PRUDENTIAL INTERNATIONAL BOND FUND INC, 485BPOS, 2000-03-07

PRUDENTIAL INTERNATIONAL BOND FUND INC
485BPOS, 2000-03-07

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 2000

SECURITIES ACT FILE NO. 33-63945
INVESTMENT COMPANY ACT FILE NO. 811-5123
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]

POST-EFFECTIVE AMENDMENT NO. 7 [X]

AND/OR REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]

AMENDMENT NO. 13 [X]

(CHECK APPROPRIATE BOX OR BOXES)

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

PRUDENTIAL INTERNATIONAL BOND FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

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

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7525

MARGUERITE E. H. MORRISON, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)

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

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the Registration Statement.

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
[ ] immediately upon filing pursuant to paragraph (b)

[X] on March 8, 2000 pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment

<TABLE>
<S> <C>
Title of Securities Being Registered.............. Shares of Common Stock, $.01 par value per share.
</TABLE>

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<PAGE> 2

[PRUDENTIAL LOGO]
PROSPECTUS MARCH 8, 2000

PRUDENTIAL
INTERNATIONAL BOND FUND, INC.

FUND TYPE Global debt

INVESTMENT OBJECTIVE Total return, made up of current income and capital
appreciation

BUILD
ON THE ROCK

[BACKGROUND GRAPHIC]

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state otherwise.
<PAGE> 3

<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
3 Evaluating Performance
4 Fees and Expenses

6 HOW THE FUND INVESTS
6 Investment Objective and Policies
7 Other Investments and Strategies
12 Investment Risks

16 HOW THE FUND IS MANAGED
16 Board of Directors
16 Manager
16 Investment Adviser
17 Portfolio Managers
18 Distributor

19 FUND DISTRIBUTIONS AND TAX ISSUES
19 Distributions
20 Tax Issues
21 If You Sell or Exchange Your Shares

23 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
23 How to Buy Shares
31 How to Sell Your Shares
34 How to Exchange Your Shares
36 Telephone Redemptions or Exchanges

37 FINANCIAL HIGHLIGHTS
37 Class A Shares
38 Class B Shares
39 Class C Shares
40 Class Z Shares

41 THE PRUDENTIAL MUTUAL FUND FAMILY
</TABLE>

FOR MORE INFORMATION (BACK COVER)

PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 4
RISK/RETURN SUMMARY

This section highlights key information about PRUDENTIAL INTERNATIONAL BOND
FUND, INC., which we refer to as "the Fund." Additional information follows this
summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is to seek TOTAL RETURN, made up of CURRENT INCOME and
CAPITAL APPRECIATION. We normally invest at least 65% of the Fund's total assets
in income-producing debt securities of issuers in at least 3 different
countries, excluding the United States. We invest in debt securities of foreign
corporate issuers and foreign governments, supranational organizations,
semi-governmental entities and government agencies or entities.

We look for investment-grade debt securities denominated in U.S. dollars or
foreign currencies. The Fund may use a variety of hedging strategies to protect
the value of the Fund's investments, including derivatives and cross-currency
hedges.

Our approach to global investing focuses on country and currency selection.
We look at fundamentals to identify relative value.

While we make every effort to achieve our objective, we can't guarantee
success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. The Fund invests
in debt obligations which have credit, market and interest rate risks. Credit
risk is the possibility that an issuer of a debt obligation does not pay the
Fund interest or repay principal. Market risk, which may affect an industry, a
sector or the entire market, is the possibility that the market value of an
investment may move up or down and that its movement may occur quickly or
unpredictably. Interest rate risk refers to the fact that the value of most
bonds will fall when interest rates rise. The longer the maturity and the lower
the credit quality of a bond, the more likely its value will decline.

- --------------------------------------------------------------------------------
DID YOU KNOW...

A SUPRANATIONAL ORGANIZATION is formed by the governments of different countries
to promote economic development. The World Bank, the European Investment Bank
and the Asian Development Bank are supranational entities. Securities of
SEMI-GOVERNMENTAL ENTITIES are issued by organizations owned by a national or
state government or are debts of a political unit that are not backed by the
national government's credit and taxing power. The Province of Ontario and the
City of Stockholm are examples of semi-governmental entities.

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

1
<PAGE> 5
RISK/RETURN SUMMARY

Since we invest in foreign securities, there are different risks than if we
invested only in obligations of the U.S. government and U.S. corporations. The
amount of income available for distribution may be affected by the Fund's
foreign currency gains or losses and certain hedging activities of the Fund.
Foreign markets, especially those in developing countries, are often more
volatile than U.S. markets and are generally not subject to regulatory
requirements comparable to U.S. issuers. In addition, changes in currency
exchange rates can reduce or increase market performance.

The Fund is nondiversified, meaning we can invest more than 5% of our
assets in the securities of any one issuer. Investing in a nondiversified mutual
fund involves greater risk than investing in a diversified fund because a loss
resulting from the decline in the value of one security may represent a greater
portion of the total assets of a nondiversified fund.

Some of our investment strategies--such as using derivatives--involve
above-average risks. The Fund may use risk management techniques to try to
preserve assets or enhance return. Derivatives may not fully offset the
underlying positions and this could result in losses to the Fund that would not
otherwise have occurred.

Like any mutual fund, an investment in the Fund could lose value and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests--Investment Risks."

An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

2 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 6
Risk/RETURN SUMMARY

EVALUATING PERFORMANCE

A number of factors -- including risk -- can affect how the Fund performs. The
following bar chart shows the Fund's performance for each full calendar year of
operation for the last 10 years. The bar chart and table below demonstrate the
risk of investing in the Fund by showing how returns can change from year to
year and by showing how the Fund's average annual total returns compare with a
bond index and a group of similar mutual funds. Past performance does not mean
that the Fund will achieve similar results in the future.

ANNUAL RETURNS* (CLASS A SHARES)

<TABLE>
<CAPTION>
<S> <C> <C>
BEST QUARTER: 10.59% (1st quarter of 1995)
WORST QUARTER: -5.86% (1st quarter of 1990)
</TABLE>

*These annual returns do not include sales charges. If the sales charges were
included, the annual returns would be lower than those shown. Without the
distribution and service (12b-1) fee waiver, the annual returns would have been
lower, too.

AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-99)

<TABLE>
<CAPTION>
1 YR 5 YRS 10 YRS SINCE INCEPTION
<S> <C> <C> <C> <C>
Class A shares -8.10% 7.97% 7.30% 7.47% (since 7-31-87)(4)
Class B shares -9.76% N/A N/A 4.07% (since 1-15-96)
Class C shares -6.71% N/A N/A 4.25% (since 1-15-96)
Class Z shares -4.14% N/A N/A 3.08% (since 3-17-97)
Morgan GBI2 -5.08% 6.69% 7.81% N/A(2)
Lipper Average(3) -2.43% 6.36% 6.60% N/A(3)
</TABLE>

(1) The Fund's returns are after deduction of sales charges and expenses.
Without the distribution and service (12b-1) fee waiver, the annual returns
would have been lower.

(2) The J. P. Morgan Government Bond Index-Global (Morgan GBI) is a
market-weighted index of the total return of government bonds of the
following nations: Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, the Netherlands, Spain, Sweden, the United Kingdom and the
United States. The Morgan GBI is an unmanaged index and is traded, unhedged
and measured in U.S. dollars. These returns do not include the effect of
any sales charges or operating expenses of a mutual fund. The securities in
the Morgan GBI may be very different than those in the Fund. These returns
would be lower if they included the effect of sales charges and operating
expenses. Morgan GBI returns since the inception of each class are 8.09%
for Class A, 4.11% for Class B and Class C and 5.38% for Class Z shares.
Source: Lipper Inc.

(3) The Lipper Average is based on the average return of all mutual funds in
the Lipper Global Income category and does not include the effect of any
sales charges. Again, these returns would be lower if they included the
effect of sales charges. Lipper returns since the inception of each class
are 134.73% for Class A, 15.26% for Class B and Class C and 8.83% for Class
Z shares. The Fund's returns are after deduction of sales charges and
expenses. Source: Lipper Inc.

(4) Prior to 1-15-96, the Fund operated as a closed-end investment company.

3
<PAGE> 7
RISK/RETURN SUMMARY

FEES AND EXPENSES

This table shows the sales charges, fees and expenses that you may pay if you
buy and hold shares of each share class of the Fund--Class A, B, C and Z. Each
share class has different sales charges--known as loads--and expenses, but
represents an investment in the same fund. Class Z shares are available only to
a limited group of investors. For more information about which share class may
be right for you, see "How to Buy, Sell and Exchange Shares of the Fund."

<TABLE>
<CAPTION>
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on 4% None 1% None
purchases (as a percentage of offering price)
Maximum deferred sales charge (load) None 5%(2) 1%(3) None
(as a percentage of the lower of original
purchase price or sale proceeds)
Maximum sales charge (load) imposed None None None None
on reinvested dividends and other
distributions
Redemption fees None None None None
Exchange fee None None None None
</TABLE>

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .75% .75% .75% .75%
+ Distribution and service (12b-1) fees .30%(4) 1.00%(4) 1.00%(4) None
+ Other expenses .86% .86% .86% .86%
= Total annual Fund operating expenses 1.91% 2.61% 2.61% 1.61%
- Fee waiver .05%(4) .25%(4) .25%(4) None
= NET ANNUAL FUND OPERATING EXPENSES 1.86% 2.36% 2.36% 1.61%
</TABLE>

(1) Your broker may charge you a separate or additional fee for purchases and
sales of shares.

(2) The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases
by 1% annually to 1% in the fifth and sixth years and 0% in the seventh
year. Class B shares convert to Class A shares approximately seven years
after purchase.

(3) The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.

(4) For the fiscal year ending 12-31-00, the Distributor of the Fund has
contractually agreed to reduce its distribution and service (12b-1) fees
for Class A shares to .25 of 1% of the average daily net assets of the
Class A shares and .75 of 1% of the average daily net assets of both the
Class B and Class C shares.

4 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 8
Risk/Return Summary

EXAMPLE

This example will help you compare the fees and expenses of the Fund's different
share classes and the cost of investing in the Fund with the cost of investing
in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A, Class B and
Class C shares during the first year. Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:

<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $581 $ 971 $1,386 $2,539
Class B shares $739 $1,088 $1,463 $2,676
Class C shares $437 $ 880 $1,449 $2,996
Class Z shares $164 $ 508 $ 876 $1,911
</TABLE>

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

<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $581 $971 $1,386 $2,539
Class B shares $239 $788 $1,363 $2,676
Class C shares $337 $880 $1,449 $2,996
Class Z shares $164 $508 $ 876 $1,911
</TABLE>

5
<PAGE> 9
HOW THE FUND INVESTS

THE EURO

On January 1, 1999, 11 of the 15 member states of the European Union introduced
the euro as a common currency. During a three-year transitional period, the euro
will coexist with each member state's national currency. By July 1, 2002, the
euro is anticipated to become the sole legal tender of the member states. During
the transition period, the Fund will treat the euro as a separate currency from
the national currency of any member state.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to seek TOTAL RETURN, made up of CURRENT
INCOME and CAPITAL APPRECIATION. This means we seek investments that will
increase in value as well as pay the Fund interest and other income. While we
make every effort to achieve our objective, we can't guarantee success.

In pursuing our objective, we normally invest at least 65% of the Fund's
total assets in income-producing debt securities of issuers in at least 3
different countries, excluding the United States. We invest in debt securities
of foreign corporate issuers, foreign governments, supranational organizations,
semi-governmental entities and government agencies or entities. We may invest in
securities of developing countries, which may be subject to more abrupt or
erratic market movements than those of developed countries. We invest in debt
securities in U.S. dollars and debt securities in foreign countries based on
U.S. dollars or foreign currencies.

The investment adviser has a team of fixed-income professionals, including
credit analysts and traders, with experience in many foreign fixed-income
securities markets. In selecting portfolio securities, the investment adviser
considers country and currency selection, economic conditions and interest rate
fundamentals. The investment adviser also evaluates individual debt securities
within each fixed-income sector based upon their relative investment merit and
considers factors such as yield, duration and potential for price or currency
appreciation as well as credit quality, maturity and risk.

Some government securities are backed by the full faith and credit of the
issuing government which means that payment of principal and interest are
guaranteed, but market value is not. Other government issuers may be able to
borrow from a centralized treasury and some government issuers depend entirely
on their own resources to repay their debt.

We generally invest up to 30% of the Fund's total assets in securities
denominated in a particular currency (even U.S. dollars), although we can go
higher if we think that a particular currency might significantly increase in

6 Prudential International Bond Fund, Inc. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 10
HOW THE FUND INVESTS

value. Also, the Fund may invest up to 65% of its total assets in securities
denominated in the euro and up to 50% of its total assets in securities
denominated in Japanese or British currencies.

The Fund invests primarily in "investment-grade" debt securities. This
means major rating services, like Standard & Poor's Ratings Group (S&P) or
Moody's Investors Service, Inc. (Moody's), have rated the securities within one
of their four highest quality grades. Debt obligations in the four highest
grades are regarded as investment-grade, but have speculative characteristics
and are riskier than higher-rated securities. A rating is an assessment of the
likelihood of timely repayment of interest and principal and can be useful when
comparing different debt obligations. These ratings are not a guarantee of
quality. The opinions of the rating agencies do not reflect market risk and they
may at times lag behind the current financial conditions of a company. We also
may invest in obligations that are not rated, but that we believe are of
comparable quality to the obligations described above.

The Fund has a dollar-weighted average maturity of between 3 and 15 years,
but may go below 3 years for temporary defensive purposes. The maturity of a
bond is simply the number of years until the principal is due and payable.
Weighted average maturity is calculated by adding the maturities of all of the
bonds in a portfolio and dividing by the number of bonds on a weighted basis.

The Fund may also use a variety of "hedging" strategies intended to help
protect the value of the Fund's securities or to improve returns. These may
include derivative transactions and cross-currency hedges.

For more information, see "Investment Risks" below and the Statement of
Additional Information, "Description of the Fund, Its Investments and Risks."
The Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover page
of this prospectus.

The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
that are not fundamental.

OTHER INVESTMENTS AND STRATEGIES

In addition to the principal strategies, we also may use the following
investment strategies to try to increase the Fund's returns or protect its
assets if market conditions warrant.

7
<PAGE> 11
HOW THE FUND INVESTS

OTHER DEBT SECURITIES

We can invest up to 35% of total assets in U.S. issuers, including the U.S.
government and its agencies. Up to 15% of the Fund's total assets may be
invested in lower-rated securities, which are riskier than investment-grade debt
obligations and are considered "speculative" with respect to their capacity to
pay interest and principal. The Fund's investments in these high-yield or "junk"
bonds will have a minimum rating of B by Moody's or S&P or another major rating
service at the time they are purchased. The Fund may continue to hold such a
security if it is later downgraded below B or is no longer rated by a major
rating service.

TEMPORARY DEFENSIVE INVESTMENTS

In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in U.S. Treasury or other
U.S. dollar-denominated securities or high-quality money market instruments,
including commercial paper of domestic and foreign corporations, foreign
government securities, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks and short-term obligations issued or
guaranteed by the U.S. government and its agencies. Investing heavily in these
securities limits our ability to achieve capital appreciation, but can help to
preserve the Fund's assets when the bond markets are volatile.

ZERO COUPON SECURITIES

We can invest in ZERO COUPON SECURITIES. These are bonds that are sold for a
price that is less than their stated value. Interest payments on a zero coupon
bond are not made during the life of the bond, but at the bond's maturity, the
holder gets the bond's stated value. The difference between the price paid for
the bond and the amount paid to the holder at the bond's maturity is the
holder's return. This type of security may experience greater fluctuation in
value and less liquidity than similarly rated bonds that pay interest at regular
intervals.

STRIPPED SECURITIES

The Fund can invest up to 10% of its total assets in "stripped securities" of
U.S. and foreign government debt securities. Stripped securities are those with
the principal and interest sold separately. This 10% limit is combined with the
Fund's investments in similar U.S. and foreign government securities.

8 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 12
HOW THE FUND INVESTS

ADJUSTABLE/FLOATING RATE SECURITIES

The Fund can invest in adjustable or floating rate securities whose interest
rate is calculated by reference to a specific index and is reset periodically.
The value of adjustable or floating rate securities does not respond as quickly
to changing interest rates as do fixed rate securities.

REPURCHASE AGREEMENTS

The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund and is, in effect, a loan by the
Fund.

DERIVATIVE STRATEGIES

We may use various derivative strategies to try to improve the Fund's returns or
protect its assets. We cannot guarantee that these strategies will work, that
the instruments necessary to implement these strategies will be available, or
that the Fund will not lose money. Derivatives--such as futures, options,
foreign currency forward contracts and options on futures--involve costs and can
be volatile. With derivatives, the investment adviser tries to predict whether
the underlying investment--a security, market index, currency, interest rate or
some other benchmark--will go up or down at some future date. We may use
derivatives to try to reduce risk or to increase return consistent with the
Fund's overall investment objective. The investment adviser will consider other
factors (such as cost) in deciding whether to employ any particular strategy or
use any particular instrument. Any derivatives we use may not match the Fund's
underlying holdings.

Because we are an international fund and invest in securities denominated
in different foreign currencies, we may use "currency hedges." Currency hedges
can help protect the Fund's net asset value from declining if a particular
foreign currency were to decrease in value compared to the U.S. dollar.

The Fund may invest without limit in commercial paper and other instruments
that are "indexed" to certain specific foreign currency exchange rates. This
means that the instrument's principal amount is adjusted upward or downward (but
not below zero) to reflect changes in the exchange rate between two currencies
from the time the instrument is outstanding until it matures. When the Fund
purchases one of these instruments, it pays with the currency in which the
instrument is denominated and, at maturity, it receives interest and principal
payments in the same currency. These instruments offer

9
<PAGE> 13
HOW THE FUND INVESTS

the potential for realizing gains as a result of changes in foreign currency
exchange rates that can be used to hedge (or cross-hedge) against a decline in
the U.S. dollar value of the investments while providing an attractive money
market rate of return.

Options. The Fund may purchase and sell put and call options on securities and
currencies traded on U.S. or foreign securities exchanges or on the
over-the-counter market. An OPTION is the right to buy or sell securities in
exchange for a premium. The options may be on debt securities, aggregates of
debt securities, financial indexes, U.S. government securities, foreign
government securities and foreign currencies. The Fund will sell only covered
options.

Futures Contracts and Related Options

Foreign Currency Forward Contracts. The Fund may purchase and sell financial
futures contracts and related options on debt securities, aggregates of debt
securities, financial indexes, U.S. government securities, foreign government
securities, corporate debt securities and foreign currencies. A FUTURES CONTRACT
is an agreement to buy or sell a set quantity of an underlying product at a
future date, or to make or receive a cash payment based on the value of a
securities index. The Fund also may enter into foreign currency forward
contracts to protect the value of its assets against future changes in the level
of foreign currency exchange rates. A FOREIGN CURRENCY FORWARD CONTRACT is an
obligation to buy or sell a given currency on a future date and at a set price.

For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks -- Risk Management and Return Enhancement
Strategies."

ADDITIONAL STRATEGIES

The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 20% of the value of its total assets) and HOLDS ILLIQUID SECURITIES
(the Fund may hold up to 15% of its net assets in illiquid securities, including
securities with legal or contractual restrictions on resale, those without a
readily available market, and repurchase agreements with maturities longer than

10 Prudential International Bond Fund, Inc. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 14
HOW THE FUND INVESTS

seven days). The Fund is "NONDIVERSIFIED," meaning it can invest more than 5% of
its assets in the securities of any one issuer. The Fund is subject to certain
other investment restrictions that are fundamental policies, which means they
cannot be changed without shareholder approval. For more information about these
restrictions, see the SAI.

11
<PAGE> 15
HOW THE FUND INVESTS

INVESTMENT RISKS

As noted, all investments involve risk, and investing in the Fund is no
exception. Since the Fund's holdings can vary significantly from broad market
indexes, performance of the Fund can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Fund's principal
investments and certain other non-principal investments the Fund may make. See,
too, "Description of the Fund, Its Investments and Risks" in the SAI.

<TABLE>
<CAPTION>
INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
INCOME-PRODUCING DEBT - The Fund's share price, - Bonds have generally
SECURITIES yield and total return outperformed money
will fluctuate in market instruments over
At least 65% response to bond market the long term, with
movements less risk than stock

- Credit risk--the risk - Most bonds will rise in
that the default of an value when interest
issuer would leave the rates fall
Fund with unpaid
interest or principal. - Regular interest income
The lower a bond's
quality, the higher its - High-quality debt
potential volatility obligations are
generally more secure
- Market risk--the risk than stock since
that the market value companies must pay
of an investment may their debts before they
move up or down, pay dividends
sometimes rapidly or
unpredictably. Market - Investment-grade bonds
risk may affect an have a lower risk of
industry, a sector, or default than junk bonds
the market as a whole
- Bonds with longer
- Interest rate risk--the maturity dates
value of most bonds typically have higher
will fall when interest yields
rates rise; the longer
a bond's maturity and - Intermediate-term
the lower its credit securities may be less
quality, the more its susceptible to loss of
value typically falls. principal than longer
It can lead to price term securities
volatility,
particularly for junk
bonds and stripped
securities
</TABLE>

12 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 16
HOW THE FUND INVESTS

- Junk bonds have a
higher risk of
default, tend to be
less liquid and may
be more difficult to
value
- ------------------------------------------------------------------------------------
FOREIGN SECURITIES - Foreign markets, - Investors can
economies and participate in the
Percentage varies political systems growth of foreign
may not be as stable markets and
as in the U.S., companies operating
particularly those in those markets
in developing
countries
- Changing value of
- Currency foreign currencies
risk--changing
values of foreign - Opportunities for
currencies can cause diversification
losses

- Debt securities
issued by
supranational
organizations or
semi-governmental
issuers may be
backed by limited
assets in the event
of default

- May be less liquid
than U.S. stocks and
bonds

- Differences in
foreign laws,
accounting
standards, public
information, custody
and settlement
practices provide
less-reliable
information on
foreign investments
and involve more
risks
- ------------------------------------------------------------------------------------
</TABLE>

13
<PAGE> 17
HOW THE FUND INVESTS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- ------------------------------------------------------------------------------------
<S> <C> <C>
DERIVATIVES - Derivatives such as - The Fund could make
futures, options and money and protect
Percentage varies foreign currency against losses if
forward contracts the investment
that are used for analysis proves
hedging purposes may correct
not fully offset the
underlying positions - Derivatives that
and this could involve leverage
result in losses to could generate
the Fund that would substantial gains at
not have otherwise low cost
occurred
- One way to manage
- Derivatives used for the Fund's
risk management may risk/return balance
not have the is by locking in the
intended effects and value of an
may result in losses investment ahead of
or missed time
opportunities
- May be used to hedge
- The other party to a against changes in
derivatives contract currency exchange
could default rates

- Derivatives that
involve leverage
could magnify losses

- Certain types of
derivatives involve
costs to the Fund
that can reduce
returns
- ------------------------------------------------------------------------------------
ILLIQUID SECURITIES

Up to 15% of net assets - May be difficult to - May offer a more
value precisely attractive yield or
potential for growth
- May be difficult to than more widely
sell at the time or traded securities
price desired

- ------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS

Up to 100% on a - Limit potential for - May preserve the
temporary basis capital appreciation Fund's assets

- See credit risk and
market risk

- ------------------------------------------------------------------------------------
</TABLE>

14 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 18
HOW THE FUND INVESTS

- Interest costs and
borrowing fees may
exceed potential
investment gains

- ------------------------------------------------------------------------------------
ZERO COUPON BONDS - Generates "phantom - May lock in a higher
income" for the Fund rate of return than
Up to 10% of net for tax purposes is available in the
assets although no income marketplace at time
is paid of maturity

- Typically subject to
greater volatility
and less liquidity
in adverse markets
than other
income-producing
securities

- ------------------------------------------------------------------------------------
ADJUSTABLE/FLOATING RATE - Value lags value of - Can take advantage
SECURITIES fixed rate of rising interest
securities when rates
Percentage varies interest rates
change

- ------------------------------------------------------------------------------------
STRIPPED SECURITIES - More volatile than - Value rises faster
securities that have when interest rates
Up to 10% not separated fall
principal and
interest
- ------------------------------------------------------------------------------------
</TABLE>

15
<PAGE> 19
HOW THE FUND IS MANAGED

BOARD OF DIRECTORS

The Fund's Board of Directors oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers, who conduct and supervise the daily business operations of
the Fund.

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077

Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM also is
responsible for supervising the Fund's investment adviser. For the fiscal year
ended December 31, 1999, the Fund paid PIFM management fees of .75% of the
Fund's average net assets.

PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of January 31, 2000, PIFM served as the
manager to all 43 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $74.9 billion.

INVESTMENT ADVISER

The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and pays Prudential Investments for its
services.

Prudential Investments has entered into a service agreement with PRICOA
Asset Management Ltd. (PRICOA), a subsidiary of The Prudential Insurance Company
of America, for the provision of investment advisory services to the Fund and
pays PRICOA for its services. PRICOA, an indirect wholly owned subsidiary of
Prudential, is located at Cutlers Court, 115 Houndsditch, London EC3A 7BR
England. It was incorporated under U.K. law in January 1997, and as of December
31, 1999, had approximately $2 billion under management.

16 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 20
HOW THE FUND IS MANAGED

PORTFOLIO MANAGERS

Prudential Investments' Fixed Income Group manages more than $116 billion for
Prudential's retail investors, institutional investors and policyholders. Senior
Managing Directors James J. Sullivan and Jack W. Gaston head the Group, which is
organized into teams specializing in different market sectors. Top-down, broad
investment decisions are made by the Fixed Income Policy Committee, whereas
bottom-up security selection is made by the sector teams.

Mr. Sullivan has overall responsibility for overseeing portfolio management
and credit research. Prior to joining Prudential Investments in 1998, he was a
managing director in Prudential's Capital Management Group, where he oversaw
portfolio management and credit research for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 16 years of experience in
risk management, arbitrage trading and corporate bond investing.

Mr. Gaston has overall responsibility for overseeing quantitative research
and risk management. Prior to this appointment in 1999, he was senior managing
director of the Capital Management Group where he was responsible for the
investment performance and risk management for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 20 years of experience in
investment management, including extensive experience applying quantitative
techniques to portfolio management.

The Fixed Income Investment Policy Committee is comprised of key senior
investment managers. Members include seven sector team leaders, the chief
investment strategist and the head of risk management. The Committee uses a
top-down approach to investment strategy, asset allocation and general risk
management, identifying sectors in which to invest.

The Global Bond Team, headed by GABRIEL IRWIN, is primarily responsible for
overseeing the day-to-day management of the Fund. This Team uses an approach
which is top-down in respect of country and currency but which also focuses on
individual securities, while staying within the guidelines of the Investment
Policy Committee and the Fund's investment restrictions and policies. In
addition, the Credit Research team of analysts supports the sector teams, using
bottom-up fundamentals as well as economic and industry trends. Other sector
teams may contribute to securities selection when appropriate.

17
<PAGE> 21
HOW THE FUND IS MANAGED

GLOBAL BOND TEAM

ASSETS UNDER MANAGEMENT: $2.0 billion as of December 31, 1999.

TEAM LEADER: Gabriel Irwin. GENERAL INVESTMENT EXPERIENCE: 18 years.

PORTFOLIO MANAGERS: 5. AVERAGE GENERAL INVESTMENT EXPERIENCE: 11 years, which
includes team members with significant mutual fund experience.

SECTOR: Corporate and government securities of foreign issuers.

INVESTMENT STRATEGY: Focus is on a top-down, geographic-allocation process. They
seek to add value by exploiting yield variances between different countries and
credit qualities.

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's Class A, B, C and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Fees and Expenses" tables.

18 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 22
FUND DISTRIBUTIONS AND TAX ISSUES

Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA), or some other qualified tax-deferred plan or account. Dividends
and distributions from the Fund also may be subject to state and local income
tax in the state where you live.

Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified tax-deferred plan or account.

The following briefly discusses some of the important federal tax issues
you should be aware of, but is not meant to be tax advice. For tax advice,
please speak with your tax adviser.

DISTRIBUTIONS

The Fund declares daily and distributes DIVIDENDS of any net investment income
to shareholders typically every month. For example, if the Fund owns Utopia
government bonds and the bonds pay income, the Fund will pay out a portion of
this income to its shareholders, assuming the Fund's income is more than its
costs and expenses. The dividends you receive from the Fund will be taxed as
ordinary income whether or not they are reinvested in the Fund.

The amount of income available for distribution to shareholders will be
affected by any foreign currency gains or losses generated by the Fund and
cannot be predicted. This fact, coupled with the different tax and accounting
treatment of certain currency gains and losses, increases the possibility that
distribution in whole or in part may be a return of capital to shareholders.

The Fund also distributes realized net CAPITAL GAINS to
shareholders--typically once a year. Capital gains are generated when the Fund
sells its assets for a profit. For example, if the Fund bought Utopia government
bonds for a total of $1,000 and more than one year later sold the bonds for a
total of $1,500, the Fund has net long-term capital gains of $500, which it will
pass on to shareholders (assuming the Fund's total gains are greater than any
losses it may have). Capital gains are taxed differently depending on how long
the Fund holds the security--if a security is held more than one year before it
is sold, LONG-TERM capital gains are taxed at the rate of 20%, but if the
security is held one year or less, SHORT-TERM capital gains are taxed at
ordinary income rates of up to 39.6%. Different rates apply to corporate
shareholders.

19
<PAGE> 23
FUND DISTRIBUTIONS AND TAX ISSUES

For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.

TAX ISSUES

FORM 1099

Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.

Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders are eligible for the 70% dividends--received deduction for certain
dividends.

WITHHOLDING TAXES

If federal tax law requires you to provide the Fund with your taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will withhold
and pay to the U.S. Treasury 31% of your distributions and sale proceeds.
Dividends of net investment income and short-term capital gains paid to a
nonresident foreign shareholder generally will be subject to a U.S. withholding
tax of 30%. This rate may be lower, depending on any tax treaty the U.S. may
have with the shareholder's country.

IF YOU PURCHASE JUST BEFORE RECORD DATE

If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains

20 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 24
FUND DISTRIBUTIONS AND TAX ISSUES

taxes. You may think you've done well since you bought shares one day and soon
thereafter received a distribution. That is not so because when dividends are
paid out, the value of each share of the Fund decreases by the amount of the
dividend to reflect the payout, although this may not be apparent because the
value of each share of the Fund also will be affected by the market changes, if
any. The distribution you receive makes up for the decrease in share value.
However, the timing of your purchase does mean that part of your investment came
back to you as taxable income.

QUALIFIED OR TAX-DEFERRED RETIREMENT PLANS

Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax free. Please contact your financial
adviser for information on a variety of Prudential mutual funds that are
suitable for retirement plans offered by Prudential.

IF YOU SELL OR EXCHANGE YOUR SHARES

If you sell any shares of the Fund for a profit, you have REALIZED A
CAPITAL GAIN, which is subject to tax unless you hold shares in a qualified
tax-deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have.

If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before the
sale of the shares). If you acquire shares of the Fund and sell your shares
within 90 days, you may not be allowed to include certain charges incurred in
acquiring the shares for purposes of calculating gain or loss realized upon the
sale of the shares.

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

[CAPITAL GAIN & LOSS GRAPHIC]

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

21
<PAGE> 25
FUND DISTRIBUTIONS AND TAX ISSUES

Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.

Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on Form 1099; however, proceeds from the sale or exchange will
be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.

AUTOMATIC CONVERSION OF CLASS B SHARES

We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale of
your Class B shares. This opinion, however, is not binding on the Internal
Revenue Service. For more information about the automatic conversion of Class B
shares, see "Class B Shares Convert to Class A Shares After Approximately Seven
Years" in the next section.

22 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 26
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

HOW TO BUY SHARES

STEP 1: OPEN AN ACCOUNT

If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852, or contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020

To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Fund, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Fund) or suspend or modify the Fund's sale of
its shares.

STEP 2: CHOOSE A SHARE CLASS

Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.

Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge or CDSC), but the operating expenses each year are higher
than Class A share expenses. With Class C shares, you pay a 1% front-end sales
charge and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.

When choosing a share class, you should consider the following:

- The amount of your investment

- The length of time you expect to hold the shares and the impact of the
varying distribution fees

- The different sales charges that apply to each share class--Class A's
front-end sales charge vs. Class B's CDSC vs. Class C's low front-end
sales charge and low CDSC

23
<PAGE> 27
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

- - Whether you qualify for any reduction or waiver of sales charges

- - The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase

- - Whether you qualify to purchase Class Z shares.

See "How to Sell Your Shares" for a description of the impact of CDSCs.

Share Class Comparison. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
------- ------- ------- -------
<S> <C> <C> <C> <C>
Minimum purchase $1,000 $1,000 $2,500 None
amount(1)

Minimum amount for $100 $100 $100 None
subsequent purchases(1)

Maximum initial 4% of the public None 1% of the public None
sales charge offering price offering price

Contingent Deferred None If sold during: 1% on sales None
Sales Charge (CDSC)(2) Year 1, 5% made within
Year 2, 4% 18 months
Year 3, 3% of purchase(2)
Year 4, 2%
Years 5/6, 1%
Year 7, 0%
Annual distribution .30 of 1% 1% (.75 of 1% 1% (.75 of 1% None
and service (12b-1) (.25 of 1% currently) currently)
fees shown as a currently)
percentage of average
net assets(3)
</TABLE>

(1) The minimum investment requirements do not apply to certain retirement
and employee savings plans and custodial accounts for minors. The
minimum initial and subsequent investment for purchases made through the
Automatic Investment Plan is $50. For more information, see "Additional
Shareholder Services--Automatic Investment Plan."

(2) For more information about the CDSC and how it is calculated, see "How
to Sell Your Shares--Contingent Deferred Sales Charge (CDSC)." Class C
shares bought before November 2, 1998, have a 1% CDSC if sold within one
year.

(3) These distribution fees are paid from the Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and
may cost you more than paying other types of sales charges. The service
fee for Class A, B and C shares is .25 of 1%. The distribution fee for
Class A shares is limited to .30 of 1% (including the .25 of 1% service
fee) and is .75 of 1% for Class B and Class C shares. For the fiscal
year ending 12-31-00, the Distributor of the Fund has contractually
agreed to reduce its distribution and service (12b-1) fees for Class A
shares to .25 of 1% and for Class B and Class C shares to .75 of 1% of
the average daily net assets of each such class.

24 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 28
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE

The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.

Increase the Amount of Your Investment. You can reduce Class A's sales charge by
increasing the amount of your investment. This table shows you how the sales
charge decreases as the amount of your investment increases.

<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
------------------ ----------------- ------------------ -----------
<S> <C> <C> <C>
Less than $50,000 4.00% 4.17% 3.75%
$50,000 to $99,999 3.50% 3.63% 3.25%
$100,000 to $249,999 2.75% 2.83% 2.50%
$250,000 to $499,999 2.00% 2.04% 1.90%
$500,000 to $999,999 1.50% 1.52% 1.40%
$1,000,000 and above* None None None
</TABLE>

* If you invest $1 million or more, you can buy only Class A shares,
unless you qualify to buy Class Z shares.

To satisfy the purchase amounts above, you can:

- Invest with an eligible group of related investors

- Buy the Class A shares of two or more Prudential mutual funds at
the same time

- Use your RIGHTS OF ACCUMULATION, which allow you to combine the
current value of Prudential mutual fund shares you already own
with the value of the shares you are purchasing for purposes of
determining the applicable sales charge (note: you must notify
the Transfer Agent if you qualify for Rights of Accumulation)

- Sign a LETTER OF INTENT, stating in writing that you or a group
of related investors will purchase a certain amount of shares in
the Fund and other Prudential mutual funds within 13 months.

The Distributor may reallow Class A's sales charge to dealers.

Benefit Plans. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge if they meet the required minimum for
amount of assets, average account balance or number of eligible employees. For
more information about these requirements, call Prudential at (800) 353-2847.

Mutual Fund Programs. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory

25
<PAGE> 29
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

Group relating to:

- - Mutual fund "wrap" or asset allocation programs, where the sponsor places
Fund trades and charges its clients a management, consulting or other fee
for its services

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

Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

Other Types of Investors. Other investors pay no sales charge, including certain
officers, employees or agents of Prudential and its affiliates, the Prudential
mutual funds, the subadvisers of the Prudential mutual funds and registered
representatives and employees of brokers that have entered into a dealer
agreement with the Distributor. To qualify for a reduction or waiver of the
sales charge, you must notify the Transfer Agent or your broker at the time of
purchase. For more information, see the SAI, "Purchase, Redemption and Pricing
of Fund Shares--Reduction and Waiver of Initial Sales Charge--Class A Shares."

WAIVING CLASS C's INITIAL SALES CHARGE

Benefit Plans. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at (800)
353-2847.

Investment of Redemption Proceeds from Other Investment Companies. The
initial sales charge will be waived for purchases of Class C shares if the
purchase is made with money from the redemption of shares of any unaffiliated
investment company, as long as the shares were not held in an account at
Prudential Securities Incorporated (Prudential Securities) or one of its
affiliates. These purchases must be made within 60 days of the redemption. To
qualify for this waiver, you must do one of the following:

- Purchase your shares through an account at Prudential Securities

- Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation

- Purchase your shares through another broker.

26 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 30
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND

This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers appropriate.

QUALIFYING FOR CLASS Z SHARES

Benefit Plans. Certain group retirement plans may purchase Class Z shares if
they meet the required minimum for amount of assets, average account balance or
number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.

Mutual Fund Programs. Class Z shares also can be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
that includes the Fund as an available option. Class Z shares also can be
purchased by investors in certain programs sponsored by broker-dealers,
investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:

- Mutual fund "wrap" or asset allocation programs where the sponsor
places Fund trades, links its clients' accounts to a master account in
the sponsor's name and charges its clients a management, consulting or
other fee for its services

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

Other Types of Investors. Class Z shares also can be purchased by any of the
following:

- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option

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

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

27
<PAGE> 31
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND

In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares, and a finder's fee for Class A or Class Z
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.

CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS

If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you received with reinvested dividends
and other distributions. Since the 12b-1 fees for Class A shares are lower than
for Class B shares, converting to Class A shares lowers your Fund expenses.

When we do the conversion, you will get fewer Class A shares than the
number of converted Class B shares if the price of the Class A shares is higher
than the price of Class B shares. The total dollar value will be the same, so
you will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares
- --Conversion Feature -- Class B Shares."

- --------------------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds Utopia government
bonds in its portfolio and the price of Utopia government bonds goes up while
the value of the fund's other holdings remains the same and expenses don't
change, the NAV of Fund XYZ will increase.
- --------------------------------------------------------------------------------

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY

The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund -- known as the NET ASSET VALUE or NAV -- is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. For
example, if the value of the investments held by Fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund -- or the NAV -- is $10 ($1,000
divided by 100). Portfolio securities are valued based upon

28 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 32
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND

market quotations or, if not readily available, at fair value as determined in
good faith under procedures established by the Fund's Board. Most national
newspapers report the NAVs of most mutual funds, which allows investors to check
the price of mutual funds daily.

We determine the NAV of our shares once each business day at 4:15 p.m. New
York time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. Because we invest in
foreign securities, the NAV can change on days when you cannot buy or sell
shares. We do not determine the NAV on days when we have not received any orders
to purchase, sell or exchange Fund shares, or when changes in the value of the
Fund's portfolio do not materially affect the NAV.

What Price Will You Pay for Shares of the Fund? For Class A and Class C shares,
you'll pay the public offering price, which is the NAV next determined after we
receive your order to purchase, plus an initial sales charge (unless you're
entitled to a waiver). For Class B and Class Z shares, you will pay the NAV next
determined after we receive your order to purchase (remember, there are no
up-front sales charges for these share classes). Your broker may charge a
separate or additional fee for purchases of shares.

