the principal amount of
$175,000,000, repurchase price $175,069,028, due 4/4/94; collateralized by
$37,860,000 U.S. Treasury Note, 7.875%, due 8/15/01; $20,320,000 U.S. Treasury
Note, 8.50%, due 2/15/00; $50,000,000 U.S. Treasury Bond, 10.75%, due 2/15/03;
and $39,569,000 U.S. Treasury Bond, 10.75%, due 5/15/03; aggregate value
including accrued interest--$179,069,820.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 3.40%, dated 3/31/94, in the
principal amount of $280,000,000, repurchase price $280,105,778, due 4/4/94;
collateralized by $289,950,000 U.S. Treasury Note, 5.875%, due 3/31/99 and
$750,000 U.S. Treasury Note, 5.375%, due 4/30/94; aggregate value including
accrued interest--$286,345,112.
Morgan (J.P.) Securities, Inc., 3.45%, dated 3/31/94, in the principal amount
of $100,000,000, repurchase price $100,038,333, due 4/4/94; collateralized by
$3,268,000 U.S. Treasury Note, 5.00%, due 1/31/99 and $100,000,000 U.S. Treasury
Note, 5.125%, due 3/31/96; aggregate value, including accrued
interest--$103,036,460.
Morgan Stanley & Co., Inc., 3.45%, dated 3/31/94, in the principal amount of
$152,000,000 repurchase price $152,058,267, due 4/4/94 collateralized by
$155,615,000 U.S. Treasury Note, 4.25%, due 12/31/95; value including accrued
interest--$155,168,195.
NOTE 6. CAPITAL The Fund offers both Class A and Class B shares.
Class A shares are sold with a front-end sales
charge of up to 5.25%. Class B shares are sold with a contingent deferred sales
charge which declines from 5% to zero depending on the period of time the
shares are held. Both classes of shares have equal rights as to earnings,
assets and voting privileges except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan.
There are 500 million shares of common stock, $.01 par value per share,
divided into two classes, designated Class A and Class B common stock, each of
which consists of 250 million authorized shares.
B-35
<PAGE>
Transactions in shares of common stock for the six months ended March 31,
1994 and for the fiscal year ended September 30, 1993 were as follows:
<TABLE>
<CAPTION>
Class A SHARES AMOUNT
- ------- ----------- -------------
<S> <C> <C>
Six months ended March 31,
1994:
Shares sold................. 4,682,093 $ 59,306,605
Shares issued in
reinvestment of
distributions............. 467,223 5,644,046
Shares reaquired............ (4,337,125) (55,012,684)
----------- -------------
Net increase in shares
outstanding............... 812,191 $ 9,937,967
----------- -------------
----------- -------------
Year ended September 30,
1993:
Shares sold................. 7,753,935 $ 136,609,388
Shares issued in
reinvestment of
distributions............. 350,531 5,794,272
Shares issued as a result of
3 for 2 stock split....... 2,387,650 --
Shares reacquired........... (5,886,921) (104,383,394)
----------- -------------
Net increase in shares
outstanding............... 4,605,195 $ 38,020,266
----------- -------------
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class B SHARES AMOUNT
- ------- ----------- -------------
<S> <C> <C>
Six months ended March 31,
1994:
Shares sold................. 12,934,754 $ 160,544,221
Shares issued in
reinvestment of
distributions............. 1,960,499 23,114,283
Shares reaquired............ (10,391,961) (128,937,481)
----------- -------------
Net increase in shares
outstanding............... 4,503,292 $ 54,721,023
----------- -------------
----------- -------------
Year ended September 30,
1993:
Shares sold................. 18,585,281 $ 316,531,921
Shares issued in
reinvestment of
distributions............. 1,382,238 22,489,015
Shares issued as a result of
3 for 2 stock split....... 9,826,606 --
Shares reacquired........... (10,612,911) (180,496,141)
----------- -------------
Net increase in shares
outstanding............... 19,181,214 $ 158,524,795
----------- -------------
----------- -------------
<FN>
- ---------
These financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the results
for the interim period presented.
