<PAGE>
As filed with the Securities and Exchange Commission on July 30, 1996
Securities Act Registration No. 33-15985
Investment Company Act Registration No. 811-5248
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 13 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 14 [X]
(Check appropriate box or boxes)
-----------
PRUDENTIAL GLOBAL GENESIS FUND, INC.
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250
S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) 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.
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE* OFFERING PRICE** REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 1,189,324* $21.65 $290,000 $100.00
- -----------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
* The calculation of the maximum offering price was made pursuant to Rule
24e-2 and was based on the offering price of $21.65 per share equal to the
average of the offering prices of each class of stock of the Registrant as
of the close of business on July 19, 1996 pursuant to Rule 457(d). The total
number of shares redeemed during the fiscal year ended May 31, 1996 amounted
to 18,571,110 shares. Of this number, no shares have been used for reduction
pursuant to paragraph (a) of Rule 24e-2 in all previous fillings of post-
effective amendments during the current year and 17,395,180 shares have been
used for reduction pursuant to paragraph (c) of Rule 24f-2 in all previous
fillings during the current year. 1,175,930 ($23,138,504) of the redeemed
shares for the fiscal year ended May 31, 1996 are being used for the
reductions in the post-effective amendment being filed herein.
** Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has previously registered an indefinite number of shares of
Common Stock, par value $.01 per share. The Registrant filed a notice under
such Rule for its fiscal year ended May 31, 1996 on or about July 30, 1996.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------- --------
<C> <S> <C>
PART A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fund Expenses
Item 3. Condensed Financial Information...... Fund Expenses; Financial
Highlights
Item 4. General Description of Registrant.... Cover Page; How the Fund
Invests; General Information
Item 5. Management of Fund................... Financial Highlights; How the
Fund is Managed; General
Information
Item 6. Capital Stock and Other Securities... Taxes, Dividends and
Distributions; General
Information
Item 7. Purchase of Securities Being Offered. Shareholder Guide; How the
Fund Values its Shares
Item 8. Redemption or Repurchase............. Shareholder Guide
Item 9. Pending Legal Proceedings............ Not Applicable
PART B
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Table of Contents
Item 12. General Information and History...... General Information
Item 13. Investment Objectives and Policies... Investment Objective and
Policies; Investment
Restrictions
Item 14. Management of the Fund............... Directors and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders
of Securities........................ Not Applicable
Item 16. Investment Advisory and Other
Services............................. Manager; Distributor;
Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other
Practices............................ Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities... Not Applicable
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............. Purchase and Redemption of
Fund Shares; Shareholder
Investment Account
Item 20. Tax Status........................... Taxes
Item 21. Underwriters......................... Distributor
Item 22. Calculation of Performance Data...... Performance Information
Item 23. Financial Statements................. Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
</TABLE>
<PAGE>
Prudential Global Genesis Fund, Inc.
- -------------------------------------------------------------------------------
PROSPECTUS DATED JULY 30, 1996
- -------------------------------------------------------------------------------
Prudential Global Genesis Fund, Inc. (the Fund) is an open-end, diversified,
management investment company. Its investment objective is long-term growth of
capital. It seeks to achieve this objective by investing primarily in common
stocks, common stock equivalents and other equity securities of smaller
foreign and domestic companies. Smaller companies are those with market
capitalizations of less than $1 billion, measured at the time of initial
purchase. See "How the Fund Invests--Investment Objective and Policies--
Smaller Companies." Under normal circumstances, the Fund intends to invest at
least 65% of its total assets in such securities. The Fund may also invest in
equity securities of other companies, debt securities and derivatives,
including options on equity securities, stock indices, foreign currencies and
futures contracts on foreign currencies, and may purchase and sell futures
contracts on foreign currencies and groups of currencies and on stock indices
so as to hedge its portfolio. There can be no assurance that the Fund's
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies." The Fund's address is One Seaport Plaza, New York,
New York 10292, and its telephone number is (800) 225-1852.
The Fund's purchase and sale of put and call options may be considered
speculative and may result in higher risks and costs to the Fund. The Fund may
also buy and sell options on stock indices pursuant to limits described
herein. See "How the Fund Invests--Investment Objective and Policies."
The Fund is not intended to constitute a complete investment program. Because
of its objective and policies, including its international orientation and its
emphasis on smaller companies, the Fund may be considered of a speculative
nature and subject to greater investment risks than are assumed by certain
other investment companies that invest solely in securities of U.S. issuers or
that do not emphasize investments in smaller companies. See "How the Fund
Invests--Investment Objective and Policies--Special Considerations and Risks
of Investing in Foreign Securities."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated July 30, 1996, which information is
incorporated herein by reference (is legally considered part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- -------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in the Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS PRUDENTIAL GLOBAL GENESIS FUND, INC.?
Prudential Global Genesis Fund, Inc. is a mutual fund. A mutual fund pools
the resources of investors by selling its shares to the public and investing
the proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified,
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in common stocks, common stock
equivalents and other equity securities of smaller foreign and domestic
companies (i.e., companies with market capitalizations of less than $1
billion). There can be no assurance that the Fund's objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies" at
page 8.
RISK FACTORS AND SPECIAL CHARACTERISTICS
The Fund has an international orientation and may invest primarily in the
securities of smaller foreign companies, whose market prices may be more
volatile than those of larger domestic or foreign companies. Foreign
securities involve certain risks, including political or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of imposition of exchange controls and the risk of
currency fluctuations. See "How the Fund Invests--Investment Objective and
Policies" at page 8. In addition, the Fund may engage in various hedging and
return enhancement strategies, including utilizing derivatives. These
activities may be considered speculative and may result in higher risks and
costs to the Fund. See "How the Fund Invests--Hedging and Return Enhancement
Strategies--Risks of Hedging and Return Enhancement Strategies" at page 12.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of 1% of the
Fund's average daily net assets. As of June 30, 1996, PMF served as manager or
administrator to 60 investment companies, including 38 mutual funds, with
aggregate assets of approximately $52 billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PMF. See "How the Fund is Managed--Manager" at page 14. The management fee is
higher than that paid by most other investment companies.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class A, Class B and Class C shares. PSI is paid a
distribution and service fee which is currently being charged at the annual
rate of .25 of 1% of the average daily net assets of the Class A shares and is
paid a distribution and service fee with respect to Class B and Class C shares
at the annual rate of 1% of the average daily net assets of each of the Class
B and Class C shares. See "How the Fund is Managed--Distributor" at page 15.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide--How
to Buy Shares of the Fund" at page 21 and "Shareholder Guide--Shareholder
Services" at page 30.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "How the Fund
Values its Shares" at page 17 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 21.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers three classes of shares through this Prospectus:
. Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
. Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or CDSC (declining from
5% to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing distribution-
related expenses than Class A shares, Class B shares will
automatically convert to Class A shares (which are subject
to lower ongoing distribution-related expenses)
approximately seven years after purchase.
. Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on redemptions.
Like Class B shares, Class C shares are subject to higher
ongoing distribution-related expenses than Class A shares
but do not convert to another class.
See "Shareholder Guide--Alternative Purchase Plan" at page 22.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 25.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, and make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 18.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- ------------------- -------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load Im-
posed on Purchases (as
a percentage of offer-
ing price)............ 5% None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends............. None None None
Deferred Sales Load None 5% during the first 1% on redemp-
(as a percentage of year, decreasing by tions made
original purchase 1% annually to 1% within one year
price or redemption in the fifth and of purchase
proceeds, whichever is sixth years and 0%
lower)................ the seventh year*
Redemption Fees....... None None None
Exchange Fee.......... None None None
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of av-
erage net assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- ------------------- -------------------
<S> <C> <C> <C>
Management Fees (Be-
fore Waiver)(a)....... 1.00% 1.00% 1.00%
12b-1 Fees (After Re-
duction).............. .25++ 1.00 1.00
Other Expenses........ .67 .67 .67
---- ---- ----
Total Fund Operating
Expenses (Before
Waiver) (After
Reduction)(a)......... 1.92% 2.67% 2.67%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual re-
turn and (2) redemption at the end of each
time period:
Class A..................................... $69 $107 $148 $263
Class B..................................... $77 $113 $151 $273
Class C..................................... $37 $ 83 $141 $300
You would pay the following expenses on the
same investment, assuming no
redemption:
Class A..................................... $69 $107 $148 $263
Class B..................................... $27 $ 83 $141 $273
Class C..................................... $27 $ 83 $141 $300
</TABLE>
The above example is based on restated data for the Fund's fiscal year ended
May 31, 1996. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes operating expenses of
the Fund, such as Directors' and professional fees, registration fees, reports
to shareholders, transfer agency and custodian (domestic and foreign) fees and
miscellaneous fees, but excludes foreign withholding taxes.
- ------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
(a) Based on expenses incurred during the fiscal year ended May 31, 1996
without taking into account the waiver of management fees. See "How the
Fund is Managed." After the waiver of management fees, Management Fees for
the fiscal year ended May 31, 1996 were .87% for each class and Total Fund
Operating Expenses for Class A, Class B and Class C shares were 1.79%,
2.54% and 2.54%, respectively, of the Fund's average net assets.
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average daily
net assets of the Class A shares, the Distributor has agreed to limit its
distribution fees with respect to Class A shares of the Fund to no more than
.25 of 1% of the average daily net assets of the Class A shares for the
fiscal year ending May 31, 1997. Total Fund Operating Expenses without such
limitation would be 1.97%. See "How the Fund is Managed--Distributor."
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)
The following financial highlights, with respect to each of the five years in
the period ended May 31, 1996, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
the notes thereto, which appear in the Statement of Additional Information.
The financial highlights contain selected data for a Class A share of common
stock outstanding, total return, ratios to average net assets and other
supplemental data for each of the periods indicated. The information is based
on data contained in the financial statements. Further performance information
is contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
JANUARY 22,
1990(a)
YEAR ENDED MAY 31, THROUGH
--------------------------------------------------- MAY 31,
1996 1995 1994 1993 1992 1991 1990
------- ------- ------- ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE(B):
Net asset value,
beginning of period.... $ 18.44 $ 18.75 $ 15.34 $12.62 $11.95 $12.62 $12.41
------- ------- ------- ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)(c).............. .05 -- (.03) .10 .02 (.03) (.04)
Net realized and
unrealized gain (loss)
on
investment and foreign
currency transactions.. 3.34 (.21) 3.83 2.62 .65 (.64) .25
------- ------- ------- ------ ------ ------ ------
Total from investment
operations............. 3.39 (.21) 3.80 2.72 .67 (.67) .21
------- ------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net
investment income...... -- -- (.15) -- -- -- --
Dividends in excess of
net investment
income................. (.09) (.08) -- -- -- -- --
Distributions paid to
shareholders from
net realized gains on
investment and
foreign currency
transactions........... -- (.02) (.24) -- -- -- --
------- ------- ------- ------ ------ ------ ------
Total distributions..... (.09) (.10) (.39) -- -- -- --
------- ------- ------- ------ ------ ------ ------
Net asset value, end of
period................. $ 21.74 $ 18.44 $ 18.75 $15.34 $12.62 $11.95 $12.62
======= ======= ======= ====== ====== ====== ======
TOTAL RETURN(D): ....... 18.41% (0.95)% 25.09% 21.55% 5.61% (5.31)% 1.69%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)........... $47,617 $44,051 $29,221 $3,435 $3,829 $4,059 $2,137
Average net assets
(000).................. $45,070 $32,430 $16,909 $3,106 $3,771 $2,569 $1,204
Ratios to average net
assets(c):
Expenses, including
distribution fees..... 1.79% 1.42% 1.48% 1.49% 1.50% 2.72% 3.90%(e)
Expenses, excluding
distribution fees..... 1.54% 1.17% 1.25% 1.29% 1.30% 2.52% 3.70%(e)
Net investment income
(loss)................ 0.26% 0.02% (0.17)% 0.79% 0.19% (0.61)% (1.71)%(e)
Portfolio turnover rate. 44% 64% 31% 67% 57% 95% 72%
Average commission rate
per share.............. $0.0090 N/A N/A N/A N/A N/A N/A
</TABLE>
- -----------
(a) Commencement of offering of Class A shares.
(b) Calculated based upon average shares outstanding, by class.
(c) Net of expense subsidies and/or fee waivers for all reported periods
except 1991.
(d) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
(e) Annualized.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)
The following financial highlights, with respect to each of the five years in
the period ended May 31, 1996, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
the notes thereto, which appear in the Statement of Additional Information.
The financial highlights contain selected data for a Class B share of common
stock outstanding, total return, ratios to average net assets and other
supplemental data for each of the periods indicated. The information is based
on data contained in the financial statements. Further performance information
is contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------------
JANUARY 29,
1988(a)
YEAR ENDED MAY 31, THROUGH
-------------------------------------------------------------------------------- MAY 31,
1996 1995 1994 1993 1992 1991 1990(e) 1989 1988
-------- -------- -------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE(B):
Net asset value,
beginning of period..... $ 17.84 $ 18.22 $ 14.93 $ 12.38 $ 11.82 $ 12.58 $ 12.28 $ 10.80 $ 10.00
-------- -------- -------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)(c)............... (.09) (.13) (.16) -- (.07) (.15) (.14) (.13) (.04)
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions............ 3.21 (.19) 3.74 2.55 .63 (.61) 1.30 1.74 .84
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total from investment
operations.............. 3.12 (.32) 3.58 2.55 .56 (.76) 1.16 1.61 .80
-------- -------- -------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net
investment income....... -- -- (.05) -- -- -- -- -- --
Dividends in excess of
net investment income... (.09) (.03) -- -- -- -- -- -- --
Distributions paid to
shareholders from net
realized gains on
investment and foreign
currency transactions... -- (.03) (.24) -- -- -- (.86) (.13) --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Total distributions...... (.09) (.06) (.29) -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period.................. $ 20.87 $ 17.84 $ 18.22 $ 14.93 $ 12.38 $ 11.82 $ 12.58 $ 12.28 $ 10.80
======== ======== ======== ======= ======= ======= ======= ======= =======
TOTAL RETURN(D): ........ 17.51% (1.73)% 24.16% 20.60% 4.74% (6.04)% 9.72% 15.10% 8.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $155,292 $153,670 $174,659 $36,136 $35,644 $40,200 $39,868 $13,254 $12,137
Average net assets (000). $154,566 $173,591 $102,451 $31,561 $37,236 $37,689 $26,161 $11,495 $ 3,065
Ratios to average net
assets(c):
Expenses, including
distribution fees...... 2.54% 2.17% 2.25% 2.29% 2.30% 3.48% 3.66% 3.52% 3.87%(f)
Expenses, excluding
distribution fees...... 1.54% 1.17% 1.25% 1.29% 1.30% 2.48% 2.70% 2.52% 2.95%(f)
Net investment income
(loss)................. (0.48)% (0.77)% (0.91)% (0.01)% (0.57)% (1.45)% (1.76)% (1.18)% (1.75)%(f)
Portfolio turnover rate.. 44% 64% 31% 67% 57% 95% 72% 60% 3%
Average commission rate
per share............... $ 0.0090 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- -----------
(a) Commencement of offering of Class B shares.
(b) Calculated based upon average shares outstanding, by class.
(c) Net of expense subsidies and/or fee waivers for all reported periods
except 1991.
(d) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
(e) On September 27, 1989, Prudential Mutual Fund Management, Inc. succeeded
The Prudential Insurance Company of America as Manager of the Fund.
(f) Annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS C SHARES)
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and the notes
thereto, which appear in the Statement of Additional Information. The financial
highlights contain selected data for a Class C share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of the periods indicated. The information is based on data
contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS C
---------------------
AUGUST 1,
1994(a)
YEAR ENDED THROUGH
MAY 31, MAY 31,
1996 1995
---------- ---------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE(B):
Net asset value, beginning of period................. $ 17.84 $18.44
------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (loss)(c)...................... (.08) (.12)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions........................................ 3.20 (.44)
------- ------
Total from investment operations..................... 3.12 (.56)
------- ------
LESS DISTRIBUTIONS
Dividends in excess of net investment
income.............................................. (.09) (.03)
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions....................... -- (.01)
------- ------
Total distributions.................................. (.09) (.04)
------- ------
Net asset value, end of period....................... $ 20.87 $17.84
======= ======
TOTAL RETURN(D): .................................... 17.51% (2.90)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...................... $ 2,275 $1,307
Average net assets (000)............................. $ 1,809 $ 862
Ratios to average net assets(c):
Expenses, including distribution fees............... 2.54% 2.27%(e)
Expenses, excluding distribution fees............... 1.54% 1.27%(e)
Net investment income (loss)........................ (0.44)% (0.90)%(e)
Portfolio turnover rate.............................. 44% 64%
Average commission rate per share.................... $0.0090 N/A
</TABLE>
- ------------
(a) Commencement of offering of Class C shares.
(b) Calculated based upon average shares outstanding, by class.
(c) Net of expense subsidies and/or fee waivers.
(d) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(e) Annualized.
7
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND
WILL SEEK TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING PRIMARILY IN COMMON
STOCKS, COMMON STOCK EQUIVALENTS (SUCH AS WARRANTS AND CONVERTIBLE DEBT
SECURITIES) AND OTHER EQUITY SECURITIES (INCLUDING PREFERRED STOCKS) OF
SMALLER FOREIGN AND DOMESTIC COMPANIES. UNDER NORMAL CIRCUMSTANCES, THE FUND
WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN SUCH SECURITIES. THERE CAN BE
NO ASSURANCE THAT SUCH OBJECTIVE WILL BE ACHIEVED. See "Investment Objective
and Policies" in the Statement of Additional Information.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES AS DEFINED IN THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF DIRECTORS.
It is anticipated that the Fund will invest in securities of smaller
companies that are traded on established markets (including stock exchanges
and over-the-counter markets). The investment adviser believes that, in many
instances, these securities are overlooked by institutional investors and thus
are undervalued relative to the securities of many larger companies.
SMALLER COMPANIES
THE SECURITIES OF SMALLER COMPANIES OFTEN OFFER A GREATER POTENTIAL FOR
LONG-TERM GROWTH. In analyzing companies for investment, the investment
adviser ordinarily looks for one or more of the following characteristics:
prospects for above-average earnings growth per share; high return on invested
capital; healthy balance sheets; sound financial and accounting policies and
overall financial strength; strong competitive advantages; effective research
and product development and marketing; efficient service; pricing flexibility;
strength of management; and general operating characteristics which will
enable the companies to compete successfully in their marketplace--all in
relation to the prevailing prices of the securities of such companies. For
purposes of the Fund's investments, smaller companies are currently defined as
those with market capitalizations of less than $1 billion (or a corresponding
market capitalization in foreign markets), measured at the time of initial
purchase. The Fund's Board of Directors will periodically review and revise
the capitalization requirements of smaller companies as circumstances may
require. Further, the Fund anticipates that it will continue to hold the
securities of smaller companies as those companies grow or expand so long as
those investments continue to offer prospects of long-term growth.
THERE ARE CERTAIN RISKS ASSOCIATED WITH INVESTING IN SECURITIES OF SMALLER
COMPANIES. THE MARKET PRICES OF THESE SECURITIES MAY BE MORE VOLATILE THAN
THOSE OF LARGER COMPANIES. BECAUSE SMALLER COMPANIES NORMALLY HAVE FEWER
SHARES OUTSTANDING THAN LARGER COMPANIES, IT MAY BE MORE DIFFICULT FOR THE
FUND TO BUY OR SELL SIGNIFICANT AMOUNTS OF SUCH SHARES WITHOUT AN UNFAVORABLE
IMPACT ON PREVAILING MARKET PRICES. THERE IS TYPICALLY LESS PUBLICLY AVAILABLE
INFORMATION CONCERNING SMALLER COMPANIES THAN FOR LARGER, MORE ESTABLISHED
ONES. THE LOWER CAPITALIZATIONS OF THE COMPANIES IN WHICH THE FUND INTENDS
PRIMARILY TO INVEST, AND THE FACT THAT SMALLER COMPANIES TYPICALLY HAVE
SMALLER PRODUCT LINES AND COMMAND A SMALLER MARKET SHARE THAN DO LARGER
COMPANIES, MAY MAKE THEM MORE VULNERABLE TO FLUCTUATIONS IN THE ECONOMIC
CYCLE.
GENERAL
THE FUND MAY INVEST IN SECURITIES NOT LISTED ON SECURITIES EXCHANGES. These
securities will generally have an established market (such as the over-the-
counter market), the depth and liquidity of which may vary from time to time
and from security to security. The Fund may also hold up to 10% of its net
assets in restricted securities or other securities that have a limited
market. See "Other Investments and Policies--Illiquid Securities" below.
8
<PAGE>
There are no geographic limitations on the Fund's investments and, from time
to time depending upon market conditions, the Fund may invest primarily in
securities of foreign issuers. The Fund anticipates that many of the companies
in which it invests will be located or have operations in the United States,
the United Kingdom, Canada, Australia, New Zealand, Hong Kong, Singapore,
Malaysia, Thailand, Indonesia, Mexico, Western Europe and Japan. Under normal
circumstances, the Fund intends to maintain investments in at least three
countries (including the United States). In addition to analyzing the
companies in which investments are made, the investment adviser also considers
factors relating to the various countries and geographic regions. The
investment adviser ordinarily considers such factors as prospects for economic
growth in foreign countries; expected levels of inflation and interest rates;
government policies influencing business conditions; the range of individual
investment opportunities available to international investors; and other
pertinent financial, tax, social, political and national factors--all in
relation to the prevailing prices of securities in each country or region.
The Fund may invest in developing countries, and in countries with new or
developing capital markets. These countries may have relatively unstable
governments, economies based only on a few industries and securities markets
that trade a limited number of securities. Securities of issuers located in
these countries tend to have volatile prices and offer the potential for
substantial loss as well as gain. In addition, these securities may be less
liquid than investments in more established markets as a result of inadequate
trading volume or restrictions on trading imposed by the governments of such
countries. See "Special Considerations and Risks of Investing in Foreign
Securities" below.
THE FUND INTENDS TO INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN COMMON
STOCKS, COMMON STOCK EQUIVALENTS AND OTHER EQUITY SECURITIES OF SMALLER
DOMESTIC AND FOREIGN COMPANIES. UNDER NORMAL CIRCUMSTANCES, THE REMAINDER OF
THE FUND'S INVESTMENTS MAY BE IN OTHER SECURITIES OR INVESTMENT VEHICLES,
INCLUDING EQUITY SECURITIES OF OTHER COMPANIES, DEBT SECURITIES (INCLUDING
MONEY MARKET INSTRUMENTS) OF FOREIGN AND DOMESTIC COMPANIES, FUTURES CONTRACTS
ON STOCK INDICES AND FOREIGN CURRENCIES AND FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS. IN ADDITION, THE FUND MAY (I) PURCHASE AND WRITE (I.E., SELL) PUT
AND CALL OPTIONS ON EQUITY SECURITIES, STOCK INDICES, FOREIGN CURRENCIES AND
FUTURES CONTRACTS ON FOREIGN CURRENCIES, (II) PURCHASE SECURITIES ON A WHEN-
ISSUED OR DELAYED DELIVERY BASIS, (III) MAKE SHORT SALES AGAINST-THE-BOX AND
(IV) ENTER INTO REPURCHASE AGREEMENTS. THE FUND MAY FROM TIME TO TIME LEND ITS
PORTFOLIO SECURITIES TO BROKERS OR DEALERS, BANKS OR OTHER RECOGNIZED
INSTITUTIONAL BORROWERS OF SECURITIES AND MAY INVEST TO A LIMITED EXTENT IN
SECURITIES OF COMPANIES THAT HAVE BEEN IN EXISTENCE FOR LESS THAN THREE YEARS,
IN SECURITIES FOR WHICH MARKET QUOTATIONS ARE NOT READILY AVAILABLE AND IN
SECURITIES OF OTHER REGISTERED INVESTMENT COMPANIES. SEE "INVESTMENT
RESTRICTIONS" IN THE STATEMENT OF ADDITIONAL INFORMATION.
When conditions dictate a temporary defensive strategy, the Fund may invest
in money market instruments (including repurchase agreements maturing in seven
days or less) without limit. The Fund will only invest in money market
instruments that are rated, or are issued by companies that have outstanding
debt securities rated, at least BBB or Baa by Standard & Poor's Ratings Group
(S&P) or Moody's Investors Service (Moody's), respectively, or commercial
paper rated at least A-2 or P-2 by S&P or Moody's, respectively, or in unrated
securities of issuers that the Fund's investment adviser has determined to be
of comparable quality. Subsequent to its purchase by the Fund, a security may
be assigned a lower rating or cease to be rated. Such an event would not
require the elimination of the issue from the portfolio, but the investment
adviser will consider such an event in determining whether the Fund should
continue to hold the security in its portfolio. Securities rated Baa by
Moody's, although considered to be investment grade, lack outstanding
investment characteristics and, in fact, have speculative characteristics. See
"Description of Security Ratings" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS AND RISKS OF INVESTING IN FOREIGN SECURITIES
FOREIGN SECURITIES INVOLVE CERTAIN RISKS WHICH SHOULD BE CONSIDERED
CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL OR
ECONOMIC INSTABILITY IN THE COUNTRY OF THE ISSUER, THE DIFFICULTY OF
PREDICTING INTERNATIONAL TRADE PATTERNS, THE POSSIBILITY OF IMPOSITION OF
EXCHANGE CONTROLS AND THE RISK OF CURRENCY FLUCTUATIONS. Such securities may
be subject to greater fluctuations in price than securities issued by U.S.
corporations or issued or guaranteed
9
<PAGE>
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 domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than
in the United States and, with respect to certain foreign countries, there is
a possibility of expropriation, confiscatory taxation or diplomatic
developments which could affect investment in those countries. Finally, in the
event of a default on 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.