STEP 4: ADDITIONAL SHAREHOLDER SERVICES

As a Fund shareholder, you can take advantage of the following services and
privileges:

Automatic Reinvestment. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out -- or distributes -- its net investment
income and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015

29
<PAGE> 33
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

Automatic Investment Plan. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.

Retirement Plan Services. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs or SEP-IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs, 403(b)
plans, pension and profit-sharing plans), your financial adviser will help you
determine which retirement plan best meets your needs. Complete instructions
about how to establish and maintain your plan and how to open accounts for you
and your employees will be included in the retirement plan kit you receive in
the mail.

The PruTector Program. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory evidence of
insurability. This insurance is subject to other restrictions and is not
available in all states.

Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption checks.
Remember, the sale of Class B and Class C shares may be subject to a CDSC.

Reports to Shareholders. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.

30 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 34
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

HOW TO SELL YOUR SHARES

You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.

When you sell shares of the Fund-also known as redeeming your
shares--the price you will receive will be the NAV next determined after the
Transfer Agent, the Distributor or your broker receives your order to sell. If
your broker holds your shares, your broker must receive your order to sell by
4:15 p.m. New York time to process the sale on that day. Otherwise contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010

Generally, we will pay you for the shares that you sell within seven
days after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase by wire,
certified check or cashier's check. Your broker may charge you a separate or
additional fee for sales of shares.

RESTRICTIONS ON SALES

There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."

If you are selling more than $100,000 of shares, you want the check sent
to someone or some place that is not in our records, or you are a business or a
trust and you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order signature guaranteed by an "eligible
guarantor institution." An "eligible guarantor institution" includes any bank,
broker-dealer or credit union. For more information, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Sale of Shares--Signature Guarantee."

31
<PAGE> 35
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

CONTINGENT DEFERRED SALES CHARGE (CDSC)

If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase (one year for Class C shares purchased before November 2,
1998), you will have to pay a CDSC. To keep the CDSC as low as possible, we will
sell amounts representing shares in the following order:

- Amounts representing shares you purchased with reinvested
dividends and distributions

- Amounts representing the increase in NAV above the total amount
of payments for shares made during the past six years for Class
B shares and 18 months for Class C shares (one year for Class C
shares purchased before November 2, 1998)

- Amounts representing the cost of shares held beyond the CDSC
period (six years for Class B shares and 18 months for Class C
shares).

Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.

Having sold the exempt shares first, if there are any remaining shares
that are subject to the CDSC, we will apply the CDSC to amounts representing the
cost of shares held for the longest period of time within the applicable CDSC
period.

As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth, 1% in the fifth and sixth years. The rate decreases on the first day
of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase (one year for Class C shares purchased
before November 2, 1998). For both Class B and Class C shares, the CDSC is
calculated based on the lesser of the original purchase price or the redemption
proceeds. For purposes of determining how long you've held your shares, all
purchases during the month are grouped together and considered to have been made
on the last day of the month.

The holding period for purposes of determining the applicable CDSC will
be calculated from the first day of the month after initial purchase, excluding
any time shares were held in a money market fund.

32 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 36
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

WAIVER OF THE CDSC--CLASS B SHARES

The CDSC will be waived if the Class B shares are sold:

- After a shareholder is deceased or disabled (or, in the case of
a trust account, the death or disability of the grantor). This
waiver applies to individual shareholders, as well as shares
owned in joint tenancy, provided the shares were purchased
before the death or disability

- To provide for certain distributions--made without IRS
penalty--from a tax-deferred retirement plan, IRA or Section
403(b) custodial account

- On certain sales from a Systematic Withdrawal Plan.

For more information on the above and other waivers, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred
Sales Charge--Class B Shares."

WAIVER OF THE CDSC--CLASS C SHARES

Benefit Plans. The CDSC will be waived for purchases by certain group retirement
plans for which Prudential or brokers not affiliated with Prudential provide
administrative or recordkeeping services. The CDSC will also be waived for
certain redemptions by benefit plans sponsored by Prudential and its affiliates.
For more information, call Prudential at (800) 353-2847.

REDEMPTION IN KIND

If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.

SMALL ACCOUNTS

If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA or some other
qualified tax-deferred plan or account.

33
<PAGE> 37
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

90-DAY REPURCHASE PRIVILEGE

After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate number of shares to
reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares."

RETIREMENT PLANS

To sell shares and receive a distribution from a retirement account, call your
broker or the Transfer Agent for a distribution request form. There are special
distribution and income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer or
plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.

HOW TO EXCHANGE YOUR SHARES

You can exchange your shares of the Fund for shares of the same class in certain
other Prudential mutual funds--including certain money market funds--if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of the Fund for Class A shares of another Prudential mutual fund, but
you can't exchange Class A shares for Class B, Class C or Class Z shares. Class
B and Class C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund, Inc. After an exchange, at redemption the
CDSC will be calculated from the first day of the month after initial purchase,
excluding any time shares were held in a money market fund. We may change the
terms of the exchange privilege after giving you 60 days' notice.

34 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 38
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND

If you hold shares through a broker, you must exchange shares through
your broker. Otherwise contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010

There is no sales charge for such exchanges. However, if you
exchange--and then sell--Class B shares within approximately six years of your
original purchase, or Class C shares within 18 months of your original purchase,
you must still pay the applicable CDSC. If you have exchanged Class B or Class C
shares into a money market fund, the time you hold the shares in the money
market account will not be counted in calculating the required holding periods
for CDSC liability.

Remember, as we explained in the section entitled "Fund Distributions
and Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."

If you own Class B or Class C shares and qualify to purchase Class A
shares without paying an initial sales charge, we will automatically exchange
your Class B or Class C shares which are not subject to a CDSC for Class A
shares. We make such exchanges on a quarterly basis if you qualify for this
exchange privilege. We have obtained a legal opinion that this exchange is not a
"taxable event" for federal income tax purposes. This opinion is not binding on
the IRS.

FREQUENT TRADING

Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any

35
<PAGE> 39
HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND

securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When, in our opinion, such activity would have a disruptive effect on portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
into the Fund by any person, group or commonly controlled account. The decision
may be based upon dollar amount, volume and frequency of trading. The Fund may
notify a market timer of rejection of an exchange or purchase order after the
day the order is placed. If the Fund allows a market timer to trade Fund shares,
it may require the market timer to enter into a written agreement to follow
certain procedures and limitations.

TELEPHONE REDEMPTIONS OR EXCHANGES

You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852 before 4:15 p.m. New York time. You will receive a redemption
amount based on that day's NAV.

The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.

In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail.

The telephone redemption or exchange privilege may be modified or
terminated at any time. If this occurs, you will receive a written notice from
the Fund.

36 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 40
FINANCIAL HIGHLIGHTS

The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.

Review each chart with the financial statements and report of
independent accountants, which appear in the annual report and the SAI and are
available upon request. Additional performance information for each share class
is contained in the annual report, which you can receive at no charge.

CLASS A SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL YEARS ENDED 12-31)
PER SHARE OPERATING PERFORMANCE 1999(2) 1998(2) 1997(2) 1996(1) 1995(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 7.17 $ 7.08 $ 7.63 $ 7.68 $ 6.76

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .39 .43 .49 .56 .48
Net realized and unrealized gain
(loss) on investments and foreign
currencies (.68) .12 (.22) .28 1.13

TOTAL FROM INVESTMENT OPERATIONS (.29) .55 .27 .84 1.61
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.25) (.58) (.67) (.48)
Distributions in excess of net
investment income -- (.17) (.24) (.40) (.21)
Distributions from net realized
capital gains (.09) (.04) -- -- --
Tax return of capital distributions (.21) -- -- -- --

TOTAL DISTRIBUTIONS (.52) (.46) (.82) (1.07) (.69)
Redemption fee retained by Fund -- -- -- .18 --
NET ASSET VALUE, END OF YEAR $ 6.36 $ 7.17 $ 7.08 $ 7.63 $ 7.68
TOTAL RETURN(3) (4.27)% 8.00% 3.62% 14.02% 25.14%
</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $ 63,343 $84,008 $ 96,365 $ 125,637 $350,339
Average net assets (000) $ 72,413 $89,970 $ 110,910 $ 180,588 $342,741

RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.86% 1.63% 1.64% 1.48% 1.05%
Expenses, excluding distribution fees 1.61% 1.48% 1.49% 1.34% 1.05%
Net investment income 5.77% 6.08% 6.54% 6.45% 6.37%
Portfolio turnover 110% 46% 53% 38% 203%
</TABLE>

1 Before 1-15-96, the Fund was a closed-end investment company.

2 Calculated based upon weighted average shares outstanding during the year.

3 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported.

4 The Distributor of the Fund agreed to limit its distribution fees to .25 of
1% of the average daily net assets of the Class A shares for 1999 and to
.15 of 1% of the average daily net assets for prior years.

37
<PAGE> 41
FINANCIAL HIGHLIGHTS

CLASS B SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

<TABLE>
<CAPTION>
CLASS B SHARES (FISCAL PERIODS ENDED 12-31)
PER SHARE OPERATING PERFORMANCE 1999(2) 1998(2) 1997(2) 1996(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $7.19 $7.10 $7.64 $7.72
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .35 .37 .44 .52
Net realized and unrealized gain (loss)
on investments and foreign currencies (.68) .11 (.20) .25
TOTAL FROM INVESTMENT OPERATIONS (.33) .48 .24 .77
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.21) (.54) (.63)
Distributions in excess of net
investment income -- (.14) (.24) (.40)
Distributions from net realized gains (.09) (.04) -- --
Tax return of capital distributions (.21) -- -- --

TOTAL DISTRIBUTIONS (.48) (.39) (.78) (1.03)
Redemption fee retained by Fund -- -- -- .18
NET ASSET VALUE, END OF PERIOD $6.38 $7.19 $7.10 $7.64
TOTAL RETURN(3) (4.76)% 7.32% 3.25% 12.86%
</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $1,764 $1,218 $531 $75
Average net assets (000) $1,560 $785 $335 $23

RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees(5) 2.36% 2.23% 2.24% 2.09%(4)
Expenses, excluding distribution fees 1.61% 1.48% 1.49% 1.34%(4)
Net investment income 5.29% 5.51% 6.00% 5.85%(4)
Portfolio turnover 110% 46% 53% 38%
</TABLE>

1 For the period from 1-15-96 (when Class B shares were first offered)
through 12-31-96.

2 Calculated based upon weighted average shares outstanding during the
period.

4 Annualized.

5 The Distributor of the Fund agreed to limit its distribution fees to .75 of
1% of the average daily net assets of the Class B shares.

38 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 42
FINANCIAL HIGHLIGHTS

CLASS C SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL PERIODS ENDED 12-31)
PER SHARE OPERATING PERFORMANCE 1999(2) 1998(2) 1997(2) 1996(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $7.19 $7.10 $7.64 $7.72
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .35 .37 .40 .52
Net realized and unrealized gain (loss)
on investments and foreign currencies (.68) .11 (.16) .25
TOTAL FROM INVESTMENT OPERATION (.33) .48 .24 .77
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.21) (.54) (.63)
Distributions in excess of net investments
income -- (.14) (.24) (.40)
Distributions from net realized gains (.09) (.04) -- --
Tax return of capital distributions (.21) -- -- --
TOTAL DISTRIBUTIONS (.48) (.39) (.78) (1.03)
Redemption fee retained by Fund -- -- -- .18
NET ASSET VALUE, END OF PERIOD $6.38 $7.19 $7.10 $7.64
TOTAL RETURN(3) (4.76)% 7.32% 3.25% 12.86%
</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $248 $257 $76 $13
Average net assets (000) $248 $126 $26 $8

RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees(5) 2.36% 2.23% 2.24% 2.09%(4)
Expenses, excluding distribution fees 1.61% 1.48% 1.49% 1.34%(4)
Net investment income (loss) 5.29% 5.53% 5.96% 5.85%(4)
Portfolio turnover 110% 46% 53% 38%
</TABLE>

(1) For the period from 1-15-96 (when Class C shares were first offered)
through 12-31-96.

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

(3) Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total return for periods of less than a full year is not
annualized.

(4) Annualized.

(5) The Distributor of the Fund agreed to limit its distribution fees to .75 of
1% of the average daily net assets of the Class C shares.

<PAGE> 43
FINANCIAL HIGHLIGHTS

CLASS Z SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

<TABLE>
<CAPTION>
CLASS Z SHARES (FISCAL PERIODS ENDED 12-31)
PER SHARE OPERATING PERFORMANCE 1999(2) 1998(2) 1997(1,2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.19 $ 7.10 $ 7.57
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .40 .44 .38
Net realized and unrealized gain (loss)
on investments and foreign currencies
transactions (.68) .10 (.02)
TOTAL FROM INVESTMENT OPERATIONS (.28) .54 .36
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.23) (.25) (.59)
Distributions in excess of net investment income -- (.16) (.24)
Distributions from net realized gains (.09) (.04) --
Tax return of capital distributions (.21) -- --
TOTAL DISTRIBUTIONS (.53) (.45) (.83)
NET ASSET VALUE, END OF PERIOD $ 6.38 $ 7.19 $ 7.10
TOTAL RETURN(3) (4.14)% 8.16% 4.97%
- ---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997
- ---------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $ 3,080 $ 2,253 $ 628
Average net assets (000) $ 2,720 $ 1,487 $ 121
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.61% 1.48% 1.49%(4)
Expenses, excluding distribution fees 1.61% 1.48% 1.49%(4)
Net investment income 6.04% 6.29% 6.82%(4)
Portfolio turnover 110% 46% 53%
</TABLE>

1 Information shown is for the period from 3-17-97 (when Class Z shares were
first offered) through 12-31-97.

2 Calculated based upon weighted average shares outstanding during the
period.

3 Total return assumes reinvestment of dividends and any other distributions.
It is calculated assuming shares are purchased on the first day and sold on
the last day of each period reported. Total return for periods of less than
a full year is not annualized.

4 Annualized.

40 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 44
THE PRUDENTIAL MUTUAL FUND FAMILY

Prudential offers a broad range of mutual funds designed to meet your individual
needs. For more information about these funds, contact your financial adviser or
call us at (800) 225-1852. Read the prospectus carefully before you invest or
send money.

STOCK FUNDS

PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND

PRUDENTIAL SECTOR FUNDS, INC.

Prudential Financial Services Fund

Prudential Health Services Fund

Prudential Technology Fund

Prudential Utility Fund

PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.

PRUDENTIAL TAX-MANAGED FUNDS

Prudential Tax-Managed Equity Fund

PRUDENTIAL 20/20 FOCUS FUND

NICHOLAS-APPLEGATE FUND, INC.
Nicholas-Applegate Growth Equity Fund

TARGET FUNDS

Large Capitalization Growth Fund

Large Capitalization Value Fund

Small Capitalization Growth Fund

Small Capitalization Value Fund

ASSET ALLOCATION/BALANCED FUNDS

PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Active Balanced Fund

GLOBAL FUNDS

GLOBAL STOCK FUNDS

PRUDENTIAL DEVELOPING MARKETS FUND
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
Prudential Europe Index Fund
Prudential Pacific Index Fund
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.

Prudential Global Growth Fund

Prudential International Value Fund

Prudential Jennison International Growth Fund

GLOBAL UTILITY FUND, INC.

GLOBAL BOND FUNDS

PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.

PRUDENTIAL INTERNATIONAL BOND FUND, INC.

41 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 45
THE PRUDENTIAL MUTUAL FUND FAMILY

BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Short-Intermediate Term Series
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
Prudential Bond Market Index Fund
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Income Portfolio

TARGET FUNDS
Total Return Bond Fund

TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
California Series
California Income Series
PRUDENTIAL MUNICIPAL BOND FUND
High Income Series
Insured Series
PRUDENTIAL MUNICIPAL SERIES FUND
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
Liquid Assets Fund
National Money Market Fund
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Money Market Series
U.S. Treasury Money Market Series
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
Money Market Series
PRUDENTIAL MONEYMART ASSETS, INC.

TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series

COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND

INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Institutional Money Market Series

42 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 46

Notes

43
<PAGE> 47

Notes

44 PRUDENTIAL INTERNATIONAL BOND FUND, INC. [PHONE GRAPHIC] (800) 225-1852
<PAGE> 48
FOR MORE INFORMATION

Please read this prospectus before you invest in the Fund and keep it for
future reference. For information or shareholder questions contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555 (if calling from outside the U.S.)

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

Visit Prudential's Web Site at
http://www.prudential.com

Additional information about the Fund can be obtained without charge and can be
found in the following documents:

STATEMENT OF ADDITIONAL INFORMATION (SAI)

(incorporated by reference into this prospectus)

ANNUAL REPORT

(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)

SEMI-ANNUAL REPORT

You can also obtain copies of fund documents from the Securities and Exchange
Commission as follows:

By Mail:

Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102

By Electronic Request:

[email protected]

(The SEC charges a fee to copy documents.)

In Person

Public Reference Room in Washington, DC

(For hours of operation, call 1-202-942-8090.)

Via The Internet:

on the EDGAR Database at
http://www.sec.gov

<TABLE>
<CAPTION>
CUSIP Nos.: Quotron Symbols
----------- ---------------
<S> <C>
Class A Shares: 74436Q101 GGPAX
Class B Shares: 74436Q200 --
Class C Shares: 74436Q309 --
Class Z Shares: 74436Q408 --
</TABLE>

Investment Company Act File No.: 811-5123.

MF170A [RECYCLE LOGO] Printed on Recycled Paper

<PAGE> 49

PRUDENTIAL INTERNATIONAL BOND FUND, INC.

Statement of Additional Information

dated March 8, 2000

Prudential International Bond Fund, Inc. (the Fund) is an open-end,
non-diversified, management investment company. The investment objective of the
Fund is to seek total return, made up of current income and capital
appreciation. There can be no assurance that the Fund's investment objective
will be achieved. Investing in foreign government securities, options and
futures contracts involves considerations and possible risks which are different
from those ordinarily associated with investing in U.S. government securities.

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

This Statement of Additional Information is not a prospectus and should
only be read in conjunction with the Fund's Prospectus, dated March 8, 2000, a
copy of which may be obtained from the Fund upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund History................................................ B-2
Description of the Fund, Its Investments and Risks.......... B-2
Investment Restrictions..................................... B-22
Management of the Fund...................................... B-23
Control Persons and Principal Holders of Securities......... B-26
Investment Advisory and Other Services...................... B-27
Brokerage Allocation and Other Practices.................... B-33
Capital Shares, Other Securities and Organization........... B-35
Purchase, Redemption and Pricing of Fund Shares............. B-36
Shareholder Investment Account.............................. B-45
Net Asset Value............................................. B-50
Taxes, Dividends and Distributions.......................... B-51
Performance Information..................................... B-54
Financial Statements........................................ B-56
Report of Independent Accountants........................... B-69
Appendix A -- Description of Security Ratings............... A-1
Appendix I -- General Investment Information................ I-1
Appendix II -- Historical Performance Data.................. II-1

- ------------------------------------------------------------------
</TABLE>

MF 170 B
<PAGE> 50

FUND HISTORY

Prudential International Bond Fund, Inc., was incorporated under the laws
of Maryland on April 20, 1987 under the name "The Global Government Plus Fund,
Inc." as a closed-end, non-diversified, management investment company. The Fund
operated as a closed-end fund prior to January 15, 1996. On December 6, 1995,
shareholders approved open-ending the Fund, and since January 15, 1996, the Fund
has operated as an open-end fund. Effective August 8, 1997, the Fund changed its
name to Prudential International Bond Fund, Inc.

DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

(A) CLASSIFICATION. The Fund is a "non-diversified" management investment
company and may invest more than 5% of its total assets in the securities of one
or more issuers. However, the Fund intends to limit its investments in the
securities of any one bank or corporation to 10% of its total assets at the time
of purchase. The Fund will not invest 25% or more of its total assets at the
time of purchase in the securities of a central government or a supranational
issuer or, as to 50% of its assets, more than 5% in any one issuer. Investment
in a non-diversified investment company involves greater risk than investment in
a diversified investment company because a loss resulting from the default of a
single issuer may represent a greater portion of the total assets of a
non-diversified portfolio.

(b) and (c) Investment Strategies, Policies and Risks. The Fund's
investment objective is to seek total return, made up of current income and
capital appreciation. While the principal investment policies and strategies for
seeking to achieve this objective are described in the Fund's prospectus, the
Fund may from time to time also use the securities, instruments, policies and
principal and non-principal strategies described below in seeking to achieve its
objective. The Fund may not be successful in achieving its objective and you
could lose money.

FOREIGN SECURITIES

Foreign securities include securities of any foreign country the investment
adviser considers appropriate for investment by the Fund. Foreign securities may
also include securities of foreign issuers that are traded in U.S. dollars in
the United States although the underlying security is usually denominated in a
foreign currency. These securities include securities traded in the form of
American Depositary Receipts and American Depositary Shares. In many instances,
foreign securities may provide higher yields but may be subject to greater
fluctuations in price than securities of domestic issuers which have similar
maturities and quality. Under certain market conditions these investments may be
less liquid and more volatile than the securities of U.S. corporations and are
certainly less liquid than securities issued or guaranteed by the U.S.
government, its instrumentalities or agencies.

Foreign securities involve certain risks, which should be considered
carefully by an investor in the Fund. These risks include political, economic or
social instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange controls
and the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. government, its instrumentalities or agencies. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to U.S. companies. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States, and, for certain foreign countries, there is a
possibility of expropriation, confiscatory taxation or diplomatic developments
which could affect investment in those countries and potential difficulties in
enforcing contractual obligations and could be subject to extended settlement
periods. Finally, in the event of a default of any such foreign debt
obligations, it may be more difficult for the Fund to obtain or to enforce a
judgment against, the issuers of such securities.

The costs attributable to foreign investing are higher than the costs of
domestic investing. For example, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for domestic securities, and
transaction and settlement costs of foreign investing are frequently higher than
those attributable to domestic investing. Costs are incurred in connection with
conversions between various currencies. In addition, foreign brokerage
commissions are generally higher than in the U.S., and the foreign securities
markets may

B-2
<PAGE> 51

be less liquid and more volatile than in the U.S. Foreign investment income may
be subject to foreign withholding or other government taxes that could reduce
the return to the Fund on those securities. Tax treaties between the United
States and certain foreign countries may, however, reduce or eliminate the
amount of foreign tax to which the Fund would be subject.

The Fund invests in debt securities denominated in the currencies of
developed countries and developing or certain "emerging market" nations.
Companies in emerging markets may have limited product lines, markets or
financial resources and may lack management depth. The securities of these
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. Investing in the fixed-income markets of
emerging market countries involves exposure to economies that are generally less
diverse and mature, and to political systems which can be expected to have less
stability than those of developed countries. Historical experience indicates
that the markets of developing countries have been more volatile than the
markets of developed countries. The risks associated with investments in foreign
securities, described above, may be greater with respect to investments in
developing countries.

The Fund may invest in debt securities issued by supranational
organizations such as the World Bank, the European Investment Bank, the European
Coal and Steel Community, and the Asian Development Bank. The Fund may invest in
debt securities issued by "semi-governmental entities" such as entities owned by
a national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's "full faith and credit"
and general taxing powers. Examples of semi-governmental issuers include, among
others, the Province of Ontario and the City of Stockholm.

The Fund may also invest in mortgage-backed securities issued or guaranteed
by foreign government entities including semi-governmental entities, and Brady
Bonds, which are long-term bonds issued by government entities in developing
countries as part of a restructuring of their commercial loans.

The Fund may invest in component parts of debt securities of foreign
governments or semi-governmental entities, namely either the corpus (principal)
of such obligations or one or more of the interest payments scheduled to be paid
on such obligations. These securities may take the form of (1) obligations from
which the interest coupons have been stripped (principal only); (2) the interest
coupons that are stripped (interest only); (3) book-entries at a bank
representing ownership of obligation components; or (4) receipts evidencing the
component parts (corpus or coupons) of obligations that have not actually been
stripped. Such receipts evidence ownership of component parts of obligations
(corpus or coupons) purchased by a third party (typically an investment banking
firm) and held on behalf of the third party in physical or book-entry form by a
major commercial bank or trust company pursuant to a custody agreement with the
third party. The Fund may also invest in custodial receipts held by a third
party. Stripped securities are, in general, more sensitive to interest rate
changes than securities that have not been stripped. Combined with investments
in similar U.S. government securities, the Fund will not invest more than 10% of
its total assets in such securities.

A change in the value of a foreign currency against the U.S. dollar will
result in a corresponding change in the U.S. dollar value of the Fund's assets
denominated in that currency. These currency fluctuations can result in gains or
losses for the Fund. For example, if a foreign security increases in value as
measured in its currency, an increase in value of the U.S. dollar, relative to
the currency in which the foreign security is denominated can offset some or all
of such gains. These currency changes will also affect the Fund's return, income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency decreases after the Fund's income has been accrued and translated into
U.S. dollars, the Fund would experience a foreign currency loss and could be
required to liquidate portfolio securities to make such distributions.
Similarly, if an exchange rate for any such currency decreases between the time
the Fund incurs expenses in U.S. dollars and the time such expenses are paid,
the amount of such currency required to be converted into U.S. dollars in order
to pay such expenses in U.S. dollars will be greater than the equivalent amount
of such currency at the time such expenses were incurred. Under the Internal
Revenue Code of 1986, as amended (the Internal Revenue Code), changes in an
exchange rate which occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities will result in foreign currency gains or losses that increase or
decrease distributable net investment income. Similarly, dispositions of certain
debt securities (by sale, at maturity or otherwise) at a U.S. dollar amount that
is higher

B-3
<PAGE> 52

or lower than the Fund's original U.S. dollar cost may result in foreign
exchange gains or losses, which will increase or decrease distributable net
investment income. The exchange rates between the U.S. dollar and other
currencies can be volatile and are determined by such factors as supply and
demand in the currency exchange markets, international balances of payments,
government intervention, speculation and other economic and political
conditions. Gains and losses on security and currency transactions cannot be
predicted. This fact coupled with the different tax and accounting treatment of
certain currency gains and losses increases the likelihood of distributions in
whole or in part constituting a return of capital to shareholders.

The Fund's interest income from foreign government securities issued in
local markets may, in some cases, be subject to applicable withholding taxes
imposed by governments in such markets. The Fund may sell a foreign security it
owns prior to maturity in order to avoid foreign withholding taxes on dividend
and interest income and buy back the same security for a future settlement date.
Interest on foreign government securities is not generally subject to foreign
withholding taxes.

Returns available from foreign currency denominated debt instruments can be
adversely affected by changes in exchange rates. The Fund's investment adviser
believes that the use of foreign currency hedging techniques, including
"cross-currency hedges" may assist, under certain conditions, in helping to
protect against declines in the U.S. dollar value of income available for
distribution to shareholders and declines in the net asset value of the Fund's
shares resulting from adverse changes in currency exchange rates. For example,
the return available from securities denominated in a particular foreign
currency would diminish in the event the value of the U.S. dollar increased
against such currency. Such a decline could be partially or completely offset by
an increase in value of a cross-currency hedge involving a forward currency
contract to sell a different foreign currency, where such contract is available
on terms more advantageous to the Fund than a contract to sell the currency in
which the position being hedged is denominated. Cross-currency hedges can,
therefore, under certain conditions, provide protection of net asset value in
the event of a general rise in the U.S. dollar against foreign currencies.
However, there can be no assurance that the Fund will be able to engage in
cross-currency hedging or that foreign exchange rate relationships will be
sufficiently predictable to enable the investment adviser to employ
cross-currency hedging techniques successfully. A cross-currency hedge cannot
protect against exchange rate risks perfectly, and if the investment adviser is
incorrect in its judgment of future exchange rate relationships, the Fund could
be in a less advantageous position than if such a hedge had not been
established.

If a security is denominated in a foreign currency, it may be affected by
changes in currency rates and in exchange controlled regulations, and costs may
be incurred in connection with conversions between currencies. The Fund may
enter into foreign currency forward contracts for the purchase or sale of
foreign currency for hedging purposes. See "Risk Management and Return
Enhancement Strategies" below.

RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN EURO-DENOMINATED
SECURITIES. On January 1, 1999, 11 of the 15 member states of the European
Monetary Union introduced the "euro" as a common currency. During a three-year
transitional period, the euro will coexist with each member state's national
currency. By July 1, 2002, the euro is expected to become the sole legal tender
of the member states. During the transition period, the Fund will treat the euro
as a separate currency from the national currency of any member state.

The adoption by the member states of the euro will eliminate the
substantial currency risk among member states and will likely affect the
investment process and considerations of the Fund's investment adviser. To the
extent the Fund holds non-U.S. dollar-denominated securities, including those
denominated in the euro, the Fund will still be subject to currency risk due to
fluctuations in those currencies as compared to the U.S. dollar.

The medium- to long-term impact of the introduction of the euro in member
states cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general long-term ramifications
can be expected, such as changes in economic environment and changes in behavior
of investors, all of which will impact the Fund's investments.

B-4
<PAGE> 53

FIXED-INCOME SECURITIES

Under normal circumstances, the Fund will invest at least 65% of its total
assets in income producing debt securities. The Fund anticipates that it will
primarily invest in fixed-income securities rated A or better by Moody's
Investors Service, Inc. (Moody's) or Standard & Poor's Ratings Group (S&P) or
comparably rated by another nationally recognized statistical rating
organization (NRSRO). The Fund may also invest up to 15% of its total assets in
debt securities rated below investment grade but no lower than B by either S&P
or Moody's or another NRSRO. In either case, the Fund may invest in unrated
securities deemed to be of equivalent quality by the investment adviser.

Fixed-income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, the market perception of the creditworthiness of the issuer and
general market liquidity (market risk). Lower-rated (i.e., high yield or "junk
bonds") securities are more likely to react to developments affecting market and
credit risk than are more highly-rated securities, which react primarily to
movements in the general level of interest rates. The investment adviser
considers both credit risk and market risk in making investment decisions for
the Fund.

Generally, lower-rated securities and unrated securities of comparable
quality (i.e., securities rated lower than Baa by Moody's or BBB by S&P or
comparably rated by another NRSRO), offer a higher current yield than is offered
by higher-rated securities, but also (1) will likely have some quality and
protective characteristics that, in the judgment of the rating organizations,
are outweighed by large uncertainties or major risk exposures to adverse
conditions and (2) are predominately speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be
more sensitive to individual issuer developments and changes in economic
conditions than higher-quality bonds. In addition, medium and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium- and lower-rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. The investment
adviser, under the supervision of the Manager and the Board of Directors, in
evaluating the creditworthiness of an issuer, whether rated or unrated, takes
various factors into consideration which may include, as applicable, the
issuer's financial resources, its sensitivity to economic conditions and trends
and regulatory matters.

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

Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. Under adverse market or economic conditions, the
secondary market for high yield securities could contract further, independent
of any specific adverse changes in the condition of a particular issuer. As a
result, the investment adviser could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such
lower-rated or unrated securities, under these circumstances, may be less than
the prices used in calculating the Fund's net asset value.

B-5
<PAGE> 54

a decreased return for investors. Also, as the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by the Fund may decline proportionately
more than a portfolio consisting of higher rated securities. If the Fund
experiences unexpected net redemptions, it may be forced to sell its
higher-rated securities, resulting in a decline in the overall credit quality of
the Fund's portfolio and increasing the exposure of the Fund to the risks of
high yield securities.

Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower-yielding security, resulting in a
decreased return for investors. Also, as the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by the Fund may decline proportionately
more than a portfolio consisting of higher-rated securities. If the Fund
experiences unexpected net redemptions, it may be forced to sell its
higher-rated bonds, resulting in a decline in the overall credit quality of the
securities held by the Fund and increasing the exposure of the Fund to the risks
of lower-rated securities. Investments in zero coupon bonds may be more
speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.

Ratings of fixed-income securities represent the rating agency's opinion
regarding their credit quality and are not a guarantee of quality. Rating
agencies attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than a rating indicates. See Appendix A -- "Description of Security Ratings."

Subsequent to its purchase by the Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of these securities by the Fund, but
the investment adviser will consider this event in its determination of whether
the Fund should continue to hold the securities.

During the year ended December 31, 1999, the monthly dollar-weighted
average ratings of the debt obligations held by the Fund, expressed as a
percentage of the Fund's total investments, were as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF
RATING TOTAL INVESTMENTS
- ------ -----------------
<S> <C> <C>
AAA/Aaa = 55.55%
AA/Aa = 13.93
A/A = 6.14
BBB/Baa = 3.47
BB/Ba = 6.22
B/B = 9.05
Unrated/Other = 5.64
</TABLE>

CORPORATE AND OTHER NON-GOVERNMENT DEBT OBLIGATIONS

The Fund may invest in corporate and other nongovernmental debt obligations
of foreign and domestic issuers including convertible securities and (subject to
the Fund's maturity limitations) in intermediate-term and long-term bank debt
securities in the United States and in foreign countries denominated in U.S.
dollars or in foreign currencies. Issuers are not limited to the corporate form
of organization.

ZERO COUPON, PAY-IN-KIND OR DEFERRED PAYMENT SECURITY

The Fund may also invest in zero coupon, pay-in-kind or deferred payment
securities. Zero coupon securities are securities that are sold at a discount to
par value and on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received annually "phantom income." These
investments benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of cash. These investments may experience greater
volatility in market value than securities that make regular payments of
interest. The Fund accrues income on these investments for tax and accounting
purposes, which is distributable to shareholders and which, because no cash is
received at the time of accrual, may require the liquidation of other portfolio
securities to satisfy the Fund's distribution obligations, in which case the
Fund will

B-6
<PAGE> 55

forgo the purchase of additional income producing assets with these funds. Zero
coupon securities include corporate and foreign and U.S. government securities.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain a zero coupon security until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Certain debt securities are subject to call provisions.
Zero coupon, pay-in-kind and deferred payment securities may be subject to
greater fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
intervals.

U.S. GOVERNMENT SECURITIES

U.S. TREASURY SECURITIES. The Fund may invest in U.S. Treasury securities,
including bills, notes, bonds and other debt securities issued by the U.S.
Treasury. These instruments are direct obligations of the U.S. government and,
as such, are backed by the "full faith and credit" of the United States. They
differ primarily in their interest rates, the lengths of their maturities and
the dates of their issuances.

OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in debt securities issued or guaranteed
by agencies or instrumentalities of the U.S. government, including, but not
limited to, Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)
securities. Obligations of GNMA, the Farmers Home Administration and the
Export-Import Bank are backed by the "full faith and credit" of the United
States. In the case of securities not backed by the "full faith and credit" of
the United States, the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment. Such securities include
obligations issued by the Student Loan Marketing Association (SLMA), FNMA and
FHLMC, each of which may borrow from the U.S. Treasury to meet its obligations,
although the U.S. Treasury is under no obligation to lend to such entities.

The Fund may invest in component parts of U.S. government debt securities,
namely either the corpus (principal) of such obligations or one or more of the
interest payments scheduled to be paid on such obligations. These obligations
may take the form of (1) obligations from which the interest coupons have been
stripped; (2) the interest coupons that are stripped; (3) book-entries at a
Federal Reserve member bank representing ownership of obligation components; or
(4) receipts evidencing the component parts (corpus or coupons) of U.S.
government obligations that have not actually been stripped. Such receipts
evidence ownership of component parts of U.S. government obligations (corpus or
coupons) purchased by a third party (typically an investment banking firm) and
held on behalf of the third party in physical or book-entry form by a major
commercial bank or trust company pursuant to a custody agreement with the third
party. The Fund may also invest in custodial receipts held by a third party that
are not U.S. government securities. Combined with investments in similar foreign
government and semi-governmental entity securities, the Fund will not invest
more than 10% of its total assets in such securities.

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

At a time when the Fund has written call options on a portion of its U.S.
government securities, its ability to profit from declining interest rates will
be limited. Any appreciation in the value of the securities held in the
portfolio above the strike price would likely be partially or wholly offset by
unrealized losses on call options written by the Fund. The termination of option
positions under these conditions would generally result in the realization of
capital losses, which would reduce the Fund's capital gains distributions.
Accordingly, the Fund would generally seek to realize capital gains to offset
realized losses by selling portfolio securities. In such circumstances, however,
it is likely that the proceeds of such sales would be reinvested in lower
yielding securities.

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MORTGAGE-RELATED SECURITIES

The Fund may invest in mortgage-backed securities and other derivative
mortgage products, including those representing an undivided ownership interest
in a pool of mortgages, e.g., GNMA, FNMA and FHLMC certificates where the U.S.
government or its agencies or instrumentalities guarantees the payment of
interest and principal of these securities. However, these guarantees do not
extend to the securities' yield or value, which are likely to vary inversely
with fluctuations in interest rates, nor do these guarantees extend to the yield
or value of the Fund's shares. These certificates are in most cases
"pass-through" instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees.

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

The Fund will invest in both Adjustable Rate Mortgage Securities (ARMs),
which are pass-through mortgage securities collateralized by adjustable rate
mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are collateralized
by fixed-rate mortgages. For purposes of the Fund's maturity limitation, the
maturity of a mortgage-backed security will be deemed to be equal to its
remaining maturity (i.e., the average maturity of the mortgages underlying such
security determined by the investment adviser on the basis of assumed prepayment
rates with respect to such mortgages).

FHLMC SECURITIES. FHLMC presently issues two types of mortgage
pass-through securities, mortgage participation certificates (PCs) and
guaranteed mortgage certificates (GMCs). The Fund does not intend to invest in
GMCs. PCs resemble GNMA certificates in that each PC represents a pro rata share
of all interest and principal payments made and owed on the underlying pool.
FHLMC guarantees timely monthly payment of interest on PCs and the stated
principal amount.

ADJUSTABLE RATE MORTGAGE SECURITIES. Generally, ARMs have a specified
maturity date and amortize principal over their life. In periods of declining
interest rates, there is a reasonable likelihood that ARMs will experience
increased rates of prepayment of principal. However, the major difference
between ARMs and FRMs is that the interest rate and the rate of amortization of
principal of ARMs can and do change in accordance with movements in a
particular, pre-specified, published interest rate index. Because the interest
rate on ARMs generally moves in the same direction as market interest rates, the
market value of ARMs tends to be more stable than that of long-term fixed-rate
securities.

FIXED-RATE MORTGAGE SECURITIES. The Fund anticipates investing in
high-coupon fixed-rate mortgage securities. Such securities are collateralized
by fixed-rate mortgages and tend to have high prepayment rates when the level of
prevailing interest rates declines significantly below the interest rates on the
mortgages. Thus, under those circumstances, the securities are generally less
sensitive to interest rate movements than lower coupon FRMs.

COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
(CMOs) are debt obligations collateralized by GNMA, FNMA or FHLMC certificates,
but also may be collateralized by whole loans or private mortgage pass-through
securities (such collateral collectively hereinafter referred to as Mortgage
Assets). Multi-class pass-through securities are equity interests in a trust
composed of Mortgage Assets. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to

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pay debt service on the CMOs or make scheduled distributions on the multi-class
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the U.S. government, or by private originators of, or investors in, mortgage
loans, including depository institutions, mortgage banks, investment banks and
special-purpose subsidiaries of the foregoing. The issuer of a series of CMOs
may elect to be treated as a Real Estate Mortgage Investment Conduit (REMIC).
All future references to CMOs include REMICs and multi-class pass-through
securities.

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

SPECIAL CONSIDERATIONS OF MORTGAGE-BACKED SECURITIES. The underlying
mortgages which collateralize the ARMs, CMOs and REMICs in which the Fund
invests will frequently have caps and floors which limit the maximum amount by
which the loan rate to the residential borrower may change up or down (1) per
reset or adjustment interval and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative amortization. In
addition, because of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate.

