PRUDENTIAL UTILITY FUND INC, 497, 1998-06-01

PRUDENTIAL UTILITY FUND INC
497, 1998-06-01

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<PAGE>
Prudential Utility Fund, Inc.
- --------------------------------

PROSPECTUS DATED MARCH 3, 1998
(REVISED AS OF JUNE 1, 1998)

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

Prudential Utility Fund, Inc. (the Fund) is an open-end, diversified, management
investment company. Its investment objective is to seek total return through a
combination of current income and capital appreciation. The Fund seeks to
achieve its objective through investment in equity-related and debt securities
of utility companies, which include electric, gas, gas pipeline, telephone,
telecommunications, water, cable, airport, seaport and toll road companies. In
normal circumstances, the Fund intends to invest at least 80% of its assets in
such securities. The Fund also may purchase and sell certain derivatives,
including options on equity securities and stock index options, futures
contracts and options thereon, forward foreign currency exchange contracts, and
options on foreign currencies pursuant to 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 Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and its
telephone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission (the
Commission) in a Statement of Additional Information, dated March 3, 1998, 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. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

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

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

Prudential Utility 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 to seek total return through a
combination of current income and capital appreciation. It seeks to achieve
this objective by investing primarily in equity-related and debt securities
of utility companies, which include electric, gas, gas pipeline, telephone,
telecommunications, water, cable, airport, seaport and toll road companies.
There can be no assurance that the Fund's objective will be achieved. See
"How the Fund Invests-- Investment Objective and Policies" at page 9.

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

The Fund may invest up to 30% of its total assets in foreign securities.
Investing in securities of foreign companies and countries involves certain
considerations and risks not typically associated with investing in
securities of domestic companies. See "How the Fund Invests--Investment
Objective and Policies--Foreign Securities" at page 10.

In addition, the Fund may engage in various hedging and return enhancement
strategies, including purchasing and selling options on equity securities,
stock index options, futures contracts and options thereon, forward foreign
currency exchange contracts, and options on foreign currencies pursuant to
limits described herein. These activities may be considered speculative and
may result in higher risks and costs to the Fund. See "How the Fund
Invests--Hedging and Return Enhancement Strategies--Risks of Hedging and
Return Enhancement Strategies" at page 14. As with an investment in any
mutual fund, an investment in this Fund can decrease in value and you can
lose money.

WHO MANAGES THE FUND?

Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is currently compensated for its services at an
annual rate of .60 of 1% of the Fund's average daily net assets up to and
including $250 million, .50 of 1% of the next $500 million, .45 of 1% of the
next $750 million, .40 of 1% of the next $500 million, .35 of 1% of the next
$2 billion, .325 of 1% of the next $2 billion and .30 of 1% of the excess
over $6 billion of the Fund's average daily net assets. As of January 31,
1998, PIFM served as manager or administrator to 64 investment companies,
including 42 mutual funds, with aggregate assets of approximately $63
billion. The Prudential Investment Corporation, doing business as Prudential
Investments (PI, the Subadviser or the investment adviser), furnishes
investment advisory services in connection with the management of the Fund
under a Subadvisory Agreement with PIFM. See "How the Fund is
Managed--Manager" at page 16.

WHO DISTRIBUTES THE FUND'S SHARES?

Prudential Investment Management Services LLC (the Distributor) acts as
the Distributor of the Fund's Class A, Class B, Class C and Class Z 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 and is paid a distribution and service fee 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 Distributor incurs the
expense of distributing the Fund's Class Z shares under a Distribution
Agreement with the Fund, none of which is reimbursed or paid for by the
Fund. See "How the Fund is Managed--Distributor" at page 17.

2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 for Class A and Class B shares
and $5,000 for Class C shares. The minimum subsequent investment is $100 for
Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement
for certain retirement and employee savings plans or custodial accounts for
the benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 23 and
"Shareholder Guide--Shareholder Services" at page 32.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Fund through the Distributor or brokers or
dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund
through its transfer agent, Prudential Mutual Fund Services LLC (PMFS or the
Transfer Agent). In each case, sales are made at the net asset value per
share (NAV) next determined after receipt of your purchase order by the
Transfer Agent, a Dealer or the Distributor, plus a sales charge which may
be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at NAV without any sales charge. Dealers may
charge their customers a separate fee for handling purchase transactions.
See "How the Fund Values its Shares" at page 19 and "Shareholder Guide--How
to Buy Shares of the Fund" at page 23.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Fund offers four 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.

- Class Z Shares:
Sold without either an initial sales charge or CDSC to a
limited group of investors. Class Z shares are not
subject to any ongoing service or distribution expenses.

See "Shareholder Guide--Alternative Purchase Plan" at page 24.

HOW DO I SELL MY SHARES?

You may redeem your shares at any time at the NAV next determined after
your Dealer, the Distributor or the Transfer Agent receives your sell order.
The proceeds from redemptions of Class B and Class C shares may be subject
to a CDSC. Dealers may charge their customers a separate fee for handling
sale transactions. See "Shareholder Guide--How to Sell Your Shares" at page
27.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

The Fund expects to pay dividends of net investment income, if any,
quarterly 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 20.

3
<PAGE>
FUND EXPENSES

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- ------------------------------ --------------------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Load Imposed
on Purchases (as a
percentage of offering
price)..................... 5% None None None
Maximum Sales Load Imposed
on Reinvested Dividends.... None None None None
Maximum Deferred Sales Load
(as a percentage of
original purchase price or
redemption proceeds,
whichever is lower)........ None 5% during the first year, 1% on redemptions made None
decreasing by 1% annually to within one year of purchase
1% in the fifth and sixth and
0% the seventh year*
Redemption Fees............. None None None None
Exchange Fee................ None None None None
</TABLE>

<TABLE>
<CAPTION>
CLASS A CLASS Z
SHARES CLASS B SHARES CLASS C SHARES SHARES
------------- ------------------------- ------------------------- -------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............. .41% .41% .41% .41%
12b-1 Fees (After
Reduction)................. .25%++ 1.00% 1.00% None
Other Expenses.............. .16% .16% .16% .16%
--- ---
-- --
Total Fund Operating
Expenses (After
Reduction)................. 1.57% 1.57%
.82% .57%
--- ---
--- ---
-- --
-- --
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
EXAMPLE
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.................................. $58 $75 $93 $146
Class B.................................. $66 $80 $96 $157
Class C.................................. $26 $50 $86 $187
Class Z.................................. $ 6 $18 $32 $ 71
You would pay the following expenses on the
same investment, assuming no redemption:
Class A.................................. $58 $75 $93 $146
Class B.................................. $16 $50 $86 $157
Class C.................................. $16 $50 $86 $187
Class Z.................................. $ 6 $18 $32 $ 71
</TABLE>

The above example is based on data for the Fund's fiscal year ended
December 31, 1997. 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"
include operating expenses of the Fund, such as Directors' and
professional fees, registration fees, reports to shareholders and transfer
agency and custodian fees.
- ---------------

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

+ Dealers may independently charge additional fees for shareholder transactions
or advisory services. Pursuant to rules of the National Association of
Securities Dealers, Inc., the aggregate initial sales charges, deferred
sales charges and asset-based sales charges on shares of the Fund may not
exceed 6.25% of total gross sales, subject to certain exclusions. This
6.25% limitation is imposed on each class of the Fund rather than on a
per shareholder basis. Therefore, long-term shareholders of the Fund may
pay more in total sales charges than the economic equivalent of 6.25% of
such shareholders' investment in such shares. See "How the Fund is
Managed--Distributor."

++ Although the Class A Distribution and Service Plan provides that the Fund
may pay 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
.25 of 1% of the average daily net assets of the Class A shares for the
fiscal year ending December 31, 1998. Total Fund Operating Expenses of
Class A shares without such limitation would be .87%. See "How the Fund
is Managed--Distributor."