ALTHOUGH THE FUND INTENDS TO INVEST PRIMARILY IN EQUITY SECURITIES, IT MAY
INVEST FROM TIME TO TIME IN DEBT SECURITIES OF FOREIGN ISSUERS. In many
instances, foreign debt securities may provide higher yields than securities
of domestic issuers which have similar maturities and are of similar quality.
Under certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. Government, its instrumentalities or
agencies.
Shareholders should be aware that investing in the equity and fixed-income
markets of developing countries involves exposure to economies that are
generally less diverse and mature, and 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.
IF A SECURITY IS DENOMINATED IN A FOREIGN CURRENCY, IT WILL BE AFFECTED BY
CHANGES IN CURRENCY EXCHANGE RATES AND IN EXCHANGE CONTROL REGULATIONS, AND
COSTS WILL BE INCURRED IN CONNECTION WITH CONVERSIONS BETWEEN CURRENCIES. A
change in the value of any such currency against the U.S. dollar will result
in a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of
income the Fund is required to distribute is not immediately reduced by the
decline in such currency. Similarly, if an exchange rate declines between the
time the Fund incurs expenses in U.S. dollars and the time such expenses are
paid, the amount of such currency required to be converted into U.S. dollars
in order to pay such expenses in U.S. dollars will be greater than the
equivalent amount in any such currency of such expenses at the time they were
incurred. The Fund may, but need not, enter into futures contracts on foreign
currencies, forward foreign currency exchange contracts and options on foreign
currencies for hedging purposes, including: locking-in the U.S. dollar price
of the purchase or sale of securities denominated in a foreign currency;
locking-in the U.S. dollar equivalent of interest or dividends to be paid on
such securities which are held by the Fund; and protecting the U.S. dollar
value of such securities which are held by the Fund.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING PURCHASING
AND SELLING DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO
ATTEMPT TO ENHANCE RETURN, BUT NOT FOR SPECULATION. THESE STRATEGIES CURRENTLY
INCLUDE THE USE OF OPTIONS, FORWARD CURRENCY EXCHANGE CONTRACTS AND FUTURES
CONTRACTS AND OPTIONS THEREON. The Fund's ability to use these strategies may
be limited by market conditions, regulatory limits and tax considerations and
there can be no assurance that any of these strategies will succeed. See
"Investment Objective and Policies" and "Taxes" in the Statement of Additional
Information. New financial products and risk management techniques continue to
be developed, and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES AND CURRENCIES THAT ARE TRADED ON U.S. OR FOREIGN SECURITIES
EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ATTEMPT TO ENHANCE RETURN OR TO
HEDGE
10
<PAGE>
THE FUND'S PORTFOLIO. These options will be on equity securities, financial
indices (e.g., S&P 500) and foreign currencies. The Fund may write covered put
and call options to generate additional income through the receipt of
premiums, purchase put options in an effort to protect the value of a security
that it owns against a decline in market value and purchase call options in an
effort to protect against an increase in the price of securities (or
currencies) it intends to purchase. The Fund may also purchase put and call
options to offset previously written put and call options of the same series.
See "Investment Objective and Policies--Options Transactions" in the Statement
of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT, FOR A SPECIFIED PERIOD OF TIME, TO PURCHASE THE SECURITIES OR CURRENCY
SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE
PRICE). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms
of the option contract, the underlying securities or currency 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 or
deliver cash at the exercise price. The Fund might, therefore, be obligated to
purchase the underlying securities or currency for more than their current
market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so long
as the Fund is obligated under the option, it owns an offsetting position in
the underlying security or currency or maintains liquid, unencumbered assets,
marked to market daily, with a value sufficient to cover its obligations. See
"Investment Objective and Policies--Options Transactions" in the Statement of
Additional Information.
THERE IS NO LIMITATION ON THE AMOUNT OF CALL OPTIONS THE FUND MAY WRITE. The
Fund has undertaken with certain state securities commissions that, so long as
shares of the Fund are registered in those states, it will not (a) write puts
having aggregate exercise prices greater than 25% of total net assets, or (b)
purchase (i) put options on stocks not held in the Fund's portfolio, (ii) put
options on stock indices, foreign currencies or future contracts on foreign
currencies or (iii) call options on stock, stock indices or foreign currencies
if, after any such purchase, the aggregate premiums paid for such options
would exceed 10% of the Fund's total assets; provided, however, that the Fund
may purchase put options on stocks held by the Fund if after such purchase the
aggregate premiums paid for such options do not exceed 20% of the Fund's total
assets. The aggregate value of the obligations underlying put options will not
exceed 50% of the Fund's assets.
FORWARD CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. The Fund may enter into such contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market
or on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days agreed upon by the parties from the date of the contract at a price set
on the date of the contract.
THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a currency bearing a substantial correlation to
the value of that currency (cross hedge). Although there are no limits on the
number of forward contracts which the Fund may enter into, the Fund may not
position hedge with respect to a particular currency for an amount greater
than the aggregate market value (determined at the time of making any sale of
foreign currency) of the securities held in its portfolio
11
<PAGE>
denominated or quoted in, or currently convertible into, such currency. See
"Investment Objective and Policies--Risks Related to Forward Currency Exchange
Contracts" in the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR
CERTAIN HEDGING AND RISK MANAGEMENT PURPOSES AND TO ATTEMPT TO ENHANCE RETURN
IN ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION.
These futures contracts and options thereon will be on financial indices and
foreign currencies or groups of foreign currencies such as the European
Currency Unit. (A European Currency Unit is a basket of specified amounts of
the currencies of certain member states of the European Economic Community, a
Western European economic cooperative organization including such countries as
France, Germany, The Netherlands and the United Kingdom.) A financial futures
contract is an agreement to purchase or sell an agreed amount of securities or
currencies at a set price for delivery in the future.
UNDER REGULATIONS OF THE COMMODITY EXCHANGE ACT, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT ARE EXEMPT FROM THE DEFINITION OF
"COMMODITY POOL OPERATOR," SUBJECT TO COMPLIANCE WITH CERTAIN CONDITIONS. THE
EXEMPTION IS CONDITIONED UPON THE FUND'S PURCHASING AND SELLING FUTURES
CONTRACTS AND OPTIONS THEREON FOR BONA FIDE HEDGING TRANSACTIONS, EXCEPT THAT
THE FUND MAY PURCHASE AND SELL FUTURES CONTRACTS AND OPTIONS THEREON FOR ANY
OTHER PURPOSE TO THE EXTENT THAT THE AGGREGATE INITIAL MARGIN AND OPTION
PREMIUMS DO NOT EXCEED 5% OF THE LIQUIDATION VALUE OF THE FUND'S TOTAL ASSETS.
ALTHOUGH THERE ARE NO OTHER LIMITS APPLICABLE TO FUTURES CONTRACTS, THE VALUE
OF ALL FUTURES CONTRACTS SOLD WILL NOT EXCEED THE TOTAL MARKET VALUE OF THE
FUND'S PORTFOLIO.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET
AND OF INTEREST 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 index or price of the
currencies being hedged is imperfect, and there is a risk that the value of
the index or currencies being hedged may increase or decrease at a greater
rate than the related futures contracts, resulting in losses to the Fund.
Certain futures exchanges or boards of trade have established daily limits on
the amount that the price of futures contracts or options thereon may vary,
either up or down, from the previous day's settlement price. These daily
limits may restrict the Fund's ability to purchase or sell certain futures
contracts or options thereon on any particular day.
THE FUND'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON IS
LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE), FOR QUALIFICATION AS A REGULATED INVESTMENT
COMPANY. See "Taxes" in the Statement of Additional Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the investment
adviser's predictions of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were
not used. Risks inherent in the use of options, foreign currency and futures
contracts and options thereon include (1) dependence on the investment
adviser's ability to predict correctly movements in the direction of interest
rates, securities prices and currency markets; (2) imperfect correlation
between the price of options and futures contracts and options thereon and
movements in the prices of the securities or currencies being hedged; (3) the
fact that skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time; (5) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do
so, or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Investment
Objective and Policies" and "Taxes" in the Statement of Additional
Information.
12
<PAGE>
OTHER INVESTMENTS AND POLICIES
REPURCHASE AGREEMENTS
The Fund may on occasion enter into repurchase agreements whereby the seller
of a security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money
is invested in the repurchase agreement. The Fund's repurchase agreements will
at all times be fully collateralized in an amount at least equal to the resale
price. The instruments held as collateral are valued daily, and if the value
of the instruments declines, the Fund will require additional collateral. If
the seller defaults and the value of the collateral securing the repurchase
agreement declines, the Fund may incur a loss. The Fund participates in a
joint repurchase account with other investment companies managed by Prudential
Mutual Fund Management, Inc. pursuant to an order of the Securities and
Exchange Commission (SEC).
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that
outstanding loans do not exceed in the aggregate 10% of the Fund's total
assets and that the borrower at all times maintains cash or equivalent
collateral or secures a letter of credit in favor of the Fund in an amount
equal to at least 100% of the market value of the securities loaned. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed upon amount of interest income from the borrower. See
"Investment Objective and Policies--Lending of Portfolio Securities" in the
Statement of Additional Information.
Subject to shareholder approval, the Board of Directors has approved a
change in the Fund's investment restrictions and policies which would permit
the Fund to make loans of portfolio securities in an amount of up to 30% of
the Fund's total assets. This change will be submitted to shareholders for
their approval at a special meeting scheduled to be held in or about October
1996.
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities
markets either within or outside of the United States. Restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended (the Securities Act), and privately placed commercial paper that have
a readily available market are not considered illiquid for purposes of this
limitation. The investment adviser will monitor the liquidity of such
restricted securities under the supervision of the Board of Directors. The
Fund's investment in Rule 144A securities could have the effect of increasing
illiquidity to the extent that qualified institutional buyers become, for a
limited time, uninterested in purchasing Rule 144A securities. The Fund
intends to comply with any applicable state blue sky laws restricting the
Fund's investments in illiquid securities. See "Investment Restrictions" in
the Statement of Additional Information. Repurchase agreements subject to
demand are deemed to have a maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased 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."
13
<PAGE>
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (computed at the time the loan is made) for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings.
PORTFOLIO TURNOVER
As a result of the Fund's investment policies, its portfolio turnover rate
may exceed 100%, although the rate is not expected to exceed 200%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of the Fund's
portfolio securities, excluding securities having a maturity at the date of
purchase of one year or less. High portfolio turnover may involve
correspondingly greater brokerage commissions and other transaction costs,
which will be borne directly by the Fund. See "Portfolio Transactions and
Brokerage" in the Statement of Additional Information. In addition, high
portfolio turnover may result in increased short-term capital gains, which,
when distributed to shareholders, are treated as ordinary income. See "Taxes,
Dividends and Distributions."
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
For the fiscal year ended May 31, 1996, the Fund's total expenses as a
percentage of average net assets for the Fund's Class A, Class B and Class C
shares were 1.79%, 2.54% and 2.54%, respectively. See "Financial Highlights."
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS. It was incorporated in May 1987 under the laws of the State of
Delaware. Prior to September 1, 1995, PMF waived 50% of its management fee.
The Fund paid management fees to PMF of .87 of 1% of the Fund's average net
assets during the fiscal year ended May 31, 1996. See "Manager" in the
Statement of Additional Information.
PMF may from time to time waive its management fee (or a portion thereof)
and subsidize operating expenses of the Fund. See "Fund Expenses." The Fund is
not required to reimburse PMF for such fee waiver or expense subsidy. Fee
waivers and expense subsidies will increase the Fund's total return. See "How
the Fund Calculates Performance."
As of June 30, 1996, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $52 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
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UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY
SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY
PMF FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES.
Under the Management Agreement, PMF continues to have responsibility for all
investment advisory services and supervises PIC's performance of such
services.
The current portfolio manager of the Fund is Daniel J. Duane, a Managing
Director and Chief Investment Officer for Global Equity Investments of
Prudential Mutual Fund Investment Management, a unit of PIC. Mr. Duane has
responsibility for the day-to-day management of the Fund's portfolio. Mr.
Duane has been employed by PIC as a manager since 1990. Mr. Duane was formerly
with First Investors Asset Management from 1986 to 1990 as senior portfolio
manager and head of global equity investments. Mr. Duane is a Chartered
Financial Analyst. Mr. Duane also serves as the portfolio manager of the
Prudential Series Fund Global Equity Portfolio, Prudential Europe Growth Fund,
Inc., Prudential World Fund, Inc. (Global Series) and Prudential Pacific
Growth Fund, Inc.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE SHARES OF
THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES (THE DISTRIBUTOR) INCURS THE
EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. These
expenses include commissions and account servicing fees paid to, or on account
of, financial advisers of Prudential Securities and representatives of Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions and
account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) which have entered into
agreements with the Distributor, advertising expenses, the cost of printing
and mailing prospectuses to potential investors and indirect and overhead
costs of Prudential Securities and Prusec associated with the sale of Fund
shares, including lease, utility, communications and sales promotion expenses.
The State of Texas requires that shares of the Fund may be sold in that state
only by dealers or other financial institutions which are registered there as
broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PRUDENTIAL SECURITIES FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL
RATE OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES.
The Class A Plan provides that (i) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service and/or
the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30
of 1% of the average daily net assets of the Class A shares. Prudential
Securities has agreed to limit its distribution-related fees payable under the
Class A Plan to .25 of 1% of the average daily net assets of the Class A
shares for the fiscal year ending May 31, 1997.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C
SHARES AT AN ANNUAL RATE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF EACH
OF THE CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for
the payment to Prudential Securities of
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(i) an asset-based sales charge of .75 of 1% of the average daily net assets
of each of the Class B and Class C shares and (ii) a service fee of .25 of 1%
of the average daily net assets of each of the Class B and Class C shares. The
service fee is used to pay for personal service and/or the maintenance of
shareholder accounts. Prudential Securities also receives contingent deferred
sales charges from certain redeeming shareholders. See "Shareholder Guide--How
to Sell Your Shares--Contingent Deferred Sales Charges."
For the fiscal year ended May 31, 1996, the Fund paid distribution expenses
of .25 of 1%, 1.00% and 1.00% of the average daily net assets of the Class A,
Class B and Class C shares, respectively. The Fund records all payments made
under the Plans as expenses in the calculation of net investment income. See
"Distributor" in the Statement of Additional Information.
Distribution expenses attributable to the sale of shares of the Fund will be
allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Fund other than expenses allocable to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each
Plan may be terminated at any time by vote of a majority of the Rule 12b-1
Directors or of a majority of the outstanding shares of the applicable class
of the Fund. The Fund will not be obligated to pay distribution and service
fees incurred under any plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers (including Prudential
Securities) and other persons who distribute shares of the Fund. Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD), governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the
allegations asserted against it, PSI consented to the entry of an SEC
Administrative Order which stated that PSI's conduct violated the federal
securities laws, directed PSI to cease and desist from violating the federal
securities laws, pay civil penalties, and adopt certain remedial measures to
address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of
a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the
signing of the agreement, provided that PSI complies with the terms of the
agreement. If, upon completion of the three-year period, PSI has complied with
the terms of the agreement, no prosecution will be instituted by the United
States for the offenses charged in the complaint. If, on the other hand,
during the course of the three-year period, PSI violates the
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<PAGE>
terms of the agreement, the U.S. Attorney can then elect to pursue these
charges. Under the terms of the agreement, PSI agreed, among other things, to
pay an additional $330,000,000 into the fund established by the SEC to pay
restitution to investors who purchased certain PSI limited partnership
interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may
be obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may also act as a broker or futures commission
merchant for the Fund, provided that the commissions, fees or other
remuneration it receives are fair and reasonable. See "Portfolio Transactions
and Brokerage" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Its mailing address
is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NET ASSET VALUE TO BE
AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject.
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<PAGE>
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. These figures are based on
historical earnings and are not intended to indicate future performance. The
"total return" shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (i.e., one, five or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The "aggregate" total return reflects actual performance
over a stated period of time. "Average annual" total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return if performance had been constant over the entire
period. "Average annual" total return smooths out variations in performance
and takes into account any applicable initial or contingent deferred sales
charges. Neither "average annual" total return nor "aggregate" total return
takes into account any federal or state income taxes which may be payable upon
redemption. The "yield" refers to the income generated by an investment in the
Fund over a one-month or 30-day period. This income is then "annualized;" that
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each 30-day period for twelve periods and is shown
as a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing
the Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE
FUND WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME
AND CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See
"Taxes" in the Statement of Additional Information.
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold
at market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
See "Taxes" in the Statement of Additional Information.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders.
See "Taxes" in the Statement of Additional Information. The Fund may, from
time to time, invest in Passive Foreign Investment Companies (PFICs). PFICs
are foreign corporations which derive a majority of their income from passive
sources. For tax purposes, the Fund's investments in PFICs may subject the
Fund to federal income tax on certain income and gains realized by the Fund.
Certain gains or losses from fluctuations in foreign currency exchange rates
(Section 988 gains or losses) will affect the amount of ordinary income the
Fund will be able to pay as dividends. See "Taxes" in the Statement of
Additional Information.
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TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term gains (i.e., the excess of net short-term capital gains over
net long-term capital losses) distributed to shareholders, will be taxable as
ordinary income to the shareholder whether or not reinvested. Any net capital
gains (i.e., the excess of net long-term capital gains over net short-term
capital losses) distributed to shareholders will be taxable as long-term
capital gains to the shareholders, whether or not reinvested and regardless of
the length of time a shareholder has owned his or her shares. The maximum
long-term capital gains rate for individuals is 28%. The maximum long-term
capital gains rate for corporate shareholders is the same as the maximum tax
rate for ordinary income.
Dividends received by corporate shareholders are eligible for a dividends-
received deduction of 70% to the extent the Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Dividends
attributable to interest income, capital and currency gain, gain or loss from
Section 1256 contracts, dividend income from foreign corporations and income
from some other sources will not be eligible for the corporate dividends
received deduction. See "Taxes" in the Statement of Additional Information.
Corporate shareholders should consult their tax advisers regarding other
requirements applicable to the dividends received deduction.
Any gain or loss realized upon a sale or redemption of shares of the Fund by
a shareholder who is not a dealer in securities will generally be treated as
long-term capital gain or loss if the shares have been held more than one year
and otherwise as short-term capital gain or loss. Any such loss with respect
to shares that are held for six months or less, however, will be treated as
long-term capital loss to the extent of any capital gain distributions
received by the shareholder.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes" in the
Statement of Additional Information.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Withholding at this
rate is also required from dividends and capital gains distributions (but not
redemption proceeds) payable to shareholders who are otherwise subject to
backup withholding. Dividends of net investment income and short-term capital
gains paid to a foreign shareholder will generally be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, AND MAKE
DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL LOSSES
AT LEAST ANNUALLY. Dividends paid by the Fund with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount
except that each class will bear its own distribution charges, generally
resulting in lower dividends for Class B and Class C shares. Distributions of
net capital gains, if any, will be paid in the same amount for each class of
shares. See "How the Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING
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NOT LESS THAN FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH
DIVIDENDS AND DISTRIBUTIONS IN CASH. Such election should be submitted to
Prudential Mutual Fund Services, Inc., Attention: Account Maintenance, P.O.
Box 15015, New Brunswick, New Jersey 08906-5015. If you hold shares through
Prudential Securities, you should contact your financial adviser to elect to
receive dividends and distributions in cash. The Fund will notify each
shareholder after the close of the Fund's taxable year both of the dollar
amount and the taxable status of that year's dividends and distributions on a
per share basis.
WHEN THE FUND GOES "EX-DIVIDEND," THE NAV OF EACH CLASS IS REDUCED BY THE
AMOUNT OF THE DIVIDEND OR DISTRIBUTION ALLOCABLE TO EACH CLASS. IF YOU BUY
SHARES JUST PRIOR TO THE EX-DIVIDEND DATE (WHICH GENERALLY OCCURS FOUR
BUSINESS DAYS PRIOR TO THE RECORD DATE), THE PRICE YOU PAY WILL INCLUDE THE
DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR INVESTMENT WILL BE RETURNED TO
YOU AS A TAXABLE DIVIDEND OR DISTRIBUTION. YOU SHOULD, THEREFORE, CONSIDER THE
TIMING OF DIVIDENDS AND DISTRIBUTIONS WHEN MAKING YOUR PURCHASES.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON JUNE 15, 1987. THE FUND IS
AUTHORIZED TO ISSUE 500 MILLION SHARES OF COMMON STOCK, $.01 PAR VALUE PER
SHARE, DIVIDED INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C AND
CLASS Z COMMON STOCK, EACH OF WHICH CONSISTS OF 125 MILLION AUTHORIZED SHARES.
Each class of common stock represents an interest in the same assets of the
Fund and is identical in all respects except that (i) each class is subject to
different sales charges and distribution and/or service fees, which may affect
performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii)
each class has a different exchange privilege and (iv) only Class B shares
have a conversion feature. 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. 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. Currently, the
Fund is offering three classes, designated Class A, Class B and Class C
shares.
The Board of Directors may increase or decrease the number of authorized
shares without approval by the shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive
or other subscription rights. In the event of liquidation, each share of
common stock of the Fund is entitled to its portion of all of the Fund's
assets after all debt and expenses of the Fund have been paid. The Fund's
shares do not have cumulative voting rights for the election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF
THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
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ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under
the Securities Act of 1933. Copies of the Registration Statement may be
obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC OR
DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The purchase price is
the NAV next determined following receipt of an order by the Transfer Agent or
Prudential Securities plus a sales charge which, at your option, may be
imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). See "Alternative Purchase Plan"
below. See also "How the Fund Values its Shares."
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan,
the minimum initial and subsequent investment is $50. See "Shareholder
Services" below.
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive stock
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company (State
Street), Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Prudential Global Genesis Fund, Inc., specifying on the wire the
account number assigned by PMFS and your name and identifying the sales charge
alternative (Class A, Class B or Class C shares).
If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Global Genesis
Fund, Inc., Class A, Class B or Class C shares and your name and individual
account number. It is not necessary to call PMFS to make subsequent purchase
orders utilizing Federal Funds. The minimum amount which may be invested by
wire is $1,000.
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ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THROUGH THIS PROSPECTUS THREE CLASSES OF SHARES (CLASS A,
CLASS B AND CLASS C SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL
SALES CHARGE STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF
THE PURCHASE, THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER
RELEVANT CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------------- -------------------------- --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% (Currently being Initial sales charge waived or reduced
the public offering price charged at a rate of for certain purchases
.25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another class
of the amount invested or the
redemption proceeds on redemptions
made within one year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its Plan (except
as noted under the heading "General Information--Description of Common
Stock"), and (iii) only Class B shares have a conversion feature. The three
classes also have separate exchange privileges. See "How to Exchange Your
Shares" below. The income attributable to each class and the dividends payable
on the shares of each class will be reduced by the amount of the distribution
fee of each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales share of 5% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.
22
<PAGE>
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money
invested initially because the sales charge on Class A shares is deducted at
the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in net asset value, the effect of
the return on the investment over this period of time or redemptions when the
CDSC is applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES. See "Reduction and Waiver of Initial Sales Charges" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "Purchase and Redemption
of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares"
in the Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Section 457 and 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the plan has existing assets of at
least $1 million invested in shares of Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange
privilege) or 250 eligible employees or participants. In
23
<PAGE>
the case of Benefit Plans whose accounts are held directly with the Transfer
Agent or Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by PSI or its subsidiaries (PSI or
Subsidiary Prototype Benefit Plans), Class A shares may be purchased at NAV by
participants who are repaying loans made from such plans to the participant.