The market value of mortgage securities, like other U.S. government
securities, will generally vary inversely with changes in market interest rates,
declining when interest rates rise and rising when interest rates decline.
However, mortgage securities, while having comparable risk of decline during
periods of rising rates, usually have less potential for capital appreciation
than other investments of comparable maturities due to the likelihood of
increased prepayments of mortgages as interest rates decline. In addition, to
the extent such mortgage securities are purchased at a premium, mortgage
foreclosures and unscheduled principal prepayments generally will result in some
loss of the holders' principal to the extent of the premium paid. On the other
hand, if such mortgage securities are purchased at a discount, an unscheduled
prepayment of principal will increase current and total returns and will
accelerate the recognition of income which when distributed to shareholders will
be taxable as ordinary income.

Because the prepayment characteristics of the underlying mortgages vary, it
is not possible to predict accurately the average life of a particular issue of
pass-through certificates. Mortgage-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result of
the pass-through of prepayments of principal on the underlying mortgage
obligations. During periods of declining interest rates, prepayments of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When mortgage obligations are prepaid, the Fund reinvests the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at that time.
Therefore, the Fund's ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium generally will result in capital
losses. During periods of rising interest rates, the rate of prepayment of
mortgages underlying mortgage-backed securities can be expected to decline,
extending the projected average maturity of the mortgage-backed securities. The
maturity extension risk may effectively change a security which was considered
short- or intermediate-term at the time of purchase into a long-term security.
Long-term securities generally fluctuate more widely in response to changes in
interest rates than short- or intermediate-term securities.

CUSTODIAL RECEIPTS

Obligations issued or guaranteed as to principal and interest by the U.S.
government, foreign governments or semi-governmental entities may be acquired by
the Fund in the form of custodial receipts that evidence ownership of future
interest payments, principal payments or both on certain notes or bonds. Such
notes and bonds are held in custody by a bank on behalf of the owners. These
U.S. government custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investment Growth Receipts" (TIGRs)

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and "Certificates of Accrual on Treasury Securities" (CATS). The Fund will not
invest more than 5% of its assets in such custodial receipts.

RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

The Fund also may engage in various portfolio strategies, including using
derivatives, to seek to reduce certain risks of its investments and to attempt
to enhance return but not for speculation. The Fund, and thus its investors, may
lose money through any unsuccessful use of these strategies. These strategies
currently include the use of put and call options on securities and foreign
currencies, foreign currency forward contracts, futures contracts and options on
such contracts (including interest rate futures contracts and currency futures).
The Fund's ability to use these strategies may be limited by various factors,
such as market conditions, regulatory limits and tax considerations, and there
can be no assurance that any of these strategies will succeed. If new financial
products and risk management techniques are developed, the Fund may use them to
the extent consistent with its investment objective and policies.

OPTIONS ON SECURITIES

The Fund may purchase and write (that is, sell) put and call options on
debt securities, aggregates of debt securities or indexes of prices thereof,
other financial indexes (for example, the S&P 500), U.S. government securities
(listed on an exchange and over-the-counter), foreign government securities and
foreign currencies. These may include options and currencies traded on U.S. or
foreign exchanges and options and currencies traded on U.S. or foreign
over-the-counter markets (OTC options).

The Fund may write covered put and call options to generate additional
income through the receipt of premiums, purchase put options in an effort to
protect the value of security that it owns against a decline in market value and
purchase call options in an effort to protect against an increase in the price
of securities (or currencies) it intends to purchase. The Fund may also purchase
put and call options to offset previously written put and call options of the
same series.

A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase the securities or currency
subject to the option at a specified price (the exercise price or strike price).
The writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities or
currency in excess of the exercise price of the option during the period that
the option is open.

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

The Fund may wish to protect certain portfolio securities against a decline
in market value through purchase of put options on other securities or
currencies which The Prudential Investment Corporation, doing business as
Prudential Investments (Prudential Investments), and PRICOA Asset Management Ltd
(PRICOA, and collectively with Prudential Investments, the Subadviser or
investment adviser) believes may move in the same direction as those portfolio
securities. If the Subadviser's judgment is correct, changes in the value of the
put options should generally offset changes in the value of the portfolio
securities being hedged. If the Subadviser's judgment is not correct, the value
of the securities underlying the put option may decrease less than the value of
the Fund's investments and therefore the put option may not provide complete
protection against a decline in the value of the Fund's investments below the
level sought to be protected by the put option.

The Fund may similarly wish to hedge against appreciation in the value of
debt securities that it intends to acquire through purchase of call options on
other debt securities which the Subadviser believes may move in the same
direction as those portfolio securities. In such circumstances the Fund will be
subject to risks analogous to those summarized above in the event that the
correlation between the value of call options so

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<PAGE> 59

purchased and the value of the securities intended to be acquired by the Fund is
not as close as anticipated and the value of the securities underlying the call
options increases less than the value of the securities to be acquired by the
Fund.

The Fund may write options in connection with buy-and-write transactions;
that is, it may purchase a security and concurrently write a call option against
that security. If the call option is exercised, the Fund's maximum gain will be
the premium it received for writing the option, adjusted upwards or downwards by
the difference between the Fund's purchase price of the security and the
exercise price of the option. If the option is not exercised and the price of
the underlying security declines, the amount of the decline will be offset in
part, or entirely, by the premium received.

The exercise price of a call option may be below (in-the-money), equal to
(at-the-money) or above (out-of-the-money) the current value of the underlying
security at the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during the option
period. Buy-and-write transactions using at-the-money call options may be used
when it is expected that the price of the underlying security will remain fixed
or advance moderately during the option period. A buy-and-write transaction
using an out-of-the-money call option may be used when it is expected that the
premium received from writing the call option plus the appreciation in the
market price of the underlying security up to the exercise price will be greater
than the appreciation in the price of the underlying security alone. If the call
option is exercised in such a transaction, the Fund's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between the Fund's purchase price of the security and the
exercise price of the option. If the option is not exercised and the price of
the underlying security declines, the amount of the decline will be offset in
part, or entirely, by the premium received.

The Fund may also buy and write straddles (that is, a combination of a call
and a put written on the same security at the same strike price where the same
segregated collateral is considered "cover" for both the put and the call). The
Fund will also segregate with its Custodian cash or other liquid assets
equivalent to the amount, if any, by which the put is "in-the-money," that is,
the amount by which the exercise price of the put exceeds the current market
value of the underlying security. It is contemplated that the Fund's use of
straddles will be limited to 5% of the Fund's net assets at the time the
straddle is written). The writing of a call and a put on the same security at
the same stock price where the call and put are covered by different securities
is not considered a straddle for the purposes of this limit.

The Fund may write both American style options and European style options.
An American style option is an option which may be exercised by the holder at
any time prior to its expiration. A European style option may only be exercised
as of the expiration of the option.

Prior to being notified of exercise of the option, the writer of an
exchange-traded option that wishes to terminate its obligation may effect a
"closing purchase transaction" by buying an option of the same series as the
option previously written. (Options of the same series are options with respect
to the same underlying security, having the same expiration date and the same
strike price.) The effect of the purchase is that the writer's position will be
cancelled by the exchange's affiliated clearing organization. Likewise, an
investor who is the holder of an option may liquidate a position by effecting a
"closing sale transaction" by selling an option of the same series as the option
previously purchased. There is no guarantee that either a closing purchase or a
closing sale transaction can be effected.

Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the exchange on which the option is listed which, in effect,
gives its guarantee to the fulfillment of every exchange-traded option
transaction. In contrast, OTC options are contracts between the Fund and its
counterparty with no clearing organization guarantee. Thus, when the Fund
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.

Exchange-traded options generally have a continuous liquid market while OTC
options may not. When the Fund writes an OTC option, it generally will be able
to close out the OTC option prior to its expiration only by entering into a
closing purchase transaction with the dealer to which the Fund originally wrote
the OTC option. While the Fund will enter into OTC options only with dealers
which agree to, and which are expected to be

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<PAGE> 60

capable of, entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an OTC option at a favorable
price at any time prior to expiration. Until the Fund is able to effect a
closing purchase transaction in a covered OTC call option the Fund has written,
it will not be able to liquidate securities used as cover until the option
expires or is exercised or different cover is substituted. In the event of
insolvency of the counterparty, the Fund may be unable to liquidate an OTC
option. With respect to options written by the Fund, the inability to enter into
a closing purchase transaction could result in material losses to the Fund.

OTC options purchased by the Fund will be treated as illiquid securities
subject to any applicable limitation on such securities. Similarly, the assets
used to "cover" OTC options written by the Fund will be treated as illiquid
unless the OTC options are sold to qualified dealers who agree that the Fund may
repurchase any OTC options it writes for a maximum price to be calculated by a
formula set forth in the option agreement. The "cover" for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.

The Fund will write only "covered" options. An option is covered if, as
long as the Fund is obligated under the option, it (1) owns an offsetting
position in the underlying security or (2) segregates cash or other liquid
assets in an amount equal to or greater than its obligation under the option.
Under the first circumstance, the Fund's losses are limited because it owns the
underlying security; under the second circumstance, in the case of a written
call option, the Fund's losses are potentially unlimited.

There is no limitation on the amount of covered call options the Fund may
write. The Fund may only write covered put options to the extent that cover for
such options does not exceed 50% of the Fund's net assets.

SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS

ON TREASURY BONDS AND NOTES. Because trading interest in Treasury bonds
and notes tends to center on the most recently auctioned issues, the exchanges
will not indefinitely continue to introduce new series of options with
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each series of bonds or notes will thus be phased out as new options are
listed on the more recent issues, and a full range of expiration dates will not
ordinarily be available for every series on which options are traded.

ON TREASURY BILLS. Because the deliverable Treasury bill changes from week
to week, writers of Treasury bill call options cannot provide in advance for
their potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount corresponding to the option contract size, the
Fund may be hedged from a risk standpoint. In addition, the Fund will segregate
with its Custodian Treasury bills maturing no later than those which would be
deliverable in the event an assignment of exercise notice to ensure that it can
meet its open option obligations.

ON GNMA CERTIFICATES. The Fund may purchase and write options on GNMA
certificates in the over-the-counter market and, to the extent available, on any
exchange.

Since the remaining principal balance of GNMA certificates declines each
month as a result of mortgage payments, the Fund, as a writer of a covered GNMA
call option holding GNMA certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA certificates no longer have sufficient remaining principal balance for this
purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA certificates from the same pool (if
obtainable) or replacement GNMA certificates in the cash market in order to
remain covered or substitute cover.

A GNMA certificate held by the Fund to cover a call option the Fund has
written in any but the nearest expiration month may cease to represent cover for
the option in the event of a decline in the GNMA coupon rate at which new pools
are originated under the FHA/VA loan ceiling in effect at any given time. Should
this occur, the Fund will no longer be covered, and the Fund will either enter
into a closing purchase transaction or replace the certificate with a
certificate which represents cover. When the Fund closes its option position or
replaces the certificate, it may realize an unanticipated loss and incur
transaction costs.

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OPTIONS ON CURRENCIES

Instead of purchasing or selling futures or foreign currency forward
contracts, the Fund may attempt to accomplish similar objectives by purchasing
put or call options on currencies either on exchanges or in the over-the-counter
markets or by writing put options or covered call options on currencies. A put
option gives the Fund the right to sell a currency at the exercise price until
the option expires. A call option gives the Fund the right to purchase a
currency at the exercise price until the option expires. Both options serve to
insure against adverse currency price movements in the underlying portfolio
assets designated in a given currency. The Fund's use of options on currencies
will be subject to the same limitations as its use of options on securities
described above. Currency options may be subject to position limits which may
limit the ability of the Fund to fully hedge its positions by purchasing the
options. The Fund will not purchase put or call options on currencies if, as a
result thereof, the value of the options would exceed 5% of the Fund's net
assets.

FOREIGN CURRENCY FORWARD CONTRACTS

The Fund may enter into foreign currency forward contracts to protect the
value of its portfolio against future changes in the level of currency exchange
rates. Foreign currency forward contracts are 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. The risk of shifting of a foreign currency forward
contract will be substantially the same as a futures contract having similar
terms.

The Fund's transactions in foreign currency forward contracts will be
limited to risk management involving either specific transactions or portfolio
positions. Transaction risk management is the forward purchase or sale of
currency 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 receivable and Fund expenses. Position risk management is
the forward sale of currency with respect to portfolio security positions
denominated or quoted in that currency or in a currency bearing a high degree of
positive correlation to the value of that currency. The Fund may also cross
hedge its currency exposure under circumstances where the investment adviser
believes that the currency in which a security is denominated may deteriorate
against the dollar and that the possible loss in value can be hedged, return can
be enhanced and risks can be managed by entering into forward contracts to sell
the deteriorating currency and buy a currency that is expected to appreciate in
relation to the dollar.

Although there are no limits on the number of forward contracts that the
Fund may enter into, the Fund may not position "hedge" (including "cross
hedges") with respect to a particular currency for an amount greater than the
aggregate market value (determined at the time of making any sale of forward
currency) of the securities being hedged. If the Fund enters into a position
hedging transaction, the transaction will be "covered" by the position being
hedged or the Fund's Custodian will segregate cash or other liquid assets of the
Fund (less the value of the "covering" positions, if any) in an amount equal to
the value of the Fund's total assets committed to the consummation of the given
forward contract. If the value of the assets segregated declines, additional
assets will be segregated so that the value of the account will, at all times,
equal the amount of the Fund's net commitment with respect to the forward
contract.

The use of foreign currency contracts does not eliminate fluctuations in
the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result if the
value of the currency increases. The Fund is not required to enter into forward
contracts with regard to its foreign currency denominated securities.

The Fund will not enter into forward contracts to purchase or sell currency
if, as a result thereof, the net market value of all such contracts exceeds 5%
of the Fund's net assets.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Fund may purchase and sell financial futures contracts and options
thereon which are traded on a commodities exchange or board of trade for certain
hedging and risk management purposes and to attempt to enhance return. These
futures contracts and related options will be on debt securities, aggregates of
debt securities, financial indexes, U.S. government securities (or those backed
by the full faith and credit of the U.S. government), corporate debt securities
and certain foreign government debt securities (collectively, interest

B-13
<PAGE> 62

rate futures contracts). It may also enter into futures contracts for the
purchase or sale of foreign currencies or composite foreign currencies in which
securities held or to be acquired by the Fund are denominated, or the value of
which have a high degree of positive correlation to the value of such currencies
as to constitute an appropriate vehicle for hedging. The Fund may enter into
such futures contracts both on U.S. and foreign exchanges.

The Fund may not purchase or sell futures contracts and related options to
attempt to enhance return or for risk management purposes, if immediately
thereafter the sum of the amount of initial margin deposits on the Fund's
existing futures and options on futures and premiums paid for such related
options would exceed 5% of the liquidation value of the Fund's total assets. The
Fund may purchase and sell futures contracts and related options without
limitation, for bona fide hedging purposes in accordance with regulations of the
Commodity Futures Trading Commission (CFTC) (i.e., to reduce certain risks of
its investments). The total contract value of all futures contracts sold will
not exceed the total market value of the Fund's investments.

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 any other purpose to the extent that the
aggregate initial margin and option premiums on such non-hedging transactions do
not exceed 5% of the liquidation value of the Fund's total assets. Although
there are no other limits applicable to futures contracts, the value of all
futures contracts sold will not exceed the total market value of the Fund's
investments.

The ordinary spreads between values in the cash and futures markets, due to
differences in the character of those markets, are subject to distortions. In
addition, futures contracts entail risks. First, all participants in the futures
market are subject to initial and variation margin requirements. Rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing price distortions. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Increased participation by speculators in
the futures market may cause temporary price distortions. Due to the possibility
of distortion, a correct forecast of general interest rate trends by the
investment adviser may still not result in a successful transaction.

The Fund may only write "covered" put and call options on futures
contracts. The Fund will be considered "covered" with respect to a call option
it writes on a futures contract if the Fund owns the assets which are
deliverable under the futures contract or an option to purchase that futures
contract having a strike price equal to or less than the strike price of the
"covered" option and having an expiration date not earlier than the expiration
date of the "covered" option, or if it segregates and maintains with the Fund's
Custodian for the term of the option cash or other liquid assets equal to the
fluctuating value of the optioned future. The Fund will be considered "covered"
with respect to a put option it writes on a futures contract if it owns an
option to sell that futures contract having a strike price equal to or greater
than the strike price of the "covered" option or if it segregates and maintains
with the Custodian for the term of the option cash or other liquid assets at all
times equal in value to the exercise price of the put (less any initial margin
deposited by the Fund with the Custodian with respect to such put option). There
is no limitation on the amount of the Fund's assets which can be segregated.

INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON

The Fund will purchase or sell interest rate futures contracts to take
advantage of or to protect the Fund against fluctuations in interest rates
affecting the value of debt securities which the Fund holds or intends to
acquire. For example, if interest rates are expected to increase, the Fund might
sell futures contracts on debt securities, the values of which historically have
a high degree of positive correlation to the values of the Fund's portfolio
securities. Such a sale would have an effect similar to selling an equivalent
value of the Fund's portfolio securities. If interest rates increase, the value
of the Fund's portfolio securities will decline, but the value of the futures
contracts to the Fund will increase at approximately an equivalent rate thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have. The Fund could accomplish

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similar results by selling debt securities with longer maturities and investing
in debt securities with shorter maturities when interest rates are expected to
increase. However, since the futures market may be more liquid than the cash
market, the use of futures contracts as a risk management technique allows the
Fund to maintain a defensive position without having to sell its portfolio
securities.

Similarly, the Fund may purchase interest rate futures contracts when it is
expected that interest rates may decline. The purchase of futures contracts for
this purpose constitutes a hedge against increases in the price of debt
securities (caused by declining interest rates) which the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased,
the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make the
intended purchase of the debt securities in the cash market and currently
liquidate its futures position. To the extent the Fund enters into futures
contracts for this purpose, it will segregate with the Fund's Custodian cash or
other liquid assets from its portfolio in an amount equal to the difference
between the fluctuating market value of such futures contracts and the aggregate
value of the initial margin deposited by the Fund with its Custodian with
respect to such futures contracts sufficient to cover the Fund's obligations
with respect to such futures contracts.

The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures contracts, when the
Fund is not fully invested it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.

The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the value
of portfolio securities.

The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.

The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of debt securities which the Fund
intends to purchase. If a put or call option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from options on futures it has written may to some extent be
reduced or increased by changes in the value of its portfolio securities.

In addition, futures contracts entail risks. Although the Fund believes
that use of such contracts will benefit the Fund, if the investment adviser's
judgment about the general direction of interest rates is incorrect, the Fund's
overall performance would be poorer than if it had not entered into any such
contracts. For example, if the Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of bonds held
in its portfolio and interest rates decrease instead, the Fund will lose part or
all of the benefit of the increased value of its bonds which it has hedged
because it will have offsetting losses in its futures positions. In addition,
particularly in such situations, if the Fund has insufficient cash, it may have
to sell bonds from its portfolio to meet daily variation margin requirements.
Such sales of bonds may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.

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CURRENCY FUTURES AND OPTIONS THEREON

Generally, foreign currency futures contracts and options thereon are
similar to the interest rate futures contracts and options thereon discussed
previously. By entering into currency futures and options thereon on U.S. and
foreign exchanges, the Fund will seek to establish the rate at which it will be
entitled to exchange U.S. dollars for another currency at a future time. By
selling currency futures, the Fund will seek to establish the number of dollars
it will receive at delivery for a certain amount of a foreign currency. In this
way, whenever the Fund anticipates a decline in the value of a foreign currency
against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value
of some or all of the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can establish the number
of dollars it will be required to pay for a specified amount of a foreign
currency in a future month. Thus if the Fund intends to buy securities in the
future and the investment adviser expects the U.S. dollar to decline against the
relevant foreign currency during the period before the purchase is effected, the
Fund can attempt to "lock in" the price in U.S. dollars of the securities it
intends to acquire.

The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the investment adviser, in
purchasing an option, has been correct in its judgment concerning the direction
in which the price of a foreign currency would move as against the U.S. dollar,
the Fund may exercise the option and thereby take a futures position to hedge
against the risk it had correctly anticipated or close out the option position
at a gain that will offset, to some extent, currency exchange losses otherwise
suffered by the Fund. If exchange rates move in a way the investment adviser did
not anticipate, however, the Fund will have incurred the expense of the option
without obtaining the expected benefit; any such movement in exchange rates may
also thereby reduce rather than enhance the Fund's profits on its underlying
securities transactions. The Fund's use of options on currencies will be subject
to the same limitations as its use of options on securities described above.
Currency options may be subject to position limits which may limit the ability
of the Fund to fully hedge its positions by purchasing the options.

As in the case of interest rate futures contracts and options thereon, the
Fund may hedge against the risk of a decrease or increase in the U.S. dollar
value of a foreign currency denominated debt security which the Fund owns or
intends to acquire by purchasing or selling options contracts, futures contracts
or options thereon with respect to a foreign currency other than the foreign
currency in which such debt security is denominated where the values of such
different currencies (vis-a-vis the U.S. dollar) historically have a high degree
of positive correlation.

RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

Participation in the options and 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 Subadviser's predictions of movements in the direction of the securities,
foreign currency or interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of these strategies include:
(1) dependence on the Subadviser's ability to predict correctly movements in the
direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities or currencies
being hedged; (3) the fact that the skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the risk that the counterparty may be unable to complete the transaction;
and (6) the possible inability of the Fund to purchase or sell a portfolio
security at a time that otherwise would be favorable for it to do so, or the
possible need for the Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain "cover" or to segregate assets in
connection with hedging transactions.

The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if the investment adviser believes
that the other party to the options will continue to make a market for such
options.

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<PAGE> 65

ADDITIONAL RISKS OF OPTIONS ON SECURITIES AND CURRENCIES, FUTURES CONTRACTS AND
OPTIONS ON FUTURES CONTRACTS

Certain of the options, futures contracts, and options thereon purchased or
sold by the Fund may be traded on foreign exchanges. Such transactions may not
be regulated as effectively as similar transactions in the U.S., may not involve
a clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign securities.
The value of such positions also could be adversely affected by (1) other
complex foreign political, legal and economic factors, (2) lesser availability
than in the U.S. of data on which to make trading decisions, (3) delays in the
Fund's ability to act upon economic events occurring in the foreign markets
during non-business hours in the U.S., (4) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the U.S. and
(5) lesser trading volume.

Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.
If so, this could limit the ability of the Fund fully to protect against these
risks. In addition, the hours of trading of financial futures contracts and
options thereon may not conform to the hours during which the Fund may trade the
underlying securities. To the extent the futures markets close before the
securities markets, significant price and rate movements can take place in the
securities markets that cannot be reflected in the futures markets.

An exchange-traded option may be closed out only where there exists a
secondary market for an option of the same series. If a secondary market does
not exist, it might not be possible to effect closing transactions in particular
options the Fund has purchased with the result that the Fund would have to
exercise the options in order to realize any profit. If the Fund is unable to
effect a closing purchase transaction in a secondary market in an option the
Fund has written, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise or it
otherwise covers its position. Reasons for the absence of a liquid secondary
market include the following: (1) there may be insufficient trading interest in
certain options; (2) restrictions may be imposed by a securities exchange on
opening transactions or closing transactions or both; (3) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (4) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (5) the facilities
of an exchange or clearing organization may not at all times be adequate to
handle current trading volume; or (6) one or more exchanges could, for economic
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or a particular class or series of options)
would cease to exist, although outstanding options would continue to be
exercisable in accordance with their terms.

SPECIAL RISKS RELATED TO FOREIGN CURRENCY FORWARD CONTRACTS

At or before the maturity of a forward sale contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligations to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a currency and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
purchase is less than the price of the currency it has agreed to sell. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Closing out forward purchase contracts involves similar
offsetting transactions.

SPECIAL RISK CONSIDERATIONS RELATING TO FUTURES AND OPTIONS THEREON

Certain risks are inherent in the Fund's use of futures contracts and
options on futures. One such risk arises because the correlation between
movements in the price of futures contracts or options on futures and movements
in the price of the securities hedged or used for cover will not be perfect.
Another risk is that the price of futures contracts or options on futures may
not move inversely with changes in interest rates. If the

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<PAGE> 66

Fund has sold futures contracts to hedge securities held by the Fund and the
value of the futures position declines more than the price of such securities
increases, the Fund will realize a loss on the futures contracts which is not
completely offset by the appreciation in the price of the hedged securities.
Similarly, if the Fund has written a call on a futures contract and the value of
the call increases by more than the increase in the value of the securities held
as cover, the Fund may realize a loss on the call which is not completely offset
by the appreciation in the price of the securities held as cover and the premium
received for writing the call.

The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of liquid markets. Although the Fund generally will purchase or
sell only those futures contracts and options thereon for which there appears to
be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option thereon at any
particular time. In the event no liquid market exists for a particular futures
contract or option thereon in which the Fund maintains a position, it will not
be possible to effect a closing transaction in that contract or to do so at a
satisfactory price and the Fund would have to either make or take delivery under
the futures contract or, in the case of a written option, wait to sell the
underlying securities until the option expires or is exercised or, in the case
of a purchased option, exercise the option. In the case of a futures contract or
an option on a futures contract which the Fund has written and which the Fund is
unable to close, the Fund would be required to maintain margin deposits on the
futures contract or option and to make variation margin payments until the
contract is closed.

Futures exchanges may establish daily limits in the amount that the price
of a futures contract or related options contract may vary either up or down
from the previous day's settlement price. Once the daily limit has been reached
in a particular contract, no trades may be made that day at a price beyond the
limit. The daily limit governs only price movements during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. Futures or options contract prices
could move to the daily limit for several consecutive trading days with little
or no trading and thereby prevent prompt liquidation of positions and subject
some traders to substantial losses. In such event, it may not be possible for
the Fund to close out a position, and in the event of adverse price movements,
the Fund would have to make daily cash payments of variation margin (except in
the case of purchased options).

Successful use of futures contracts and options thereon and forward
contracts by the Fund depends significantly on the ability of the investment
adviser to forecast movements in the direction of the market and interest and
foreign currency rates and requires skills and techniques different from those
used in selecting portfolio securities. The correlation between movements in the
price of a futures contract and movements in the price of the securities being
hedged is imperfect and the risk from imperfect correlation increases as the
composition of the Fund's portfolio diverges from the composition of the
relevant index. There is also a risk that the value of the securities being
hedged may increase or decrease at a greater rate than the related futures
contracts, resulting in losses to the Fund. If the investment adviser's
expectations are not met, the Fund would be in a worse position than if a
hedging strategy had not been pursued. In addition, in such situations, if the
Fund has insufficient cash to meet daily variation margin requirements, it may
have to sell securities to meet the requirements. These sales may, but will not
necessarily, be at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it is disadvantageous to do so.

Pursuant to the requirements of the Commodity Exchange Act, as amended, all
U.S. futures contracts and options thereon must be traded on an exchange. Since
a clearing corporation effectively acts as the counterparty on every futures
contract and option thereon, the counterparty risk depends on the strength of
the clearing or settlement corporation associated with the exchange.
Additionally, although the exchanges provide a means of closing out a position
previously established, there can be no assurance that a liquid market will
exist for a particular contract at a particular time. In the case of options on
futures, if such a market does not exist, the Fund, as the holder of an option
on futures contracts, would have to exercise the option and comply with the
margin requirements for the underlying futures contract to realize any profit,
and if the Fund were the writer of the option, its obligation would not
terminate until the option expired or the Fund was assigned an exercise notice.

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LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS, OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCY FORWARD CONTRACTS

The Fund will engage in transactions in futures contracts and options
thereon only to seek to reduce certain risks of its investments and to attempt
to enhance return, in each case in accordance with the rules and regulations of
the CFTC, and not for speculation.

In accordance with CFTC regulations, the Fund may not purchase or sell
futures contracts or options thereon if the initial margins and premiums
therefor exceed 5% of the market value of the Fund's total assets after taking
into account unrealized profits and unrealized losses on any such contracts;
provided, however, that in the case of an option that is in-the-money at the
time of the purchase, the in-the-money amount may be excluded in calculating the
5% limitation. The above restriction does not apply to the purchase and sale of
futures contracts and options thereon for bona fide hedging purposes within the
meaning of CFTC regulations. In instances involving the purchase of futures
contracts or call options thereon or the writing of put options thereon by the
Fund, an amount of cash or other liquid assets equal to the market value of the
futures contracts and options thereon (less any related margin deposits), will
be deposited in a segregated account with the Fund's Custodian to cover the
position, or alternative cover will be employed, thereby insuring that the use
of such instruments is unleveraged.

CFTC regulations may impose limitations on the Fund's ability to engage in
certain yield enhancement and risk management strategies. There are no
limitations on the Fund's use of futures contracts and options on futures
contracts beyond the restrictions set forth above.

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 Fund's
portfolio securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date on which the forward contract is entered into
and the date it matures. The projection of short-term currency market movement
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Fund does not intend to enter into such
forward contracts to protect the value of its portfolio securities on a regular
or continuous basis. The Fund will also not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the long-term
investment decisions made with regard to overall diversification strategies.
However, the Fund believes that it is important to have the flexibility to enter
into such forward contracts when it determines that the best interest of the
Fund will thereby be served. If the Fund enters into a position hedging
transaction the transaction will be "covered" by the position being hedged or
the Fund's Custodian or sub-custodian will segregate cash or other liquid assets
of the Fund (less the value of the "covering" position, if any) in an amount
equal to the value of the Fund's total assets committed to the consummation of
the given forward contract.

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

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

Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee

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for conversion, they do realize a profit based on the difference (the spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.

ILLIQUID SECURITIES

The Fund may hold up to 15% of its net assets in illiquid securities. If
the Fund were to exceed this limit, the investment adviser would take prompt
action to reduce the Fund's holdings in illiquid securities to no more than 15%
of net assets, as required by applicable law. Illiquid securities include
repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Repurchase agreements subject to
demand are deemed to have a maturity equal to the applicable notice period.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

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

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

Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and privately placed commercial paper for which there is a
readily available market are treated as liquid only when deemed liquid under
procedures established by the 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. The investment adviser will monitor the
liquidity of such restricted securities subject to the supervision of the Board
of Directors. In reaching liquidity decisions, the investment adviser will
consider, among others, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act, to be considered liquid (a) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (b) it must not be "traded
flat" (that is, without accrued interest) or in default as to principal or
interest.

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The staff of the Securities and Exchange Commission (Commission) has taken
the position that purchased over-the-counter options and the assets used as
"cover" for written over-the-counter options are illiquid securities unless the
Fund and the counterparty have provided for the Fund, at the Fund's election, to
unwind the over-the-counter option. The exercise of such an option ordinarily
would involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the Fund
to treat the assets used as "cover" as "liquid." The Fund will also treat
non-U.S. government interest-only and principal-only mortgage backed securities
strips as illiquid so long as the staff of the Commission maintains its position
that such securities are illiquid.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund's Custodian will segregate cash or other liquid assets having a value equal
to or greater than the Fund's purchase commitments. The securities so purchased
are subject to market fluctuation and no interest accrues to the purchaser
during the period between purchase and settlement. At the time of delivery of
the securities the value may be more or less than the purchase price and an
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value. Subject to the segregation
requirement, the Fund may purchase securities on such basis without limit.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The Fund does not currently intend to invest in repurchase agreements
whose maturities exceed one year. The resale price is in excess of the purchase
price, reflecting an agreed-upon rate of return effective for the period of time
the Fund's money is invested in the repurchase agreement. The Fund's repurchase
agreements will at all times be fully collateralized by U.S. government
obligations in an amount at least equal to the resale price. The instruments
held as collateral are valued daily, and if the value of instruments declines,
the Fund will require additional collateral. If the seller defaults and the
value of the collateral securing the repurchase agreement declines, the Fund may
incur a loss.

The Fund will enter into repurchase transactions only with parties meeting
creditworthiness standards approved by the Fund's investment adviser. In the
event of a default or bankruptcy by a seller, the Fund will promptly seek to
liquidate the collateral.

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

BORROWING

The Fund may borrow up to 20% of the value of its total assets (calculated
when the loan is made) from banks for temporary, extraordinary or emergency
purposes, or for the clearance of transactions and to take advantage of
investment opportunities. The Fund may pledge up to 20% of its total assets to
secure these borrowings. If the Fund borrows to invest in securities, any
investment gains made on the securities in excess of interest paid on the
borrowing will cause the net asset value of the shares to rise faster than would
otherwise be the case. On the other hand, if the investment performance of the
additional securities purchased fails to cover their cost (including any
interest paid on the money borrowed) to the Fund, the net asset value of the
Fund's shares will decrease faster than would otherwise be the case. This is the
speculative factor known as "leverage." If the Fund's asset coverage of
borrowings falls below 300%, the Fund will take prompt action (within 3 days) to
reduce its borrowings. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell portfolio
securities to reduce the debt and

B-21
<PAGE> 70

restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time.

SEGREGATED ASSETS

The Fund will segregate with its Custodian, State Street Bank and Trust
Company (State Street), cash, U.S. government securities, equity securities
(including foreign securities), debt securities or other liquid, unencumbered
assets equal in value to its obligations in respect of potentially leveraged
transactions. These include forward contracts, when-issued and delayed delivery
securities, futures contracts, written options and options on futures contracts
(unless otherwise covered). If collateralized or otherwise covered, in
accordance with Commission guidelines, these will not be deemed to be senior
securities. The assets segregated will be marked-to-market daily.

(d) DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in U.S. Treasury or other U.S. dollar-denominated debt
securities, or high quality money market instruments, including commercial paper
of domestic and foreign corporations, foreign government securities, U.S.
Treasury or other U.S. dollar-denominated debt securities, or securities
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks, and short-term obligations issued or guaranteed by the U.S.
government and its agencies without regard to maturity. These obligations will
be U.S. dollar-denominated or denominated in a foreign currency. The Fund may
also invest in these securities for cash management or for investment subject to
its investment policies and limitations. Such investments may be subject to
certain risks, including future political and economic developments, the
possible imposition of withholding taxes on interest income, the seizure of
nationalization of foreign deposits and foreign exchange controls or other
restrictions.

(e) PORTFOLIO TURNOVER

The portfolio turnover rate is generally the percentage computed by
dividing the lesser of portfolio purchases or sales (excluding all securities,
including options, whose maturities or expiration date at acquisition were one
year or less) by the monthly average value of the long-term portfolio. High
portfolio turnover (100% or more) involves correspondingly greater brokerage
commissions and other transaction costs, which are borne directly by the Fund.
In addition, high portfolio turnover may also mean that a proportionately
greater amount of distributions to shareholders will be taxed as ordinary income
rather than long-term capital gains compared to investment companies with lower
portfolio turnover. See "Brokerage Allocation and Other Practices" and "Taxes,
Dividends and Distributions."

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (1) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (2) more than 50% of the outstanding voting
shares.

The Fund may not:

1. Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of transactions and except that the Fund
may make deposits on margin in connection with futures contracts and
options.

2. Make short sales of, or maintain a short position in, securities.

3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow from banks up to 20% of the value of its total
assets (calculated when the loan is made) for temporary, extraordinary or
emergency purposes, for the clearance of transactions, or for investment
purposes. The Fund may pledge up to 20% of the value of its total assets to
secure such borrowings. For purposes of this restriction, the purchase or
sale of securities on a when-issued or delayed delivery basis, foreign
currency

B-22
<PAGE> 71

forward contracts and collateral arrangements relating thereto, and
collateral arrangements with respect to interest rate swap transactions,
reverse repurchase agreements, dollar roll transactions, options, futures
contracts and options thereon and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed to be a
pledge of assets or the issuance of a senior security.

4. Buy or sell commodities, commodity contracts, real estate or
interests in real estate, except that the Fund may purchase and sell
futures, options on futures contracts and securities secured by real estate
or interests therein. Transactions in foreign currencies and forward
contracts and options on foreign currencies are not considered by the Fund
to be transactions in commodities or commodity contracts.

5. Make loans except through (i) repurchase agreements, and (ii) the
purchase of debt obligations and bank deposits.

6. Make investments for the purpose of exercising control or
management over the issuers of any investments.

7. Act as an underwriter (except to the extent the Fund may be deemed
to be an underwriter in connection with the sale of securities in the
Fund's investment portfolio).

8. Invest 25% or more of its assets in any one industry. For this
purpose "industry" does not include the U.S. government, but does include
foreign government issuers.

Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.

MANAGEMENT OF THE FUND

<TABLE>
<CAPTION>
NAME AND ADDRESS** POSITION PRINCIPAL OCCUPATIONS
(AGE) WITH FUND DURING PAST FIVE YEARS
------------------ --------- ----------------------
<S> <C> <C>
Delayne Dedrick Gold (61) Director Marketing and Management Consultant.
*Robert F. Gunia (53) Vice President and Executive Vice President and Chief Administrative
Director Officer (since June 1999) of Prudential Investments;
Corporate Vice President (since September 1997) of
The Prudential Insurance Company of America
(Prudential); Executive Vice President and Treasurer
(since December 1996) of Prudential Investments Fund
Management LLC (PIFM); President (since April 1999)
of Prudential Investment Management Services LLC
(PIMS); formerly Senior Vice President (March
1987-May 1999) of Prudential Securities Incorporated
(Prudential Securities) and Chief Administrative
Officer (July 1990-September 1996), Director
(January 1989-September 1996) and Executive Vice
President, Treasurer and Chief Financial Officer
(June 1987-September 1996) of Prudential Mutual Fund
Management, Inc.
Douglas H. McCorkindale (60) Director President (since September 1997) and Vice Chairman
(since March 1984) of Gannett Co. Inc. (publishing
and media); Director of Continental Airlines, Inc.,
Gannett Co. Inc. and Global Crossing Ltd.
Thomas T. Mooney (58) Director President of the Greater Rochester Metro Chamber of
Commerce; former Rochester City Manager; former
Deputy Monroe County Executive; Trustee of Center
for Governmental Research, Inc.; Director of Blue
Cross of Rochester, Executive Service Corps of
Rochester and Monroe County Water Authority.
</TABLE>

B-23
<PAGE> 72

<TABLE>
<CAPTION>
NAME AND ADDRESS** POSITION PRINCIPAL OCCUPATIONS
(AGE) WITH FUND DURING PAST FIVE YEARS
------------------ --------- ----------------------
<S> <C> <C>
Stephen P. Munn (57) Director Chairman (since January 1994), Director and President
(since 1988) and Chief Executive Officer (1988-
December 1993) of Carlisle Companies Incorporated
(manufacturer of industrial products).
*David R. Odenath, Jr. (42) Vice President and Officer in Charge, President, Chief Executive Officer
Director and Chief Operating Officer (since June 1999), PIFM;
Senior Vice President (since June 1999), Prudential;
formerly Senior Vice President (August 1993-May
1999), PaineWebber Group, Inc.
Richard A. Redeker (56) Director Formerly President, Chief Executive Officer and
Director (October 1993-September 1996) of Prudential
Mutual Fund Management, Inc.; Executive Vice
President, Director and Member of the Operating
Committee (October 1993-September 1996) of
Prudential Securities; Director (October
1993-September 1996) of Prudential Securities Group,
Inc.; Executive Vice President (January
1994-September 1996) of The Prudential Investment
Corporation; Director (January 1994-September 1996)
of Prudential Mutual Fund Distributors, Inc. and
Prudential Mutual Fund Services, Inc.; and Senior
Executive Vice President and Director (September
1978-September 1993) of Kemper Financial Services,
Inc.
Robin B. Smith (60) Director Chairman and Chief Executive Officer (since August
1996), formerly President and Chief Executive
Officer (January 1989-August 1996) and President and
Chief Operating Officer (September 1981-December
1988) of Publishers Clearing House; Director of
BellSouth Corporation, Texaco Inc., Springs
Industries Inc. and Kmart Corporation.
*John R. Strangfeld, Jr. (45) President and Chief Executive Officer, Chairman, President and
Director Director (since January 1990), The Prudential
Investment Corporation, Executive Vice President
(since February 1998), Prudential Global Asset
Management Group of Prudential, and Chairman (since
August 1989), Pricoa Capital Group; formerly various
positions to Chief Executive Officer (November
1994-December 1998), Private Asset Management Group
of Prudential and Senior Vice President (January
1986-August 1989), Prudential Capital Group, a unit
of Prudential.
Louis A. Weil, III (58) Director Chairman (since January 1999), President and Chief
Executive Officer (since January 1996) and Director
(since September 1991) of Central Newspapers, Inc.;
Chairman of the Board (since January 1996),
Publisher and Chief Executive Officer (August 1991-
December 1995) of Phoenix Newspapers, Inc.; formerly
Publisher (May 1989-March 1991) of Time Magazine,
President, Publisher and Chief Executive Officer
(February 1986-August 1989) of The Detroit News and
member of the Advisory Board, Chase Manhattan
Bank-Westchester.
</TABLE>

B-24
<PAGE> 73

<TABLE>
<CAPTION>
NAME AND ADDRESS** POSITION PRINCIPAL OCCUPATIONS
(AGE) WITH FUND DURING PAST FIVE YEARS
------------------ --------- ----------------------
<S> <C> <C>
Clay T. Whitehead (61) Director President (since May 1983) of National Exchange Inc.
(new business development firm).
Grace C. Torres (40) Treasurer and First Vice President (since December 1996) of PIFM;
Principal Financial First Vice President (since March 1993) of
and Accounting Prudential Securities; formerly First Vice President
Officer (March 1994- September 1996) of Prudential Mutual
Fund Management, Inc.
Marguerite E. H. Morrison (43) Secretary Vice President and Associate General Counsel (since
December 1996) of PIFM; Vice President and Associate
General Counsel (since September 1987) of Prudential
Securities; formerly Vice President and Associate
General Counsel (June 1991-September 1996) of
Prudential Mutual Fund Management, Inc.
Stephen M. Ungerman (46) Assistant Treasurer Tax Director (since March 1996) of Prudential
Investments; formerly First Vice President (February
1993-September 1996) of Prudential Mutual Fund
Management, Inc.
</TABLE>

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

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

** The address of the Directors and officers is c/o Prudential Investments Fund
Management LLC, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077.

