<PAGE>
Prudential Global Genesis Fund, Inc.
- -------------------------------------------------------------------------------
PROSPECTUS DATED JULY 31, 1998
- -------------------------------------------------------------------------------
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
stock, common stock equivalents and other equity related securities of smaller
foreign and domestic companies, including preferred stock, rights, warrants
and debt securities or preferred stock which are convertible or exchangeable
for common stock or preferred stock and master limited partnerships, among
others. Smaller companies are those with market capitalizations of less than
$1.5 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 related securities of
other companies and debt securities, engage in various derivatives
transactions, including options on equity securities, financial indices,
foreign currencies and futures contracts on foreign currencies and may
purchase and sell futures contracts on foreign currencies, groups of
currencies and financial indices to hedge its portfolio and attempt to enhance
return. There can be no assurance that the Fund's investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.
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 financial 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--Risk Factors and Special
Considerations of Investing in Foreign Securities."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America (http://www.prudential.
com). Additional information about the Fund has been filed with the Securities
and Exchange Commission (the Commission) in a Statement of Additional
Information, dated July 31, 1998, 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. The Commission maintains a Web site (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference and other information regarding the Fund.
- -------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in 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 stock, common stock
equivalents and other equity related securities of smaller foreign and
domestic companies (i.e., companies with market capitalizations of less than
$1.5 billion). There can be no assurance that the Fund's investment objective
will be achieved. See "How the Fund Invests--Investment Objective and
Policies" at page 10.
WHAT ARE THE FUND'S 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. Investing in
foreign securities involves certain risks and considerations not typically
associated with investments in U.S. Government securities and securities of
domestic companies, 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--Risk Factors and Special
Considerations of Investing in Foreign Securities" at page 12. In addition,
the Fund may engage in various hedging and return enhancement strategies,
including the use of derivative transactions. These activities may be
considered speculative and may result in higher risks and costs to the Fund.
See "How the Fund Invests--Hedging and Return Enhancement Strategies--Risks of
Hedging and Return Enhancement Strategies" at page 14. As with an investment
in any mutual fund, an investment in this Fund can decrease in value and you
can lose money.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
1% of the Fund's average daily net assets. As of June 30, 1998, PIFM served as
manager or administrator to 67 investment companies, including 45 mutual
funds, with aggregate assets of approximately $66.8 billion. The Prudential
Investment Corporation, doing business as Prudential Investments (PI), through
a Sub-Investment Management Agreement with PRICOA Asset Management Ltd.
(PRICOA and collectively with PI, the investment adviser or the Subadviser),
furnishes investment advisory services in connection with the management of
the Fund. See "How the Fund is Managed--Manager" at page 16.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Investment Management Services LLC (the Distributor) acts as the
Distributor of the Fund's Class A, Class B, Class C and Class Z shares and is
paid a distribution and service fee with respect to Class A shares 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. The
Distributor incurs the expenses of distributing the Fund's Class Z shares
under a Distribution Agreement with the Fund, none of which is reimbursed or
paid for by the Fund. See "How the Fund is Managed--Distributor" at page 17.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. The minimum subsequent investment is $100
for Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 23 and "Shareholder
Guide--Shareholder Services" at page 35.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through the Distributor or brokers or
dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund,
through its transfer agent, Prudential Mutual Fund Services LLC (PMFS or the
Transfer Agent). In each case, sales are made at the net asset value per share
(NAV) next determined after receipt of your purchase order by the Transfer
Agent, a Dealer or the Distributor plus a sales charge which may be imposed
either (i) at the time of purchase (Class A shares) or (ii) on a deferred basis
(Class B or Class C shares). Class Z shares are offered to a limited group of
investors at NAV without any sales charge. Dealers may charge their customers a
separate fee for handling purchase transactions. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about Class Z shares. See "How the Fund
Values its Shares" at page 19 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 23.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares 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 but, for one year
after purchase, are subject to a 1% CDSC on redemptions.
Class C shares are subject to higher ongoing distribution-
related expenses than Class A shares but, unlike Class B
Shares, do not convert to another class.
. Class Z Shares: Sold without either an initial sales charge or CDSC to a
limited group of investors. Class Z shares are not subject
to any ongoing service or distribution expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 25.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after your
Dealer, the Distributor or the Transfer Agent receives your sell order. The
proceeds of redemptions of Class B and Class C shares may be subject to a CDSC.
Dealers may charge their customers a separate fee for handling sale
transactions. Participants in programs sponsored by
3
<PAGE>
Prudential Retirement Services should contact their client representative for
more information about selling their Class Z shares. See "Shareholder Guide--
How to Sell Your Shares" at page 29.
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 20.
4
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)........ 5% None None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends.............. None None None None
Maximum Deferred Sales
Load (as a percentage
of original purchase
price or redemption
proceeds, whichever is
lower)................. None 5% during the 1% on redemp- None
first year, de- tions made
creasing by 1% within one
annually to 1% year of pur-
in the fifth chase
and sixth years
and 0% the sev-
enth year*
Redemption Fees........ None None None None
Exchange Fee........... None None None None
<CAPTION>
ANNUAL FUND OPERATING CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
EXPENSES -------------- --------------- ------------------ --------------
(as a percentage of
average net assets)
<S> <C> <C> <C> <C>
Management Fees ....... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (After
Reduction)+............ .25++ 1.00 1.00 None
Other Expenses......... .63% .63% .63% .63%
---- ---- ---- ----
Total Fund Operating
Expenses
(After Reduction)...... 1.88% 2.63% 2.63% 1.63%
==== ==== ==== ====
</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
return and (2) redemption at the end of each
time period:
Class A...................................... $68 $106 $147 $259
Class B...................................... $77 $112 $150 $270
Class C...................................... $37 $ 82 $140 $296
Class Z ..................................... $17 $ 51 $ 89 $193
You would pay the following expenses on the
same investment, assuming no redemption:
Class A...................................... $68 $106 $147 $259
Class B...................................... $27 $ 82 $140 $270
Class C...................................... $27 $ 82 $140 $296
Class Z ..................................... $17 $ 51 $ 89 $193
</TABLE>
The above example is based on actual data for the Fund's fiscal year ended May
31, 1998. 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."
+ Dealers may independently charge additional fees for shareholder
transactions or advisory services. Pursuant to rules of the National
Association of Securities Dealers, Inc., the aggregate initial sales
charges, deferred sales charges and asset-based sales charges on shares of
the Fund may not exceed 6.25% of total gross sales, subject to certain
exclusions. This 6.25% limitation is imposed on each class of the Fund
rather than on a per shareholder basis. Therefore, long-term shareholders of
the Fund may pay more in total sales charges than the economic equivalent of
6.25% of such shareholders' investment in such shares. See "How the Fund is
Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average daily
net assets of the Class A shares, the Distributor has voluntarily limited
its distribution fees with respect to Class A shares of the Fund to .25 of
1% of the average daily net assets of the Class A shares. The Distributor
may terminate this voluntary waiver at any time without notice. Total Fund
Operating Expenses without such limitation would have been 1.93%. See "How
the Fund is Managed--Distributor."
5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)
The following financial highlights for each of the fiscal years in the five
year period ended May 31, 1998, have been audited by PricewaterhouseCoopers
LLP, independent accountants, whose reports thereon were 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
------------------------------------------------------------------------------------------
YEAR ENDED MAY 31,
-----------------------------------------------------------------------------------------
1998 1997 1996(B) 1995(B) 1994(B) 1993(B) 1992(B) 1991(B)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 21.30 $ 21.74 $ 18.44 $ 18.75 $ 15.34 $12.62 $11.95 $12.62
------- ------- ------- ------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)................. (.20) (.14) .05(c) -- (.03)(c) .10(c) .02 (.03)
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions........... 1.37 1.45 3.34 (.21) 3.83 2.62 .65 (.64)
------- ------- ------- ------- ------- ------ ------ ------
Total from investment
operations............. 1.17 1.31 3.39 (.21) 3.80 2.72 .67 (.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.. (6.65) (1.75) -- (.02) (.24) -- -- --
------- ------- ------- ------- ------- ------ ------ ------
Total distributions..... (6.65) (1.75) (.09) (.10) (.39) -- -- --
------- ------- ------- ------- ------- ------ ------ ------
Net asset value, end of
period................. $ 15.82 $ 21.30 $ 21.74 $ 18.44 $ 18.75 $15.34 $12.62 $11.95
======= ======= ======= ======= ======= ====== ====== ======
TOTAL RETURN(D): ....... 9.81% 6.74% 18.41% (0.95)% 25.09% 21.55% 5.61% (5.31)%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)........... $47,259 $57,032 $47,617 $44,051 $29,221 $3,435 $3,829 $4,059
Average net assets
(000).................. $50,309 $47,563 $45,070 $32,430 $16,909 $3,106 $3,771 $2,569
Ratios to average net
assets:
Expenses, including
distribution fees...... 1.88% 1.78% 1.79%(c) 1.42%(c) 1.48%(c) 1.49%(c) 1.50%(c) 2.72%
Expenses, excluding
distribution fees...... 1.63% 1.53% 1.54%(c) 1.17%(c) 1.25%(c) 1.29%(c) 1.30%(c) 2.52%
Net investment income
(loss)................. (.71)% (.49)% 0.26%(c) 0.02%(c) (0.17)%(c) 0.79%(c) 0.19%(c) (0.61)%
Portfolio turnover rate. 198% 60% 44% 64% 31% 67% 57% 95%
Average commission rate
per share.............. $0.0112(f) $ 0.0116 $ 0.0090 N/A N/A N/A N/A N/A
<CAPTION>
JANUARY 22,
1990(A)
THROUGH
MAY 31,
1990(B)
-----------------
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $12.41
-----------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)................. (.04)
Net realized and
unrealized gain (loss)
on investment and
foreign currency
transactions........... .25
-----------------
Total from investment
operations............. .21
-----------------
LESS DISTRIBUTIONS
Dividends from net
investment income...... --
Dividends in excess of
net investment income.. --
Distributions from net
realized gains on
investment and foreign
currency transactions.. --
-----------------
Total distributions..... --
-----------------
Net asset value, end of
period................. $12.62
=================
TOTAL RETURN(D): ....... 1.69%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)........... $2,137
Average net assets
(000).................. $1,204
Ratios to average net
assets:
Expenses, including
distribution fees...... 3.90%(c)(e)
Expenses, excluding
distribution fees...... 3.70%(c)(e)
Net investment income
(loss)................. (1.71)%(c)(e)
Portfolio turnover rate. 72%
Average commission rate
per share.............. 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.
(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.
(f) Unaudited.
6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)
The following financial highlights for each of the fiscal years in the five
year period ended May 31, 1998, have been audited by PricewaterhouseCoopers
LLP, independent accountants, whose reports thereon were 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
----------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996(A) 1995(A) 1994(A) 1993(A) 1992(A) 1991(A)
-------- -------- -------- -------- -------- ------- ------- -------
<CAPTION>
1990(A)(D) 1989(A)
-------------- ------------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 20.18 $ 20.87 $ 17.84 $ 18.22 $ 14.93 $ 12.38 $ 11.82 $ 12.58
-------- -------- -------- -------- -------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income (loss)... (.26) (.33) (.09)(b) (.13)(b) (.16)(b) -- (.07) (.15)
Net realized and
unrealized gain
(loss) on
investment and
foreign currency
transactions.... 1.20 1.39 3.21 (.19) 3.74 2.55 .63 (.61)
-------- -------- -------- -------- -------- ------- ------- -------
Total from
investment
operations...... .94 1.06 3.12 (.32) 3.58 2.55 .56 (.76)
-------- -------- -------- -------- -------- ------- ------- -------
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.... (6.65) (1.75) -- (.03) (.24) -- -- --
-------- -------- -------- -------- -------- ------- ------- -------
Total
distributions... (6.65) (1.75) (.09) (.06) (.29) -- -- --
-------- -------- -------- -------- -------- ------- ------- -------
Net asset value,
end of period... $ 14.47 $ 20.18 $ 20.87 $ 17.84 $ 18.22 $ 14.93 $ 12.38 $ 11.82
======== ======== ======== ======== ======== ======= ======= =======
TOTAL
RETURN(C): ..... 9.04 % 5.83 % 17.51 % (1.73)% 24.16 % 20.60 % 4.74 % (6.04)%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period (000). $ 83,669 $120,067 $155,292 $153,670 $174,659 $36,136 $35,644 $40,200
Average net
assets (000).... $101,836 $133,073 $154,566 $173,591 $102,451 $31,561 $37,236 $37,689
Ratios to average
net assets:
Expenses,
including
distribution
fees........... 2.63 % 2.53 % 2.54%(b) 2.17 %(b) 2.25 %(b) 2.29 %(b) 2.30%(b) 3.48 %
Expenses,
excluding
distribution
fees........... 1.63 % 1.53 % 1.54%(b) 1.17 %(b) 1.25 %(b) 1.29 %(b) 1.30 %(b) 2.48 %
Net investment
income (loss).. (1.48)% (1.26)% (0.48)%(b) (0.77)%(b) (0.91)%(b) (0.01)%(b) (0.57)%(b) (1.45)%
Portfolio
turnover rate... 198 % 60 % 44 % 64 % 31 % 67 % 57 % 95 %
Average
commission rate
per share....... $ 0.0112(e) $ 0.0116 $ 0.0090 N/A N/A N/A N/A N/A
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 12.28 $ 10.80
-------------- ------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income (loss)... (.14) (.13)
Net realized and
unrealized gain
(loss) on
investment and
foreign currency
transactions.... 1.30 1.74
-------------- ------------
Total from
investment
operations...... 1.16 1.61
-------------- ------------
LESS
DISTRIBUTIONS
Dividends from
net investment
income.......... -- --
Dividends in
excess of net
investment
income.......... -- --
Distributions
paid to
shareholders
from net
realized gains
on investment
and foreign
currency
transactions.... (.86) (.13)
-------------- ------------
Total
distributions... -- --
-------------- ------------
Net asset value,
end of period... $ 12.58 $ 12.28
============== ============
TOTAL
RETURN(C): ..... 9.72 % 15.10 %
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period (000). $39,868 $13,254
Average net
assets (000).... $26,161 $11,495
Ratios to average
net assets:
Expenses,
including
distribution
fees........... 3.66 %(b) 3.52 %(b)
Expenses,
excluding
distribution
fees........... 2.70 %(b) 2.52 %(b)
Net investment
income (loss).. (1.76)%(b) (1.18)%(b)
Portfolio
turnover rate... 72 % 60 %
Average
commission rate
per share....... N/A N/A
</TABLE>
- -----------
(a) Calculated based upon average shares outstanding, by class.
(b) Net of expense subsidies and/or fee waivers.
(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) On September 27, 1989, Prudential Mutual Fund Management, Inc. succeeded
The Prudential Insurance Company of America as Manager of the Fund.
(e) Unaudited.
7
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS C SHARES)
The following financial highlights have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose reports thereon
were 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 MAY 31, THROUGH
---------------------------- MAY 31,
1998 1997 1996(B) 1995(B)
------- ------- ------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 20.18 $ 20.87 $ 17.84 $18.44
------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss).................... (.26) (.27) (.08)(c) (.12)(c)
Net realized and unrealized
gain (loss) on
investment and foreign
currency
transactions.............. 1.20 1.33 3.20 (.44)
------- ------- ------- ------
Total from investment
operations................ .94 1.06 3.12 (.56)
------- ------- ------- ------
LESS DISTRIBUTIONS
Dividends from net
investment income......... -- -- -- --
Dividends in excess of net
investment
income.................... -- -- (.09) (.03)
Distributions from net
realized gains on
investment and
foreign currency
transactions.............. (6.65) (1.75) -- (.01)
------- ------- ------- ------
Total distributions........ (6.65) (1.75) (.09) (.04)
------- ------- ------- ------
Net asset value, end of
period.................... $ 14.47 $ 20.18 $ 20.87 $17.84
======= ======= ======= ======
TOTAL RETURN(D): .......... 9.04% 5.83% 17.51% (2.90)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $ 1,234 $ 1,874 $ 2,275 $1,307
Average net assets (000)... $ 1,739 $ 1,958 $ 1,809 $ 862
Ratios to average net
assets:
Expenses, including
distribution fees........ 2.63% 2.53% 2.54%(c) 2.27%(c)(e)
Expenses, excluding
distribution fees........ 1.63% 1.53% 1.54%(c) 1.27%(c)(e)
Net investment income
(loss)................... (1.43)% (1.24)% (0.44)%(c) (0.90)%(c)(e)
Portfolio turnover rate.... 198% 60% 44% 64%
Average commission rate per
share..................... $0.0112(f) $0.0116 $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.
(f) Unaudited.
8
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS Z SHARES)
The following financial highlights have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose reports thereon
were 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 Z share of common stock outstanding, total return, ratios to average net
assets and other supplemental data for the period 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 Z
----------------------
SEPTEMBER
13,
1996(A)
YEAR ENDED THROUGH
MAY 31, MAY 31,
1998 1997
---------- ---------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period................ $ 21.39 $20.46
------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss)........................ (.38) .03
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions....................................... 1.65 2.65
------- ------
Total from investment operations.................... 1.27 2.68
------- ------
LESS DISTRIBUTIONS
Dividends from net investment income................ -- --
Dividends in excess of net investment
income............................................. -- --
Distributions from net realized gains on investment
and
foreign currency transactions...................... (6.65) (1.75)
------- ------
Total distributions................................. (6.65) (1.75)
------- ------
Net asset value, end of period...................... $ 16.01 $21.39
======= ======
TOTAL RETURN(B): ................................... 10.22% 13.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $ 768 $ 603
Average net assets (000)............................ $ 662 $ 188
Ratios to average net assets:
Expenses........................................... 1.63% 1.53%(c)
Net investment income (loss)....................... (.43)% (.87)%(c)
Portfolio turnover rate............................. 198% 60%
Average commission rate per share................... $0.0112(d) $.0116
</TABLE>
- -----------
(a) Commencement of offering of Class Z shares.