</TABLE>
B-36
<PAGE>
- -------------------------------------------------------------------------------
PRUDENTIAL GROWTH OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------------------- ------------------------------------
JANUARY 22,
SIX MONTHS 1990+ SIX MONTHS YEAR ENDED
ENDED YEAR ENDED SEPTEMBER 30, THROUGH ENDED SEPTEMBER 30,
MARCH 31, --------------------------- SEPTEMBER 30, MARCH 31, ----------------------
1994 1993**++ 1992**++ 1991++ 1990++ 1994 1993**++ 1992**++
----------- -------- --------- ------- ------------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 13.06 $ 11.25 $ 10.16 $ 7.36 $ 8.55 $ 12.74 $ 11.08 $ 10.11
--------- ------- ------- ------- --------- ---------- -------- --------
INCOME FROM INVESTMENT
- ----------------------
OPERATIONS
----------
Net investment income
(loss).................... -- .03 .02 .05 .09 (.05) (.06) (.07)
Net realized and unrealized
gain (loss) on investment
transactions.............. (.36) 3.14 1.47 2.82 (1.20) (.35) 3.08 1.44
--------- ------- ------- ------- --------- ---------- -------- --------
Total from investment
operations.............. (.36) 3.17 1.49 2.87 (1.11) (.40) 3.02 1.37
--------- ------- ------- ------- --------- ---------- -------- --------
LESS DISTRIBUTIONS
- ------------------
Dividends from net
investment income......... -- -- -- (.07) (.08) -- -- --
Distributions from net
realized capital gain..... (.79) (1.36) (.40) -- -- (.79) (1.36) (.40)
--------- ------- ------- ------- --------- ---------- -------- --------
Total distributions......... (.79) (1.36) (.40) (.07) (.08) (.79) (1.36) (.40)
--------- ------- ------- ------- --------- ---------- -------- --------
Net asset value, end of
period.................... $ 11.91 $ 13.06 $ 11.25 $ 10.16 $ 7.36 $ 11.55 $ 12.74 $ 11.08
--------- ------- ------- ------- --------- ---------- -------- --------
--------- ------- ------- ------- --------- ---------- -------- --------
TOTAL RETURN#:.............. (2.87)% 30.42% 15.39% 39.39% (13.19)% (3.27)% 29.40% 14.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $96,161 $94,842 $44,845 $25,165 $ 17,222 $ 392,956 $376,068 $172,018
Average net assets (000).... $97,911 $69,801 $36,011 $20,650 $ 132,627 $ 399,890 $278,659 $154,601
Ratios to average net
assets:
Expenses, including
distribution fees....... 1.29%* 1.17% 1.33% 1.50% 1.61%* 2.06%* 1.97% 2.13%
Expenses, excluding
distribution fees....... 1.06%* .97% 1.13% 1.30% 1.42%* 1.06%* .97% 1.13%
Net investment income
(loss).................... (.13)%* .26% .19% .59% 1.54%* (.90)%* (.54)% (.61)%
Portfolio turnover.......... 43% 68% 99% 111% 79% 43% 68% 99%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------
1991++ 1990++ 1989++
-------- -------- -------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 7.34 $ 9.11 $ 7.47
-------- -------- --------
INCOME FROM INVESTMENT
- ----------------------
OPERATIONS
----------
Net investment income
(loss).................... (.02) .07 .06
Net realized and unrealized
gain (loss) on investment
transactions.............. 2.82 (1.75) 1.65
-------- -------- --------
Total from investment
operations.............. 2.80 (1.68) 1.71
-------- -------- --------
LESS DISTRIBUTIONS
- ------------------
Dividends from net
investment income......... (.03) (.09) (.07)
Distributions from net
realized capital gain..... -- -- --
-------- -------- --------
Total distributions......... (.03) (.09) (.07)
-------- -------- --------
Net asset value, end of
period.................... $ 10.11 $ 7.34 $ 9.11
-------- -------- --------
-------- -------- --------
TOTAL RETURN#:.............. 38.33% (18.63)% 23.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $118,660 $ 86,440 $160,995
Average net assets (000).... $104,508 $132,622 $144,244
Ratios to average net
assets:
Expenses, including
distribution fees....... 2.30% 2.18% 1.79%
Expenses, excluding
distribution fees....... 1.30% 1.28% 1.17%
Net investment income
(loss).................... (.21)% .91% .74%
Portfolio turnover.......... 111% 79% 79%
<FN>
- ---------------
* Annualized.
** Calculated based upon weighted average shares outstanding during the
period.
+ Commencement of offering of Class A shares.
++ Restated to reflect 3 for 2 stock split paid to shareholders of record
on September 17, 1993.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
</TABLE>
See Notes to Financial Statements.