PruArray and SmartPath Plans. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or non-
qualified under the Internal Revenue Code, including pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code and deferred compensation and annuity plans under Sections 457
and 403(b)(7) of the Internal Revenue Code that participate in Prudential's
PruArray or SmartPath Programs (benefit plan recordkeeping services)
(hereafter referred to as a PruArray or SmartPath Plan); provided that the
plan has at least $1 million in existing assets or 250 eligible employees or
participants. The term "existing assets" for this purpose includes stock
issued by a PruArray or SmartPath Plan sponsor and shares of non-money market
Prudential Mutual Funds and shares of certain unaffiliated non-money market
mutual funds that participate in the PruArray or SmartPath Programs
(Participating Funds). "Existing assets" also include shares of money market
funds acquired by exchange from a Participating Fund.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent, (c)
employees and special agents of Prudential and its subsidiaries and all
persons who have retired directly from active service with Prudential or one
of its subsidiaries, (d) registered representatives and employees of dealers
who have entered into a selected dealer agreement with Prudential Securities
provided that purchases at NAV are permitted by such person's employer and (e)
investors who have a business relationship with a financial adviser who joined
Prudential Securities from another investment firm, provided that (i) the
purchase is made within 180 days of the commencement of the financial
adviser's employment at Prudential Securities, or within one year in the case
of Benefit Plans, (ii) the purchase is made with proceeds of a redemption of
shares of any open-end fund sponsored by the financial adviser's previous
employer (other than a money market or other no-load fund which imposes a
distribution or service fee of .25 of 1% or less) and (iii) the financial
adviser served as the client's broker on the previous purchase.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation
of your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class
B and Class C shares may be subject to a CDSC. See "How to Sell Your Shares--
Contingent Deferred Sales Charges."
24
<PAGE>
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES."
In certain cases, however, redemption proceeds will be reduced by the amount
of any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be
sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services, Inc., Attention: Redemption Services, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Preferred
Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST, EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the SEC, by order, so permits; provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY
WIRE OR BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the SEC. Securities will be readily marketable and will be
valued in the same manner as a regular redemption. See "How the Fund Values
its Shares." If your shares are redeemed in kind, you will incur transaction
costs in converting the assets into cash. The Fund, however, has elected to be
governed by Rule 18f-1 under the Investment Company Act, under which the Fund
is obligated to redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during any 90-day period for any one
shareholder.
25
<PAGE>
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 contingent deferred
sales charge will be imposed on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will
be credited (in shares) to your account. (If less than a full repurchase is
made, the credit will be on a pro rata basis.) You must notify the Fund's
Transfer Agent, either directly or through Prudential Securities, at the time
the repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege will generally not affect
the federal tax treatment of any gain realized upon redemption. However, if
the redemption was made within a 30 day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, may not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares of the Fund to an amount which
is lower than the amount of all payments by you for shares during the
preceding six years, in the case of Class B shares, and one year, in the case
of Class C shares. A CDSC will be applied on the lesser of the original
purchase price or the current value of the shares being redeemed. Increases in
the value of your shares or shares acquired through reinvestment of dividends
or distributions are not subject to a CDSC. The amount of any contingent
deferred sales charge will be paid to and retained by the Distributor. See
"How the Fund is Managed--Distributor" and "Waiver of the Contingent Deferred
Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month
after the initial purchase, excluding the time shares were held in a money
market fund. See "How to Exchange Your Shares."
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
YEAR SINCE CONTINGENT DEFERRED SALES CHARGE
PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR REDEMPTION PROCEEDS
------------ -----------------------------------
<S> <C>
First................ 5.0%
Second............... 4.0%
Third................ 3.0%
Fourth............... 2.0%
Fifth................ 1.0%
Sixth................ 1.0%
Seventh.............. None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired
26
<PAGE>
pursuant to the reinvestment of dividends and distributions; then of amounts
representing the increase in net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years
(five years for Class B shares purchased prior to January 22, 1990); then of
amounts representing the cost of shares held beyond the applicable CDSC
period; and finally, of amounts representing the cost of shares held for the
longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
NAV had appreciated to $12 per share, the value of your Class B shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability
of a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), at the time of death or initial
determination of disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or a Section 403(b)
custodial account. These distributions include: (i) in the case of a tax-
deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of
an excess contribution or plan distributions following the death or disability
of the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC
was not previously deducted will thereafter be subject to a CDSC without
regard to the time such amounts were previously invested. In the case of a
401(k) plan, the CDSC will also be waived upon the redemption of shares
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Fund.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC and provide the Transfer Agent with such
supporting documentation as it may deem appropriate. The waiver will be
granted subject to confirmation of your entitlement. See "Purchase and
Redemption of Fund Shares--Waiver of the Contingent Deferred Sales Charge--
Class B Shares" in the Statement of Additional Information.
A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement
of Additional Information.
27
<PAGE>
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. The first conversion of Class B shares occurred in February 1995, when
the conversion feature was first implemented.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (i) the ratio of (a) the amounts paid for Class B shares purchased at
least seven years prior to the conversion date to (b) the total amount paid
for all Class B shares purchased and then held in your account (ii) multiplied
by the total number of Class B shares purchased and then held in your account.
Each time any Eligible Shares in your account convert to Class A shares, all
shares or amounts representing Class B shares then in your account that were
acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described above will generally be either more or less
than the number of shares actually purchased approximately seven years before
such conversion date. For example, if 100 shares were initially purchased at
$10 per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%) multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase
of such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code
and (ii) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
28
<PAGE>
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE PRIVILEGE), INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS
OF SUCH FUNDS. CLASS A, CLASS B AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS
A, CLASS B AND CLASS C SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF
THE RELATIVE NAV. No sales charge will be imposed at the time of the exchange.
Any applicable CDSC payable upon the redemption of shares exchanged will be
calculated from the first day of the month after the initial purchase
excluding the time shares were held in a money market fund. Class B and Class
C shares may not be exchanged into money market funds other than Prudential
Special Money Market Fund. For purposes of calculating the holding period
applicable to the Class B conversion feature, the time period during which
Class B shares were held in a money market fund will be excluded. See
"Conversion Feature--Class B Shares" above. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM AND HOLD SHARES IN NON-CERTIFICATE
FORM. Thereafter, you may call the Fund at (800) 225-1852 to execute a
telephone exchange of shares, on weekdays, except holidays, between the hours
of 8:00 A.M. and 6:00 P.M., New York time. For your protection and to prevent
fraudulent exchanges, your telephone call will be recorded and you will be
asked to provide your personal identification number. A written confirmation
of the exchange transaction will be sent to you. NEITHER THE FUND NOR ITS
AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH RESULTS FROM
ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER THE FOREGOING
PROCEDURES. (THE FUND OR ITS AGENTS COULD BE SUBJECT TO LIABILITY IF THEY FAIL
TO EMPLOY REASONABLE PROCEDURES.) All exchanges will be made on the basis of
the relative NAV of the two funds next determined after the request is
received in good order. The Exchange Privilege is available only in states
where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND SHAREHOLDERS SHOULD MAKE EXCHANGES BY
MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC. AT THE ADDRESS NOTED
ABOVE.
SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above. Under this exchange privilege, amounts representing any Class B and
Class C shares (which are not subject to a CDSC) held in such a shareholder's
account will be automatically exchanged for Class A shares on a quarterly
basis, unless the shareholder elects otherwise. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C
shares and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities or Prusec that
they are eligible for this special exchange privilege.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
29
<PAGE>
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder of the Fund, you can
take advantage of the following services and privileges:
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your financial
adviser.
. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
is available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
30
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more information
on the Prudential Mutual Funds, including charges and expenses, contact your
Prudential Securities financial adviser or Prusec representative or telephone
the Fund at (800) 225-1852 for a free prospectus. Read the prospectus
carefully before you invest or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND
FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
. Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, 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
A-1
<PAGE>
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell, or a solicita-
tion of any offer to buy any of the securities offered hereby in any jurisdic-
tion to any person to whom it is unlawful to make such offer in such
jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................ 2
Risk Factors and Special Characteristics.................................. 2
FUND EXPENSES.............................................................. 4
FINANCIAL HIGHLIGHTS....................................................... 5
HOW THE FUND INVESTS....................................................... 8
Investment Objective and Policies......................................... 8
Hedging and Return Enhancement Strategies................................. 10
Other Investments and Policies............................................ 13
Investment Restrictions................................................... 14
HOW THE FUND IS MANAGED.................................................... 14
Manager................................................................... 14
Distributor............................................................... 15
Portfolio Transactions.................................................... 17
Custodian and Transfer and Dividend Disbursing Agent...................... 17
HOW THE FUND VALUES ITS SHARES............................................. 17
HOW THE FUND CALCULATES PERFORMANCE........................................ 18
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 18
GENERAL INFORMATION........................................................ 20
Description of Common Stock............................................... 20
Additional Information.................................................... 21
SHAREHOLDER GUIDE.......................................................... 21
How to Buy Shares of the Fund............................................. 21
Alternative Purchase Plan................................................. 22
How to Sell Your Shares................................................... 25
Conversion Feature--Class B Shares........................................ 28
How to Exchange Your Shares............................................... 29
Shareholder Services...................................................... 30
THE PRUDENTIAL MUTUAL FUND FAMILY.......................................... A-1
</TABLE>
- --------------------------------------------------------------------------------
MF 136A 4441545
<TABLE>
<S> <C>
Class A: 744333105
CUSIP Nos.: Class B: 744333204
Class C: 744333303
</TABLE>
P
R
O
S
P
E
C
T
U
S
JULY 30, 1996
Prudential
Global Genesis
Fund, Inc.
PRUDENTIAL MUTUAL FUNDS
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH/SM/
<PAGE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
Statement of Additional Information
dated July 30, 1996
Prudential Global Genesis Fund, Inc. (the Fund) is an open-end, diversified,
management investment company. Its investment objective is long-term growth of
capital. It seeks to achieve this objective by investing primarily in common
stocks, common stock equivalents and other equity securities of smaller
foreign and domestic companies. Smaller companies are those with market
capitalizations of less than $1 billion, measured at the time of initial
purchase. Under normal circumstances, the Fund intends to invest at least 65%
of its total assets in such securities. The Fund may also invest in equity
securities of other companies, debt securities and derivatives, including
options on stocks, stock indices, foreign currencies and futures contracts on
foreign currencies, and may purchase and sell futures contracts on foreign
currencies and groups of currencies and on stock indices so as to hedge its
portfolio. There can be no assurance that the Fund's investment objective will
be achieved. See "Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated July 30, 1996, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
----- ---------------
<S> <C> <C>
General Information...................................... B-2 20
Investment Objective and Policies........................ B-2 8
Investment Restrictions.................................. B-10 14
Directors and Officers................................... B-12 14
Manager.................................................. B-14 14
Distributor.............................................. B-16 15
Portfolio Transactions and Brokerage..................... B-19 17
Purchase and Redemption of Fund Shares................... B-20 21
Shareholder Investment Account........................... B-23 30
Net Asset Value.......................................... B-26 17
Taxes.................................................... B-26 18
Performance Information.................................. B-29 18
Custodian, Transfer and Dividend Disbursing Agent and In-
dependent Accountants................................... B-31 17
Financial Statements..................................... B-32 --
Report of Independent Accountants........................ B-43 --
Description of Security Ratings.......................... A-1 --
Appendix I--Historical Performance Data.................. I-1 --
Appendix II--General Investment Information.............. II-1 --
Appendix III--Information Relating to The Prudential..... III-1 --
</TABLE>
- -------------------------------------------------------------------------------
MF1368 444-1553
<PAGE>
GENERAL INFORMATION
At a special meeting held on July 19, 1994, shareholders approved an
amendment to the Fund's Articles of Incorporation to change the Fund's name
from Prudential-Bache Global Genesis Fund, Inc. to Prudential Global Genesis
Fund, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in common stocks, common stock
equivalents and other equity securities of smaller foreign and domestic
companies. There can be no assurance that the Fund's investment objective will
be achieved. See "How the Fund Invests--Investment Objective and Policies" in
the Prospectus.
PORTFOLIO STRATEGY
In selecting portfolio securities, The Prudential Investment Corporation
(PIC or the Subadviser) focuses on individual companies with the potential for
long-term capital growth, including established companies with the potential
for high earnings growth and smaller and medium-sized companies that are well
positioned to adapt to market and industry changes. The Subadviser identifies
such companies on the basis of fundamental analysis, which involves assessing
a company and its business environment, management, balance sheet, income
statement, anticipated earnings and dividends and other related measures of
value. Although the primary portfolio management approach is company analysis,
the Subadviser also analyzes foreign currency movements against the U.S.
dollar in order to manage the foreign currency exposure of the Fund and
performs an analysis of individual countries. The Subadviser uses a variety of
sources and techniques in analyzing these companies and countries and
maintains strong local contacts in securities markets around the world. The
Subadviser monitors and evaluates the economic and political climate and
principal securities markets of the country in which each company is located.
The Subadviser has broad access to international research and financial
reports, data retrieval services and industry analysts. In addition, the
Subadviser maintains relationships with the management of corporate issuers
and from time to time visits companies overseas in whose securities the Fund
may invest.
OPTIONS TRANSACTIONS
OPTIONS ON EQUITY SECURITIES. The Fund intends to purchase and write (i.e.,
sell) put and call options that are traded on U.S. or foreign securities
exchanges or that are listed on NASDAQ or that are traded over-the-counter. A
call option is a short-term contract (having a duration of nine months or
less) pursuant to which the purchaser, in return for a premium paid, has the
right to buy the security underlying the option at a specified exercise price
at any time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract which gives the purchaser, in return for a
premium, the right to sell the underlying security at a specified price during
the term of the option. The writer of the put, who receives the premium, has
the obligation to buy the underlying security upon exercise at the exercise
price. The Fund will write put options only when the investment adviser
desires to invest in the underlying security.
A call option written by the Fund is "covered" if the Fund owns the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash, U.S. Government obligations or other liquid, unencumbered
assets, marked to market daily, in a segregated account with its Custodian. A
put option written by the Fund is "covered" if the Fund maintains cash, U.S.
Government obligations or other liquid, unencumbered assets, marked to market
daily, with a value equal to the exercise price in a segregated account with
its Custodian, or else holds on a share-for-share basis a put of the same
security as the put written where the exercise price of the put held is equal
to or greater than the exercise price of the put written. The premium paid by
the purchaser of an option will reflect, among other things, the relationship
of the exercise price to the market price and volatility of the underlying
security, the remaining term of the option, supply and demand and interest
rates.
If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or
B-2
<PAGE>
she has been notified of the exercise of an option. Similarly, an investor who
is the holder of an option may liquidate his or her position by effecting a
"closing sale transaction." This is accomplished by selling an option of the
same series as the option previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected. To
secure the obligation to deliver the underlying security in the case of a call
option, the writer of the option is generally required to pledge for the
benefit of the broker the underlying security or other assets in accordance
with the rules of the relevant exchange or clearinghouse, such as The Options
Clearing Corporation (OCC), an institution created to interpose itself between
buyers and sellers of options in the United States. Technically, the
clearinghouse assumes the other side of every purchase and sale transaction on
an exchange and, by doing so, guarantees the transaction.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option or is less than the premium paid
to purchase the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the Fund.
The Fund may also purchase a "protective put," i.e., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and transaction costs
in connection with, the put plus the initial excess, if any, of the market
price of the underlying security over the exercise price. However, if the
market price of the security underlying the put rises, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for
the put option less any amount (net of transaction costs) for which the put
may be sold. Similar principles apply to the purchase of puts on stock
indices, as described below.
OPTIONS ON STOCK INDICES. In addition to options on equity securities, the
Fund may also purchase and sell put and call options on stock indices traded
on securities exchanges or listed on NASDAQ or that are traded over-the-
counter. Options on stock indices are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price,
an option on a stock index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the stock
index upon which the option is based is greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option, expressed in dollars times a
specified multiple (the multiplier). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike stock
options, all settlements are in cash, and gain or loss depends on price
movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements in individual stocks.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an
option and the current level of the underlying index. A multiplier of 100
means that a one-point difference will yield $100. Options on different
indices may have different multipliers.
Because exercises of index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific stocks, cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. In addition, unless the Fund has other liquid assets which are
sufficient to satisfy the exercise of a call, the Fund would be required to
liquidate portfolio securities or borrow in order to satisfy the exercise.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of stock prices in the stock market
generally or in an industry or market segment rather than movements in the
price of a particular stock. Accordingly, successful use by the Fund of
options on indices would be subject to the investment adviser's ability to
predict correctly movements in the direction of the stock market generally or
of a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. The investment adviser
currently uses such techniques in conjunction with the management of other
mutual funds.
RISKS OF TRANSACTIONS IN OPTIONS
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there
B-3
<PAGE>
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at
any particular time, and for some options no secondary market on an exchange
or otherwise may exist. In such event it might not be possible to effect
closing transactions in particular options, with the result that the Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities acquired through the exercise
of call options or upon the purchase of underlying securities for the exercise
of put options. If the Fund as a covered call option writer is unable to
effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers
the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in the
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by a clearing corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby result
in the institution by an exchange of special procedures which may interfere
with the timely execution of customers' orders. The Fund intends to purchase
and sell only those options which are cleared by clearinghouses whose
facilities are considered to be adequate to handle the volume of options
transactions.
RISKS OF OPTIONS ON INDICES
The Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that
are not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, the Fund would not be able
to close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the Fund's policy to
purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is no greater
than the risk in connection with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDICES. Because exercises of index
options are settled in cash, a call writer such as the Fund cannot determine
the amount of its settlement obligations in advance and, unlike call writing
on specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described below under "Limitations on Purchase and Sale of Stock
Options and Options on Stock Indices, Foreign Currencies and Futures Contracts
on Foreign Currencies."
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on
the call which is not completely offset by movements in the price of the
Fund's portfolio. It is also possible that the index may rise when the Fund's
portfolio of stocks does not rise. If this occurred, the Fund would experience
a loss on the call which would not be offset by an increase in the value of
its portfolio and might also experience a loss in its portfolio. However,
because the value of a diversified portfolio will, over time, tend to move in
the same direction as the market, movements in the value of the Fund in the
opposite direction as the market would be likely to occur for only a short
period or to a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be
settled within hours after receiving the
B-4
<PAGE>
notice of exercise, if the Fund fails to anticipate an exercise, it may have
to borrow from a bank (in amounts not exceeding 20% of the Fund's total
assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise,
and the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the price of such investments might decline before they can be sold.
This timing risk makes certain strategies involving more than one option
substantially more risky with index options than with stock options. For
example, even if an index call which the Fund has written is "covered" by an
index call held by the Fund with the same strike price, the Fund will bear the
risk that the level of the index may decline between the close of trading on
the date the exercise notice is filed with the clearing corporation and the
close of trading on the date the Fund exercises the call it holds or the time
the Fund sells the call which, in either case, would occur no earlier than the
day following the day the exercise notice was filed.
SPECIAL RISKS OF PURCHASING PUTS AND CALLS. If the Fund holds an index
option and exercises it before final determination of the closing index value
for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiplier) to the assigned writer. Although the Fund may be able to minimize
this risk by withholding exercise instructions until just before the daily
cutoff time or by selling rather than exercising an option when the index
level is close to the exercise price, it may not be possible to eliminate this
risk entirely because the cutoff times for index options may be earlier than
those fixed for other types of options and may occur before definitive closing
index values are announced.
RISKS OF OPTIONS ON FOREIGN CURRENCIES
Because there are two currencies involved, developments in either or both
countries can affect the values of options on foreign currencies. Risks
include those described in the Prospectus under "How the Fund Invests--
Investment Objective and Policies--Special Considerations and Risks of
Investing in Foreign Securities," including government actions affecting
currency valuation and the movements of currencies from one country to
another. The quantities of currency underlying option contracts represent odd
lots in a market dominated by transactions between banks; this can mean extra
transaction costs upon exercise. Option markets may be closed while round-the-
clock interbank currency markets are open, and this can create price and rate
discrepancies.
RISKS RELATED TO FORWARD CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Fund may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for a fixed amount of dollars, for the purchase or sale of the amount
of foreign currency involved in the underlying transactions, the Fund will be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date on which the security is purchased
or sold, or on which the dividend or interest payment is declared, and the
date on which such payments are made or received.
Additionally, when the 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
B-5
<PAGE>
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 interests 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 subcustodian will place cash
or U.S. Government obligations or other liquid, unencumbered assets in a
segregated account 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. The assets placed in the
segregated account will be marked to market daily, and if the value declines,
additional cash or securities will be placed in the account so that the value
of the account will, at all times, equal the amount of the Fund's net
commitment with respect to the 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.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices
decline during the period between the Fund's entering into a forward contract
for the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Fund will realize a
gain to the extent that the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
contract prices increase, the Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The Fund's dealings in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Fund is not
required to enter into such transactions with regard to its foreign currency-
denominated securities. It also should be realized that this method of
protecting the value of the Fund's portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying
prices of the securities which are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.
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 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.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. In the case of futures contracts on stock indices, the correlation
between the price of the futures contract and the movements in the index may
not be perfect. Therefore, a correct forecast of currency rates, market trends
or international political trends by the investment adviser may still not
result in a successful hedging transaction.
Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance
that it will be possible, at any particular time, to close a futures position.
In the event the Fund could not close a futures position and the value of such
position declined, the Fund would be required to continue to make daily cash
payments of variation margin. There is no guarantee that the price movements
of the portfolio securities denominated in foreign currencies will, in fact,
correlate with the price movements in the futures contract and thus provide an
offset to losses on a futures contract. Currently, futures contracts are
available on the Australian Dollar, British Pound, Canadian Dollar, Japanese
Yen, Swiss Franc, German Mark and Eurodollar, among others. Futures contracts
are also available on the S&P 500 Stock Index, the NYSE Composite Index and
the Major Market Index, and other global exchanges.
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Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the
Investment Company Act), are exempt from the definition of "commodity pool
operator," subject to compliance with certain conditions. The exemption is
conditioned upon the Fund's purchasing and selling futures contracts and
options thereon for bona fide hedging transactions, except that the Fund may
purchase and sell futures contracts and options thereon for any other purpose
to the extent that the aggregate initial margin and option premiums do not
exceed 5% of the liquidation value of the Fund's total assets. The Fund will
use currency futures and options on futures or commodity options contracts in
a manner consistent with these requirements.
Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of markets and other factors affecting currencies or the stock
market generally. For example, if the Fund has hedged against the possibility
of an increase in currency rates which would adversely affect the price of
securities in its portfolio and the price of such securities increases
instead, the Fund will lose part or all of the benefit of the increased value
of its securities because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient cash
to meet daily variation margin requirements, it may need to sell securities to
meet such requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be
reflected in the futures markets.
OPTIONS ON FUTURES CONTRACTS
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of
the option is required upon exercise to assume an offsetting futures position
(a short position if the option is a call and a long position if the option is
a put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin
account which represents the amount by which the market price of the futures
contract, at exercise, exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
Currently options can be purchased or written with respect to futures
contracts on the Australian Dollar, British Pound, Canadian Dollar, Japanese
Yen, Swiss Franc, German Mark and Eurodollar, among others. With respect to
stock indices, options are traded on futures contracts for the S&P 500 Stock
Index and the NYSE Composite Index and other global indices.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such
closing transactions can be effected.
LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS AND OPTIONS ON STOCK
INDICES, FOREIGN CURRENCIES AND FUTURES CONTRACTS ON FOREIGN CURRENCIES
The Fund may write put and call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. The Fund will write put options on stock indices and foreign
currencies and futures contracts on foreign currencies only if they are
covered by segregating with the Fund's Custodian an amount of cash or short-
term investments equal to the aggregate exercise price of the puts. The Fund
has undertaken with certain state securities commissions that, so long as
shares of the Fund are registered in those states, it will not (a) write puts
having aggregate exercise prices greater than 25% of total net assets; or (b)
purchase (i) put options on stocks not held in the Fund's portfolio, (ii) put
options on stock indices, foreign currencies or futures contracts on foreign
currencies or (iii) call options on stocks, stock indices or foreign
currencies if, after any such purchase, the aggregate premiums paid for such
options would exceed 10% of the Fund's total net assets; provided, however,
that the Fund may purchase put options on stocks held by the Fund if after
such purchase the aggregate premiums paid for such options do not exceed 20%
of the Fund's total assets. During the coming year, the Fund does not intend
to purchase or sell options on equity securities or stock indices if the
aggregate premiums paid for such outstanding options would exceed 5% of the
Fund's total assets.
Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, cash, U.S. Government securities, liquid, high
grade debt securities or at least one "qualified security" with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts.
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<PAGE>
If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," all of which
are stocks of issuers in such industry or market segment, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such stocks will
include stocks which represent at least 50% of the weighting of the industry
or market segment index and will represent at least 50% of the Fund's holdings
in that industry or market segment. No individual security will represent more
than 15% of the amount so segregated, pledged or escrowed in the case of
broadly-based stock market index options or 25% of such amount in the case of
industry or market segment index options. If at the close of business on any
day the market value of such qualified securities so segregated, escrowed or
pledged falls below 100% of the current index value times the multiplier times
the number of contracts, the Fund will so segregate, escrow or pledge an
amount in cash, Treasury bills or other high grade short-term debt obligations
equal in value to the difference. In addition, when the Fund writes a call on
an index which is in-the-money at the time the call is written, the Fund will
segregate with its Custodian or pledge to the broker as collateral cash, U.S.