(b) 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.
(c) Annualized.
(d) Unaudited.
9
<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
STOCK, COMMON STOCK EQUIVALENTS AND OTHER EQUITY RELATED SECURITIES OF SMALLER
FOREIGN AND DOMESTIC COMPANIES. EQUITY RELATED SECURITIES INCLUDE PREFERRED
STOCK, RIGHTS, WARRANTS AND DEBT SECURITIES OR PREFERRED STOCK WHICH ARE
CONVERTIBLE OR EXCHANGEABLE FOR COMMON STOCK OR PREFERRED STOCK AND MASTER
LIMITED PARTNERSHIPS, AMONG OTHERS. 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). INVESTMENT 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.
As with an investment in any mutual fund, an investment in this Fund can
decrease in value and you can lose money.
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 $1.5 billion (or a
corresponding market capitalization in foreign markets), measured at the time
of initial purchase. The Manager and Subadviser will periodically review and
revise the capitalization requirements of smaller companies as circumstances
may require, subject to the approval of the Fund's Board of Directors.
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
10
<PAGE>
from security to security. The Fund may also hold up to 15% of its net assets
in restricted securities or other securities that have a limited market. See
"Other Investments and Policies--Illiquid Securities" below.
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 "Risk Factors and Special Considerations of Investing in
Foreign Securities" below.
THE FUND INTENDS TO INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN COMMON STOCK,
COMMON STOCK EQUIVALENTS AND OTHER EQUITY RELATED 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 RELATED SECURITIES OF OTHER COMPANIES, DEBT SECURITIES
(INCLUDING MONEY MARKET INSTRUMENTS) OF FOREIGN AND DOMESTIC COMPANIES,
FUTURES CONTRACTS ON FINANCIAL 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, FINANCIAL
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 (which during periods
of market volatility could be for an extended period of time), 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, Inc. (Moody's),
respectively, or commercial paper rated at least A-2 or Prime-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 or BBB by S&P, although considered
to be investment grade, lack outstanding investment characteristics and, in
fact, have speculative characteristics. See "Description of Security Ratings"
in the Appendix to the Statement of Additional Information.
11
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS 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 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.
ALTHOUGH THE FUND INTENDS TO INVEST PRIMARILY IN COMMON STOCK, COMMON STOCK
EQUIVALENTS AND OTHER EQUITY RELATED 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. In the
event of default of any such foreign debt obligations, it may be more
difficult for the Fund to obtain or enforce a judgment against the issuers of
such securities.
ADDITIONAL COSTS COULD BE INCURRED IN CONNECTION WITH THE FUND'S
INTERNATIONAL INVESTMENT ACTIVITIES. Foreign brokerage commissions are
generally higher than United States brokerage commissions. Increased custodian
costs as well as administrative difficulties (such as the applicability of
foreign laws to foreign custodians in various circumstances) may be associated
with the maintenance of assets in foreign jurisdictions.
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 amount
of such currency 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.
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.
12
<PAGE>
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING DERIVATIVE
TRANSACTIONS, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE RETURN. THESE STRATEGIES CURRENTLY INCLUDE THE USE OF OPTIONS, FORWARD
CURRENCY EXCHANGE CONTRACTS AND FUTURES CONTRACTS AND OPTIONS THEREON. The
Fund, and thus investors, may lose money through any unsuccessful use of these
strategies. The Fund's ability to use these strategies may be limited by
market conditions, regulatory limits and tax considerations and there can be
no assurance that any of these strategies will succeed. See "Investment
Objective and Policies" and "Taxes, Dividends and Distributions" 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 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 to the purchaser,
depending upon the terms of the option contract, the underlying securities or
currency upon receipt of the exercise price or a specified amount of cash.
When the Fund writes a call option, it gives up the potential for gain on the
underlying securities or currency in excess of the exercise price of the
option during the period that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price or deliver a specified amount of cash to the purchaser. 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, as long
as the Fund is obligated under the option (i), it owns an offsetting position
in the underlying security or currency or (ii) segregates cash or other liquid
assets in an amount equal to or greater than its obligation under the option.
There is no limitation on the amount of call options the Fund may write. See
"Investment Objective and Policies--Options Transactions" in the Statement of
Additional Information.
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
13
<PAGE>
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 (including cross hedges) with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of foreign currency) of the
securities held in its portfolio denominated or quoted in, or currently
convertible into, such currency. See "Investment Objective and Policies--Risks
Related to Forward Foreign 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, RISK MANAGEMENT AND RETURN ENHANCEMENT PURPOSES IN ACCORDANCE
WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. The Fund, and
thus investors, may lose money through any unsuccessful use of these
strategies. 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 European economic cooperative organization.) 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,
REQUIRES SKILLS AND TECHNIQUES DIFFERENT FROM THOSE USED IN SELECTING
PORTFOLIO SECURITIES AND IS SUBJECT TO VARIOUS ADDITIONAL RISKS. 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 AND CLOSE OUT 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, Dividends and Distributions" 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. The Fund, and thus
investors, may lose money through any unsuccessful 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
14
<PAGE>
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities; (4)
the possible absence of a liquid secondary market for any particular
instrument at any time; (5) the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences; and (6) the possible
inability of the Fund to purchase or sell a portfolio security at a time that
otherwise would be favorable for it to do so, or the possible need for the
Fund to sell a portfolio security at a disadvantageous time, due to the need
for the Fund to maintain "cover" or to segregate securities in connection with
hedging transactions. See "Investment Objective and Policies" and "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. The Fund's Custodian will segregate cash or other liquid assets
having a value equal to or greater than the Fund's purchase commitments. The
securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during the period between purchase and settlement. At
the time of delivery of the securities, the value may be more or less than the
purchase price and an increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of the Fund's net asset value. See
"Investment Objective and Policies--When-Issued and Delayed Delivery
Securities" in the Statement of Additional Information.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The 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
Investments Fund Management LLC pursuant to an order of the Securities and
Exchange Commission (SEC). See "Investment Objective and Policies--Repurchase
Agreements" in the Statement of Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets or secures an
irrevocable letter of credit in favor of the Fund in an amount equal to at
least 100%, determined daily, of the market value of the securities loaned
which are segregated pursuant to applicable regulations. During the time
portfolio securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividend or interest paid on such securities and the Fund
may invest the cash collateral and earn additional income, or it may receive
an agreed upon amount of interest income from the borrower. As a matter of
fundamental policy, the Fund will not lend more than 30% of the value of its
total assets. The Fund may pay reasonable administration and custodial fees in
connection with a loan. See "Investment Objective and Policies--Lending of
Portfolio Securities" in the Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and
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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. See "Investment
Objective and Policies--Illiquid Securities" in the Statement of Additional
Information. Repurchase agreements subject to demand are deemed to have a
maturity equal to the applicable notice period.
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. If
the Fund borrows to invest in securities, any investment gains made on the
securities in excess of interest paid on the borrowing will cause the net
asset value of the shares to rise faster than would otherwise be the case. On
the other hand, if the investment performance of the additional securities
purchased fails to cover their cost (including any interest paid on the money
borrowed) to the Fund, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case. This is the speculative factor known
as "leverage." See "Investment Restrictions" in the Statement of Additional
Information.
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 (over 100%) 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, 1998, the Fund's total expenses as a
percentage of average net assets for the Fund's Class A, Class B, Class C and
Class Z shares were 1.88%, 2.63%, 2.63% and 1.63%, respectively. See
"Financial Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN
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ANNUAL RATE OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS. PIFM IS ORGANIZED IN
NEW YORK AS A LIMITED LIABILITY COMPANY. The Fund paid management fees to PIFM
of 1.00% of the Fund's average daily net assets during the fiscal year ended
May 31, 1998. See "Manager" in the Statement of Additional Information.
As of June 30, 1998, PIFM served as the manager to 45 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 $66.8 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI), PI THROUGH A
SUB-INVESTMENT MANAGEMENT AGREEMENT WITH PRICOA ASSET MANAGEMENT LTD. (PRICOA
AND COLLECTIVELY WITH PI, THE INVESTMENT ADVISER OR THE SUBADVISER), FURNISHES
INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND. PI
reimburses PRICOA, and PIFM reimburses PI, for its reasonable costs and
expenses incurred in providing such services. PIFM continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises the investment adviser's performance of such
services.
The Fund is advised by an investment unit of Prudential Investments which is
comprised of 44 investment professionals regionally based in Japan, Europe,
North America and Southeast Asia and provides investment management services
to institutional clients. The Japanese, North American and Southeast Asia
teams are employed by subsidiaries of PI; the European team is employed by
PRICOA. As of June 30, 1998, this unit had approximately $858.6 million of the
$3,444,400 total assets under management dedicated to investing primarily in
small capitalized companies; The unit also invests in larger companies in
certain regions (principally emerging markets). Stephen F. Auth heads the
unit, oversees the investment process and manages the overall regional and
country allocations of the Fund. Mr. Auth has been employed by PI as a
portfolio manager since 1985. The regional investment teams perform intensive
local research on the companies they select using a disciplined selection
system to help portfolio managers navigate successfully in markets
characterized by significant earnings and price volatilities.
PIFM, PI and PRICOA are indirect, wholly-owned subsidiaries of The
Prudential Insurance Company of America (Prudential), a major diversified
insurance and financial services company.
DISTRIBUTOR
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (THE DISTRIBUTOR), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS A LIMITED
LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE THAT
SERVES AS THE DISTRIBUTOR OF THE CLASS A, CLASS B, CLASS C AND CLASS Z SHARES
OF THE FUND. IT IS A WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL. PRUDENTIAL
SECURITIES INCORPORATED (PRUDENTIAL SECURITIES, ALSO REFERRED TO AS THE
DISTRIBUTOR) ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, SERVED AS THE
DISTRIBUTOR OF FUND SHARES PRIOR TO JULY 1, 1998. 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), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING
THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. THE DISTRIBUTOR ALSO INCURS
THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS Z SHARES UNDER THE DISTRIBUTION
AGREEMENT, NONE OF WHICH IS REIMBURSED OR PAID FOR BY THE FUND. These expenses
include commissions and account servicing fees paid to, or on account of,
Dealers or financial institutions which have entered into agreements with the
Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of the
Distributor associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
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Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
The distribution and/or service fees may also be used by the Distributor to
compensate Dealers on a continuing basis in consideration for the
distribution, marketing, administrative and other services and activities
provided by Dealers with respect to the promotion of the sale of the Fund's
shares and the maintenance of related shareholder accounts.
UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL
RATE OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES.
The Class A Plan provides that (i) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service and/or
the maintenance of shareholder accounts (service fee) and (ii) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30
of 1% of the average daily net assets of the Class A shares. The Distributor
has voluntarily limited its distribution-related fees payable under the Class
A Plan to .25 of 1% of the average daily net assets of the Class A shares.
This voluntary waiver may be terminated at any time without notice.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES AT
AN ANNUAL RATE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE
CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for the
payment to the Distributor of (i) an asset-based sales charge of .75 of 1% of
the average daily net assets of each of the Class B and Class C shares and
(ii) a service fee of .25 of 1% of the average daily net assets of each of the
Class B and Class C shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. The Distributor also
receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
For the fiscal year ended May 31, 1998, 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 Class A, Class B and Class
C shares of the Fund will be allocated to each such class based upon the ratio
of sales of each such class to the sales of Class A, Class B or Class C shares
of the Fund other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize
the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each
Plan may be terminated at any time by vote of a majority of the Rule 12b-1
Directors or of a majority of the outstanding shares of the applicable class
of the Fund. The Fund will not be obligated to pay distribution and service
fees incurred under any Plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to Dealers and other persons which
distribute shares of the Fund (including Class Z shares). Such payments may be
calculated by reference to the net asset value of shares sold by such persons
or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
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FEE WAIVERS AND SUBSIDY
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has voluntarily waived a portion of its distribution fee for
the Class A shares as described under "Distributor." Fee waivers and expense
subsidies will increase the Fund's total return. The voluntary waivers or
subsidies may be terminated at any time without notice. See "Performance
Information" in the Statement of Additional Information and "Fund Expenses"
above.
PORTFOLIO TRANSACTIONS
Affiliates of the Distributor may also act as brokers or futures commission
merchants 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 LLC (the Transfer Agent), 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. The Transfer Agent is a wholly-owned subsidiary of PIFM. Its mailing
address is P.O. Box 15005, New Brunswick, New Jersey 08906-5005.
YEAR 2000
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund,
the Manager, Distributor, the Transfer Agent and the Custodian have advised
the Fund that they have been actively working on necessary changes to their
computer systems to prepare for the year 2000 and expect that their systems,
and those of outside service providers, will be adapted in time for that
event.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
BOARD OF DIRECTORS HAS FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF
THE FUND'S NET ASSET VALUE TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, or, if such quotations are deemed not representative of
fair value, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. For valuation purposes,
quotations of foreign securities in a foreign currency are converted to U.S.
dollar equivalents. See "Net Asset Value" in the Statement of Additional
Information.
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The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject. The NAV of Class
Z shares will generally be higher than the NAV of the other three classes
because Class Z shares are not subject to any distribution and/or service
fees. It is expected, however, that the NAV of the four classes will tend to
converge immediately after the recording of dividends, if any, which will
differ by approximately the amount of the distribution and/or service fee
expense accrual differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS 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, CLASS C AND CLASS Z SHARES. These figures are based on historical
earnings and are not intended to indicate future performance. The total return
shows how much an investment in the Fund would have increased (decreased) over
a specified period of time (i.e., one, five or ten years or since inception of
the Fund) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. The aggregate total return reflects actual performance over a stated
period of time. Average annual total return is a hypothetical rate of return
that, if achieved annually, would have produced the same aggregate total
return if performance had been constant over the entire period. Average annual
total return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average
annual total return nor aggregate total return takes into account any federal
or state income taxes which may be payable upon redemption. The yield refers
to the income generated by an investment in the Fund over a one-month or 30-
day period. This income is then annualized; that is, the amount of income
generated by the investment during that 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage
of the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period. The Fund also may include
comparative performance information in advertising or marketing the Fund's
shares. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., other industry publications,
business periodicals and market indices. See "Performance Information" in the
Statement of Additional Information. Further performance information is
contained in the Fund's annual and semi-annual reports to shareholders, which
may be obtained without charge. See "Shareholder Guide--Shareholder Services--
Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE
FUND WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME
AND NET CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See
"Taxes, Dividends and Distributions" in the Statement of Additional
Information.
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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, Dividends and Distributions" 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, Dividends and Distributions" 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 own mostly
passive assets or derive 75% or more 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, Dividends and
Distributions" in the Statement of Additional Information.
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 and properly
designated by the Fund, 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.
Both regular and capital gains dividends are taxable to shareholders in the
year in which received, whether they are received in cash or in additional
shares. In addition, certain dividends declared by the Fund will be treated as
received by shareholders on December 31 of the year the dividends are
declared. This rule applies to dividends declared by the Fund in October,
November or December of a calendar year, payable to shareholders of record on
a date in any such month, if such dividends are paid during January of the
following calendar year.
Dividends 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. 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.
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.
Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
take into account certain sales charges incurred in acquiring such shares for
purposes of calculating gain or loss realized upon a sale or exchange of
shares of the Fund.
Distributions by the Fund to a shareholder that is a qualified retirement
plan would generally not be taxable to participants in the plan. Distributions
from a qualified retirement plan (or non-qualified arrangement) to a
participant or beneficiary are subject to special rules. These rules vary
greatly with individual situations; therefore, potential investors are urged
to consult with their own tax advisors.
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The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of certain shareholders who fail to furnish their
correct tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the
case of certain foreign shareholders) with the required certifications
regarding the shareholder's status under the federal income tax law.
Withholding at this rate is also required from dividends and capital gains
distributions (but not redemption proceeds) payable to shareholders who are
otherwise subject to backup withholding. Dividends of net investment income
and short-term capital gains paid to a foreign shareholder will generally be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate).
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes, Dividends
and Distributions" in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, 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 (other than Class Z) will bear its own distribution
charges, generally resulting in lower dividends for Class B and Class C shares
in relation to Class A and Class Z shares and lower dividends for Class A
shares in relation to Class Z shares. Distributions of net capital gains, if
any, will be paid in the same amount per share for each class of shares. See
"How the Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS
THAN FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services LLC, Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis.
IF YOU BUY SHARES ON OR IMMEDIATELY BEFORE THE RECORD DATE (THE DATE THAT
DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING
OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.
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 CONSISTING 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 (except for Class
Z shares, which are not subject to any sales charges and distribution and/or
service fees), which may affect performance, (ii) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to
its arrangement and has separate voting rights on any matter submitted to
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shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv)
only Class B shares have a conversion feature and (v) Class Z shares are
offered exclusively for sale to a limited group of investors. See "How the
Fund is Managed--Distributor." In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series and classes within such series, with such preferences, privileges,
limitations and voting and dividend rights as the Board of Directors may
determine. Currently, the Fund is offering four classes, designated Class A,
Class B, Class C and Class Z 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 (with the
exception of Class Z shares, which are not subject to any distribution or
service fees) bears the expenses related to the distribution of its shares.