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)

The following financial highlights for each of the five years in the period
ended December 31, 1997 have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The financial highlights
contain selected data for a share of Class A common stock outstanding, total
return, ratios to average net assets and other supplemental data for each of the
periods indicated. Further performance information is contained in the annual
report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 (d) 1996 (d) 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 10.88 $ 9.87 $ 8.27 $ 9.72 $ 8.97 $ 8.72 $ 7.63
-------- -------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................. .34 .32 .30 .31 .33 .38 .39
Net realized and unrealized gains (losses) on
investment and foreign currency transactions.... 2.53 1.80 1.79 (1.06) 1.12 .45 1.10
-------- -------- -------- -------- -------- ------- -------
Total from investment operations.................. 2.87 2.12 2.09 (.75) 1.45 .83 1.49
-------- -------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income.............. (.32) (.32) (.30) (.32) (.29) (.34) (.39)
Distributions from net realized gains............. (1.10) (.79) (.19) (.36) (.41) (.24) (.01)
Distributions in excess of net realized gains..... -- -- -- (.02) -- -- --
-------- -------- -------- -------- -------- ------- -------
Total distributions............................... (1.42) (1.11) (.49) (.70) (.70) (.58) (.40)
-------- -------- -------- -------- -------- ------- -------
Net asset value, end of period.................... $ 12.33 $ 10.88 $ 9.87 $ 8.27 $ 9.72 $ 8.97 $ 8.72
-------- -------- -------- -------- -------- ------- -------
-------- -------- -------- -------- -------- ------- -------

TOTAL RETURN (c):................................. 27.77% 22.09% 25.74% (7.89)% 16.28% 9.88% 19.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000)............... $ 2,583 $ 2,023 $ 1,709 $ 254 $ 337 $ 201 $ 111
Average net assets (000,000)...................... $ 2,201 $ 1,786 $ 1,440 $ 294 $ 287 $ 149 $ 85
Ratios to average net assets:
Expenses, including distribution fees........... .82% .86% .88% .88% .80% .81% .87%
Expenses, excluding distribution fees........... .57% .61% .63% .63% .60% .61% .67%
Net investment income........................... 2.95% 3.10% 3.12% 3.37% 3.16% 4.14% 4.69%
Portfolio turnover rate........................... 15% 17% 14% 15% 24% 24% 38%
Average commission rate paid per share............ $ .0301 $ .0332 $ .0302 N/A N/A N/A N/A

JANUARY 22,
1990 (a)
THROUGH
DECEMBER 31,
1990
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 8.65
-----
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................. .36
Net realized and unrealized gains (losses) on
investment and foreign currency transactions.... (.38)
-----
Total from investment operations.................. (.02)
-----
LESS DISTRIBUTIONS
Dividends from net investment income.............. (.40)
Distributions from net realized gains............. (.60)
Distributions in excess of net realized gains..... --
-----
Total distributions............................... (1.00)
-----
Net asset value, end of period.................... $ 7.63
-----
-----
TOTAL RETURN (c):................................. (0.11)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000)............... $ 73
Average net assets (000,000)...................... $ 51
Ratios to average net assets:
Expenses, including distribution fees........... .97%(b)
Expenses, excluding distribution fees........... .77%(b)
Net investment income........................... 4.78%(b)
Portfolio turnover rate........................... 53%
Average commission rate paid per share............ N/A
</TABLE>

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

(a) Commencement of offering of Class A shares.

(b) Annualized.

(c) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for
periods of less than one full year are not annualized.

(d) Calculated based upon weighted average shares outstanding during the
year.

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED YEARS)
(CLASS B SHARES)

The following financial highlights for each of the five years in the period
ended December 31, 1997 have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The financial highlights
contain selected data for a share of Class B common stock outstanding, total
return, ratios to average net assets and other supplemental data for each of the
years indicated. Further performance information is contained in the annual
report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 (f) 1996 (f) 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................ $ 10.88 $ 9.87 $ 8.26 $ 9.69 $ 8.96 $ 8.71 $ 7.63
-------- -------- -------- -------- -------- ------- --------

INCOME FROM INVESTMENT OPERATIONS
Net investment income............................. .25 .24 .22 .24 .24 .31 .32
Net realized and unrealized gains (losses) on
investment and foreign currency transactions.... 2.53 1.80 1.80 (1.05) 1.12 .46 1.10
-------- -------- -------- -------- -------- ------- --------
Total from investment operations.................. 2.78 2.04 2.02 (.81) 1.36 .77 1.42
-------- -------- -------- -------- -------- ------- --------

LESS DISTRIBUTIONS
Dividends from net investment income.............. (.24) (.24) (.22) (.24) (.22) (.28) (.33)
Distributions from net realized gains............. (1.10) (.79) (.19) (.36) (.41) (.24) (.01)
Distributions in excess of net realized gains..... -- -- -- (.02) -- -- --
-------- -------- -------- -------- -------- ------- --------
Total distributions............................... (1.34) (1.03) (.41) (.62) (.63) (.52) (.34)
-------- -------- -------- -------- -------- ------- --------
Net asset value, end of year...................... $ 12.32 $ 10.88 $ 9.87 $ 8.26 $ 9.69 $ 8.96 $ 8.71
-------- -------- -------- -------- -------- ------- --------
-------- -------- -------- -------- -------- ------- --------
TOTAL RETURN (e):................................. 26.80% 21.16% 24.80% (8.51)% 15.27% 9.02% 19.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000,000)................. $ 2,132 $ 2,137 $ 2,355 $ 3,526 $ 4,756 $ 3,438 $ 2,818
Average net assets (000,000)...................... $ 2,059 $ 2,184 $ 2,450 $ 4,152 $ 4,308 $ 3,027 $ 2,529
Ratios to average net assets:
Expenses, including taxes (b)................... 1.57% 1.61% 1.63% 1.63% 1.60% 1.61% 1.67%
Expenses, excluding taxes and interest (b)...... 1.57% 1.61% 1.63% 1.63% 1.60% 1.61% 1.67%
Expenses, excluding distribution fees and taxes
(b)............................................ .57% .61% .63% .63% .60% .61% .67%
Net investment income........................... 2.20% 2.35% 2.37% 2.62% 2.36% 3.34% 3.89%
Portfolio turnover rate........................... 15% 17% 14% 15% 24% 24% 38%
Average commission rate paid per share............ $ .0301 $ .0332 $ .0302 N/A N/A N/A N/A

1990 1989 (d) 1988 (a)
------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year................ $ 9.17 $ 7.31 $ 6.29
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................. .31 .36 .33
Net realized and unrealized gains (losses) on
investment and foreign currency transactions.... (.91) 2.30 1.07
------ ------ ------
Total from investment operations.................. (.60) 2.66 1.40
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment income.............. (.34) (.36) (.33)
Distributions from net realized gains............. (.60) (.44) (.05)(c)
Distributions in excess of net realized gains..... -- -- --
------ ------ ------
Total distributions............................... (.94) (.80) (.38)
------ ------ ------
Net asset value, end of year...................... $ 7.63 $ 9.17 $ 7.31
------ ------ ------
------ ------ ------
TOTAL RETURN (e):................................. (6.48)% 37.17% 22.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000,000)................. $ 2,395 $ 2,306 $ 1,584
Average net assets (000,000)...................... $ 2,315 $ 2,037 $ 1,495
Ratios to average net assets:
Expenses, including taxes (b)................... 1.73% 1.46% 1.56%
Expenses, excluding taxes and interest (b)...... 1.73% 1.46% 1.56%
Expenses, excluding distribution fees and taxes
(b)............................................ .74% .73% .76%
Net investment income........................... 3.94% 4.19% 4.44%
Portfolio turnover rate........................... 53% 75% 66%
Average commission rate paid per share............ N/A N/A N/A
</TABLE>

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

(a) Prudential Mutual Fund Management, Inc. succeeded Prudential
Securities Incorporated as manager of the Fund on May 2, 1988.