B-37
<PAGE>
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--95.6%
Common Stocks--95.6%
Automotive--2.0%
75,000 Automotive Industries
Holding, Inc.*........... $ 2,184,375
17,900 Durakon Industries,
Inc.*.................... 241,650
220,000 Mascotech, Inc............. 4,840,000
62,400 Walbro Corp................ 2,028,000
------------
9,294,025
------------
Banking--12.5%
195,000 Bank South Corp............ 2,998,125
115,000 Charter One Financial,
Inc...................... 4,211,875
100,000 Citfed Bancorp, Inc.*...... 2,375,000
220,000 Citizens First Bancorp,
Inc.*.................... 1,512,500
110,000 Commerce Bancshares,
Inc...................... 3,437,500
85,000 Commercial Federal
Corp.*................... 2,087,812
270,000 Community First Bankshares,
Inc...................... 3,881,250
70,900 Constellation Bancorp*..... 784,331
60,000 Cullen Frost Bankers,
Inc...................... 2,160,000
125,000 Dauphin Dep. Corp.......... 3,062,500
75,000 First Eastern Corp.*....... 1,870,312
95,000 First Security Corp........ 2,671,875
62,700 First United Bank Group,
Inc...................... 1,700,738
90,000 First Virginia Banks,
Inc...................... 3,622,500
125,000 Hawkeye Bancorporation..... 2,484,375
145,000 SouthTrust Corp............ 2,845,625
145,000 Summit Bancorporation...... 3,298,750
85,000 TCF Financial Corp......... 3,378,750
65,000 Union Planters Corp........ 1,885,000
320,000 Washington Mutual Savings
Bank of Seattle.......... 8,640,000
------------
58,908,818
------------
Cable & Pay TV Systems--2.6%
235,000 Comcast, Corp.............. 7,299,687
197,800 TCA Cable TV, Inc.......... 5,105,713
------------
12,405,400
------------
Commercial Services--1.7%
179,500 Borg Warner Security
Corp.*................... $ 3,545,125
240,700 Pinkertons, Inc.*.......... 4,302,512
------------
7,847,637
------------
Computer Hardware--3.5%
244,600 Adaptec, Inc.*............. 6,818,225
75,000 EMC Corp.*................. 2,643,750
130,000 Hutchinson Technology,
Inc.*.................... 3,087,500
94,800 Telxon Corp................ 959,850
110,000 Verifone, Inc.*............ 3,107,500
------------
16,616,825
------------
Computer Software & Services--3.6%
145,000 American Management
Systems, Inc.*........... 2,483,125
45,000 Business Records Corp.
Holding Co.*............. 1,203,750
100,000 Cadence Design Systems,
Inc.*.................... 1,050,000
190,000 LEGENT Corp.*.............. 4,108,750
170,400 Primark Corp.*............. 1,959,600
268,400 Structural Dynamics
Research Corp.*.......... 3,807,925
287,600 Technology Solutions
Co.*..................... 2,372,700
------------
16,985,850
------------
Construction--0.7%
110,700 Butler Manufacturing
Co.*..................... 3,307,163
------------
Consumer Products--0.9%
90,700 Kimball International,
Inc...................... 2,664,312
81,100 Sealright Co., Inc......... 1,378,700
------------
4,043,012
------------
</TABLE>
B-38
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Drugs & Medical Supplies--1.6%
61,300 Acuson Corp.*.............. $ 727,938
100,000 Carter Wallace, Inc........ 3,175,000
130,000 Endosonics Corp.*.......... 747,500
44,200 Stryker Corp............... 1,221,025
58,500 Sybron Corp.*.............. 1,630,688
------------
7,502,151
------------
Electrical Equipment--0.4%
162,800 Thomas Industries, Inc..... 1,750,100
------------
Electronics--7.8%
195,000 Altera Corp.*.............. 6,008,438
123,000 Augat, Inc................. 2,598,375
75,000 Dynatech Corp.*............ 1,753,125
325,000 Laser Precision Corp.*..... 2,193,750
258,500 Marshall Industries,
Inc.*.................... 12,763,437
373,400 Methode Eletronics Inc..... 4,294,100
210,000 Tridex Corp.*.............. 2,178,750
197,900 VLSI Technology, Inc.*..... 3,376,669
99,000 Woodhead Industries,
Inc...................... 1,534,500
------------
36,701,144
------------
Environmental Services--0.6%
131,700 Air & Water Technologies
Corp.*................... 1,810,875
72,700 Calgon Carbon Corp......... 817,875
------------
2,628,750
------------
Financial Services--4.6%
297,950 Edwards (A.G.), Inc........ 8,789,525
210,000 McDonald & Co. Investments,