The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, Subadviser and Distributor, decide upon matters of general
policy. The Directors also review the actions of the Fund's officers, who
conduct and supervise the daily business operations of the Fund.

Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
The Fund currently pays each of its Directors who is not an affiliated person of
PIFM or the investment adviser annual compensation of $1,050 in addition to
certain out-of-pocket expenses. The amount of annual compensation paid to each
Director may change as a result of the introduction of additional funds on the
boards of which the Directors will be asked to serve.

Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Directors' fees which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills at
the beginning of each calendar quarter or, pursuant to a Commission exemptive
order, at the daily rate of return of a Prudential mutual fund. Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund.

The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 75.

The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended December 31, 1999 and the aggregate compensation paid

B-25
<PAGE> 74

to such Directors for service on the Fund's Board and the boards of all other
investment companies managed by PIFM (Fund Complex) for the calendar year ended
December 31, 1999.

<TABLE>
<CAPTION>
TOTAL 1999
AGGREGATE COMPENSATION
COMPENSATION PAID TO DIRECTORS
NAME OF DIRECTOR FROM FUND FROM FUND COMPLEX
- ---------------- ------------ -----------------
<S> <C> <C>
Edward D. Beach++........................................... $1,050 $142,500(43/70)**
Delayne Dedrick Gold........................................ $1,050 $144,500(43/70)**
Robert F. Gunia+............................................ None None
Douglas H. McCorkindale*.................................... $1,050 $ 80,000(24/49)**
Thomas T. Mooney*........................................... $1,050 $129,500(35/75)**
Stephen P. Munn............................................. $1,050 $ 61,675(29/53)**
David R. Odenath, Jr.+...................................... None None
Richard A. Redeker.......................................... $1,050 $ 95,000(29/53)**
Robin B. Smith*............................................. $1,050 $ 96,000(32/44)**
John R. Strangfeld, Jr.+.................................... None None
Louis A. Weil, III.......................................... $1,050 $ 96,000(29/53)**
Clay T. Whitehead........................................... $1,050 $ 77,000(38/66)**
</TABLE>

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

+ Directors who are "interested" do not receive compensation from the Fund or
any fund in the Fund Complex.

++ Mr. Beach retired on December 31, 1999.

* Total compensation from all of the funds in the Fund Complex for the calendar
year ended December 31, 1999 includes amounts deferred at the election of
Directors under the funds' deferred compensation plans. Including accrued
interest, total compensation amounted to $97,916, $135,102 and $156,478 for
Messrs. McCorkindale and Mooney and Ms. Smith, respectively.

** Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Directors of the Fund are eligible to purchase Class Z shares of the Fund,
which are sold without either an initial sales charge or contingent deferred
sales charge to a limited group of investors.

As of February 4, 2000, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.

As of February 4, 2000, Prudential Securities was record holder of
2,502,023 Class A shares (26%), 153,518 Class B shares (56%), 31,760 Class C
shares (95%), and 476,722 Class Z shares (94%) of the Fund. In the event of any
meetings of shareholders, Prudential Securities will forward, or cause the
forwarding of, proxy materials to the beneficial owners for which it is the
record holder.

B-26
<PAGE> 75

As of February 4, 2000, the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of shares of the Fund were:

<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME ADDRESS CLASS OF SHARES (% OF CLASS)
- ---- --------------------------- --------------- --------------
<S> <C> <C> <C> <C>
Smith Barney Inc.............................. 388 Greenwich Street Class A 625,120 (6.4%)
New York, NY 10013-0375
Prudential Securities C/F..................... 6426 Canterbury Dr. Class B 19,106 (7%)
Mr. Mark F. Joyce Hudson, OH 44236-3479
IRA Rollover DTD 05/21/96
Schoening & Associates........................ 14201 SW 97th Ave. Class B 15,402 (5.6%)
Miami, FL 33176
Prudential Securities......................... 4274 Castle Drive, SE Class C 2,553 (7.6%)
C/F Mr. Thomas F. Hauck IRA Grand Rapids, MI 49546-8309
DTD 12/17/97
Mr. John C. Galloway &........................ 4265 Rose Creed Road Class C 3,017 (9%)
Mrs. Laura V. Galloway Roseville, CA 95747-8611
CO-TTEES, The Galloway Family Trust
UA DTD 03/17/9
Prudential Securities C/F..................... 560 W. Oak Rd. Class C 2,536 (7.6%)
Barbara J. Golla Vineland, NJ 08360-2218
Vineland Anesth. Consult PC
Prudential Securities C/F..................... 514 Keepataw Dr. Class C 7,923 (24%)
Diane D. Johnson Lemont, IL 60439
Diane D. Johnson Trust UA
Dated 12/8/98
Prudential Securities......................... 7483 Lime Hollow Dr. SE Class C 5,301 (16%)
Dr. John F. Butzer, MD Grand Rapids, MI 49546
IRA IRA 12/18/97
Mrs. Shirley Palmer GDN,...................... 1 Grace Court Class Z 25,945 (5.1%)
Mr. Edwin Laboy, Jr. Wallkill, NY 12589
</TABLE>

INVESTMENT ADVISORY AND OTHER SERVICES

(a) MANAGER AND INVESTMENT ADVISER

The manager of the Fund is Prudential Investments Fund Management LLC (the
Manager or PIFM), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. The Manager serves as manager to all of the other investment
companies that, together with the Fund, comprise the Prudential mutual funds.
See "How the Fund is Managed -- Manager" in the Prospectus. As of January 31,
2000, the Manager managed and/or administered open-end and closed-end management
investment companies with assets of approximately $74.9 billion. According to
the Investment Company Institute, as of September 30, 1999, the Prudential
mutual funds were the 20th largest family of mutual funds in the United States.

The Manager is a subsidiary of Prudential Securities and The Prudential
Insurance Company of America (Prudential). Prudential Mutual Fund Services LLC
(PMFS or the Transfer Agent), a wholly-owned subsidiary of the Manager, serves
as the transfer agent and dividend distribution agent for the Prudential Mutual
Funds and, in addition, provides customer service, recordkeeping and management
and administration services to qualified plans.

Pursuant to the Management Agreement with the Fund (the Management
Agreement), the Manager, subject to the supervision of the Fund's Board of
Directors and in conformity with the stated policies of the Fund, manages both
the investment operations of the Fund and the composition of the Fund's
portfolio, including the purchase, retention, disposition and loan of
securities. In connection therewith, the Manager is obligated to keep certain
books and records of the Fund. The Manager also administers the Fund's corporate
affairs and, in connection therewith, furnishes the Fund with office facilities,
together with those ordinary

B-27
<PAGE> 76

clerical and bookkeeping services which are not being furnished by State Street
Bank and Trust Company, the Fund's custodian (the Custodian), and the Fund's
Transfer Agent. The management services of the Manager for the Fund are not
exclusive under the terms of the Management Agreement and the Manager is free
to, and does, render management services to others.

For its services, the Manager receives, pursuant to the Management
Agreement, a fee at an annual rate of .75 of 1% of the Fund's average daily net
assets up to $1 billion, and .70 of 1% of such assets in excess of $1 billion.
The fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of the
Manager, but excluding interest, taxes, brokerage commissions, distribution fees
and litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to the Manager
will be reduced by the amount of such excess. No jurisdiction currently limits
the Fund's expenses.

In connection with its management of the business affairs of the Fund, the
Manager bears the following expenses:

(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of Directors who are not affiliated persons of
the Manager or the Fund's investment adviser;

(b) all expenses incurred by the Manager or by the Fund in connection
with managing the ordinary course of the Fund's business, other than those
assumed by the Fund as described below; and

(c) the costs and expenses payable to Prudential Investments (PI)
pursuant to the subadvisory agreement between the Manager and PI (the PI
Subadvisory Agreement).

Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the Manager
or the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer Agent, including the cost of providing records to the
Manager in connection with its obligation of maintaining required records of the
Fund and of pricing the Fund's shares, (d) the charges and expenses of legal
counsel and independent accountants for the Fund, (e) brokerage commissions and
any issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade associations of which the Fund
may be a member, (h) the cost of stock certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) certain organization
expenses of the Fund and the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the Commission and
the states, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders' and
Directors' meetings and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders in the amount necessary for
distribution to the shareholders, (l) litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of the
Fund's business and (m) distribution fees.

The Management Agreement provides that the Manager will not be liable for
any error of judgment or for any loss suffered by the Fund in connection with
the matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. The Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act.

For the fiscal years ended December 31, 1999, 1998 and 1997, the Manager
received management fees of $577,058, $692,765 and $835,254, respectively, from
the Fund.

The Manager has entered a Subadvisory Agreement with PI, a wholly-owned
subsidiary of Prudential. The PI Subadvisory Agreement provides that the
Subadviser will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, the Subadviser is obligated to
keep certain books

B-28
<PAGE> 77

and records of the Fund. The Subadviser has entered into an agreement with
PRICOA Asset Management Ltd. (PRICOA or, together with PI, the investment
adviser) under which PRICOA provides investment advisory services to the Fund.
The Manager continues to have responsibility for all investment advisory
services pursuant to the Management Agreement and supervises the investment
adviser's performance of such services. The Subadviser was reimbursed by the
Manager for the reasonable costs and expenses incurred by the Subadviser in
furnishing those services. In turn, PRICOA is reimbursed by the Subadviser for
its reasonable costs and expenses incurred in furnishing advisory services.
Effective January 1, 2000, PI is paid by PIFM at an annual rate of .375 of 1% of
the Fund's average daily net assets up to $1 billion and .333 of 1% of average
daily net assets over $1 billion.

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

Prudential Investments' Fixed Income Group includes the following sector
teams which may contribute towards security selection in addition to the sector
team described in the prospectus:

U.S. LIQUIDITY

ASSETS UNDER MANAGEMENT: $22.6 billion as of December 31, 1999.

TEAM LEADER: Michael Lillard. GENERAL INVESTMENT EXPERIENCE: 12 years.

PORTFOLIO MANAGERS: 9. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.

SECTOR: U.S. Treasuries, agencies and mortgages.

INVESTMENT STRATEGY: Focus is on high quality, liquidity and controlled risk.

CORPORATE

ASSETS UNDER MANAGEMENT: $47.3 billion as of December 31, 1999.

TEAM LEADER: Steven Kellner. GENERAL INVESTMENT EXPERIENCE: 13 years.

PORTFOLIO MANAGERS: 8. AVERAGE GENERAL INVESTMENT EXPERIENCE: 13 years, which
includes team members with mutual fund experience.

SECTOR: U.S. investment-grade corporate securities.

INVESTMENT STRATEGY: Focus is on identifying spread, credit quality and
liquidity trends to capitalize on changing opportunities in the market.
Ultimately, they seek the highest expected return with the least risk.

HIGH YIELD

ASSETS UNDER MANAGEMENT: $9.4 billion as of December 31, 1999.

TEAM LEADER: Casey Walsh. GENERAL INVESTMENT EXPERIENCE: 17 years.

PORTFOLIO MANAGERS: 7. AVERAGE GENERAL INVESTMENT EXPERIENCE: 17 years, which
includes team members with significant mutual fund experience.

SECTOR: Below-investment-grade corporate securities.

B-29
<PAGE> 78

INVESTMENT STRATEGY: Focus is generally on bonds with high total return
potential, given existing risk parameters. They also seek securities with high
current income, as appropriate. The Team uses a relative value approach.

EMERGING MARKETS

ASSETS UNDER MANAGEMENT: $1.9 billion as of December 31, 1999.

TEAM LEADER: David Bessey. GENERAL INVESTMENT EXPERIENCE: 10 years.

PORTFOLIO MANAGERS: 3. AVERAGE GENERAL INVESTMENT EXPERIENCE: 9 years, which
includes team members with mutual fund experience.

SECTOR: Government and corporate securities issued by developing markets and
countries.

INVESTMENT STRATEGY: Focus is on a fundamental investment approach that uses a
strong technical and value overlay to make country selections.

MONEY MARKETS

ASSETS UNDER MANAGEMENT: $36.0 billion as of December 31, 1999.

TEAM LEADER: Joseph Tully. GENERAL INVESTMENT EXPERIENCE: 16 years.

PORTFOLIO MANAGERS: 9. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.

SECTOR: High-quality short-term securities, including both taxable and
tax-exempt instruments.

INVESTMENT STRATEGY: Focus is on safety of principal, liquidity and controlled
risk.

(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLANS

Prudential Investment Management Services LLC (the Distributor), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077 acts as the
distributor of the shares of the Fund. The Distributor is a subsidiary of
Prudential.

Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the Distribution Agreement), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares. The Distributor
also incurs the expenses of distributing the Fund's Class Z shares under the
Distribution Agreement, none of which are reimbursed by or paid for by the Fund.

The expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of brokers or financial institutions which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of the Distributor associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses.

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

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

CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor for
its distribution-related activities with respect to Class A shares at an annual
rate of .30 of 1% of the average daily net assets of the
B-30
<PAGE> 79

Class A shares. The Class A Plan provides that (1) .25 of 1% of the average
daily net assets of the Class A shares may be used to pay for personal service
and/or the maintenance of shareholder accounts (service fee) and (2) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30 of
1%. The Distributor contractually limited its distribution-related fees payable
under the Class A Plan for the fiscal year ended December 31, 1999 to .25 of 1%
of the average daily net assets of the Class A shares and has contractually
limited its distribution-related fees payable under the Class A Plan to .25 of
1% of the average daily net assets of the Class A shares for the fiscal year
ending December 31, 2000.

For the fiscal year ended December 31, 1999, the Distributor received
payments of $181,033 under the Class A Plan and spent approximately $170,900 in
distributing the Class A shares. These amounts were primarily expended for
payments of account servicing fees to financial advisers and other persons who
sell Class A shares. For the fiscal year ended December 31, 1999, the
Distributor also received approximately $9,500 in initial sales charges
attributable to Class A shares.

CLASS B PLAN. Under the Class B Plan, the Fund may pay the Distributor for
its distribution-related activities with respect to Class B shares at an annual
rate of .75 of 1% of the average daily net assets of the Class B shares. The
Class B Plan provides that (1) .25 of 1% of the average daily net assets of the
shares may be paid as a service fee and (2) .75% of 1% (including the service
fee) of the average daily net assets of the shares (asset based sales charge)
may be paid for distribution-related expenses with respect to the shares. The
service fee (.25 of 1% of average daily net assets) is used to pay for personal
service and/or the maintenance of shareholder accounts. The Distributor has
contractually agreed to limit its distribution-related fees payable under the
Class B Plan to .75 of 1% through December 31, 2000 and contractually agreed to
limit its distribution-related fees payable under the Class B Plan to .75 of 1%
of average net assets for the fiscal year ended December 31, 1999. The
Distributor also receives contingent deferred sales charges from certain
redeeming Class B shareholders.

For the fiscal year ended December 31, 1999, the Distributor received
$11,700 from the Fund under the Class B Plan and spent approximately $56,456 in
distributing the Fund's Class B shares. It is estimated that of the latter
amount, 22.26% ($12,570) was spent on printing and mailing of prospectuses to
other than current shareholders; 26.67% ($15,056) was spent on compensation to
broker-dealers for commissions to their representatives and other expenses,
including an allocation of overhead and other branch office distribution-
related expenses, incurred for distribution of Fund shares; and 51.07% ($28,830)
in the aggregate for (1) payments of commissions and account servicing fees to
financial advisers (12.29% or $6,940) and (2) an allocation of overhead and
other branch office distribution-related expenses for payments of related
expenses (38.77% or $21,890). The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating
Prudential Securities' and Pruco Securities Corporation's (Prusec's) branch
offices in connection with the sale of Fund shares, including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(b) the costs of client sales seminars, (c) expenses of mutual fund sales
coordinators to promote the sale of Fund shares, and (d) other incidental
expenses relating to branch promotion of Fund sales.

The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. For the
fiscal year ended December 31, 1999, the Distributor received approximately
$3,700 in contingent deferred sales charges attributable to Class B shares.

CLASS C PLAN. Under the Class C Plan, the Fund may pay the distributor for
its distribution-related activities with respect to Class C shares at an annual
rate of 1% of the average daily net assets of the Class C shares. The Class C
Plan provides that (1) .25 of 1% of the average daily net assets of the shares
may be paid as a service fee and (2) .75 of 1% (not including the service fee)
of the average daily net assets of the shares (asset based sales charge) may be
paid for distribution-related expenses with respect to the shares. The service
fee (.25 of 1% of average daily net assets is used to pay for personal service
and/or the maintenance of shareholder accounts. The Distributor has
contractually agreed to limit its distribution-related fees payable under the
Class C Plan to .75 of 1% through December 31, 2000 and contractually agreed to
limit its distribution-related fees payable under the Class C Plan to .75 of 1%
of average net assets for the fiscal year ended December 31, 1999. The
Distributor also receives contingent deferred sales charges from certain
redeeming Class C shareholders and initial sales charges.

B-31
<PAGE> 80

For the fiscal year ended December 31, 1999, the Distributor received
$1,863 under the Class C Plan and spent $3,920 in distributing Class C shares.
It is estimated that of the latter total amount, 48.57% ($1,904) was spent on
printing and mailing of prospectuses to other than current shareholders; 4.49%
($176) on compensation to broker-dealers for commissions to representatives and
other expenses, including an allocation of overhead and other branch office
distribution-related expenses incurred for distribution of Fund shares and
46.94% ($1,840) in the aggregate for (1) payments of commissions and account
servicing fees to financial advisers (4.57% or $179) and (2) an allocation of
overhead and other branch office distribution-related expenses for payments of
related expenses (42.37% or $1,661).

The Distributor also receives an initial sales charge and the proceeds of
contingent deferred sales charges paid by investors upon certain redemptions of
Class C shares. For the fiscal year ended December 31, 1999 the Distributor
received $100 in contingent deferred sales charges attributable to Class C
shares. For the fiscal year ended December 31, 1999, the Distributor received
approximately $1,200 in initial sales charges attributable to Class C shares.

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

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

Pursuant to each Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
each class of shares of the Fund by the Distributor. The report will include an
itemization of the distribution expenses and the purposes of such expenditures.
In addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.

Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under federal securities laws.

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

FEE WAIVERS/SUBSIDIES

PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has contractually agreed to waive a portion of its distribution
fees for the Class A, Class B and Class C shares as described above. Fee waivers
and subsidies increase the Fund's total return.

NASD MAXIMUM SALES CHARGE RULE

Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. Interest charges
on unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be
B-32
<PAGE> 81

added to the 6.25% limitation. Sales from the reinvestment of dividends and
distributions are not included in the calculation of the 6.25% limitation. The
annual asset-based sales charge on shares of the Fund may not exceed .75 of 1%
per class. The 6.25% limitation applies to each class of the Fund rather than on
a per shareholder basis. If aggregate sales charges were to exceed 6.25% of
total gross sales of any class, all sales charges on shares of that class would
be suspended.

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

PMFS, Raritan Plaza One, Edison, New Jersey 08837, serves as the transfer
and dividend disbursing agent of the Fund. The Transfer Agent is a wholly-owned
subsidiary of the Manager. The Transfer Agent provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, the payment of dividends and distributions, and related functions. For
these services, the Transfer Agent receives an annual fee of $13.00 per
shareholder account, a new account set-up fee of $2.00 for each manually-
established account and a monthly inactive zero balance account fee of $.20 per
shareholder account. The Transfer Agent is also reimbursed for its out-of-pocket
expenses, including but not limited to postage, stationery, printing, allocable
communications expenses and other costs.

PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and, in that capacity,
audits the Fund's annual financial statements.

YEAR 2000 READINESS DISCLOSURE

The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Although the Fund has not experienced any material problems with the services
provided by the Manager, Distributor, Transfer Agent or Custodian as a result of
the change from 1999 to 2000, there remains a possibility that computer software
systems in use might be impaired or unavailable because of the way dates are
encoded and calculated. Such an event could have a negative impact on handling
securities trades, payments of interest and dividends, pricing and account
services. Although, at this time, there can be no assurance that there will be
no future adverse impact on the Fund, the Manager, the Distributor, the Transfer
Agent and the Custodian have advised the Fund that they have completed necessary
changes to their computer systems in connection with the year 2000. The Fund's
service providers (or other securities market participants) may experience
future material problems in connection with the year 2000. The Fund and its
Board have instructed the Fund's principal service providers to monitor and
report year 2000 problems.

Additionally, issuers of securities generally, as well as those purchased
by the Fund, may confront year 2000 compliance issues at some later time which,
if material and not resolved, could have an adverse impact on securities markets
and/or a specific issuer's performance and could result in a decline in the
value of the securities held by the Fund.

CODES OF ETHICS

The Board of Directors of the Fund has adopted a Code of Ethics. In
addition, the Manager, Subadviser and Distributor have each adopted a Code of
Ethics (the Codes). The Codes permit personnel subject to the Codes to invest in
securities, including securities that may be purchased or held by the Fund.
However, the protective provisions of the Codes prohibit certain investments and
limit such personnel from making investments during periods when the Fund is
making such investments. The Codes are on public file with, and are available
from, the Commission.

BROKERAGE ALLOCATION AND OTHER PRACTICES

The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to
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<PAGE> 82

effect the transactions and the negotiation of brokerage commissions, if any.
(For purposes of this section, the term "Manager" includes the investment
adviser.) On a national securities exchange, broker-dealers may receive
negotiated brokerage commissions on Fund portfolio transactions, including
options, futures, and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. On a foreign securities
exchange, commissions may be fixed. Orders may be directed to any broker or
futures commission merchant including, to the extent and in the manner permitted
by applicable law, Prudential Securities and its affiliates.

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

In placing orders for portfolio securities of the Fund, the Manager's
overriding objective is to obtain the best possible combination of favorable
price and efficient execution. The Manager seeks to effect each transaction at a
price and commission that provides the most favorable total cost or proceeds
reasonably attainable in the circumstances. The factors that the Manager may
consider in selecting a particular broker, dealer or futures commission merchant
(firms) are the Manager's knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the portfolio
transaction; the size of the transaction; the desired timing of the trade; the
activity existing and expected in the market for the particular transaction;
confidentiality; the execution, clearance and settlement capabilities of the
firms; the availability of research and research related services provided
through such firms; the Manager's knowledge of the financial stability of the
firms; the Manager's knowledge of actual or apparent operational problems of
firms; and the amount of capital, if any, that would be contributed by firms
executing the transaction. Given these factors, the Fund may pay transaction
costs in excess of that which another firm might have charged for effecting the
same transaction.

When the Manager selects a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research related products and/or services,
such as research reports, research compilations, statistical and economic data,
computer data bases, quotation equipment and services, research oriented
computer software, hardware and services, reports concerning the performance of
accounts, valuations of securities, investment related periodicals, investment
seminars and other economic services and consultants. Such services are used in
connection with some or all of the Manager's investment activities; some of such
services, obtained in connection with the execution of transactions for one
investment account, may be used in managing other accounts, and not all of these
services may be used in connection with the Fund.

The Manager maintains an internal allocation procedure to identify those
firms who have provided it with research and research related products and/or
services, and the amount that was provided, and to endeavor to direct sufficient
commissions to them to ensure the continued receipt of those services that the
Manager believes provides a benefit to the Fund and its other clients. The
Manager makes a good faith determination that the research and/or service is
reasonable in light of the type of service provided and the price and execution
of the related portfolio transactions.

When the Manager deems the purchase or sale of equities to be in the best
interests of the Fund or its other clients, including Prudential, the Manager
may, but is under no obligation to, aggregate the transactions in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the transactions, as well as the
expenses incurred in the transaction, will be made by the Manager in the manner
it considers to be most equitable and consistent with its fiduciary obligations
to its clients. The allocation of orders among firms and the commission rates
paid are reviewed periodically by the Fund's Board of Directors. Portfolio
securities may not be purchased from any underwriting or selling

B-34
<PAGE> 83

syndicate of which Prudential Securities or any affiliate, during the existence
of the syndicate, is a principal underwriter (as defined in the Investment
Company Act), except in accordance with rules of the Commission. This
limitation, in the opinion of the Fund, will not significantly affect the Fund's
ability to pursue its present investment objective. However, in the future in
other circumstances, the Fund may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not subject
to such limitations.

Subject to the above considerations, Prudential Securities may act as a
broker or futures commission merchant for the Fund. In order for Prudential
Securities or any affiliate to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by Prudential Securities or
any affiliate must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other firms in connection with comparable
transactions involving similar securities or futures being purchased or sold on
an exchange or board of trade during a comparable period of time. This standard
would allow Prudential Securities or any affiliate to receive no more than the
remuneration which would be expected to be received by an unaffiliated firm in a
commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Fund, including a majority of the non-interested Directors, have adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to Prudential Securities or any affiliate are
consistent with the foregoing standard. In accordance with Section 11(a) of the
Securities Exchange Act of 1934, as amended, Prudential Securities may not
retain compensation for effecting transactions on a national securities exchange
for the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage transactions with Prudential Securities or any
affiliate are also subject to such fiduciary standards as may be imposed upon
Prudential Securities or such affiliates by applicable law.

The Fund paid no brokerage commissions, including none to Prudential
Securities or any affiliate, for the fiscal years ended December 31, 1999, 1998
and 1997.

The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents at December 31, 1999. As of December 31, 1999, the Fund held
securities of Bear, Stearns & Co., in the aggregate amount of $664,000; Morgan
(J.P.) Securities, Inc., in the aggregate amount of $380,000; and Salomon Smith
Barney, in the aggregate amount of $348,000.

CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

The Fund is authorized to issue 2 billion shares of common stock, $.01 per
share divided into four classes, designated Class A, Class B, Class C and Class
Z shares, initially all of one series. Each class of common stock represents an
interest in the same assets of the Fund and is identical in all respects except
that (1) each class is subject to different sales charges and distribution
and/or service fees (except for Class Z shares, which are not subject to any
sales charges and distribution and/or service fees), which may affect
performance, (2) each class has exclusive voting rights on any matter submitted
to shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (3) each class has a
different exchange privilege, (4) only Class B shares have a conversion feature
and (5) Class Z shares are offered exclusively for sale to a limited group of
investors. In accordance with the Fund's Articles of Incorporation, the 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 Board of Directors may determine. The voting rights of
the shareholders of a series or class can be modified only by the majority vote
of shareholders of that series or class.

Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. Each share of
each class is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares (with the exception of Class Z shares,
which are not subject to any distribution or service fees) bears the expenses
related to the distribution of its shares. Except for the conversion feature
applicable to the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation,
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<PAGE> 84

each share of the Fund is entitled to its portion of all of the Fund's assets
after all debt and expenses of the Fund have been paid. Since Class B and Class
C shares generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders and to Class Z shareholders, whose shares are not
subject to any distribution and/or service fees.

The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon the vote of 10% of
the Fund's outstanding shares for the purpose of voting on the removal of one or
more Directors or to transact any other business.

Under the Articles of Incorporation, the Board of Directors may authorize
the creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset value
procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Directors may determine. All consideration received by
the Fund for shares of any additional series, and all assets in which such
consideration is invested, would belong to that series (subject only to the
rights of creditors of that series) and would be subject to the liabilities
related thereto. Under the Investment Company Act, shareholders of any
additional series of shares would normally have to approve the adoption of any
advisory contract relating to such series and of any changes in the fundamental
investment policies related thereto.

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

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) at the time of purchase (Class A or
Class C shares) and/or (2) on a deferred basis (Class B or Class C shares).
Class Z shares of the Fund are offered to a limited group of investors at NAV
without any sales charges. See "How to Buy, Sell and Exchange Shares of the
Fund" in the Prospectus.

PURCHASE BY WIRE

For an initial purchase of shares of the Fund by wire, you must complete an
application and telephone the Transfer Agent at (800) 225-1852 (toll-free) to
receive an account number. The following information will be requested: your
name, address, tax identification number, fund and class election, dividend
distribution election, amount being wired and wiring bank. You should then give
instructions to your bank to transfer funds by wire to the Fund's Custodian;
State Street Bank and Trust Company, Boston, Massachusetts, Custody and
Shareholder Services Division, Attention: Prudential International Bond Fund,
Inc., specifying on the wire the account number assigned by the Transfer Agent
and your name and identifying the class in which the investor is eligible to
invest (Class A, Class B, Class C or Class Z shares).

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

In making a subsequent purchase order by wire, you should wire the
Custodian directly and should be sure that the wire specifies Prudential
International Bond 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 the
Transfer Agent to make subsequent purchase orders utilizing federal funds. The
minimum amount which may be invested by wire is $1,000.

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<PAGE> 85

ISSUANCE OF FUND SHARES FOR SECURITIES

Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to: (1) reorganizations,(2) statutory mergers, or (3)
other acquisitions of portfolio securities that: (a) meet the investment
objectives and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listings on or trading in a recognized United States or international exchange
or market, and (d) are approved by the Fund's investment adviser.

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of
4%, Class C* shares are sold with a 1% sales charge and Class B and Class Z
shares are sold at NAV. Using NAV at December 31, 1999, the maximum offering
price of the Fund's shares is as follows:

<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share.... $6.36
Maximum sales charge (4.0% of offering price)............. .27
-----
Maximum offering price to public.......................... $6.63
=====
CLASS B
Net asset value, offering price and redemption price per
Class B share*......................................... $6.38
=====
CLASS C
Net asset value per Class C share*........................ $6.38
Sales charge (1% of offering price)....................... .06
-----
Offering price to public.................................. $6.44
=====
CLASS Z
Net asset value, redemption price and offering price per
Class Z share.......................................... $6.38
=====
</TABLE>

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

SELECTING A PURCHASE ALTERNATIVE

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

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

If you intend to hold your investment for more than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, the
sales charges and cumulative annual distribution-related fees would be
approximately the same for Class A, Class B and Class C shares. However, you
should consider purchasing Class B shares over Class A shares or Class C shares
because all of your money would be invested initially in the case of Class B
shares.

If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than those of the Class
B and Class C shares.

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

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and for

B-37
<PAGE> 86

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

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

BENEFIT PLANS. Certain group retirement and savings plans may purchase
Class A shares without the initial sales charge if they meet the required
minimum for amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential at
(800) 353-2847.

OTHER WAIVERS. In addition, Class A shares may be purchased at NAV,
through the Distributor or the Transfer Agent, by:

- Officers of the Prudential mutual funds (including the Fund)

- Employees of the Distributor, Prudential Securities, the Manager and
their subsidiaries and members of the families of such persons who
maintain an "employee related" account at Prudential Securities or the
Transfer Agent

- Employees of subadvisers of the Prudential mutual funds provided that
purchases at NAV are permitted by such person's employer

- Prudential, 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

- Members of the Board of Directors of Prudential

- Real estate brokers, agents and employees of real estate brokerage
companies affiliated with The Prudential Real Estate Affiliates who
maintain an account at Prudential Securities, Prusec or with the Transfer
Agent

- Registered representatives and employees of brokers who have entered into
a selected dealer agreement with the Distributor provided that purchases
at NAV are permitted by such person's employer

- Investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) the purchase is made within 180 days of the commencement of the
financial adviser's employment at Prudential Securities, or within one
year in the case of Benefit Plans, (2) the purchase is made with proceeds
of a redemption of shares of any open-end non-money market fund sponsored
by the financial adviser's previous employer (other than a fund which
imposes a distribution or service fee of .25 of 1% or less) and (3) the
financial adviser served as the client's broker on the previous purchase

- Investors in Individual Retirement Accounts, provided the purchase is
made in a directed rollover to such Individual Retirement Account or with
the proceeds of a tax-free rollover of assets from a Benefit Plan for
which Prudential provides administrative or recordkeeping services and
further provided that such purchase is made within 60 days of receipt of
the Benefit Plan distribution

- Orders placed by broker-dealers, investment advisers or financial
planners who have entered into an agreement with the Distributor who
place trades for their own accounts or the accounts of their clients and
who charge a management, consulting or other fee for their services (for
example, mutual fund "wrap" or asset allocation programs)

- Orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the accounts
are linked to the master account of such broker-dealer, investment
adviser or financial planner and the broker-dealer, investment adviser or
financial planner charges its clients a separate fee for its services
(for example, mutual fund "supermarket programs").

Broker-dealers, investment advisers or financial planners sponsoring
fee-based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" programs) may offer their

B-38
<PAGE> 87

clients more than one class of shares in the Fund in connection with different
pricing options for their programs. Investors should consider carefully any
separate transaction and other fees charged by these programs in connection with
investing in each available share class before selecting a share class.

For you to obtain any reduction or waiver of the initial sales charges at
the time of the sale, you must either notify the Transfer Agent directly, or the
Distributor must be notified by the broker facilitating the transaction that the
sale qualifies for the reduced or waived sales charge. The reduction or waiver
will be granted subject to confirmation of your entitlement. No initial sales
charge is imposed upon Class A shares acquired upon the reinvestment of
dividends and distributions.

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential mutual funds, the purchases
may be combined to take advantage of the reduced sales charge applicable to
larger purchases. See "How to Buy, Sell and Exchange Shares of the Fund -- How
to Buy Shares -- Reducing or Waiving Class A's Initial Sales Charge" in the
Prospectus.

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

- An individual

- The individual's spouse, their children and their parents

- The individual's and spouse's Individual Retirement Account (IRA)

- Any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will
be deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners)

- A trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children

- A Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse

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

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

The Transfer Agent, the Distributor or your broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charge will be granted subject to confirmation of the investor's
holdings. The Combined Purchase and Cumulative Purchase Privilege do not apply
to individual participants in any retirement or group plans.

LETTERS OF INTENT. Reduced sales charges also are available to investors
(or an eligible group of related investors) who enter into a written Letter of
Intent providing for the purchase, within a thirteen-month period, of shares of
the Fund and shares of other Prudential mutual funds (Investment Letter of
Intent). Retirement and group plans no longer qualify to purchase Class A shares
at NAV by entering into a Letter of Intent.

For purposes of the Investment Letter of Intent, all shares of the Fund and
shares of other Prudential mutual funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent or
its affiliates and through your broker will not be aggregated to determine the
reduced sales charge.

An Investment Letter of Intent permits a purchaser to establish a total
investment goal to be achieved by any number of investments over a
thirteen-month period. Each investment made during the period will receive the
reduced sales charge applicable to the amount represented by the goal, as if it
were a single investment. Escrowed Class A shares totaling 5% of the dollar
amount of the Letter of Intent will be held by the Transfer Agent in the name of
the purchaser. The effective date of an Investment Letter of Intent may be
back-dated up to 90 days, in order that any investments made during this 90-day
period, valued at the purchaser's cost, can be applied to the fulfillment of the
Letter of Intent goal.

B-39
<PAGE> 88

The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser is required
to pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charge actually paid. Such payment
may be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain such difference. Investors
electing to purchase Class A shares of the Fund pursuant to a Letter of Intent
should carefully read such Letter of Intent.

The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. Letters of Intent are not
available to individual participants in any retirement or group plans.

CLASS B SHARES

The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, your broker or the
Distributor. Although there is no sales charge imposed at the time of purchase,
redemptions of Class B shares may be subject to a CDSC. See "Sale of
Shares -- Contingent Deferred Sales Charge" below.

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

CLASS C SHARES

The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.

WAIVER OF INITIAL SALES CHARGE -- CLASS C SHARES

BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at (800)
353-2847.

INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT
COMPANIES. Investors may purchase Class C shares at NAV, without the initial
sales charge, with the proceeds from the redemption of shares of any
unaffiliated registered investment company which were not held through an
account with any Prudential affiliate. Such purchases must be made within 60
days of the redemption. Investors eligible for this waiver include: (1)
investors purchasing shares through an account at Prudential Securities; (2)
investors purchasing shares through an ADVANTAGE Account or an Investor Account
with Prusec; and (3) investors purchasing shares through other brokers. This
waiver is not available to investors, who purchase shares directly from the
Transfer Agent. You must notify the Transfer Agent directly or through your
broker if you are entitled to this waiver and provide the Transfer Agent with
such supporting documents as it may deem appropriate.

CLASS Z SHARES

BENEFIT PLANS. Certain group retirement plans may Purchase Class Z shares
if they meet the required minimum for amount of assets, average account balance
or number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.

MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate that includes mutual funds as investment options and the Fund as an
available option. Class Z shares also can be purchased by investors in certain
programs sponsored by broker-dealers, investment advisers and financial planners
who have agreements with Prudential Investments Advisory Group relating to:

B-40
<PAGE> 89

- Mutual fund "wrap" or asset allocation programs where the sponsor places
Fund trades, links its clients' accounts to a master account in the
sponsor's name and charges its clients a management, consulting or other
fee for its services

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

OTHER TYPES OF INVESTORS. Class Z shares also are available for purchase
by the following categories of investors:

- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available investment option

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

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

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

RIGHTS OF ACCUMULATION

Reduced sales charges are also available through Rights of Accumulation,
under which an investor or an eligible group of related investors, as described
above under "Combined Purchase and Cumulative Purchase Privilege," may aggregate
the value of their existing holdings of shares of the Fund and shares of other
Prudential mutual funds (excluding money market funds other than those acquired
pursuant to the exchange privilege) to determine the reduced sales charge.
Rights of accumulation may be applied across the classes of the Prudential
mutual funds. However, the value of shares held directly with the Transfer Agent
and through your broker will not be aggregated to determine the reduced sales
charge. The value of existing holdings for purposes of determining the reduced
sales charge is calculated using the maximum offering price (NAV plus maximum
sales charge) as of the previous business day.

The Distributor or the Transfer Agent must be notified at the time of
purchase that the investor is entitled to a reduced sales charge. The reduced
sales charge will be granted subject to confirmation of the investor's holdings.
Rights of accumulation are not available to individual participants in any
retirement or group plans.

SALE OF SHARES

You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described below. See "Contingent Deferred Sales Charge"
below. If you are redeeming shares through a broker, your broker must receive
the sell order before the Fund computes its NAV for that day (that is 4:15 P.M.,
New York time) in order to receive that day's NAV. Your broker will be
responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the Fund.

If you hold shares of the Fund through Prudential Securities, you must
redeem the shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.