Except for the conversion feature applicable to the Class B shares, there are
no conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debt and expenses of the Fund have been
paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of
those classes are likely to be lower than to Class A shareholders and to Class
Z shareholders, whose Class Z shares are not subject to any distribution
and/or service fees. The Fund's shares do not have cumulative voting rights
for the election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF
THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the Commission
under the Securities Act of 1933. Copies of the Registration Statement may be
obtained at a reasonable charge from the Commission or may be examined,
without charge, at the office of the Commission in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH THE DISTRIBUTOR, THROUGH
DEALERS, INCLUDING PRUDENTIAL SECURITIES OR PRUSEC, OR DIRECTLY FROM THE FUND,
THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR THE
TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES, P.O. BOX 15020, NEW
BRUNSWICK, NEW JERSEY 08906-5020. Participants in programs sponsored by
Prudential Retirement Services should contact their client representative for
more information about Class Z shares. The purchase price is the NAV next
determined following receipt of an order in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Distributor, your Dealer or the Transfer Agent plus a sales
charge which, at your option, may be imposed either (i) at the time of
purchase (Class A shares) or (ii) on a deferred basis (Class B or Class C
shares). Class Z shares are offered to a limited group of investors at net
asset value without any sales charge. Payment may be made by wire, check or
through your brokerage account. See "Alternative Purchase Plan" below. See
also "How the Fund Values its Shares."
23
<PAGE>
The minimum initial investment is $1,000 for Class A and Class B shares and
$5,000 for Class C shares, except that the minimum initial investment for
Class C shares may be waived from time to time. There is no minimum investment
requirement for Class Z shares. The minimum subsequent investment is $100 for
all classes, except for Class Z shares, for which there is no such minimum.
All minimum investment requirements are waived for certain retirement and
employee savings plans or custodial accounts for the benefit of minors. For
purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below.
Application forms can be obtained from the Transfer Agent or the
Distributor. 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 placement of the
order.
Dealers may charge their customers a separate fee for processing purchases
and redemptions. In addition, transactions in Fund shares may be subject to
postage and handling charges imposed by your Dealer. Any such charges are
retained by the Dealer and are not remitted to the Fund.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone the Transfer Agent at (800) 225-
1852 (toll-free) to receive an account number. The following information will
be requested: your name, address, tax identification number, 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 the Transfer Agent and your name and identifying the class
in which you are eligible to invest (Class A, Class B, Class C or Class Z
shares).
If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Global Genesis
Fund, Inc., Class A, Class B, Class C or Class Z shares and your name and
individual account number. It is not necessary to call the Transfer Agent to
make subsequent purchase orders utilizing federal funds. The minimum amount
which may be invested by wire is $1,000.
24
<PAGE>
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THROUGH THIS PROSPECTUS FOUR CLASSES OF SHARES (CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST
BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE
AMOUNT OF THE PURCHASE, THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND
OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------------- -------------------------- --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% 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 CDSC of 5% of the lesser of 1% Shares convert to Class A shares
the amount invested or the redemption approximately seven years after
proceeds; declines to zero after six purchase
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
CLASS Z None None Sold to a limited group of investors
</TABLE>
The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of the Class Z shares, which are not subject to any
distribution or service fees) is subject to different sales charges and
distribution and/or service fees, which may affect performance, (ii) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interest of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"How to Exchange Your Shares" below. The income attributable to each class and
the dividends payable on the shares of each class will be reduced by the
amount of the distribution fee (if any) of each class. Class B and Class C
shares bear the expenses of a higher distribution fee which will generally
cause them to have higher expense ratios and to pay lower dividends than the
Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
25
<PAGE>
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.
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 NAV, the effect of the return
on the investment over this period of time or redemptions when the CDSC is
applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See "Class
A Shares--Reduction and Waiver of Initial Sales Charges" and "Class Z Shares"
below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
The Distributor may reallow the entire sales charge to Dealers. Dealers may
be deemed to be underwriters, as that term is defined under the federal
securities laws. The Distributor reserves the right, without prior notice to
any Dealer, to suspend or eliminate Dealer concessions or commissions.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
may pay Dealers, financial advisers and other persons which distribute shares
a finders' fee from its own resources based on a percentage of the NAV of
shares sold by such persons.
26
<PAGE>
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 (collectively, Benefit Plans), provided that the Benefit Plan has
existing assets of at least $1 million invested in shares of Prudential Mutual
Funds (excluding money market funds other than those acquired pursuant to the
exchange privilege) or 250 eligible employees or participants. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent 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 Prudential Securities or its
subsidiaries (Prudential Securities or Subsidiary Prototype Benefit Plans),
Class A shares may be purchased at NAV by participants who are repaying loans
made from such plans to the participant.
Prudential Retirement Programs. 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, for which Prudential serves as the
plan administrator or recordkeeper, provided that (i) the plan has at least $1
million in existing assets or 250 eligible employees and (ii) the Fund is an
available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 or
403(b)(7) of the Internal Revenue Code and plans that participate in the
Transfer Agent's PruArray and SmartPath Programs (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan). All plans
of a company for which Prudential serves as plan administrator or recordkeeper
are aggregated in meeting the $1 million threshold. The term "existing assets"
as used herein includes stock issued by a plan sponsor, shares of Prudential
Mutual Funds and shares of certain unaffiliated mutual funds that participate
in the PruArray or Smart Path Program (Participating Funds). "Existing assets"
also include monies invested in The Guaranteed Interest Account (GIA), a group
annuity insurance product issued by Prudential, and units of The Stable Value
Fund (SVF), an unaffiliated bank collective fund. Class A shares may also be
purchased at NAV by plans that have monies invested in GIA and SVF, provided
(i) the purchase is made with the proceeds of a redemption from either GIA or
SVF and (ii) Class A shares are an investment option of the plan.
PruArray Association Benefit Plans. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are
members of a common trade, professional or membership association
(Association) that participate in the PruArray Program provided that the
Association enters into a written agreement with Prudential. Such Benefit
Plans or non-qualified plans may purchase Class A shares at NAV without regard
to the assets or number of participants in the individual employer's qualified
Plan(s) or non-qualified plans so long as the employers in the Association (i)
have retirement plan assets in the aggregate of at least $1 million or 250
participants in the aggregate and (ii) maintain their accounts with the
Transfer Agent.
PruArray Savings Program. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for
purchase at NAV by Individual Retirement Accounts and Savings Accumulation
Plans of the company's employees. The Program is available only to (i)
employees who open an IRA or Savings Accumulation Plan account with the
Transfer Agent and (ii) spouses of employees who open an IRA account with the
Transfer Agent. The program is offered to companies that have at least 250
eligible employees.
27
<PAGE>
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
the Distributor or the Transfer Agent, by the following persons: (a) officers
of the Prudential Mutual Funds (including the Fund), (b) employees of the
Distributor, Prudential Securities, PIFM and their subsidiaries and members of
the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees of subadvisers of
the Prudential Mutual Funds provided that such purchases at NAV are permitted
by such person's employer, (d) Prudential, employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of its subsidiaries, (e) registered
representatives and employees of Dealers who have entered into a selected
dealer agreement with the Distributor, provided that purchases at NAV are
permitted by such person's employer, (f) investors 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, non-money
market fund sponsored by the financial adviser's previous employer (other than
a fund which imposes a distribution or service fee of .25 of 1% or less) and
(iii) the financial adviser served as the client's broker on the previous
purchase, (g) investors in Individual Retirement Accounts, provided the
purchase is made with the proceeds of a tax-free, rollover of assets from a
Benefit Plan for which Prudential Investments serves as the recordkeeper or
administrator, (h) orders placed by broker-dealers, investment advisers or
financial planners who have entered into an agreement with the Distributor,
who place trades for their own accounts or the accounts of their clients and
who charge a management, consulting or other fee for their services (e.g.
mutual fund "wrap" or asset allocation programs), and (i) orders placed by
clients of broker-dealers, investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such broker-dealer, investment adviser or financial planner on the books
and records of broker-dealer, investment adviser or financial planner (e.g.
mutual fund "supermarket programs").
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the Dealer
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation
of your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, the Distributor or your Dealer.
Although there is no sales charge imposed at the time of purchase, redemptions
of Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." The Distributor will pay, from its
own resources, sales commissions of up to 4% of the purchase price of Class B
shares to dealers, financial advisers and other persons who sell Class B
shares at the time of sale from its own resources. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it
will recoup its advancement of sales commissions from the combination of the
CDSC and the distribution fee. See "How the Fund is Managed--Distributor." In
connection with the sale of Class C shares, the Distributor will pay, from its
own resources, dealers, financial advisers and other persons which distribute
Class C shares as sales commission of up to 1% of the purchase price at the
time of the sale.
PruArray or SmartPath Plans. The CDSC will be waived on redemptions of Class
C shares by qualified and non-qualified retirement and deferred compensation
plans that participate in the Transfer Agent's PruArray and SmartPath
Programs.
28
<PAGE>
CLASS Z SHARES
Class Z shares of the Fund are currently available for purchase by the
following categories of investors:
(i) pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code, deferred compensation and annuity
plans under Sections 457 and 403(b)(7) of the Internal Revenue Code and non-
qualified plans for which the Fund is an available option (collectively,
Benefit Plans), provided such Benefit Plans (in combination with other plans
sponsored by the same employer or group of related employers) have at least
$50 million in defined contribution assets; (ii) participants in any fee-based
program or trust program sponsored by an affiliate of the Distributor which
includes mutual funds as investment options and for which the Fund is an
available option; (iii) certain participants in the MEDLEY Program (group
variable annuity contracts) sponsored by an affiliate of the Distributor for
whom Class Z shares of the Prudential Mutual Funds are an available investment
option; (iv) Benefit Plans for which an affiliate of the Distributor serves as
recordkeeper and that, as of September 20, 1996, (a) were Class Z shareholders
of the Prudential Mutual Funds or (b) executed a letter of intent to purchase
Class Z shares of the Prudential Mutual Funds; (v) current and former
Directors/Trustees of the Prudential Mutual Funds (including the Fund); (vi)
employees of Prudential and/or Prudential Securities who participate in an
employer-sponsored employee savings plan and (vii) Prudential with an
investment of $10 million or more. After a Benefit Plan qualifies to purchase
Class Z shares, all subsequent purchases will be for Class Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay Dealers, financial advisers and other
persons which distribute shares a finders' fee from its own resources, based
on a percentage of the net asset value of shares sold by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM (IN
ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN CONNECTION
WITH INVESTORS' ACCOUNTS) BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER. SEE "HOW THE FUND VALUES ITS SHARES." In certain cases, however,
redemption proceeds will be reduced by the amount of any applicable CDSC, as
described in "Contingent Deferred Sales Charges" below. If you are redeeming
your shares through a Dealer, your Dealer must receive your sell order before
the Fund computes its NAV for that day (i.e., 4:15 p.m., New York time) in
order to receive that day's NAV. Your Dealer will be responsible for
furnishing all necessary documentation to the Distributor and may charge you
for its services in connection with redeeming shares of the Fund.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES FINANCIAL ADVISOR.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR
DEALER IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS
REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE
OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH
REQUEST WILL BE ACCEPTED. All correspondence and documents concerning
redemptions should be sent to the Fund in care of the Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010, the Distributor or to your
Dealer.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation,
29
<PAGE>
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. In the case of
redemptions from a PruArray or Smart Path Plan, if the proceeds of the
redemption are invested in another investment option of the plan, in the name
of the record holder and at the same address as reflected in the Transfer
Agent's records, a signature guarantee is not required.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER
OF THE CERTIFICATE AND/OR WRITTEN REQUEST, EXCEPT AS INDICATED BELOW. IF YOU
HOLD SHARES THROUGH A DEALER, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL
BE CREDITED TO YOUR ACCOUNT AT YOUR DEALER, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the Commission, by order, so permits;
provided that applicable rules and regulations of the Commission shall govern
as to whether the conditions 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, WHICH MAY TAKE 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 CASHIER'S 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 Commission. Securities will be readily marketable and
will be valued in the same manner as a regular redemption. See "How the Fund
Values its Shares." If your shares are redeemed in kind, you 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 NAV of the Fund during any 90-day period for any one
shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a NAV of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No CDSC will be imposed
on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will
be credited (in shares) to your account. (If less than a full repurchase is
made, the credit will be on a pro rata basis.) You must notify the Transfer
Agent, either directly or through the Distributor or your Dealer, 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
30
<PAGE>
upon redemption. However, if the redemption was made within a 30 day period of
the repurchase and if the redemption resulted in a loss, some or all of the
loss, depending on the amount reinvested, may not be allowed for federal
income tax purposes. For more information on the rule which disallows a loss
or the sale or exchange of shares of the Fund which are replaced, see "Taxes,
Dividends and Distributions."
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 Contingent Deferred
Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month
after the initial purchase, excluding the time shares were held in a money
market fund. See "How to Exchange Your Shares" below.
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 generally in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in NAV above the total amount of
payments for the purchase of Fund shares made during the preceding six years;
then of amounts representing the cost of shares held beyond the applicable
CDSC period; and finally, of amounts representing the cost of shares held for
the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares 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
31
<PAGE>
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), or a trust, 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 are: (i) in the case of a tax-deferred
retirement plan, a lump-sum or other distribution after retirement; (ii) in
the case of an IRA (including a Roth IRA), a lump-sum or other distribution
after attaining age 59 1/2 or a periodic distribution based on life
expectancy; (iii) in the case of a Section 403(b) custodial account, a lump
sum or other distribution after attaining age 59 1/2 and (iv) a tax-free
return of an excess contribution or plan distributions following the death or
disability of the shareholder, provided that the shares were purchased prior
to death or disability. The waiver does not apply in the case of a tax-free
rollover or transfer of assets, other than one following a separation from
service (i.e., following voluntary or involuntary termination of employment or
following retirement). Under no circumstances will the CDSC be waived on
redemptions resulting from the termination of a tax-deferred retirement plan,
unless such redemptions otherwise qualify for a waiver as described above. In
the case of Direct Account and Prudential Securities or Subsidiary Prototype
Benefit Plans, the CDSC will be waived on redemptions which represent
borrowings from such plans. Shares purchased with amounts used to repay a loan
from such plans on which a CDSC was not previously deducted will thereafter be
subject to a CDSC without regard to the time such amounts were previously
invested. In the case of a 401(k) plan, the CDSC will also be waived upon the
redemption of shares purchased with amounts used to repay loans made from the
account to the participant and from which a CDSC was previously deducted. In
addition, the CDSC will be waived on redemptions of shares held by a Director
of the Fund.
Systematic Withdrawal Plan. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12%
of the total dollar amount subject to the CDSC may be redeemed without charge.
The Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase or, for shares purchased
prior to March 1, 1997, on March 1 of the current year. The CDSC will be
waived (or reduced) on redemptions until this threshold 12% amount is reached.
You must notify the Transfer Agent either directly or through your Dealer,
at the time of redemption, that you are entitled to waiver of the CDSC and
provide the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement. See "Purchase and Redemption of 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.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
PruArray or SmartPath Plans. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the PruArray and SmartPath Programs.
32
<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 NAV without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (i) the ratio of (a) the amounts paid for Class B shares purchased at
least seven years prior to the conversion date to (b) the total amount paid
for all Class B shares purchased and then held in your account (ii) multiplied
by the total number of Class B shares purchased and then held in your account.
Each time any Eligible Shares in your account convert to Class A shares, all
shares or amounts representing Class B shares then in your account that were
acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different NAV's 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 NAV of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are 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, Class C and Class
Z shares will not constitute preferential dividends under the Internal Revenue
Code and (ii) that the conversion of shares does not constitute a taxable
event. The conversion of Class B shares into Class A shares may be suspended
if such opinions or rulings are no longer available. If conversions are
suspended, Class B shares of the Fund will continue to be subject, possibly
indefinitely, to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE PRIVILEGE), INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS
OF SUCH FUNDS. CLASS A, CLASS B, CLASS C AND CLASS Z SHARES MAY BE EXCHANGED
FOR CLASS A, CLASS B,
33
<PAGE>
CLASS C AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE
RELATIVE NAV. No sales charge will be imposed at the time of the exchange. Any
applicable CDSC payable upon the redemption of shares exchanged will be
calculated from the first day of the month after the initial purchase
excluding the time shares were held in a money market fund. Class B and Class
C shares may not be exchanged into money market funds other than Prudential
Special Money Market Fund, Inc. For purposes of calculating the holding period
applicable to the Class B conversion feature, the time period during which
Class B shares were held in a money market fund will be excluded. See
"Conversion Feature--Class B Shares" 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. All exchanges will be made on the basis of the relative NAV of the
two funds next determined after the request is received in good order.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISOR.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 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 PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in the account of a shareholder who qualifies to
purchase Class A shares at NAV will be automatically exchanged for Class A
shares on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the 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 or
another Dealer that they are eligible for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares
when they elect to have those assets become a part of the fee-based program.
Upon leaving
34
<PAGE>
the program (whether voluntarily or not), such Class Z shares (and, to the
extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at NAV.
The Fund reserves the right to reject any exchange order including exchanges
(and market timing transactions) which are of a size and/or frequency engaged
in by one or more accounts acting in concert or otherwise, that have or may
have an adverse effect on the ability of the Subadviser to manage the
portfolio. The determination that such exchanges or activity may have an
adverse effect and the determination to reject any exchange order shall be in
the discretion of the Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, the Fund reserves the right to refuse purchase orders and
exchanges by any person, group or commonly controlled accounts, if, in the
Manager's sole judgment, such person, group or accounts were following a
market timing strategy or were otherwise engaging in excessive trading (Market
Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading.
The Fund may notify the Market Timer of rejection of an exchange or purchase
order subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder of the Fund, you can
take advantage of the following 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 your Dealer, you should contact your Dealer.
. 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 brokerage account (including a Command
Account). For additional information about this service, you may contact the
Distributor, your Dealer or the Transfer Agent directly.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from the Distributor, your
Dealer 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."