Inc...................... 3,281,250
156,000 Piper Jaffray, Inc......... 5,187,000
70,050 Quick & Reilly Group,
Inc.*.................... 2,539,312
33,000 T. Rowe Price Associates,
Inc...................... 2,017,125
------------
21,814,212
------------
Food & Beverages--2.9%
330,000 Brunos, Inc................ $ 3,671,250
70,000 Dreyers Grand Ice Cream,
Inc...................... 1,942,500
63,000 Performance Food Group
Co....................... 1,039,500
296,500 Rykoff S E & Co............ 5,225,812
110,000 Savannah Foods &
Industries, Inc.......... 1,787,500
------------
13,666,562
------------
Forest Products--0.6%
130,000 Mosinee Paper Corp......... 2,990,000
------------
Health Care Services--0.6%
65,000 Living Centers of America,
Inc.*.................... 1,356,875
157,100 Multicare Cos, Inc......... 1,688,825
------------
3,045,700
------------
Household Products--0.8%
138,000 Libbey, Inc................ 1,983,750
200,000 Mr Coffee, Inc............. 1,700,000
------------
3,683,750
------------
Industrials--8.0%
144,600 Amcast Industrial Corp..... 2,711,250
110,000 Amtrol, Inc................ 2,186,250
256,000 Carlisle Companies, Inc.... 8,000,000
38,800 Core Industries, Inc....... 504,400
119,000 Diebold, Inc............... 6,902,000
50,100 ESSEF Corp.*............... 594,938
20,000 Harmon Industries, Inc..... 373,750
81,000 Insituform Mid-America,
Inc...................... 1,053,000
28,600 Kenetech Corp.............. 436,150
230,006 Mark IV Industries, Inc.... 5,778,901
13,600 Moorco International,
Inc...................... 236,300
75,000 Schulman, Inc.............. 2,109,375
80,600 Thermotrex Corp.*.......... 1,894,100
25,000 Tyco Labs, Inc............. 1,081,250
83,700 Varlen Corp................ 3,201,525
30,700 Whittaker Corp............. 414,450
------------
37,477,639
------------
</TABLE>
B-39
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Insurance--6.8%
80,600 Allied Group, Inc.......... $ 2,508,675
27,500 Allmerica Property &
Casualty Cos., Inc....... 1,650,000
48,600 Berkley (W. R.) Corp....... 2,077,650
85,800 CCP Insurance, Inc......... 2,681,250
26,300 Crawford & Co.............. 420,800
70,000 Equitable of Iowa Cos.,
Inc...................... 2,695,000
110,000 First Colony Corp.......... 3,313,750
105,000 Guaranty National Corp..... 2,441,250
78,400 Horace Mann Educators
Corp..................... 2,067,800
375,000 I. C. H. Corp.*............ 2,484,375
55,000 Mercury General Corp....... 2,117,500
221,400 Philadelphia Consolidated
Holding Corp............. 2,878,200
125,500 SCOR U.S. Corp............. 2,102,125
28,800 Statesman Group, Inc....... 401,400
100,000 UniCare Financial Corp.*... 2,200,000
------------
32,039,775
------------
Leisure--1.2%
160,000 Regis Corp.*............... 1,900,000
514,300 Topps Co................... 3,857,250
------------
5,757,250
------------
Machinery & Equipment--5.5%
80,000 Brenco, Inc................ 985,000
170,000 Gerber Scientific, Inc..... 2,316,250
95,000 Kaydon Corp................ 1,888,125
125,000 Lufkin Industries, Inc..... 2,250,000
315,000 Measurex Corp.............. 5,670,000
8,100 Nordson Corp............... 423,225
199,400 Regal Beloit Corp.......... 4,336,950
40,000 Roper Industries........... 1,415,000
70,000 Thermo Electron Corp.*..... 4,445,000
50,000 Watts Industries, Inc...... 2,181,250
------------
25,910,800
------------
Natural Resources--0.4%
17,200 Minerals Technologies,
Inc.*.................... $ 494,500
270,500 Nord Resources Corp.*...... 1,284,875
------------
1,779,375
------------
Office Equipment & Supplies--0.1%
26,200 Tokheim Corp............... 314,400
------------
Oil & Gas Exploration & Production--5.3%
325,800 American Oil & Gas
Corp.*................... 3,787,425
15,000 Cabot Oil & Gas Corp....... 371,250
120,000 Diamond Shamrock, Inc...... 2,910,000
110,000 Dreco Energy Services
Ltd...................... 2,282,500
825,000 Energy Service, Inc.*...... 2,681,250
10,800 Enterra Corp............... 267,300
36,400 Gerrity Oil & Gas Corp.*... 518,700
100,000 Helmerich & Payne, Inc..... 3,400,000
48,750 Mitchell Energy & Dev.
Corp., Class A........... 1,322,344
134,350 Mitchell Energy & Dev.