(b) Because of the adoption of a plan of distribution effective on July
1, 1985 and an amended and restated plan of distribution effective
January 22, 1990, and the changes noted in footnote (a), historical
expenses and ratios of expenses to average net assets are not
necessarily indicative of future expenses and related ratios. See "How
the Fund is Managed--Distributor."

(d) Based on average month-end shares outstanding.

(e) 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 year reported and includes
reinvestment of dividends and distributions.

(f) Calculated based upon weighted average shares outstanding during the
year.

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS C SHARES)

The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and the notes
thereto, which appear in the Statement of Additional Information. The financial
highlights contain selected data for a share of Class C common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of the periods indicated. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide-- Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS C
----------------------------------------------
AUGUST 1,
1994 (a)
YEAR ENDED DECEMBER 31, THROUGH
------------------------------ DECEMBER 31,
1997 (d) 1996 (d) 1995 1994
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 10.88 $ 9.87 $ 8.26 $ 9.30
-------- -------- -------- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................... .25 .24 .22 .11
Net realized and unrealized gains (losses)
on investment and foreign currency
transactions............................ 2.53 1.80 1.80 (.69)
-------- -------- -------- -----
Total from investment operations.......... 2.78 2.04 2.02 (.58)
-------- -------- -------- -----
LESS DISTRIBUTIONS
Dividends from net investment income...... (.24) (.24) (.22) (.13)
Distributions from net realized gains..... (1.10) (.79) (.19) (.31)
Distributions in excess of net realized
gains................................... -- -- -- (.02)
-------- -------- -------- -----
Total distributions....................... (1.34) (1.03) (.41) (.46)
-------- -------- -------- -----
Net asset value, end of period............ $ 12.32 $10.88 $ 9.87 $ 8.26
-------- -------- -------- -----
-------- -------- -------- -----
TOTAL RETURN (c):......................... 26.80% 21.16% 24.80% (6.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $13,490 $6,001 $ 3,455 $ 787
Average net assets (000).................. $ 9,424 $4,517 $ 2,181 $ 433
Ratios to average net assets:
Expenses, including distribution fees... 1.57% 1.61% 1.63% 1.70%(b)
Expenses, excluding distribution fees... .57% .61% .63% .70%(b)
Net investment income................... 2.20% 2.35% 2.37% 2.65%(b)
Portfolio turnover rate................... 15% 17% 14% 15%
Average commission rate paid per share.... $ .0301 $.0332 $ .0302 N/A
</TABLE>

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

(a) Commencement of offering of Class C shares.

(b) Annualized.

(c) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a
sale on the last day of the period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less than
one full year are not annualized.

(d) Calculated based upon weighted average shares outstanding during the
year.

7
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS Z SHARES)

The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and the notes
thereto, which appear in the Statement of Additional Information. The financial
highlights contain selected data for a share of Class Z common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of the periods indicated. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide-- Shareholder Services--Reports to Shareholders."

<TABLE>
<CAPTION>
CLASS Z
-------------------------------
MARCH 1,
1996 (a)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 (d) 1996 (d)
-------------- --------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................... $10.88 $10.05
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................................... .36 .29
Net realized and unrealized gains on investment and
foreign currency transactions.......................... 2.54 1.67
------- -------
Total from investment operations......................... 2.90 1.96
------- -------
LESS DISTRIBUTIONS
Dividends from net investment income..................... (.34) (.34)
Distributions from net realized gains.................... (1.10) (.79)
------- -------
Total distributions...................................... (1.44) (1.13)
------- -------
Net asset value, end of period........................... $12.34 $10.88
------- -------
------- -------
TOTAL RETURN (C):........................................ 28.15% 20.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......................... $41,904 $34,446
Average net assets (000)................................. $35,994 $34,291
Ratios to average net assets:
Expenses, including distribution fees.................. .57% .61%(b)
Expenses, excluding distribution fees.................. .57% .61%(b)
Net investment income.................................. 3.20% 3.35%(b)
Portfolio turnover rate.................................. 15% 17%
Average commission rate paid per share................... $.0301 $.0332
</TABLE>

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

(a) Commencement of offering of Class Z shares.

(b) Annualized.

(d) Calculated based upon weighted average shares outstanding during the
period.

8
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK TOTAL RETURN THROUGH A COMBINATION
OF CURRENT INCOME AND CAPITAL APPRECIATION. THE FUND SEEKS TO ACHIEVE ITS
OBJECTIVE THROUGH INVESTMENT IN EQUITY-RELATED AND DEBT SECURITIES OF UTILITY
COMPANIES, WHICH INCLUDE ELECTRIC, GAS, GAS PIPELINE, TELEPHONE,
TELECOMMUNICATIONS, WATER, CABLE, AIRPORT, SEAPORT AND TOLL ROAD COMPANIES. IN
NORMAL CIRCUMSTANCES, THE FUND INTENDS TO INVEST AT LEAST 80% OF ITS ASSETS IN
SUCH SECURITIES. THERE CAN BE NO ASSURANCE THAT SUCH OBJECTIVE WILL BE ACHIEVED.
It is anticipated that the Fund will invest primarily in common stocks of
utility companies that the investment adviser believes have the potential for
total return; however, the Fund may invest primarily in preferred stocks and
debt securities of utility companies when it appears that the Fund will be
better able to achieve its investment objective through investments in such
securities, or when the Fund is temporarily in a defensive position. The
remaining 20% of its assets may be invested in other securities, including
stocks, debt obligations and money market instruments, as well as certain
derivative instruments. Moreover, should extraordinary conditions affecting such
sectors or securities markets as a whole warrant, the Fund may temporarily be
primarily invested in money market instruments.

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

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 FUND MAY INVEST IN EQUITY-RELATED SECURITIES. Equity-related securities
include common stocks, preferred stocks, securities convertible or exchangeable
for common stocks or preferred stocks, equity investments in partnerships, joint
ventures and other forms of non-corporate investments, American Depositary
Receipts (ADRs), and warrants and rights exercisable for equity securities.

THE FUND MAY INVEST IN DEBT SECURITIES OF UTILITY COMPANIES when the Fund is
temporarily in a defensive position or when it appears that the Fund will be
better able to achieve its investment objective through investment in such
securities. The Fund may invest in debt securities rated investment grade by a
nationally recognized statistical rating organization (NRSRO), such as Standard
& Poor's Ratings Group (S&P) or Moody's Investors Service (Moody's) or, if
unrated, determined by the investment adviser to be of comparable quality. The
term "investment grade" refers to securities rated within the four highest
quality grades by S&P, Moody's or another NRSRO. Securities rated Baa by
Moody's, although considered to be investment grade, lack outstanding investment
characteristics and, in fact, have speculative characteristics. Lower rated
securities are subject to greater risk of loss of principal and interest. Debt
securities may be subject to price volatility due to such factors as interest
rate sensitivity, market perception of the creditworthiness of the issuer and
general market liquidity (market risk).

THE FUND MAY INVEST UP TO 30% OF ITS TOTAL ASSETS IN SECURITIES OF FOREIGN
ISSUERS, WHICH MAY INVOLVE ADDITIONAL RISKS. See "Foreign Securities" below.
ADRs, which are receipts issued by an American bank or trust company evidencing
ownership of underlying securities issued by a foreign issuer, are not
considered foreign securities.

AS A RESULT OF THE FUND'S CONCENTRATION OF ITS INVESTMENTS, IT IS SUBJECT TO
RISKS ASSOCIATED WITH THE UTILITY INDUSTRY. Among these are inflationary and
other cost increases in fuel and other operating expenses, high interest costs
on borrowings needed for capital construction programs, including compliance
with environmental regulations, and changes in the regulatory climate.