Government securities or other high grade short-term debt obligations equal in
value to the amount by which the call is in-the-money times the multiplier
times the number of contracts. Any amount segregated pursuant to the foregoing
sentence may be applied to the Fund's obligation to segregate additional
amounts in the event that the market value of the qualified securities falls
below 100% of the current index value times the multiplier times the number of
contracts. A "qualified security" is an equity security which is listed on a
national securities exchange or listed on NASDAQ against which the Fund has
not written a stock call option and which has not been hedged by the Fund by
the sale of stock index futures. However, if the Fund holds a call on the same
index as the call written where the exercise price of the call held is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its Custodian, it will not be subject to the
requirements described in this paragraph.
The Fund intends to engage in futures contracts and options on futures
transactions as a hedge against changes, resulting from market or political
conditions, in the value of the currencies to which the Fund is subject or to
which the Fund expects to be subject in connection with future purchases. The
Fund also intends to engage in such transactions when they are economically
appropriate for the reduction of risks inherent in the ongoing management of
the Fund. The Fund may write options on futures contracts to realize through
the receipt of premium income a greater return than would be realized in the
Fund's portfolio securities alone.
POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which the Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidation of positions found to be in excess of these limits, and
it may impose certain other sanctions.
DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a temporary defensive strategy, the Fund may invest
in money market instruments, including commercial paper of domestic
corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, obligations issued or guaranteed by
the U.S. Government, its agencies or its instrumentalities and repurchase
agreements (described more fully below). Such investments may be subject to
certain risks, including future political and economic developments, the
possible imposition of withholding taxes on interest income, the seizure or
nationalization of foreign deposits and foreign exchange controls or other
restrictions.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis; that is, delivery and
payment can take place a month or more after the date of the transaction. The
Fund will make commitments for such when-issued or delayed delivery
transactions only with the intention of actually acquiring the securities. The
Fund's Custodian will maintain, in a separate account of the Fund, cash, U.S.
Government securities or other high grade debt obligations having a value
equal to or greater than such commitments. If the Fund chooses to dispose of
the right to acquire a when-issued or delayed delivery security prior to its
acquisition, it could, as with the disposition of any other portfolio
security, incur
B-8
<PAGE>
a gain or loss due to market fluctuations. The Fund does not intend to have
more than 5% of its net assets (determined at the time of entering into the
transaction) involved in transactions on a when-issued or delayed delivery
basis during the coming year.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box), and that not more than 25% of the Fund's net
assets (determined at the time of the short sale) may be subject to such
sales. Short sales will be made primarily to defer realization of gain or loss
for federal tax purposes. The Fund does not intend to have more than 5% of its
net assets (determined at the time of the short sale) subject to short sales
against-the-box during the coming year.
REPURCHASE AGREEMENTS
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with
parties meeting creditworthiness standards approved by the Fund's Board of
Directors. The Fund's investment adviser will monitor the creditworthiness of
such parties, under the general supervision of the Board of Directors. In the
event of a default or bankruptcy by a seller, the Fund will promptly seek to
liquidate the collateral. To the extent that the proceeds from any sale of
such collateral upon a default in the obligation to repurchase are less than
the repurchase price, the Fund will suffer a loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. (PMF) pursuant to
an order of the Securities and Exchange Commission (SEC). 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.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 10% of the value of the
Fund's total assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral that is
equal to at least the market value, determined daily, of the loaned
securities. The advantage of such loans is that the Fund continues to receive
payments in lieu of the interest and dividends of the loaned securities, while
at the same time earning interest either directly from the borrower or on the
collateral which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice or by
the Fund at any time. If the borrower fails to maintain the requisite amount
of collateral, the loan automatically terminates and the Fund can use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms determined to
be creditworthy pursuant to procedures approved by the Board of Directors of
the Fund. On termination of the loan, the borrower is required to return the
securities to the Fund, and any gain or loss in the market price during the
loan would inure to the Fund.
Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan. The Fund will pay reasonable
finders', administrative and custodial fees in connection with a loan of its
securities or may share the interest earned on collateral with the borrower.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 5% of its total assets in securities of other
registered investment companies. Generally, the Fund does not intend to invest
in such securities. If the Fund does invest in securities of other registered
investment companies, shareholders of the Fund may be subject to duplicate
management and advisory fees.
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ILLIQUID SECURITIES
The Fund may not hold more than 10% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market (either within or outside of the United
States) or legal or contractual restrictions on resale. Historically, illiquid
securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having a maturity
of longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The investment adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper and foreign securities will expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser
will consider, inter alia, the following factors: (1) the frequency of trades
and quotes for the security; (2) the number of dealers wishing to purchase or
sell the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser, and (ii) it must not be "traded
flat" (i.e., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions, but the Fund's portfolio
turnover rate is not expected to exceed 200%. The portfolio turnover rate is
generally the percentage computed by dividing the lesser of portfolio
purchases or sales (excluding all securities, including options, whose
maturities or expiration dates at acquisition were one year or less) by the
monthly average value of the portfolio. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs,
which are borne directly by 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
"Portfolio Transactions and Brokerage" and "Taxes."
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
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<PAGE>
securities," when used in this Statement of Additional Information, means the
lesser of (i) 67% of the voting shares represented at a meeting at which more
than 50% of the outstanding voting shares are present in person or represented
by proxy or (ii) more than 50% of the outstanding voting shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a
security on margin.
2. Make short sales of securities or maintain a short position, except short
sales against-the-box.
3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow up to 20% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes or
for the clearance of transactions. The Fund may pledge up to 20% of the value
of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a when-issued or delayed
delivery basis, forward foreign currency exchange contracts and collateral and
collateral arrangements relating thereto, and collateral arrangements with
respect to futures contracts and options thereon and with respect to the
writing of options and obligations of 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. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result: (i) with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (determined at
the time of investment) would then be invested in securities of a single
issuer, or (ii) 25% or more of the Fund's total assets (determined at the time
of investment) would be invested in a single industry.
5. Purchase any security if as a result the Fund would then hold more than
10% of the outstanding voting securities of an issuer.
6. Purchase any security if as a result the Fund would then have more than
5% of its total assets (determined at the time of investment) invested in
securities of companies (including predecessors) less than three years old,
except that the Fund may invest in the securities of any U.S. Government
agency or instrumentality, and in any security guaranteed by such an agency or
instrumentality.
7. Buy or sell real estate or interests in real estate, except that the Fund
may purchase and sell securities which are secured by real estate, securities
of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Fund may not purchase
interests in real estate limited partnerships which are not readily
marketable.
8. Buy or sell commodities or commodity contracts. (For purposes of this
restriction, futures contracts on currencies and on stock indices and forward
foreign currency exchange contracts are not deemed to be commodities or
commodity contracts.)
9. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
10. Make investments for the purpose of exercising control or management.
11. Invest in securities of other registered investment companies, except by
purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets (determined at
the time of investment) would be invested in such securities, or except as
part of a merger, consolidation or other acquisition.
12. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
13. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities (limited to 10% of the Fund's total assets).
In order to comply with certain state "blue sky" restrictions, the Fund will
not as a matter of operating policy:
(1) make investments which are not readily marketable if at the time of
investment more than 15% of its total assets would be committed to such
investments, including illiquid securities and foreign securities which are
not listed on an exchange;
(2) invest in oil, gas and mineral leases;
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<PAGE>
(3) purchase warrants if as a result the Fund would then have more than 5%
of its net assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange, American Stock
Exchange or any major foreign stock exchange will be limited to 2% of the
Fund's net assets (determined at the time of investment). For purposes of this
limitation, warrants acquired in units or attached to securities are deemed to
be without value;
(4) purchase unlisted foreign securities, if as a result the Fund would then
have more than 15% of its total assets (taken at current value) invested in
such securities;
(5) issue shares for consideration other than cash in compliance with state
securities commission limitations;
(6) purchase the securities of any issuer if, to the knowledge of the Fund,
any officer or Director of the Fund or the Fund's Manager or Subadviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers and Directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer;
(7) invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities
of issuers which are restricted as to disposition, if more than 15% of its
total assets would be invested in such securities. This restriction shall not
apply to mortgage-backed securities, asset-backed securities or obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and
(8) invest more than 5% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, and in equity securities of issuers which are not readily
marketable.
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.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------- --------- ----------------------
<S> <C> <C>
Edward D. Director President and Director of BMC Fund, Inc., a closed-end
Beach (71) investment company; formerly Vice Chairman of Broyhill
c/o Furniture Industries, Inc.; Certified Public
Prudential Accountant; Secretary and Treasurer of Broyhill Family
Mutual Fund Foundation, Inc.; Member of the Board of Trustees of
Management, Mars Hill College; President, Treasurer and Director of
Inc. First Financial Fund, Inc. and The High Yield Plus
One Seaport Fund, Inc.; President and Director of Global Utility
Plaza Fund, Inc.
New York, NY
Donald D. Director Chairman (since February 1990) and Director (since April
Lennox (77) 1989) of International Imaging Materials, Inc.; Retired
c/o Chairman, Chief Executive Officer and Director of
Prudential Schlegel Corporation (March 1987-February 1989);
Mutual Fund Director of Gleason Corporation, Personal Sound
Management, Technologies, Inc. and The High Yield Income Fund, Inc.
Inc.
One Seaport
Plaza
New York, NY
Douglas H. Director Vice Chairman, Gannett Co. Inc. (publishing and media)
McCorkindale (since March 1984); Director of Continental Airlines,
(57) Inc., Gannett Co. Inc. and Frontier Corporation.
c/o
Prudential
Mutual Fund
Management,
Inc.
One Seaport
Plaza
New York, NY
Thomas T. Director President of the Greater Rochester Metro Chamber of
Mooney (54) Commerce; formerly Rochester City Manager; Trustee of
c/o Center for Governmental Research, Inc.; Director of
Prudential Blue Cross of Rochester, The Business Council of
Mutual Fund New York State, Monroe County Water Authority,
Management, Rochester Jobs, Inc., Executive Service Corps of
Inc. Rochester, Monroe County Industrial Development
One Seaport Corporation, Northeast-Midwest Institute, First
Plaza Financial Fund, Inc. and The High Yield Plus Fund, Inc.
New York, NY
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- --------------------- --------- ----------------------
<S> <C> <C>
*Richard A. Redeker (52) President and Director President, Chief Executive Officer and Director (since
One Seaport Plaza October 1993), PMF; Executive Vice President, Director
New York, NY and Member of Operating Committee (since October 1993),
Prudential Securities Incorporated (Prudential
Securities); Director (since October 1993) of
Prudential Securities Group, Inc. (PSG); Executive Vice
President (since January 1994), The Prudential
Investment Corporation; Director (since January 1994),
Prudential Mutual Fund Distributors, Inc. (PMFD) and
Prudential Mutual Fund Services, Inc. (PMFS); formerly
Senior Executive Vice President and Director of Kemper
Financial Services, Inc. (September 1978-September
1993); President and Director of The High Yield Income
Fund, Inc.
Louis A. Weil, III (55) Director Publisher and Chief Executive Officer (since January
c/o Prudential Mutual 1996) and Director (since September 1991) of Central
Fund Newspapers, Inc.; Chairman of the Board (since January
Management, Inc. 1996), Publisher and Chief Executive Officer (August
One Seaport Plaza 1991-December 1995), Phoenix Newspapers, Inc.; prior
New York, NY thereto, Publisher of Time Magazine (May 1989-March
1991); formerly President, Publisher and Chief
Executive Officer of The Detroit News (February 1986-
August 1989); formerly member of the Advisory Board,
Chase Manhattan Bank-Westchester.
Robert F. Gunia (49) Vice President Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989) and Executive Vice President,
New York, NY Treasurer and Chief Financial Officer (since June 1987)
of PMF; Senior Vice President (since March 1987) of
Prudential Securities; Executive Vice President,
Treasurer, Comptroller and Director (since March 1991),
PMFD; Director (since June 1987), PMFS; Vice President
and Director (since May 1989) of The Asia Pacific Fund,
Inc.
S. Jane Rose (50) Secretary Senior Vice President (since January 1991) and Senior
One Seaport Plaza Counsel (since June 1987) of PMF; Senior Vice President
New York, NY and Senior Counsel of Prudential Securities (since July
1992); formerly Vice President and Associate General
Counsel of Prudential Securities.
Susan C. Cote (41) Treasurer and Managing Director, Prudential Investment Advisors, and
751 Broad Street Principal Vice President, The Prudential Investment Corporation
Newark, NJ Financial and (since February 1995); Senior Vice President (January
Accounting 1989-January 1995) of PMF; Senior Vice President
Officer (January 1992-January 1995) and Vice President (January
1986-December 1991) of Prudential Securities.
Stephen M. Ungerman (43) Assistant Treasurer First Vice President of PMF (since February 1993); prior
One Seaport Plaza thereto, Senior Tax Manager of Price Waterhouse LLP
New York, NY (1981-January 1993).
Marguerite E.H. Morrison Assistant Vice President and Associate General Counsel (since June
(40) Secretary 1991) of PMF; Vice President and Associate General
One Seaport Plaza Counsel of Prudential Securities.
New York, NY
</TABLE>
- ---------
* "Interested" Director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential Securities and PMF.
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Board of Directors has adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under the phase-in provision, Messrs. Beach
and Lennox are scheduled to retire on December 31, 1999 and 1997,
respectively.
B-13
<PAGE>
The Board of Directors has nominated a new slate of Directors of the Fund
which will be submitted to shareholders at a special meeting scheduled to be
held in or about October 1996.
The Fund pays each of its Directors who is not an affiliated person of PMF
annual compensation of $5,000, in addition to certain out-of-pocket expenses.
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 an SEC exemptive order,
at the daily rate of return of the Fund. Payment of the interest so accrued is
also deferred and accruals become payable at the option of the Director. The
Fund's obligation to make payments of deferred Directors' fees, together with
interest thereon, is a general obligation of the Fund.
Pursuant to the terms of 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 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 May 31, 1996 and the aggregate compensation paid to such Directors for
service on the Fund's Board and the Boards of any other investment companies
managed by Prudential Mutual Fund Management, Inc. (Fund Complex) for the
calendar year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM FUND
AGGREGATE BENEFITS ACCRUED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
----------------- ------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Edward D. Beach--
Director............... $5,000 None N/A $183,500(22/43)*
Donald D. Lennox--
Director............... 5,000 None N/A 86,250(10/22)*
Douglas H.
McCorkindale--Director. 5,000 None N/A 63,750(7/10)*
Thomas T. Mooney--
Director............... 5,000 None N/A 129,625(14/19)*
Louis A. Weil, III--
Director............... 5,000 None N/A 93,750(11/16)*
</TABLE>
- ---------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
As of July 12, 1996, the Directors and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding common stock of the Fund.
As of July 12, 1996, Prudential Securities was record holder for other
beneficial owners of 1,387,491 Class A shares (or 61.6% of the outstanding
Class A shares), 5,334,285 Class B shares (or 73.0% of the outstanding Class B
shares) and 89,013 Class C shares (or 83.9% of the outstanding Class C shares)
of the Fund. In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy material to the
beneficial owners for which it is the record holder.
As of July 12, 1996, the beneficial owner, directly or indirectly, of more
than 5% of the outstanding shares of any class of shares of the Fund was:
Prudential Securities Inc., FA PDC Machine Inc., Paul Costain, 54 Warehouse
Lane, Rowley, MA 01169-1514, who held 7,954 Class C shares of the Fund (7.5%).
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager to all of the other investment companies that, together with the Fund,
comprise the Prudential Mutual Funds. See "How the Fund is Managed--Manager"
in the Prospectus. As of June 30, 1996, PMF managed and/or administered open-
end and closed-end management investment companies with assets of
approximately $52 billion. According to the Investment Company Institute, as
of December 31, 1995, the Prudential Mutual Funds were the 13th largest family
of mutual funds in the United States.
PMF is a subsidiary of Prudential Securities and The Prudential Insurance
Company of America (Prudential). PMF has three wholly-owned subsidiaries:
Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund Services,
Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund Investment
Management. PMFS serves as the transfer agent for the Prudential Mutual Funds
and, in addition, provides customer service, recordkeeping and management and
administration services to qualified plans.
B-14
<PAGE>
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities. In
connection therewith, PMF is obligated to keep certain books and records of
the Fund. PMF also administers the Fund's corporate affairs and, in connection
therewith, furnishes the Fund with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Fund's custodian, and PMFS, the
Fund's transfer and dividend disbursing agent. The management services of PMF
for the Fund are not exclusive under the terms of the Management Agreement and
PMF is free to, and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of 1% of the Fund's average net assets. The fee is computed
daily and payable monthly. The Management Agreement also provides that, in the
event the expenses of the Fund (including the fees of PMF, but excluding
interest, taxes, brokerage commissions, distribution fees and litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business) for any fiscal year exceed the lowest
applicable annual expense limitation established and enforced pursuant to the
statutes or regulations of any jurisdiction in which the Fund's shares are
qualified for offer and sale, the compensation due to PMF will be reduced by
the amount of such excess. Reductions in excess of the total compensation
payable to PMF will be paid by PMF to the Fund. No such reductions were
required during the fiscal year ended May 31, 1996. Currently, the Fund
believes that the most restrictive expense limitation of state securities
commissions is 2 1/2% of the Fund's average daily net assets up to $30
million, 2% of the next $70 million of such assets and 1 1/2% of such assets
in excess of $100 million. Because the expenses incurred by the Fund are
anticipated to be higher than those of funds that invest only in U.S.
securities, the Fund has received waivers from applicable state expense
limitations to exclude certain foreign transactional expenses from expenses
subject to the limitation.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Directors who are not affiliated persons of PMF or
the Fund's investment adviser;
(b) all expenses incurred, by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund as described below; and
(c) the costs and expenses payable to PIC pursuant to the subadvisory
agreement between PMF and PIC (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the
Manager or the Fund's investment adviser, (c) the fees and certain expenses of
the Custodian and Transfer and Dividend Disbursing Agent, including the cost
of providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of
any trade associations of which the Fund may be a member, (h) the cost of
stock certificates representing shares of the Fund, (i) the cost of fidelity
and liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the SEC,
registering the Fund and qualifying its shares under state securities laws,
including the preparation and printing of the Fund's registration statements
and prospectuses for such purposes, (k) allocable communications expenses with
respect to investor services and all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders in the amount necessary for distribution to the
shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically
if assigned, and that it may be terminated without penalty by either party
upon not more than 60 days' nor less than 30 days' written notice. The
Management Agreement will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act. The Management Agreement was last approved by the Board of
Directors of the Fund, including a majority of the Directors who are not
parties to the contract or interested persons of any such party, as defined in
the Investment Company Act, on May 8, 1996 and by shareholders of the Fund on
September 8, 1988.
B-15
<PAGE>
For the fiscal year ended May 31, 1996, PMF received a management fee of
$1,753,893 (net of waiver of $260,558). For the fiscal years ended May 31,
1995 and 1994, PMF received a management fee of $1,033,673 (net of waiver of
$1,033,673) and $482,555 (net of waiver of $711,053), respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser), a
wholly owned subsidiary of Prudential. The Subadvisory Agreement provides that
PIC will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, PIC is obligated to keep
certain books and records of the Fund. PMF continues to have responsibility
for all investment advisory services pursuant to the Management Agreement and
supervises PIC's performance of such services. PIC is reimbursed by PMF for
the reasonable costs and expenses incurred by PIC in furnishing those
services. Investment advisory services are provided to the Fund by a unit of
the Subadviser, known as Prudential Mutual Fund Investment Management.
Daniel J. Duane serves as the portfolio manager of the Fund. Consistent with
the investment objective and policies of the Fund, Mr. Duane evaluates the
economic climate in various countries and focuses on growth-oriented global
equity investments. He seeks to identify long-term themes and changing
economic conditions that, in his opinion, will lead to earnings growth. His
portfolio management style can be referred to as "bottom up" in that his
primary focus is on individual stocks. He evaluates historical business trends
in the United States when looking for long-term investment opportunities
abroad (the "rear view mirror" analysis). In globally-diversified portfolios,
the portfolio manager generally maintains exposure to major world stock
markets. Under normal market conditions, the portfolio manager seeks to keep
the portfolios fully invested. Mr. Duane consults with a team of regional
equity analysts who provide research on existing holdings of the Fund and on
potential acquisitions.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party, as defined in the Investment Company
Act, on May 8, 1996, and by shareholders of the Fund on September 8, 1988.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less than
30 days', written notice. The Subadvisory Agreement provides that it will
continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292 acts as the distributor of the shares
of the Fund. Prior to January 2, 1996, Prudential Mutual Fund Distributors,
Inc. (PMFD), One Seaport Plaza, New York, New York 10292, served as the
distributor of the Class A shares of the Fund.
Pursuant to separate distribution and service plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Fund under Rule 12b-1 under the Investment Company Act and a distribution
agreement (the Distribution Agreement), Prudential Securities (the
Distributor) incurs the expenses of distributing the Fund's Class A, Class B
and Class C shares. See "How the Fund is Managed--Distributor" in the
Prospectus.
Prior to January 22, 1990, the Fund offered only one class of shares (the
then existing Class B shares). On October 11, 1989, the Board of Directors,
including a majority of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation of
the Class A or Class B Plan or in any agreement related to either Plan (the
Rule 12b-1 Directors), at a meeting called for the purpose of voting on each
Plan, adopted a new plan of distribution for the Class A shares of the Fund
(the Class A Plan) and approved an amended and restated plan of distribution
with respect to the Class B shares of the Fund (the Class B Plan). On May 4,
1993, the Board of Directors, including a majority of the Rule 12b-1
Directors, at a meeting called for the purpose of voting on each Plan,
approved the continuance of the Plans and Distribution Agreements and approved
modifications of the Fund's Class A and Class B Plans and Distribution
Agreements to conform them with recent amendments to the National Association
of Securities Dealers, Inc. (NASD) maximum sales charge rule described below.
As so modified, the Class A Plan provides that (i) up to .25 of 1% of the
average daily net assets of the Class A shares may be used to pay for personal
service and the maintenance of shareholder accounts (service fee) and (ii)
total distribution fees (including the service fee of .25 of 1%) may not
exceed .30 of 1%. As so modified, the Class B Plan provides that (i) up to .25
of 1% of the average daily net assets of the Class B shares may be paid as a
service fee and (ii) up to .75 of 1% (not including the service fee) of the
average daily net assets of the Class B shares (asset-based sales charge) may
be used as reimbursement for distribution-related expenses with respect to the
Class B shares. On May 4, 1993, the Board of Directors, including a majority
of the Rule 12b-1 Directors, at a meeting
B-16
<PAGE>
called for the purpose of voting on each Plan, adopted a plan of distribution
for the Class C shares of the Fund and approved further amendments to the
plans of distribution for the Fund's Class A and Class B shares, changing them
from reimbursement type plans to compensation type plans. The Plans were last
approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on May 8, 1996. The Class A Plan, as amended, was approved by Class
A and Class B shareholders, and the Class B Plan, as amended, was approved by
Class B shareholders on July 19, 1994. The Class C Plan was approved by the
sole shareholder of Class C shares on August 1, 1994.
CLASS A PLAN. For the fiscal year ended May 31, 1996, PMFD and PSI received
payments of $112,676 under the Class A Plan. This amount was primarily
expended for payment of account servicing fees to financial advisers and other
persons who sell Class A shares. For the fiscal year ended May 31, 1996, PMFD
and PSI also received approximately $83,000 in initial sales charges.
CLASS B PLAN. For the fiscal year ended May 31, 1996, the Distributor
received $1,545,660 from the Fund under the Class B Plan and spent
approximately $924,100 in distributing the Fund's Class B shares. It is
estimated that of the latter amount, approximately 2% ($18,300) was spent on
printing and mailing of prospectuses to other than current shareholders; 15%
($141,800) was spent on compensation of Pruco Securities Corporation, an
affiliated broker-dealer (Prusec), for commissions to its representatives and
other expenses, including an allocation on account of overhead and other
branch office distribution-related expenses, incurred by it for distribution
of Fund shares; and 83% ($764,000) on the aggregate of (i) payments of
commissions and account servicing fees to financial advisers (44% or $400,900)
and (ii) an allocation on account of overhead and other branch office
distribution-related expenses (39% or $363,100). The term "overhead and other
branch office distribution-related expenses" represents (a) the expenses of
operating Prudential Securities branch offices in connection with the sale of
Fund shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communications costs
and the costs of stationery and supplies, (b) the costs of client sales
seminars, (c) expenses of mutual fund sales coordinators to promote the sale
of Fund shares and (d) other incidental expenses relating to branch promotion
of Fund sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class B shares.
See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus. For the fiscal year ended May 31, 1996, the
Distributor received approximately $742,800 in contingent deferred sales
charges attributable to Class B shares.
CLASS C PLAN. For the fiscal year ended May 31, 1996, Prudential Securities
received $18,088 under the Class C Plan and spent approximately $21,700 in
distributing Class C shares. It is estimated that of the latter amount,
approximately 7% ($1,600) was spent on printing and mailing of prospectuses to
other than current shareholders; 6% ($1,200) was spent on compensation of
Prusec for commissions to its representatives and other expenses, including an
allocation on account of overhead and other branch office distribution-related
expenses, incurred by it for distribution of Fund shares; and 87% ($18,900) on
the aggregate of (i) payments of commissions and account servicing fees to
financial advisers (52% or $11,300) and (ii) an allocation on account of
overhead and other branch office distribution-related expenses (35% or
$7,600).