Corp., Class B........... 3,358,750
90,000 Sonat Offshore Drilling,
Inc...................... 1,901,250
87,000 USX - Delhi Group.......... 2,044,500
------------
24,845,269
------------
Publishing--2.5%
62,300 Lee Enterprises, Inc....... 1,954,662
637,000 Western Publishing Group,
Inc.*.................... 9,913,313
------------
11,867,975
------------
Railroads--4.0%
452,800 Kansas City Southern
Industries, Inc.......... 19,074,200
------------
Realty Investment Trust--0.9%
91,000 Manufactured Home
Community, Inc........... 4,060,875
------------
Restaurants--1.5%
110,000 Luby's Cafeterias, Inc..... 2,420,000
104,400 Sbarro, Inc................ 4,580,550
------------
7,000,550
------------
</TABLE>
B-40
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Retail--1.1%
126,000 Babbage's, Inc.*........... $ 3,622,500
4,500 Brauns Fashions Corp....... 44,156
167,500 Sound Advice, Inc.*........ 1,109,687
23,700 Younkers, Inc.*............ 553,988
------------
5,330,331
------------
Specialty Chemicals--4.1%
130,000 Cabot Corp................. 7,215,000
108,300 Ferro Corp................. 3,249,000
99,700 Fuller ( H. B.) Co......... 3,327,487
140,077 Lawter International,
Inc...................... 1,856,020
98,700 LeaRonal, Inc.............. 1,443,487
38,000 Lesco, Inc. Ohio........... 532,000
24,000 Raychem Corp............... 1,023,000
21,100 Vigoro Corp................ 532,775
------------
19,178,769
------------
Steel--3.4%
55,000 Huntco, Inc................ 1,588,125
100,000 Quanex Corp................ 1,937,500
337,500 Trinity Industries, Inc.... 12,529,688
------------
16,055,313
------------
Telecommunications Equipment--2.7%
48,100 ADC Telecommunications,
Inc.*.................... 1,887,925
19,000 Allen Group, Inc........... 1,099,625
60,400 Andrew Corp.*.............. 2,340,500
123,380 LDDS Communications,
Inc.*.................... 6,153,578
20,000 Tellabs, Inc.*............. 1,255,000
------------
12,736,628
------------
Transportation--0.7%
16,100 Expeditors International of
Washington, Inc.......... $ 452,813
205,000 OMI Corp................... 1,358,125
416,200 WorldCorp, Inc.*........... 1,560,750
------------
3,371,688
------------
Total common stock
(cost $372,091,999)...... 449,991,936
------------
SHORT-TERM INVESTMENTS--4.3%
Contracts# Put Options Purchased--0.1%
---------
S & P 500 Index
500 November 1993
(cost $395,250).......... 293,750
------------
<CAPTION>
Principal
Amount
(000) Repurchase Agreement--4.2%
---------
<C> <S> <C>
Joint Repurchase Agreement
Account,
$ 19,955 3.30%, 10/1/93, (Note 5)
(cost $19,955,000)....... 19,955,000
------------
Total Investments--99.9%
(cost $392,442,249; Note
4)....................... 470,240,686
Other assets in excess of
liabilities--0.1%........ 669,006
------------
Net Assets--100%........... $470,909,692
------------
------------
</TABLE>
- ------------
* Non-income producing security.
# One contract relates to 100 units.
B-41
See Notes to Financial Statements.
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets September 30, 1993
------------------
<S> <C>
Investments, at value (cost $392,442,249)............................................. $470,240,686
Cash.................................................................................. 31,297
Receivable for investments sold....................................................... 6,416,725
Receivable for Fund shares sold....................................................... 2,141,724
Dividends and interest receivable..................................................... 517,677
Other assets.......................................................................... 6,346
------------------
Total assets........................................................................ 479,354,455
------------------
Liabilities
Payable for investments purchased..................................................... 6,523,387
Payable for Fund shares reacquired.................................................... 1,148,200
Due to Distributors................................................................... 316,871
Due to Manager........................................................................ 264,223
Accrued expenses...................................................................... 192,082
------------------
Total liabilities................................................................... 8,444,763
------------------
Net Assets............................................................................ $470,909,692
------------------
------------------
Net assets were comprised of:
Common stock, at par................................................................ $ 367,917
Paid-in capital in excess of par.................................................... 368,218,089
------------------
368,586,006
Accumulated net investment income................................................... 374,147
Accumulated net realized gains...................................................... 24,151,102
Net unrealized appreciation......................................................... 77,798,437
------------------
Net assets, September 30, 1993........................................................ $470,909,692
------------------
------------------
Class A:
Net asset value and redemption price per share
($94,842,126 / 7,263,528 shares of common stock issued and outstanding)........... $13.06
Maximum sales charge (5.25% of offering price)...................................... .72
------------------
Maximum offering price to public.................................................... $13.78
------------------
------------------
Class B:
Net asset value, offering price and redemption price per share
($376,067,566 / 29,528,178 shares of common stock issued and outstanding)......... $12.74
------------------
------------------
</TABLE>
See Notes to Financial Statements.