35
<PAGE>
. 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 Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition,
monthly unaudited financial data is available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or
by telephone, at (800) 225-1852 (toll-free) or, from outside the U.S.A., at
(732) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
36
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential 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 High Yield Total Return Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
TAX-EXEMPT BOND
FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida 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 Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
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 International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential 20/20 Focus Fund
MONEY MARKET FUNDS
. Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
. Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
. Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
. Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
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
What are the Fund's Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................. 5
FINANCIAL HIGHLIGHTS...................................................... 6
HOW THE FUND INVESTS...................................................... 10
Investment Objective and Policies........................................ 10
Risk Factors and Special Considerations of Investing in Foreign Securi-
ties................................................................... 12
Hedging and Return Enhancement Strategies................................ 13
Other Investments and Policies........................................... 15
Investment Restrictions.................................................. 16
HOW THE FUND IS MANAGED................................................... 16
Manager.................................................................. 16
Distributor.............................................................. 17
Fee Waivers and Subsidy.................................................. 19
Portfolio Transactions................................................... 19
Custodian and Transfer and Dividend Disbursing Agent..................... 19
Year 2000................................................................ 19
HOW THE FUND VALUES ITS SHARES............................................ 19
HOW THE FUND CALCULATES PERFORMANCE....................................... 20
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 20
GENERAL INFORMATION....................................................... 22
Description of Common Stock.............................................. 22
Additional Information................................................... 23
SHAREHOLDER GUIDE......................................................... 23
How to Buy Shares of the Fund............................................ 23
Alternative Purchase Plan................................................ 25
How to Sell Your Shares.................................................. 29
Conversion Feature--Class B Shares....................................... 33
How to Exchange Your Shares.............................................. 33
Shareholder Services..................................................... 35
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... A-1
</TABLE>
- --------------------------------------------------------------------------------
MF136A
<TABLE>
<S> <C>
Class A: 744333105
Class B: 744333204
CUSIP Nos.: Class C: 744333303
Class Z: 744333402
</TABLE>
Prudential
Global
Genesis
Fund, Inc.
PROSPECTUS
JULY 31, 1998
www.prudential.com
LOGO Prudential
Investments
<PAGE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
Statement of Additional Information
dated July 31, 1998
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
stock, common stock equivalents and other equity related securities of smaller
foreign and domestic companies, including preferred stock, rights, warrants
and debt securities or preferred stock which are convertible or exchangeable
for common stock or preferred stock and master limited partnerships, among
others. Smaller companies are those with market capitalizations of less than
$1.5 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 related securities of
other companies and debt securities, engage in various derivative
transactions, including options on equity securities, financial indices,
foreign currencies and futures contracts on foreign currencies and may
purchase and sell futures contracts on foreign currencies, groups of
currencies and financial indices to hedge its portfolio and attempt to enhance
return. There can be no assurance that the Fund's investment objective will be
achieved. See "Investment Objective and Policies."
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated July 31, 1998, 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>
Investment Objective and Policies........................ B-2 10
Investment Restrictions.................................. B-11 16
Directors and Officers................................... B-12 16
Manager.................................................. B-15 16
Distributor.............................................. B-17 17
Portfolio Transactions and Brokerage..................... B-18 19
Purchase and Redemption of Fund Shares................... B-20 24
Shareholder Investment Account........................... B-23 35
Net Asset Value.......................................... B-27 19
Taxes, Dividends and Distributions....................... B-27 20
Performance Information.................................. B-30 20
Custodian, Transfer and Dividend Disbursing Agent and In-
dependent Accountants................................... B-32 19
Financial Statements..................................... B-33 --
Report of Independent Accountants........................ B-49 --
Appendix I--Description of Security Ratings.............. I-1 --
Appendix II--General Investment Information.............. II-1 --
Appendix III--Historical Performance Data................ III-1 --
Appendix IV--Information Relating to Prudential.......... IV-1 --
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MF136B
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this investment objective by investing primarily in common stock,
common stock equivalents and other equity related securities of smaller
foreign and domestic companies, including preferred stock, rights, warrants
and debt securities or preferred stock which are convertible or exchangeable
for common stock or preferred stock and master limited partnerships, among
others. Smaller companies are those with market capitalizations of less than
$1.5 billion, measured at the time of initial purchase. 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
The Prudential Investment Corporation, doing business as Prudential
Investments (PI), has regional investment teams based in Japan, North America,
and Southeast Asia, and PRICOA Asset Management Ltd. (PRICOA and collectively
with PI, the investment adviser or the Subadviser) has an investment team
based in Europe. The investment approach heavily emphasizes independent, local
research on high-quality companies; 32 investment professionals around the
world are focused full-time on this effort, primarily on small capitalization
companies but also on large capitalization companies in emerging markets and
elsewhere. The regional investment teams perform intensive research on
investment candidates, speak directly with management teams, and make timely
buy and sell decisions. In addition, the regional investment teams utilize a
disciplined selection system to help portfolio managers navigate successfully
in markets characterized by significant earnings and price volatilities. By
capitalizing on the superior growth rate of emerging market companies and less
efficient stock markets in which they are traded, the subadviser seeks to earn
returns in excess of those achievable in the U.S. large capitalization stock
market over a three-to-five-year market cycle.
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 consideration (or for additional 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 segregated in cash or other liquid,
unencumbered assets, marked-to-market daily. A put option written by the Fund
is "covered" if the Fund segregates cash or other liquid, unencumbered assets,
marked to market daily, with a value equal to the exercise price, or else
holds on a share-for-share basis a put of the same security as the put written
if 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 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
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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 SECURITIES INDICES. In addition to options on equity securities,
the Fund may also purchase and sell put and call options on securities indices
traded on securities exchanges, listed on NASDAQ or traded in the over-the-
counter markets. Options on securities indices are similar to options on
securities except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the securities 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. All settlements are in cash, and gain or loss depends
on price movements in the securities market generally (or in a particular
industry or segment of the market) rather than price movements in individual
securities.
The multiplier for an index option performs a function similar to the unit
of trading for a securities 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 securities, 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 security, 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 security prices in the securities
market generally or in an industry or market segment rather than movements in
the price of a particular security. 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 securities market
generally or of a particular industry. This requires different skills and
techniques than predicting changes in the price of individual securities. 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 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
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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 options on individual securities.
Index prices may be distorted if trading of certain securities included in
the index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of securities 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
securities 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 individual securities in the
index.
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 securities, 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 Securities 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 securities 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 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.
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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 securities in its portfolio. As with
options on securities, the Fund will not learn that an index option has been
exercised until the day following the exercise date but, unlike a call on a
security 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 options on securities. 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.
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
Options on foreign currencies involve the currencies of two nations and
therefore, 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--Risk Factors
and Special Considerations 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 FOREIGN 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 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 Manager and Subadviser
believe that it is important to have the flexibility to enter into such
forward contracts when they determine 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 other liquid 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
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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 securities 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 various foreign currencies, including the Australian Dollar,
British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, German Mark and
Eurodollars. Futures contracts are also available on the S&P 500 Stock Index,
the NYSE Composite Index, the Major Market Index and other global indices.
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
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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 various foreign currencies, including the Australian Dollar,
British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, German Mark and
Eurodollars. With respect to stock indices, options are traded on futures
contracts for the S&P 500 Stock Index, 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 SECURITIES
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 securities 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 other
liquid unencumbered assets equal to the aggregate exercise price of the puts.
During the coming year, the Fund does not intend to purchase or sell options
on equity securities or securities 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 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, or other liquid assets with a
market value at the time the option is written of not less than 100% of the
current index value times the multiplier times the number of contracts.
If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," 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
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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, or other liquid assets 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 or other liquid assets 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, or
other liquid assets in a segregated account with its Custodian, it will not be
subject to the requirements described in this paragraph.
The Fund may 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.
"Liquid assets" as used in the Fund's prospectus and statement of additional
information include cash, U.S. Government securities, equity securities
(including foreign securities) and debt obligations.
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 (which during periods
of market volatility could be for an extended period of time), the Fund may
invest without limit 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 segregate cash or other liquid, unencumbered assets,
marked-to-market daily, 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 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
B-8
<PAGE>
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 hedge, for a limited period of time, certain long positions maintained by
the Fund. 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 Investments Fund Management LLC (PIFM)
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 30% 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 (or
obtain a letter of credit) 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. The Fund does not intend to invest in such
securities during the coming year. 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.
ILLIQUID SECURITIES
The Fund may not hold more than 15% 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
B-9
<PAGE>
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.
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."
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 for
the fiscal year ended May 31, 1998 was 198%. 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, Dividends and
Distributions."
B-10
<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the
Fund's outstanding voting securities," when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting
shares are present in person or represented by proxy or (ii) more than 50% of
the outstanding voting shares.
The Fund may not:
1. 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 30% of the Fund's total assets).
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.
B-11
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
<S> <C> <C>
Edward D. Beach (73) Director President and Director of BMC Fund, Inc., a closed-end
investment company; formerly, Vice Chairman of Broyhill
Furniture Industries, Inc.; Certified Public
Accountant; Secretary and Treasurer of Broyhill Family
Foundation, Inc.; Member of the Board of Trustees of
Mars Hill College; Director of The High Yield Income
Fund, Inc.
Stephen C. Eyre (75) Director Executive Director (May 1985 through December 1997) of
The John A. Hartford Foundation, Inc. (charitable
foundation); and Trustee Emeritus of Pace University.
Delayne Dedrick Gold Director Marketing and Management Consultant; Director of The
(59) High Yield Income Fund, Inc.
*Robert F. Gunia (51) Director Vice President of Prudential Investments; (since
September 1997) Executive Vice President and Treasurer
(since December 1996), Prudential Investments Fund
Management LLC (PIFM); Senior Vice President (since
March 1987) of Prudential Securities Incorporated
(Prudential Securities); formerly Chief Administrative
Officer (July 1990-September 1996), Director (January
1989-September 1996) and Executive Vice President,
Treasurer and Chief Financial Officer (June 1987-
September 1996) of Prudential Mutual Fund Management,
Inc. (PMF); Vice President and Director (since May
1989) of The Asia Pacific Fund, Inc.; Director of The
High Yield Income Fund, Inc.
Don G. Hoff (62) Director Chairman and Chief Executive Officer (since 1980) of
Intertec, Inc. (Investments); Chairman and Chief
Executive Officer of The Lamaur Corporation, Inc.;
Director of Innovative Capital Management, Inc. and The
Greater China Fund, Inc.; and Chairman and Director of
The Asia Pacific Fund, Inc.
Robert E. LaBlanc (63) Director President (since 1981) of Robert E. LaBlanc Associates,
Inc. (telecommunications); formerly General Partner at
Salomon Brothers; and Vice-Chairman of Continental
Telecom; Director of Storage Technology Corporation,
Titan Corporation, Salient 3 Communications, Inc. and
Tribune Company; and Trustee of Manhattan College.
*Mendel A. Melzer, CFA Director Chief Investment Officer (since October 1996) of
(37) Prudential Mutual Funds; formerly Chief Financial
751 Broad Street Officer (November 1995-September 1996) of Prudential
Newark, NJ 07102 Investments, Senior Vice President and Chief Financial
Officer of Prudential Preferred Financial Services
(April 1993-November 1995), Managing Director of
Prudential Investment Advisors (April 1991-April 1993)
and Senior Vice President of Prudential Capital
Corporation (July 1989-April 1991); Chairman and
Director of Prudential Series Fund, Inc.; and Director
of The High Yield Income Fund, Inc.
*Richard A. Redeker (54) President and Director Employee of Prudential Investments; formerly President,
751 Broad Street Chief Executive Officer and Director (October 1993-
Newark, NJ 07102 September 1996), of PMF; Executive Vice President,
Director and Member of Operating Committee (October
1993-September 1996) of Prudential Securities, Director
(October 1993-September 1996) of Prudential Securities
Group, Inc., (PSG) Executive Vice President of the
Prudential Investment Corporation (July 1994-September
1996), Director (January 1994-September 1996),
Prudential Mutual Fund Distributors, Inc. and
Prudential Mutual Fund Services, Inc. and Senior
Executive Vice President and Director of Kemper
Financial Services, Inc.; (September 1978-September
1993) and President and Director of The High Yield
Income Fund, Inc.
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
<S> <C> <C>
Robin B. Director Chairman and Chief Executive Officer (since August 1996)
Smith of Publishers Clearing House; formerly President and
(58) Chief Executive Officer (January 1989-August 1996) and
President and Chief Operating Officer (September 1981-
December 1988) of Publishers Clearing House; Director
of BellSouth Corporation, Texaco Inc., Springs
Industries Inc. and Kmart Corporation.
Stephen Director President and Chief Executive Officer (since June 1996)
Stoneburn of Quadrant Media Corp. (a publishing company);
(54) formerly President (June 1995-June 1996) of Argus
Integrated Media, Inc.; Senior Vice President and
Managing Director (January 1993-1995), Cowles Business
Media; Senior Vice President (January 1991-1992) and
Publishing Vice President (May 1989-December 1990) of
Gralla Publications (a division of United Newspapers,
U.K.) and Senior Vice President of Fairchild
Publications, Inc.
Nancy H. Director Economist, Director of Inland Steel Industries;
Teeters formerly, Vice President and Chief Economist of
(67) International Business Machines; Member of the Board of
Governors of the Federal Reserve System; Governor of
the Horace H. Rackham School of Graduate Studies of the
University of Michigan; Assistant Director of the
Committee on the Budget of the US House of
Representatives; Senior Fellow at the Library of
Congress; Senior Fellow at the Brookings Institution;
staff at Office of Management and Budget, Council of
Economics Advisors and the Federal Reserve Board.
S. Jane Secretary Senior Vice President (since December 1996) of PIFM;
Rose (52) Senior Vice President and Senior Counsel (since July
1992) of Prudential Securities; formerly Senior Vice
President (January 1991-September 1996) and Senior
Counsel (June 1987-September 1996) of PMF.
Robert C. Assistant Secretary Assistant General Counsel (since September 1997) of
Rosselot PIFM; formerly, partner with the firm of Howard &
(38) Howard, Bloomfield Hills, Michigan (December 1995-
September 1997) and Corporate Counsel, Federated
Investors (1990-1995).
Grace C. Treasurer and First Vice President (since December 1996) of PIFM;
Torres Principal First Vice President (since March 1994) of Prudential
(39) Financial and Securities; formerly First Vice President (March 1994-
Accounting Officer September 1996), Prudential Mutual Fund Management,
Inc. and Vice President (July 1989-March 1994) of
Bankers Trust.
Stephen Assistant Vice President and Tax Director (since March 1996) of
M. Treasurer Prudential Investments; formerly First Vice President
Ungerman of Prudential Mutual Fund Management, Inc. (February
(44) 1993-March 1996).
</TABLE>
- ---------
(1) Unless otherwise stated, the address is c/o Prudential Investments Fund
Management LLC, Gateway Center Three, Newark, New Jersey 07102-4077.
* "Interested" Director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential, Prudential Securities or PIFM
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Investment Management Services LLC.
B-13
<PAGE>
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 Eyre are scheduled to retire on December 31, 1999 and 1998, respectively.
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 Fund pays each of its Directors who is not an affiliated
person of PIFM annual compensation of $3,000, in addition to certain out-of-
pocket expenses. The amount of annual compensation paid to each Director may
change as a result of the introduction of additional funds upon which the
Director will be asked to serve.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Directors' fees which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills at
the beginning of each calendar quarter or, pursuant to an SEC exemptive order,
at the daily rate of return of the Fund (the Fund rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund.
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, 1998 and the aggregate compensation paid to such Directors for
service on the Fund's Board and that of all other investment companies managed
by PIFM (Fund Complex) for the calendar year ended December 31, 1997.
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(2)
----------------- ------------ ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Edward D. Beach--
Director............... $3,000 None N/A $135,000(38/63)*
Stephen C. Eyre--
Director............... $3,000 None N/A 45,000(12/13)*
Delayne D. Gold--
Director............... $3,000 None N/A 135,000(38/63)*
Robert F. Gunia(1)--
Director............... -- None N/A --
Don G. Hoff--Director... $3,000 None N/A 45,000(12/13)*
Robert F. LaBlanc--
Director............... $3,000 None N/A 45,000(12/13)*
Mendel A. Melzer(1)--
Director............... -- None N/A --
Richard A. Redeker(1)--
Director............... -- None N/A --
Robin B. Smith--
Director............... $3,000 None N/A 90,000(27/34)*
Stephen Stoneburn--
Director............... $3,000 None N/A 45,000(12/13)*
Nancy H. Teeters--
Director............... $3,000 None N/A 90,000(23/42)*
</TABLE>
- ---------
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
(1) Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are
interested Directors, do not receive compensation from the Fund or any
fund in the Fund Complex.
(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1997, including amounts deferred at the election
of Directors under the funds' deferred compensation plans. Including
accrued interest, total deferred compensation amounted to $139,081 for
Director Robin Smith. Currently, Ms. Smith has agreed to defer some of her
fees at the T-Bill rate and other fees at the Fund rate.
B-14
<PAGE>
As of July 10, 1998, 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 10, 1998, Prudential Securities was record holder for other
beneficial owners of 1,582,639 Class A shares (or 52% of the outstanding Class
A shares), 3,531,037 Class B shares (or 64% of the outstanding Class B
shares), 60,697 Class C shares (or 77% of the outstanding Class C shares) and
41,230 Class Z shares (or 100% of the outstanding Class Z 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 10, 1998, the beneficial owners, directly or indirectly, of more
than 5% of the outstanding shares of any class of shares of the Fund were: Dr.