9
<PAGE>
FOREIGN SECURITIES

THE FUND MAY INVEST UP TO 30% OF ITS TOTAL ASSETS IN FOREIGN SECURITIES. In
many instances, foreign debt securities may provide higher yields but may be
subject to greater fluctuations in price than securities of domestic issuers
which have similar maturities and quality. Under certain market conditions,
these investments may be less liquid than the securities of U.S. corporations
and are certainly less liquid than securities issued or guaranteed by the U.S.
Government, its instrumentalities or agencies.

FOREIGN SECURITIES INVOLVE CERTAIN RISKS WHICH SHOULD BE CONSIDERED CAREFULLY
BY AN INVESTOR IN THE FUND. These risks include exchange rate fluctuations,
political, social or economic instability of the country of issue, diplomatic
developments which could affect the assets of the Fund held in foreign
countries, and the possible imposition of exchange controls, withholding taxes
on dividends or interest payments, confiscatory taxes or expropriation. There
may be less government supervision and regulation of foreign securities
exchanges, brokers and listed companies than exists in the United States,
foreign brokerage commissions and custody fees are generally higher than those
in the United States, and foreign security settlements will in some instances be
subject to delays and related administrative uncertainties. The Fund will
probably have greater difficulty in obtaining or enforcing a court judgment
abroad than it would have doing so within the United States. Less information
may be publicly available about a foreign company than about a domestic company,
and foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. In addition, foreign securities markets have substantially less
volume than the New York Stock Exchange and securities of some foreign companies
are less liquid and more volatile than securities of comparable U.S. companies.

Although the foreign companies in which the Fund may invest will be providing
products and services substantially similar to domestic companies in which the
Fund has and may invest, the utility companies of many major countries, such as
the United Kingdom, Spain and Mexico, have only recently substantially increased
investor ownership (including ownership by U.S. investors) and, as a result,
have only recently become subject to adversarial rate-making procedures. In
addition, certain foreign utilities are experiencing demand growth at rates
greater than economic expansion in their countries or regions. These factors as
well as those associated with foreign issuers generally may affect the future
values of foreign securities held by the Fund.

HEDGING AND RETURN ENHANCEMENT STRATEGLES

THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING USING
DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE RETURN. THESE STRATEGIES INCLUDE (1) THE PURCHASE AND WRITING (I.E.,
SALE) OF PUT AND CALL OPTIONS ON EQUITY SECURITIES AND ON STOCK INDICES, (2) THE
PURCHASE AND SALE OF LISTED STOCK AND BOND INDEX FUTURES AND OPTIONS THEREON AND
(3) THE PURCHASE AND SALE OF OPTIONS ON FOREIGN CURRENCIES AND FUTURES CONTRACTS
ON FOREIGN CURRENCIES AND OPTIONS THEREON. THE FUND MAY ENGAGE IN THESE
TRANSACTIONS ON U.S. OR FOREIGN SECURITIES EXCHANGES OR, IN THE CASE OF EQUITY
AND STOCK INDEX OPTIONS, IN THE OVER-THE-COUNTER MARKET. THE FUND MAY ALSO
PURCHASE AND SELL FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. THE FUND, AND
THUS ITS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE
STRATEGIES. The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. New financial products and
risk management techniques continue to be developed and the Fund may use these
new investments and techniques to the extent they are consistent with its
investment objective and policies. See "Investment Objective and Policies" in
the Statement of Additional Information.

OPTIONS TRANSACTIONS

OPTIONS ON EQUITY SECURITIES. THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT
AND CALL OPTIONS ON EQUITY SECURITIES THAT ARE TRADED ON SECURITIES EXCHANGES,
ON NASDAQ (NASDAQ OPTIONS) OR IN THE OVER-THE-COUNTER MARKET (OTC OPTIONS).

10
<PAGE>
A CALL OPTION IS A SHORT-TERM CONTRACT WHICH GIVES THE PURCHASER, IN RETURN
FOR A PREMIUM PAID, THE RIGHT TO BUY THE SECURITY SUBJECT TO THE OPTION AT A
SPECIFIED EXERCISE PRICE AT ANY TIME DURING THE TERM OF THE OPTION. The writer
of the call option, in return for the premium, has the obligation, upon exercise
of the option, to deliver, depending on 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. There is no limitation on the amount of call
options the Fund may write.

A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES SUBJECT TO THE OPTION TO THE
WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of the put, 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.

THE FUND WILL WRITE ONLY "COVERED" CALL OPTIONS. A call option on debt or
equity securities written by the Fund is "covered" if, as long as the Fund is
obligated under the option, it (i) owns the security underlying the option or
has an absolute and immediate right to acquire that security without additional
consideration (or for additional consideration held in a segregated account by
its Custodian) upon conversion or exchange of other securities held in its
portfolio or (ii) holds, on a share-for-share basis, a call on the same security
as the call written by the Fund where the exercise price of the call held is
equal to or less than the exercise price of the call written, or greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash or other liquid assets, in a segregated account with its Custodian.
The premium paid by the purchaser of an option will reflect, among other things,
the relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand and
interest rates.

THE FUND MAY ALSO PURCHASE A "PROTECTIVE PUT," I.E., A PUT OPTION ACQUIRED FOR
THE PURPOSE OF PROTECTING A PORTFOLIO SECURITY FROM A DECLINE IN MARKET VALUE.
In exchange for the premium paid for the put option, the Fund acquires the right
to sell the underlying security at the exercise price of the put regardless of
the extent to which the underlying security declines in value. The loss to the
Fund is limited to the premium paid for, and transaction costs in connection
with, the put plus the initial excess, if any, of the market price of the
underlying security over the exercise price. However, if the market price of the
security underlying the put rises, the profit the Fund realizes on the sale of
the security will be reduced by the premium paid for the put option less any
amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on stock indices as described below.

OPTIONS ON STOCK INDICES. THE FUND MAY ALSO PURCHASE AND WRITE (I.E., SELL)
PUT AND CALL OPTIONS ON STOCK INDICES TRADED ON SECURITIES EXCHANGES, ON NASDAQ
OR IN THE OTC MARKET. Such options may include options on non-utility companies.
Options on stock indices are similar to options on stock except that, rather
than the right to take or make delivery of a stock at a specified price, an
option on a stock index gives the holder the right in return for premium paid to
receive, upon exercise of the option, an amount of cash if the closing level of
the 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 the index option, in return for a premium, is obligated to pay the amount of
cash due upon exercise of the option. Unlike stock options, all settlements are
in cash, and gain or loss depends on price movements in the underlying market
generally (or in a particular industry or segment of the market) rather than
price movements in individual securities.

THE FUND'S SUCCESSFUL USE OF OPTIONS ON INDICES DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND IS SUBJECT TO
VARIOUS ADDITIONAL RISKS. The correlation between movements in the index and the
price of the securities being written against is imperfect and the risk from
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the composition of the relevant index. Accordingly, a decrease in
the value of the securities being written against may not be wholly offset by a
gain on the exercise of a stock index put option held by the Fund. Likewise, if
a stock index call option written by the Fund is exercised, the Fund may incur a
loss on the transaction which is not offset, in whole

11
<PAGE>
or in part, by an increase in the value of the securities being written against,
which securities may, depending on market circumstances, decline in value. For
additional discussion of risks associated with these transactions, see
"Investment Objective and Policies--Limitations on Purchase and Sale of Stock
Options, Options on Indices, and Stock and Bond Index Futures and Options
Thereon" in the Statement of Additional Information.