B-42
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
September 30,
Net Investment Income 1993
-------------
<S> <C>
Income
Dividends............................ $ 4,278,439
Interest............................. 725,979
-------------
Total income....................... 5,004,418
-------------
Expenses
Distribution fee--Class A............ 139,602
Distribution fee--Class B............ 2,786,595
Management fee....................... 2,439,222
Transfer agent's fees and expenses... 556,000
Custodian's fees and expenses........ 188,000
Registration fees.................... 81,000
Audit fee............................ 51,000
Franchise taxes...................... 32,000
Directors' fees...................... 30,200
Miscellaneous........................ 12,217
-------------
Total expenses..................... 6,315,836
-------------
Net investment loss.................... (1,311,418)
-------------
Realized and Unrealized Gain
on Investments
Net realized gain on investment
transactions......................... 23,835,926
Net increase in unrealized
appreciation of investments.......... 64,901,994
-------------
Net gain on investments................ 88,737,920
-------------
Net Increase in Net Assets
Resulting from Operations.............. $ 87,426,502
-------------
-------------
</TABLE>
PRUDENTIAL GROWTH OPPORTUNITY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30,
Increase (Decrease) ------------------------------
in Net Assets 1993 1992
------------- -------------
<S> <C> <C>
Operations
Net investment loss..... $ (1,311,418) $ (866,396)
Net realized gain on
investment
transactions.......... 23,835,926 30,931,321
Net change in unrealized
appreciation of
investments........... 64,901,994 (5,813,471)
------------- -------------
Net increase in net
assets resulting from
operations............ 87,426,502 24,251,454
------------- -------------
Net equalization
credits................. 90,512 77,338
------------- -------------
Distributions to
shareholders from net
realized gain (Note 1)
Class A................... (5,979,973) (1,123,970)
Class B................... (24,035,427) (5,108,906)
------------- -------------
(30,015,400) (6,232,876)
------------- -------------
Fund share transactions
(Note 6)
Net proceeds from shares
subscribed............ 453,141,309 191,903,901
Net asset value of
shares issued in
reinvestment of
distributions......... 28,283,287 5,861,357
Cost of shares
reacquired.............. (284,879,535) (142,823,741)
------------- -------------
Net increase in net
assets from Fund share
transactions.......... 196,545,061 54,941,517
------------- -------------
Total increase............ 254,046,675 73,037,433
Net Assets
Beginning of year......... 216,863,017 143,825,584
------------- -------------
End of year............... $ 470,909,692 $ 216,863,017
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
B-43
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND
Notes to Financial Statements
Prudential Growth Opportunity Fund (the ``Fund'') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is to achieve capital growth,
consistent with reasonable risk, by investing in a carefully selected portfolio
of common stocks having prospects of a high return on equity, increasing
earnings, increasing dividends and price-earnings ratios which are not
excessive.
Note 1. Accounting The following is a summary
Policies of significant accounting
policies followed by the Fund in the preparation
of its financial statements.
Securities Valuations: Investments traded on a national securities exchange are
valued at the last reported sales price on the primary exchange on which they
are traded. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) and listed securities for which no sale was reported on that
date are valued at the mean between the last reported bid and asked prices.
Short-term securities which mature in more than 60 days are valued based upon
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian takes possession of the
underlying collateral securities, the value of which exceeds the principal
amount of the repurchase transaction, including accrued interest. If the seller
defaults and the value of the collateral declines or if bankruptcy proceedings
are commenced with respect to the seller of the security, realization of the
collateral by the Fund may be delayed or limited.
All securities are valued as of 4:15 P.M., New York time.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis.
Net investment income (loss) (other than distribution fees) and unrealized
and realized gains or losses are allocated daily to each class of shares of the
Fund based upon the relative proportion of net assets of each class at the
beginning of the day.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Equalization: The Fund follows the accounting practice known as equalization, by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income, if any, semi-annually and make distributions at least annually of any
net capital gains. Dividends and distributions are recorded on the ex-dividend
date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Reclassification of Capital Accounts: Effective October 1, 1992, the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. The effect caused by adopting this statement was to
decrease paid-in capital and increase accumulated net investment income by
$710,937 compared to amounts previously reported through September 30, 1992.
During the fiscal year ended September 30, 1993, the Fund reclassified an
additional $1,311,418 of net operating losses as a charge to paid-in capital.
Net investment income, net realized gains, and net assets were not affected by
this change.
B-44
<PAGE>
Note 2. Agreements The Fund has a manage
ment agreement with Prudential Mutual Fund
Management, Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility
for all investment advisory services and supervises the subadviser's performance
of such services. PMF has entered into a subadvisory agreement with The
Prudential Investment Corporation (``PIC''); PIC furnishes investment advisory
services in connection with the management of the Fund. PMF pays for the cost of
the subadviser's services, the compensation of officers of the Fund, occupancy
and certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .70 of 1% of the Fund's average daily net assets.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B shares of the Fund (collectively the
``Distributors''). To reimburse the Distributors for their expenses incurred in
distributing the Fund's Class A and B shares, the Fund, pursuant to plans of
distribution, pays the Distributors a reimbursement accrued daily and payable
monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its 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. Such expenses under the Class A Plan
were .20 of 1% of the average daily net assets of the Class A shares for the
fiscal year ended September 30, 1993. PMFD pays various broker-dealers including
PSI and Pruco Securities Corporation (``Prusec''), affiliated broker-dealers,
for account servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payment of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $835,000 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended September 30, 1993. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total payments made by the Fund pursuant to
the Class B Plan. PSI advised the Fund that for the fiscal year ended September
30, 1993, it received approximately $436,000 in contingent deferred sales
charges imposed upon certain redemptions by investors. PSI, as distributor, has
also advised the Fund that at September 30, 1993, the amount of distribution
expenses incurred by PSI and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges approximated $4,548,000. This amount may be
recovered through future payments under the Class B Plan or contingent deferred
sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned sudsidiary of PMF; PSI, PMF and PIC are indirect
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund
Transactions Services, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the fiscal year ended September 30, 1993, the Fund incurred fees of
approximately $423,000 for the services of PMFS. As of September 30, 1993,
approximately $106,000 of such fees were due to PMFS.