Kandala K. Chary TTEE, The Century Medical Assoc., Pension Plan, 45 Spindrift
Dr., Ste 100, Williamsville, NY 1421-7889 who held 4,060 Class C shares of the
Fund (or approximately 5% of the outstanding Class C shares); Ms. Shelah
Bennett, 8 Karnell St., Spring Valley, NY 10977-3710 who held 2,679 Class Z
shares of the Fund (or approximately 6% of the outstanding Class Z shares);
Brian Forrest Cooke, Account 1, 7999 Evanston Rd., Indianapolis, IN 46240-2731
who held 4,962 Class Z shares of the Fund (or approximately 12% of the
outstanding Class Z shares); Mendel A. Melzer, 6 Gelsey Ln, Basking Ridge, NJ
07920-3062 who held 3,200 Class Z shares of the Fund (or approximately 8% of
the outstanding Class Z shares); Mr. E. Michael Caulfield, Mrs. Helen B.
Caulfield JT TEN, 4 Park Ln., Madison, NJ 07940-2714 who held 12,820 Class Z
shares of the Fund (or approximately 31% of the outstanding Class Z shares);
and Prudential Securities C/F, Mr. Kenneth E. Carlson, IRA Rollover DTD
7/25/97, 466 Mud Hen Loop SE, Ocean Shores, WA 98569-9750, who held 2,303
Class Z shares of the Fund (or approximately 6% of the outstanding Class Z
shares).
MANAGER
The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM 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, 1998, PIFM
managed and/or administered open-end and closed-end management investment
companies with assets of approximately $66.8 billion. According to the
Investment Company Institute, as of December 31, 1997, the Prudential Mutual
Funds were the 18th largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities. Prudential Mutual Fund
Services LLC (PMFS or the Transfer Agent), a wholly-owned subsidiary of PIFM,
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.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PIFM, 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, PIFM is obligated to keep certain books and records of
the Fund. PIFM 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 PIFM
for the Fund are not exclusive under the terms of the Management Agreement and
PIFM is free to, and does, render management services to others.
For its services, PIFM 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 PIFM, 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 PIFM will be reduced by
the amount of such excess. Reductions in excess of the total compensation
payable to PIFM will be paid by PIFM to the Fund. No such reductions were
required during the fiscal year ended May 31, 1998. No jurisdiction currently
limits the Fund's expenses.
In connection with its management of the corporate affairs of the Fund, PIFM
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 PIFM or
the Fund's investment adviser;
(b) all expenses incurred, by PIFM 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
B-15
<PAGE>
(c) the costs and expenses payable to The Prudential Investment Corporation,
doing business as Prudential Investments (PI), pursuant to the subadvisory
agreement between PIFM and PI (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 Commission and
the states, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders in the amount necessary for
distribution to the shareholders, (l) litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of the
Fund's business and (m) distribution fees.
The Management Agreement provides that PIFM 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 13, 1998 and by shareholders of the Fund on
September 8, 1988.
For the fiscal year ended May 31, 1998, PIFM received a management fee of
$1,545,460. For the fiscal years ended May 31, 1997 and 1996, PIFM received a
management fee of $1,827,270 and $1,753,893 (net of waiver of $260,558),
respectively.
PIFM has entered into the Subadvisory Agreement with PI, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PI, through
a Sub-Investment Management Agreement with PRICOA Asset Management Ltd.,
(PRICOA), will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, PI is obligated to keep
certain books and records of the Fund. PIFM continues to have responsibility
for all investment advisory services pursuant to the Management Agreement and
supervises PI's performance of such services. PRICOA is reimbursed by PI, and
PI is reimbursed by PIFM, for the reasonable costs and expenses incurred in
furnishing investment advisory services.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party, as defined in the Investment Company
Act, on May 13, 1998, and by shareholders of the Fund on September 8, 1988.
The Sub-Investment Management Agreement with PRICOA 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 13, 1998.
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, PIFM or PI 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.
B-16
<PAGE>
DISTRIBUTOR
Prudential Investment Management Services LLC (the Distributor), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts as the
distributor of the shares of the Fund. Prior to July 1, 1998, Prudential
Securities Incorporated (Prudential Securities, also referred to as the
Distributor) served as distributor of the Fund's shares.
Pursuant to separate distribution and service plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Fund under Rule 12b-1 under the Investment Company Act and a distribution
agreement (the Distribution Agreement), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares. The Distributor
also incurs the expenses of distributing the Fund's Class Z shares under the
Distribution Agreement, none of which are reimbursed by or paid for by the
Fund. 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 provided 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 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 Class C Plan provides that (i) up to .25 of 1% of
the average daily net assets of the Class C shares may be paid as compensation
for providing personal service and/or maintaining shareholder accounts and
(ii) up to .75 of 1% of the average daily net assets of the Class C shares may
be paid as compensation for distribution-related expenses with respect to
Class C shares. The Plans were last approved by the Board of Directors,
including a majority of the Rule 12b-1 Directors, on May 13, 1998. 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, 1998, the Distributor
received payments of $125,771 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,
1998, the Distributor also received approximately $39,000 in initial sales
charges.
CLASS B PLAN. For the fiscal year ended May 31, 1998, the Distributor
received $1,018,360 from the Fund under the Class B Plan and spent
approximately $755,600 in distributing the Fund's Class B shares. It is
estimated that of the latter amount, approximately 1.1% ($8,400) was spent on
printing and mailing of prospectuses to other than current shareholders; 9.6%
($72,500) 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 89.3% ($674,700) on the aggregate of (i) payments of
commissions and account servicing fees to financial advisers (23.9% or
$180,400) and (ii) an allocation on account of overhead and other branch
office distribution-related expenses (65.4% or $494,300). The term "overhead
and other branch office distribution-related expenses" represents (a) the
expenses of operating branch offices of Prusec and the Distributor in
connection with the sale of Fund shares, including lease costs, the salaries
and employee benefits of operations and sales support personnel, utility
costs, communications costs and the costs of stationery and supplies, (b) the
costs of client sales seminars, (c) expenses of mutual fund sales coordinators
to promote the sale of Fund shares and (d) other incidental expenses relating
to branch promotion of Fund sales.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus. For the fiscal year ended May 31, 1998, the
Distributor received approximately $256,200 in contingent deferred sales
charges attributable to Class B shares.
B-17
<PAGE>
CLASS C PLAN. For the fiscal year ended May 31, 1998, Prudential Securities
received $17,392 under the Class C Plan and spent approximately $17,400 in
distributing Class C shares. It is estimated that of the latter amount,
approximately 13.3% ($2,300) was spent on printing and mailing of prospectuses
to other than current shareholders; 0.3% ($100) was spent in commissions paid
to or on account of representatives of Prusec and 86.4% ($15,000) on the
aggregate of (i) payments of commissions and account servicing fees to
financial advisers (80.1% or $13,900) and (ii) an allocation on account of
overhead and other branch office distribution-related expenses (6.3% or
$1,100).
The Distributor 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, 1998, Prudential
Securities received approximately $5,600 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 of the Rule 12b-1 Directors, cast
in person at a meeting called for the purpose of voting on such continuance. A
Plan may be terminated at any time, without penalty, by the vote of a majority
of the Rule 12b-1 Directors or by the vote of the holders of a majority of the
outstanding shares of the applicable class of the Fund on not more than 30
days' written notice to any other party to the Plan. A Plan 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.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the federal securities laws. The restated Distribution
Agreement was approved by the Board of Directors, including a majority of the
Rule 12b-1 Directors, on May 13, 1998.
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.
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
B-18
<PAGE>
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. The Fund will not pay for research in principal
transactions.
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 Commission.
This limitation, in the opinion of the Fund, will not significantly affect the
Fund's ability to pursue its present investment objective. However, in the
future in other circumstances, the Fund may be at a disadvantage because of
this limitation in comparison to other funds with similar objectives but not
subject to such limitations.
Subject to the above considerations, Prudential Securities may act as a
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
or board of trade during a comparable period of time. This standard would
allow Prudential Securities (or any affiliate) to receive no more than the
remuneration which would be expected to be received by an unaffiliated 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 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.
B-19
<PAGE>
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, 1998.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997 MAY 31, 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total brokerage commissions paid by the
Fund................................... $1,035,069 $1,288,783 $577,578
Total brokerage commissions paid to
Prudential Securities and its foreign
affiliates............................. $ 0 $ 4,786 $ 14,845
Percentage of total brokerage
commissions paid to Prudential
Securities and its foreign affiliates.. 0% 0.3% 2.57%
</TABLE>
The Fund effected no transactions involving the payment of commissions
through Prudential Securities during the year ended May 31, 1998. Of the total
brokerage commissions paid during that period, $512,042 (or 49.47%) were paid
to firms which provide research, statistical or other services to PIFM. PIFM
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 (NAV) 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). Class Z
shares of the Fund are offered to a limited group of investors at NAV without
any sales charge. 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 (except for Class
Z shares, which are not subject to any sales charges and distribution and/or
service fees), which may affect performance, (ii) each class has exclusive
voting rights 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, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"Distributor" and "Shareholder Investment Account--Exchange Privilege."
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to: (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange
or market, and (d) are approved by the Fund's investment adviser.
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B*, Class C* and Class Z shares are sold at NAV. Using the Fund's NAV at May
31, 1998, 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............ $15.82
Maximum sales charge (5% of offering price)....................... .83
------
Maximum offering price to public.................................. $16.65
======
CLASS B
Net asset value, offering price and redemption price per Class B
share*........................................................... $14.47
======
CLASS C
Net asset value, offering price and redemption price per Class C
share*........................................................... $14.47
======
CLASS Z
Net asset value, offering price and redemption price per Class Z
share............................................................ $16.01
======
</TABLE>
B-20
<PAGE>
---------
*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.
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 Transfer Agent, the Distributor or your Dealer 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 your Dealer will not be
aggregated to determine the reduced sales charge. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (NAV plus maximum sales charge) as of the
previous business day. See "How the Fund Values its Shares" in the Prospectus.
The Distributor or the Transfer Agent 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 NAV 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 your Dealer will not be aggregated to determine the reduced sales
charge. All shares must be held either directly with the Transfer Agent or
through your Dealer.
B-21
<PAGE>
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.
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 charge
actually paid. Such payment may be made directly to the Distributor or, if not
paid, the Distributor will liquidate sufficient escrowed shares to obtain such
difference. Investors electing to purchase Class A shares of the Fund pursuant
to a Letter of Intent should carefully read such Letter of Intent.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will, 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 (CDSC) 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 A copy of the distribution form from the
long-continued and indefinite custodial firm indicating (i) the date of
duration. birth of the shareholder and (ii) that the
Distribution from an IRA or shareholder is over age 59 1/2 and is taking
403(b) Custodial Account 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
B-22
<PAGE>
$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.
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 NAV 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 NAV per share next determined after receipt of
the check or proceeds by the Transfer Agent. Such shareholder will receive
credit for any CDSC 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 the relative NAV next determined after
receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. 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.
B-23
<PAGE>
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series) (Class A shares)
(U.S. Treasury Money Market Series) (Class A shares)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A Shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund,
Inc. No CDSC 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 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.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds. No fee or sales load will be imposed on the exchange.
Additional details about the exchange privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Transfer Agent, the
Distributor or your Dealer. 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
B-24
<PAGE>
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 brokerage account (including a Prudential Securities 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.
Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your Dealer.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through the
Transfer Agent, the Distributor or your Dealer. 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 NAV on
shares held under this plan. See "Shareholder Investment Account--Automatic
Reinvestment of Dividends and/or Distributions."
The Distributor 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.
B-25
<PAGE>
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 your Dealer 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 (or, in the case of a Roth IRA, the avoidance
of federal income tax on such income). 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 a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA which meet the conditions required
under the Internal Revenue Code will not be subject to tax upon withdrawal
from the account.
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 part of
a program. Since the allocation of portfolios included in the program may not
be appropriate for all investors, individuals should consult their Financial
Advisor 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.
B-26
<PAGE>
NET ASSET VALUE
Under the Investment Company Act, with respect to securities for which
market quotations are not readily available, 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 on such exchange system
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 by the
Manager in consultation with the Subadviser 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 by the
Manager in consultation with the Subadviser to be over-the-counter, are valued
at the mean between the last reported bid and asked prices provided by
principal market makers. Options on securities and securities 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 trading on the
applicable commodities exchange. 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 reliable market quotations are not
readily available, or for which the pricing agent or principal market maker
does not provide a valuation or methodology or provides a valuation or
methodology that, in the judgment of the Manager or Subadviser (or Valuation
Committee or Board of Directors), does not represent fair value, are valued by
the Valuation Committee or Board of Directors in consultation with the Manager
and Subadviser. 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
NAV 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 NAV. In the event the New York Stock
Exchange closes early on any business day, the NAV of the Fund's shares shall
be determined at the time between such closing and 4:15 P.M., New York time.
The New York Stock Exchange is closed on the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
NAV is calculated separately for each class. The NAV of Class B and Class C
shares will generally be lower than the NAV of Class A shares as a result of
the larger distribution-related fee to which Class B and Class C shares are
subject. The NAV of Class Z shares will generally be higher than the NAV of
Class A, Class B or Class C shares as a result of the fact that Class Z shares
are not subject to any distribution or service fee. It is expected, however,
that the NAV per share of each class will tend to converge immediately after
the recording of dividends, if any, which will differ by approximately the
amount of the distribution and/or service fee expense accrual differential
among the classes.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund 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 and capital gains which are 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.
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
B-27
<PAGE>
such securities or currencies; (b) the Fund diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the value of
the Fund's assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount not greater than
5% of the value of the 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 (c) 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 generally be treated
as long-term capital gains or losses if the securities have been held by it
for more than one year, except in certain cases where the Fund acquires a put
or writes a call thereon or otherwise holds an offsetting position with
respect to the securities. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Gains and losses on the sale,
lapse or other termination of options on securities will 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, constructive sale,
conversion transaction and straddle provisions of the Internal Revenue Code
which may, among other things require the Fund to recognize gain, defer
recognition of losses or cause gain to be treated as ordinary income rather
than as capital gain. In addition, debt securities acquired by the Fund may be
subject to original issue discount and market discount rules which,
respectively, may cause the Fund to accrue income in advance of the receipt of
cash with respect to interest or cause gains to be treated as ordinary income.
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.
A "passive foreign investment company" (PFIC) is a foreign corporation that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If the Fund acquires and holds
stock in a PFIC beyond the date of the taxable year of its acquisition, the
Fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock or of any gain from the disposition of
such stock (collectively, "PFIC income"), plus interest thereon, even if the
Fund distributes the PFIC income as a taxable dividend to its shareholders.
The Fund may make a "mark-to-market" election with respect to certain stock it
holds in a PFIC and avoid the foregoing tax and interest obligation. If the
election is in effect, at the end of the Fund's taxable year, the Fund will
recognize the amount of current year appreciation, if any, on shares of such
PFIC stock that are held. Any loss will be recognized on the PFIC stock to the
extent of previously recognized mark-to-market gains. Alternatively, the Fund
may elect to treat any PFIC in which it invests as a "qualified electing
fund", in which case, in lieu of the foregoing tax and interest obligation,
the Fund will be required to include in income in each taxable year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain, even if they are not distributed to the Fund; those amounts
would be subject to the annual distribution requirements applicable to the
Fund described above. Because the election to treat a PFIC as a qualified
electing fund cannot be made without the provision of certain information by
the PFIC, it is unlikely that the Fund will be able to make such an election.
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 or
losses, referred to under the Internal Revenue Code as "Section 988" gains or
losses, increase or
B-28
<PAGE>
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.
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.
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A and Class Z shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares and
lower on Class A shares in relation to Class Z shares. The per share
distributions of net capital gains, if any, will be paid in the same amount
for Class A, Class B, Class C and Class Z shares. See "Net Asset Value."
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.
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, and if more than 50% of the
value of the Fund's assets consists of securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income taxes paid by the Fund. For the fiscal year ended May 31, 1998,
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. Accordingly, a foreign
shareholder may recognize additional taxable income as a result of the Fund's
election to "pass through" the foreign income taxes to shareholders.
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 from the sale of a security and gain or loss 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-29
<PAGE>
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. 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 return for Class A shares for the one year, five
year and since inception (January 22, 1990) periods ended May 31, 1998 were
4.32%, 10.32% and 8.78%, respectively. The average annual total return for
Class B shares for the one year, five year and ten year periods ended May 31,
1998 were 4.04%, 10.46% and 9.52%, respectively. The average annual total
return for Class C shares for the one year and since inception (August 1,
1994) periods ended May 31, 1998 were 8.04% and 7.45%, respectively. The
average annual total return for Class Z shares for the one year and since
inception (September 13, 1996) periods ended May 31, 1998 were 10.22% and
14.29%, respectively.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. 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 return for Class A shares for the one year, five year
and since inception (January 22, 1990) periods ended May 31, 1998 were 9.81%,
71.97% and 112.57%, respectively. The aggregate total return for Class B
shares for the one year, five year and ten year periods ended May 31, 1998
were 9.04%, 65.46% and 148.24%, respectively. The aggregate total return for
Class C shares for the one year and since inception (August 1, 1994) periods
ended May 31, 1998 were 9.04% and 31.68%, respectively. The aggregate total
return for the Class Z shares for the one year and since inception (September
13, 1996) periods ended May 31, 1998 were 10.22% and 25.55%, respectively.
B-30
<PAGE>
YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B, Class C
and Class Z shares. This yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of 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/
[BAR CHART APPEARS HERE]
A LOOK AT PERFORMANCE OVER THE LONG-TERM
AVERAGE ANNUAL RETURNS
1/1/26 - 12/31/97
Common Stocks 11.0%
Long-Term Gov't Bonds 5.2%
Inflation 3.1%
/1/Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1998
Yearbook", (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). 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-31
<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 LLC (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 PIFM. 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, 1998, the Fund incurred
fees of approximately $327,000 for PMFS's services.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity have
audited the Fund's financial statements for the fiscal year ended May 31,
1998.