If you hold shares in non-certificate form, a written request for
redemption signed by you exactly as the account is registered is required. If
you hold certificates, the certificates must be received by the Transfer Agent,
the Distributor or broker in order for the redemption request to be processed.
If redemption is requested by a corporation, partnership, trust or fiduciary,
written evidence of authority acceptable to the Transfer Agent must be submitted
before such request will be accepted. All correspondence and documents
concerning redemptions should be sent to the Fund in care of its Transfer Agent,
Prudential Mutual Fund

B-41
<PAGE> 90

Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor, or to your broker.

SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed
$100,000, (2) are to be paid to a person other than the record owner, (3) are to
be sent to an address other than the address on the Transfer Agent's records, or
(4) are to be paid to a corporation, partnership, trust or fiduciary, and your
shares are held directly with the Transfer Agent, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices. In the case of redemptions from a PruArray Plan, if the proceeds of the
redemption are invested in another investment option of the plan in the name of
the record holder and at the same address as reflected in the Transfer Agent's
records, a signature guarantee is not required.

Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your broker
of the certificate and/or written request, except as indicated below. If you
hold shares through Prudential Securities, payment for shares presented for
redemption will be credited to your account at your broker, unless you indicate
otherwise. Such payment may be postponed or the right of redemption suspended at
times (1) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (2) when trading on such Exchange is restricted, (3) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (4) during any
other period when the Commission, by order, so permits; provided that applicable
rules and regulations of the Commission shall govern as to whether the
conditions prescribed in (2), (3) or (4) exist.

REDEMPTION IN KIND. If the 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 in a regular redemption. If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, under which the Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any
one shareholder.

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

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

B-42
<PAGE> 91

CONTINGENT DEFERRED SALES CHARGE

Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within 18 months of purchase (one year for Class C shares
purchased before November 2, 1998) will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to the
shareholder. The CDSC will be imposed on any redemption by a shareholder which
reduces the current value of your Class B or Class C shares to an amount which
is lower than the amount of all payments by the shareholder for shares during
the preceding six years, in the case of Class B shares, and 18 months, in the
case of Class C shares (one year for Class C shares purchased before November 2,
1998). A CDSC will be applied on the lesser of the original purchase price or
the current value of the shares being redeemed. Increases in the value of shares
or shares acquired through reinvestment of dividends or distributions are not
subject to a CDSC. The amount of any CDSC will be paid to and retained by the
Distributor.

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

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS
YEARS SINCE PURCHASE PAYMENTS MADE INVESTED OR REDEMPTION PROCEEDS
---------------------------------- --------------------------------
<S> <C>
First.................................................... 5.0%
Second................................................... 4.0%
Third.................................................... 3.0%
Fourth................................................... 2.0%
Fifth.................................................... 1.0%
Sixth.................................................... 1.0%
Seventh and thereafter................................... 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
payment for the purchase of Fund shares made during the preceding six years for
Class B shares and 18 months for Class C shares (one year for Class C shares
bought before November 2, 1998); then of amounts representing the cost of shares
held beyond the applicable CDSC period; and finally, of amounts representing the
cost of shares held for the longest period of time within the applicable CDSC
period.

For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at 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 CHARGE -- CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy, at the time of death or initial determination of disability, provided
that the shares were purchased prior to death or disability.

B-43
<PAGE> 92

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. For more information, call Prudential at (800) 353-2847.

Finally, the CDSC will be waived to the extent that the proceeds from
shares redeemed are invested in Prudential mutual funds, The Guaranteed
Investment Account, the Guaranteed Insulated Separate Account or units of The
Stable Value Fund.

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

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

You must notify the Fund's Transfer Agent either directly or through your
broker, at the time of redemption, that you are entitled to waiver of the CDSC
and provide the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement.

In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.

<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
------------------ ----------------------
<S> <C>
Death A copy of the shareholder's death certificate or,
in the case of a trust, a copy of the grantor's
death certificate, plus a copy of the trust
agreement identifying the grantor.
Disability -- An individual will be considered A copy of the Social Security Administration award
disabled if he or she is unable to engage in any letter or a letter from a physician on the
substantial gainful activity by reason of any physician's letterhead stating that the
medically determinable physical or mental shareholder (or, in the case of a trust, the
impairment which can be expected to result in grantor (a copy of the trust agreement identifying
death or to be of long-continued and indefinite the grantor will be required as well)) is
duration. permanently disabled. The letter must also
indicate the date of disability.
Distribution from an IRA or 403(b) Custodial A copy of the distribution form from the custodial
Account firm indicating (i) the date of birth of the
shareholder and (ii) that the shareholder is over
age 59 1/2 and is taking a normal distribution --
signed by the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the
plan administrator/trustee on company letterhead
indicating the amount of the excess and whether or
not taxes have been paid.
</TABLE>

The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE -- CLASS C SHARES

BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC will also be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.

B-44
<PAGE> 93

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: (1)
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 (2) 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 (that is, $1,000
divided by $2,100 (47.60%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.

Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion. Thus, although the aggregate
dollar value will be the same, you may receive fewer Class A shares than Class B
shares converted.

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

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (2) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited into the Account at any time. There is no charge
to the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.

B-45
<PAGE> 94

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV per
share. An investor may direct the Transfer Agent in writing not less than five
(5) full business days prior to the record date to have subsequent dividends
and/or distributions sent in cash rather than reinvested. In the case of
recently purchased shares for which registration instructions have not been
received on the record date, cash payment will be made directly to the broker.
Any shareholder who receives dividends or distributions in cash subsequently may
reinvest any such dividend or distribution at NAV by returning the check or the
proceeds to the Transfer Agent within 30 days after the payment date. Such
reinvestment will be made at the NAV per share next determined after receipt of
the check or proceeds by the Transfer Agent. Shares purchased with reinvested
dividends and/or distributions will not be subject to any CDSC upon redemption.

EXCHANGE PRIVILEGE

The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential mutual funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
mutual funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of the relative NAV next determined after receipt of an order
in proper form. An exchange will be treated as a redemption and purchase for tax
purposes. For retirement and group plans having a limited menu of Prudential
mutual funds, the exchange privilege is available for those funds eligible for
investment in the particular program.

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

In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, telephone calls 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 shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.

If you hold certificates, the certificates must be returned in order for
the shares to be exchanged.

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

In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and you should make exchanges by mail by
writing to the Transfer Agent, at the address noted above.

CLASS A. Shareholders of the Fund will be able to exchange their Class A
shares for Class A shares of certain other Prudential mutual funds, shares of
Prudential Government Securities Trust (Short-Intermediate Term Series) and
shares of the money market funds specified below. No fee or sales load will be
imposed upon the exchange. Shareholders of money market funds who acquired such
shares upon exchange of Class A shares may use the exchange privilege only to
acquire Class A shares, of the Prudential mutual funds participating in the
Class A exchange privilege.

B-46
<PAGE> 95

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

Prudential California Municipal Fund
(California Money Market Series)

Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)

Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)

Prudential MoneyMart Assets, Inc. (Class A shares)

Prudential Tax-Free Money Fund, Inc.

CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B
and Class C shares of the Fund for Class B and Class C shares, respectively, of
certain other Prudential mutual funds and shares of Prudential Special Money
Market Fund, Inc. No CDSC may be payable upon such exchange, but a CDSC may be
payable upon the redemption of Class B and Class C shares acquired as a result
of the exchange. The applicable sales charge will be that imposed by the Fund in
which shares were initially purchased and the purchase date will be deemed to be
the first day of the month after the initial purchase, rather than the date of
the exchange.

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

At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, respectively without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares, respectively of other funds without
being subject to any CDSC.

CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential mutual funds.

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. Under this exchange privilege, amounts
representing any Class B and Class C shares which are not subject to a CDSC held
in such a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise.

Shareholders who qualify to purchase Class Z shares will have their Class B
and Class C shares which are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and

B-47
<PAGE> 96

distributions, (2) amounts representing the increase in the NAV above the total
amount of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through Prudential Securities, Prusec or another broker that they are
eligible for this special exchange privilege.

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

Additional details about the exchange privilege and prospectuses for each
of the Prudential mutual funds are available from the Transfer Agent, the
Distributor or your broker. The exchange privilege may be modified, terminated
or suspended on sixty days' notice, and any fund, including the Fund, or the
Distributor, has the right to reject any exchange application relating to such
fund's shares.

DOLLAR COST AVERAGING

Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.

Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)

The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years.................................................... $ 105 $ 158 $ 210 $ 263
20 Years.................................................... 170 255 340 424
15 Years.................................................... 289 433 578 722
10 Years.................................................... 547 820 1,093 1,366
5 Years.................................................... 1,361 2,041 2,721 3,402
</TABLE>

See "Automatic Investment Plan."
- ---------------
(1) Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for the 1993-1994 academic year.

(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund.
The investment return and principal value of an investment will fluctuate so
that an investor's shares when redeemed may be worth more or less than their
original cost.

AUTOMATIC INVESTMENT PLAN (AIP)

Under AIP, you may arrange to have a fixed amount automatically invested in
shares of the Fund monthly by authorizing your bank account or brokerage account
(including a Prudential Securities Command Account) to be debited to invest
specified dollar amounts in shares of the Fund. Your bank must be a member of
the Automatic Clearing House System. Share certificates are not issued to AIP
participants.

Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.

B-48
<PAGE> 97

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through the
Transfer Agent, the Distributor or an investor's broker. Such withdrawal plan
provides for monthly, quarterly, semi-annual or annual redemption checks in any
amount, except as provided below, up to the value of the shares in the
shareholder's account. Withdrawals of Class B or Class C shares may be subject
to a CDSC.

In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) withdrawals may not be for less than $100 and (3) the
shareholder must elect to have all dividends and/or distributions automatically
reinvested in additional full and fractional shares at NAV on shares held under
this plan.

The Transfer Agent, the Distributor or your broker, acts as an agent for
the shareholder in redeeming sufficient full and fractional shares to provide
the amount of the systematic withdrawal payment. The systematic withdrawal plan
may be terminated at any time, and the Distributor reserves the right to
initiate a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.

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

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

TAX-DEFERRED RETIREMENT PLANS

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

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

TAX-DEFERRED RETIREMENT ACCOUNTS

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

TAX-DEFERRED COMPOUNDING(1)

<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ------------- -------- --------
<S> <C> <C>
10 years.................................................. $ 26,165 $ 31,291
15 years.................................................. 44,675 58,649
20 years.................................................. 68,109 98,846
25 years.................................................. 97,780 157,909
30 years.................................................. 135,346 244,692
</TABLE>

- ---------------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in a traditional IRA account will be subject to tax when withdrawn
from the account. Distributions from a Roth IRA which meet the conditions
required under the Internal Revenue Code will not be subject to tax upon
withdrawal from the account.
B-49
<PAGE> 98

MUTUAL FUND PROGRAMS

From time to time, the Fund may be included in a mutual fund program with
other Prudential mutual funds. Under such a program, a group of portfolios will
be selected and thereafter marketed collectively. Typically, these programs are
created with an investment theme, such as, to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.

The mutual funds in the program may be purchased individually or as part of
a program. Since the allocation of portfolios included in the program may not be
appropriate for all investors, investors should consult their financial adviser
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.

NET ASSET VALUE

The Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Board of Directors has fixed the specific time of day for the computation of the
Fund's NAV to be as of 4:15 P.M., New York time. The Fund will compute its NAV
at 4:15 P.M., New York time, on each day the New York Stock Exchange is open for
trading except days on which no orders to purchase, sell or redeem Fund shares
have been received or on days on which changes in the value of the Fund's
portfolio investments do not affect NAV. In the event the New York Stock
Exchange closes early on any business day, the NAV of the Fund's shares will be
determined at a time between such closing and 4:15 P.M., New York time. The New
York Stock Exchange is closed on the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.

Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indexes) are valued at the
last sale price of such exchange system on the day of valuation or, if there was
no sale on such day, the mean between the last bid and asked prices on such day,
or at the bid price on such day in the absence of an asked price. Corporate
bonds (other than convertible debt securities) and U.S. government securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Manager in
consultation with the Subadviser to be over-the-counter, are valued on the basis
of valuations provided by an independent pricing agent or principal market maker
which used information with respect to transactions in bonds, quotations from
bond dealers, agency ratings, market transactions in comparable securities and
various relationships between securities in determining value. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed by the Manager in
consultation with the Subadviser to be over-the-counter, are valued at the mean
between the last reported bid and asked prices provided by principal market
makers. Options on stock and stock indexes traded on an exchange are valued at
the mean between the most recently quoted bid and asked prices on the respective
exchange and futures contracts and options thereon are valued at their last sale
prices as of the close of trading on the applicable commodities exchange or
board of trade or, if there was no sale on the applicable commodities exchange
or board of trade on such day, at the mean between the most recently quoted bid
and asked prices on such exchange or board of trade. Quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
current rate obtained from a recognized bank or dealer, and foreign currency
forward contracts are valued at the current cost of covering or offsetting such
contracts. Should an extraordinary event, which is likely to affect the value of
the security, occur after the close of an exchange on which a portfolio security
is traded, such security will be valued at fair value considering factors
determined in good faith by the investment adviser under procedures established
by and under the general supervision of the Fund's Board of Directors.

B-50
<PAGE> 99

Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Directors) does not represent fair value, are valued by the Valuation
Committee or Board of Directors in consultation with the Manager or Subadviser,
including its portfolio manager, traders, and its research and credit analysts,
on the basis of the following factors: cost of the security, transactions in
comparable securities, relationships among various securities and such other
factors as may be determined by the Manager, Subadviser, Board of Directors or
Valuation Committee to materially affect the value of the security. Short-term
debt securities are valued at cost, with interest accrued or discount amortized
to the date of maturity, if their original maturity was 60 days or less, unless
this is determined by the Directors not to represent fair value. Short-term
securities with remaining maturities of more than 60 days, for which market
quotations are readily available, are valued at their current market quotations
as supplied by an independent pricing agent or principal market maker.

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

TAXES, DIVIDENDS AND DISTRIBUTIONS

The Fund is qualified as, intends to remain qualified as, and has elected
to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code. This relieves the Fund (but not its shareholders) from
paying federal income tax on income and capital gains which are distributed to
shareholders, and permits net capital gains of the Fund (that is, the excess of
net long-term capital gains over net short-term capital losses) to be treated as
long-term capital gains of the shareholders, regardless of how long shareholders
have held their shares in the Fund. Net capital gains of the Fund which are
available for distribution to shareholders will be computed by taking into
account any capital loss carryforward of the Fund.

Qualification of the Fund as a regulated investment company under the
Internal Revenue Code requires, among other things, that (a) the Fund derive at
least 90% of its annual gross income (without reduction for losses from the sale
or other disposition of securities or foreign currencies) from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of securities or options thereon or foreign currencies, or
other income (including but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities or currencies; (b) the Fund diversify its holdings so that, at the
end of each quarter of the taxable year, (i) at least 50% of the value of the
Fund's assets is represented by cash, U.S. government securities and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the value of the Fund's assets and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its assets is
invested in the securities of any one issuer (other than U.S. government
securities); and (c) the Fund distribute to its shareholders at least 90% of its
net investment income and net short-term capital gains (that is, the excess of
net short-term capital gains over net long-term capital losses) in each year.

Gains or losses on sales of securities by the Fund will generally be
treated as long-term capital gains or losses if the securities have been held by
it for more than one year, except in certain cases where the Fund acquires a put
or writes a call thereon or otherwise holds an offsetting position with respect
to the securities. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize short-term capital
gain or loss. If securities are sold by the Fund pursuant to the exercise of a
call option written by it, the Fund will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. Certain of the Fund's transactions may be subject to wash
sale, short sale,

B-51
<PAGE> 100

constructive sale, anti-conversion and straddle provisions of the Internal
Revenue Code which may, among other things, require the Fund to defer
recognition of losses. In addition, debt securities acquired by the Fund may be
subject to original issue discount and market discount rules which,
respectively, may cause the Fund to accrue income in advance of the receipt of
cash with respect to interest or cause gains to be treated as ordinary income.

Certain futures contracts and certain listed options (referred to as
Section 1256 contracts) held by the Fund will be required to be "marked to
market" for federal income tax purposes at the end of the Fund's taxable year;
that is, treated as having been sold at their fair market value on the last day
of the Fund's taxable year. Except with respect to certain foreign currency
forward contracts, 60% of any gain or loss recognized on such deemed sales and
on actual dispositions will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss.

Gain or loss on the sale, lapse or other termination of options on stock
and on narrowly-based stock indexes will be capital gain or loss and will be
long-term or short-term depending on the holding period of the option. In
addition, positions which are part of a "straddle" will be subject to certain
wash sale, short sale and constructive sale provisions of the Internal Revenue
Code. In the case of a straddle, the Fund may be required to defer the
recognition of losses on positions it holds to the extent of any unrecognized
gain on offsetting positions held by the Fund.

Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on foreign currency
forward contracts or dispositions of debt securities denominated in a foreign
currency attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of disposition also
are treated as ordinary gain or loss. These gains or losses, referred to under
the Internal Revenue Code as "Section 988" gains or losses, increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If Section 988 losses
exceed other investment company taxable income during a taxable year, the Fund
would not be able to make any ordinary dividend distributions, or distributions
made before the losses were realized would be recharacterized as a return of
capital to shareholders, rather than as an ordinary dividend, thereby reducing
each shareholder's basis in his or her Fund shares.

Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the NAV of a share of the Fund on the reinvestment
date.

Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the dividends or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to federal income taxes. In addition, dividends and capital gains
distributions also may be subject to state and local income taxes. Therefore,
prior to purchasing shares of the Fund, the investor should carefully consider
the impact of dividends or capital gains distributions which are expected to be
or have been announced.

Any loss realized on a sale, redemption or exchange of shares of the Fund
by a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period beginning 30 days before the disposition of shares. Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.

A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.

Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Net capital gain distributions paid to a foreign
shareholder are generally not subject to withholding tax. A foreign shareholder
will, however, be required to

B-52
<PAGE> 101

pay U.S. income tax on any dividends and capital gain distributions which are
effectively connected with a U.S. trade or business of the foreign shareholder.
Foreign shareholders are advised to consult their own tax advisers with respect
to particular tax consequences to them of an investment in the Fund.

Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to foreign corporations, interest income, capital and
currency gain, gain or loss from Section 1256 contracts (described above) and
income from certain other sources will not constitute qualified dividends.
Individual shareholders are not eligible for the dividends-received deduction.

The per share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A and Class Z shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares and lower
on Class A shares in relation to Class Z shares. The per share distributions of
net capital gains, if any, will be paid in the same amount for Class A, Class B,
Class C and Class Z shares. See "Net Asset Value."

The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending in October 31 of such calendar year. In addition, the Fund
must distribute during the calendar year all undistributed ordinary income and
undistributed capital gain net income from the prior year or the twelve-month
period ending on October 31 of such prior calendar year, respectively. To the
extent it does not meet these distribution requirements, the Fund will be
subject to a nondeductible 4% excise tax on the undistributed amount. For
purposes of this excise tax, income on which the Fund pays income tax is treated
as distributed.

The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (a) at least 75% of its gross income is passive
or (b) an average of at least 50% of its assets produce, or are held for the
production of, passive income. If the Fund acquires and holds stock in a PFIC
beyond the end of the year of its acquisition, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain from disposition of the stock (collectively, PFIC income),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. The
Fund may make a "mark-to-market" election with respect to any marketable stock
it holds of a PFIC. If the election is in effect, at the end of the Fund's
taxable year the Fund will recognize the amount of gains, if any, as ordinary
income with respect to PFIC stock. No loss will be recognized on PFIC stock,
except to the extent of gains recognized in prior years. Alternatively, the
Fund, if it meets certain requirements, may elect to treat any PFIC in which it
invests as a "qualified electing fund," in which case, in lieu of the foregoing
tax and interest obligation, the Fund will be required to include in income each
year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the Fund;
those amounts would be subject to the distribution requirements applicable to
the Fund described above.

Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary. The Fund does not expect
to pass through to its shareholders any foreign income taxes paid.

Shareholders are advised to consult their own tax advisers with respect to
the federal, state and local tax consequences resulting from their investment in
the Fund.

B-53
<PAGE> 102

PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.

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

P(1+T)(n) = ERV

<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
</TABLE>

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

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

Below are the average annual total returns for the Fund's share classes for
the periods ended December 31, 1999.

<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
------ ------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Class A.............................................. (8.10)% 7.97% 7.30% 7.47% (7-31-87)
Class B.............................................. (9.76) N/A N/A 4.07 (1-15-96)
Class C.............................................. (6.71) N/A N/A 4.25 (1-15-96)
Class Z.............................................. (4.14) N/A N/A 3.08 (3-17-97)
</TABLE>

Before January 15, 1996, the Fund was a closed-end investment company.

AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares.

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

ERV-P
-----------
P

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

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

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

<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
------ ------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Class A............................................ (4.27)% 52.85% 110.80% 154.70% (7-31-87)
Class B............................................ (4.76) N/A N/A 19.10 (1-15-96)
Class C............................................ (4.76) N/A N/A 19.10 (1-15-96)
Class Z............................................ (4.14) N/A N/A 8.84 (3-17-97)
</TABLE>

YIELD. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, Class
C and Class Z shares. The yield will be computed by dividing

B-54
<PAGE> 103

the Fund's net investment income per share earned during this 30-day period by
the maximum offering price per share on the last day of this period. Yield is
calculated according to the following formula:

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

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

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

The Fund's 30-day yields for the 30 days ended December 31, 1999, were
5.22%, 4.95%, 4.90% and 5.71% for Class A, Class B, Class C and Class Z shares,
respectively.

ADVERTISING. Advertising materials for the Fund may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Fund's manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for the Fund also may
include mention of The Prudential Insurance Company of America, its affiliates
and subsidiaries, and reference the assets, products and services of those
entities.

From time to time, advertising materials for the Fund may include
information concerning retirement and investing for retirement, may refer to the
approximate number of Fund shareholders and may refer to Lipper rankings or
Morningstar ratings, other related analysis supporting those ratings, other
industry publications, business periodicals and market indexes. In addition,
advertising materials may reference studies or analyses performed by the Manager
or its affiliates. Advertising materials for sector funds, funds that focus on
market capitalizations, index funds and international/global funds may discuss
the potential benefits and risks of that investment style. Advertising materials
for fixed-income funds may discuss the benefits and risks of investing in the
bond market including discussions of credit quality, duration and maturity.

Set forth below is a chart which compares the performance of different
types of investments over the long term and the rate of inflation.(1)

PERFORMANCE COMPARISON
OF DIFFERENT TYPES OF
INVESTMENTS OVER THE
LONG TERM (12/31/1925 - 12/31/1999)

Common Stocks 11.4%
Long Term Gov't. Bonds 5.1%
Inflation 3.1%

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

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

B-55
<PAGE> 104

Portfolio of Investments as
of December 31, 1999 PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--82.9%
- ------------------------------------------------------------
Australia--4.6%
A$ 1,865 Commonwealth of Australia,
9.75%, 3/15/02 $ 1,305,488
2,960 New South Wales Treasury
Corporation,
6.50%, 5/1/06 1,866,720
-----------
3,172,208
- ------------------------------------------------------------
Canada--3.0%
C$ 2,000 British Columbia Provincial Bond,
6.00%, 6/9/08 1,324,320
1,040 Province of Quebec,
6.50%, 10/1/07 709,669
-----------
2,033,989
- ------------------------------------------------------------
Denmark--4.5%
Danish Government Bonds,
DKr 10,500 7.00%, 12/15/04 1,525,889
10,215 8.00%, 3/15/06 1,564,044
-----------
3,089,933
- ------------------------------------------------------------
Eurobonds--23.2%
EURO 700 Bank of Scotland Treasury
Services PLC (United Kingdom),
5.50%, 7/27/09 662,214
140 Esat Telecom Group PLC (United
Kingdom),
11.875%, 11/1/09 160,441
German Government Bonds,
690 5.00%, 8/20/01 704,946
1,265 6.00%, 1/15/06 1,335,142
155 5.38%, 1/4/10 156,482
4,000 6.25%, 1/4/24 4,177,416
EURO 450 Global Telesystems (Netherlands),
10.50%, 12/1/06 $ 454,075
Kingdom of Spain,
577 3.00%, 1/31/03 552,546
2,990 3.25%, 1/31/05 2,763,766
Republic of Italy,
510 3.00%, 6/15/02 496,204
2025 4.50%, 5/1/09 1,895,268
930 6.50%, 11/1/27 970,780
360 Staples Inc. (United Kingdom),
5.875%, 11/15/04 357,015
1,135 Treuhandanstalt (Germany),
6.88%, 6/11/03 1,219,683
-----------
15,905,978
- ------------------------------------------------------------
Hungary--0.5%
HUF 80,000 Hungarian Government Bonds,
15.00%, 7/24/01 329,475
- ------------------------------------------------------------
Japan--2.1%
Y 128,600 Japanese Government Bond,
4.20%, 3/20/03 1,400,769
- ------------------------------------------------------------
New Zealand--2.7%
NZ$ 3,500 Federal National Mortgage
Association,
7.25%, 6/20/02 1,819,210
- ------------------------------------------------------------
Russia
RUB 4,500 European Bank of Reconstruction
Development,
Zero Coupon, 5/28/02 40,018
- ------------------------------------------------------------
South Africa--1.0%
ZAR 4,250 South African Government Bonds,
13.00%, 8/31/10 663,885
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-56

<PAGE> 105

Portfolio of Investments as
of December 31, 1999 PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Sweden--3.7%
Swedish Government Bond,
SEK 6,400 5.00%, 1/15/04 $ 743,488
15,000 6.00%, 2/9/05 1,807,031
-----------
2,550,519
- ------------------------------------------------------------
United Kingdom--4.6%
BP 2,025 United Kingdom Treasury Bond,
5.00%, 6/7/04 3,132,275
- ------------------------------------------------------------
United States--33.0%
Corporate Bonds--2.5%
US$ 650 General Motors Acceptance Corp.,
5.75%, 11/10/03 618,904
850 Household Finance Corporation,
6.40%, 6/17/08 785,791
300 Philippine Long Distance
Telephone Company,
10.50%, 4/15/09 303,000
-----------
1,707,695
- ------------------------------------------------------------
Sovereign Bonds--10.3%
400 Kingdom of Jordan,
6.00%, 12/23/23 266,344
900 Ministry of Finance (Russia),
10.00%, 6/26/07 572,625
500 Oman Sultante (India),
7.125%, 3/20/02 494,063
440 Republic of Argentina FRN,
6.8125%, 3/31/05, Ser. L 400,400
1,588 Republic of Brazil,
5.00%, 4/15/14 1,192,703
277 Republic of Brazil, FRN,
6.50%, 1/1/01 273,983
750 Republic of Bulgaria,
2.75%, 7/28/12 540,000
500 Republic of Colombia,
7.25%, 2/23/04 450,000
865 Republic of Croatia, FRN,
6.45625%, 7/31/06 801,614
400 Republic of Lithuania,
7.125%, 7/22/02 382,000
US$ 600 Republic of Panama,
7.875%, 2/13/02 $ 577,500
700 Republic of Peru,
4.50%, 3/7/17 484,750
762 Republic of Venezuela,
7.00%, 12/18/07 598,091
-----------
7,034,073
- ------------------------------------------------------------
Foreign Government Bonds--1.3%
900 Province of Ontario
6.00%, 2/21/06 855,450
- ------------------------------------------------------------
Supranational Bonds--3.9%
300 Chonhung Bank,
11.0725%, 1/7/05 305,250
400 Embotelladora Andina SA,
7.875%, 10/1/97 307,562
2,000 Nuevo Grupo Iusacell SA,
14.25%, 12/1/06 2,085,000
-----------
2,697,812
- ------------------------------------------------------------
U.S. Government Obligations--15.0%
United States Treasury Bonds,
570 6.625%, 2/15/27 564,921
United States Treasury Notes,
1,570 5.00%, 4/30/01 1,546,937
600 5.875%, 11/15/05 582,468
4,000 6.25%, 2/15/07 3,935,640
1,185 6.125%, 8/15/07 1,155,375
2,570 6.00%, 8/15/09 2,489,688
-----------
10,275,029
-----------
22,570,059
-----------
Total long-term investments
(cost US$60,393,864) 56,708,318
-----------
SHORT-TERM INVESTMENTS--15.4%
- ------------------------------------------------------------
Germany--2.6%
DM 3,000 Republic of Colombia,
7.25%, 12/21/00 1,562,461
400 Union Bank Of Estonia,
3.49%, 6/16/00 205,214
-----------
1,767,675
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-57

<PAGE> 106

PRUDENTIAL INTERNATIONAL BOND FUND, INC.
Portfolio of Investments as of December 31, 1999
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Hungary--2.2%
Hungarian Government Bonds,
HUF 150,000 16.00%, 4/12/00 $ 598,378
225,000 15.50%, 7/24/00 902,139
-----------
1,500,517
- ------------------------------------------------------------
Poland--1.3%
Poland Treasury Bills,
PLZ 1,500 16.14%(a), 3/22/00 349,392
2,400 16.34%(a), 6/23/00 537,695
-----------
887,087
- ------------------------------------------------------------
Russia
RUB 2,700 European Bank of Reconstruction
Development,
31.00%, 5/5/00 80,363
- ------------------------------------------------------------
United States--9.3%
Supranational Bonds--6.0%
US$ 4,100 Corporacion Andina de Formento,
7.375%, 7/21/00 4,108,979
- ------------------------------------------------------------
Repurchase Agreement--3.3%
2,242 Joint Repurchase Agreement
Account,
2.83%, 1/3/00 (Note 5) 2,242,000
-----------
6,350,979
-----------
Total short-term investments
(cost US$11,516,976) 10,586,621
-----------
- ------------------------------------------------------------
Total Investments--98.3%
(cost $71,910,840; Note 4) 67,294,939
Other assets in excess of
liabilities--1.7% 1,139,557
-----------
Net Assets--100% $68,434,496
-----------
-----------
</TABLE>
- ---------------
Portfolio securities are classified according to the security's currency
denomination.
(a) Percentages quoted represent yield-to-maturity as of purchase date.
FRN--Floating Rate Note.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-58

<PAGE> 107

Statement of Assets and Liabilities PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets December 31, 1999
<S> <C>
Investments, at value (cost $71,910,840)................................................................ $67,294,939
Foreign currency, at value (cost $201,186).............................................................. 203,647
Cash.................................................................................................... 3,373
Interest receivable..................................................................................... 1,456,295
Forward currency contracts-amount receivable from counterparties........................................ 423,049
Receivable for investments sold......................................................................... 25,141
Other assets............................................................................................ 3,198
-----------------
Total assets......................................................................................... 69,409,642
-----------------
Liabilities
Forward currency contracts-amount payable to counterparties............................................. 347,261
Accrued expenses and other liabilities.................................................................. 327,514
Payable for Fund shares reacquired...................................................................... 228,445
Management fee payable.................................................................................. 44,203
Distribution fee payable................................................................................ 14,913
Dividends payable....................................................................................... 12,810
-----------------
Total liabilities.................................................................................... 975,146
-----------------
Net Assets.............................................................................................. $68,434,496
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................................. $ 107,595
Paid-in capital in excess of par..................................................................... 74,763,757
-----------------
74,871,352
Accumulated net realized loss on investments......................................................... (1,868,281)
Net unrealized depreciation on investments and foreign currencies.................................... (4,568,575)
-----------------
Net assets, December 31, 1999........................................................................... $68,434,496
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($63,343,235 / 9,961,041 shares of common stock issued and outstanding)........................... $6.36
Maximum sales charge (4% of offering price).......................................................... .27
-----------------
Maximum offering price to public..................................................................... $6.63
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($1,763,992 / 276,609 shares of common stock issued and outstanding).............................. $6.38
-----------------
-----------------
Class C:
Net asset value and redemption price per share
($247,648 / 38,834 shares of common stock issued and outstanding)................................. $6.38
Sales charge (1% of offering price).................................................................. .06
-----------------
Offering price to public............................................................................. $6.44
-----------------
-----------------
Class Z:
Net asset value, offering price and redemption price per share
($3,079,621 / 483,032 shares of common stock issued and outstanding).............................. $6.38
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-59

<PAGE> 108

PRUDENTIAL INTERNATIONAL BOND FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1999
<S> <C>
Income
Interest and discount earned (net of
foreign withholding taxes of
$7,560)............................... $ 5,874,926
-----------------
Expenses
Management fee........................... 577,058
Distribution fee--Class A................ 181,033
Distribution fee--Class B................ 11,700
Distribution fee--Class C................ 1,863
Transfer agent's fees and expenses....... 205,000
Custodian's fees and expenses............ 192,000
Reports to shareholders.................. 115,000
Legal fees and expenses.................. 65,000
Audit fees and expenses.................. 36,000
Registration fees........................ 30,000
Directors' fees and expenses............. 15,000
Miscellaneous............................ 4,723
-----------------
Total expenses........................ 1,434,377
-----------------
Net investment income....................... 4,440,549
-----------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Transactions Net realized gain (loss) on:
Investment transactions.................. (568,162)
Foreign currency transactions............ (2,932,657)
-----------------
(3,500,819)
-----------------
Net change in unrealized appreciation (depreciation) on:
Investments.............................. (4,464,832)
Foreign currencies....................... (35,706)
-----------------
(4,500,538)
-----------------
Net loss on investments and foreign
currencies............................... (8,001,357)
-----------------
Net Decrease in Net Assets
Resulting from Operations................... $(3,560,808)
-----------------
-----------------
</TABLE>

PRUDENTIAL INTERNATIONAL BOND FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 4,440,549 $ 5,610,162
Net realized gain (loss) on
investment and foreign
currency transactions....... (3,500,819) 471,049
Net change in unrealized
appreciation (depreciation)
on investments and foreign
currencies.................. (4,500,538) 1,033,608
------------ ------------
Net increase (decrease) in net
assets resulting from
operations.................. (3,560,808) 7,114,819
------------ ------------
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (2,402,993) (3,147,035)
Class B..................... (43,976) (24,528)
Class C..................... (6,974) (3,873)
Class Z..................... (97,964) (51,961)
------------ ------------
(2,551,907) (3,227,397)
------------ ------------
Distributions in excess of net
investment income
Class A..................... -- (2,100,081)
Class B..................... -- (16,368)
Class C..................... -- (2,584)
Class Z..................... -- (34,675)
------------ ------------
-- (2,153,708)
------------ ------------
Distributions from net realized
gains
Class A..................... (946,356) (575,748)
Class B..................... (18,501) (4,487)
Class C..................... (3,103) (709)
Class Z..................... (31,869) (9,506)
------------ ------------
(999,829) (590,450)
------------ ------------
Tax return of capital
distributions
Class A..................... (2,195,215) --
Class B..................... (47,298) --
Class C..................... (7,507) --
Class Z..................... (83,223) --
------------ ------------
(2,333,243) --
------------ ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
sold........................ 6,001,617 6,408,174
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 2,006,537 1,664,187
Cost of shares reacquired...... (17,864,198) (19,079,029)
------------ ------------
Net decrease in net assets from
Fund share transactions..... (9,856,044) (11,006,668)
------------ ------------
Total decrease.................... (19,301,831) (9,863,404)
Net Assets
Beginning of year................. 87,736,327 97,599,731
------------ ------------
End of year....................... $ 68,434,496 $ 87,736,327
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-60

<PAGE> 109

Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
Prudential International Bond Fund, Inc., (the 'Fund'), is an open-end,
nondiversified, management investment company whose investment objective is to
seek total return, the components of which are current income and capital
appreciation. The Fund invests primarily in debt securities of issuers located
in at least three countries, excluding the United States (except in periods of
weakness). The Fund invests in foreign debt securities issued by foreign
corporate issuers as well as securities issued or guaranteed by foreign
governments, semi-governmental entities, governmental agencies, supernational
entities and other governmental entities. The bonds are primarily of investment
grade, i.e., bonds rated within the four highest quality grades as determined by
Moody's Investor's Service or Standard & Poor's Rating's Group, or in unrated
securities of equivalent quality. In addition, the Fund is permitted to invest
up to 15% of the it's total assets in bonds rated below investment grade with a
minimum rating of B, or in unrated securities of equivalent quality. The ability
of issuers of debt securities held by the Fund to meet their obligations may be
affected by economic and political developments in a specific country or region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: In valuing the Fund's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
then current currency value. Portfolio securities that are actively traded in
the over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued on the basis of valuations
provided by an independent pricing agent or principal market maker. Any security
for which the primary market is on an exchange or NASDAQ National Market System
securities are valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, at the mean between the last bid
and asked prices on such day or at the last bid price on such day in the absence
of an asked price. Forward currency contracts are valued at the current cost of
covering or offsetting the contract on the day of valuation. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Fund.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 p.m., New York time.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians under triparty repurchase agreements, as the case may be, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
To the extent that any repurchase transaction exceeds one business day, the
value of the collateral is marked-to-market on a daily basis to ensure the
adequacy of the collateral. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at the
current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at the
rates of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the year, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at year-end. Similarly, the Fund does not isolate
the effect of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of long-term debt securities sold during the
year. Accordingly, such realized foreign currency gains and losses are included
in the reported net realized gains on investment transactions.
Net realized gains or losses on foreign currency transactions represent net
foreign exchange gains or losses from sales and maturities of short-term
securities and forward currency contracts, disposition of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amounts of interest,
discount, and foreign taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net currency gains (losses) from
valuing foreign currency denominated assets (excluding investments) and
liabilities at year-end exchange rates are
- --------------------------------------------------------------------------------
B-61

<PAGE> 110

Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
reflected as a component of net unrealized appreciation or depreciation on
investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. companies as a result of,
among other factors, the possibility of political or economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
Forward Currency Contracts: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or on specific receivables and payables denominated in a foreign
currency. The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments and foreign currencies. Gain or loss is realized on
the settlement date of the contract equal to the difference between the
settlement value of the original and renegotiated forward contracts. This gain
or loss, if any, is included in net realized gain (loss) on foreign currency
transactions. Risks may arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
Security Transactions and Net Investment Income: Security transactions are
recorded on the trade date. Realized and unrealized gains and losses from
security and currency transactions are calculated on the identified cost basis.
Interest income, which is comprised of three elements: stated coupon, original
issue discount and market discount, is recorded on the accrual basis. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Dividends and Distributions: The Fund declares daily and pays dividends from
book basis net investment income monthly and makes distributions at least
annually of any net capital gains. Dividends and distributions are recorded on
the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions.
Taxes: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders. Therefore, no federal
income or excise tax provision is required.
Withholding taxes on foreign interest have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease undistributed net investment income and decrease
accumulated net realized loss on investments by $1,888,642. This was primarily
the result of net foreign currency losses for the year ended December 31, 1999.
Net investment income, net realized gains and net assets were not affected by
this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC, through an agreement with PRICOA Asset
Management Ltd. ('PRICOA'), furnishes investment advisory services in connection
with the management of the Fund. PIFM pays for the cost of the subadviser's
services, compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an annual
rate of .75 of 1% of the Fund's average daily net assets up to $1 billion and
.70 of 1% of such assets in excess of $1 billion.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'). The Fund compensates PIMS for distributing and servicing
the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the 'Class A, B and C Plans'), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
No distribution or service fees are paid to PIMS as distributor of the Class Z
shares of the Fund.
- --------------------------------------------------------------------------------
B-62