OPTIONS ON FOREIGN CURRENCIES. THE FUND IS PERMITTED TO PURCHASE AND WRITE PUT
AND CALL OPTIONS ON FOREIGN CURRENCIES AND ON FUTURES CONTRACTS ON FOREIGN
CURRENCIES TRADED ON SECURITIES EXCHANGES OR BOARDS OF TRADE (FOREIGN AND
DOMESTIC) FOR HEDGING PURPOSES IN A MANNER SIMILAR TO THAT IN WHICH FORWARD
FOREIGN CURRENCY EXCHANGE CONTRACTS AND FUTURES CONTRACTS ON FOREIGN CURRENCIES
WILL BE EMPLOYED. Options on foreign currencies and on futures contracts on
foreign currencies are similar to options on stock, except that the Fund has the
right to take or make delivery of a specified amount of foreign currency, rather
than stock.

THE FUND MAY PURCHASE AND WRITE OPTIONS TO HEDGE THE FUND'S PORTFOLIO
SECURITIES DENOMINATED IN FOREIGN CURRENCIES. If there is a decline in the
dollar value of a foreign currency in which the Fund's portfolio securities are
denominated, the dollar value of such securities will decline even though the
foreign currency value remains the same. To hedge against the decline of the
foreign currency, the Fund may purchase put options on futures contracts on such
foreign currency. If the value of the foreign currency declines, the gain
realized on the put option would offset, in whole or in part, the adverse effect
such decline would have on the value of the portfolio securities. Alternatively,
the Fund may write a call option on a futures contract on the foreign currency.
If the value of the foreign currency declines, the option would not be exercised
and the decline in the value of the portfolio securities denominated in such
foreign currency would be offset in part by the premium the Fund received for
the option.

If, on the other hand, the investment adviser anticipates purchasing a foreign
security and also anticipates a rise in the value of such foreign currency
(thereby increasing the cost of such security), the Fund may purchase call
options on the foreign currency. The purchase of such options could offset, at
least partially, the effects of the adverse movements of the exchange rates.
Alternatively, the Fund could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO PROTECT
THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF CURRENCY
EXCHANGE RATES. A forward contract on foreign currency is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days agreed upon by the parties from the date of the contract at a
price set on the date of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (typically large
commercial banks) and their customers. A forward contract generally has no
deposit requirements, and no commissions are charged for such trades. See
"Investment Objective and Policies--Forward Foreign Currency Exchange Contracts"
in the Statement of Additional Information.

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

When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when the Fund anticipates the receipt in a
foreign currency of dividends or interest payments on a security which it holds,
the Fund may desire to

12
<PAGE>
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for a fixed amount of dollars for the purchase or sale of the
amount of foreign currency involved in the underlying transaction, the Fund will
be able to protect itself against possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date on which the security is purchased or sold,
or on which the dividend or interest payment is declared, and the date on which
such payments are made or received. Additionally, when the investment adviser
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, the Fund may enter into a forward
contract, for a fixed amount of dollars, to sell the amount of foreign currency
approximating the value of some or all of the portfolio securities of the Fund
denominated in such foreign currency. Requirements under the Internal Revenue
Code of 1986, as amended (Internal Revenue Code) for qualification as a
regulated investment company may limit the Fund's ability to engage in
transactions in forward contracts. See "Taxes, Dividends and Distributions" in
the Statement of Additional Information.

FUTURES TRANSACTIONS

STOCK AND BOND INDEX FUTURES. THE FUND MAY USE LISTED STOCK AND BOND INDEX
FUTURES TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR CERTAIN HEDGING
AND RISK MANAGEMENT PURPOSES AND TO ATTEMPT TO ENHANCE RETURN IN ACCORDANCE WITH
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. THE FUND, AND THUS ITS
INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES.

A STOCK OR BOND INDEX FUTURES CONTRACT IS AN AGREEMENT IN WHICH ONE PARTY
AGREES TO DELIVER TO THE OTHER AN AMOUNT OF CASH EQUAL TO A SPECIFIC DOLLAR
AMOUNT TIMES THE DIFFERENCE BETWEEN THE VALUE OF A SPECIFIC STOCK OR BOND 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. See "Investment Objective and Policies--Futures Contracts and Options
Thereon" in the Statement of Additional Information.

UNDER REGULATIONS OF THE COMMODITY EXCHANGE ACT, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT ARE EXEMPT FROM THE DEFINITION OF
"COMMODITY POOL OPERATOR," SUBJECT TO COMPLIANCE WITH CERTAIN CONDITIONS. THE
EXEMPTION IS CONDITIONED UPON THE FUND'S PURCHASING AND SELLING FUTURES
CONTRACTS AND OPTIONS THEREON FOR BONA FIDE HEDGING TRANSACTIONS, EXCEPT THAT
THE FUND MAY PURCHASE AND SELL FUTURES CONTRACTS AND OPTIONS THEREON FOR ANY
OTHER PURPOSE TO THE EXTENT THAT THE AGGREGATE INITIAL MARGIN AND OPTION
PREMIUMS DO NOT EXCEED 5% OF THE LIQUIDATION VALUE OF THE FUND'S TOTAL ASSETS.

OPTIONS ON STOCK AND BOND INDEX FUTURES. THE FUND MAY ALSO PURCHASE AND WRITE
OPTIONS ON STOCK AND BOND INDEX FUTURES FOR CERTAIN HEDGING AND RISK MANAGEMENT
PURPOSES AND TO ATTEMPT TO ENHANCE RETURN. In the case of options on stock or
bond index futures, the holder of the option pays a premium and receives the
right, upon exercise of the option at a specified price during the option
period, to assume a position in a stock or bond index futures contract (a long
position if the option is a call and a short position if the option is a put).
If the option is exercised by the holder before the last trading day during the
option period, the option writer delivers the futures position, as well as any
balance in the writer's futures margin account, which represents the amount by
which the market price of the stock or bond index futures contract at exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the stock or bond index future. If it is
exercised on the last trading day, the option writer delivers to the option
holder cash in an amount equal to the difference between the option exercise
price and the closing level of the relevant index on the date the option
expires.

FUTURES CONTRACTS ON FOREIGN CURRENCIES. THE FUND IS PERMITTED TO BUY AND SELL
FUTURES CONTRACTS ON FOREIGN CURRENCIES (FUTURES CONTRACTS) SUCH AS THE EUROPEAN
CURRENCY UNIT, AND PURCHASE AND WRITE OPTIONS THEREON FOR HEDGING PURPOSES. A
European Currency Unit is a basket of specified amounts of the currencies of
certain member states of the European Union, a Western European economic
cooperative organization including, INTER ALIA, France, Germany, The Netherlands
and the United Kingdom. The Fund will engage in transactions in only those
futures contracts and options thereon that are traded

13
<PAGE>
on a commodities exchange or a board of trade. A "sale" of a futures contract on
foreign currency means the assumption of a contractual obligation to deliver the
specified amount of foreign currency at a specified price in a specified future
month. A "purchase" of a futures contract means the assumption of a contractual
obligation to acquire the currency called for by the contract at a specified
price in a specified future month. At the time a futures contract is purchased
or sold, the Fund must allocate cash or securities as a deposit payment (initial
margin). Thereafter, the futures contract is valued daily and the payment of
"variation margin" may be required, resulting in the Fund's paying or receiving
cash that reflects any decline or increase, respectively, in the contract's
value, a process known as "mark-to-market."

THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the price of the securities being hedged is
imperfect and there is a risk that the value of the securities being hedged may
increase or decrease at a greater rate than the related futures contract,
resulting in losses to the Fund. The use of these instruments will hedge only
the currency risks associated with investments in foreign securities, not market
risks. Certain futures exchanges or boards of trade have established daily
limits on the amount that the price of a futures contract or option thereon may
vary, either up or down, from the previous day's settlement price. These daily
limits may restrict the Fund's ability to purchase or sell certain futures
contracts or options thereon on any particular day. In addition, if the Fund
purchases futures to hedge against market advances before it can invest in
stocks or bonds in an advantageous manner and the market declines, the Fund
might incur 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 thereon at any particular time. See
"Investment Objective and Policies--Limitations on the Purchase and Sale of
Stock Options, Options on Indices, and Stock and Bond Index Futures and Options
Thereon" in the Statement of Additional Information.