B-32
<PAGE>
Portfolio of Investments as
of May 31, 1998 PRUDENTIAL GLOBAL GENESIS FUND, INC.
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
LONG-TERM INVESTMENTS--95.5%
COMMON STOCKS--92.5%
- ----------------------------------------------------------------
Australia--0.2%
190,150 Goodman Fielder, Ltd. (Food
Processing) $ 284,928
- ----------------------------------------------------------------
Brazil--0.1%
202,000 Companhia Forca E Luz Cataguazes
(Utilities-Electric) 20,284
847,000 Telecomunicacoes de Sao Paulo S.A.
(Telecommunication Services) 128,863
-------------
149,147
- ----------------------------------------------------------------
Canada--1.5%
25,300 Canadian Western Bank Edmonton
(Banking) 399,533
53,400 Clearnet Communications, Inc.
(Cellular Communications) 610,762
48,600 International Verifact, Inc.(a)
(Computers) 330,351
14,000 Laurentian Bank of Canada (Banking) 324,419
20,200 LGS Group, Inc. (Computer Software
& Services) 233,005
105,600 Sedna Geotech, Inc.(a) (Mineral
Resources) 79,756
-------------
1,977,826
- ----------------------------------------------------------------
Chile--0.4%
14,100 Laboratorio Chile S.A. (ADR)
(Medical Devices) 250,275
28,000 Quinenco S.A. (ADR)
(Telecommunication Services) 266,000
-------------
516,275
- ----------------------------------------------------------------
Denmark--0.3%
30,097 Jacob Holm & Sons A/S(a) (Textiles) 420,423
- ----------------------------------------------------------------
France--5.4%
9,359 Ciments Francais (Basic
Industries-Manufacturing) 584,615
4,372 Compagnie Francaise d'Etudes et de
Construction Technip (Building &
Construction) $ 626,522
38,433 Dollfus-Mieg & Cie S.A. (Textiles) 1,058,508
381 Galeries Lafayette (Retail) 369,081
8,061 Geodis (Transportation/Shipping) 632,784
2,239 GFI Industries S.A. (Machinery &
Engineering) 609,926
667 Groupe Flo(a) (Restaurants) 39,771
2,706 Havas Advertising S.A.
(Advertising) 571,725
53,082 Lectra Systemes(a) (Computer
Software & Services) 414,918
48,305 Societe Generale D' Enterprises
S.A.(a) (Construction) 2,234,811
-------------
7,142,661
- ----------------------------------------------------------------
Germany--1.0%
10,208 Pfandbriefbank Hypothek (Banking) 816,549
5,983 Schwarz Pharma AG (Pharmaceuticals) 499,365
-------------
1,315,914
- ----------------------------------------------------------------
Hong Kong--1.7%
434,000 ASM Pacific Technology, Ltd.
(Machinery & Engineering) 294,038
1,492,000 Innovative International Holdings,
Ltd. (Automotive Parts) 288,811
170,000 Li & Fung, Ltd. (Consumer Products) 263,260
2,107,000 Lung Kee (Bermuda) Holdings, Ltd.
(Industrial Components) 516,621
727,000 QPL International Holdings, Ltd.(a)
(Electronic Components) 170,750
196,500 Varitronix International, Ltd.
(Electronic Components) 412,069
1,179,000 Wong's International Holdings, Ltd.
(Electronic Components) 270,825
116,000 Yips Hang Cheung Holdings(a)
(Chemicals) 7,111
-------------
2,223,485
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-33
<PAGE>
Portfolio of Investments as
of May 31, 1998 PRUDENTIAL GLOBAL GENESIS FUND, INC.
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
Ireland--1.1%
43,676 Adare Printing Group PLC (Printing) $ 616,923
100,699 Anglo Irish Bank Corp. PLC
(Banking) 275,229
63,312 DCC PLC (Diversified Operations) 558,926
-------------
1,451,078
- ----------------------------------------------------------------
Italy--2.5%
22,221 Banca Popolare Di Bergamo Credito
Vaesino SpA (Banking) 523,631
123,999 Banca Popolare di Milano (Banking) 1,117,824
88,155 Bulgari SpA (Retail) 520,214
18,723 Mediolanum SpA (Life Insurance) 626,744
168,237 Pirelli SpA (Misc. Materials &
Commodities) 555,670
-------------
3,344,083
- ----------------------------------------------------------------
Japan--4.1%
1,200 Advantest Corp. (Electronic
Components) 73,939
13,600 Asatsu, Inc. (Advertising) 268,721
10,000 Asia Securities Printing Co.
(Printing) 82,059
2,000 Bellsystem, Inc. (Communications) 264,891
5,000 C Uyemura & Co. (Chemicals) 143,603
41,000 Calsonic Corp. (Automotive Parts) 145,496
6,700 Daiseki Co., Ltd. (Commercial
Services) 47,022
500 Furusato Industries (Building
Materials & Components) 1,512
5,000 Hogy Medical Co. (Medical Products) 145,042
9,000 Ibiden Co., Ltd. (Electronic
Components) 132,158
3,600 Itoen, Ltd. (Beverages) 110,909
7,000 Japan Lifeline Co., Ltd. (Medical
Technology) 143,603
20,000 Kawasumi Laboratories (Medical
Products) 292,244
2,300 Keyence Corp. (Electronic
Components) 276,315
6,400 Matsumotokiyoshi (Retail) 219,744
11,600 Mimasu Semiconductor Industry Co.,
Ltd. (Electronic Components) 141,947
15,818 Ministop Co., Ltd. (Food/Drug
Retail) 306,852
3,000 Mirai Industry Co., Ltd.
(Miscellaneous) 29,152
8,500 Misumi Corp. (Industrial
Components) 156,631
6,800 Mitsui High-Tec, Inc. (Industrial
Components) $ 166,421
6,000 Nichii Gakkan Co. (Health Services) 198,668
17,200 Nihon Dempa Kogyo (Electronic
Components) 112,913
37,000 Nippei Toyama (Machinery) 119,849
90 Nissen(a) (Merchandising) 162
7,600 Oiles Corp. (Industrial Components) 186,000
3,200 Otsuka Kagu, Ltd. (Retail) 154,558
3,000 Plenus Co., Ltd. (Retail) 47,076
9,000 Pulstec Industrial Co., Ltd. (Misc.
Materials & Commodities) 132,805
5,600 Riso Kagaku Corp. (Office Equipment
& Supplies) 315,220
8,000 Rock Field Co., Ltd. (Foods) 108,260
2,800 Ryohin Keikaku Co., Ltd. (Retail) 249,919
6,200 Square Co., Ltd. (Computer Software
& Services) 198,596
7,800 Union Tool Co. (Machinery &
Engineering) 275,112
18,500 Up, Inc. (Education) 46,608
6,050 Zenrin Co., Ltd. (Electronic
Components) 204,679
-------------
5,498,686
- ----------------------------------------------------------------
Mexico--2.4%
25,000 Apasco S.A. de C.V. (Building &
Products) 152,657
195,000 Biper S.A. de C.V.
(Telecommunication Services) 91,016
7,700 Coca Cola Femsa S.A. de C.V. (ADR)
(Beverages) 130,900
212,600 Consorcio Hogar S.A. de C.V.
(Building & Construction) 250,004
52,000 Corporacion Interamericana de Entre
Entretenimiento S.A.
(Miscellaneous Services) 167,010
246,200 Corporativo Fragua S.A.(a) (Retail) 278,917
5,340 Fomento Economico Mexicano S.A.
(Development) 176,220
109,000 G Accion, S.A. de C.V. (Real
Estate-Landlords) 98,788
26,400 Geo Corp. S.A. de C.V. (Building &
Construction) 150,738
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-34
<PAGE>
Portfolio of Investments as
of May 31, 1998 PRUDENTIAL GLOBAL GENESIS FUND, INC.
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
Mexico (cont'd.)
22,700 Grupo Elektra, S.A. de C.V. (ADR)
(Retail) $ 263,887
379,400 Grupo Financiero Bancomer S.A. de
C.V. (Banking) 189,120
244,800 Grupo Financiero Banorte S.A. de
C.V. (Banking) 332,797
19,200 Grupo Radio Centro S.A. de C.V.
(ADR) (Radio & Television) 247,200
12,100 Industrias Bachoco S.A. (ADR)
(Foods) 136,125
63,700 Kimberly-Clark de Mexico, S.A. de
C.V. (Cosmetics & Soaps) 265,567
19,600 Tubos de Acero de Mexico, S.A.
(Steel-Producers) 292,775
-------------
3,223,721
- ----------------------------------------------------------------
Netherlands--2.9%
2,521 BAM Groep N.V. (Building &
Construction) 225,907
23,357 DOCdata N.V. (Miscellaneous) 709,283
17,830 Getronics N.V. (Technology) 886,161
16,128 Internatio-Muller NV (Engineering &
Equipment) 581,139
3,533 Prolion Holdings N.V. (Machinery) 451,271
787 Twentsche Kabel Holdings N.V.
(Diversified Industries) 29,727
29,073 Volker Wessels Stevin-N.V.(a)
(Housing Construction) 924,764
-------------
3,808,252
- ----------------------------------------------------------------
Norway--2.4%
146,215 Agresso Group ASA (Computer
Services) 668,011
64,831 ASK ASA(a) (Data Processing &
Reproduction) 540,873
14,713 Seateam Technology ASA(a)
(Telecommunications Equipment) 311,741
39,507 Sondenfjedske ND (Oil Services) 844,927
78,491 Tandberg Television ASA
(Telecommunications Equipment) 805,553
-------------
3,171,105
- ----------------------------------------------------------------
Peru--0.1%
8,400 Compania De Minas Buenaventura
(ADR) (Construction) $ 131,775
- ----------------------------------------------------------------
Portugal--0.4%
10,322 Portugal Telecom S.A.
(Telecommunications) 541,778
- ----------------------------------------------------------------
Spain--1.8%
14,336 BCO PASTOR (Gold) 793,976
2,682 Bodegas Y Bebidas S.A. (Beverages) 122,721
5,173 GPO Acciona (Building &
Construction) 1,330,171
3,697 Miquel Y Costas & Miquel S.A.
(Paper) 188,909
-------------
2,435,777
- ----------------------------------------------------------------
Sweden--1.1%
29,176 Enator AB (Computer Services) 918,595
15,743 NetCom Systems AB(a)
(Telecommunication Services) 602,019
-------------
1,520,614
- ----------------------------------------------------------------
Switzerland--5.1%
376 Gurit-Heberlein AG (Manufacturing) 1,467,503
125 Hilti (Machinery) 114,309
2,379 Kardex AG (Miscellaneous) 777,765
6,222 Mikron Holding AG(a) (Machinery &
Engineering) 1,593,771
292 Phonak Holding AG (Medical
Products) 275,565
2,190 PubliGroupe S.A. (Advertising) 696,785
601 Sarna Kunststoff Holdings AG(a)
(Building & Products) 1,134,344
172 SIG Schweizerische
Industrie-Gesellschaft Holding
AG (Industrial Machinery) 162,899
2,089 Valora Holdings (Restaurants) 566,783
-------------
6,789,724
- ----------------------------------------------------------------
Thailand--0.1%
134,320 Thai Storage Battery Public Co.,
Ltd. PLC (Automotive Parts) 136,349
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-35
<PAGE>
Portfolio of Investments as
of May 31, 1998 PRUDENTIAL GLOBAL GENESIS FUND, INC.
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
United Kingdom--15.3%
6,830 Alliance UniChem PLC
(Pharmaceuticals) $ 56,631
75,719 Arriva PLC (Diversified Industries) 551,205
214,674 Baird (William) PLC (Textiles &
Apparel) 833,930
75,462 Blacks Leisure Group PLC (Retail) 453,262
89,223 British-Borneo Petroleum Syndicate
PLC (Oil & Gas
Exploration/Production) 560,675
102,549 Cadcentre Group PLC(a) (Computers) 493,772
73,544 Capita Group PLC (Merchandising) 651,809
290,769 Datrontech Group PLC (Electronic
Components) 579,004
98,393 David Brown Group PLC
(Manufacturing) 425,582
240,923 Dialog Corp. PLC(a) (Computer
Services) 570,190
17,207 Dr. Solomon's Group PLC(a) (ADR)
(Computer Software & Services) 507,607
165,704 Finelist Group PLC (Automotive
Parts) 979,073
158,262 FirstGroup PLC (Transportation-Road
& Rail) 1,121,088
149,926 FKI PLC (Manufacturing) 513,889
21,996 Games Workshop Group PLC (Toy
Manufacturer) 190,280
133,158 Headlam Group, PLC (Distribution/
Wholesalers) 858,495
168,189 Hewden Stuart PLC (Auto/Equipment
Rental) 565,507
25,199 Hozelock Group PLC (Farm &
Industrial Machinery) 150,124
1,048 Icon PLC (ADR)(a) (Retail) 26,724
96,329 Jarvis PLC (Construction) 1,202,796
250,301 Jarvis Hotels PLC (Hotels) 694,520
68,689 Johnson Matthey PLC (Electronics) 695,108
138,934 Johnston Press PLC (Publishing) 535,173
80,370 London International Group, PLC
(Health Care) 255,801
92,603 Matalan PLC (Retail) 426,233
173,395 Mayflower Corp. PLC (Automobiles &
Trucks) 679,237
692,951 Mowlem (John) & Co. PLC
(Construction) 1,453,380
33,303 Nestor Healthcare Group PLC (Health
Care) 177,748
162,062 Partco Group PLC (Automotive) 814,714
4,295 Perpetual (Financial Services) 301,443
242,593 Skillsgroup PLC (Computer Services) $ 1,187,881
388,808 Skyepharma PLC(a) (Drugs & Medical
Supplies) 526,728
127,447 Westminster Healthcare Holdings PLC
(Health Services) 634,458
90,009 WPP Group PLC (Advertising) 575,898
-------------
20,249,965
- ----------------------------------------------------------------
United States--42.6%
67,900 Actel Corp. (Technology) 865,725
14,300 ACX Technologies, Inc.(a)
(Diversified Industries) 324,431
20,900 Aetrium, Inc.(a) (Electronic
Components) 274,313
12,400 AGCO Corp. (Machinery) 311,550
61,600 Allied Products Corp. (Machinery &
Engineering) 1,324,400
34,200 Alternative Resources Corp.(a)
(Miscellaneous) 696,825
40,200 Altron, Inc.(a) (Electrical &
Electronics) 444,713
55,400D American Management Systems,
Inc.(a) (Data Processing &
Reproduction) 1,502,725
51,800 Anadigics, Inc. (Computer Products) 747,862
23,300 Arm Financial, Inc. (Medical
Technology) 476,194
19,300 Artesyn Technologies Inc.(a)
(Electrical Equipment) 316,641
13,600 Billing Concepts Corp. (Commercial
Services) 316,200
15,600 BJ Services Co.(a) (Oil Services) 509,925
8,200 Black Box Corp.(a) (Computer
Software & Services) 326,975
19,200 Borders Group, Inc.(a) (Retail) 595,200
26,000 Brightpoint, Inc.
(Distribution/Wholesalers) 411,125
30,900 Brooks Automation, Inc.(a)
(Electrical Goods) 397,838
23,600 Carramerica Realty Corp. (Real
Estate-Developers) 660,800
31,000 Cellstar Corp.(a) (Distribution/
Wholesalers) 932,906
18,300 Centennial Cellular Corp.(a)
(Cellular Communications) 640,500
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-36
<PAGE>
Portfolio of Investments as
of May 31, 1998 PRUDENTIAL GLOBAL GENESIS FUND, INC.
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
United States (cont'd.)
14,200 Centerpoint Properties Trust (Real
Estate) $ 481,025
50,300 Claire Stores, Inc. (Retail) 946,269
34,000 Clayton Williams Energy, Inc.(a)
(Oil & Gas
Exploration/Production) 357,000
127,200 Compdent Corp.(a) (Health Care) 1,876,200
44,800 Complete Management, Inc. (Health
Care) 302,400
64,900 Cooker Restaurant Corp.
(Restaurants) 681,450
32,500 Cost Plus, Inc. (Real Estate) 962,812
38,800 Day Runner, Inc.(a) (Consumer
Goods) 853,600
9,200 DENTSPLY International, Inc.
(Dental Supplies) 310,500
31,500 Digital Microwave Corp.
(Appliances) 304,172
23,800 Electro Scientific Industries,
Inc.(a) (Electronic Components) 797,300
10,500 Etec Systems, Inc.(a) (Electronic
Components) 383,906
9,350 Family Golf Centers, Inc.(a)
(Leisure) 245,438
23,000 Faro Technologies, Inc.(a)
(Electronic Components) 248,688
21,200 FBL Financial Group, Inc.
(Financial Services) 594,925
8,500 Financial Security Assurance
Holdings, Ltd. (Financial
Services) 503,625
52,500 Foodmaker, Inc.(a) (Restaurants) 885,937
29,900 Frontier Insurance Group, Inc.
(Financial Services) 732,550
54,800 Galoob Toys, Inc. (Retail) 606,225
21,600 Gaylord Container Corp.
(Containers) 180,900
25,800 General Scanning, Inc.(a)
(Industrial Components) 390,225
8,300 Golf Trust of America, Inc. (Real
Estate) 271,825
43,300 Hall, Kinion & Assoc., Inc.(a)
(Human Resources) 611,612
37,100 Imax Corp.(a) (Electronic
Components) 936,775
12,900 Interim Services, Inc.(a)
(Financial Services) 374,906
1,000 International Verifact, Inc.(a)
(Computers) 6,813
19,900 Invacare Corp. (Health Care) 524,862
36,600 Invivo Corp.(a) (Health Care) 434,625
16,900 Jabil Circuit, Inc.(a)
(Electronics) 575,656
27,000 Kilroy Realty Corp.(a) (Real
Estate) 707,062
24,800 Kulicke & Soffa Industries, Inc.(a)
(Electrical Goods) $ 424,700
25,500 Lam Research Corp.(a)
(Semiconductor & Related
Devices) 607,219
44,700 Landec Corp.(a) (Chemicals) 312,900
26,000 Liberty Property Trust (Real
Estate) 687,375
32,400 Mail-Well, Inc.(a) (Printing) 1,490,400
24,590 Medical Assurance, Inc.(a)
(Insurance) 679,299
16,400 Microchip Technology, Inc.