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class C shares.
See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus. For the fiscal year ended May 31, 1996, Prudential
Securities received approximately $1,900 in contingent deferred sales charges
attributable to Class C shares.
The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Directors, including a majority vote of the Rule 12b-1 Directors,
cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the
holders of a majority of the outstanding shares of the applicable class on not
more than 30 days' written notice to any other party to the Plans. The Plans
may not be amended to increase materially the amounts to be spent for the
services described therein without approval by the shareholders of the
applicable class (by both Class A and Class B shareholders, voting separately,
in the case of material amendments to the Class A Plan), and all material
amendments are required to be approved by the Board of Directors in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Fund will not be contractually obligated to pay expenses
incurred under any Plan if it is terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report includes an itemization
of the distribution expenses and the purposes of such expenditures. In
addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.
B-17
<PAGE>
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act of 1933, as amended. The restated
Distribution Agreement was approved by the Board of Directors, including a
majority of the Rule 12b-1 Directors, on May 8, 1996. On November 3, 1995, the
Board of Directors approved the transfer of the Distribution Agreement for
Class A shares with PMFD to Prudential Securities.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and
a limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition
or investment objectives. It was also alleged that the safety, potential
returns and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing
properties and aircraft leasing ventures. The SEC Order (i) included findings
that PSI's conduct violated the federal securities laws and that an order
issued by the SEC in 1986 requiring PSI to adopt, implement and maintain
certain supervisory procedures had not been complied with; (ii) directed PSI
to cease and desist from violating the federal securities laws and imposed a
$10 million civil penalty; and (iii) required PSI to adopt certain remedial
measures including the establishment of a Compliance Committee of its Board of
Directors. Pursuant to the terms of the SEC settlement, PSI established a
settlement fund in the amount of $330,000,000 and procedures, overseen by a
court approved Claims Administrator, to resolve legitimate claims for
compensatory damages by purchasers of the partnership interests. PSI has
agreed to provide additional funds, if necessary, for that purpose. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action. In settling the
above referenced matters, PSI neither admitted nor denied the allegations
asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and
other improper conduct resulting in pecuniary losses and other harm to
investors residing in Texas with respect to purchases and sales of limited
partnership interests during the period of January 1, 1980 through December
31, 1990. Without admitting or denying the allegations, PSI consented to a
reprimand, agreed to cease and desist from future violations, and to provide
voluntary donations to the State of Texas in the aggregate amount of
$1,500,000. The firm agreed to suspend the creation of new customer accounts,
the general solicitation of new accounts, and the offer for sale of securities
in or from PSI's North Dallas office to new customers during a period of
twenty consecutive business days, and agreed that its other Texas offices
would be subject to the same restrictions for a period of five consecutive
business days. PSI also agreed to institute training programs for its
securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. (PSG) and PSI entered
into agreements with the United States Attorney deferring prosecution
(provided PSI complies with the terms of the agreement for three years) for
any alleged criminal activity related to the sale of certain limited
partnership programs from 1983 to 1990. In connection with these agreements,
PSI agreed to add the sum of $330,000,000 to the fund established by the SEC
and executed a stipulation providing for a reversion of such funds to the
United States Postal Inspection Service. PSI further agreed to obtain a
mutually acceptable outside director to sit on the Board of Directors of PSG
and the Compliance Committee of PSI. The new director will also serve as an
independent "ombudsman" whom PSI employees can call anonymously with
complaints about ethics and compliance. Prudential Securities shall report any
allegations or instances of criminal conduct and material improprieties to the
new director. The new director will submit compliance reports which shall
identify all such allegations or instances of criminal conduct and material
improprieties every three months for a three-year period.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred
sales charges and asset-based sales charges to 6.25% of total gross sales of
each class of shares. Interest charges on unreimbursed distribution expenses
equal to the prime rate plus one percent per annum may be added to the 6.25%
limitation. Sales from the reinvestment of dividends and distributions are not
included in the calculation of the 6.25% limitation. The annual asset-based
sales charge on shares of the Fund may not exceed .75 of 1% per class. The
6.25% limitation applies to 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.
B-18
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. The term "Manager" as used in
this section includes the Subadviser. Broker-dealers may receive negotiated
brokerage commissions on Fund portfolio transactions, including options and
the purchase and sale of underlying securities upon the exercise of options.
On foreign securities exchanges, commissions may be fixed. Orders may be
directed to any broker or futures commission merchant including, to the extent
and in the manner permitted by applicable law, Prudential Securities and its
affiliates. Brokerage commissions on United States securities, options and
futures exchanges or boards of trade are subject to negotiation between the
Manager and the broker or futures commission merchant.
Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting
as principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount
of compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in
which case no commissions or discounts are paid. The Fund will not deal with
Prudential Securities in any transaction in which Prudential Securities acts
as principal. Thus, it will not deal with Prudential Securities acting as
market maker, and it will not execute a negotiated trade with Prudential
Securities if execution involves Prudential Securities' acting as principal
with respect to any part of the Fund's order.
In placing orders for portfolio securities or futures contracts of the Fund,
the Manager is required to give primary consideration to obtaining the most
favorable price and efficient execution. Within the framework of this policy,
the Manager will consider the research and investment services provided by
brokers, dealers or futures commission merchants who effect or are parties to
portfolio transactions of the Fund, the Manager or the Manager's other
clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and industries.
Such services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the
execution of transactions for the Fund may be used in managing other
investment accounts. Conversely, brokers, dealers or futures commission
merchants furnishing such services may be selected for the execution of
transactions of such other accounts, whose aggregate assets are far larger
than the Fund's, and the services furnished by such brokers, dealers or
futures commission merchants may be used by the Manager in providing
investment management for the Fund. Commission rates are established pursuant
to negotiations with the broker, dealer or futures commission merchant based
on the quality and quantity of execution services provided by the broker,
dealer or futures commission merchant in the light of generally prevailing
rates. The Manager's policy is to pay higher commissions to brokers, other
than Prudential Securities, for particular transactions than might be charged
if a different broker had been selected, on occasions when, in the Manager's
opinion, this policy furthers the objective of obtaining best price and
execution. In addition, the Manager is authorized to pay higher commissions on
brokerage transactions for the Fund to brokers other than Prudential
Securities in order to secure research and investment services described
above, subject to review by the Fund's Board of Directors from time to time as
to the extent and continuation of this practice. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Fund's Board of Directors.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Fund, will not significantly affect the
Fund's ability to pursue its present investment objective. However, in the
future in other circumstances, the Fund may be at a disadvantage because of
this limitation in comparison to other funds with similar objectives but not
subject to such limitations.
Subject to the above considerations, Prudential Securities may act as a
securities broker or futures commission merchant for the Fund. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by
Prudential Securities (or any affiliate) must be reasonable and fair compared
to the commissions, fees or other remuneration paid to other brokers or
futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
during a comparable period of time. This standard would allow Prudential
Securities (or any affiliate) to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker or futures
commission merchant in a commensurate arm's-length transaction. Furthermore,
the Board of Directors of the Fund, including a majority of the non-interested
Directors, has adopted procedures which are reasonably designed to provide
that any commissions, fees or other remuneration paid to Prudential Securities
(or any affiliate) are consistent with the foregoing standard. In accordance
with Section 11(a) of the Securities Exchange Act of 1934, Prudential
Securities may not retain compensation for effecting transactions on a
national securities exchange for the Fund unless the Fund has expressly
authorized the retention of such compensation. Prudential Securities must
furnish to the Fund at least annually a statement setting forth the
B-19
<PAGE>
total amount of all compensation retained by Prudential Securities from
transactions effected for the Fund during the applicable period. Brokerage and
futures transactions with Prudential Securities (or any affiliate) are also
subject to such fiduciary standards as may be imposed upon Prudential
Securities (or such affiliate) by applicable law.
Transactions in options by the Fund will be subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same
or different exchanges or are written or held in one or more accounts or
through one or more brokers. Thus, the number of options which the Fund may
write or hold may be affected by options written or held by the Manager and
other investment advisory clients of the Manager. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
The table below sets forth information concerning the payment of commissions
by the Fund, including the amount of such commissions paid to Prudential
Securities for the three-year period ended May 31, 1996.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1996 MAY 31, 1995 MAY 31, 1994
------------ ------------ ------------
<S> <C> <C> <C>
Total brokerage commissions paid by the
Fund................................... $577,578 $811,211 $811,369
Total brokerage commissions paid to
Prudential Securities and its foreign
affiliates............................. $ 14,845 $ 0 $ 3,100
Percentage of total brokerage
commissions paid to Prudential
Securities and its foreign affiliates.. 2.57% 0% 0.4%
</TABLE>
The Fund effected 2.57% of the total dollar amount of its transactions
involving the payment of commissions through Prudential Securities during the
year ended May 31, 1996. Of the total brokerage commissions paid during that
period, $568,680 (or 98.4%) were paid to firms which provide research,
statistical or other services to PIC. PMF has not separately identified a
portion of such brokerage commissions as applicable to the provision of such
research, statistical or other services.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "Shareholder
Guide--How to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same assets of the Fund
and is identical in all respects except that (i) each class is subject to
different sales charges and distribution and/or service fees, which may affect
performance, (ii) each class has exclusive voting rights with respect to any
matter submitted to shareholders that relates solely to its arrangement and
has separate voting rights on any matter submitted to shareholders in which
the interests of one class differ from the interests of any other class, (iii)
each class has a different exchange privilege and (iv) only Class B shares
have a conversion feature. See "Distributor" and "Shareholder Investment
Account--Exchange Privilege."
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B* and Class C* shares are sold at net asset value. Using the Fund's net asset
value at May 31, 1996, 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............ $21.74
Maximum sales charge (5% of offering price)....................... 1.14
------
Maximum offering price to public.................................. $22.88
======
CLASS B
Net asset value, offering price and redemption price per Class B
share*........................................................... $20.87
======
CLASS C
Net asset value, offering price and redemption price per Class C
share*........................................................... $20.87
======
</TABLE>
---------
*Class B and Class C shares are subject to a contingent
deferred sales charge on certain redemptions. See "Shareholder
Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus.
B-20
<PAGE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See the table of breakpoints under
"Shareholder Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefits plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more retirement or group
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that
employer).
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be
granted subject to confirmation of the investor's holdings. The Combined
Purchase and Cumulative Purchase Privilege does not apply to individual
participants in any retirement or group plans.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
shares of the Fund and shares of other Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange
privilege) to determine the reduced sales charge. However, the value of shares
held directly with the Transfer Agent and through Prudential Securities will
not be aggregated to determine the reduced sales charge. All shares must be
held either directly with the Transfer Agent or through Prudential Securities.
The value of existing holdings for purposes of determining the reduced sales
charge is calculated using the maximum offering price (net asset value plus
maximum sales charge) as of the previous business day. See "How the Fund
Values its Shares" in the Prospectus.
The Distributor must be notified at the time of purchase that the
shareholder is entitled to a reduced sales charge. The reduced sales charges
will be granted subject to confirmation of the investors' holdings. Rights of
Accumulation are not available to individual participants in any retirement or
group plans.
LETTER OF INTENT. Reduced sales charges are also available to investors (or
an eligible group of related investors), including retirement and group plans,
who enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds (Investment Letter of Intent). Retirement and group plans may
also qualify to purchase Class A shares at net asset value by entering into a
Letter of Intent whereby they agree to enroll, within a thirteen-month period,
a specified number of eligible employees or participants (Participant Letter
of Intent).
For purposes of the Investment Letter of Intent, all shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other
than those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the
Transfer Agent or through Prudential Securities.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number
of investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the
reduced sales charge applicable to the amount represented by the goal, as if
it were a single investment. In the case of a Participant Letter of Intent,
each investment made during the period will be made at net asset value.
Escrowed Class A shares totaling 5% of the dollar amount of the Letter of
Intent will be held by the Transfer Agent in the name of the purchaser, except
in the case of retirement and group plans where the employer or plan sponsor
will be responsible for paying any applicable sales charge. The effective date
of an Investment Letter of Intent (except in the case of retirement and group
plans) may be back-dated up to 90 days, in order that any investments made
during this 90-day period, valued at the purchaser's cost, can be applied to
the fulfillment of the Letter of Intent goal.
B-21
<PAGE>
The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. Similarly, the Participant Letter
of Intent does not obligate the retirement or group plan to enroll the
indicated number of eligible employees or participants. In the event the
Letter of Intent goal is not achieved within the thirteen-month period, the
purchaser (or the employer or plan sponsor, in the case of any retirement or
group plan) is required to pay the difference between the sales charge
otherwise applicable to the purchases made during this period and sales
charges actually paid. Such payment may be made directly to the Distributor
or, if not paid, the Distributor will liquidate sufficient escrowed shares to
obtain such difference. Investors electing to purchase Class A shares of 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, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. Letters of Intent are not available to
individual participants in any retirement or group plans.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
The contingent deferred sales charge is waived under circumstances described
in the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
the Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit
the supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death certificate
or, in the case of a trust, a copy of the
grantor's death certificate, plus a copy of
the trust agreement identifying the grantor.
Disability--An individual will A copy of the Social Security Administration
be considered disabled if he or award letter or a letter from a physician on
she is unable to engage in any the physician's letterhead stating that the
substantial gainful activity by shareholder (or, in the case of a trust, the
reason of any medically grantor) is permanently disabled. The letter
determinable physical or mental must also indicate the date of disability.
impairment which can be expected
to result in death or to be of
long-continued and indefinite
duration.
Distribution from an IRA or A copy of the distribution form from the
403(b) Custodial Account custodial firm indicating (i) the date of
birth of the shareholder and (ii) that the
shareholder is over age 59 1/2 and is taking
a normal distribution--signed by the
shareholder.
Distribution from Retirement A letter signed by the plan
Plan administrator/trustee indicating the reason
for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or
the plan administrator/trustee on company
letterhead indicating the amount of the
excess and whether or not taxes have been
paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994
The CDSC is reduced on the redemptions of Class B shares of the Fund
purchased prior to August 1, 1994 if immediately after a purchase of such
shares, the aggregate cost of all Class B shares of the Fund owned by you in a
single account exceeded $500,000. For example, if you purchased $100,000 of
Class B shares of the Fund and the following year purchased an additional
$450,000 of Class B shares with the result that the aggregate cost of your
Class B shares of the Fund following the second purchase was $550,000, the
quantity discount would be available for the second purchase of $450,000 but
not for the first purchase of $100,000. The quantity discount will be imposed
at the following rates depending on whether the aggregate value exceeded
$500,000 or $1 million:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
YEAR SINCE OR REDEMPTION PROCEEDS
PURCHASE --------------------------------------
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
------------ ---------------------- ---------------
<S> <C> <C>
First........... 3.0% 2.0%
Second.......... 2.0% 1.0%
Third........... 1.0% 0%
Fourth and
thereafter..... 0% 0%
</TABLE>
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
B-22
<PAGE>
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. The Fund makes available
to its shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund. An
investor may direct the Transfer Agent in writing not less than five full
business days prior to the record date to have subsequent dividends or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the dealer. Any
shareholder who receives a cash payment representing a dividend or
distribution may reinvest such distribution at net asset value by returning
the check or the proceeds to the Transfer Agent within 30 days after the
payment date. Such investment will be made at the net asset value per share
next determined after receipt of the check or proceeds by the Transfer Agent.
Such shareholder will receive credit for any contingent deferred sales charge
paid in connection with the amount of proceeds being reinvested.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to
the minimum investment requirements of such funds. Shares of such other
Prudential Mutual Funds may also be exchanged for shares of the Fund. All
exchanges are made on the basis of relative net asset value next determined
after receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares
of another fund only if shares of such fund may legally be sold under
applicable state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those funds
eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Short-Intermediate Term Series) and shares of the
money market funds specified below. No fee or sales load will be imposed upon
the exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire
Class A shares of the Prudential Mutual Funds participating in the Exchange
Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc.
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund,
Inc., a money market fund. No CDSC will be payable upon such exchange, but a
CDSC may be payable upon the redemption of the Class B and Class C shares
acquired as a result of an exchange. The applicable sales charge will be that
imposed by the fund in which shares were initially purchased and the purchase
date will be deemed to be the first day of the month after the initial
purchase, rather than the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares of
Prudential Special Money Market Fund, Inc., without imposition of any CDSC at
the time of exchange. Upon subsequent redemption from such money market fund
or after
B-23
<PAGE>
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 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.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the
Fund, or the Distributor, has the right to reject any exchange application
relating to such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower than it would be if a constant number of
shares were bought at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class beginning in 2011, the cost of four years at
a private college could reach $210,000 and over $90,000 at a public
university./1/
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals./2/
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 years.............................. $ 110 $ 165 $ 220 $ 275
20 years.............................. 176 264 352 440
15 years.............................. 296 444 592 740
10 years.............................. 555 833 1,110 1,388
5 years.............................. 1,371 2,057 2,742 3,428
</TABLE>
See "Automatic Savings Accumulation Plan."
- ---------
/1/Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for the 1993-1994 academic year.
/2/The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of 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 SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account
or Prudential Securities account (including a Command Account) to be debited
to invest specified dollar amounts in shares of the Fund. The investor's bank
must be a member of the Automatic Clearing House System. Stock certificates
are not issued to ASAP participants.
B-24
<PAGE>
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly or
quarterly checks in any amount, except as provided below, up to the value of
the shares in the shareholder's account. Withdrawals of Class B or Class C
shares may be subject to a CDSC. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and
(iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See '"Shareholder Investment Account--
Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate
a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be generally recognized for federal income tax
purposes. In addition, withdrawals made concurrently with purchases of
additional shares are inadvisable because of the sales charges applicable to
(i) the purchase of Class A shares and (ii) the withdrawal of Class B and
Class C shares. Each shareholder should consult his or her own tax adviser
with regard to the tax consequences of the systematic withdrawal plan,
particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax-deferred retirement plans, including a 401(k) plan, self-
directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, and the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a comparison
of the earnings in a personal savings account with those in an IRA, assuming a
$2,000 annual contribution, an 8% rate of return and a 39.6% federal income
tax bracket and shows how much more retirement income can accumulate within an
IRA as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING/1/
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- ---------
/1/The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings
in the IRA account will be subject to tax when withdrawn from the account.
B-25
<PAGE>
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, e.g., to seek greater
diversification, protection from interest rate movements or access to
different management styles. In the event such a program is instituted, there
may be a minimum investment requirement for the program as a whole. 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 a part
of a program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, individuals should consult their
Prudential Securities Financial Advisor or Prudential/Pruco Securities
Representative concerning the appropriate blend of portfolios for them. If
investors elect to purchase the individual mutual funds that constitute the
program in an investment ratio different from that offered by the program, the
standard minimum investment requirements for the individual mutual funds will
apply.
NET ASSET VALUE
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 indices) are valued at the
last sale price on the day of valuation or, if there was no sale on such day,
the mean between the last bid and asked prices on such day, as provided by a
pricing service or principal market maker. Corporate bonds (other than
convertible debt securities) and U.S. Government securities that are actively
traded in the over-the-counter market, including listed securities for which
the primary market is believed to be over-the-counter, are valued on the basis
of valuations provided by a pricing service which uses information with
respect to transactions in bonds, quotations from bond dealers, agency
ratings, market transactions in comparable securities and various
relationships between securities in determining value. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be over-the-
counter, are valued at the mean between the last reported bid and asked prices
provided by principal market makers. Options on stock and stock indices traded
on an exchange are valued at the mean between the most recently quoted bid and
asked prices on the respective exchange and futures contracts and options
thereon are valued at their last sale prices as of the close of the
commodities 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 forward currency exchange
contracts are valued at the current cost of covering or offsetting such
contracts. Should an extraordinary event, which is likely to affect the value
of the security, occur after the close of an exchange on which a portfolio
security is traded, such security will be valued at fair value considering
factors determined in good faith by the investment adviser under procedures
established by and under the general supervision of the Fund's Board of
Directors.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with
interest accrued or discount amortized to the date of maturity, if their
original maturity was 60 days or less, unless this is determined by the Board
of 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. The Fund will compute its
net asset value at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem Fund shares have been received or days on which changes in the
value of the Fund's portfolio securities do not affect net asset value. In the
event the New York Stock Exchange closes early on any business day, the net
asset value of the Fund's shares shall be determined at the time between such
closing and 4:15 P.M., New York time.
Net asset value is calculated separately for each class. The net asset value
of Class B and Class C shares will generally be lower than the net asset value
of Class A shares as a result of the larger distribution-related fee to which
Class B and Class C shares are subject.
TAXES
The Fund has elected to qualify and intends to remain qualified 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 which is distributed to shareholders and permits net capital
gains of the Fund (i.e., the excess of net long-term capital gains over net
short-term capital losses) to be treated as long-term capital gains of the
shareholders, regardless of how long shares in the Fund are held.
B-26
<PAGE>
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans,
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) the Fund derive less than 30%
of its gross income from gains (without reduction for losses) from the sale or
other disposition of securities, options thereon, futures contracts, options
thereon, forward contracts and foreign currencies held for less than three
months (except for foreign currencies directly related to the Fund's business
of investing in securities); (c) 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 assets of the Fund 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 (d) the Fund distribute to its shareholders at
least 90% of its net investment income and net short-term gains (i.e., the
excess of net short-term capital gains over net long-term capital losses) in
each year.
The Fund is required under the Internal Revenue Code to distribute 98% of
its ordinary income in the same calendar year in which it is earned. 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 on October 31 of
such calendar year. In addition, the Fund must distribute during the calendar
year any undistributed ordinary income and undistributed capital gain net
income from the prior year or the twelve-month period ending on October 31 of
such prior calendar year, respectively. To the extent it does not meet these
distribution requirements, the Fund will be subject to a non-deductible 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.
Gains or losses on sales of securities by the Fund will 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 generally 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 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 and straddle provisions of the Internal
Revenue Code. In addition, debt securities acquired by the Fund may be subject
to original issue discount and market discount rules.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. See "Investment Objective and Policies." These investments
will generally constitute Section 1256 contracts and will be required to be
"marked to market" for federal income tax purposes at the end of the Fund's
taxable year; that is, treated as having been sold at market value. Except
with respect to certain forward foreign currency exchange contracts, sixty
percent of any gain or loss recognized on such deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
Gain or loss on the sale, lapse or other termination of options on stock and
on narrowly-based stock indices 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
and short 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.
The Fund's ability to hold foreign currencies or engage in hedging
activities may be limited by the requirement that it must derive less than 30%
of its gross income from gains from the sale of securities held for less than
three months.
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
forward foreign currency exchange contracts or dispositions of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gain or loss. These gains,
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, reducing each shareholder's basis in his or her Fund
shares.
B-27
<PAGE>
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 net asset value of a share of the Fund on
the reinvestment date.
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by
the per share amount of the dividends. Furthermore, such dividends, although
in effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of the Fund, the investor should carefully consider
the impact of dividends, including capital gains distributions, which are
expected to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of 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.
If a shareholder who acquires shares of the Fund sells or otherwise disposes
of such shares within 90 days of acquisition, certain sales charges incurred
in acquiring such shares may not be included in the basis of such shares for
purposes of calculating gain or loss realized upon such sale or disposition.
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the higher distribution-
related fee applicable to the Class B and Class C shares. The per share
distributions of net capital gains, if any, will be paid in the same amount
for Class A, Class B and Class C shares. See "Net Asset Value."
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a
nominee or fiduciary) who is a nonresident alien individual, a foreign
corporation or a foreign partnership (foreign shareholder) are subject to a
30% (or lower treaty rate) withholding tax upon the gross amount of the
dividends unless the dividends are effectively connected with a U.S. trade or
business conducted by the foreign shareholder. Capital gain dividends paid to
a foreign shareholder generally are not subject to withholding tax. A foreign
shareholder will, however, be required to pay U.S. income tax on any dividends
and capital gain distributions which are effectively connected with a U.S.
trade or business of the foreign shareholder.
Since the Fund is likely to have a substantial portion of its assets
invested in securities of foreign issuers, the amount of the Fund's dividends
eligible for the corporate dividends received deduction will be minimal.
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 is not known.
If the Fund is liable for foreign income taxes, the Fund may meet the
requirements of the Internal Revenue Code for "passing-through" to its
shareholders foreign income taxes paid, but there can be no assurance that the
Fund will do so. For the fiscal year ended May 31, 1996, the Fund did not
elect under the Internal Revenue Code to "pass-through" to its shareholders
foreign income taxes paid by the Fund, since at the close of its taxable year
less than 50% of the value of the Fund's total assets consisted of securities
of foreign corporations. If the Fund elects to "pass through" the foreign
taxes, shareholders will be required to: (i) include in gross income (in
addition to taxable dividends actually received) their pro rata share of the
foreign income taxes paid by the Fund; and (ii) treat their pro rata share of
foreign income taxes as paid by them. Shareholders will then be permitted
either to deduct their pro rata share of foreign income taxes in computing
their taxable income or to claim a foreign tax credit against U.S. income
taxes. No deduction for foreign taxes may be claimed by a shareholder who does
not itemize deductions. Foreign shareholders may not deduct or claim a credit
for foreign tax unless the dividends paid to them by the Fund are effectively
connected with a U.S. trade or business.