THE FUND'S ABILITY TO ENTER INTO OR CLOSE OUT FUTURES CONTRACTS AND OPTIONS
THEREON MAY ALSO BE LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE FOR
QUALIFICATION AS A REGULATED INVESTMENT COMPANY.

RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES

PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. THE FUND, AND THUS ITS
INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE STRATEGIES. If
the investment adviser's prediction of movements in the direction of the
securities, foreign currency or interest rate 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, foreign currency
and futures contracts and options on futures contracts include (1) dependence on
the investment adviser's ability to predict correctly movements in the direction
of interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; (5) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Investment
Objective and Policies" and "Taxes, Dividends and Distributions" in the
Statement of Additional Information.

14
<PAGE>
OTHER INVESTMENTS AND POLICIES

BORROWING

The Fund may borrow up to 20% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes or for
the clearance of transactions. The Fund may pledge up to 20% of its total assets
to secure these borrowings.

SECURITIES LENDING

The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets or secures an
irrevocable letter of credit in favor of the Fund in an amount equal to at least
100% of the market value of the securities loaned which is maintained in a
segregated account pursuant to applicable regulations. During the time portfolio
securities are on loan, the borrower will pay the Fund an amount equivalent to
any dividend or interest paid on such securities and the Fund may invest the
cash collateral and earn additional income, or it may receive an agreed-upon
amount of interest income from the borrower. As a matter of fundamental policy,
the Fund cannot lend more than 33% of the value of its total assets. The Fund
may pay reasonable administration and custodial fees in connection with a loan.
See "Investment Objective and Policies--Lending of Securities" in the Statement
of Additional Information.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

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

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 repurchase agreement. The Fund's repurchase agreements will at
all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value of
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 PIFM pursuant to an order of
the Commission. See "Investment Objective and Policies--Repurchase Agreements"
in the Statement of Additional Information.

ILLIQUID SECURITIES

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

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<PAGE>
pursuant to Rule 144A under the Securities Act of 1933, as amended (the
Securities Act), and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. The Fund's investment in Rule
144A securities could have the effect of increasing illiquidity to the extent
that qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. Repurchase agreements subject to demand are
deemed to have a maturity equal to the applicable notice period.

PORTFOLIO TURNOVER

As a result of the Fund's investment policies, the Fund anticipates that its
portfolio turnover rate may exceed 100%, although the rate is not expected to
exceed 200%. See "Investment Objective and Policies--Portfolio Turnover" in the
Statement of Additional Information.

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 December 31, 1997, the Fund's total expenses as a
percentage of average net assets for Class A, Class B, Class C and Class Z
shares were .82%, 1.57%, 1.57% and .57%, respectively. See "Financial
Highlights."

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .60 OF 1%
OF THE FUND'S AVERAGE DAILY NET ASSETS UP TO AND INCLUDING $250 MILLION, .50 OF
1% OF THE NEXT $500 MILLION, .45 OF 1% OF THE NEXT $750 MILLION, .40 OF 1% OF
THE NEXT $500 MILLION, .35 OF 1% OF THE NEXT $2 BILLION, .325 OF 1% OF THE NEXT
$2 BILLION AND .30 OF 1% OF THE EXCESS OVER $6 BILLION OF THE FUND'S AVERAGE
DAILY NET ASSETS. PIFM is organized in New York as a limited liability company.
For the fiscal year ended December 31, 1997, the Fund paid management fees to
PIFM of .41% of the Fund's average daily net assets. See "Manager" in the
Statement of Additional Information.

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

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

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

The current portfolio manager of the Fund is David A. Kiefer, CFA. Mr. Kiefer
is a Senior Portfolio Manager of Prudential Investments. Mr. Kiefer is
responsible for day-to-day management and stock selection for the Fund. Mr.
Kiefer joined Prudential Investments in 1992 as an equity analyst for the Fund.
Prior thereto, he attended business school and worked as a utility analyst for a
Prudential subsidiary for two years.

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

DISTRIBUTOR

PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (THE DISTRIBUTOR), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS A LIMITED
LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES
AS THE DISTRIBUTOR OF THE CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF THE
FUND. IT IS A WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL. Prudential Securities
Incorporated, One Seaport Plaza, New York, New York 10292, previously served as
the exclusive distributor of Fund shares and will serve as a co-distributor of
the Fund for shares sold through its financial advisors until approximately July
1, 1998. Thereafter, Prudential Investment Management Services LLC will serve as
the exclusive distributor of Fund shares. Prudential Securities Incorporated is
an indirect, wholly-owned subsidiary of Prudential.

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING THE
FUND'S CLASS A, CLASS B AND CLASS C SHARES. The Distributor also incurs the
expenses of distributing the Fund's Class Z shares under the Distribution
Agreement, none of which is reimbursed by or paid for by the Fund. These
expenses include commissions and account servicing fees paid to, or on account
of, Dealers or other financial institutions which have entered into agreements
with the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of the
Distributor associated with the sale of the Fund's shares, including lease,
utility, communications and sales promotion expenses.

Under the Plans, the Fund is obligated to pay distribution and/or service fees
to the Distributor as compensation for its distribution and service activities,
not as reimbursement for specific expenses incurred. If the Distributor's
expenses exceed its distribution and service fees, the Fund will not be
obligated to pay any additional expenses. If the Distributor's expenses are less
than such distribution and service fees, it will retain its full fees and
realize a profit.

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

UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (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 up to .25

17
<PAGE>
of 1%) may not exceed .30 of 1% of the average daily net assets of the Class A
shares. The Distributor 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 December 31, 1998.

UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES AT AN
ANNUAL RATE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B
AND CLASS C SHARES. The Class B and Class C Plans provide for the payment to the
Distributor of (i) an asset-based sales charge of .75 of 1% of the average daily
net assets of each of the Class B and Class C shares and (ii) a service fee of
.25 of 1% of the average daily net assets of each of the Class B and Class C
shares. The service fee is used to pay for personal service and/or the
maintenance of shareholder accounts. The Distributor 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 December 31, 1997, the Fund paid distribution
expenses of .25%, 1.00% and 1.00% of the average net assets of the Class A,
Class B and Class C shares, respectively. The Fund records all payments made
under the Plans as expenses in the calculation of net investment income. See
"Distributor" in the Statement of Additional Information.

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

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 distribution and service fees incurred
under any Plan if it is terminated or not continued.

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

FEE WAIVERS

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

PORTFOLIO TRANSACTIONS

Affiliates of the Distributor may act as brokers or futures commission
merchants for the Fund, provided that the commissions, fees or other
remuneration they receive are fair and reasonable. See "Portfolio Transactions
and Brokerage" in the Statement of Additional Information.

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<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

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

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent, and in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15035, New
Brunswick, New Jersey 08906-5005.

YEAR 2000

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

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 NET ASSET VALUE TO BE AS OF 4:15 P.M., NEW YORK TIME.

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

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

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

HOW THE FUND CALCULATES PERFORMANCE

FROM TIME TO TIME THE FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL RETURN,
AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL
RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. THESE FIGURES 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,

19
<PAGE>
five or ten years or since inception of the Fund) assuming that all
distributions and dividends by the Fund were reinvested on the reinvestment
dates during the period and less all recurring fees. The aggregate total return
reflects actual performance over a stated period of time. Average annual total
return is a hypothetical rate of return that, if achieved annually, would have
produced the same aggregate total return if performance had been constant over
the entire period. Average annual total return smooths out variations in
performance and takes into account any applicable initial or contingent deferred
sales charges. Neither average annual total return nor aggregate total return
takes into account any federal or state income taxes which may be payable upon
redemption. The yield refers to the income generated by an investment in the
Fund over a one-month or 30-day period. This income is then "annualized;" that
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each 30-day period for twelve periods and is shown as
a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing the
Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., other industry
publications, business periodicals, and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."