(Industrials) 401,800
35,600 Natural Microsystems Corp.(a)
(Telecommunications) 762,062
12,000 NCI Building Systems, Inc. (Steel &
Metals) 636,750
20,300 Nichols Research Corp.(a)
(Electronics) 487,200
38,200 Northwest Pipe Co.(a) (Steel &
Metals) 869,050
22,400 Omniquip International, Inc.
(Machinery & Equipment) 491,400
38,700 P-Com, Inc. (Network Systems) 580,500
36,000 Pairgain Technologies, Inc.(a)
(Telecommunications) 562,500
21,700 Parkway Properties, Inc. (Real
Estate) 671,344
18,950 Patterson Dental Co.(a) (Health
Care) 615,875
7,900 Perceptron, Inc.(a) (Commercial
Services) 96,775
11,500 Photronics, Inc.(a) (Electronic
Components) 303,313
39,100 Power-One, Ltd.(a) (Energy
Equipment) 386,113
24,100 Pride International, Inc. (Energy) 540,744
36,200 Quanex Corp. (Steel & Metals) 1,124,462
24,600 RDO Equipment Co.(a) (Retail) 424,350
40,000 Remec, Inc. (Aerospace/Defense) 575,000
35,500 Rowan Companies, Inc.(a) (Oil & Gas
Services) 907,469
16,000 Rural/Metro Corp.
(Security/Investigation
Services) 378,000
21,600 Sawtek, Inc.(a) (Electronic
Components) 554,175
27,700 SCI Systems Inc.(a) (Electronic
Components) 945,262
57,300 Scientific Games Holdings Corp.(a)
(Consumer Goods) 1,210,462
29,400 Sequent Computer Systems, Inc.(a)
(Computers) 486,937
17,100 Southern Pacific Funding Corp.(a)
(Other Financial Intermediaries) 262,913
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-37
<PAGE>
Portfolio of Investments as
of May 31, 1998 PRUDENTIAL GLOBAL GENESIS FUND, INC.
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
United States (cont'd.)
14,000 SpeedFam International, Inc.(a)
(Electronics) $ 273,000
29,900 Suburban Lodges America, Inc.
(Hotel/Motel) 480,269
44,600 Summit Design, Inc.(a) (Software) 663,425
7,900 Tech Data Corp.(a) (Distribution/
Wholesalers) 320,938
39,800 The BISYS Group, Inc.(a) (Data
Processing & Reproduction) 1,477,575
5,200 The PMI Group, Inc. (Insurance) 390,975
6,500 Trinity Industrial, Inc.
(Machinery) 310,375
26,800 Valmont Industries, Inc. (Steel &
Metals) 536,000
80,100 Vanguard Cellular Systems, Inc.
(Telecommunication Services) 1,436,794
68,500 Vari-Lite International, Inc.(a)
(Electrical Equipment) 479,500
13,200 Veritas DGC, Inc.(a)
(Miscellaneous) 683,925
51,200 Western Wireless Corp.(a)
(Telecommunication Services) 947,200
27,700 Wolverine Tube, Inc.(a) (Steel &
Metals) 1,011,050
-------------
56,653,506
-------------
Total common stocks
(cost US$118,150,163) 122,987,072
-------------
PREFERRED STOCKS--3.0%
- ----------------------------------------------------------------
Australia--0.1%
76,000 Star City Holdings, Ltd.(a)
(Leisure & Tourism) 48,400
- ----------------------------------------------------------------
Brazil--0.4%
1,450,000 Caemi Mineracao e Metalurgia S.A.
(Mining) 90,763
1,640,000 CIA Elet Est Bahia
(Utilities-Electric) 77,705
66,500 CIA Riograndense Tel
(Telecommunication Services) 71,689
104,000 Telepar-Telec Do Parana S.A.(a)
(Telecommunications) $ 36,618
1,194,000 Telecomunicacoes de Sao Paulo S.A.
(Telecommunication Services) 255,356
-------------
532,131
- ----------------------------------------------------------------
Germany--2.1%
2,434 Fresenius AG (Health Care) 486,745
9,546 Henkel KGAA (Chemicals) 855,568
395 Hugo Boss AG (Apparel) 854,631
1,870 Ksb Kl Schanz Beck (Machinery &
Engineering) 565,651
-------------
2,762,595
- ----------------------------------------------------------------
Netherlands--0.4%
11,859 Ballast Nedam N.V. (Building &
Construction) 562,876
-------------
Total preferred stocks
(cost US$3,599,013) 3,906,002
-------------
WARRANTS(a)--0.0%
- ----------------------------------------------------------------
Hong Kong--0.0%
149,200 Innovative International Holdings,
Ltd.
Expiring 8/31/99 @ HKD0.072
(Automotive Parts) 1,194
166,000 Kingboard Chemical Holdings
Expiring 12/31/98 @ HKD0.23
(Chemicals) 857
339,400 Wong's International Holdings, Ltd.
Expiring 5/31/00 @ HKD0.38
(Electronic Components) 8,365
-------------
Total warrants
(cost US$0) 10,416
-------------
Total long-term investments
(cost US$121,749,176) 126,903,490
-------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-38
<PAGE>
Portfolio of Investments as
of May 31, 1998 PRUDENTIAL GLOBAL GENESIS FUND, INC.
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
SHORT-TERM INVESTMENT--2.5%
- ----------------------------------------------------------------
Repurchase Agreements
United States--2.5%
US$3,364 Joint Repurchase Agreement Account
5.569%, 6/01/98
(cost US$3,364,000; Note 5) $ 3,364,000
-------------
- ----------------------------------------------------------------
Total Investments--98.0%
(cost US$125,113,176; Note 4) 130,267,490
Other assets in excess of
liabilities--2.0% 2,662,884
-------------
Net Assets--100% $ 132,930,374
=============
</TABLE>
- ---------------
+ All or partial amount of security is segregated as collateral for financial
futures transactions. Aggregate market value of $1,381,549 segregated at
5/31/98.
(a) Non-income producing security.
ADR--American Depository Receipt.
The industry classification of portfolio holdings and other net assets in excess
of liabilities shown as a percentage of net assets as of May 31, 1998 was as
follows:
Electronic Components.............................. 5.1%
Retail............................................. 4.2
Miscellaneous...................................... 3.9
Construction....................................... 3.8
Health Care........................................ 3.4
Steel & Metals..................................... 3.1
Machinery & Engineering............................ 3.1
Banking............................................ 3.0
Telecommunication Services......................... 2.9
Real Estate........................................ 2.9
Data Processing & Reproduction..................... 2.7
Computer Services.................................. 2.5
Building & Construction............................ 2.1
Distribution/Wholesalers........................... 1.9
Manufacturing...................................... 1.8
Printing........................................... 1.7
Financial Services................................. 1.7
Restaurants........................................ 1.6
Consumer Goods..................................... 1.6
Advertising........................................ 1.6
Electronics........................................ 1.5
Telecommunications................................. 1.4
Technology......................................... 1.3
Computer Software & Services....................... 1.3
Automotive Parts................................... 1.2
Industrial Components.............................. 1.1
Oil Services....................................... 1.0
Machinery.......................................... 1.0
Computers.......................................... 1.0
Building & Products................................ 1.0
Transportation-Road & Rail......................... 0.9
Chemicals.......................................... 0.9
Cellular Communications............................ 0.9
Telecommunications Equipment....................... 0.8
Insurance.......................................... 0.8
Oil & Gas Services................................. 0.7
Oil & Gas Exploration/Production................... 0.7
Housing Construction............................... 0.7
Diversified Industries............................. 0.7
Textiles & Apparel................................. 0.6
Health Services.................................... 0.6
Gold............................................... 0.6
Electrical Equipment............................... 0.6
Electrical Goods................................... 0.6
Computer Products.................................. 0.6
Automotive......................................... 0.6
Apparel............................................ 0.6
Other.............................................. 17.2
-----
95.5
Other assets in excess of liabilities.............. 4.5
(including Joint Repurchase Agreement)
100.0%
=====
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-39
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL GLOBAL GENESIS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets May 31, 1998
<S> <C>
Investments, at value (cost $125,113,176).................................................................... $130,267,490
Foreign currency, at value (cost $3,730,369)................................................................. 3,663,661
Cash......................................................................................................... 868
Receivable for investments sold.............................................................................. 2,781,052
Forward currency contracts - amount receivable from counterparties........................................... 571,063
Dividends and interest receivable............................................................................ 282,722
Receivable for Fund shares sold.............................................................................. 57,794
Other assets................................................................................................. 2,955
------------
Total assets.............................................................................................. 137,627,605
------------
Liabilities
Payable for investments purchased............................................................................ 3,072,946
Payable for Fund shares reacquired........................................................................... 939,469
Accrued expenses and other liabilities....................................................................... 452,058
Management fee payable....................................................................................... 117,970
Distribution fee payable..................................................................................... 85,745
Withholding taxes payable.................................................................................... 22,526
Due to broker - variation margin............................................................................. 6,517
------------
Total liabilities......................................................................................... 4,697,231
------------
Net Assets................................................................................................... $132,930,374
============
Net assets were comprised of:
Common stock, at par...................................................................................... $ 89,050
Paid-in capital in excess of par.......................................................................... 124,469,349
------------
124,558,399
Accumulated net realized gain on investments and foreign currency transactions............................ 2,643,958
Net unrealized appreciation on investments and foreign currency translations.............................. 5,728,017
------------
Net assets, May 31, 1998..................................................................................... $132,930,374
============
Class A:
Net asset value and redemption price per share
($47,258,981 / 2,987,524 shares of common stock issued and outstanding)................................ $15.82
Maximum sales charge (5% of offering price)............................................................... .83
------------
Maximum offering price to public.......................................................................... $16.65
============
Class B:
Net asset value, offering price and redemption price per share
($83,668,568 / 5,784,096 shares of common stock issued and outstanding)................................ $14.47
============
Class C:
Net asset value, offering price and redemption price per share
($1,234,426 / 85,334 shares of common stock issued and outstanding).................................... $14.47
============
Class Z:
Net asset value, offering price and redemption price per share
($768,399 / 48,003 shares of common stock issued and outstanding)...................................... $16.01
============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-40
<PAGE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income May 31, 1998
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $169,107)............................ $ 1,598,041
Interest................................... 192,668
------------
Total income............................ 1,790,709
------------
Expenses
Management fee............................. 1,545,460
Distribution fee--Class A.................. 125,771
Distribution fee--Class B.................. 1,018,360
Distribution fee--Class C.................. 17,392
Custodian's fees and expenses.............. 420,000
Transfer agent's fees and expenses......... 341,000
Reports to shareholders.................... 75,000
Registration fees.......................... 50,000
Audit fees and expenses.................... 32,000
Legal fees and expenses.................... 25,000
Directors' fees and expenses............... 24,000
Miscellaneous.............................. 4,412
------------
Total expenses.......................... 3,678,395
------------
Net investment (loss)......................... (1,887,686 )
------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign
Currency Transactions
Net realized gain on:
Investment transactions.................... 14,507,227
Financial futures contracts................ 377,351
Foreign currency transactions.............. 624,555
------------
15,509,133
------------
Net change in unrealized appreciation/depreciation on:
Investments................................ 136,745
Financial futures contracts................ 76,139
Foreign currency transactions.............. (606,115 )
------------
(393,231 )
------------
Net gain on investments and foreign
currencies................................. 15,115,902
------------
Net Increase in Net Assets
Resulting from Operations..................... $13,228,216
============
</TABLE>
PRUDENTIAL GLOBAL GENESIS FUND, INC.
Statement of Changes in Net Assets
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended May 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment (loss)........ $ (1,887,686) $ (1,924,435)
Net realized gain (loss) on
investments and foreign
currency transactions..... 15,509,133 58,597,973
Net change in unrealized
appreciation/depreciation
on investments and foreign
currencies................ (393,231) (46,993,272)
------------- -------------
Net increase in net assets
resulting from
operations................ 13,228,216 9,680,266
------------- -------------
Dividends from net realized
gains on investment and
foreign currency transactions
Class A...................... (14,893,328) (3,934,145)
Class B...................... (32,320,533) (11,301,405)
Class C...................... (507,925) (157,024)
Class Z...................... (200,133) (1,633)
------------- -------------
(47,921,919) (15,394,207)
------------- -------------
Fund share transactions (Net of
share conversions) (Note 6)
Net proceeds from shares
subscribed................ 158,861,747 200,389,634
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions......... 44,797,423 14,337,461
Cost of shares reacquired.... (215,610,962) (234,621,333)
------------- -------------
Net decrease in net assets
from Fund share
transactions.............. (11,951,792) (19,894,238)
------------- -------------
Total decrease.................. (46,645,495) (25,608,179)
Net Assets
Beginning of year............... 179,575,869 205,184,048
------------- -------------
End of year*.................... $ 132,930,374 $ 179,575,869
============= =============
- ---------------
* Includes undistributed net
investment income of:........ $ -- $ 2,173,253
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-41
<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 readily available, including restricted securities, are
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.
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 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.
Forward Currency Contracts: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or on specific receivable and payables denominated in a foreign
currency. The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments. Gain or loss is realized on the settlement date of
the contract equal to the difference between the settlement value of the
original and renegotiated forward contracts. This gain or loss, if any, is
included in net realized gain (loss) on foreign currency transactions. Risks may
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
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.
- --------------------------------------------------------------------------------
B-42
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL GENESIS FUND, INC.
- --------------------------------------------------------------------------------
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.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation margin,"
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss. When
the contract expires or is closed, the gain or loss is realized and is presented
in the statement of operations as net realized gain (loss) on financial futures
contracts.
The Fund invests in financial futures contracts in order to hedge existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value. Under a variety of circumstances, the Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
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 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 foreign investment companies and foreign currency 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 undistributed net investment income and increase
accumulated net realized gain on investments by $285,567 for the year ended May
31, 1998. Net realized gains and net assets were not affected by this change.
This was primarily due to reclassification of net operating loss and foreign
currency gains.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadvisor's performance of such
services. PIFM 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. PIFM pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of 1% of the average daily net assets of the Fund.
The Fund has distribution agreements with Prudential Securities Incorporated
("PSI"), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates 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.
No distribution or service fees are paid to PSI as distributor of the Class Z
shares of the Fund. Effective July 1, 1998, Prudential Investment Management
Services LLC ("PIMS") became the distributor of the Fund and will serve the Fund
under the same terms and conditions as under the arrangement with PSI.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI for its
distribution related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1%
- --------------------------------------------------------------------------------
B-43
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL GENESIS FUND, INC.
- --------------------------------------------------------------------------------
of the average daily net assets of the Class A, Class B and Class C shares,
respectively, for the year ended May 31, 1998.
PSI has advised the Fund that it received approximately $39,000 in front-end
sales charges resulting from sales of Class A shares during the year ended May
31, 1998. From these fees, PSI paid such sales charges to 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, 1998, it received
approximately $256,200 and $5,600 in contingent deferred sales charges imposed
upon redemptions by certain Class B and Class C shareholders, respectively.
PIC, PSI, PIFM and PIMS are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
"Funds"), has a credit agreement (the "Agreement") with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund did not borrow any amounts pursuant to the Agreement during the fiscal year
ended May 31, 1998. The Funds pay a commitment fee at an annual rate of .055 of
1% on the unused portion of the credit facility. The commitment fee is accrued
and paid quarterly on a pro rata basis by the Funds. The Agreement expired on
December 30, 1997 and has been extended through December 29, 1998 under the same
terms.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended May 31, 1998, the
Fund incurred fees of approximately $327,000 for the services of PMFS. As of May
31, 1998, approximately $26,000 of such fees were due to PMFS. Transfer agent
fees and expenses in the Statement of Operations include certain out-of-pocket
expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended May 31, 1998 aggregated $287,072,166 and $316,860,579,
respectively.
On May 28, 1998, the Fund sold 20 Hang Seng Stock Index financial futures
contracts expiring in June, 1998. The value of such contracts at trade date was
$1,219,512. The value of such contracts on May 31, 1998 was $1,143,373, thereby
resulting in an unrealized gain of $76,139.
For federal income tax purposes, the Fund will elect to treat net capital losses
of $2,548,833 incurred in the seven month period ending May 31, 1998 as having
been incurred in the following fiscal year.
The federal income tax basis of the Fund's investments at May 31, 1998 was
$125,136,232 and accordingly, net unrealized appreciation for federal income tax
purposes was $5,131,258 (gross unrealized appreciation--$13,855,446; gross
unrealized depreciation--$8,724,188).
At May 31, 1998 the Fund had outstanding forward currency contracts to sell
foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Current
Sale Contract Date Payable Value Appreciation
- ------------- ------------ ----- ------------
<S> <C> <C> <C>
Hong Kong Dollar
expiring 4/27/99 $1,400,000 $1,378,228 $ 21,772
Japanese Yen
expiring
6/19/98-11/16/98 6,234,805 5,685,514 549,291
------------ ---------- --------------
$7,634,805 $7,063,742 $ 571,063
============ ========== ==============
</TABLE>
- ------------------------------------------------------------
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, 1998, the Fund had a
.27% undivided interest in the repurchase agreements in the joint account. The
undivided interest for the Fund represented $3,364,000 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., Inc., 5.56%, in the principal amount of $300,000,000,
repurchase price $300,139,000, due 6/1/98. The value of the collateral including
accrued interest is $306,379,160.