For the fiscal year ended September 30, 1993, PSI earned approximately
$11,000 in brokerage commissions
B-45
<PAGE>
from portfolio transactions executed on behalf of the Fund.
Note 4. Portfolio Purchases and sales of
Securities investment securities, other
than short-term investments, for the fiscal year
ended September 30, 1993 were $375,955,175 and $223,400,210, respectively.
The federal income tax basis of the Fund's investments at September 30, 1993
was substantially the same as the basis for financial reporting purposes and,
accordingly, net unrealized appreciation for federal income tax purposes was
$77,798,437 (gross unrealized appreciation-- $89,217,610 gross unrealized
depreciation-- $11,419,173).
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest
Agreement ment companies, transfers
Account uninvested cash balances
into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or Federal agency obligations. As of September 30, 1993, the
Fund had a 2.1% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represented $19,955,000 in
principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefor were as follows:
Bear, Stearns & Co., Inc., 3.35%, dated 9/30/93, in the principal amount of
$260,000,000, repurchase price $260,024,194, due 10/1/93; collateralized by
$14,430,000 U.S. Treasury Notes, 5.125%, due 3/31/98; $22,000,000 U.S. Treasury
Notes, 7.625%, due 5/31/96; $36,275,000 U.S. Treasury Notes, 8.50%, due 3/31/94;
$45,000,000 U.S. Treasury Notes, 6.875%, due 8/15/94; $91,570,000 U.S. Treasury
Bills, 3.35%, due 12/30/93 and $49,100,000 U.S. Treasury Notes, 5.375%, due
5/31/98; aggregate value including interest-- $265,533,343.
Morgan Stanley & Co., Inc., 3.30%, dated 9/30/93, in the principal amount of
$275,000,000, repurchase price $275,025,208, due 10/1/93; collateralized by
$200,000,000 U.S. Treasury Notes, 8.50%, due 8/15/95 and $61,405,000 U.S.
Treasury Notes, 3.875%, due 3/31/95; aggregate value including interest--
$280,760,268.
Kidder, Peabody & Co., Inc., 3.40%, dated 9/30/93, in the principal amount of
$75,406,000, repurchase price $75,413,122, due 10/1/93; collateralized by
$15,385,000 U.S. Treasury Bonds, 8.750%, due 11/15/08 and $50,000,000 U.S.
Treasury Bonds, 7.250%, due 5/15/16; aggregate value including
interest--$77,089,431.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 3.20%, dated 9/30/93, in the
principal amount of $150,000,000, repurchase price $150,013,333, due 10/1/93;
collateralized by $49,000,000 U.S. Treasury Notes, 8.50%, due 3/31/94,
$48,000,000 U.S. Treasury Notes, 7.875%, due 4/15/98, and $41,005,000 U.S.
Treasury Notes, 7.875%, due 1/15/98; aggregate value including accrued
interest--$153,247,629.
Morgan (J.P.) Securities, Inc., 3.25%, dated 9/30/93, in the principal amount
of $200,000,000, repurchase price $200,018,056, due 10/1/93; collateralized by
$150,000,000 U.S. Treasury Notes, 8.50%, due 7/15/97 and $30,890,000 U.S.
Treasury Notes, 3.875%, due 3/31/95; aggregate value including interest--
$204,579,885.
Note 6. Capital The Fund offers both Class
A and Class B shares. Class A shares are sold with
a front-end sales charge of up to 5.25%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Both classes of shares have equal rights as
to earnings, assets and voting privileges except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan.
The Board of Directors approved an amendment to the Fund's Articles of
Incorporation increasing the number of authorized shares to 500 million at $.01
par value per share. The shares are divided into two classes, designated Class A
and Class B common stock, each of which consists of 250 million authorized
shares.