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 NET
CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.

TAXATION OF SHAREHOLDERS

Any dividends out of net investment income, together with distributions of net
short-term gains (I.E., the excess of net short-term capital gains over net
long-term capital losses) distributed to shareholders will be taxable as
ordinary income to the shareholder whether or not reinvested. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information. Any net
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
long-term capital gains to shareholders, whether or not reinvested and
regardless of the length of time a shareholder has owned his or her shares. The
maximum long-term capital gains rate for individual shareholders for securities
held between 12 and 18 months currently is 28% and for securities held more than
18 months is 20%. The maximum tax rate for ordinary income is 39.6%. The maximum
long-term capital gains rate for corporate shareholders currently is 35%.

Dividends and distributions are currently generally taxable to shareholders in
the year in which received. However, certain dividends declared by the Fund will
be treated as received by shareholders on December 31 of the calendar year in
which such dividends are declared. This rule applies to dividends declared by
the Fund in October, November or December of a calendar year, payable to
shareholders of record on a date in any such month, if such dividends are paid
during January of the following calendar year.

Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to foreign dividends, interest income, capital gain and
net income and gain or loss from other sources are not eligible for the
corporate dividends-received deduction. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information. Corporate shareholders should
consult their tax advisers regarding other requirements applicable to the
dividends-received deduction.

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<PAGE>
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will generally be treated as
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as short-term capital gain or loss. Any such loss with
respect to shares that are held for six months or less, however, will be treated
as long-term capital loss to the extent of any capital gain distributions
received by the shareholder. With respect to non-corporate shareholders, gain or
loss on shares held more than 18 months will be considered in determining a
holder's adjusted net capital gain subject to a maximum statutory tax rate of
20%.

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

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

Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.

DIVIDENDS AND DISTRIBUTIONS

THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, QUARTERLY
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 each class other than
Class Z will bear its own distribution charges, generally resulting in lower
dividends for Class B and Class C shares in relation to Class A and Class Z
shares and lower dividends for Class A shares in relation to Class Z shares.
Distributions of net capital gains, if any, will be paid in the same amount per
share for each class of shares. See "How the Fund Values its Shares."

DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE, OR SUCH OTHER DATE AS THE BOARD OF
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 LLC, Attention: Account Maintenance, P.O. Box 15035, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. To the
extent that, in a given year, distributions to shareholders exceed recognized
net investment income and recognized short-term and long-term capital gains for
the year, shareholders will have received a return of capital in respect of such
year and, in an annual statement, will be notified of the amount of any return
of capital for such year.

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

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<PAGE>
GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

THE FUND WAS INCORPORATED IN MARYLAND ON APRIL 29, 1981. THE FUND IS
AUTHORIZED TO ISSUE 2 BILLION SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
DIVIDED INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C AND CLASS Z
COMMON STOCK, CONSISTING OF 500 MILLION SHARES OF CLASS A COMMON STOCK, 700
MILLION SHARES OF CLASS B COMMON STOCK, 400 MILLION SHARES OF CLASS C COMMON
STOCK AND 400 MILLION SHARES OF CLASS Z COMMON STOCK. Each class represents an
interest in the same assets of the Fund and is identical in all respects except
that (i) each class is subject to different sales charges and distribution
and/or service fees (except for Class Z shares, which are not subject to any
sales charges and distribution and/or service fees), which may affect
performance, (ii) each class has exclusive voting rights on any matter submitted
to shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion feature
and (v) Class Z shares are offered exclusively for sale to a limited group of
investors. See "How the Fund is Managed--Distributor." In accordance with the
Fund's Articles of Incorporation, the Board of Directors may authorize the
creation of additional series and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the
Directors may determine.

The Board of Directors may increase or decrease the number of authorized
shares without approval by the shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class of shares
(with the exception of Class Z shares, which are not subject to any distribution
or service fees) bears the expenses related to the distribution of its shares.
Except for the conversion feature applicable to 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 and to Class Z
shareholders, whose shares are not subject to any distribution and/or service
fees. The Fund's shares do not have cumulative voting rights for the election of
Directors.

THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% 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 of the information
set forth in the Registration Statement filed by the Fund with the Commission
under the Securities Act. Copies of the Registration Statement may be obtained
at a reasonable charge from the Commission or may be examined, without charge,
at the office of the Commission in Washington, D.C.

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<PAGE>
SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE FUND THROUGH THE DISTRIBUTOR, THROUGH DEALERS,
OR DIRECTLY FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O.
BOX 15035, NEW BRUNSWICK, NEW JERSEY 08906-5020. The purchase price is the NAV
next determined following receipt of an order in proper form by the Distributor,
your Dealer or the Transfer Agent, plus a sales charge which, at your option,
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at NAV without any sales charge. Dealers may charge
their customers a separate fee for handling purchase transactions. Payments may
be made by cash, wire, check or through your brokerage account. See "Alternative
Purchase Plan" below. See also "How the Fund Values its Shares."

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

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

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.

If a stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who hold
their shares in street name with their Dealer will not receive stock
certificates.

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

Transactions in Fund shares may be subject to postage and handling charges
imposed by your Dealer. Any such charge is retained by the Dealer and is not
remitted to the Fund.

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company (State
Street), Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Prudential Utility Fund, Inc., specifying on the wire the account
number assigned by PMFS and your name and identifying the class in which you are
eligible to invest (Class A, Class B, Class C or Class Z shares).

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

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Utility Fund,
Inc., Class A, Class B, Class C or Class Z shares and your name and individual
account number. It is not necessary to call PMFS to make subsequent purchase
orders utilizing Federal Funds. The minimum amount which may be invested by wire
is $1,000.

23
<PAGE>
ALTERNATIVE PURCHASE PLAN

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

<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% .30 of 1% (Currently being charged Initial sales charge waived or
of the public offering price at a rate of .25 of 1%) reduced for certain purchases

CLASS B Maximum CDSC of 5% of the lesser of 1% Shares convert to Class A shares
the amount invested or the approximately seven years after
redemption proceeds; declines to purchase
zero after six years

CLASS C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another
the amount invested or the class
redemption proceeds on redemptions
made within one year of purchase

CLASS Z None None Sold to a limited group of
investors
</TABLE>

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

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

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

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

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.

24
<PAGE>
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 and Class C shares for the higher
cumulative annual distribution-related fees 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 fees on
the investment, fluctuations in NAV, the effect of the return on the investment
over this period of time or redemptions when the CDSC is applicable.

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

CLASS A SHARES

The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:

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

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

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

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 (collectively, Benefit Plans), provided that the Benefit Plan has
existing assets of at least $1 million invested in shares of Prudential Mutual
Funds (excluding money market funds other than

25
<PAGE>
those acquired pursuant to the exchange privilege) or 250 eligible employees or
participants. In the case of Benefit Plans whose accounts are held directly with
the Transfer Agent and for which the Transfer Agent does individual account
recordkeeping (Direct Account Benefit Plans), Class A shares may be purchased at
NAV by participants who are repaying loans made from such plans to the
participant.

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

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

For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale, either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the Dealer
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class
A Shares" in the Statement of Additional Information.