The amount of foreign taxes for which a shareholder may claim a credit in
any year will generally be subject to a separate limitation for "passive
income," which includes, among other things, dividends, interest and certain
foreign currency gains. Gain or loss from the sale of a security or from a
Section 988 transaction which is treated as ordinary income or loss (or would
have been so treated absent an election by the Fund) will be treated as
derived from sources within the United States, potentially reducing the amount
allowable as a credit under the limitation.
Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund will "pass
through" for that year and, if so, such notification will designate (a) the
shareholder's portion of the foreign taxes paid by the Fund and (b) the
portion of the dividend which represents income derived from foreign sources.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund.
B-28
<PAGE>
Pennsylvania Personal Property Tax. The Fund has obtained a written letter
of determination from the Pennsylvania Department of Revenue that the Fund is
subject to the Pennsylvania foreign franchise and corporate net income tax.
Accordingly, it is expected that Fund shares will be exempt from Pennsylvania
personal property taxes. The Fund anticipates that it will continue such
business activities but reserves the right to suspend them at any time,
resulting in the termination of the exemption.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T) to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal
or state income taxes that may be payable upon redemption.
The average annual total returns for Class A shares for the one year, five
year and since inception (January 22, 1990) periods ended May 31, 1996 were
12.5%, 12.3% and 8.9%, respectively. Without the fee waiver the average annual
total returns with respect to the Class A shares of the Fund for the one year,
five year and since inception periods would have been 12.3%, 12.1% and 8.7%,
respectively. The average annual total returns for Class B shares for the one
year, five year and since inception (January 29, 1988) periods ended May 31,
1996 were 12.5%, 12.5% and 10.6%, respectively. Without the fee waiver the
average annual total returns with respect to the Class B shares of the Fund
for the one year, five year and since inception periods would have been 12.4%,
12.2% and 10.4%, respectively. The average annual total returns for Class C
shares for the one year and since inception (August 1, 1994) periods ended May
31, 1996 were 16.5% and 7.5%, respectively. Without the fee waiver the average
annual total returns with respect to the Class C shares of the Fund for the
one year and since inception periods ended May 31, 1996 would have been 16.3%
and 7.2%, respectively.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B
and Class C shares. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV-P
-----
P
Where: P = a hypothetical initial payment of $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.
The aggregate total returns for Class A shares for the one year, five year
and since inception (January 22, 1990) periods ended May 31, 1996 were 18.4%,
88.3% and 81.4%, respectively. Without the fee waiver the aggregate total
returns for Class A shares for the one year, five year and since inception
periods would have been 18.3%, 86.0% and 79.1%, respectively. The aggregate
total returns for Class B shares for the one year, five year and since
inception (January 29, 1988) periods ended May 31, 1996 were 17.5%, 81.1% and
132.3%, respectively. Without the fee waiver the aggregate total returns for
Class B shares for the one year, five year and since inception periods would
have been 17.4%, 78.8% and 128.9%, respectively. The aggregate total returns
for Class C shares for the one year and since inception (August 1, 1994)
periods ended May 31, 1996 were 17.5% and 14.1%, respectively.Without the fee
waiver the aggregate total returns for Class C shares for the one year and
since inception periods ended May 31, 1996 would have been 17.4% and 13.6%,
respectively.
YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B and Class
C shares. This yield will be computed by dividing the Fund's net investment
income per share earned
B-29
<PAGE>
during this 30-day period by the maximum offering price per share on the last
day of the period. Yield is calculated according to the following formula:
a - b
YIELD = 2 [( --------- +1) TO THE 6TH POWER - 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.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of
inflation./1/
(CHART)
COMPARISON OF DIFFERENT TYPES OF INVESTMENTS OVER THE LONG TERM
(1/1926 - 12/1994)
COMMON STOCKS - 10.2%
LONG-TERM GOVT. BONDS - 4.8%
INFLATION - 3.1%
/1/Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1995
Yearbook", (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Common stock returns
are based on the Standard & Poor's 500 Stock Index, a market-weighted,
unmanaged index of 500 common stocks in a variety of industry sectors. It is a
commonly used indicator of broad stock price movements. This chart is for
illustrative purposes only, and is not intended to represent the performance
of any particular investment or fund. Investors cannot invest directly in an
index. Past performance is not a guarantee of future results.
B-30
<PAGE>
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash and in that capacity maintains certain financial and accounting books
and records pursuant to an agreement with the Fund. Subcustodians provide
custodial services for the Fund's foreign assets held outside the United
States. See "How the Fund is Managed--Custodian and Transfer and Dividend
Disbursing Agent" in the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Fund. It is a wholly-owned subsidiary of PMF. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee per
shareholder account, a new account set-up fee for each manually established
account and a monthly inactive zero balance account fee per shareholder
account. PMFS is also reimbursed for its out-of-pocket expenses, including but
not limited to postage, stationery, printing, allocable communication expenses
and other costs. For the fiscal year ended May 31, 1996, the Fund incurred
fees of approximately $417,500 for PMFS's services.
Price Waterhouse 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.
B-31
<PAGE>
Portfolio of Investments as of May 31, 1996
================================================================
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
LONG-TERM INVESTMENTS--88.5%
COMMON STOCKS--86.9%
- ----------------------------------------------------------------
Australia--4.4%
2,649,900 Burswood Property Trust (Leisure &
Tourism) $ 3,531,509
700,000 Publishing & Broadcasting, Ltd.
(Broadcasting & Publishing) 3,016,519
2,812,800 Sea World Property Trust, Ltd.
(Leisure & Tourism) 2,491,587
-------------
9,039,615
- ----------------------------------------------------------------
Belgium--2.3%
30,200 Barco Industries N.V. (Electrical &
Electronics) 4,707,370
- ----------------------------------------------------------------
Federal Republic of Germany--0.6%
21,750 Gildemeister AG (Machinery &
Engineering) 1,228,491
- ----------------------------------------------------------------
Finland--1.9%
60,000 Raison Tehtaat OY (Food & Household
Products) 3,514,831
60,000 Raison Tehtaat OY (Rights) expiring
7/10/96 (Food & Household
Products) 498,541
-------------
4,013,372
- ----------------------------------------------------------------
France--5.4%
17,185 Axime (Ex Segin)(a)* (Business &
Public Services) 2,335,145
13,048 Manutan (Wholesale & International
Trading) 2,330,226
12,800 Rexel (Electrical & Electronics) 3,153,101
12,980 Sidel SA (Machinery & Engineering) 3,207,520
-------------
11,025,992
- ----------------------------------------------------------------
Hong Kong--7.8%
3,396,000 Chen Hsong Holdings (Machinery &
Engineering) 1,821,724
</TABLE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
================================================================
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
4,350,000 China Resources Enterprises
(Multi-Industry) $ 3,176,906
5,000,000 Esprit Asia Holdings, Ltd. (Retail) 1,664,232
2,081,099 First Pacific Co., Ltd. (Banking) 2,864,897
2,621,000 Goldlion Holdings, Ltd.
(Textile-Apparel Manufacturing) 2,151,332
504,000 Guoco Group, Ltd. (Banking) 2,456,058
6,593,000 Hung Hing Printing Group, Ltd.
(Forest Products & Paper) 1,874,876
-------------
16,010,025
- ----------------------------------------------------------------
India--1.4%
74,000 Bajaj Auto Ltd. (GDR)(a)
(Automobiles & Auto Parts) 2,886,000
- ----------------------------------------------------------------
Indonesia--0.7%
555,000 Semen Cibinong (Building Materials
& Component) 1,451,447
- ----------------------------------------------------------------
Italy--0.8%
154,000 Sasib - Di Risparmio (Machinery &
Engineering) 345,452
312,000 Sasib S.P.A. (Machinery &
Engineering) 1,292,891
-------------
1,638,343
- ----------------------------------------------------------------
Japan--5.0%
91,300 Misumi Corp. (Retail) 3,046,013
63,000 Nichiei Co., Ltd. (Financial
Services) 4,308,790
247,000 Nichiei Construction Co.
(Property Development) 2,861,313
90 Nissen Co., Ltd. (Retail) 1,351
-------------
10,217,467
- ----------------------------------------------------------------
Korea--1.2%
31,514 Chung Ho Computer (Electrical &
Electronics) 2,551,676
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-32
<PAGE>
Portfolio of Investments as of May 31, 1996
================================================================
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
Malaysia--2.4%
350,000 Gadek Berhad (Multi-Industry) $ 2,215,367
233,333 Gadek Capital Berhad(a)
(Multi-Industry) 710,412
678,000 Hock Hua Bank Berhad (Banking) 1,996,355
-------------
4,922,134
- ----------------------------------------------------------------
Netherlands--4.0%
143,000 Baan Company N.V.(a) (Data
Processing & Reproduction) 5,148,000
43,400 Hagemeyer (Wholesale &
International Trade) 2,993,367
-------------
8,141,367
- ----------------------------------------------------------------
New Zealand--0.8%
1,500,000 Affco Holdings, Ltd. (Food &
Household Products) 641,591
804,475 Fletcher Challenge Ltd.
(Forest Products & Paper) 1,032,289
-------------
1,673,880
- ----------------------------------------------------------------
Singapore--3.7%
375,000 Jurong Engineering Ltd.
(Machinery & Engineering) 1,300,178
318,000 Robinson & Co., Ltd. (Retail) 1,276,519
459,250 Sembawang Maritime, Ltd.
(Energy Equipment & Services) 1,292,099
1,210,000 Singapore Finance, Ltd.
(Financial Services) 2,136,305
735,000 Wing Tai Holdings (Property
Development) 1,597,940
-------------
7,603,041
- ----------------------------------------------------------------
Spain--1.8%
18,900 Azkoyen S.A. (Machinery &
Engineering) 1,316,242
96,725 Centros Commerciales Pryca (Retail) 2,279,295
-------------
3,595,537
- ----------------------------------------------------------------
Sweden--1.2%
34,650 Hennes & Mauritz B Free (Retail) 2,556,529
</TABLE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
================================================================
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
United Kingdom 11.7%
748,000 BBA Group (Industrial Components) $ 3,821,178
297,000 Capital Radio PLC (Broadcasting &
Publishing) 3,209,442
360,000 Carpetright PLC (Retail) 3,426,977
293,000 Clark (Matthew) & Sons
(Consumer Goods) 3,625,023
269,400 Dorling Kindersley Holdings, Ltd.
(Broadcasting & Publishing) 2,631,349
414,000 London Clubs International (Leisure
& Tourism) 3,315,209
200,000 Serco Group PLC
(Business & Public Services) 1,646,512
200,000 Spirax-Sarco Engineering PLC
(Machinery & Engineering) 2,286,822
-------------
23,962,512
- ----------------------------------------------------------------
United States--29.8%
150,100 AGCO Corp. (Engineering &
Construction) 4,521,763
143,000 Borders Group, Inc.(a) (Diversified
Consumer Product) 4,683,250
75,000 Decisionone Corporation(a)
(Computer Software & Services) 2,175,000
105,000 Eclipse Surgical Technoligies,
Inc.(a) (Drugs & Medical
Supplies) 1,684,375
123,200 Galoob Lewis Toys, Inc.(a)
(Leisure) 2,679,600
82,300 Globalstar Telecommunications(a)
(Telecommunication-Services) 4,763,112
101,000 Haverty Furniture Cos., Inc.
(Retail) 1,363,500
111,900 Holophone Corp. (Electronics) 1,986,225
67,900 Jacobs Engineering Group, Inc.(a)
(Machinery & Engineering) 1,824,813
118,000 Landec Corp.(a) (Chemicals) 2,448,500
82,500 Maxis, Inc.(a) (Computer Software &
Services) 1,938,750
27,500 Objective Systems Integrators,
Inc.(a) (Computer Software &
Services) 1,237,500
25,000 Perceptron, Inc.(a) (Electrical
Equipment) 903,125
40,000 PIA Merchandising Services, Inc.(a)
(Trucking/Shipping) 650,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-33
<PAGE>
Portfolio of Investments as of PRUDENTIAL GLOBAL GENESIS
May 31, 1996 FUND, INC.
================================================================
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
United States (cont'd.)
96,700 Primark Corp.(a)
(Computer Software & Services) $ 3,408,675
61,600 Qualcomm, Inc.(a)
(Telecommunications Equipment) 3,353,350
88,000 Sierra On-Line, Inc.(a) (Computer
Software & Services) 3,960,000
83,600 Softkey International, Inc.(a)
(Computer Software & Services) 2,079,550
99,400 T. Rowe Price & Associates, Inc.
(Financial Services) 2,783,200
33,000 Tiffany & Co. (Retail/Specialty) 2,503,875
100,000 Toolex Alpha N.V. (ADR)(a)
(Machinery) 2,525,000
100,000 United States Office Products
Co.(a) (Office Equipment &
Supplies) 3,800,000
126,500 Western National Corp. (Insurance) 2,245,375
26,200 Xylan Corp.(a) (Computer
Software & Services) 1,660,425
-------------
61,178,963
-------------
Total common stocks
(cost US$127,492,673) 178,403,761
-------------
PREFERRED STOCKS--1.0%
- ----------------------------------------------------------------
Finland--1.0%
45,200 Nokia Corp. Series A
(Telecommunications Equipment)
(cost US$521,029) 1,977,939
-------------
Warrants
WARRANTS(a)--0.5%
- ----------------------------------------------------------------
Malaysia--0.5%
350,000 Gadek Berhad
expiring 12/19/00 @ MYR 11.95
(Multi-Industry)
(cost US$506,882) 1,094,924
-------------
PRUDENTIAL GLOBAL GENESIS FUND, INC.
================================================================
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
CORPORATE BONDS--0.1%
- ----------------------------------------------------------------
Singapore--0.1%
SED 173,000 Sembawang Maritime, Ltd.
Convertible unsecured loan stock
1.50%, 10/25/98
(Energy Equipment & Services)
(cost US$110,310) $ 159,787
-------------
Total long-term investments
(cost US$128,630,894) 181,636,411
-------------
SHORT-TERM INVESTMENTS--1.1%
- ----------------------------------------------------------------
Repurchase Agreement
United States--1.1%
US$2,111 Joint Repurchase Agreement Account,
5.32%, 06/03/96
(cost US$2,111,000; Note 5) 2,111,000
-------------
- ----------------------------------------------------------------
Total Investments--89.6%
(cost US$130,741,894; Note 4) 183,747,411
Other assets in excess of
liabilities--10.4% 21,436,637
-------------
Net Assets--100% $ 205,184,048
-------------
-------------
- ---------------
(a) Non-income producing security.
ADR--American Depositary Receipt.
GDR--Global Depositary Receipt.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-34
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL GLOBAL GENESIS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets May 31, 1996
Investments, at value (cost $130,741,894).................................................................... $183,747,411
Foreign currency, at value (cost $24,727,630)................................................................ 24,835,566
Cash......................................................................................................... 13,284
Receivable for Fund shares sold.............................................................................. 1,019,346
Receivable for investments sold.............................................................................. 656,802
Dividends and interest receivable............................................................................ 381,008
Other assets................................................................................................. 7,405
------------
Total assets.............................................................................................. 210,660,822
------------
Liabilities
Payable for investments purchased............................................................................ 2,526,250
Payable for Fund shares reacquired........................................................................... 2,101,458
Accrued expenses and other liabilities....................................................................... 482,451
Management fee payable....................................................................................... 171,641
Distribution fee payable..................................................................................... 141,564
Withholding taxes payable.................................................................................... 53,410
------------
Total liabilities......................................................................................... 5,476,774
------------
Net Assets................................................................................................... $205,184,048
============
Net assets were comprised of:
Common stock, at par...................................................................................... $ 97,395
Paid-in capital in excess of par.......................................................................... 156,227,294
------------
156,324,689
Accumulated net investment loss........................................................................... (786,496)
Accumulated net realized loss on investments and foreign currency transactions............................ (3,468,665)
Net unrealized appreciation on investments and foreign currency transactions.............................. 53,114,520
------------
Net assets, May 31, 1996..................................................................................... $205,184,048
============
Class A:
Net asset value and redemption price per share
($47,617,229 / 2,190,359 shares of common stock issued and outstanding)................................ $21.74
Maximum sales charge (5% of offering price)............................................................... 1.14
------
Maximum offering price to public.......................................................................... $22.88
======
Class B:
Net asset value, offering price and redemption price per share
($155,291,524 / 7,440,161 shares of common stock issued and outstanding)............................... $20.87
======
Class C:
Net asset value, offering price and redemption price per share
($2,275,295 / 109,013 shares of common stock issued and outstanding)................................... $20.87
======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-35
<PAGE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
Statement of Operations
=============================================================
<TABLE>
<CAPTION>
Year Ended
Net Investment Income (Loss) May 31, 1996
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $291,774)............................. $ 3,770,375
Interest (net of foreign withholding taxes
of $115)................................. 359,703
-----------
Total income............................. 4,130,078
-----------
Expenses
Management fee.............................. 2,014,451
Distribution fee--Class A................... 112,676
Distribution fee--Class B................... 1,545,660
Distribution fee--Class C................... 18,088
Transfer agent's fees and expenses.......... 500,000
Custodian's fees and expenses............... 400,000
Reports to shareholders..................... 140,000
Registration fees........................... 112,000
Audit fees and expenses..................... 57,000
Legal fees and expenses..................... 40,000
Directors' fees and expenses................ 25,000
Miscellaneous............................... 64,650
-----------
Total expenses........................... 5,029,525
Less: Management fee waiver................. (260,558)
-----------
Net expenses............................ 4,768,967
-----------
Net investment income (loss)................... (638,889)
-----------
Realized and Unrealized Gain (Loss)
on Investments and Foreign
Currency Transactions
Net realized gain (loss) on:
Investment transactions..................... (473,036)
Foreign currency transactions............... 192,008
-----------
(281,028)
-----------
Net change in unrealized
appreciation/depreciation on:
Investments................................. 34,776,263
Foreign currency transactions............... (676,783)
-----------
34,099,480
-----------
Net gain on investments and foreign currencies 33,818,452
-----------
Net increase in Net Assets
Resulting from Operations...................... $33,179,563
===========
</TABLE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
Statement of Changes in Net Assets
================================================================
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets May 31, 1996 May 31, 1995
<S> <C> <C>
Operations
Net investment income
(loss)..................... $ (638,889) $ (1,332,713)
Net realized gain (loss) on
investments and foreign
currency transactions...... (281,028) 518,554
Net change in unrealized
appreciation/depreciation
of investments and foreign
currencies................. 34,099,480 (3,534,468)
------------- ------------
Net increase (decrease) in net
assets resulting from
operations.................... 33,179,563 (4,348,627)
------------- ------------
Net equalization (debits)
credits....................... (25,288) 104,845
------------- ------------
Dividends in excess of net
investment income (Note 1)
Class A....................... (195,472) (163,968)
Class B....................... (695,209) (365,083)
Class C....................... (8,179) (1,822)
------------- ------------
(898,860) (530,873)
------------- ------------
Distributions from net realized
gains on investment and
foreign currency transactions
Class A....................... -- (46,273)
Class B....................... -- (303,736)
Class C....................... -- (370)
------------- ------------
-- (350,379)
------------- ------------
Fund share transactions (Net of
share conversions) (Note 6)
Net proceeds from shares
subscribed................. 333,985,435 224,701,575
Net asset value of shares
issued
to shareholders in
reinvestment of dividends
and distributions.......... 827,626 831,367
Cost of shares reacquired..... (360,913,268) (225,259,494)
------------- ------------
Net increase (decrease) in net
assets from Fund share
transactions............... (26,100,207) 273,448
------------- ------------
Total increase (decrease)........ 6,155,208 (4,851,586)
Net Assets
Beginning of year................ 199,028,840 203,880,426
------------- ------------
End of year...................... $ 205,184,048 $199,028,840
============= ============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-36
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL GENESIS FUND, INC.
================================================================================
Prudential Global Genesis Fund, Inc., (the ``Fund''), is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund's investment objective is long-term growth of capital which it
seeks to achieve by investing primarily in equity securities of foreign and
domestic companies with market capitalizations of less than U.S. $1 billion, as
measured at time of purchase.
- --------------------------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation: Securities traded on an exchange are valued at the last
reported sales price on the primary exchange on which they are traded.
Securities traded in the over-the-counter market (including securities listed on
exchanges for which a last sales price is not available) are valued at the
average of the last reported bid and asked prices. Securities for which market
quotations are not available, other than private placements, shall each be
valued at a price supplied by an independent pricing agent, which is, in the
opinion of such pricing agent, representative of the market value of such
securities as of the time of determination of net asset value. Securities for
which market quotations are not readily available, and for which the pricing
agent or principal market maker does not provide a valuation, including
restricted securities, will be valued at fair value as determined in good faith
according to a pricing procedure developed by the Investment Adviser under
procedures established by and under the general supervision of the Fund's Board
of Directors. Options listed on exchanges are valued at their closing price on
the applicable exchange.
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 which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
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
daily closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented using the foreign exchange
rates and market values at the close of the fiscal 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 securities held at the fiscal 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 portfolio
securities sold during the fiscal year.
Net realized gain on foreign currency transactions of $192,008 represents net
foreign exchange gains from disposition of foreign currencies, currency gains or
losses realized between the trade and settlement dates on security transactions,
and the difference between the amounts of dividends, interest and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net unrealized currency gains and losses from valuing foreign
currency denominated assets and liabilities (other than investments) at fiscal
year end exchange rates are reflected as a component of net unrealized
appreciation on foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and the regulation of foreign securities
markets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
currency transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date and interest income is recorded on an
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 of the Fund based
upon the relative proportion of net assets of each class at the beginning of the
day.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is
- --------------------------------------------------------------------------------
B-37
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL GENESIS FUND, INC.
================================================================================
credited or charged to undistributed net investment income. As a result,
undistributed net investment income (loss) per share is unaffected by sales or
reacquisitions of the Fund's shares.
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 tax provision is required.
Withholding taxes on foreign interest, dividends and (realized and unrealized)
capital gains have been provided for in accordance with the Fund's understanding
of the applicable country's tax rules and rates. In addition, certain countries
impose taxes on capital gains realized on the sale of portfolio securities, and
as such, taxes have been accrued where applicable on the unrealized gains on
such securities.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income and distributions of net realized capital gains, if any, at least
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of wash
sales, passive investment companies, and foreign currencies transactions.
Reclassification of Capital Accounts: The Fund accounts and reports for
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 paid-in capital in excess of par by $26,623,
decrease accumulated net investment loss by $737,382, and increase accumulated
net realized loss on investments and foreign currency transactions by $710,759
for the year ended May 31, 1996. Net realized losses and net assets were not
affected by this change.
- --------------------------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the services of PIC, the
compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of 1% of the average daily net assets of the Fund. Prior to September 1,
1995, PMF voluntarily waived 50% of its management fee. Effective September 1,
1995, PMF eliminated its management fee waiver. For the year ended May 31, 1996,
management fees waived amounted to $260,558 ($.03 per share and .13% of average
net assets).
The Fund has distribution agreements with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996 Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also distributor of the Class B and Class C shares
of the Fund. The Fund compensated PMFD and PSI 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.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI and PMFD for
the period June 1, 1995 through January 1, 1996 with respect to Class A shares,
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 Class A, Class B and Class C Plans were
.25% of 1%, 1% and 1%, respectively of the average daily net assets of the Class
A, Class B and Class C shares for the fiscal year ended May 31, 1996.
PMFD and PSI have advised the Fund that they have received approximately $83,000
in front-end sales charges resulting from sales of Class A shares during the
year ended May 31, 1996. From these fees, PMFD and PSI paid such sales charges
to PRUCO Securities Corporation, affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI has advised the Fund that for the year ended May 31, 1996, it received
approximately $742,800 and $1,900 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders, respectively.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of America.
(``Prudential'')
- --------------------------------------------------------------------------------
B-38
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL GENESIS FUND, INC.
================================================================================
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and during the year ended May 31, 1996,
the Fund incurred fees of approximately $417,500 for the services of PMFS. As of
May 31, 1996, approximately $43,800 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 non-affiliates. For the year ended May 31, 1996
PSI and/or its foreign affiliates earned approximately $14,900 in brokerage
commissions from portfolio transactions executed on behalf of the Fund.
- --------------------------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended May 31, 1996 aggregated $80,903,090 and $113,856,935,
respectively.
The federal income tax basis of the Fund's investments at May 31, 1996 was
$131,044,599 and accordingly, net unrealized appreciation for federal income tax
purposes was $52,702,812 (gross unrealized appreciation--$58,565,058; gross
unrealized depreciation--$5,862,246).