<PAGE> 111

Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares respectively.
Such expenses under the Plans were .25 of 1%, .75 of 1% and .75 of 1% of the
average daily net assets of the Class A, B and C shares, respectively, for the
year ended December 31, 1999.
PIMS has advised the Fund that it has received approximately $9,500 in front-end
sales charges resulting from sales of Class A shares and $1,200 from sales of
Class C shares during the year ended December 31, 1999. From these fees, PIMS
paid such sales charges to dealers, which in turn paid commissions to
salespersons and incurred other distribution costs. PIMS has advised the Fund
that for the year ended December 31, 1999, it received approximately $3,700 and
$100 in contingent deferred sales charges imposed upon certain redemptions by
Class B and Class C shareholders, respectively. PIFM, PIC, PIMS and PRICOA are
indirect, wholly owned subsidiaries of The Prudential Insurance Company of
America ('Prudential'). As of March 11, 1999, the Fund, along with other
affiliated registered investment companies (the 'Funds'), entered into a
syndicated credit agreement ('SCA') with an unaffiliated lender. The maximum
commitment under the SCA is $1 billion. Interest on any such borrowings
outstanding will be at market rates. The Funds pay a commitment fee at an annual
rate of .065 of 1% on the unused portion of the credit facility, which is
accrued and paid quarterly on a pro rata basis by the Funds. The SCA expires on
March 9, 2000. Prior to March 11, 1999, the Funds had a credit agreement with a
maximum commitment of $200,000,000. The commitment fee was .055 of 1% on the
unused portion of the credit facility. The Fund did not borrow any amounts
pursuant to either agreement during the year ended December 31, 1999. The
purpose of the agreements is to serve as an alternative source of funding for
capital share redemptions.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended December 31, 1999,
the Fund incurred fees of approximately $176,000 for the services of PMFS. As of
December 31, 1999, approximately $14,400 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates. Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended December 31, 1999 aggregated $77,364,574 and $86,692,322,
respectively. At December 31, 1999, the Fund had outstanding forward currency
contracts to purchase and sell foreign currencies, as follows:

<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Purchase Contracts Payable Value (Depreciation)
- ------------------- --------------- ----------- ---------------
<S> <C> <C> <C>
Australian Dollar,
expiring
1/13/00.......... $ 855,179 $ 867,872 $ 12,693
Euro Currency,
expiring
1/18/00.......... 3,081,756 3,007,689 (74,067)
Japanese Yen,
expiring
1/18/00.......... 1,422,648 1,429,340 6,692
New Zealand Dollar,
expiring
1/25/00.......... 943,397 971,767 28,370
Norwegian Krone,
expiring
2/8/00........... 1,483,286 1,474,644 (8,642)
Swiss Franc,
expiring
1/12/00.......... 2,125,369 1,951,124 (174,245)
--------------- ----------- ---------------
$ 9,911,635 $ 9,702,436 $(209,199)
--------------- ----------- ---------------
--------------- ----------- ---------------
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- ------------------- --------------- ----------- ---------------
<S> <C> <C> <C>
Canadian Dollar,
expiring
1/13/00.......... $ 277,754 $ 283,249 $ (5,495)
Danish Krone,
expiring
1/12/00.......... 556,057 521,418 34,639
Euro Currency,
expiring 1/18/00
- 1/19/00........ 5,414,636 5,379,532 35,104
Japanese Yen,
expiring
1/18/00.......... 2,181,055 2,198,910 (17,855)
New Zealand Dollar,
expiring
1/25/00.......... 2,873,242 2,918,430 (45,188)
</TABLE>
- --------------------------------------------------------------------------------
B-63

<PAGE> 112

Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- ------------------- --------------- ----------- ---------------
<S> <C> <C> <C>
Pound Sterling,
expiring
1/18/00.......... 1,002,368 1,010,908 (8,540)
Swedish Krona,
expiring
1/13/00.......... 546,937 541,557 5,380
Swiss Franc,
expiring
1/12/00.......... 4,189,189 3,902,247 286,942
--------------- ----------- ---------------
$17,041,238 $16,756,251 $ 284,987
--------------- ----------- ---------------
--------------- ----------- ---------------
</TABLE>

The United States federal income tax basis of the Fund's investments at December
31, 1999 was $71,933,247 and, accordingly, net unrealized depreciation for
United States federal income tax purposes was $4,638,308 (gross unrealized
appreciation--$355,586; gross unrealized depreciation--$4,993,894).
For federal income tax purposes, the Fund had a capital loss carryforward as of
December 31, 1999 of approximately $422,200 which will expire in 2007.
Accordingly, no capital gain distribution is expected to be paid to shareholders
until net capital gains have been realized in excess of such amount.
The Fund has elected to treat approximately $136,100 of net capital losses and
approximately $1,239,400 of net foreign currency losses incurred in the two
months ended December 31, 1999 as having been incurred in the following fiscal
year.
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of December 31, 1999, the
Fund had a .32% undivided interest in the joint account. The undivided interest
for the Fund represented $2,242,000 in the principal amount. As of such date,
each repurchase agreement in the joint account and the collateral therefor were
as follows:
ABN AMRO Incorporated, 2.75%, in the principal amount of $90,000,000, repurchase
price $90,020,625, due 1/3/2000. The value of the collateral including accrued
interest was $91,800,968.
Bear, Stearns & Co., Inc. 2.75%, in the principal amount of $210,000,000,
repurchase price $210,048,125, due 1/3/2000. The value of the collateral
including accrued interest was $221,923,528.
Lehman Brothers, Inc., 2.50%, in the principal amount of $100,000,000,
repurchase price $100,020,833, due 1/3/2000. The value of the collateral
including accrued interest was $101,979,049.
Morgan (J.P.) Securities, Inc., 3.00%, in the principal amount of $120,000,000,
repurchase price $120,030,000, due 1/3/2000. The value of the collateral
including accrued interest was $122,400,783.
Morgan (J.P.) Securities, Inc., 4.50%, in the principal amount of $78,685,000,
repurchase price $78,714,507, due 1/3/2000. The value of the collateral
including accrued interest was $80,259,686.
Salomon Smith Barney, Inc., 2.00%, in the principal amount of $110,000,000,
repurchase price $110,018,333, due 1/3/2000. The value of the collateral
including accrued interest was $112,231,078.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 4%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. A special exchange privilege is
also available for shareholders who qualified to purchase Class A shares at net
asset value. Class Z shares are not subject to any sales or redemption charge
and are offered exclusively for sale to a limited group of investors.
There are 2 billion shares of common stock, $.01 par value per share, authorized
divided into four classes, designated Class A, Class B, Class C and Class Z
common stock, consisting of 500 million shares of each class. As of December 31,
1999, Prudential owned 11,679 Class A shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31, 1999:
Shares sold...................... 302,079 $ 1,995,054
Shares issued in reinvestment of
dividends and distributions.... 254,193 1,701,726
Shares reacquired................ (2,303,857) (15,461,489)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (1,747,585) (11,764,709)
Shares issued upon conversion
from Class B................... 201 1,323
----------- -------------
Net decrease in shares
outstanding.................... (1,747,384) $ (11,763,386)
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
B-64

<PAGE> 113

Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31, 1998:
Shares sold...................... 372,024 $ 2,657,375
Shares issued in reinvestment of
dividends and distributions.... 214,448 1,531,157
Shares reacquired................ (2,481,487) (17,676,855)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (1,895,015) (13,488,323)
Shares issued upon conversion
from Class B................... 1,973 14,203
----------- -------------
Net decrease in shares
outstanding.................... (1,893,042) $ (13,474,120)
----------- -------------
----------- -------------
<CAPTION>
Class B
- ---------------------------------
<S> <C> <C>
Year ended December 31, 1999:
Shares sold...................... 200,931 $ 1,360,681
Shares issued in reinvestment of
dividends and distributions.... 14,238 94,984
Shares reacquired................ (107,807) (721,299)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 107,362 734,366
Shares reacquired upon conversion
into Class A................... (201) (1,323)
----------- -------------
Net increase in shares
outstanding.................... 107,161 $ 733,043
----------- -------------
----------- -------------
Year ended December 31, 1998:
Shares sold...................... 138,265 $ 988,889
Shares issued in reinvestment of
dividends and distributions.... 5,180 37,028
Shares reacquired................ (46,855) (334,557)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 96,590 691,360
Shares reacquired upon conversion
into Class A................... (1,975) (14,203)
----------- -------------
Net increase in shares
outstanding.................... 94,615 $ 677,157
----------- -------------
----------- -------------
<CAPTION>
Class C Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31, 1999:
Shares sold...................... 6,775 $ 45,628
Shares issued in reinvestment of
dividends and distributions.... 2,269 15,192
Shares reacquired................ (6,039) (40,929)
----------- -------------
Net increase in shares
outstanding.................... 3,005 $ 19,891
----------- -------------
----------- -------------
Year ended December 31, 1998:
Shares sold...................... 33,210 $ 237,920
Shares issued in reinvestment of
dividends and distributions.... 671 4,790
Shares reacquired................ (8,776) (62,577)
----------- -------------
Net increase in shares
outstanding.................... 25,105 $ 180,133
----------- -------------
----------- -------------
<CAPTION>
Class Z
- ---------------------------------
<S> <C> <C>
Year ended December 31, 1999:
Shares sold...................... 386,570 $ 2,600,254
Shares issued in reinvestment of
dividends and distributions.... 29,107 194,635
Shares reacquired................ (245,883) (1,640,481)
----------- -------------
Net increase in shares
outstanding.................... 169,794 $ 1,154,408
----------- -------------
----------- -------------
Year ended December 31, 1998:
Shares sold...................... 352,766 $ 2,523,990
Shares issued in reinvestment of
dividends and distributions.... 12,769 91,212
Shares reacquired................ (140,684) (1,005,040)
----------- -------------
Net increase in shares
outstanding.................... 224,851 $ 1,610,162
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
B-65

<PAGE> 114

Financial Highlights PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A(b)
----------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------
1999(c) 1998(c) 1997(c) 1996 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 7.17 $ 7.08 $ 7.63 $ 7.68 $ 6.76
------- ------- -------- -------- --------
Income from investment operations:
Net investment income......................... .39 .43 .49 .56 .48
Net realized and unrealized gain (loss) on
investments and foreign currencies......... (.68) .12 (.22) .28 1.13
------- ------- -------- -------- --------
Total from investment operations........... (.29) .55 .27 .84 1.61
------- ------- -------- -------- --------
Less distributions:
Dividends from net investment income.......... (.22) (.25) (.58) (.67) (.48)
Distributions in excess of net investment
income..................................... -- (.17) (.24) (.40) (.21)
Distributions from net realized capital
gains...................................... (.09) (.04) -- -- --
Tax return of capital distributions........... (.21) -- -- -- --
------- ------- -------- -------- --------
Total dividends and distributions.......... (.52) (.46) (.82) (1.07) (.69)
------- ------- -------- -------- --------
Redemption fee retained by Fund............... -- -- -- .18 --
------- ------- -------- -------- --------
Net asset value, end of year.................. $ 6.36 $ 7.17 $ 7.08 $ 7.63 $ 7.68
------- ------- -------- -------- --------
------- ------- -------- -------- --------
Per share market price, end of year........... N/A N/A N/A N/A $ 7.375
------- ------- -------- -------- --------
------- ------- -------- -------- --------
TOTAL INVESTMENT RETURN BASED ON(a):
Market price............................... N/A N/A N/A N/A 44.39%
Net asset value............................ (4.27)% 8.00% 3.62% 14.02% 25.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $63,343 $84,008 $ 96,365 $125,637 $350,339
Average net assets (000)...................... $72,413 $89,970 $110,910 $180,588 $342,741
Ratios to average net assets:
Expenses, including distribution fees...... 1.86% 1.63% 1.64% 1.48% 1.05%
Expenses, excluding distribution fees...... 1.61% 1.48% 1.49% 1.34% 1.05%
Net investment income...................... 5.77% 6.08% 6.54% 6.45% 6.37%
For Class A, B, C and Z shares:
Portfolio turnover rate....................... 110% 46% 53% 38% 203%
</TABLE>
- ---------------
(a) Total investment return based on net asset value is calculated assuming a
purchase of common stock at the current net asset value on the first day and
a sale at the current net asset value on the last day of each year reported.
Total investment return does not consider the effect of sales load. Prior to
January 15, 1996 the Fund operated as a closed-end investment company and
total investment return was calculated based on market value assuming a
purchase of common stock at the current market value on the first day and a
sale at the current market value on the last day of each year reported.
Dividends and distributions are assumed for purposes of this calculation to
be reinvested at prices obtained under the dividend reinvestment plan. This
calculation does not reflect brokerage commissions.
(b) Prior to January 15, 1996 the Fund operated as a closed-end, non-diversified
management investment company.
(c) Calculated based upon weighted average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-66

<PAGE> 115

Financial Highlights PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
-------------------------------------------------- ---------------------
January 15,
1996(c) Year Ended December
Year Ended December 31, Through 31,
--------------------------------- December 31, ---------------------
1999(d) 1998(d) 1997(d) 1996 1999(d) 1998(d)
--------- ------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.19 $ 7.10 $ 7.64 $ 7.72 $ 7.19 $ 7.10
--------- ------- ------- ----- --------- -------
Income from investment operations:
Net investment income......................... .35 .37 .44 .52 .35 .37
Net realized and unrealized gain (loss) on
investments and foreign currencies......... (.68) .11 (.20 ) .25 (.68) .11
--------- ------- ------- ----- --------- -------
Total from investment operations........... (.33) .48 .24 .77 (.33) .48
--------- ------- ------- ----- --------- -------
Less distributions:
Dividends from net investment income.......... (.18) (.21 ) (.54 ) (.63) (.18) (.21)
Distributions in excess of net investment
income..................................... -- (.14 ) (.24 ) (.40) -- (.14)
Distributions from net realized gains......... (.09) (.04 ) -- -- (.09) (.04)
Tax return of capital distributions........... (.21) -- -- -- (.21) --
--------- ------- ------- ----- --------- -------
Total dividends and distributions.......... (.48) (.39 ) (.78 ) (1.03) (.48) (.39)
--------- ------- ------- ----- --------- -------
Redemption fee retained by Fund............... -- -- -- .18 -- --
--------- ------- ------- ----- --------- -------
Net asset value, end of period................ $ 6.38 $ 7.19 $ 7.10 $ 7.64 $ 6.38 $ 7.19
--------- ------- ------- ----- --------- -------
--------- ------- ------- ----- --------- -------
TOTAL INVESTMENT RETURN(a).................... (4.76)% 7.32 % 3.25 % 12.86% (4.76)% 7.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $1,764 $1,218 $531 $75 $248 $257
Average net assets (000)...................... $1,560 $785 $335 $23 $248 $126
Ratios to average net assets:
Expenses, including distribution fees...... 2.36% 2.23 % 2.24 % 2.09%(b) 2.36% 2.23%
Expenses, excluding distribution fees...... 1.61% 1.48 % 1.49 % 1.34%(b) 1.61% 1.48%
Net investment income...................... 5.29% 5.51 % 6.00 % 5.85%(b) 5.29% 5.53%
<CAPTION>
<S> <C> <C>
January 15,
1996(c)
Through
December 31,
1997(d) 1996
------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.64 $ 7.72
------- -----
Income from investment operations:
Net investment income......................... .40 .52
Net realized and unrealized gain (loss) on
investments and foreign currencies......... (.16 ) .25
------- -----
Total from investment operations........... .24 .77
------- -----
Less distributions:
Dividends from net investment income.......... (.54 ) (.63)
Distributions in excess of net investment
income..................................... (.24 ) (.40)
Distributions from net realized gains......... -- --
Tax return of capital distributions........... -- --
------- -----
Total dividends and distributions.......... (.78 ) (1.03)
------- -----
Redemption fee retained by Fund............... -- .18
------- -----
Net asset value, end of period................ $ 7.10 $ 7.64
------- -----
------- -----
TOTAL INVESTMENT RETURN(a).................... 3.25 % 12.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $76 $13
Average net assets (000)...................... $26 $8
Ratios to average net assets:
Expenses, including distribution fees...... 2.24 % 2.09%(b)
Expenses, excluding distribution fees...... 1.49 % 1.34%(b)
Net investment income...................... 5.96 % 5.85%(b)
</TABLE>

- ---------------
(a) Total investment return is based on a purchase of common stock at the
current net asset value on the first day and a sale at the current net asset
value on the last day of each period reported. Total investment return does
not consider the effect of sales load. Total investment returns for periods
of less than one full year are not annualized.
(b) Annualized.
(c) Commencement of offering of Class B and Class C shares.
(d) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-67

<PAGE> 116

Financial Highlights PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
-------------------------------------------
March 17,
1997(c)
Year Ended December 31, Through
-------------------------- December 31,
1999(d) 1998(d) 1997(d)
--------- ------------ ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.19 $ 7.10 $ 7.57
--------- ----- -----
Income from investment operations:
Net investment income......................... .40 .44 .38
Net realized and unrealized gain (loss) on
investments and foreign currencies......... (.68) .10 (.02)
--------- ----- -----
Total from investment operations........... (.28) .54 .36
--------- ----- -----
Less distributions:
Dividends from net investment income.......... (.23) (.25) (.59)
Distributions in excess of net investment
income..................................... -- (.16) (.24)
Distributions from net realized gains......... (.09) (.04) --
Tax return of capital distributions........... (.21) -- --
--------- ----- -----
Total dividends and distributions.......... (.53) (.45) (.83)
--------- ----- -----
Net asset value, end of period................ $ 6.38 $ 7.19 $ 7.10
--------- ----- -----
--------- ----- -----
TOTAL INVESTMENT RETURN(a).................... (4.14)% 8.16% 4.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $3,080 $2,253 $628
Average net assets (000)...................... $2,720 $1,487 $121
Ratios to average net assets:
Expenses, including distribution fees...... 1.61% 1.48% 1.49%(b)
Expenses, excluding distribution fees...... 1.61% 1.48% 1.49%(b)
Net investment income...................... 6.04% 6.29% 6.82%(b)
</TABLE>

- ---------------
(a) Total investment return is based on a purchase of common stock at the
current net asset value on the first day and a sale at the current net asset
value on the last day of each period reported. Total investment return does
not consider the effect of sales load. Total investment returns for periods
of less than one full year are not annualized.
(b) Annualized.
(c) Commencement of offering of Class Z shares.
(d) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-68

<PAGE> 117
Report of Independent Accountants PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential International Bond Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential International Bond Fund,
Inc. (the 'Fund') at December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as 'financial statements') are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 16, 2000

B-69

<PAGE> 118

DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE, INC.

DEBT RATINGS

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

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

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

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

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

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

SHORT-TERM RATINGS

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

PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

A-1
<PAGE> 119

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A: An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB: An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB, B: Obligations rated BB or B are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation. While
such obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposures to adverse
conditions.

COMMERCIAL PAPER RATINGS

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

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

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

DUFF & PHELPS CREDIT RATING CO.

LONG-TERM DEBT AND PREFERRED STOCK RATINGS

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.

A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.

BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

BB+, BB, BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.

B+, B, B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.

SHORT-TERM DEBT RATINGS

D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.

A-2
<PAGE> 120

D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

FITCH IBCA, INC.

LONG-TERM RATINGS

AAA: HIGHEST CREDIT QUALITY. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.

AA: VERY HIGH CREDIT QUALITY. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

A: HIGH CREDIT QUALITY. "A" ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.

BBB: GOOD CREDIT QUALITY. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

BB: SPECULATIVE. "BB" ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic change
over time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.

B: HIGHLY SPECULATIVE. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.

A-3
<PAGE> 121

APPENDIX I -- GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.

DIVERSIFICATION

Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.

DURATION

Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.

Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years -- the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).

MARKET TIMING

Market timing -- buying securities when prices are low and selling them
when prices are relatively higher -- may not work for many investors because it
is impossible to predict with certainty how the price of a security will
fluctuate. However, owning a security for a long period of time may help
investors offset short-term price volatility and realize positive returns.

POWER OF COMPOUNDING

Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

STANDARD DEVIATION

Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.

I-1
<PAGE> 122

APPENDIX II -- HISTORICAL PERFORMANCE DATA

The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.

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

PERFORMANCE GRAPH

Value of $1.00 invested on
1/1/1926 through 12/31/1999

Small Stocks -- $6,640.79
Common Stocks -- $2,845.63
Long-Term Bonds -- $40.22
Treasury Bills -- $15.64
Inflation -- $9.40

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

Source: Ibbotson Associates. Used with permission. All rights reserved. This
chart is for illustrative purposes only and is not indicative of the past,
present or future performance of any asset class or any Prudential mutual fund.

Generally, stock returns are due to capital appreciation and the reinvestment of
any gains. Bond returns are due to reinvesting interest. Also, stock prices are
usually more volatile than bond prices over the long-term. Small stock returns
for 1926-1980 are those of stocks comprising the 5th quintile of the New York
Stock Exchange. Thereafter, returns are those of the Dimensional Fund Advisors
(DFA) Small Company Fund. Common stock returns are based on the S&P 500
Composite Stock Price Index, a market-weighted, unmanaged index of 500 stocks
(currently) in a variety of industries. It is often used as a broad measure of
stock market performance.

Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).

II-1
<PAGE> 123

Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1989
through 1999. The total returns of the indexes include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.

All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Risk/Return Summary -- Fees and Expenses" in the prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time, could
be substantial.

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS

<TABLE>
<CAPTION>
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT TREASURY
BONDS(1).................... 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0% (2.56)%
U.S. GOVERNMENT MORTGAGE
SECURITIES(2)............... 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0% 1.88%
U.S. INVESTMENT GRADE
CORPORATE BONDS(3).......... 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6% (1.96)%
U.S. HIGH YIELD CORPORATE
BONDS(4).................... 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6% 2.39%
WORLD GOVERNMENT BONDS(5)..... (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3% (5.07)%
DIFFERENCE BETWEEN HIGHEST AND
LOWEST RETURN PERCENT....... 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7 17.1 8.4 7.46
</TABLE>

- ---------------
(1) LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one
year.

(2) LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of
the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).

(3) LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign
governments, municipalities, governmental agencies or international
agencies. All bonds in the index have maturities of at least one year.
Source: Lipper Inc.

(4) LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or
Fitch Investors Service). All bonds in the index have maturities of at least
one year.

(5) SALOMON BROTHERS SMITH BARNEY WORLD GOVERNMENT INDEX (NON-U.S.) includes
over 800 bonds issued by various foreign governments or agencies, excluding
those in the U.S., but including those in Japan, Germany, France, the U.K.,
Canada, Italy, Australia, Belgium, Denmark, the Netherlands, Spain, Sweden,
and Austria. All bonds in the index have maturities of at least one year.

II-2
<PAGE> 124

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

LONG TERM U.S. TREASURY BOND YIELD IN PERCENT

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

Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1999. Yields represent that of an annually renewed one-bond portfolio with
a remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
mutual fund.

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

CAPITAL APPRECIATION AND REINVESTING DIVIDENDS -- $474,094
CAPITAL APPRECIATION ONLY -- $159,597
1969 - 1999

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

Source: Lipper Inc. Used with permission. All rights reserved. This chart is
used for illustrative purposes only and is not intended to represent the past,
present or future performance of any Prudential mutual fund. Common stock total
return is based on the Standard & Poor's 500 Composite Stock Price Index, a
market-value-weighted index made up of 500 of the largest stocks in the U.S.
based upon their stock market value. Investors cannot invest directly in
indexes.

II-3
<PAGE> 125

WORLD STOCK MARKET CAPITALIZATION BY REGION

WORLD TOTAL: $20.7 Trillion

Canada -- 2.1%
U.S. -- 49.0%
Europe -- 32.5%
Pacific Basin -- 16.4%

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

Source: Morgan Stanley Capital International December 31, 1999. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of approximately
1,577 companies in 22 countries (representing approximately 60% of the aggregate
market value of the stock exchanges). This chart is for illustrative purposes
only and does not represent the allocation of any Prudential mutual fund.

II-4
<PAGE> 126

PART C

OTHER INFORMATION

ITEM 23. EXHIBITS

<TABLE>
<C> <S>
a. (1) Articles of Amendment and Restatement.(2)
(2) Articles Supplementary.(2)
(3) Articles of Amendment.(3)
(4) Articles Supplementary.(4)

b. Amended and Restated By-Laws.*

c. Instruments defining rights of shareholders.(1)

d. (1) Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc.(2)
(2) Amended and Restated Subadvisory Agreement between
Prudential Investments Fund Management LLC and The
Prudential Investment Corporation.*
(3) Sub-Investment Management Agreement between The
Prudential Investment Corporation and PRICOA Asset
Management Limited.(5)
(4) First Amendment to Sub-Investment Management Agreement
between the Prudential Investment Corporation and PRICOA
Asset Management Limited.(5)
(5) Second Amendment to Sub-Investment Management Agreement
between The Prudential Investment Corporation and PRICOA
Asset Management Limited.(5)
(6) Third Amendment to Sub-Investment Management Agreement
between The Prudential Investment Corporation and PRICOA
Asset Management Limited.(5)

e. (1) Distribution Agreement between the Registrant and
Prudential Investment Management Services LLC.(4)
(2) Form of Selected Dealer Agreement.(4)

g. (1) Custodian Contract between the Registrant and State
Street Bank and Trust Company.(2)
(2) Amendment to Custodian Contract.*

h. (1) Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services, Inc.(2)
(2) Amendment to Transfer Agency Agreement.*

i. Opinion and Consent of Counsel.*

j. Consent of Independent Accountants.*

m. (1) Amended and Restated Distribution and Service Plan for
Class A Shares.(4)
(2) Amended and Restated Distribution and Service Plan for
Class B Shares.(4)
(3) Amended and Restated Distribution and Service Plan for
Class C Shares.(4)

n. Amended Rule 18f-3 Plan.(4)

p. Codes of Ethics.*
</TABLE>

- ---------------
(1) Incorporated herein by reference to the Registration Statement on Form N-1A
filed on November 3, 1995 (File No. 33-63945).

(2) Incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A filed on July 11, 1997 (File No.
33-63945).

(3) Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on March 2, 1998 (File No.
33-63945).

C-1
<PAGE> 127

(4) Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A filed on January 15, 1999 (File No.
33-63945).

(5) Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A filed on March 15, 1999 (File No.
33-63945).

* Filed herewith.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None.

ITEM 25. INDEMNIFICATION

As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (1940 Act) and pursuant to Article VII of the Fund's By-Laws
(Exhibit (b) to the Registration Statement), officers, directors, employees and
agents of the Registrant will not be liable to the Registrant, any stockholder,
officer, director, employee, agent or other person for any action or failure to
act, except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit (e)(1)
to the Registration Statement), the Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.

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

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

Section 9 of the Management Agreement (Exhibit (d)(1) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d)(2) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.

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

C-2
<PAGE> 128

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

(a) Prudential Investments Fund Management LLC (PIFM)

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

The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104). The business and other connections of PIFM's directors and
principal executive officers are set forth below. The address of each person is
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ---------------- ------------------------ -------------------------------------------
<S> <C> <C>
David R. Odenath, Jr. Officer in Charge, Officer in Charge, President, Chief
President, Chief Executive Officer and Chief Operating
Executive Officer and Officer, PIFM; Senior Vice President, The
Chief Operating Officer Prudential Insurance Company of America
(Prudential)
Robert F. Gunia Executive Vice President Executive Vice President and Chief
and Chief Administrative Administrative Officer, PIFM; Vice
Officer President, Prudential; President,
Prudential Investment Management Services
LLC (PIMS)
William V. Healey Executive Vice Executive Vice President, Chief Legal
President, Chief Legal Officer and Secretary, PIFM; Vice
Officer and Secretary President and Associate General Counsel,
Prudential; Senior Vice President, Chief
Legal Officer and Secretary, PIMS
Brian W. Henderson Executive Vice President Executive Vice President, PIFM; Senior Vice
President and Chief Operating Officer,
PIMS
Stephen Pelletier Executive Vice President Executive Vice President, PIFM
Judy A. Rice Executive Vice President Executive Vice President, PIFM
Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
</TABLE>

(b) The Prudential Investment Corporation (PIC)

See "How the Fund is Managed -- Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory and
Other Services" in the Statement of Additional Information constituting Part B
of this Registration Statement.

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

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ------------------------- ------------------------------------------
<S> <C> <C>
Jeffrey Hiller Chief Compliance Officer Chief Compliance Officer, Prudential
Global Asset Management
John R. Strangfeld, Jr. Chairman of the Board, Senior Vice President, Prudential; Chief
President and Chief Executive Officer, Prudential Global
Executive Officer and Asset Management; Chairman of the Board,
Director President, Chief Executive Officer and
Director, PIC
Bernard B. Winograd Senior Vice President and Chief Executive Officer, Prudential Real
Director Estate Investors; Senior Vice President
and Director, PIC
</TABLE>

C-3
<PAGE> 129

The business and other connections of PRICOA's directors and officers are
as set forth below. The address of each person is Cutlers Court, 115
Houndsditch, London, EC3A 7BR England.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PRICOA PRINCIPAL OCCUPATIONS
- ---------------- ---------------------- --------------------------------------------
<S> <C> <C>
Simon J. Wells CEO and Director CEO and Director, PRICOA; Employee of PIC
and Prudential-Bache Securities (U.K.)
Inc.
J. Gabriel Irwin Chairman and Director Chairman and Director, PRICOA; Employee of
PIC and Prudential-Bache Securities (U.K.)
Inc.
Peter G. Spenser Financial Compliance Financial Compliance Officer and Director,
Officer and Director PRICOA
Stephen Auth Director Director, PRICOA
Jean-Yves Chereau Director Director, PRICOA
Paul Lowenstein Director Director, PRICOA
William N. Jones Secretary Secretary, PRICOA
</TABLE>

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Prudential Investment Management Services LLC (PIMS)

PIMS is distributor for Cash Accumulation Trust, COMMAND Government Fund,
COMMAND Money Fund, COMMAND Tax-Free Fund, Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Balanced Fund, Prudential California Municipal Fund, Prudential
Diversified Bond Fund, Inc., Prudential Diversified Funds, Prudential Emerging
Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Genesis Fund, Inc.,
Prudential Global Total Return Fund, Inc., Prudential Government Income Fund,
Inc., Prudential Government Securities Trust, Prudential High Yield Fund, Inc.,
Prudential High Yield Total Return Fund, Inc., Prudential Index Series Fund,
Prudential Institutional Liquidity Portfolio, Inc., Prudential International
Bond Fund, Inc., Prudential Mid-Cap Value Fund, Inc., Prudential MoneyMart
Assets, Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Inc., Prudential Natural Resources Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Real Estate Securities
Fund, Prudential Sector Funds, Inc., Prudential Small-Cap Quantum Fund, Inc.,
Prudential Small Company Value Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential 20/20 Focus Fund,
Prudential Tax-Free Money Fund, Inc., Prudential Tax-Managed Funds, Prudential
World Fund, Inc., Target Funds, The Prudential Investment Portfolios, Inc. and
The Target Portfolio Trust.

PIMS is also distributor of the following unit investment trusts: Separate
Accounts: Prudential's Gibraltar Fund, Inc., The Prudential Variable Contract
Account-2, The Prudential Variable Contract Account-10, The Prudential Variable
Contract Account-11, The Prudential Variable Contract Account-24, The Prudential
Variable Contract GI-2, The Prudential Discovery Select Group Variable Contract
Account, The Pruco Life Flexible Premium Variable Annuity Account, The Pruco
Life of New Jersey Flexible Premium Variable Annuity Account, The Prudential
Individual Variable Contract Account and The Prudential Qualified Individual
Variable Contract Account.

(b) Information concerning the directors and officers of PIMS is set forth
below. Except as otherwise indicated, the address of each person is Gateway
Center Three, 100 Mulberry Street, Newark, NJ 07102.

C-4
<PAGE> 130

<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME POSITIONS AND OFFICES WITH UNDERWRITER WITH REGISTRANT
- ---- ---------------------------------------- ---------------------------
<S> <C> <C>
Margaret Deverell....... Vice President and Chief Financial None
Officer
Robert F. Gunia......... President Vice President and Director
Kevin Frawley........... Senior Vice President and Compliance None
Officer
213 Washington Street
Newark, NJ 07102
William V. Healey....... Senior Vice President, Secretary and None
Chief Legal Officer
Brian W. Henderson...... Senior Vice President and Officer None
John R. Strangfeld, Advisory Board Member President and Director
Jr. ..................
</TABLE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171, The Prudential Investment Corporation, Prudential
Plaza, 751 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, PRICOA Asset
Management Ltd., 115 Houndsditch, London EC3A 7BU and Prudential Mutual Fund
Services LLC, Raritan Plaza One, Edison, New Jersey 08837. Documents required by
Rules 31a-1(b)(5), (6), (7), (9), (10) and (11), 31a-1(f), 31a-1(b)(4) and (11)
and 31a-1(d)will be kept at Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey, 07102-4077, and the remaining accounts, books and other documents
required by such other pertinent provisions of Section 31(a) and the Rules
promulgated thereunder will be kept by State Street Bank and Trust Company and
Prudential Mutual Fund Services LLC.

ITEM 29. MANAGEMENT SERVICES

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

ITEM 30. UNDERTAKING

Not Applicable.

C-5
<PAGE> 131

SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund certifies that it meets all the requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the City of Newark, and State of
New Jersey, on the 6th day of March, 2000.

PRUDENTIAL INTERNATIONAL BOND FUND,
INC.

/s/ JOHN R. STRANGFELD, JR.

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

(John R. Strangfeld, Jr., President)

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ GRACE C. TORRES Treasurer and Principal Financial and March 6, 2000
- ------------------------------------------ Accounting Officer
Grace C. Torres

/s/ DELAYNE DEDRICK GOLD Director March 6, 2000
- ------------------------------------------
Delayne Dedrick Gold

/s/ ROBERT F. GUNIA Director March 6, 2000
- ------------------------------------------
Robert F. Gunia

/s/ DOUGLAS H. MCCORKINDALE Director March 6, 2000
- ------------------------------------------
Douglas H. McCorkindale

/s/ THOMAS T. MOONEY Director March 6, 2000
- ------------------------------------------
Thomas T. Mooney

/s/ STEPHEN P. MUNN Director March 6, 2000
- ------------------------------------------
Stephen P. Munn

/s/ DAVID R. ODENATH, JR. Director March 6, 2000
- ------------------------------------------
David R. Odenath, Jr.

/s/ RICHARD A. REDEKER Director March 6, 2000
- ------------------------------------------
Richard A. Redeker

/s/ ROBIN B. SMITH Director March 6, 2000
- ------------------------------------------
Robin B. Smith

/s/ JOHN R. STRANGFELD, JR. President and Director March 6, 2000
- ------------------------------------------
John R. Strangfeld, Jr.

/s/ LOUIS A. WEIL, III Director March 6, 2000
- ------------------------------------------
Louis A. Weil, III

/s/ CLAY T. WHITEHEAD Director March 6, 2000
- ------------------------------------------
Clay T. Whitehead
</TABLE>

C-6
<PAGE> 132

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
a. (1) Articles of Amendment and Restatement.(2)
(2) Articles Supplementary.(2)
(3) Articles of Amendment.(3)
(4) Articles Supplementary.(4)

b. Amended and Restated By-Laws.*

c. Instruments defining rights of shareholders.(1)

d. (1) Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc.(2)
(2) Amended and Restated Subadvisory Agreement between
Prudential Investments Fund Management LLC and The
Prudential Investment Corporation.*
(3) Sub-Investment Management Agreement between the
Prudential Investment Corporation and PRICOA Asset
Management Limited.(5)
(4) First Amendment to Sub-Investment Management Agreement
between the Prudential Investment Corporation and PRICOA
Asset Management Limited.(5)
(5) Second Amendment to Sub-Investment Management Agreement
between The Prudential Investment Corporation and PRICOA
Asset Management Limited.(5)
(6) Third Amendment to Sub-Investment Management Agreement
between The Prudential Investment Corporation and PRICOA
Asset Management Limited.(5)

e. (1) Distribution Agreement between the Registrant and
Prudential Investment Management Services LLC.(4)
(2) Form of Selected Dealer Agreement.(4)

g. (1) Custodian Contract between the Registrant and State
Street Bank and Trust Company.(2)
(2) Amendment to Custodian Contract.*

h. (1) Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services, Inc.(2)
(2) Amendment to Transfer Agency Agreement.*

i. Opinion and Consent of Counsel.*

j. Consent of Independent Accountants.*

n. Amended Rule 18f-3 Plan.(4)

p. Codes of Ethics.*
</TABLE>

- ---------------
(1) Incorporated herein by reference to the Registration Statement on Form N-1A
filed on November 3, 1995 (File No. 33-63945).

(2) Incorporated herein by reference to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A filed on July 11, 1997 (File No.
33-63945).

(3) Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on March 2, 1998 (File No.
33-63945).

(4) Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A filed on January 15, 1999 (File No.
33-63945).

(5) Incorporated herein by reference to Post-Effective Agreement No. 6 to the
Registration Statement on Form N-1A filed on March 15, 1999 (File No.
33-63945).

* Filed herewith.

<PAGE> 1
EXHIBIT 99. (b)

PRUDENTIAL INTERNATIONAL BOND FUND, INC.

By-Laws

ARTICLE I.

Stockholders

Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation in the State of Maryland or at
such other place within the United States as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting.

Section 2. Annual Meetings. The annual meeting of the stockholders of
the Corporation shall be held on a date and at such hour as may from time to
time be designated by the Board of Directors and stated in the notice of such
meeting, within the month ending four months after the end of the Corporation's
fiscal year, for the transaction of such business as may properly be brought
before the meeting; provided, however, that an annual meeting shall not be
required to be held in any year in which the election of directors is not
required to be acted on by stockholders under the Investment Company Act of
1940.

Section 3. Meetings. Meetings of the stockholders for any purpose or
purposes, including for purposes of voting on the removal of one or more
Directors, may be called by the Chairman of the Board, the President or a
majority of the Board of Directors,

<PAGE> 2

and shall be called by the Secretary upon receipt of the request in writing
signed by stockholders holding not less than 10% of the common stock issued
and outstanding and entitled to vote thereat. Such request shall state the
purpose or purposes of the proposed meeting. The Secretary shall inform such
stockholders of the reasonably estimated costs of preparing and mailing such
notice of meeting and upon payment to the Corporation of such costs, the
Secretary shall give notice stating the purpose or purposes of the meeting as
required in this Article and by-law to all stockholders entitled to notice of
such meeting. No meeting need be called upon the request of the holders of
shares entitled to cast less than a majority of all votes entitled to be cast at
such meeting to consider any matter which is substantially the same as a matter
voted upon at any meeting of stockholders held during the preceding twelve
months.

Section 4. Notice of Meetings of Stockholders. Not less than ten
days' and not more than ninety days' written or printed notice of every meeting
of stockholders, stating the time and place thereof and the general nature of
the business proposed to be transacted thereat, shall be given to each
stockholder entitled to vote thereat by leaving the same with such stockholder
or at such

<PAGE> 3

stockholder's residence or usual place of business or by mailing it, postage
prepaid, and addressed to such stockholder at such stockholder's address as it
appears upon the books of the Corporation. If mailed, notice shall be deemed to
be given when deposited in the United States mail addressed to the stockholder
as aforesaid.

No notice of the time, place or purpose of any meeting of stockholders
need be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.

Section 5. Record Dates. The Board of Directors may fix, in advance, a
date not exceeding ninety days preceding the date of any meeting of
stockholders, any dividend payment date or any date for the allotment of rights,
as a record date for the determination of the stockholders entitled to notice of
and to vote at such meeting or entitled to receive such dividends or rights, as
the case may be; and only stockholders of record on such date shall be entitled
to notice of and to vote at such meeting or to receive such dividends or rights,
as the case may be. In the case of a meeting of stockholders, such date shall
not be less than ten days prior to

<PAGE> 4

the date fixed for such meeting.

Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of one-third of the shares of the common stock of
the Corporation issued and outstanding and entitled to vote thereat shall
constitute a quorum at all meetings of the stockholders except as otherwise
provided in the Articles of Incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the holders of a
majority of the stock present in person or by proxy shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until stockholders owning the requisite amount of stock entitled to
vote at such meeting shall be present. At such adjourned meeting at which
stockholders owning the requisite amount of stock entitled to vote thereat shall
be represented, any business may be transacted which might have been transacted
at the meeting as originally notified.