Credit Suisse First Boston Corp., 5.60%, in the principal amount of
$300,000,000, repurchase price $300,140,750, due 6/1/98. The value of the
collateral including accrued interest is $310,487,462.
Deutsche Morgan Grenfell, Inc., 5.57%, in the principal amount of $300,000,000,
repurchase price $300,139,250, due 6/1/98. The value of the collateral including
accrued interest is $306,000,546.
- --------------------------------------------------------------------------------
B-44
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL GENESIS FUND, INC.
- --------------------------------------------------------------------------------
J.P. Morgan Securities, Inc., 5.55%, in the principal amount of $148,698,000,
repurchase price $148,766,772, due 6/1/98. The value of the collateral including
accrued interest is $151,672,586.
UBS Securities LLC, 5.55%, in the principal amount of $194,446,000, repurchase
price $194,535,931, due 6/1/98. The value of the collateral including accrued
interest is $198,337,064.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 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. Effective September 16, 1996 the Fund commenced offering
Class Z shares. Class Z shares are not subject to any sales or redemption charge
and are offered exclusively for sale to a limited group of investors.
The Fund has authorized 500 million shares of common stock at $.01 par value per
share equally divided into four classes, designated Class A, Class B, Class C
and Class Z common stock.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- -------------
<S> <C> <C>
Year ended May 31, 1998:
Shares sold......................... 5,019,452 $ 105,272,172
Shares issued in reinvestment of
dividends and distributions....... 1,015,441 14,134,947
Shares reacquired................... (6,145,726) (127,189,388)
---------- -------------
Net decrease in shares outstanding
before conversion................. (110,833) (7,782,269)
Shares issued upon conversion from
Class B........................... 421,183 8,102,359
---------- -------------
Net increase in shares
outstanding....................... 310,350 $ 320,090
========== =============
Year ended May 31, 1997:
Shares sold......................... 8,953,813 $ 182,785,315
Shares issued in reinvestment of
dividends and distributions....... 190,292 3,701,176
Shares reacquired................... (9,155,598) (187,256,402)
---------- -------------
Net decrease in shares outstanding
before conversion................. (11,493) (769,911)
Shares issued upon conversion from
Class B........................... 498,308 10,387,463
---------- -------------
Net increase in shares
outstanding....................... 486,815 $ 9,617,552
========== =============
<CAPTION>
Class B Shares Amount
- ------- ---------- -------------
<S> <C> <C>
Year ended May 31, 1998:
Shares sold......................... 2,217,860 $ 41,493,238
Shares issued in reinvestment of
dividends and distributions....... 2,349,000 29,996,731
Shares reacquired................... (4,280,118) (75,664,364)
---------- -------------
Net decrease in shares outstanding
before conversion................. 286,742 (4,174,395)
Shares reacquired upon conversion
into Class A...................... (450,967) (8,102,359)
---------- -------------
Net decrease in shares
outstanding....................... (164,225) $ (12,276,754)
========== =============
Year ended May 31, 1997:
Shares sold......................... 810,611 $ 15,969,287
Shares issued in reinvestment of
dividends and distributions....... 566,184 10,491,393
Shares reacquired................... (2,346,819) (45,831,867)
---------- -------------
Net decrease in shares outstanding
before conversion................. (970,024) (19,371,187)
Shares reacquired upon conversion
into Class A...................... (521,816) (10,387,463)
---------- -------------
Net decrease in shares
outstanding....................... (1,491,840) $ (29,758,650)
========== =============
<CAPTION>
Class C
- -------
<S> <C> <C>
Year ended May 31, 1998:
Shares sold......................... 557,352 $ 11,511,610
Shares issued in reinvestment of
dividends and distributions....... 36,604 467,431
Shares reacquired................... (601,469) (12,299,491)
---------- -------------
Net decrease in shares
outstanding....................... (7,513) $ (320,450)
========== =============
Year ended May 31, 1997:
Shares sold......................... 38,355 $ 755,412
Shares issued in reinvestment of
dividends and distributions....... 7,732 143,268
Shares reacquired................... (62,253) (1,230,103)
---------- -------------
Net decrease in shares
outstanding....................... (16,166) $ (331,423)
========== =============
<CAPTION>
Class Z
- -------
<S> <C> <C>
Year ended May 31, 1998:
Shares sold......................... 32,016 $ 584,727
Shares issued in reinvestment of
dividends and distributions....... 14,095 198,314
Shares reacquired................... (26,276) (457,719)
---------- -------------
Net increase in shares
outstanding....................... 19,835 $ 325,322
========== =============
September 16, 1996* through
May 31, 1997:
Shares sold......................... 43,203 $ 879,620
Shares issued in reinvestment of
dividends and distributions....... 83 1,624
Shares reacquired................... (15,118) (302,961)
---------- -------------
Net increase in shares
outstanding....................... 28,168 $ 578,283
========== =============
- ---------------
* Commencement of offering of Class Z shares.
</TABLE>
- --------------------------------------------------------------------------------
B-45
<PAGE>
Financial Highlights PRUDENTIAL GLOBAL GENESIS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year Ended May 31,
-------------------------------------------------------
1998 1997 1996(b) 1995(b) 1994(b)
------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $ 21.30 $ 21.74 $ 18.44 $ 18.75 $ 15.34
------- ------- ------- ------- -------
Income from investment operations
Net investment income (loss).................. (.20) (.14) .05(a) -- (.03)(a)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... 1.37 1.45 3.34 (.21) 3.83
------- ------- ------- ------- -------
Total from investment operations........... 1.17 1.31 3.39 (.21) 3.80
------- ------- ------- ------- -------
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............................... (6.65) (1.75) -- (.02) (.24)
------- ------- ------- ------- -------
Total distributions........................ (6.65) (1.75) (.09) (.10) (.39)
------- ------- ------- ------- -------
Net asset value, end of year.................. $ 15.82 $ 21.30 $ 21.74 $ 18.44 $ 18.75
======= ======= ======= ======= =======
TOTAL RETURN (c):............................. 9.81% 6.74% 18.41% (0.95)% 25.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $47,259 $57,032 $47,617 $44,051 $29,221
Average net assets (000)...................... $50,309 $47,563 $45,070 $32,430 $16,909
Ratios to average net assets:
Expenses, including distribution fees...... 1.88% 1.91%(d) 1.79%(a) 1.42%(a) 1.48%(a)
Expenses, excluding distribution fees...... 1.63% 1.66%(d) 1.54%(a) 1.17%(a) 1.25%(a)
Net investment income (loss)............... (.71)% (.49)% .26%(a) .02%(a) (.17)%(a)
For Class A, B, C and Z shares:
Portfolio turnover rate....................... 198% 60% 44% 64% 31%
</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 year reported and includes reinvestment of dividends and
distributions.
(d) Restated from prior year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-46
<PAGE>
Financial Highlights PRUDENTIAL GLOBAL GENESIS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------
Year Ended May 31,
------------------------------------------------------------
1998 1997 1996(b) 1995(b) 1994(b)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $ 20.18 $ 20.87 $ 17.84 $ 18.22 $ 14.93
-------- -------- -------- -------- --------
Income from investment operations
Net investment income (loss).................. (.26) (.33) (.09)(a) (.13)(a) (.16)(a)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... 1.20 1.39 3.21 (.19) 3.74
-------- -------- -------- -------- --------
Total from investment operations........... .94 1.06 3.12 (.32) 3.58
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income.......... -- -- -- -- (.05)
Dividends in excess of net investment
income..................................... -- -- (.09) (.03) --
Distributions from net realized gains on
investment and foreign currency
transactions............................... (6.65) (1.75) -- (.03) (.24)
-------- -------- -------- -------- --------
Total distributions........................ (6.65) (1.75) (.09) (.06) (.29)
-------- -------- -------- -------- --------
Net asset value, end of year.................. $ 14.47 $ 20.18 $ 20.87 $ 17.84 $ 18.22
======== ======== ======== ======== ========
TOTAL RETURN (c):............................. 9.04% 5.83% 17.51% (1.73)% 24.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $ 83,669 $120,067 $155,292 $153,670 $174,659
Average net assets (000)...................... $101,836 $133,073 $154,566 $173,591 $102,451
Ratios to average net assets:
Expenses, including distribution fees...... 2.63% 2.66%(d) 2.54%(a) 2.17%(a) 2.25%(a)
Expenses, excluding distribution fees...... 1.63% 1.66%(d) 1.54%(a) 1.17%(a) 1.25%(a)
Net investment (loss)...................... (1.48)% (1.26)% (.48)%(a) (.77)%(a) (.91)%(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 year reported and includes reinvestment of dividends and
distributions.
(d) Restated from prior year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-47
<PAGE>
Financial Highlights PRUDENTIAL GLOBAL GENESIS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
--------------------------------------------- -----------------------------
August 1, September 16,
1994(d) 1996(e)
Year Ended May 31, Through Year Ended Through
------------------------------- May 31, May 31, May 31,
1998 1997 1996(b) 1995(b) 1998 1997
------- ------- ------- --------- ---------- --------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 20.18 $ 20.87 $17.84 $ 18.44 $ 21.39 $20.46
------- ------- ------- --------- ---------- -----
Income from investment operations
Net investment gain (loss).................... (.26) (.27) (.08 )(a) (.12)(a) (.38) .03
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... 1.20 1.33 3.20 (.44) 1.65 2.65
------- ------- ------- --------- ---------- -----
Total from investment operations........... .94 1.06 3.12 (.56) 1.27 2.68
------- ------- ------- --------- ---------- -----
Less distributions
Dividends from net investment income.......... -- -- -- -- -- --
Dividends in excess of net investment
income..................................... -- -- (.09 ) (.03) -- --
Distributions from net realized gains on
investment and foreign currency
transactions............................... (6.65) (1.75) -- (.01) (6.65) (1.75)
------- ------- ------- --------- ---------- -----
Total distributions........................ (6.65) (1.75) (.09 ) (.04) (6.65) (1.75)
------- ------- ------- --------- ---------- -----
Net asset value, end of period................ $ 14.47 $ 20.18 $20.87 $ 17.84 $ 16.01 $21.39
======= ======= ======= ========= ========== =====
TOTAL RETURN (c):............................. 9.04% 5.83% 17.51 % (2.90)% 10.22% 13.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 1,234 $ 1,874 $2,275 $ 1,307 $ 768 $ 603
Average net assets (000)...................... $ 1,739 $ 1,958 $1,809 $ 862 $ 662 $ 188
Ratios to average net assets:
Expenses, including distribution fees...... 2.63% 2.66%(g) 2.54 %(a) 2.27%(a)(f) 1.63% 1.66%(f)(g)
Expenses, excluding distribution fees...... 1.63% 1.66%(g) 1.54 %(a) 1.27%(a)(f) 1.63% 1.66%(f)(g)
Net investment (loss)...................... (1.43)% (1.24)% (.44 )%(a) (.90) (a)(f) (.43)% (.87)%(f)
</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) Commencement of offering of Class Z shares.
(f) Annualized.
(g) Restated from prior year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-48
<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, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with 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,
1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
July 20, 1998
- --------------------------------------------------------------------------------
B-49
<PAGE>
APPENDIX I--DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE, INC.
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.
PRIME-1: Issues rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations.
PRIME-2: Issues rated Prime-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: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high for issues
designated A-1.
I-1
<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.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential.
Standard deviation is only one of several measures of a fund's volatility.
II-1
<PAGE>
APPENDIX III--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.
[Line graph appears here]
[EDGAR REPRESENTATION OF CHART]
HISTORICAL PERFORMANCE DATA
Value of $1.00 invested
on 1/1/26 through 12/31/97.
Small Stocks $5,519.97
Common Stocks $1,828.33
Long-Term Bonds $39.07
Treasury Bills $14.25
Inflation $9.02
Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook, Ibbotson Associates,
Chicago, Illinois (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. This chart is for illustrative purposes
only and is not indicative of the past, present, or future performance of any
asset class or any Prudential Mutual Fund.
Generally, stock returns are due to capital appreciation and the reinvestment
of distributions. Bond returns are attributable mainly to the reinvestment of
interest. Also, stock prices are usually more volatile than bond prices over
the long-term. Small stock returns for 1926-1980 are those of stocks
comprising the 5th quintile of the New York Stock Exchange. Thereafter,
returns are those of the Dimensional Fund Advisors (DFA) Small Company Fund.
Common stock returns are based on the S&P 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 measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).
III-1
<PAGE>
The following 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 1997. 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
<TABLE>
<CAPTION>
Historical Total Returns of Different Bond Market Sectors
YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury
Bonds/1/ 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7 -3.4% 18.4% 2.7% 9.6%
- ----------------------------------------------------------------------------------------------------
U.S. Government
Mortgage
Securities/2/ 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% -1.6% 16.8% 5.4% 9.5%
- ----------------------------------------------------------------------------------------------------
U.S. Investment
Grade Corporate
Bonds/3/ 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3% 3.3% 10.2%
- -----------------------------------------------------------------------------------------------------
U.S. High Yield
Corporate
Bonds/4/ 5.0% 12.5% 0.8% -9.6% 46.2% 15.8% 17.1% -1.0% 19.2% 11.4% 12.8%
- -----------------------------------------------------------------------------------------------------
World Government
Bonds/5/ 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3%)
- ------------------------------------------------------------------------------------------------------
Differences
between
highest and
lowest returns
percent 33.2% 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1
- ------------------------------------------------------------------------------------------------------
</TABLE>
/1/ LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one year.
/2/ LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
/3/ LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.
/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.
III-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 in the stocks representing the S&P
December 31, 1985 through December 500 stock index with and without
31, 1997. It does not represent reinvested dividends.
the performance of any Prudential
Mutual Fund. [Line graph appears here]
[EDGAR Representation of Chart]
Capital Appreciation Only... $105,413
FOREIGN STOCK MARKETS HAVE OFTEN Capital Appreciation and
Reinvesting Dividends...... $304,596
OUTPERFORMED THOSE IN THE U.S. Source: Stocks, Bonds, Bills, and
Average Annual Total Returns of Inflation 1998 Yearbook, Ibbotson
Major World Associates, Chicago (annually
Stock Markets (12/31/85-12/31/97) updates work by Roger G. Ibbotson
and Rex A. Sinquefield). Used with
[BAR GRAPH APPEARS HERE] permission. All rights reserved.
This chart is used for illustrative
The Netherlands 20.5% purposes only and is not intended to
Sweden 20.4% represent the past, present or
Spain 20.4% future performance of any Prudential
Hong Kong 19.7% Mutual Fund. Common stock total
Belgium 19.5% return is based on the Standard &
Switzerland 17.9% Poor's 500 Stock Index, a market-
USA 17.1% value-weighted index made up of 500
UK 16.6% of the largest stocks in the U.S.
France 15.6% based upon their stock market value.
Germany 12.1% Investors cannot invest directly in
Austria 9.6% indices.
Japan 6.6%
Source: Morgan Stanley Capital
International (MSCI) based on data
retrieved from Lipper Analytical
New Application (LANA) as of
12/31/97. Used with permission.
Morgan Stanley Country indices are
unmanaged indices which include
those stocks making up the largest
two-thirds of each country's total
stock market capitalization.
Returns reflect the reinvestment
of all distributions. This chart
is for illustrative purposes only
and is not indicative of the past,
present or future performance of
any specific investment. Investors
cannot invest directly in stock
indices.
---------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY
REGION
World Total: $12.5 Trillion
[pie chary appears here]
Canada 2.5%
U.S. 49.8%
Europe 32.1%
Pacific Basin 15.6%
Source: Morgan Stanley Capital
International, December 31, 1997.
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 1577 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.
III-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1997)
[Line graph appears here]
- ---------------------------------------
Source: Stocks, Bonds, Bills, and Inflation 1998 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 1926-1997.
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.
III-4
<PAGE>
APPENDIX IV--INFORMATION RELATING TO 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, 1997 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, 1996. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs almost 79,000
persons worldwide, and maintains a sales force of approximately 10,100 agents
and 6,500 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 nearly 40 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 25 million life insurance policies and group certificates in
force today with a face value of almost $1 trillion. Prudential has the
largest capital base ($12.3 billion) of any life insurance company in the
United States. Prudential provides auto insurance for more than 1.5 million
cars and insures more than 1.2 million homes.
Money Management. 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. As of December 31, 1997, Prudential had more than $370 billion in
assets under management. Prudential Investments, a business group of
Prudential (of which Prudential Mutual Funds is a key part) manages over $211
billion in assets of institutions and individuals. In Pensions & Investments,
May 12, 1997, Prudential was ranked third in terms of total assets under
management.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers
and agents across the United States./2/
Healthcare. Over two decades ago, Prudential introduced the first federally-
funded, for-profit HMO in the country. Today, approximately 4.9 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has nearly $4 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of June 30, 1998 Prudential Investments Fund Management LLC is the
eighteenth largest mutual fund company 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 Investments, a business group 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 the subadviser to Nicholas-Applegate Fund,
Inc., Jennison Associates Capital Corp. LLC as one of the subadvisers to
The Prudential Investment Portfolio Inc., Mercator Asset Management LP as
the Subadviser to International Stock Series, a portfolio of Prudential
World Fund, Inc.There are multiple subadvisers for The Target Portfolio
Trust.
/2/ As of December 31, 1997.
IV-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
approximately 200 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 conduct 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.
IV-2
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1997, assets held by Prudential Securities for
its clients approximated $235 billion.
During 1997, approximately 29,000 new customer accounts were opened each
month at Prudential Securities.
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 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./7/
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.
Standard & Poor's rates Prudential Securities Incorporated BBB+, with a
"stable outlook."
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/ 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.
IV-3