CLASS B AND CLASS C SHARES

The offering price of Class B and Class C shares for investors choosing one of
the deferred sales charge alternatives is the NAV per share next determined
following receipt of an order by the Transfer Agent, a Dealer or the
Distributor. 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." The Distributor will pay,
from its own resources, sales commissions of up to 4% of the purchase price of
Class B shares to Dealers, financial advisers and other persons who sell Class B
shares at the time of sale. This facilitates the ability of the Fund to sell the
Class B shares without an initial sales charge being deducted at the time of
purchase. The Distributor anticipates that it will recoup its advancement of
sales commissions from the combination of the CDSC and the distribution fee. See
"How the Fund is Managed--Distributor." In connection with the sale of Class C
shares, the Distributor will pay, from its own resources, Dealers, financial
advisers and other persons which distribute Class C shares a sales commission of
up to 1% of the purchase price at the time of the sale.

CLASS Z SHARES

Class Z shares of the Fund currently are available for purchase by: (i)
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code, deferred compensation and annuity plans under
Sections 457 and 403(b)(7) of the Internal Revenue Code and non-qualified plans
for which the Fund is an available option (collectively, Benefit Plans),
provided such Benefit Plans (in combination with other plans sponsored by the
same employer or group of related employers) have at least $50 million in
defined contribution assets; (ii) participants in any fee-based program or trust
program

26
<PAGE>
sponsored by any affiliate of the Distributor which includes mutual funds as
investment options and for which the Fund is an available option; (iii) certain
participants in the MEDLEY Program (group variable annuity contracts) sponsored
by an affiliate of the Distributor for whom Class Z shares of the Prudential
Mutual Funds are an available option; (iv) Benefit Plans for which an affiliate
of the Distributor serves as recordkeeper and as of September 20, 1996, (a) were
Class Z shareholders of the Prudential Mutual Funds or (b) executed a letter of
intent to purchase Class Z shares of the Prudential Mutual Funds; (v) current
and former Directors/Trustees of the Prudential Mutual Funds (including the
Fund); and (vi) employees of an affiliate of the Distributor who participate in
an employer-sponsored employee savings plan. After a Benefit Plan qualifies to
purchase Class Z shares, all subsequent purchases will be for Class Z shares.

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

HOW TO SELL YOUR SHARES

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

IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF
AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST
WILL BE ACCEPTED. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15035, New Brunswick, New
Jersey 08906-5010, the Distributor or to your Dealer.

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

PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER OF THE
CERTIFICATE AND/OR WRITTEN REQUEST, EXCEPT AS INDICATED BELOW. 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 Commission,
by order, so permits, provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions described in (b), (c) or
(d) exist.

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

27
<PAGE>
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the Commission. Securities will be readily marketable and will be valued in the
same manner as 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 NAV of the Fund during any 90-day period for any one shareholder.

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

90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not previously
exercised the repurchase privilege, you may reinvest any portion or all of the
proceeds of such redemption in shares of the Fund at the NAV next determined
after the order is received, which must be within 90 days after the date of the
redemption. Any CDSC paid in connection with such redemption will be credited
(in shares) to your account. If less than a full repurchase is made, the credit
will be on a PRO RATA basis. You must notify the Fund's Transfer Agent, either
directly or through your Dealer or the Distributor, at the time the repurchase
privilege is exercised to adjust your account for the CDSC you previously paid.
Thereafter, any redemptions will be subject to the CDSC applicable at the time
of the redemption. See "Contingent Deferred Sales Charges" below. Exercise of
the repurchase privilege will generally not affect the federal tax treatment of
any gain realized upon redemption. However, if the redemption was made within a
30 day period of the repurchase and if the redemption resulted in a loss, some
or all of the loss, depending on the amount reinvested, may not be allowed for
federal income tax purposes. For more information on the rule which disallows a
loss on the sale or exchange of shares of the Fund which are replaced, see
"Taxes, Dividends and Distributions" in the Statement of Additional Information.

CONTINGENT DEFERRED SALES CHARGES

Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares of the Fund to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and one year, in the case of Class C shares. A CDSC will
be applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
acquired through reinvestment of dividends or distributions are not subject to a
CDSC. The amount of any CDSC will be paid to and retained by the Distributor.
See "How the Fund is Managed--Distributor" and "Waiver of Contingent Deferred
Sales Charges--Class B Shares" below.

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

28
<PAGE>
The following table sets forth the rates of the CDSC applicable to redemptions
of Class B shares:

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

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Fund shares made during the preceding six years (five years for
shares purchased prior to 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 NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.

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

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

The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or 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. 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.

29
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase or, for shares purchased prior
to March 1, 1997, on March 1 of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.

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

You must notify the Fund's Transfer Agent either directly or through your
Dealer, at the time of redemption, that you are entitled to waiver of the CDSC
and provide the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement. See "Purchase and Redemption of 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. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.

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

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

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<PAGE>
held in a money market fund, exchanges will be deemed to have been made on the
last day of the month. Class B shares acquired through exchange will convert to
Class A shares after expiration of the conversion period applicable to the
original purchase of such shares.

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service that (i) the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (ii) 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, CLASS C AND CLASS Z SHARES OF THE FUND MAY BE EXCHANGED FOR CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS
OF THE RELATIVE NAV. No sales charge will be imposed at the time of the
exchange. Any applicable CDSC payable upon the redemption of shares exchanged
will be calculated from the first day of the month after the initial purchase,
excluding the time that shares were held in a money market fund. Class B and
Class C shares may not be exchanged into money market funds other than the
Prudential Special Money Market Fund, Inc. For purposes of calculating the
holding period applicable to the Class B conversion feature, the time period
during which Class B shares were held in a money market fund will be excluded.
See "Conversion Feature--Class B Shares" above. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.

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

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

You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15035, New Brunswick, New
Jersey 08906-5010.

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

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the

31
<PAGE>
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through their Dealer that they are eligible
for this special exchange privilege.

Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at NAV.

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

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

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

SHAREHOLDER SERVICES

In addition to the exchange privilege, as a shareholder of the Fund, you can
take advantage of the following 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.

- 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. For additional information about this service, you may
contact the Transfer Agent directly.

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

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

- 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

32
<PAGE>
provide one annual and semi-annual shareholder report and prospectus per
household. You may request additional copies of such reports by calling (800)
225-1852 or by writing to the Fund at Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077. In addition, monthly unaudited financial data is
available upon request from the Fund.

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

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

33
<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 an offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---
<S> <C>
FUND HIGHLIGHTS................................. 2
What are the Fund's Risk Factors and Special
Characteristics?............................. 2
FUND EXPENSES................................... 4
FINANCIAL HIGHLIGHTS............................ 5
HOW THE FUND INVESTS............................ 9
Investment Objective and Policies............. 9
Hedging and Return Enhancement Strategies..... 10
Other Investments and Policies................ 15
Investment Restrictions....................... 16
HOW THE FUND IS MANAGED......................... 16
Manager....................................... 16
Distributor................................... 17
Fee Waivers................................... 18
Portfolio Transactions........................ 18
Custodian and Transfer and Dividend Disbursing
Agent........................................ 19
Year 2000..................................... 19
HOW THE FUND VALUES ITS SHARES.................. 19
HOW THE FUND CALCULATES PERFORMANCE............. 19
TAXES, DIVIDENDS AND DISTRIBUTIONS.............. 20
GENERAL INFORMATION............................. 22
Description of Common Stock................... 22
Additional Information........................ 22
SHAREHOLDER GUIDE............................... 23
How to Buy Shares of the Fund................. 23
Alternative Purchase Plan..................... 24
How to Sell Your Shares....................... 27
Conversion Feature--Class B Shares............ 30
How to Exchange Your Shares................... 31
Shareholder Services.......................... 32
</TABLE>

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

MF105P

Class A: 743911-208
Class B: 743911-109
CUSIP Nos.: Class C: 743911-307
Class Z: 443911-406

Prudential Utility Fund, Inc.
PROSPECTUS

[GRAPHIC]

MARCH 3, 1998
[REVISED JUNE 1, 1998]

[LOGO]

PRUDENTIAL INVESTMENTS