Section 7. Voting and Inspectors. At all meetings, stockholders of record
entitled to vote thereat shall have one vote for each share of common stock
standing in his/her name on the books of the Corporation (and such stockholders
of record holding fractional shares, if any, shall have proportionate voting
rights) on the date

<PAGE> 5

for the determination of stockholders entitled to vote at such meeting, either
in person or by proxy. A Stockholder may sign a writing authorizing another
person to act as proxy. Signing may be accomplished by the stockholder or the
stockholder's authorized agent signing the writing or causing the stockholder's
signature to be affixed to the writing by any reasonable means, including
facsimile signature. A stockholder may authorize another person to act as proxy
by transmitting, or authorizing the transmission of, a telegram, cablegram,
datagram, or other means of electronic transmission to the person authorized to
act as proxy or to a proxy solicitation firm, proxy support service
organization, or other person authorized by the person who will act as proxy to
receive the transmission.

All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided by
statute or by the Articles of Incorporation or by these By-Laws.

At any election of directors, the Chairman of the meeting may, and upon
the request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of director shall be appointed such
inspector.

Section 8. Conduct of Stockholders' Meetings. The meetings of the
Stockholders shall be presided over by the Chairman of the Board, or if he or
she is not present, by the President, or if he or she is not present, by a
Vice-President, or if none of them is

<PAGE> 6

present, by a Chairman to be elected at the meeting. The Secretary of the
Corporation, if present, shall act as a Secretary of such meetings, or if he or
she is not present, an Assistant Secretary shall so act; if neither the
Secretary nor the Assistant Secretary is present, then the meeting shall elect
its Secretary.

Section 9. Concerning Validity of Proxies, Ballots, etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the Secretary of the meeting, who
shall decide all questions concerning the qualification of voters, the validity
of the proxies and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed by the Chairman of the meeting, in which
event such inspectors of election shall decide all such questions.

ARTICLE II.

Board of Directors

Section 1. Number and Tenure of Office. The business and affairs of the
Corporation shall be conducted and managed by a Board of Directors of not less
than three nor more than twelve directors, as may be determined from time to
time by vote of a majority of the directors then in office, provided that if
there is

<PAGE> 7

no stock outstanding the number of directors may be less than three but not less
than one. Directors need not be stockholders.

Section 2. Vacancies. In case of any vacancy in the Board of Directors
through death, resignation or other cause, other than an increase in the number
of directors, a majority of the remaining directors, although a majority is less
than a quorum, by an affirmative vote, may elect a successor to hold office
until the next meeting of stockholders or until his successor is chosen and
qualifies.

Section 3. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of directors and may elect directors to fill the vacancies created by any
such increase in the number of directors until the next meeting of stockholders
or until their successors are duly chosen and qualified. The Board of Directors,
by the vote of a majority of the entire Board, may likewise decrease the number
of directors to a number not less than three.

Section 4. Place of Meeting. The directors may hold their meetings, have
one or more offices, and keep the books of the Corporation, outside the State
of Maryland, at any office or offices of the Corporation or at any other place
as they may from

<PAGE> 8

time to time by resolution determine, or in the case of meetings, as they may
from time to time by resolution determine or as shall be specified or fixed in
the respective notices or waivers of notice thereof.

Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice as the directors may from time to
time determine.

Section 6. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board, the
President, the Secretary or two or more of the directors, by oral or telegraphic
or written notice duly served on or sent or mailed to each director not less
than one day before such meeting. No notice need be given to any director who
attends in person or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Such notice or waiver of notice need not state the purpose or purposes
of such meeting.

Section 7. Quorum. One-third of the directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two directors. If at any meeting of the Board
there shall be less than a quorum present,

<PAGE> 9

a majority of those present may adjourn the meeting from time to time until a
quorum shall have been obtained. The act of the majority of the directors
present at any meeting at which there is a quorum shall be the act of the
directors, except as may be otherwise specifically provided by statute or by the
Articles of Incorporation or by these By-Laws.

Section 8. Operating Committee. The Board of Directors may, by the
affirmative vote of a majority of the whole Board, appoint from the directors an
Operating Committee to consist of such number of directors (not less than three)
as the Board may from time to time determine. The Chairman of the Committee
shall be elected by the Board of Directors. The Board of Directors by such
affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
directors. When the Board of Directors is not in session, to the extent
permitted by law, the Operating Committee shall have and may exercise any or all
of the powers of the Board of Directors in the management of the business and
affairs of the Corporation. The Operating Committee may fix its own rules of
procedure, and may meet when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority

<PAGE> 10

shall be necessary to constitute a quorum. During the absence of a member of the
Operating Committee, the remaining members may appoint a member of the Board of
Directors to act in his place.

Section 9. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the whole Board, may appoint from the directors other
committees which shall in each case consist of such number of directors (not
less than one) and shall have and may exercise such powers as the Board may
determine in the resolution appointing them. A majority of all the members of
any such committee may determine its action and fix the time and place of its
meetings, unless the Board of Directors shall otherwise provide. The Board of
Directors shall have power at any time to change the members and powers of any
such committee, to fill vacancies and to discharge any such committee.

Section 10. Telephone Meetings. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means constitutes presence in person at the meeting unless
otherwise provided by the Investment Company Act of

<PAGE> 11

1940.

Section 11. Action Without a Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting, if a written consent to such action is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of the proceedings of the Board or such
committee, unless otherwise provided by the Investment Company Act of 1940.

Section 12. Compensation of Directors. No director shall receive any
stated salary or fees from the Corporation for his services as such if such
director is, other than by reason of being such director, an interested person
(as such term is defined by the Investment Company Act of 1940) of the
Corporation or of its investment adviser, administrator or principal
underwriter. Except as provided in the preceding sentence, directors shall be
entitled to receive such compensation from the Corporation for their services as
may from time to time be voted by the Board of Directors.

Section 13. Removal of Directors. No director shall continue to hold
office after the holders of record of not less than

<PAGE> 12

two-thirds of the Corporation's outstanding common stock of all series have
declared that director be removed from office either by declaration in writing
filed with the Corporation's secretary or by votes cast in person or by proxy at
a meeting called for the purpose. The directors shall promptly call a meeting of
stockholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than 10 percent of the Corporation's outstanding common stock of all
series.

ARTICLE III.
Officers

Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors. These may include a Chairman of the
Board of Directors (who shall be a director) and shall include a President (who
shall be a director), one or more Vice-Presidents (the number thereof to be
determined by the Board of Directors), a Secretary and a Treasurer. The Board
of Directors or the Operating Committee may also in its discretion appoint
Assistant Secretaries, Assistant Treasurers and other officers, agents and
employees, who shall have such authority and perform such duties as the Board or
the Operating Committee may

<PAGE> 13

determine. The Board of Directors may fill any vacancy which may occur in any
office. Any two offices, except those of President and Vice-President, may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity, if such instrument is required by law or
these By-Laws to be executed, acknowledged or verified by two or more officers.

Section 2. Term of Office. The term of office of all officers shall be
one year and until their respective successors are chosen and qualified. Any
officer may be removed from office at any time with or without cause by the vote
of a majority of the whole Board of Directors.

Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Operating Committee.

ARTICLE IV.

Capital Stock

Section 1. Certificates for Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for

13
<PAGE> 14

the full shares of stock of the Corporation owned by him in such form as the
Board from time to time prescribe.

Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require; in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.

Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal office of the
Corporation or, if the Corporation employs a Transfer Agent, at the office of
the Transfer Agent of the Corporation.

Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
or the Operating Committee may determine the conditions upon which a new
certificate of stock of the Corporation

<PAGE> 15

of any class may be issued in place of a certificate which is alleged to have
been lost, stolen or destroyed; and may, in its discretion, require the owner of
such certificate or such owner's legal representative to give bond, with
sufficient surety, to the Corporation and each Transfer Agent, if any, to
indemnify it and each such Transfer Agent against any and all loss or claims
which may arise by reason of the issue of a new certificate in the place of the
one so lost, stolen or destroyed.

ARTICLE V.

Corporate Seal

The Board of Directors may provide for a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.

<PAGE> 16

ARTICLE VI.

Fiscal Year

The fiscal year of the Corporation shall be fixed by the Board of
Directors.

ARTICLE VII.

Indemnification

Directors, officers, employees and agents of the Corporation shall not be
liable to the Corporation, any stockholder, officer, director, employee or other
person for any action or failure to act except for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office. The Corporation shall indemnify directors, officers,
employees and agents of the Corporation against judgments, fines, settlements
and expenses to the fullest extent authorized and in the manner permitted by
applicable federal and state law. The Corporation may purchase insurance to
protect itself and its directors, officers, employees and agents against
judgments, fines, settlements and expenses to the fullest extent authorized and
in the manner permitted by applicable federal and state law. Nothing contained
in this Article VII shall be construed to indemnify directors, officers,
employees and agents of the Corporation

<PAGE> 17

against, nor to permit the Corporation to purchase insurance that purports to
protect against, any liability to the Corporation or any stockholder, officer,
director, employee, agent or other person to whom he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.

ARTICLE VIII.

Custodian

Section 1. The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, each having a capital, surplus
and undivided profits aggregating not less than fifty million dollars
($50,000,000), and, to the extent required by the Investment Company Act of
1940, the funds and securities held by the Corporation shall be kept in the
custody of one or more such custodians, provided such custodian or custodians
can be found ready and willing to act, and further provided that the Corporation
may use as subcustodians, for the purpose of holding any foreign securities and
related funds of the Corporation, such foreign banks as shall be permitted by
law.

Section 2. The Corporation shall upon the resignation or inability to
serve of its custodian or upon change of the

<PAGE> 18

custodian:

(a) in case of such resignation or inability to serve, use its
best efforts to obtain a successor custodian;

(b) require that the cash and securities owned by the Corporation
be delivered directly to the successor custodian; and

of the cash and securities owned by the Corporation otherwise than to a
successor custodian, the question whether or not this Corporation shall be
liquidated or shall function without a custodian.

ARTICLE IX.

Amendment of By-Laws

The By-Laws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors; but any such alteration, amendment, addition or repeal of the By-Laws
by action of the Board of Directors may be altered or repealed by stockholders.

AS AMENDED AS OF NOVEMBER 19, 1999

<PAGE> 1
EXHIBIT 99.(d)(2)

PRUDENTIAL INTERNATIONAL BOND FUND, INC.

Subadvisory Agreement

Agreement made as of this 13th day of September, 1995, and amended and
restated as of January 1, 2000, between Prudential Investments Fund Management
LLC, a New York limited liability company and successor to Prudential Mutual
Fund Management Inc., a Delaware Corporation (PMF or the Manager), and The
Prudential Investment Corporation, a New Jersey Corporation (the Subadviser).

WHEREAS, the Manager has entered into a Management Agreement, dated
September 13, 1995 (the Management Agreement), with Prudential International
Bond Fund, Inc., formerly known as The Global Government Plus Fund, Inc. (the
Fund), a Maryland corporation and a non-diversified open-end management
investment company registered under the Investment Company Act of 1940 (the 1940
Act), pursuant to which PMF will act as Manager of the Fund.

WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.

NOW, THEREFORE, the Parties agree as follows:

1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Fund, the Subadviser shall manage the investment
operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance
with the Fund's investment objectives, policies and restrictions as
stated in the Prospectus, (such Prospectus and Statement of Additional
Information as currently in effect and as amended or supplemented from
time to time, being herein called the "Prospectus"), and subject to the
following understandings:

(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by the
Fund, and what portion of the assets will be invested or held
uninvested as cash.

(ii) In the performance of its duties and obligations under
this Agreement, the Subadviser shall act in conformity with the
Articles of Incorporation,

<PAGE> 2

By-Laws and Prospectus of the Fund and with the instructions and
directions of the Manager and of the Board of Directors of the
Fund and will conform to and comply with the requirements of the
1940 Act, the Internal Revenue Code of 1986 and all other
applicable federal and state laws and regulations.

(iii) The Subadviser shall determine the securities and
futures contracts to be purchased or sold by the Fund and will
place orders with or through such persons, brokers, dealers or
futures commission merchants (including but not limited to
Prudential Securities Incorporated) to carry out the policy with
respect to brokerage as set forth in the Fund's Registration
Statement and Prospectus or as the Board of Directors may direct
from time to time. In providing the Fund with investment
supervision, it is recognized that the Subadviser will give
primary consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
Subadviser may consider the financial responsibility, research and
investment information and other services provided by brokers,
dealers or futures commission merchants who may effect or be a
party to any such transaction or other transactions to which the
Subadviser's other clients may be a party. It is understood that
Prudential Securities Incorporated may be used as a broker for
securities transactions but that no formula has been adopted for
allocation of the Fund's investment transaction business. It is
also understood that it is desirable for the Fund that the
Subadviser have access to supplemental investment and market
research and security and economic analysis provided by brokers or
futures commission merchants who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, the
Subadviser is authorized to place orders for the purchase and sale
of securities and futures contracts for the Fund with such brokers
or futures commission merchants, subject to review by the Fund's
Board of Directors from time to time with respect to the extent
and continuation of this practice. It is

<PAGE> 3

understood that the services provided by such brokers or futures
commission merchants may be useful to the Subadviser in connection
with the Subadviser's services to other clients.

On occasions when the Subadviser deems the purchase or sale
of a security or futures contract to be in the best interest of
the Fund as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate
the securities or futures contracts to be sold or purchased in
order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of
the securities or futures contracts so purchased or sold, as well
as the expenses incurred in the transaction, will be made by the
Subadviser in the manner the Subadviser considers to be the most
equitable and consistent with its fiduciary obligations to the
Fund and to such other clients.

(iv) The Subadviser shall maintain all books and records
with respect to the Fund's portfolio transactions required by
subparagraphs (b) (5), (6), (7), (9), (10) and (11) and paragraph
(f) of Rule 31a-1 under the 1940 Act and shall render to the
Fund's Board of Directors such periodic and special reports as the
Directors may reasonably request.

(v) The Subadviser shall provide the Fund's Custodian on
each business day with information relating to all transactions
concerning the Fund's assets and shall provide the Manager with
such information upon request of the Manager.

(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.

(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of
the Fund to serve in the capacities

<PAGE> 4

in which they are elected. Services to be furnished by the Subadviser
under this Agreement may be furnished through the medium of any of such
directors, officers or employees.

(c) The Subadviser shall keep the Fund's books and records required to be
maintained by the Subadviser pursuant to paragraph 1(a) hereof and shall
timely furnish to the Manager all information relating to the
Subadviser's services hereunder needed by the Manager to keep the other
books and records of the Fund required by Rule 31a-1 under the 1940 Act.
The Subadviser agrees that all records which it maintains for the Fund
are the property of the Fund and the Subadviser will surrender promptly
to the Fund any of such records upon the Fund's request, provided however
that the Subadviser may retain a copy of such records. The Subadviser
further agrees to preserve for the periods prescribed by Rule 31a-2 of
the Commission under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) hereof.

2. The Manager shall continue to have responsibility for all services to
be provided to the Fund pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.

3. The Manager shall pay the Subadviser at the annual rate of .375 of 1%
of the Fund's average daily net assets up to $1 billion and .333 of 1% of
average daily net assets in excess of $1 billion for furnishing the
services described in paragraph 1 hereof.

4. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by the Fund or the Manager in connection with the
matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the Subadviser's
part in the performance of its duties or from its reckless disregard of
its obligations and duties under this Agreement.

5. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the
requirements of the 1940 Act; provided, however, that this Agreement may
be terminated by the Fund at

<PAGE> 5

any time, without the payment of any penalty, by the Board of Directors
of the Fund or by vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Fund, or by the Manager or the
Subadviser at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the other party.
This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act) or upon the termination of the
Management Agreement.

6. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's directors, officers, or employees who may also be a
director, officer or employee of the Fund to engage in any other business
or to devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or a dissimilar
nature, nor limit or restrict the Subadviser's right to engage in any
other business or to render services of any kind to any other
corporation, firm, individual or association.

7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements,
reports to stockholders, sales literature or other material prepared for
distribution to stockholders of the Fund or the public, which refer to
the Subadviser in any way, prior to use thereof and not to use material
if the Subadviser reasonably objects in writing five business days (or
such other time as may be mutually agreed) after receipt thereof. Sales
literature may be furnished to the Subadviser hereunder by first-class or
overnight mail, facsimile transmission equipment or hand delivery.

<PAGE> 6

8. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the 1940
Act.

9. This Agreement shall be governed by the laws of the State of New York.

IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

PRUDENTIAL INVESTMENTS FUND MANAGEMENT, LLC.

BY /s/ Robert F. Gunia
-------------------------
Robert F. Gunia
Executive Vice President

THE PRUDENTIAL INVESTMENT CORPORATION

BY /s/ John R. Strangfeld, Jr.
-------------------------
John R. Strangfeld, Jr.
President

<PAGE> 1
EXHIBIT 99.(g)(2)

AMENDMENT TO CUSTODIAN CONTRACT/AGREEMENT

This Amendment to the respective Custodian Contract/Agreement is made
as of February 22, 1999 by and between each of the funds listed on Schedule D
(including any series thereof, each, a "Fund") and State Street Bank and Trust
Company (the "Custodian"). Capitalized terms used in this Amendment without
definition shall have the respective meanings given to such terms in the
Custodian Contract/Agreement referred to below.

WHEREAS, each Fund and the Custodian have entered into a Custodian
Contract/Agreement dated as of the dates set forth on Schedule D (each
contract, as amended, a "Contract"); and

WHEREAS, each Fund and the Custodian desire to amend certain
provisions of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5")
promulgated under the Investment Company Act of 1940, as amended (the "1940
Act"); and

WHEREAS, each Fund and the Custodian desire to amend and restate
certain other provisions of the Contract relating to the custody of assets of
each of the Funds held outside of the United States.

NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, to add the following new provisions which supersede the
provisions in the existing contracts relating to the custody of assets of the
Funds outside the United States.

3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.

3.1. DEFINITIONS.

Capitalized terms in this Article 3 shall have the following meanings:

"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure;
systemic custody and securities settlement practices; and laws and regulations
applicable to the safekeeping and recovery of Foreign Assets held in custody in
that country.

"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of
Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank
(as defined in Rule 17f-5), a bank holding company meeting the requirements of
an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other
appropriate action of the U.S. Securities and Exchange Commission (the "SEC")),
or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act)
meeting the requirements of a custodian under Section 17(f) of the 1940 Act,
except that the term does not include Mandatory Securities Depositories.

<PAGE> 2

"Foreign Assets" means any of the Funds' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Funds'
transactions in such investments.

"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.

"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if
the Fund determines to place Foreign Assets in a country outside the United
States (i) because required by law or regulation; (ii) because securities
cannot be withdrawn from such foreign securities depository or clearing agency;
or (iii) because maintaining or effecting trades in securities outside the
foreign securities depository or clearing agency is not consistent with
systemic custodial or market practices.

3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.

Each Fund, by resolution adopted by its Board of Trustees/Directors (the
"Board"), hereby delegates to the Custodian subject to Section (b) of Rule
17f-5, the responsibilities set forth in this Article 3 with respect to Foreign
Assets of the Fund held outside the United States, and the Custodian hereby
accepts such delegation, as Foreign Custody Manager with respect to the Funds.

3.3. COUNTRIES COVERED.

The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
list of countries may be amended from time to time by the Fund with the
agreement of the Foreign Custody Manager. The Foreign Custody Manager shall
list on Schedule A the Eligible Foreign Custodians selected by the Foreign
Custody Manager to maintain the assets of the Funds which list of Eligible
Foreign Custodians may be amended from time to time in the sole discretion of
the Foreign Custody Manager. Mandatory Securities Depositories are listed on
Schedule B to this Contract, which Schedule B may be amended from time to time
by the Foreign Custody Manager upon reasonable notice to the Fund. The Foreign
Custody Manager will provide amended versions of Schedules A and B in
accordance with Section 3.7 of this Article 3.

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by a Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by that Fund's Board responsibility as Foreign Custody
Manager with respect to that country and to have accepted such delegation.
Execution of this Amendment by the Fund shall be deemed to be a Proper
Instruction to open an account, or to place or maintain Foreign Assets, in each
country listed on Schedule A in which the Custodian has previously placed or
currently maintains Foreign Assets pursuant to the terms of the

<PAGE> 3

Contract. Following the receipt of Proper Instructions directing the Foreign
Custody Manager to close the account of a Fund with the Eligible Foreign
Custodian selected by the Foreign Custody Manager in a designated country, the
delegation by that Fund's Board to the Custodian as Foreign Custody Manager for
that country shall be deemed to have been withdrawn and the Custodian shall
immediately cease to be the Foreign Custody Manager of the Fund with respect to
that country.

The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to
the Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect
to the country as to which the Custodian's acceptance of delegation is
withdrawn.

3.4. SCOPE OF DELEGATED RESPONSIBILITIES.

3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.

Subject to the provisions of this Article 3, the Fund's Foreign Custody Manager
may place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.

In performing its delegated responsibilities as Foreign Custody Manager to
place or maintain Foreign Assets with an Eligible Foreign Custodian, the
Foreign Custody Manager shall determine that the Foreign Assets will be subject
to reasonable care, based on the standards applicable to custodians in the
country in which the Foreign Assets will be held by that Eligible Foreign
Custodian, after considering all factors relevant to the safekeeping of such
assets, including, without limitation the factors specified in Rule
17f-5(c)(1).

3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS.

The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign
Custodian that is a foreign securities depository or clearing agency) governing
the foreign custody arrangements with each Eligible Foreign Custodian selected
by the Foreign Custody Manager will satisfy the requirements of Rule
17f-5(c)(2).

3.4.3. MONITORING.

In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian (or the rules
or established practices and procedures in the case of an Eligible Foreign
Custodian selected by the Foreign

<PAGE> 4
Custody Manager which is a foreign securities depository or clearing agency that
is not a Mandatory Securities Depository). The Foreign Custody Manager shall
provide the Board at least annually with information as to the factors used in
such monitoring system. If the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has selected are no
longer appropriate, the Foreign Custody Manager shall notify the Board in
accordance with Section 3.7 hereunder and withdraw the Foreign Assets from such
Eligible Foreign Custodian as soon as reasonably practicable.

3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.

For purposes of this Article 3, the Foreign Custody Manager shall have no
responsibility for Country Risk as is incurred by placing and maintaining the
Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of the Portfolios. The Fund and the Custodian each expressly
acknowledge that the Foreign Custody Manager shall not be delegated any
responsibilities under this Article 3 with respect to Mandatory Securities
Depositories.

3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO.

In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.

3.7. REPORTING REQUIREMENTS.

The Foreign Custody Manager shall report the placement of Foreign Assets with
an Eligible Foreign Custodian, the withdrawal of the Foreign Assets from an
Eligible Foreign Custodian and the placement of such Foreign Assets with
another Eligible Foreign Custodian by providing to the Board amended Schedules
A or B at the end of the calendar quarter in which an amendment to either
Schedule has occurred. The Foreign Custody Manager shall make written reports
notifying the Board of any other material change in the foreign custody
arrangements of the Funds described in this Article 3 promptly after the
occurrence of the material change.

3.8. REPRESENTATIONS WITH RESPECT TO RULE 17f-5.

The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.

3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
MANAGER.

The Board's delegation to the Custodian as Foreign Custody Manager of the Funds
shall be effective as of the date hereof and shall remain in effect until
terminated at any time, without penalty, by written notice from the terminating
party to the non-terminating party. Termination will become effective sixty
(60) days after receipt by the non-terminating party of such notice.

<PAGE> 5

The provisions of Section 3.3 hereof shall govern the delegation to and
termination of the Custodian as Foreign Custody Manager of the Funds with
respect to designated countries.

3.10. MOST FAVORED CLIENT.

If at any time prior to termination of this Amendment, the Custodian, as a
matter of standard business practice, accepts delegation as Foreign Custody
Manager for its U.S. mutual fund clients on terms of materially greater benefit
to the Funds than set forth in this Amendment, the Custodian hereby agrees to
negotiate with the Funds in good faith with respect thereto.

4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD
OUTSIDE THE UNITED STATES.

4.1 DEFINITIONS.

Capitalized terms in this Article 4 shall have the following meanings:

"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.

"Foreign Sub-Custodian" means a foreign banking institution (including a
foreign branch of the Custodian or another Bank (as defined in Section 2(a)(5)
of the 1940 Act)) serving as an Eligible Foreign Custodian.

4.2. HOLDING SECURITIES.

The Custodian shall identify on its books as belonging to the Funds the foreign
securities held by each Foreign Sub-Custodian or Foreign Securities System. The
Custodian may hold foreign securities for all of its customers, including the
Funds, with any Foreign Sub-Custodian in an account that is identified as
belonging to the Custodian for the benefit of its customers, provided however,
that (i) the records of the Custodian with respect to foreign securities of the
Funds which are maintained in such account shall identify those securities as
belonging to the Funds and (ii), to the extent permitted and customary in the
market in which the account is maintained, the Custodian shall require that
securities so held by the Foreign Sub-Custodian be held separately from any
assets of such Foreign Sub-Custodian or of other customers of such Foreign
Sub-Custodian.

4.3. FOREIGN SECURITIES SYSTEMS.

Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.

4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.

<PAGE> 6
4.4.1. DELIVERY OF FOREIGN ASSETS.

The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of the Funds held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:

(i) upon the sale of such foreign securities for the Fund in
accordance with customary market practice in the country
where such foreign securities are held or traded, including,
without limitation: (A) delivery against expectation of
receiving later payment; or (B) in the case of a sale
effected through a Foreign Securities System, in accordance
with the rules governing the operation of the Foreign
Securities System;

(ii) in connection with any repurchase agreement related to
foreign securities;

(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolios;

(iv) to the issuer thereof or its agent when such foreign
securities are called, redeemed, retired or otherwise become
payable;

(v) to the issuer thereof, or its agent, for transfer into the
name of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such
Foreign Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing the
same aggregate face amount or number of units;

(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with reasonable
market custom; provided that in any such case the Foreign
Sub-Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior
to receiving payment for such securities except as may arise
from the Foreign Sub-Custodian's own negligence or willful
misconduct;

(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement;

(viii) in the case of warrants, rights or similar foreign
securities, the surrender thereof in the exercise of such
warrants, rights or similar securities or the surrender of
interim receipts or temporary securities for definitive
securities;

<PAGE> 7

(ix) for delivery as security in connection with any borrowing by
the Funds requiring a pledge of assets by the Funds;

(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;

(xi) in connection with the lending of foreign securities; and

(xii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the foreign securities to be
delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper
trust\corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.

4.4.2. PAYMENT OF FUND MONIES.

Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Fund in the following cases only:

(i) upon the purchase of foreign securities for the Fund, unless
otherwise directed by Proper Instructions, in accordance with
reasonable market settlement practice in the country where
such foreign securities are held or traded, including,
without limitation, (A) delivering money to the seller
thereof or to a dealer therefor (or an agent for such seller
or dealer) against expectation of receiving later delivery of
such foreign securities; or (B) in the case of a purchase
effected through a Foreign Securities System, in accordance
with the rules governing the operation of such Foreign
Securities System;

(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Fund;

(iii) for the payment of any expense or liability of the Fund,
including but not limited to the following payments:
interest, taxes, investment advisory fees, transfer agency
fees, fees under this Contract, legal fees, accounting fees,
and other operating expenses;

(iv) for the purchase or sale of foreign exchange or foreign
exchange contracts for the Fund, including transactions
executed with or through the Custodian or its Foreign
Sub-Custodians;

(v) in connection with trading in options and futures contracts,
including delivery as

<PAGE> 8

original margin and variation margin;

(vi) for payment of part or all of the dividends received in
respect of securities sold short;

(vii) in connection with the borrowing or lending of foreign
securities; and

(viii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper trust\corporate
purpose, and naming the person or persons to whom such
payment is to be made.

4.4.3. MARKET CONDITIONS; MARKET INFORMATION.

Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of the Funds and delivery
of Foreign Assets maintained for the account of the Funds may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs generally accepted by Institutional Clients, including, without
limitation, delivering Foreign Assets to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.

For purposes of this Agreement, the term "Institutional Clients" means U.S.
registered investment companies or major U.S. commercial banks, insurance
companies, pension funds or substantially similar institutions which, as a part
of their ordinary business operations, purchase or sell securities and make use
of global custody services.

The Custodian shall provide to the Board information with respect to material
changes in the custody and settlement practices in countries in which the
Custodian employs a Foreign Sub-Custodian. The Custodian shall provide, without
limitation, information relating to Foreign Securities Systems and other
information described in Schedule C. The Custodian may revise Schedule C from
time to time, provided that no such revision shall result in the Board being
provided with substantively less information than had previously been provided
hereunder and provided further that the Custodian shall in any event provide to
the Board at least annually the following information and opinions with respect
to the Board approved countries listed on Schedule A:

(i) legal opinions relating to whether local law restricts with
respect to U.S. registered mutual funds (a) access of a
fund's independent public accountants to books and records of
a Foreign Sub-Custodian or Foreign Securities System, (b) a
fund's ability to recover in the event of bankruptcy or
insolvency of a Foreign Sub-Custodian or Foreign Securities
System, (c) a fund's ability to recover in the event of a
loss by a Foreign Sub-Custodian or Foreign Securities System,
and (d)

<PAGE> 9

the ability of a foreign investor to convert cash and cash
equivalents to U.S. dollars;

(ii) summary of information regarding Foreign Securities Systems;
and

(iii) country profile information containing market practice for
(a) delivery versus payment, (b) settlement method, (c)
currency restrictions, (d) buy-in practices, (e) foreign
ownership limits, and (f) unique market arrangements.

4.5. REGISTRATION OF FOREIGN SECURITIES.

The foreign securities maintained in the custody of a Foreign Sub-Custodian
(other than bearer securities) shall be registered in the name of the
applicable series or in the name of the Custodian or in the name of any Foreign
Sub-Custodian or in the name of any nominee of the foregoing, and the Fund
agrees to hold any such nominee harmless from any liability as a holder of
record of such foreign securities, except to the extent that the Fund incurs
loss or damage due to failure of such nominee to meet its standard of care set
forth in the Contract. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Fund under the terms of this
Contract unless the form of such securities and the manner in which they are
delivered are in accordance with reasonable market practice.

4.6. BANK ACCOUNTS.

The Custodian shall identify on its books as belonging to the Fund cash
(including cash denominated in foreign currencies) deposited with the
Custodian. Where the Custodian is unable to maintain, or market practice does
not facilitate the maintenance of, cash on the books of the Custodian, a bank
account or bank accounts opened and maintained outside the United States on
behalf of a Fund with a Foreign Sub-Custodian shall be subject only to draft or
order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the
terms of this Contract to hold cash received by or from or for the account of
the Portfolio.

4.7. COLLECTION OF INCOME.

The Custodian shall use reasonable commercial efforts to collect all income and
other payments with respect to the Foreign Assets held hereunder to which the
Funds shall be entitled and shall credit such income, as collected, to the
applicable Fund. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to such
measures and as to the compensation and expenses of the Custodian relating to
such measures.

4.8. SHAREHOLDER RIGHTS.

With respect to the foreign securities held pursuant to this Article 4, the
Custodian will use

<PAGE> 10

reasonable commercial efforts to facilitate the exercise of voting and other
shareholder rights, subject always to the laws, regulations and practical
constraints that may exist in the country where such securities are issued. The
Fund acknowledges that local conditions, including lack of regulation, onerous
procedural obligations, lack of notice and other factors may have the effect of
severely limiting the ability of the Fund to exercise shareholder rights.

4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.

The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of the Funds. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information
so received by the Custodian from issuers of the foreign securities whose
tender or exchange is sought or from the party (or its agents) making the
tender or exchange offer. Subject to the standard of care to which the
Custodian is held under this Agreement, the Custodian shall not be liable for
any untimely exercise of any tender, exchange or other right or power in
connection with foreign securities or other property of the Funds at any time
held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is
in actual possession of such foreign securities or property and (ii) the
Custodian receives Proper Instructions with regard to the exercise of any such
right or power, and both (i) and (ii) occur at least three business days prior
to the date on which the Custodian is to take action to exercise such right or
power.

4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.

Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible,
to indemnify, and hold harmless, the Custodian from and against any loss,
damage, cost, expense, liability or claim arising out of or in connection with
the Foreign Sub-Custodian's performance of such obligations. At each Fund's
election, a Fund shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that a Fund and any applicable series have not been made whole
for any such loss, damage, cost, expense, liability or claim.

4.11. TAX LAW.

Except to the extent that imposition of any tax liability arises from the
Custodian's failure to perform in accordance with the terms of this Section
4.11 or from the failure of any Foreign Sub-Custodian to perform in accordance
with the terms of the applicable subcustody agreement, the Custodian shall have
no responsibility or liability for any obligations now or hereafter imposed on
a Fund, a series thereof or the Custodian as custodian of the Fund by the tax
law of the United States or of any state or political subdivision thereof. It
shall be the responsibility of each Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of

<PAGE> 11

the Fund by the tax law of countries other than those mentioned in the above
sentence, including responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting. The
sole responsibility of the Custodian with regard to such tax law shall be to
use reasonable efforts to assist the Fund with respect to any claim for
exemption or refund under the tax law of countries for which the Fund has
provided such information.

4.12. LIABILITY OF CUSTODIAN.

Except as may arise from the Custodian's own negligence or willful misconduct
or the negligence or willful misconduct of a Sub-Custodian, the Custodian shall
be without liability to a Fund for any loss, liability, claim or expense
resulting from or caused by anything which is (A) part of Country Risk or (B)
part of the "prevailing country risk" of the Fund, as such term is used in SEC
Release Nos. IC-22658; IS-1080 (May 12, 1997) or as such term or other similar
terms are now or in the future interpreted by the SEC or by the staff of the
Division of Investment Management of the SEC.

The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities System, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.

III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this
Amendment shall prevail. If the Custodian is delegated the
responsibilities of Foreign Custody Manager pursuant to the terms of
Article 3 hereof, in the event of any conflict between the provisions
of Articles 3 and 4 hereof, the provisions of Article 3 shall prevail.

<PAGE> 12

IN WITNESS WHEREOF, each of the parties has caused this Amendment to
be executed in its name and behalf by its duly authorized representative as of
the date first above written.

WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY

/s/Marc L. Parsons By: /s/Ronald E. Logue
- ------------------ ------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Executive Vice President

<TABLE>
<S> <C>
Cash Accumulation Trust
Command Government Fund
Command Money Fund
Command Tax-Free Fund
Global Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Prudential 20/20 Focus Fund
Prudential Balanced Fund
Prudential California Municipal Fund
Prudential Developing Markets Fund
Prudential Distressed Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential Diversified Funds
Prudential Index Series Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Institutional Liquidity Portfolio, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
The Prudential Investment Portfolios Fund, Inc.
Prudential Mid-Cap Value Fund
Prudential MoneyMart Assets, Inc.
</TABLE>

<PAGE> 13

<TABLE>
<S> <C>
Prudential Mortgage Income Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Municipal Bond Fund
Prudential Municipal Series Fund
Prudential National Municipals Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Small Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Prudential Tax-Free Money Fund, Inc.
Prudential Tax-Managed Equity Fund
Prudential Utility Fund, Inc.
Prudential World Fund, Inc.
The Global Total Return Fund, Inc.
The Target Portfolio Trust
The Asia Pacific Fund, Inc.
The High Yield Income Fund, Inc.
</TABLE>

WITNESSED BY:

By: /s/S. Jane Rose By: /s/Grace Torres
--------------- ---------------
Grace Torres
Treasurer

First Financial Fund, Inc.
The High Yield Plus Fund, Inc.

WITNESSED BY:

By: /s/Stephanie L. Bourque By: /s/Arthur J. Brown
----------------------- ------------------
Arthur J. Brown
Secretary

<PAGE> 14
SCHEDULE A

STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Argentina Citibank, N.A. --

Australia Westpac Banking Corporation --

Austria Erste Bank der Oesterreichischen --
Sparkassen AG

Bahrain British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

Bangladesh Standard Chartered Bank --

Belgium Generale de Banque --

Bermuda The Bank of Bermuda Limited --

Bolivia Banco Boliviano Americano S.A. --

Botswana Barclays Bank of Botswana Limited --

Brazil Citibank, N.A. --

Bulgaria ING Bank N.V. --

Canada Canada Trustco Mortgage Company --

Chile Citibank, N.A. Deposito Central de Valores S.A.

People's Republic The Hongkong and Shanghai --
of China Banking Corporation Limited,
Shanghai and Shenzhen branches

Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
</TABLE>

14
<PAGE> 15
SCHEDULE A

STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Costa Rica Banco BCT S.A. --

Croatia Privredna Banka Zagreb d.d --

Cyprus Barclays Bank Plc. --
Cyprus Offshore Banking Unit

Czech Republic Ceskoslovenska Obchodni --
Banka, A.S.

Denmark Den Danske Bank --

Ecuador Citibank, N.A. --

Egypt National Bank of Egypt --

Estonia Hansabank --

Finland Merita Bank Limited --

France Banque Paribas --

Germany Dresdner Bank AG --

Ghana Barclays Bank of Ghana Limited --

Greece National Bank of Greece S.A. The Bank of Greece,
System for Monitoring Transactions
in Securities in Book-Entry Form

Hong Kong Standard Chartered Bank --

Hungary Citibank Budapest Rt. --

Iceland Icebank Ltd.
</TABLE>

15
<PAGE> 16
SCHEDULE A

STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
India Deutsche Bank AG --

The Hongkong and Shanghai
Banking Corporation Limited

Indonesia Standard Chartered Bank --

Ireland Bank of Ireland --

Israel Bank Hapoalim B.M. --

Italy Banque Paribas --

Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire

Jamaica Scotiabank Jamaica Trust and Merchant --
Bank Ltd.

Japan The Daiwa Bank, Limited Japan Securities Depository
Center

The Fuji Bank, Limited

Jordan British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

Kenya Barclays Bank of Kenya Limited --

Republic of Korea The Hongkong and Shanghai Banking
Corporation Limited

Latvia JSC Hansabank-Latvija --

Lebanon British Bank of the Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
</TABLE>

16
<PAGE> 17
SCHEDULE A

STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Lithuania Vilniaus Bankas AB --

Malaysia Standard Chartered Bank --
Malaysia Berhad

Mauritius The Hongkong and Shanghai --
Banking Corporation Limited

Mexico Citibank Mexico, S.A. --

Morocco Banque Commerciale du Maroc --

Namibia (via) Standard Bank of South Africa --

The Netherlands MeesPierson N.V. --

New Zealand ANZ Banking Group --
(New Zealand) Limited

Norway Christiania Bank og --
Kreditkasse

Oman British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

Pakistan Deutsche Bank AG --

Peru Citibank, N.A. --

Philippines Standard Chartered Bank --

Poland Citibank (Poland) S.A. --
Bank Polska Kasa Opieki S.A.

Portugal Banco Comercial Portugues --
</TABLE>

17
<PAGE> 18
SCHEDULE A

STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Romania ING Bank N.V. --

Russia Credit Suisse First Boston AO, Moscow --
(as delegate of Credit Suisse
First Boston, Zurich)

Singapore The Development Bank --
of Singapore Limited

Slovak Republic Ceskoslovenska Obchodni Banka, A.S. --

Slovenia Bank Austria d.d. Ljubljana --

South Africa Standard Bank of South Africa Limited --

Spain Banco Santander, S.A. --

Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited

Swaziland Standard Bank Swaziland Limited --

Sweden Skandinaviska Enskilda Banken --

Switzerland UBS AG --

Taiwan - R.O.C. Central Trust of China --

Thailand Standard Chartered Bank --

Trinidad & Tobago Republic Bank Limited --

Tunisia Banque Internationale Arabe de Tunisie --

Turkey Citibank, N.A. --
Ottoman Bank
</TABLE>

18
<PAGE> 19
SCHEDULE A

STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Ukraine ING Bank, Ukraine --

United Kingdom State Street Bank and Trust Company, --
London Branch

Uruguay Citibank, N.A. --

Venezuela Citibank, N.A. --

Zambia Barclays Bank of Zambia Limited --

Zimbabwe Barclays Bank of Zimbabwe Limited --
</TABLE>

Euroclear (The Euroclear System)/State Street London Limited
Cedel, S.A. (Cedel Bank, societe anonyme)/State Street London Limited
INTERSETTLE (for EASDAQ Securities)

* The global custody network approved by each fund is set forth below on
Schedules A-1 and A-2.