B-46
<PAGE>
Transactions in shares of common stock for the fiscal years ended September
30, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------- ----------- -------------
<S> <C> <C>
Year ended September 30,
1993:
Shares sold............... 7,753,935 $ 136,609,388
Shares issued in
reinvestment of
distributions........... 350,531 5,794,272
Shares issued as a result
of 3 for 2 stock
split................... 2,387,650 --
Shares reacquired......... (5,886,921) (104,383,394)
----------- -------------
Net increase in shares
outstanding............. 4,605,195 $ 38,020,266
----------- -------------
----------- -------------
Year ended September 30,
1992:
Shares sold............... 1,622,695 $ 26,713,658
Shares issued in
reinvestment of
distributions........... 77,504 1,104,440
Shares reacquired......... (692,699) (11,444,964)
----------- -------------
Net increase in shares
outstanding............. 1,007,500 $ 16,373,134 ----------- -------------
----------- -------------
Class B Shares Amount
- -------------------------- ----------- -------------
Year ended September 30,
1993:
Shares sold............... 18,585,281 $ 316,531,921
Shares issued in
reinvestment of
distributions........... 1,382,238 22,489,015
Shares issued as a result
of 3 for 2 stock
split................... 9,826,606 --
Shares reacquired......... (10,612,911) (180,496,141)
----------- -------------
Net increase in shares
outstanding............. 19,181,214 $ 158,524,795
----------- -------------
----------- -------------
Year ended September 30,
1992:
Shares sold............... 10,278,606 $ 165,190,243
Shares issued in
reinvestment of
distributions........... 337,131 4,756,917
Shares reacquired......... (8,098,135) (131,378,777)
----------- -------------
Net increase in shares
outstanding............. 2,517,602 $ 38,568,383
----------- -------------
----------- -------------
</TABLE>
B-47
<PAGE>
PRUDENTIAL GROWTH OPPORTUNITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 22,
1990+
Year Ended September 30, Through Year Ended September 30,
--------------------------- September 30, ----------------------------------------------------
1993** 1992** 1991 1990 1993** 1992** 1991 1990 1989
------- ------- ------- ------------- -------- -------- -------- -------- --------
PER SHARE OPERATING
PERFORMANCE++:
Net asset value, beginning of
period..................... $ 11.25 $ 10.16 $ 7.36 $ 8.55 $ 11.08 $ 10.11 $ 7.34 $ 9.11 $ 7.47
------- ------- ------- ------------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income
(loss)..................... .03 .02 .05 .09 (.06) (.07) (.02) .07 .06
Net realized and unrealized
gain (loss) on investment
transactions............... 3.14 1.47 2.82 (1.20) 3.08 1.44 2.82 (1.75) 1.65
------- ------- ------- ------------- -------- -------- -------- -------- --------
Total from investment
operations............... 3.17 1.49 2.87 (1.11) 3.02 1.37 2.80 (1.68) 1.71
Less distributions
Dividends from net investment
income..................... -- -- (.07) (.08) -- -- (.03) (.09) (.07)
Distributions from net
realized capital gains..... (1.36) (.40) -- -- (1.36) (.40) -- -- --
------- ------- ------- ------------- -------- -------- -------- -------- --------
Total distributions.......... (1.36) (.40) (.07) (.08) (1.36) (.40) (.03) (.09) (.07)
------- ------- ------- ------------- -------- -------- -------- -------- --------
Net asset value, end of
period..................... $ 13.06 $ 11.25 $ 10.16 $ 7.36 $ 12.74 $ 11.08 $ 10.11 $ 7.34 $ 9.11
------- ------- ------- ------------- -------- -------- -------- -------- --------
------- ------- ------- ------------- -------- -------- -------- -------- --------
TOTAL RETURN#:............... 30.42% 15.39% 39.39% (13.19)% 29.40% 14.27% 38.33% (18.63)% 23.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $94,842 $44,845 $25,165 $ 17,222 $376,068 $172,018 $118,660 $ 86,440 $160,995
Average net assets (000)..... $69,801 $36,011 $20,650 $ 132,627 $278,659 $154,601 $104,508 $132,622 $144,244
Ratios to average net assets:
Expenses, including
distribution fees........ 1.17% 1.33% 1.50% 1.61%* 1.97% 2.13% 2.30% 2.18% 1.79%
Expenses, excluding
distribution fees........ .97% 1.13% 1.30% 1.42%* .97% 1.13% 1.30% 1.28% 1.17%
Net investment income
(loss)..................... .26% .19% .59% 1.54%* (.54)% (.61)% (.21)% .91% .74%
Portfolio turnover........... 68% 99% 111% 79% 68% 99% 111% 79% 79%
- ---------------
* Annualized.
** Calculated based upon weighted average shares outstanding during the period.
+ Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return is calculated assuming a
purchase of shares on the first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for periods of less than a full year are not
annualized.
++ Restated to reflect 3 for 2 stock split paid to shareholders of record on September 17, 1993.
</TABLE>
See Notes to Financial Statements.
B-48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Prudential Growth Opportunity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Growth Opportunity Fund
(the ``Fund'') at September 30, 1993, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as ``financial statements'') are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1993 by correspondence with the
custodian and brokers, and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE
New York, New York
November 8, 1993
B-49