For federal income tax purposes, the Fund has a capital loss carryforward as of
May 31, 1996 of approximately $2,070,300 of which $1,125,300 expires in 2003 and
$945,000 expires in 2004. Accordingly, no capital gains distribution is expected
to be paid to shareholders until future net gains have been realized in excess
of such carryforward.
For federal income tax purposes, the Fund will elect to treat net capital losses
of approximately $1,374,700 and net currency losses of approximately $533,800
incurred in the seven months period ended May 31, 1996 as having 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. At May 31, 1996, the Fund had a
0.17% undivided interest in the repurchase agreements in the joint account. The
undivided interest for the Fund represented $2,111,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the value of
the collateral therefor were as follows:
Bear, Stearns & Co., 5.32%, in the principal amount of $359,000,000, repurchase
price $359,159,157, due 6/3/96. The value of the collateral including accrued
interest is $367,322,500.
CS First Boston Corporation, 5.35%, in the principal amount of $300,000,000,
repurchase price $300,133,750, due 6/3/96. The value of the collateral including
accrued interest is $306,022,116.
Chase Securities, Inc., 5.25%, in the principal amount of $173,690,000,
repurchase price $173,765,989, due 6/3/96. The value of the collateral including
accrued interest is $177,814,913.
Morgan Stanley & Co., 5.27%, in the principal amount of $59,000,000, repurchase
price $59,025,911, due 6/3/96. The value of the collateral including accrued
interest is $60,337,647.
Smith Barney, Inc., 5.33%, in the principal amount of $359,000,000, repurchase
price $359,159,465, due 6/3/96. The value of the collateral including accrued
interest is $366,180,343.
- --------------------------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 5%. 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 contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. The Fund has authorized 500 million shares of common stock
at $.01 par value per share equally divided into three classes, designated Class
A, Class B and Class C common stock.
- --------------------------------------------------------------------------------
B-39
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL GENESIS FUND, INC.
- -------------------------------------------------------------------------------
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------- ---------- -------------
<S> <C> <C>
Year ended May 31, 1996:
Shares sold......................... 8,715,437 $ 171,119,515
Shares issued in reinvestment of
dividends and distributions....... 9,315 180,140
Shares reacquired................... (9,127,818) (179,580,690)
---------- -------------
Net decrease in shares outstanding
before conversion................. (403,066) (8,281,035)
Shares issued upon conversion from
Class B........................... 204,786 4,094,014
---------- -------------
Net decrease in shares
outstanding....................... (198,280) $ (4,187,021)
========== =============
Year ended May 31, 1995:
Shares sold......................... 4,919,941 $ 87,907,236
Shares issued in reinvestment of
dividends and distributions....... 10,178 190,928
Shares reacquired................... (4,974,729) (89,063,687)
---------- -------------
Net decrease in shares outstanding
before conversion................. (44,610) (965,523)
Shares issued upon conversion from
Class B........................... 874,774 14,922,433
---------- -------------
Net increase in shares
outstanding....................... 830,164 $ 13,956,910
========== =============
<CAPTION>
Class B
- -------
<S> <C> <C>
Year ended May 31, 1996:
Shares sold......................... 8,445,077 $ 161,457,654
Shares issued in reinvestment of
dividends and distributions....... 34,065 639,398
Shares reacquired................... (9,438,151) (180,608,303)
---------- -------------
Net decrease in shares outstanding
before conversion................. (959,009) (18,511,251)
Shares reacquired upon conversion
into Class A...................... (212,363) (4,094,014)
---------- -------------
Net decrease in shares
outstanding....................... (1,171,372) $ (22,605,265)
========== =============
<CAPTION>
Class B Shares Amount
- ------- ---------- -------------
<S> <C> <C>
Year ended May 31, 1995:
Shares sold......................... 7,639,531 $ 135,068,716
Shares issued in reinvestment of
dividends and distributions....... 36,014 638,262
Shares reacquired................... (7,748,055) (135,790,426)
---------- -------------
Net decrease in shares outstanding
before conversion................. (72,510) (83,448)
Shares reacquired upon conversion
into Class A...................... (902,163) (14,922,433)
---------- -------------
Net decrease in shares
outstanding....................... (974,673) $ (15,005,881)
========== =============
<CAPTION>
Class C
- -------
<S> <C> <C>
Year ended May 31, 1996:
Shares sold......................... 72,739 $ 1,408,266
Shares issued in reinvestment of
dividends and distributions....... 431 8,088
Shares reacquired................... (37,424) (724,275)
---------- -------------
Net increase in shares
outstanding....................... 35,746 $ 692,079
========== =============
August 1, 1994* through
May 31, 1995:
Shares sold......................... 96,874 $ 1,725,623
Shares issued in reinvestment of
dividends and distributions....... 127 2,177
Shares reacquired................... (23,734) (405,381)
---------- -------------
Net increase in shares
outstanding....................... 73,267 $ 1,322,419
========== =============
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
- --------------------------------------------------------------------------------
B-40
<PAGE>
Financial Highlights PRUDENTIAL GLOBAL GENESIS FUND, INC.
================================================================================
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------
Year Ended May 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE (b):
Net asset value, beginning of period.... $ 18.44 $ 18.75 $ 15.34 $12.62 $11.95
------- ------- ------- ------ ------
Income from investment operations
Net investment income (loss)(a)......... .05 -- (.03) .10 .02
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions......................... 3.34 (.21) 3.83 2.62 .65
------- ------- ------- ------ ------
Total from investment operations..... 3.39 (.21) 3.80 2.72 .67
------- ------- ------- ------ ------
Less distributions
Dividends from net investment income.... -- -- (.15) -- --
Dividends in excess of net investment
income............................... (.09) (.08) -- -- --
Distributions from net realized gains on
investment and foreign currency
transactions......................... -- (.02) (.24) -- --
------- ------- ------- ------ ------
Total distributions.................. (.09) (.10) (.39) -- --
------- ------- ------- ------ ------
Net asset value, end of period.......... $ 21.74 $ 18.44 $ 18.75 $15.34 $12.62
------- ------- ------- ------ ------
------- ------- ------- ------ ------
TOTAL RETURN (c):....................... 18.41% (0.95)% 25.09% 21.55% 5.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $47,617 $44,051 $29,221 $3,435 $3,829
Average net assets (000)................ $45,070 $32,430 $16,909 $3,106 $3,771
Ratios to average net assets:(a)
Expenses, including distribution
fees.............................. 1.79% 1.42% 1.48% 1.49% 1.50%
Expenses, excluding distribution
fees.............................. 1.54% 1.17% 1.25% 1.29% 1.30%
Net investment income (loss)......... .26% .02% (.17)% .79% .19%
For Class A, B and C shares:
Portfolio turnover rate................. 44% 64% 31% 67% 57%
Average commission rate per share....... $0.0090 N/A N/A N/A N/A
</TABLE>
- ---------------
(a) Net of expense subsidies and/or fee waivers.
(b) Calculated based upon average shares outstanding, by class.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-41
<PAGE>
Financial Highlights PRUDENTIAL GLOBAL GENESIS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------- ----------------------
August 1,
Year 1994(d)
Year Ended May 31, Ended Through
---------------------------------------------------------- May 31, May 31,
1996 1995 1994 1993 1992 1996 1995
-------- -------- -------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE (b):
Net asset value, beginning of period.... $ 17.84 $ 18.22 $ 14.93 $ 12.38 $ 11.82 $ 17.84 $ 18.44
-------- -------- -------- ------- ------- -------- ---------
Income from investment operations
Net investment income (loss)(a)......... (.09) (.13) (.16) -- (.07) (.08 ) (.12)
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions......................... 3.21 (.19) 3.74 2.55 .63 3.20 (.44)
-------- -------- -------- ------- ------- -------- ---------
Total from investment operations..... 3.12 (.32) 3.58 2.55 .56 3.12 (.56)
-------- -------- -------- ------- ------- -------- ---------
Less distributions
Dividends from net investment income.... -- -- (.05) -- -- -- --
Dividends in excess of net investment
income............................... (.09) (.03) -- -- -- (.09 ) (.03)
Distributions from net realized gains on
investment and foreign currency
transactions......................... -- (.03) (.24) -- -- -- (.01)
-------- -------- -------- ------- ------- -------- ---------
Total distributions.................. (.09) (.06) (.29) -- -- (.09 ) (.04)
-------- -------- -------- ------- ------- -------- ---------
Net asset value, end of period.......... $ 20.87 $ 17.84 $ 18.22 $ 14.93 $ 12.38 $ 20.87 $ 17.84
======== ======== ======== ======= ======= ======== =========
TOTAL RETURN (c):....................... 17.51% (1.73)% 24.16% 20.60% 4.74% 17.51 % (2.90)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $155,292 $153,670 $174,659 $36,136 $35,644 $ 2,275 $ 1,307
Average net assets (000)................ $154,566 $173,591 $102,451 $31,561 $37,236 $ 1,809 $ 862
Ratios to average net assets:(a)
Expenses, including distribution
fees.............................. 2.54% 2.17% 2.25% 2.29% 2.30% 2.54 % 2.27%(e)
Expenses, excluding distribution
fees.............................. 1.54% 1.17% 1.25% 1.29% 1.30% 1.54 % 1.27%(e)
Net investment income (loss)......... (.48)% (.77)% (.91)% (.01)% (.57)% (.44 )% (.90)%(e)
</TABLE>
- ---------------
(a) Net of expense subsidies and/or fee waivers.
(b) Calculated based upon average shares outstanding, by class.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Commencement of offering of Class C shares.
(e) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-42
<PAGE>
Report of Independent Accountants PRUDENTIAL GLOBAL GENESIS FUND, INC.
================================================================================
To the Board of Directors and Shareholders of
Prudential Global Genesis 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 Global Genesis Fund,
Inc. (the ``Fund'') at May 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
``financial statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1996 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
July 26, 1996
B-43
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium grade obligations,
i.e. (they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
P-1: Issues rated "Prime-1" or "P-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issues rated "Prime-2" or "P-2" (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: The A-1 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 the designation A-2 is
satisfactory. However, the relative degree of safety is not as high for issues
designated A-1.
A-1
<PAGE>
APPENDIX I--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
The following chart shows the long-term performance of various asset classes
and the rate of inflation.
EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
(VALUE OF $1 INVESTED ON 12/31/25)
Small Stocks $3,822
Common Stocks $1,114
Long-Term Bonds $ 34
Treasury Bills $ 13
Inflation $ 9
Source: Prudential Investment Corporation based on data from Ibbotson
Associates' EnCORR Software, Chicago, Illinois. 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 attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile
than bond prices over the long-term.
Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. At the beginning of each
year a new bond with a then-current coupon replaces the old bond. 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).
Impact of Inflation. The "real" rate of investment return is that which
exceeds the rate of inflation, the percentage change in the value of consumer
goods and the general cost of living. A common goal of long-term investors is
to outpace the erosive impact of inflation on investment returns.
I-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate
bonds, U.S. high yield bonds and world government bonds on an annual basis
from 1987 through 1995. The total returns of the indices include accrued
interest, plus the price changes (gains or losses) of the underlying
securities during the period mentioned. The data is provided to illustrate the
varying historical total returns and investors should not consider this
performance data as an indication of the future performance of 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 "Fund 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
[CHART]
/1/ LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one
year.
/2/ LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index
that includes over 600 15- and 30-year fixed-rate mortgage-backed securities
of the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).
/3/ LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-
rate, nonconvertible investment-grade bonds. All bonds are U.S. dollar-
denominated issues and include debt issued or guaranteed by foreign sovereign
governments, municipalities, governmental agencies or international agencies.
All bonds in the index have maturities of at least one year.
/4/ LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising
over 750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower
by Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or
Fitch Investors Service). All bonds in the index have maturities of at least
one year.
/5/ SALOMON BROTHERS WORLD GOVERNMENT INDEX (NON U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
I-2
<PAGE>
This chart illustrates the This chart shows the growth of a
performance of major world stock hypothetical $10,000 investment made
markets for the period from 1986 in the stocks representing the S&P
through 1995. It does not 500 stock index with and without
represent the performance of any reinvested dividends.
Prudential Mutual Fund.
Hong Kong 23.8% [ART]
Belgium 20.7%
Sweden 19.4%
Netherland 19.3%
Spain 17.9%
France 15.3%
U.K. 15.0%
U.S. 14.8%
Japan 12.8%
Austria 10.9%
Germany 10.7%
Source: Morgan Stanley Capital Source: Stocks, Bonds, Bills, and
International (MSCI). Used with Inflation 1995 Yearbook, Ibbotson
permission. Morgan Stanley Country Associates, Chicago (annually
indices are unmanaged indices updates work by Roger G. Ibbotson
which include those stocks making and Rex A. Sinquefield). Used with
up the largest two-thirds of each permission. All rights reserved.
country's total stock market This chart is used for illustrative
capitalization. Returns reflect purposes only and is not intended to
the reinvestment of all represent the past, present or
distributions. This chart is for future performance of any Prudential
illustrative purposes only and is Mutual Fund. Common stock total
not indicative of the past, return is based on the Standard &
present or future performance of Poor's 500 Stock Index, a market-
any specific investment. Investors value-weighted index made up of 500
cannot invest directly in stock of the largest stocks in the U.S.
indices. based upon their stock market value.
Investors cannot invest directly in
indices.
---------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY
REGION
World Total: $9.2 Trillion
U.S. 40.8%
Europe 28.3%
Pacific Basin 28.7%
Canada 2.2%
Source: Morgan Stanley Capital
International, December 1995. 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 1579 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.
I-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
[CHART]
- ---------------------------------------
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. The chart illustrates
the historical yield of the long-term U.S. Treasury Bond from 1926-1994.
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.
The following chart, although not relevant to share ownership in the Fund,
may provide useful information about the effects of a hypothetical investment
diversified over different asset portfolios. The chart shows the range of
annual total returns for major stock and bond indices for the period from
December 31, 1975 through December 31, 1995. The horizontal "Best Returns
Zone" band shows that a hypothetical blended portfolio constructed of one-
third U.S. stock (S&P 500), one-third foreign stock (EAFE Index), and one-
third U.S. bonds (Lehman Index) would have eliminated the "highest highs" and
"lowest lows" of any single asset class.
- ---------
[CHART]
* Source: Prudential Investment Corporation based on data from Lipper
Analytical New Application (LANA). Past performance is not indicative of
future results. The S&P 500 Index is a weighted, unmanaged index comprised of
500 stocks which provides a broad indication of stock price movements. The
Morgan Stanley EAFE Index is an unmanaged index comprised of 20 overseas stock
markets in Europe, Australia, New Zealand and the Far East. The Lehman
Aggregate Index includes all publicly-issued investment grade debt with
maturities over one year, including U.S. government and agency issues, 15 and
30 year fixed-rate government agency mortgage securities, dollar denominated
SEC registered corporate and government securities, as well as asset-backed
securities. Investors cannot invest directly in stock or bond market indices.
I-4
<PAGE>
APPENDIX II--GENERAL INVESTMENT INFORMATION
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns,
while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable
returns. Owning a portfolio of securities mitigates the individual risks (and
returns) of any one security. Additionally, diversification among types of
securities reduces the risks (and general returns) of any one type of
security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to
changes in interest rates. When interest rates fall, bond prices generally
rise. Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of
interest rate changes on the bond's (or the bond portfolio's) price. Duration
differs from effective maturity in that duration takes into account call
provisions, coupon rates and other factors. Duration measures interest rate
risk only and not other risks, such as credit risk and, in the case of non-
U.S. dollar denominated securities, currency risk. Effective maturity measures
the final maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will
fluctuate. However, owning a security for a long period of time may help
investors offset short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth
of assets. The long-term investment results of compounding may be greater than
that of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
II-1
<PAGE>
APPENDIX III--INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating
to the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1995 and is subject to change thereafter. All information relies
on data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC/1/ are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December
31, 1995. Its primary business is to offer a full range of products and
services in three areas: insurance, investments and home ownership for
individuals and families; health-care management and other benefit programs
for employees of companies and members of groups; and asset management for
institutional clients and their associates. Prudential (together with its
subsidiaries) employs more than 92,000 persons worldwide, and maintains a
sales force of approximately 13,000 agents and 5,600 financial advisors.
Prudential is a major issuer of annuities, including variable annuities.
Prudential seeks to develop innovative products and services to meet consumer
needs in each of its business areas. Prudential uses the rock of Gibraltar as
its symbol. The Prudential rock is a recognized brand name throughout the
world.
Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million
life insurance policies in force today with a face value of $1 trillion.
Prudential has the largest capital base ($11.4 billion) of any life insurance
company in the United States. The Prudential provides auto insurance for more
than 1.7 million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k)
plans. In July 1995, Institutional Investor ranked Prudential the third
largest institutional money manager of the 300 largest money management
organizations in the United States as of December 31, 1994. As of December 31,
1995, Prudential had more than $314 billion in assets under management.
Prudential's Money Management Group (of which Prudential Mutual Funds is a key
part) manages over $190 billion in assets of institutions and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers
and agents and more than 1,100 offices in the United States./2/
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
Prudential Mutual Fund Management is one of the sixteen largest mutual fund
companies in the country, with over 2.5 million shareholders invested in more
than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser
in national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in
surveys conducted by national and regional publications and media
organizations such as The Wall Street Journal, The New York Times, Barron's
and USA Today.
- ---------
/1/Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to Prudential
Jennison Fund, Inc. and BlackRock Financial Management, Inc. as subadviser to
The BlackRock Government Income Trust. There are multiple subadvisers for The
Target Portfolio Trust.
/2/As of December 31, 1994.
III-1
<PAGE>
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual
fund in both bull and bear markets as well as a fund's risk profile.
Prudential Equity Fund is managed with a "value" investment style by PIC. In
1995, Prudential Securities introduced Prudential Jennison Fund, a growth-
style equity fund managed by Jennison Associates Capital Corp., a premier
institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of
its kind in the country) along with 100 or so other high yield bonds, which
may be considered for purchase./3/ Non-investment grade bonds, also known as
junk bonds or high yield bonds, are subject to a greater risk of loss of
principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential
mutual fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions
in foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
Trading Data./4/ On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing
over 3.8 million shares with nearly 200 different firms. Prudential Mutual
Funds' bond trading desks traded $157 million in government and corporate
bonds on an average day. That represents more in daily trading than most bond
funds tracked by Lipper even have in assets./5/ Prudential Mutual Funds' money
market desk traded $3.2 billion in money market securities on an average day,
or over $800 billion a year. They made a trade every 3 minutes of every
trading day. In 1994, the Prudential Mutual Funds effected more than 40,000
trades in money market securities and held on average $20 billion of money
market securities./6/
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On
an annual basis, that represents approximately 1.8 million telephone calls
answered.
- ---------
/3/ As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
/4/ Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund Investment Management, a division of PIC, for the
year ended December 31, 1995.
/5/ Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage Funds.
/6/ As of December 31, 1994.
III-2
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for
its clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI./7/
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey.
Five Prudential Securities' analysts were ranked as first-team finishers./8/
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architects SM, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis
system that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ---------
/7/ As of December 31, 1994.
/8/ On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.
III-3
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS:
(1) Financial statements included in the Prospectus constituting Part A
of this Registration Statement:
Financial Highlights.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at May 31, 1996.
Statement of Assets and Liabilities at May 31, 1996.
Statement of Operations for the fiscal year ended May 31, 1996.
Statement of Changes in Net Assets for the fiscal years ended May 31,
1996 and 1995.
Notes to Financial Statements.
Financial Highlights
Report of Independent Accountants.
(b) EXHIBITS:
1.(a) Articles of Restatement. Incorporated by reference to Exhibit No.
1 to Post-Effective Amendment No. 12 to the Registration Statement on
Form N-1A filed via EDGAR on July 31, 1995 (File No. 33-15985).
(b) Articles Supplementary.*
2.By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2
Post-Effective Amendment No. 11 to the Registration Statement on Form
N-1A filed via EDGAR on July 28, 1994 (File No. 33-15985).
4.(a) Specimen certificate for shares of common stock, $.01 par value,
of the Registrant, incorporated by reference to Exhibit No. 4 to
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-1A filed on July 28, 1988 (File No. 33-15985).
(b) Specimen certificate for Class A shares of common stock, $.01 par
value, of the Registrant, incorporated by reference to Exhibit No.
4(b) to Post-Effective Amendment No. 5 to the Registration Statement
on Form N-1A filed on September 28, 1990 (File No. 33-15985).
5.(a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit No. 5(a)
to Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A filed on December 28, 1989 (File No. 33-15985).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 4 to
the Registration Statement on Form N-1A filed on December 28, 1989
(File No. 33-15985).
6.Restated Distribution Agreement.*
8.Custodian Contract between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit No. 8 to Post-
Effective Amendment No. 2 to the Registration Statement on Form N-1A
filed on July 31, 1989 (File No. 33-15985).
9.Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A filed on July 31, 1989 (File No. 33-15985).
10.(a) Opinion of Counsel, incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed on October 13, 1987 (File No. 33-15985).
(b) Opinion of Counsel.*
11.Consent of Independent Accountants.*
13.Purchase Agreement, incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A filed on October 13, 1987 (File No. 33-15985).
15.(a) Distribution and Service Plan for Class A shares, incorporated by
reference to Exhibit No. 15(a) to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A filed via EDGAR on July 31,
1995 (File No. 33-15985).
C-1
<PAGE>
(b) Distribution and Service Plan for Class B shares, incorporated by
reference to Exhibit No. 15(b) to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A filed via EDGAR on July 31,
1995 (File No. 33-15985).
(c) Distribution and Service Plan for Class C shares, incorporated by
reference to Exhibit No. 15(c) to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A filed via EDGAR on July 31,
1995 (File No. 33-15985).
16.(a) Schedule of Computation of Performance Quotations for Class B
shares, incorporated by reference to Exhibit No. 16 to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed on
July 31, 1989 (File No. 33-15985).
(b) Schedule of Computation of Performance Quotations for Class A
shares, incorporated by reference to Exhibit No. 16(b) to Post-
Effective Amendment No. 5 to the Registration Statement on Form N-1A
filed on September 28, 1990 (File No. 33-15985).
18.Rule 18f-3 Plan.*
27.Financial Data Schedules.*
Other Exhibits:
Powers of Attorney for:
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Thomas T. Mooney
Louis A. Weil, III
Executed copies filed under Other Exhibits to Post-Effective Amendment No. 3
to the Registration Statement on Form N-1A (File No. 33-15985) filed on
November 3, 1989.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of July 12, 1996, there were 9,571, 26,825 and 365 record holders of
Class A, Class B and Class C shares, respectively, of common stock, $.01 par
value per share, of the Registrant.
ITEM 27. INDEMNIFICATION.
As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit 6 to
the Registration Statement), the Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (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
- ---------
* Filed herewith.
C-2
<PAGE>
conduct constituting willful misfeasance, bad faith, gross negligence or
reckless disregard in the performance of their duties. The insurance policy
also insures the Registrant against the cost of indemnification payments to
officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) 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 each 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.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(I) PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF)
See "How the Fund Is Managed-Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on March 30, 1996).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
Stephen Senior Vice President Senior Vice President, PMF; Senior Vice President,
P. Prudential
Fisher Securities Incorporated (Prudential Securities); Vice
President, Prudential Mutual Fund Distributors, Inc.
(PMFD)
Frank W. Executive Vice Executive Vice President, General Counsel, Secretary
Giordano President, General and Director, PMF and PMFD; Senior Vice President,
Counsel, Secretary, Prudential Securities;
and Director Director, Prudential Mutual Fund Services, Inc.
(PMFS)
Robert Executive Vice Executive Vice President, Chief Financial and
F. Gunia President, Chief Administrative Officer,
Financial and Treasurer and Director, PMF; Senior Vice President,
Administrative Officer, Prudential Securities; Executive Vice President,
Treasurer and Director Chief Financial Officer, Treasurer and Director,
PMFD; Director, PMFS
Theresa Director Director, PMF; Vice President, The Prudential
A. Insurance Company of America (Prudential); Vice
Hamacher President, The Prudential Investment Corporation
751 (PIC); President, Prudential Mutual Fund Investment
Broad Management (PMFIM)
St.