19
<PAGE> 20
SCHEDULE A-1

PRUDENTIAL MUTUAL FUNDS
STATE STREET GLOBAL CUSTODY NETWORK

<TABLE>
<CAPTION>
COUNTRY FUNDS
<S> <C> <C>
Argentina Mexico Global Utility Fund, Inc.
Australia Morocco Prudential 20/20 Focus Fund
Austria Netherlands Prudential Balanced Fund
Bangladesh+ New Zealand Prudential Equity Fund, Inc.
Belgium Norway Prudential Equity Income Fund
Brazil Pakistan Prudential Developing Markets Fund
Canada Peru Prudential Diversified Bond Fund, Inc.
Chile Philippines Prudential Distressed Securities Fund, Inc.
China Poland Prudential Diversified Funds
Columbia Portugal Prudential Emerging Growth Fund, Inc.
Cyprus Russia Prudential Global Genesis Fund, Inc.
Czech Republic Singapore Prudential Global Limited Maturity Fund, Inc.
Denmark Slovak Republic Prudential Index Series Fund
Ecuador South Africa Prudential Intermediate Global Income Fund, Inc.
Egypt Spain Prudential International Bond Fund, Inc.,
Finland Sri Lanka Prudential Mid-Cap Value Fund
France Sweden Prudential Natural Resources Fund, Inc.
Germany Switzerland Prudential Pacific Growth Fund, Inc.
Ghana Taiwan Prudential Real Estate Securities Fund
Greece Thailand Prudential Small-Cap Quantum Fund, Inc.
Hong Kong Turkey Prudential Small Company Value Fund, Inc.
Hungary Transnational Prudential Tax-Managed Equity Fund
India United Kingdom Prudential Utility Fund, Inc.
Indonesia Uruguay Prudential World Fund, Inc.
Ireland Venezuela The Prudential Investment Portfolios Fund, Inc.
Israel The Target Portfolio Trust
Italy The Global Total Return Fund, Inc.
Ivory Coast
Japan
Jordan
Kenya
Korea
Lebanon
Malaysia
</TABLE>

- ---------------------------------------------------------------------------
+ Countries marked by a dagger have been approved only for The Target Portfolio
Trust.
<PAGE> 21
SCHEDULE A-2

PRUDENTIAL MUTUAL FUNDS
STATE STREET GLOBAL CUSTODY NETWORK

<TABLE>
<CAPTION>
COUNTRY FUNDS
<S> <C>
United Kingdom Cash Accumulation Trust
Command Government Fund
Command Money Fund
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential High Yield Income Fund, Inc.
Prudential Institutional Liquidity Portfolio, Inc.
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Structured Maturity Fund, Inc.
</TABLE>
<PAGE> 22
SCHEDULE B

STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
- ------- ----------------------
<S> <C>
Argentina Caja de Valores S.A.

Australia Austraclear Limited

Reserve Bank Information and
Transfer System

Austria Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)

Belgium Caisse
Interprofessionnelle
de Depot et de
Virement de Titres
S.A.

Banque Nationale de Belgique

Brazil Companhia Brasileira de Liquidacao e
Custodia (CBLC)

Bolsa de Valores de Rio de Janeiro
All SSB clients presently use CBLC

Central de Custodia e de Liquidacao
Financeira de Titulos

Canada The Canadian Depository
for Securities Limited

People's Republic Shanghai Securities Central Clearing
of China and Registration Corporation

Shenzhen Securities Central Clearing
Co., Ltd.

Croatia

Czech Republic Stredisko cennych papiru

Czech National Bank

Denmark Vaerdipapircentralen
(the Danish Securities Center)
</TABLE>

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE> 23
SCHEDULE B

STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
- ------- ----------------------
<S> <C>
Egypt Misr Company for Clearing, Settlement,
and Central Depository

Finland The Finnish Central Securities
Depository

France Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres (SICOVAM)

Germany Deutsche Borse Clearing AG

Greece The Central Securities Depository
(Apothetirion Titlon AE)

Hong Kong The Central Clearing and
Settlement System

Central Money Markets Unit

Hungary The Central Depository and Clearing
House (Budapest) Ltd. (KELER)
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]

India The National Securities Depository Limited

Indonesia Bank Indonesia

Ireland Central Bank of Ireland
Securities Settlement Office

Israel The Tel Aviv Stock Exchange Clearing
House Ltd.

Bank of Israel

Italy Monte Titoli S.p.A.

Banca d'Italia
</TABLE>

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE> 24
SCHEDULE B

STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
- ------- ----------------------
<S> <C>
Japan Bank of Japan Net System

Kenya Central Bank of Kenya

Republic of Korea Korea Securities Depository Corporation

Lebanon The Custodian and Clearing Center of
Financial Instruments for Lebanon
and the Middle East (MIDCLEAR) S.A.L.

The Central Bank of Lebanon

Malaysia The Malaysian Central Depository Sdn. Bhd.

Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
System

Mexico S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores)

Morocco Maroclear

The Netherlands Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. (NECIGEF)

De Nederlandsche Bank N.V.

New Zealand New Zealand Central Securities
Depository Limited

Norway Verdipapirsentralen (the Norwegian
Registry of Securities)

Pakistan Central Depository Company of Pakistan
Limited
</TABLE>

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE> 25
SCHEDULE B

STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
- ------- ----------------------
<S> <C>
Peru Caja de Valores y Liquidaciones S.A.
(CAVALI)

Philippines The Philippines Central Depository, Inc.

The Registry of Scripless Securities
(ROSS) of the Bureau of the Treasury

Poland The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)

Central Treasury Bills Registrar

Portugal Central de Valores Mobiliarios (Central)

Romania National Securities Clearing, Settlement and
Depository Co.

Bucharest Stock Exchange Registry Division

Singapore The Central Depository (Pte)
Limited

Monetary Authority of Singapore

Slovak Republic Stredisko Cennych Papierov

National Bank of Slovakia

South Africa The Central Depository Limited

Spain Servicio de Compensacion y
Liquidacion de Valores, S.A.

Banco de Espana,
Central de Anotaciones en Cuenta

Sri Lanka Central Depository System
(Pvt) Limited
</TABLE>

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE> 26
SCHEDULE B

STATE STREET
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY MANDATORY DEPOSITORIES
- ------- ----------------------
<S> <C>
Sweden Vardepapperscentralen AB
(the Swedish Central Securities Depository)

Switzerland Schweizerische Effekten - Giro AG

Taiwan - R.O.C. The Taiwan Securities Central
Depository Co., Ltd.

Thailand Thailand Securities Depository
Company Limited

Turkey Takas ve Saklama Bankasi A.S.
(TAKASBANK)

Central Bank of Turkey

United Kingdom The Bank of England,
The Central Gilts Office and
The Central Moneymarkets Office

Uruguay Central Bank of Uruguay

Venezuela Central Bank of Venezuela
</TABLE>

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE> 27
SCHEDULE C

MARKET INFORMATION

<TABLE>
<CAPTION>
PUBLICATION/TYPE OF INFORMATION BRIEF DESCRIPTION
(FREQUENCY)
<S> <C>
THE GUIDE TO CUSTODY IN WORLD MARKETS An overview of safekeeping and settlement practices and
(annually) procedures in each market in which State Street Bank
and Trust Company offers custodial services.

GLOBAL CUSTODY NETWORK REVIEW Information relating to the operating history and structure of
(annually) depositories and subcustodians located in the markets in which State
Street Bank and Trust Company offers custodial services, including
transnational depositories.

GLOBAL LEGAL SURVEY With respect to each market in which State Street Bank and
(annually) Trust Company offers custodial services, opinions relating to whether
local law restricts (i) access of a fund's independent public
accountants to books and records of a Foreign Sub-Custodian or Foreign
Securities System, (ii) the Fund's ability to recover in the event of
bankruptcy or insolvency of a Foreign Sub-Custodian or Foreign
Securities System, (iii) the Fund's ability to recover in the event of a
loss by a Foreign Sub-Custodian or Foreign Securities System, and (iv)
the ability of a foreign investor to convert cash and cash equivalents to
U.S. dollars.

SUBCUSTODIAN AGREEMENTS Copies of the subcustodian contracts State Street Bank and
(annually) Trust Company has entered into with each subcustodian in the markets
in which State Street Bank and Trust Company offers subcustody services
to its US mutual fund clients.

Network Bulletins (weekly): Developments of interest to investors in the markets in which State
Street Bank and Trust Company offers custodial services.

Foreign Custody Advisories With respect to markets in which State Street Bank and Trust
(as necessary): Company offers custodial services which exhibit special custody
risks, developments which may impact State Street's ability to deliver
expected levels of service.
</TABLE>
<PAGE> 28
SCHEDULE D

LIST OF FUNDS, CONTRACTS AND AGREEMENTS

<TABLE>
<CAPTION>
Fund Name Execution Date
- --------- --------------
<S> <C>
Cash Accumulation Trust December 12, 1997

Command Government Fund July 1, 1990

Command Money Fund July 1, 1990

Command Tax-Free Fund July 1, 1990

The Global Total Return Fund, Inc. September 5, 1990
(formerly The Global Yield Fund, Inc.)

Prudential 20/20 Focus Fund April 14, 1998

Prudential California Municipal Fund August 1, 1990

Prudential Developing Markets Fund June 1, 1998

Prudential Distressed Securities Fund, Inc. February 8, 1996

Prudential Diversified Bond Fund, Inc. January 3, 1995

Prudential Diversified Funds September 2, 1998

Prudential Emerging Growth Fund, Inc. October 21, 1996

Prudential Equity Fund, Inc. August 1, 1990

Prudential Global Limited Maturity Fund, Inc. October 25, 1990
(formerly Prudential Short-Term Global
Income Fund, Inc.)

Prudential Government Income Fund, Inc. July 31, 1990
(formerly Prudential Government Plus Fund)

Prudential Government Securities Trust July 26, 1990

Prudential High Yield Fund, Inc. July 26, 1990

Prudential High Yield Total Return Fund, Inc. May 30, 1997

Prudential International Bond Fund, Inc. January 16, 1996
(formerly The Global Government Plus Fund, Inc.)

The Prudential Investment Portfolios Fund, Inc. October 27, 1995
(formerly Prudential Jennison Series Fund, Inc.)

Prudential Mid-Cap Value Fund April 14, 1998
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C>
Prudential MoneyMart Assets, Inc. July 25, 1990

Prudential Mortgage Income Fund, Inc. August 1, 1990
(formerly Prudential GNMA Fund, Inc.)

Prudential Multi-Sector Fund, Inc. June 1, 1990

Prudential Municipal Series Fund August 1, 1990

Prudential National Municipals Fund, Inc. July 26, 1990

Prudential Pacific Growth Fund, Inc. July 16, 1992

Prudential Real Estate Securities Fund February 18, 1998

Prudential Small Cap Quantum Fund, Inc. August 1, 1997

Prudential Small Company Value Fund, Inc. July 26, 1990
(formerly Prudential Growth Opportunity Fund, Inc.)

Prudential Special Money Market Fund, Inc. January 12, 1990

Prudential Structured Maturity Fund, Inc. July 25, 1989

Prudential Tax-Free Money Fund, Inc. July 26, 1990

Prudential Utility Fund, Inc. June 6, 1990

Prudential World Fund, Inc. June 7, 1990
(formerly Prudential Global Fund, Inc.)

The Target Portfolio Trust November 9, 1992

Global Utility Fund, Inc. December 21, 1989

Nicholas-Applegate Fund, Inc. April 10, 1987

Prudential Balanced Fund September 4, 1987

Prudential Equity Income Fund January 6, 1987

Prudential Global Genesis Fund, Inc. October 21, 1987

Prudential Institutional Liquidity Portfolio, Inc. November 20, 1987

Prudential Intermediate Global Income Fund, Inc. May 19, 1988

Prudential Municipal Bond Fund August 25, 1987

Prudential Natural Resources Fund, Inc. September 18, 1987

Prudential Tax-Managed Equity Fund December 8, 1998

The Asia Pacific Fund April 24, 1987
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C>
First Financial Fund, Inc. May 1, 1986

The High Yield Income Fund, Inc. November 6, 1987

The High Yield Plus Fund, Inc. March 15, 1988
</TABLE>

<PAGE> 1
EXHIBIT 99.(h)(2)

AMENDMENT TO TRANSFER AGENCY AND SERVICE AGREEMENT

THIS AMENDMENT to the Transfer Agency and Service Agreement by and
between Prudential International Bond Fund, Inc. (the "Fund") and
Prudential Mutual Fund Services LLC (successor to Prudential Mutual Fund
Services, Inc.)("PMFS") is entered into as of August 24, 1999.

WHEREAS, the Fund and PMFS have entered into a Transfer Agency
and Service Agreement (the "Agreement") pursuant to which PMFS serves as
transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund; and

WHEREAS, the Fund and PMFS desire to amend the Agreement to
confirm the Fund's agreement to pay transfer agency account fees and
expenses for beneficial owners holding shares through omnibus accounts
maintained by The Prudential Insurance Company of America, its
subsidiaries or affiliates.

NOW, THEREFORE, for and in consideration of the continuation of
the Agreement, and other good and valuable consideration, Article 8 of
the Agreement is amended by adding the following section to the Agreement:

8.04 PMFS may enter into agreements with Prudential
or any subsidiary or affiliate of Prudential whereby PMFS
will maintain an omnibus account and the Fund will reimburse
PMFS for amounts paid by PMFS to Prudential, or such
subsidiary or affiliate, in an amount not in excess of the
annual maintenance fee for each beneficial shareholder
account and transactional fees and expenses with respect to
such beneficial shareholder account as if each beneficial
shareholder account were maintained by PMFS on the Fund's
records, subject to the fee schedule attached hereto as
Schedule A. Prudential, its subsidiary or affiliate, as the
case may be, shall maintain records relating to each
beneficial shareholder account that underlies the omnibus
account maintained by PMFS.

<PAGE> 2

IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.

PRUDENTIAL INTERNATIONAL ATTEST:
BOND FUND, INC.

By: /s/ Robert F. Gunia By: /s/ Marguerite E. H. Morrison
------------------------------- -----------------------------
Robert F. Gunia Marguerite E. H. Morrison
Vice President Secretary

PRUDENTIAL MUTUAL FUND SERVICES LLC

ATTEST:

By: /s/ Brian W. Henderson By: /s/ William V. Healey
-------------------------------- ----------------------------------
Brian W. Henderson William V. Healey
President Secretary

<PAGE> 1
EXHIBIT (i)

Piper Marbury Rudnick & Wolfe LLP
6225 Smith Avenue
Baltimore, Maryland 21209-3600
www.piperrudnick.com

PHONE (410) 580-3000
FAX (410) 580-3001

February 29, 2000

Prudential International Bond Fund, Inc.
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102

Re: Registration Statement on Form N-1A

Ladies and Gentlemen:

We have acted as special Maryland counsel to Prudential International
Bond Fund, Inc., (the "Fund"), in connection with the registration under the
Securities Act of 1933, as amended, by the Fund of up to 2,000,000,000 shares of
Common Stock, par value $.01 per share, divided equally into four classes,
designated Class A, Class B, Class C and Class Z (the "Shares"), pursuant to a
registration statement filed with the Securities and Exchange Commission (the
"Commission") on Form N-1A, as amended (the "Registration Statement").

In this capacity, we have examined the Fund's charter and by-laws, the
proceedings of the Board of Directors of the Fund authorizing the issuance of
the Shares in accordance with the Registration Statement, a good standing
certificate by the Maryland State Department of Assessments and Taxation issued
as of a recent date, a Certificate of the Secretary of the Fund (the
"Certificate"), and such other statutes, certificates, instruments and documents
relating to the Fund and matters of law as we have deemed necessary to the
issuance of this opinion. In such examination, we have assumed, without
independent investigation, the genuineness of all signatures, the conformity of
final documents in all material respects to the versions thereof submitted to us
in draft form, the authenticity of all documents submitted to us as originals,
the conformity with originals of all documents submitted to us as copies (and
the authenticity of the originals of such copies), and the accuracy and
completeness of all public records reviewed by us. As to factual matters, we
have relied on the Certificate and have not independently verified the matters
stated therein.
<PAGE> 2
Prudential International Bond Fund, Inc.
February 29, 2000
Page 2

Based upon the foregoing, and limited in all respects to applicable Maryland
law, we are of the opinion and advise you that:

1. The Fund has been duly incorporated and is validly existing as a
corporation under the laws of the State of Maryland.

2. The Shares to be issued by the Fund pursuant to the Registration
Statement have been duly authorized and, when issued as contemplated in the
Registration Statement in an amount not to exceed the number of Shares
authorized by the charter but unissued, will be validly issued, fully paid and
nonassessable.

In addition to the qualifications set forth above, this opinion is
subject to the qualification that we express no opinion as to the laws of any
jurisdiction other than the State of Maryland. We assume no obligation to
supplement this opinion if any applicable laws change after the date hereof or
if any facts or circumstances come to our attention after the date hereof that
might change this opinion. This opinion is limited to the matters set forth
herein, and no other opinion should be inferred beyond the matters expressly
stated.

We hereby consent to the filing of this opinion with the Commission as
Exhibit (i) to the Registration Statement. In giving our consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations of the
Commission thereunder.

Very truly yours,

/s/ Piper Marbury Rudnick
& Wolfe LLP

<PAGE> 1
Exhibit 99.J

CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------

We hereby consent to the use in this Registration Statement on Form N-1A of our
report dated February 16, 2000, relating to the financial statements and
financial highlights of Prudential International Bond Fund, Inc., which appears
in such Registration Statement. We also consent to the references to us under
the headings "Investment Advisory and Other Services" and "Financial
Highlights" in such Registration Statement.

PricewaterhouseCoopers LLP

New York, New York
February 28, 2000

<PAGE> 1
Exhibit (P)

[NAME OF FUND OR 17j-1 ORGANIZATION]
(THE FUND)

CODE OF ETHICS ADOPTED PURSUANT TO RULE 17j-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
(THE CODE)

1. PURPOSES

The Code has been adopted by the Board of Directors/Trustees or the Duly
Appointed Officer-In-Charge of the Fund, the Manager, the Adviser/Subadviser,
and the Principal Underwriter in accordance with Rule 17j-1(c) under the
Investment Company Act of 1940 (the Act) and in accordance with the following
general principles:

(1) THE DUTY AT ALL TIMES TO PLACE THE INTERESTS OF SHAREHOLDERS FIRST.

Investment company personnel should scrupulously avoid serving
their own personal interests ahead of shareholders' interests in any
decision relating to their personal investments.

(2) THE REQUIREMENT THAT ALL PERSONAL SECURITIES TRANSACTIONS BE
CONDUCTED CONSISTENT WITH THE CODE AND IN SUCH A MANNER AS TO AVOID ANY
ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S
POSITION OF TRUST AND RESPONSIBILITY.

Investment company personnel must not only seek to achieve
technical compliance with the Code but should strive to abide by its
spirit and the principles articulated herein.

(3) THE FUNDAMENTAL STANDARD THAT INVESTMENT COMPANY PERSONNEL SHOULD
NOT TAKE INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS.

Investment company personnel must avoid any situation that might
compromise, or call into question, their exercise of fully independent
judgment in the interest of shareholders, including, but not limited to
the receipt of unusual investment opportunities, perquisites, or gifts
of more than a de minimis value from persons doing or seeking business
with the

<PAGE> 2

Fund.

Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to a purchase or sale of a security held or to be
acquired (as such term is defined in Section 2.) by an investment company, if
effected by an associated person of such company.

The purpose of the Code is to establish procedures consistent with the Act
and Rule 17j-1 to give effect to the following general prohibitions as set forth
in Rule 17j-1(b) as follows:

(a) It shall be unlawful for any affiliated person of or Principal
Underwriter for a registered investment company, or any affiliated person
of an investment adviser of or principal underwriter for a registered
investment company in connection with the purchase or sale, directly or
indirectly, by such person of a security held or to be acquired, by such
registered investment company:

(1) To employ any device, scheme or artifice to defraud such
registered investment company;

(2) To make to such registered investment company any untrue
statement of a material fact or omit to state to such registered
investment company a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;

(3) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
registered investment company; or

(4) To engage in any manipulative practice with respect to such
registered investment company.

2
<PAGE> 3
2. DEFINITIONS

(a) "Access Person" means any director/trustee, officer, general
partner or Advisory Person (including any Investment Personnel, as
that term is defined herein) of the Fund, the Manager, the
Adviser/Subadviser, or the Principal Underwriter.

(b) "Adviser/Subadviser" means the Adviser or Subadviser of the
Fund or both as the context may require.

(c) "Advisory Person" means (i) any employee of the Fund, Manager
or Adviser/Subadviser (or of any company in a control relationship to
the Fund, Manager or Adviser/Subadviser) who, in connection with his
or her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of a security by
the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any
natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard
to the purchase or sale of a security.

(d) "Beneficial Ownership" will be interpreted in the same manner
as it would be under Securities Exchange Act Rule 16a-1(a)(2) in
determining which security holdings of a person are subject to the
reporting and short-swing profit provisions of Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect
beneficial ownership will apply to all securities which an Access
Person has or acquires (Exhibit A).

(e) "Complex" means the group of registered investment companies
for which Prudential Investments Fund Management LLC serves as
Manager; provided, however, that with respect to Access Persons of
the Subadviser (including any unit or subdivision thereof), "Complex"
means the group of registered investment companies in the Complex
advised by the Subadviser or unit or subdivision thereof.

(f) "Compliance Officer" means the person designated by the
Manager, the Adviser/Subadviser, or Principal Underwriter (including
his or her designee) as having responsibility for compliance with the
requirements of the Code.

(g) "Control" will have the same meaning as that set forth in

3
<PAGE> 4
Section 2(a)(9) of the Act.

(h) "Disinterested Director/Trustee" means a Director/ Trustee of
the Fund who is not an "interested person" of the Fund within the
meaning of Section 2(a)(19) of the Act.

An interested Director/Trustee who would not otherwise be
deemed to be an Access Person, shall be treated as a Disinterested
Director/Trustee for purposes of compliance with the provisions of
the Code.

(i) "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or 15(d) of the Securities Exchange Act
of 1934.

(j) "Investment Personnel" means: (a) Portfolio Managers and other
Advisory Persons who provide investment information and/or advice to
the Portfolio Manager(s) and/or help execute the Portfolio
Manager's(s') investment decisions, including securities analysts and
traders ; and (b) any natural person in a control relationship to the
Fund who obtains information concerning recommendations made to the
Fund with regard to the purchase or sale of a security.

(k) "Manager" means Prudential Investments Fund Management, LLC.

(l) "Portfolio Manager" means any Advisory Person who has the
direct responsibility and authority to make investment decisions for
the Fund.

(m) "Private placement" means a limited offering that is exempt
from registration under the Securities Act of 1933 pursuant to
section 4(2) or section 4(6) or pursuant to rule 504, rule 505 or
rule 506 under such Securities Act.

(n) "Security" will have the meaning set forth in Section 2(a)(36)
of the Act, except that it will not include shares of registered
open-end investment companies, direct obligations of the Government
of the United

4
<PAGE> 5

States, short-term debt securities which are "government securities"
within the meaning of Section 2(a)(16) of the Act, bankers'
acceptances, bank certificates of deposit, commercial paper and such
other money market instruments as are designated by the Compliance
Officer. For purposes of the Code, an "equivalent Security" is one
that has a substantial economic relationship to another Security.
This would include, among other things, (1) a Security that is
exchangeable for or convertible into another Security, (2) with
respect to an equity Security, a Security having the same issuer
(including a private issue by the same issuer) and any derivative,
option or warrant relating to that Security and (3) with respect to a
fixed-income Security, a Security having the same issuer, maturity,
coupon and rating.

(o) Security held or to be acquired means any Security or any
equivalent Security which, within the most recent 15 days: (1) is or
has been held by the Fund; or (2) is being considered by the Fund or
its investment adviser for purchase by the Fund.

3. APPLICABILITY

The Code applies to all Access Persons and the Compliance Officer
shall provide each Access Person with a copy of the Code. The prohibitions
described below will only apply to a transaction in a Security in which
the designated Access Person has, or by reason of such transaction
acquires, any direct or indirect Beneficial Ownership. The Compliance
Officer will maintain a list of all Access Persons who are currently, and
within the past five years, subject to the Code.

4. PROHIBITED PURCHASES AND SALES

A. INITIAL PUBLIC OFFERINGS

No Investment Personnel may acquire any Securities in an initial public
offering.

5
<PAGE> 6

For purposes of this restriction, "Initial Public Offerings" shall not include
offerings of government and municipal securities.

B. PRIVATE PLACEMENTS

No Investment Personnel may acquire any Securities in a private
placement without prior approval.

(i) Prior approval must be obtained in accordance with the
preclearance procedure described in Section 6 below. Such approval will
take into account, among other factors, whether the investment
opportunity should be reserved for the Fund and its shareholders and
whether the opportunity is being offered to the Investment Personnel by
virtue of his or her position with the Fund. The Adviser/Subadviser
shall maintain a record of such prior approval and reason for same, for
at least 5 years after the end of the fiscal year in which the approval
is granted.

(ii) Investment Personnel who have been authorized to acquire
Securities in a private placement must disclose that investment to the
chief investment officer (including his or her designee) of the
Adviser/Subadviser (or of any unit or subdivision thereof) or the
Compliance Officer when they play a part in any subsequent
consideration of an investment by the Fund in the issuer. In such
circumstances, the Fund's decision to purchase Securities of the issuer

6
<PAGE> 7
will be subject to an independent review by appropriate personnel with
no personal interest in the issuer.

C. BLACKOUT PERIODS

(i) Except as provided in Section 5 below, Access Persons are
prohibited from executing a Securities transaction on a day during
which any investment company in the Complex has a pending "buy" or
"sell" order in the same or an equivalent Security and until such time
as that order is executed or withdrawn; provided, however, that this
prohibition shall not apply to Disinterested Directors/Trustees except
if they have actual knowledge of trading by any fund in the Complex
and, in any event, only with respect to those funds on whose boards
they sit.

This prohibition shall also not apply to Access Persons of the
Subadviser who do not, in the ordinary course of fulfilling his or her
official duties, have access to information regarding the purchase and
sale of Securities for the Fund and are not engaged in the day-to-day
operations of the Fund; provided that Securities investments effected
by such Access Persons during the proscribed period are not effected
with knowledge of the purchase or sale of the same or equivalent
Securities by any fund in the Complex.

A "pending 'buy' or 'sell' order" exists when a decision to purchase
or sell a Security has been made and communicated.

7
<PAGE> 8

(ii) Portfolio Managers are prohibited from buying or selling
a Security within seven calendar days before or after the Fund trades
in the same or an equivalent Security. Nevertheless, a personal trade
by any Investment Personnel shall not prevent a Fund in the same
Complex from trading in the same or an equivalent security. However,
such a transaction shall be subject to independent review by the
Compliance Officer.

(iii) If trades are effected during the periods proscribed in
(i) or (ii) above, except as provided in (iv) below with respect to (i)
above, any profits realized on such trades will be promptly required to
be disgorged to the Fund.

(iv) A transaction by Access Persons (other than Investment
Personnel) inadvertently effected during the period proscribed in (i)
above will not be considered a violation of the Code and disgorgement
will not be required so long as the transaction was effected in
accordance with the preclearance procedures described in Section 6
below and without prior knowledge of trading by any fund in the Complex
in the same or an equivalent Security.

D. SHORT-TERM TRADING PROFITS

Except as provided in Section 5 below, Investment Personnel
are prohibited from profiting from a purchase and sale, or sale and
purchase, of the same or an equivalent Security within any 60 calendar
day period. If trades are effected during the proscribed period, any
profits realized on such trades will be immediately required to be
disgorged to the Fund.

8
<PAGE> 9

E. SHORT SALES

No Access Person may sell any security short which is owned by any Fund
in the Complex. Access Persons may, however make short sales when he/she owns an
equivalent amount of the same security.

F. OPTIONS

No Access Person may write a naked call option or buy a naked put
option on a security owned by any Fund in the Complex. Access Persons may
purchase options on securities not held by any Fund in the Complex, or purchase
call options or write put options on securities owned by any Fund in the
Complex, subject to preclearance and the same restrictions applicable to other
securities. Access Persons may write covered call options or buy covered put
options on a security owned by any Fund in the Complex at the discretion of the
Compliance Officer.

G. INVESTMENT CLUBS

No Access Person may participate in an investment club.

5. EXEMPTED TRANSACTIONS

Subject to preclearance in accordance with Section 6 below with respect
to subitems (b), (e), (f), (g) and (i) hereof, the prohibitions of Sections 4(C)
and 4(D) will not apply to the following:

(a) Purchases or sales of Securities effected in any account
over which the Access Person has no direct or indirect influence or
control or in any account of the Access Person which is managed on a
discretionary basis by a person other than such Access Person and with
respect to which such Access Person does not in fact influence or
control such transactions.

9
<PAGE> 10

(b) Purchases or sales of Securities (or their equivalents)
which are not eligible for purchase or sale by any fund in the Complex.

(c) Purchases or sales of Securities which are non-volitional
on the part of either the Access Person or any fund in the Complex.

(d) Purchases of Securities which are part of an automatic
dividend reinvestment plan.

(e) Purchases effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its Securities, to the
extent such rights were acquired from such issuer, and sales of such
rights so acquired.

(f) Any equity Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 500
shares or less in the aggregate, if (i) the Access Person has no prior
knowledge of activity in such security by any fund in the Complex and
(ii) the issuer is listed on The New York Stock Exchange or has a
market capitalization (outstanding shares multiplied by the current
price per share) greater than $1 billion (or a corresponding market
capitalization in foreign markets).

(g) Any fixed-income Securities transaction, or series of
related transactions effected over a 30 calendar day period, involving
100 units ($100,000 principal amount) or less in the aggregate, if the
Access Person has no prior knowledge of transactions in such Securities
by any fund in the Complex.

(h) Any transaction in index options effected on a broad-based
index (See Exhibit B.)(1)

(i) Purchases or sales of Securities which receive the prior
approval of the Compliance Officer (such person having no personal
interest in such purchases or sales), based on a determination that no
abuse is involved and that such purchases and sales are not likely to
have any economic impact on any fund in the Complex or on its ability
to purchase or sell Securities of the same class or other Securities of
the same issuer.

- --------

(1) Exhibit B will be amended by the Compliance Officer as necessary.

10
<PAGE> 11
(j) Purchases or sales of Unit Investment Trusts.

6. PRECLEARANCE

Access Persons (other than Disinterested Directors/Trustees) must
preclear all personal Securities investments with the exception of those
identified in subparts (a), (c), (d), (h) and (j) of Section 5 above.

All requests for preclearance must be submitted to the Compliance
Officer for approval. All approved orders must be executed no later than 5:00
p.m. local time on the business day following the date preclearance is granted.
If any order is not timely executed, a request for preclearance must be
resubmitted.

7. REPORTING

(a) Disinterested Directors/Trustees shall report to the Secretary of
the Fund or the Compliance Officer the information described in Section 7(b)
hereof with respect to transactions in any Security in which such Disinterested
Director/Trustee has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in the Security only if such Disinterested
Director/Trustee, at the time of that transaction knew or, in the ordinary
course of fulfilling his or her official duties as a Director/Trustee of the
Fund, should have known that, during the 15-day period immediately preceding or
subsequent to the date of the transaction in a Security by such
Director/Trustee, such Security is or was purchased or sold by the Fund or was
being considered for purchase or sale by the Fund, the Manager or
Adviser/Subadviser; provided, however, that a

11
<PAGE> 12

Disinterested Director/Trustee is not required to make a report with respect to
transactions effected in any account over which such Director/Trustee does not
have any direct or indirect influence or control or in any account of the
Disinterested Director/Trustee which is managed on a discretionary basis by a
person other than such Director/Trustee and with respect to which such
Director/Trustee does not in fact influence or control such transactions. The
Secretary of the Fund or the Compliance Officer shall maintain such reports and
such other records to the extent required by Rule 17j-1 under the Act.

(b) Every report required by Section 7(a) hereof shall be made not
later than ten days after the end of the calendar quarter in which the
transaction to which the report relates was effected, and shall contain the
following information:

(i) The date of the transaction, the title and the number of
shares, and the principal amount of each Security involved;

(ii) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);

(iii) The price at which the transaction was effected;

(iv) The name of the broker, dealer or bank with or through whom
the transaction was effected; and

(v) The date that the report is submitted.

(c) Any such report may contain a statement that the report shall not
be construed as an admission by the person making such report that he or she has
any direct or indirect Beneficial Ownership in the Security to which the report
relates.

12
<PAGE> 13

8. RECORDS OF SECURITIES TRANSACTIONS AND POST-TRADE REVIEW

Access Persons (other than Disinterested Directors/Trustees) are
required to direct their brokers to supply, on a timely basis, duplicate copies
of confirmations of all personal Securities transactions and copies of periodic
statements for all Securities accounts in which such Access Persons have a
Beneficial Ownership interest to the Compliance Officer. Such instructions must
be made upon becoming an Access Person and promptly as new accounts are
established, but no later than ten days after the end of a calendar quarter,
with respect to any account established by the Access Person in which any
securities were held during the quarter for the direct or indirect beneficial
interest of the Access Person. Notification must be made in writing and a copy
of the notification must be submitted to Compliance. This notification will
include the broker, dealer or bank with which the account was established and
the date the account was established.

Compliance with this Code requirement will be deemed to satisfy the
reporting requirements imposed on Access Persons under Rule 17j-1(d), provided,
however, that such confirmations and statements contain all the information
required by Section 7. b. hereof and are furnished within the time period
required by such section.

The Compliance Officer will periodically review the personal investment
activity and holdings reports of all Access Persons (including Disinterested
Directors/Trustees with respect to Securities transactions reported pursuant to
Section 7 above).

9. DISCLOSURE OF PERSONAL HOLDINGS

13
<PAGE> 14

Within ten days after an individual first becomes an Access Person and
thereafter on an annual basis, each Access Person (other than Disinterested
Directors/Trustees) must disclose all personal Securities holdings. Such
disclosure must be made in writing and be as of the date the individual first
became an Access Person with respect to the initial report and by January 30 of
each year, including holdings information as of December 31, with respect to the
annual report. All such reports shall include the following: title, number of
shares and principal amount of each security held, name of broker, dealer or
bank with whom these securities are held and the date of submission by the
Access Person.

10. GIFTS

Access Persons are prohibited from receiving any gift or other thing of
more than $100 in value from any person or entity that does business with or on
behalf of the Fund. Occasional business meals or entertainment (theatrical or
sporting events, etc.) are permitted so long as they are not excessive in number
or cost.

11. SERVICE AS A DIRECTOR

Investment Personnel are prohibited from serving on the boards of
directors of publicly traded companies, absent prior authorization based upon a
determination that the board service would be consistent with the interests of
the Fund and its shareholders. In the limited instances that such board service
is authorized, Investment Personnel will be isolated from those making
investment decisions affecting

14
<PAGE> 15
transactions in Securities issued by any publicly traded company on whose board
such Investment Personnel serves as a director through the use of "Chinese Wall"
or other procedures designed to address the potential conflicts of interest.

12. CERTIFICATION OF COMPLIANCE WITH THE CODE

Access Persons are required to certify annually as follows:

(i) that they have read and understood the Code;

(ii) that they recognize that they are subject to the Code;

(iii) that they have complied with the requirements of the Code; and

(iv) that they have disclosed or reported all personal Securities
transactions required to be disclosed or reported pursuant to
the requirements of the Code.

13. CODE VIOLATIONS

All violations of the Code will be reported to the Board of
Directors/Trustees of the Fund on a quarterly basis. The Board of
Directors/Trustees may take such action as it deems appropriate.

14. REVIEW BY THE BOARD OF DIRECTORS/TRUSTEES

The Board of Directors/Trustees will be provided with an annual report
which at a minimum:

(i) certifies to the Board that the Fund, Manager, Investment
Adviser/Subadviser, and Principal Underwriter has adopted procedures reasonably
necessary to prevent its Access persons from violating its Code.

15
<PAGE> 16

(ii) summarizes existing procedures concerning personal investing and
any changes in the procedures made during the preceding year;

(iii) identifies material Code or procedural violations and sanctions
imposed in response to those material violations; and

(iv) identifies any recommended changes in existing restrictions or
procedures based upon the Fund's experience under the Code, evolving industry
practices, or developments in applicable laws and regulations.

The Board will review such report and determine if any further action
is required.

16
<PAGE> 17

EXPLANATORY NOTES TO CODE

1. No comparable Code requirements have been imposed upon Prudential
Mutual Fund Services LLC, the Fund's transfer agent, or Prudential Investment
Management Services, LLC , which acts as the Fund's distributor, or those of
their directors or officers who are not Directors/Trustees or Officers of the
Fund since they are deemed not to constitute Access Persons or Advisory Persons
as defined in paragraphs (e)(1) and (2) of Rule 17j-1.

17
<PAGE> 18

Exhibit A

Definition of Beneficial Ownership

The term "beneficial ownership" of securities would include not only
ownership of securities held by an access person for his or her own benefit,
whether in bearer form or registered in his or her own name or otherwise, but
also ownership of securities held for his or her benefit by other (regardless of
whether or how they are registered) such as custodians, brokers, executors,
administrators, or trustees (including trusts in which he or she has only a
remainder interest), and securities held for his or her account by pledges,
securities owned by a partnership in which he or she should regard as a personal
holding corporation. Correspondingly, this term would exclude securities held by
an access person for the benefit of someone else.

Ordinarily, this term would not include securities held by executors or
administrators in estates in which an access person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.

Securities held in the name of another should be considered as
"beneficially" owned by an access person where such person enjoys "benefits
substantially equivalent to ownership". The SEC has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances such relationship ordinarily
results in such person obtaining benefits substantially equivalent to ownership,
e.g., application of the income derived from such securities to maintain a
common home, to meet expenses which such person otherwise would meet from other
sources, or the ability to exercise a controlling influence over the purchase,
sale or voting of such securities.

An access person also may be regarded as the beneficial owner of
securities held in the name of another person, if by reason of any contact,
understanding, relationship, agreement or other arrangement, he obtains
therefrom benefits substantially equivalent to those of ownership. Moreover, the
fact that the holder is a relative or relative of a spouse and sharing the same
home as an access person may in itself indicate that the access person would
obtain benefits substantially equivalent to those of ownership from securities
held in the name of such relative. Thus, absent countervailing facts, it is
expected that securities held by relatives who share the same home as an access
person will be treated as being beneficially owned by the access person.

An access person also is regarded as the beneficial owner of securities
held in the name of a spouse, minor children or other person, even though he
does not obtain therefrom the aforementioned benefits of ownership, if he can
vest or revest title in himself at once or at some future time.

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Exhibit B

INDEX OPTIONS ON A BROAD-BASED INDEX

<TABLE>
<CAPTION>
TICKER SYMBOL DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
NIK Nikkei 300 Index CI/Euro
- --------------------------------------------------------------------------------
OEX S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
OEW S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
OEY S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
SPB S&P 500 Index
- --------------------------------------------------------------------------------
SPZ S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
SPX S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
SXZ S&P 500 (Wrap)
- --------------------------------------------------------------------------------
SXB S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
RUZ Russell 2000 Open/Euro Index
- --------------------------------------------------------------------------------
RUT Russell 2000 Open/Euro Index
- --------------------------------------------------------------------------------
MID S&P Midcap 400 Open/Euro Index
- --------------------------------------------------------------------------------
NDX NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDU NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDZ NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDV NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NCZ NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
SML S&P Small Cap 600
- --------------------------------------------------------------------------------
TPX U.S. Top 100 Sector
- --------------------------------------------------------------------------------
SPL S&P 500 Long-Term Close
- --------------------------------------------------------------------------------
ZRU Russell 2000 L-T Open./Euro
- --------------------------------------------------------------------------------
VRU Russell 2000 Long-Term Index
- --------------------------------------------------------------------------------
</TABLE>