Newark,
NJ 07102
Timothy Director President, Chief Executive Officer, Chief Operating
J. Officer and
O'Brien Director, PMFD; Chief Executive Officer and Director,
Raritan PMFS; Director, PMF
Plaza
One
Edison,
NJ 08837
Richard President, Chief President, Chief Executive Officer and Director, PMF;
A. Executive Officer Executive
Redeker and Director Vice President, Director and Member of Operating
Committee, Prudential Securities; Director,
Prudential Securities Group, Inc. (PSG); Executive
Vice President, PIC; Director, PMFD; Director, PMFS
S. Jane Senior Vice Senior Vice President, Senior Counsel and Assistant
Rose President, Senior Secretary,
Counsel and PMF; Senior Vice President and Senior Counsel,
Assistant Secretary Prudential Securities
Donald Executive Vice Executive Vice President and Director of Sales, PMF
Webber President and Director
of Sales
</TABLE>
C-3
<PAGE>
(II) THE PRUDENTIAL INVESTMENT CORPORATION (PIC)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President, The Prudential Insurance Com-
Two Gateway Center pany of America (Prudential); Senior Vice President,
Newark, NJ 07102 PIC
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC;
Director, PMF; President, PMFIM
Richard A. Redeker Executive Vice President President, Chief Executive Officer and Director, PMF;
One Seaport Plaza Executive Vice President, Director and Member of
New York, NY 10292 Operating Committee, Prudential Securities; Director,
PSG; Executive Vice President, PIC; Director, PMFD;
Director, PMFS
John L. Reeve Senior Vice President Managing Director, Presidential Asset Management
Group; Senior Vice President, PIC
Eric A. Simonson Vice President and Director Vice President and Director, PIC; Executive Vice
President, Prudential
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated is distributor for The BlackRock
Government Income Trust, Command Money Fund, Command Government Fund, Command
Tax-Free Fund, The Global Government Plus Fund, Inc., The Global Total Return
Fund, Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Allocation Fund,
Prudential California Municipal Fund, Prudential Distressed Securities Fund,
Inc., Prudential Diversified Bond Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential
Global Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Global Natural Resources Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Government Securities
Trust, Prudential High Yield Fund, Prudential Institutional Liquidity
Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
Jennison Fund, Inc., Prudential MoneyMart Assets, Inc., Prudential Mortgage
Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal
Bond Fund, Prudential Municipal Series Fund, Prudential National Municipals
Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential Small Companies
Fund, Inc., Prudential Special Money Market Fund, Inc., Prudential Structured
Maturity Fund, Inc., Prudential Tax-Free Money Fund, Inc., Prudential Utility
Fund, Inc. and The Target Portfolio Trust. Prudential Securities is also a
depositor for the following unit investment trusts:
The Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
C-4
<PAGE>
(b) Information concerning the officers and directors of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME* UNDERWRITER REGISTRANT
- ----- ------------- -------------
<S> <C> <C>
Robert Golden........... Executive Vice President None
One New York Plaza
New York, NY
Alan D. Hogan........... Executive Vice President, Chief Administrative Officer and None
Director
George A. Murray........ Executive Vice President and Director None
Leland B. Paton......... Executive Vice President and Director None
One New York Plaza
New York, NY
Martin Pfinsgraff....... Executive Vice President, Chief Financial Officer and Director None
Vincent T. Pica, II..... Executive Vice President and Director None
One New York Plaza
New York, NY
Richard A. Redeker...... Executive Vice President and Director President
and Director
Hardwick Simmons........ Chief Executive Officer, President and None
Director
Lee B. Spencer, Jr. .... Executive Vice President, General Counsel and Director None
</TABLE>
- ---------
* The address of each person named is One Seaport Plaza, New York, NY 10292.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices
of State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, The Prudential Investment Corporation, Prudential Plaza, 751
Broad Street, Newark, New Jersey, the Registrant, One Seaport Plaza, New York,
New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9),
(10) and (11) and 31a-1(f) will be kept at Three Gateway Center, documents
required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport Plaza 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, Inc.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is Managed--
Manager" and "How the Fund is Managed--Distributor" in the Prospectus and the
captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of Registrant's latest annual report to shareholders
upon request and without charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the 26th day of
July, 1996.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
/s/ Richard A. Redeker
---------------------------------
(RICHARD A. REDEKER, PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Susan C. Cote Treasurer and July 26, 1996
- --------------------------- Principal Financial and
SUSAN C. COTE Accounting Officer
/s/ Edward D. Beach Director July 26, 1996
- ---------------------------
EDWARD D. BEACH
/s/ Donald D. Lennox Director July 26, 1996
- ---------------------------
DONALD D. LENNOX
/s/ Douglas H. McCorkindale Director July 26, 1996
- ---------------------------
DOUGLAS H. MCCORKINDALE
/s/ Thomas T. Mooney Director July 26, 1996
- ---------------------------
THOMAS T. MOONEY
/s/ Richard A. Redeker President and Director July 26, 1996
- ---------------------------
RICHARD A. REDEKER
/s/ Louis A. Weil, III Director July 26, 1996
- ---------------------------
LOUIS A. WEIL, III
</TABLE>
C-6
<PAGE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
-------------- ----------- -----------
<C> <S> <C>
1(a) Articles of Restatement. Incorporated by --
reference to Exhibit No. 1 to Post-Effective
Amendment No. 12 to the Registration Statement on
Form N-1A filed via EDGAR on July 31, 1995 (File
No. 33-15985).
1(b) Articles Supplementary.*
2(a) By-Laws of the Registrant. Incorporated by --
reference to Exhibit No. 2 to Post-Effective
Amendment No. 11 to the Registration Statement on
Form N-1A filed via EDGAR on July 28, 1994 (File
No. 33-15985).
4(a) Specimen certificate for shares of common stock, --
$.01 par value, of the Registrant, incorporated
by reference to Exhibit No. 4 to Post-Effective
Amendment No. 1 to the Registration Statement on
Form N-1A filed on July 28, 1988 (File No. 33-
15985).
4(b) Specimen certificate for Class A shares of common --
stock, $.01 par value, of the Registrant,
incorporated by reference to Exhibit No. 4(b) to
Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A filed on
September 28, 1990 (File No. 33-15985).
5(a) Management Agreement between the Registrant and --
Prudential Mutual Fund Management, Inc.,
incorporated by reference to Exhibit No. 5(a) to
Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on
December 28, 1989 (File No. 33-15985).
5(b) Subadvisory Agreement between Prudential Mutual --
Fund Management, Inc. and The Prudential
Investment Corporation, incorporated by reference
to Exhibit No. 5(b) to Post-Effective Amendment
No. 4 to the Registration Statement on Form N-1A
filed on December 28, 1989 (File No. 33-15985).
6 Restated Distribution Agreement.*
8 Custodian Contract between the Registrant and --
State Street Bank and Trust Company, incorporated
by reference to Exhibit No. 8 to Post-Effective
Amendment No. 2 to the Registration Statement on
Form N-1A filed on July 31, 1989 (File No. 33-
15985).
9 Transfer Agency and Service Agreement between the --
Registrant and Prudential Mutual Fund Services,
Inc., incorporated by reference to Exhibit No. 9
to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on July
31, 1989 (File No. 33-15985).
10(a) Opinion of Counsel, incorporated by reference to --
Exhibit No. 10 to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A filed
on October 13, 1987 (File No. 33-15985).
10(b) Opinion of Counsel.*
11 Consent of Independent Accountants.*
13 Purchase Agreement, incorporated by reference to --
Exhibit No. 13 to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A filed
on October 13, 1987 (File No. 33-15985).
15(a) Distribution and Service Plan for Class A shares, --
incorporated by reference to Exhibit No. 15(a) to
Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A filed via
EDGAR on July 31, 1995 (File No. 33-15985).
15(b) Distribution and Service Plan for Class B shares, --
incorporated by reference to Exhibit No. 15(b) to
Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A filed via
EDGAR on July 31, 1995 (File No. 33-15985).
15(c) Distribution and Service Plan for Class C shares, --
incorporated by reference to Exhibit No. 15(c) to
Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A filed via
EDGAR on July 31, 1995 (File No. 15985).
16(a) Schedule of Computation of Performance Quotations --
for Class B shares, incorporated by reference to
Exhibit No. 16 to Post-Effective Amendment No. 2
to the Registration Statement on Form N-1A (File
No. 33-15985) filed on July 31, 1989.
16(b) Schedule of Computation of Performance Quotations --
for Class A shares, incorporated by reference to
Exhibit No. 16(b) to Post-Effective Amendment No.
5 to the Registration Statement on Form
N-1A (File No. 33-15985) filed on September 28,
1990.
18 Rule 18f-3 Plan.*
27 Financial Data Schedules.*
</TABLE>
Other Exhibits:
Powers of Attorney for:
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Thomas T. Mooney
Louis A. Weil, III
Executed copies filed under Other Exhibits to Post-Effective Amendment No. 3 to
the Registration Statement on Form N-1A (File No. 33-15985) filed on November
3, 1989.
- ---------
* Filed herewith.
<PAGE>
EXHIBIT 99.1(b)
ARTICLES SUPPLEMENTARY
OF
PRUDENTIAL GLOBAL GENESIS FUND, INC.
* * *
Pursuant to Section 2-208.1
of the Maryland General Corporation Law
* * *
Prudential Global Genesis Fund, Inc., a Maryland corporation having its
principal offices in Baltimore, Maryland and New York, New York (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland, that:
FIRST: The Corporation is registered as an open-end company under the
Investment Company Act of 1940.
SECOND: The total number of shares of all classes of stock which the
Corporation has authority to issue is 500,000,000 shares of common stock, par
value of $.01 each, having an aggregate par value of $5,000,000, and the total
number of shares of common stock that the Corporation has authority to issue is
not being increased or decreased.
THIRD: Heretofore, the number of authorized shares of which the
Corporation has authority to issue was divided into three classes of shares,
consisting of 166,666,666 2/3 Class A shares, 166,666,666 2/3 Class B shares and
166,666,666 2/3 Class C shares.
FOURTH: In accordance with Section 2-105(c) of the Maryland General
Corporation Law and pursuant to a resolution duly adopted by the Board of
Directors of the Corporation at a meeting held on May 8, 1996, the number of
authorized shares of which the Corporation has authority to issue is hereby
divided into four classes of shares, consisting of 125 million Class A shares,
125 million Class B shares, 125 million Class C shares and 125 million Class Z
shares.
FIFTH: The Class Z shares shall represent the same interest in the
Corporation and have identical voting, dividend, liquidation and other rights as
the Class A, Class B and Class C shares except that (i) Expenses related to the
distribution of each class of shares shall be borne solely by such class; (ii)
The bearing of such expenses solely by shares of each class shall be
appropriately reflected (in the manner determined by the Board of Directors) in
the net asset value, dividends, distribution and liquidation rights of the
shares of such class; (iii) The Class A Common Stock shall be subject to a
front-end sales load and a Rule 12b-1 distribution fee as determined by the
Board of Directors from time to time; (iv) The Class B Common Stock shall be
subject to a contingent deferred sales charge and a Rule 12b-1 distribution fee
as determined by the Board of Directors from time to time; (v) The Class C
Common Stock shall be subject to a contingent deferred sales charge and a Rule
12b-1 distribution fee as determined by the Board of Directors from time to time
and (vi) The Class Z Common Stock shall not be subject to a front-end sales
load, a contingent deferred sales charge nor a 12b-1 distribution fee. All
shares of each particular class shall represent an equal proportionate interest
in that class, and each share of any particular class shall be equal to each
other share of that class.
<PAGE>
IN WITNESS WHEREOF, PRUDENTIAL GLOBAL GENESIS FUND, INC., has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Assistant Secretary on July 10, 1996.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
/s/ Richard A. Redeker
By ---------------------------------
Richard A. Redeker
President
/s/ Marguerite E. H. Morrison
Attest: -----------------------------
Marguerite E. H. Morrison
Assistant Secretary
THE UNDERSIGNED, President of Prudential Global Genesis Fund, Inc.,
who executed on behalf of the Corporation the foregoing Articles Supplementary
of which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that to the bet of his
knowledge, information and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Richard A. Redeker
----------------------------------
Richard A. Redeker
President
<PAGE>
EXHIBIT 99.6
PRUDENTIAL GLOBAL GENESIS FUND, INC.
Distribution Agreement
Agreement made as of May 8, 1996 between Prudential Global Genesis Fund,
Inc., a Maryland corporation (the Fund), and Prudential Securities Incorporated,
a Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its shares for
sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or series
(all such shares being referred to herein as Shares) and the Fund currently is
authorized to offer Class A, Class B, Class C and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's Shares from
and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, upon approval by the holders of the respective classes and/or
series of Shares of the Fund it is contemplated that the Fund will adopt a plan
(or plans) of distribution pursuant to Rule 12b-1 under the Investment Company
Act with respect to certain of its classes and/or series of Shares (the Plans)
authorizing payments by the Fund to the Distributor with respect to the
<PAGE>
distribution of such classes and/or series of Shares and the maintenance of
related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Shares of the Fund to sell Shares to the public on behalf of
the Fund and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Shares of the Fund through the Distributor on the terms and conditions set forth
below.
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of the
Fund shall not apply to Shares of the Fund issued in connection with the merger
or consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the Fund
pursuant to reinvestment of dividends or capital gains distributions or through
the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the Fund
pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's
2
<PAGE>
Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund on behalf of
investors the Shares needed, but not more than the Shares needed (except for
clerical errors in transmission) to fill unconditional orders for Shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of the Fund and
delivered by the Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all classes
and/or series of its Shares at times when redemption is suspended pursuant to
the conditions in Section 4.3 hereof or at such other times as may be determined
by the Board of Directors. The Fund shall also have the right to suspend the
sale of any or all classes and/or series of its Shares if a banking moratorium
shall have been declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by the Fund; provided, however, that the
Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
3
<PAGE>
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund
4.1 Any of the outstanding Shares may be tendered for redemption at any
time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Articles of Incorporation as amended from time to time, and
in accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
4.3 Redemption of any class and/or series of Shares or payment may be
suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
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 during any
other period when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
4
<PAGE>
5.1 Subject to the possible suspension of the sale of Shares as provided
herein, the Fund agrees to sell its Shares so long as it has Shares of the
respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and the shareholders, all necessary action to
fix the number of authorized Shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Shares for sales under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Shares in any
state from the terms set forth in its Registration Statement, to qualify as a
foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its
Shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 9 hereof, the expense
of qualification and maintenance of
5
<PAGE>
qualification shall be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to effect sales
of Shares, but shall not be obligated to sell any specific number of Shares.
Sales of the Shares shall be on the terms described in the Prospectus. The
Distributor may enter into like arrangements with other investment companies.
The Distributor shall compensate the selected dealers as set forth in the
Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts in
all respects duly to conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Shares, provided that the Fund shall
approve the forms of such agreements. Within the United States, the Distributor
shall offer and sell Shares only to such selected dealers as are members in good
standing of the NASD. Shares sold to selected dealers shall be for resale by
such dealers only at the offering price determined as set forth in the
Prospectus.
Section 7. Payments to the Distributor
6
<PAGE>
7.1 With respect to classes and/or series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of any applicable Plans.
7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Article III, Section 26 of the
NASD Rules of Fair Practice. Payment of these amounts to the Distributor is not
contingent upon the adoption or continuation of any Plan.
Section 8. Payment of the Distributor under the Plan
8.1 The Fund shall pay to the Distributor as compensation for services
under any Plans adopted by the Fund and this Agreement a distribution and
service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees with respect to the relevant class and/or series of Shares to be
paid by the Distributor to account executives of the Distributor and to
broker-dealers and financial institutions which have dealer agreements with the
Distributor. So long as a Plan (or any amendment thereto) is in effect, at the
request of the Board of Directors or any agent or representative of the Fund,
the Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. Allocation of Expenses
7
<PAGE>
The Fund shall bear all costs and expenses of the continuous offering of
its Shares (except for those costs and expenses borne by the Distributor
pursuant to a Plan and subject to the requirements of Rule 12b-1 under the
Investment Company Act), including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and all amendments and supplements thereto, and preparing
and mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of qualification of
the Shares for sale, and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to each such
state for continuing qualification therein until the Fund decides to discontinue
such qualification pursuant to Section 5.4 hereof. As set forth in Section 8
above, the Fund shall also bear the expenses it assumes pursuant to any Plan, so
long as such Plan is in effect.
Section 10. Indemnification
10.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in
8
<PAGE>
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
director, trustee or controlling person unless a court of competent jurisdiction
shall determine in a final decision on the merits, that the person to be
indemnified was not liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement (disabling conduct), or, in
the absence of such a decision, a reasonable determination, based upon a review
of the facts, that the indemnified person was not liable by reason of disabling
conduct, by (a) a vote of a majority of a quorum of directors or trustees who
are neither "interested persons" of the Fund as defined in Section 2(a)(19) of
the Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors or trustees and any such controlling
person as aforesaid is expressly conditioned upon the Fund's being promptly
notified of any action brought against the Distributor, its officers or
directors or trustees, or any such controlling person, such notification to be
given by letter or telegram addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration
9
<PAGE>
Statement or Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary to make
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and Directors and any such controlling person as aforesaid,
is expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and Directors or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 11. Duration and Termination of this Agreement
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the
vote of a majority of the outstanding voting securities of the applicable class
and/or series of the Fund, and (b) by the vote of a majority of those
Directors who are not parties to this Agreement or interested persons
of any such parties and who have no direct or indirect financial interest in
this Agreement or in the operation of any of the Fund's Plans or in any
agreement related thereto (Independent Directors), cast in person at a meeting
called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Independent Directors or by vote of a majority
of the outstanding voting securities of the applicable class and/or series of
the Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
10
<PAGE>
Section 12. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or
by the vote of a majority of the outstanding voting securities of the applicable
class and/or series of the Fund, and (b) by the vote of a majority of the
Independent Directors cast in person at a meeting called for the
purpose of voting on such amendment.
Section 13. Separate Agreement as to Classes and/or Series
The amendment or termination of this Agreement with respect to any class
and/or series shall not result in the amendment or termination of this Agreement
with respect to any other class and/or series unless explicitly so provided.
Section 14. Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year above written.
Prudential Securities Incorporated
By: /s/ROBERT F. GUNIA
------------------------------
Robert F. Gunia
Senior Vice President
Prudential Global Genesis Fund, Inc.
By: /s/RICHARD A. REDEKER
------------------------------
Richard A. Redeker
President
12
<PAGE>
EXHIBIT 99.10(b)
GARDNER, CARTON & DOUGLAS
SUITE 3400 - QUAKER TOWER
321 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610-4795
(312) 644-3000
TELECOPIER: (312) 644-3381
July 29, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Prudential Global Genesis Fund, Inc.
Shares of Common Stock, $0.01 par value per share
-------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Prudential Global Genesis Fund, Inc., a
Maryland corporation (the "Fund"), in connection with its filing of Post-
Effective Amendment No. 13 to its Registration Statement on Form N-1A (File No.
33-15985) (the "Amendment"). In addition to updating the information contained
therein, the Amendment registers 1,189,324 shares of Common Stock, $0.01 par
value per share, of the Fund.
We have examined all instruments, documents and records which, in our
opinion, were necessary of examination for the purpose of rendering this
opinion. Based upon such examination, we are of the opinion that the above-
described shares of Common Stock will be, if and when issued by the Fund in the
manner and upon the terms set forth in said Amendment, validly authorized and
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment.
Very truly yours,
/s/ Gardner, Carton & Douglas
GARDNER, CARTON & DOUGLAS
PHD/KJF/MAM
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 13 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated July
26, 1996, relating to the financial statements and financial highlights of
Prudential Global Genesis Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Custodian, Transfer and
Dividend Disbursing Agent and Independent Accountants" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, NY
July 26, 1996
<PAGE>
EXHIBIT 99.18
PRUDENTIAL GLOBAL GENESIS FUND, INC.
(the Fund)
PLAN PURSUANT TO RULE 18F-3
The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares. Any material
amendment to this plan is subject to prior approval of the Board of
Directors, including a majority of the independent Directors.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to a high initial
sales charge and a distribution and/or service
fee pursuant to Rule 12b-1 under the 1940 Act
(Rule 12b-1 fee) not to exceed .30 of 1% per
annum of the average daily net assets of the
class. The initial sales charge is waived or
reduced for certain eligible investors.
CLASS B SHARES: Class B shares are not subject to an initial
sales charge but are subject to a high
contingent deferred sales charge (declining by
1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee of not to
exceed 1% per annum of the average daily
net assets of the class. The contingent
deferred sales charge is waived for certain
eligible investors. Class B shares
automatically convert to Class A shares
approximately seven years after purchase.
CLASS C SHARES: Class C shares are not subject to an initial
sales charge but are subject to a low
contingent deferred sales charge (declining by
1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee not to exceed
1% per annum of the average daily net assets
of the class.
<PAGE>
Class Z SHARES: Class Z shares are not subject to either an
initial or contingent deferred sales charge
nor are they subject to any Rule 12b-1 fee.
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class, will be allocated to each class on the
basis of the net asset value of that class in relation to the net asset value of
the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by the Fund to each class of shares,
to the extent paid, will be paid on the same day and at the same time, and will
be determined in the same manner and will be in the same amount, except that the
amount of the dividends and other distributions declared and paid by a
particular class may be different from that paid by another class because of
Rule 12b-1 fees and other expenses borne exclusively by that class.
EXCHANGE PRIVILEGE
Each class of shares is generally exchangeable for the same class of shares
(or the class of shares with similar characteristics), if any, of the other
Prudential Mutual Funds (subject to certain minimum investment requirements) at
relative net asset value without the imposition of any sales charge.
Class B and Class C shares (which are not subject to a contingent deferred
sales charge) of shareholders who qualify to purchase Class A shares at net
asset value will be automatically exchanged for Class A shares on a quarterly
basis, unless the shareholder elects otherwise.
CONVERSION FEATURES
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.
<PAGE>
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.
B. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Directors, including a majority of the independent
Directors, shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop. Prudential Mutual Fund Management,
Inc., the Fund's Manager, will be responsible for reporting any potential
or existing conflicts to the Directors.
C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant auditing
standards adopted, from time to time, by the American Institute of
Certified Public Accountants.
Dated: May 8, 1996
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<PAGE>
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<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL GLOBAL GENESIS FUND (CLASS A)
<S> <C>
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<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 130,741,894
<INVESTMENTS-AT-VALUE> 183,747,411
<RECEIVABLES> 2,057,156
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 210,660,822
<PAYABLE-FOR-SECURITIES> 2,526,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,950,524
<TOTAL-LIABILITIES> 5,476,774
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 156,602,658
<SHARES-COMMON-STOCK> 9,739,533
<SHARES-COMMON-PRIOR> 11,073,439
<ACCUMULATED-NII-CURRENT> (1,064,465)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,468,665)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,114,520
<NET-ASSETS> 205,184,048
<DIVIDEND-INCOME> 3,770,375
<INTEREST-INCOME> 359,703
<OTHER-INCOME> 0
<EXPENSES-NET> 4,768,967
<NET-INVESTMENT-INCOME> (638,889)
<REALIZED-GAINS-CURRENT> (281,028)
<APPREC-INCREASE-CURRENT> 34,099,480
<NET-CHANGE-FROM-OPS> 33,179,563
<EQUALIZATION> (25,288)
<DISTRIBUTIONS-OF-INCOME> (898,860)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 333,985,435
<NUMBER-OF-SHARES-REDEEMED> (360,913,268)
<SHARES-REINVESTED> 827,626
<NET-CHANGE-IN-ASSETS> 6,155,208
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,014,451
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,508,409
<AVERAGE-NET-ASSETS> 45,070,000
<PER-SHARE-NAV-BEGIN> 18.44
<PER-SHARE-NII> 3.39
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.09)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.74
<EXPENSE-RATIO> 1.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
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<PAGE>
<ARTICLE> 6
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<NAME> PRUDENTIAL GLOBAL GENESIS FUND, INC.
<SERIES>
<NUMBER> 002
<NAME> PRUDENTIAL GLOBAL GENESIS FUND (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 130,741,894
<INVESTMENTS-AT-VALUE> 183,747,411
<RECEIVABLES> 2,057,156
<ASSETS-OTHER> 24,856,255
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 210,660,822
<PAYABLE-FOR-SECURITIES> 2,526,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,950,524
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 156,602,658
<SHARES-COMMON-STOCK> 9,739,533
<SHARES-COMMON-PRIOR> 11,073,439
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<ACCUMULATED-NET-GAINS> (3,468,665)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,114,520
<NET-ASSETS> 205,184,048
<DIVIDEND-INCOME> 3,770,375
<INTEREST-INCOME> 359,703
<OTHER-INCOME> 0
<EXPENSES-NET> 4,768,967
<NET-INVESTMENT-INCOME> (638,889)
<REALIZED-GAINS-CURRENT> (281,028)
<APPREC-INCREASE-CURRENT> 34,099,480
<NET-CHANGE-FROM-OPS> 33,179,563
<EQUALIZATION> (25,288)
<DISTRIBUTIONS-OF-INCOME> (898,860)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 333,985,435
<NUMBER-OF-SHARES-REDEEMED> (360,913,268)
<SHARES-REINVESTED> 827,626
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<GROSS-EXPENSE> 4,508,409
<AVERAGE-NET-ASSETS> 154,566,000
<PER-SHARE-NAV-BEGIN> 17.84
<PER-SHARE-NII> 3.12
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.09)
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<EXPENSE-RATIO> 2.52
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<PAGE>
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<NAME> PRUDENTIAL GLOBAL GENESIS FUND, INC.
<SERIES>
<NUMBER> 003
<NAME> PRUDENTIAL GLOBAL GENESIS FUND (CLASS C)
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<PERIOD-END> MAY-31-1996
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<INVESTMENTS-AT-VALUE> 183,747,411
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<PAYABLE-FOR-SECURITIES> 2,526,250
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 9,739,533
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