GLOBAL UTILITY FUND INC, 485BXT, 1999-11-26

GLOBAL UTILITY FUND INC
485BXT, 1999-11-26

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As filed with the Securities and Exchange Commission on November 24, 1999

Securities Act Registration No. 33-37356
Investment Company Act Registration No. 811-5695
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 14 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 20 [X]
(Check appropriate box or boxes)
GLOBAL UTILITY FUND, INC.
(Exact name of registrant as specified in charter)

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

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7530

DAVID F. CONNOR, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS) COPY TO:
ARTHUR J. BROWN, ESQ.
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):

[ ] immediately upon filing pursuant to paragraph (b)
[X] on December 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a), of Rule 485.
[ ] on (date) pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[X] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.

Title of Securities Being Registered: Common Stock, par value $.001 per share.

<PAGE>

FUND TYPE:
- ---------------------------
Global stock

INVESTMENT OBJECTIVE:
- ---------------------------
Total return

Global Utility Fund, Inc.

PROSPECTUS DATED NOVEMBER __, 1999

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

[Logo]
<PAGE>

Table of Contents

1 Risk/Return Summary
1 Investment Objective and Principal Strategies
2 Principal Risks
3 Evaluating Performance
4 Fees and Expenses
7 How the Fund Invests
7 Investment Objective and Policies
9 Other Investments and Strategies
11 Investment Risks

15 How the Fund is Managed
15 Manager
15 Investment Adviser
15 Portfolio Managers
16 Distributor
16 Year 2000 Readiness Disclosure

18 Fund Distributions and Tax Issues
18 Distributions
19 Tax Issues
20 If You Sell or Exchange Your Shares

22 How to Buy, Sell and Exchange Shares of the Fund
22 How to Buy Shares
30 How to Sell Your Shares
34 How to Exchange Your Shares

36 Financial Highlights
37 Class A Shares
38 Class B Shares
39 Class C Shares
40 Class Z Shares

42 The Prudential Mutual Fund Family

For More Information (Back Cover)

GLOBAL UTILITY FUND, INC. (800) 225-1852
<PAGE>

Risk/Return Summary

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

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is to provide TOTAL RETURN, without incurring undue
risk, by investing primarily in income-producing securities of domestic and
foreign companies engaged primarily in the utility industries. Total return is
made up of CURRENT INCOME and GROWTH OF CAPITAL. This means we seek investments
that will increase in value, as well as pay the Fund interest and other income.
We normally invest at least 65% of the Fund's total assets in EQUITY-RELATED and
DEBT SECURITIES of utility companies. UTILITY COMPANIES include electric, gas,
gas pipeline, telephone, telecommunications, water, cable, airport, seaport and
toll road companies. Some of these securities are issued by foreign companies.
We also normally may invest up to 35% of the Fund's total assets in securities
of both utility and non-utility companies. We invest primarily in investment
grade debt securities but may invest up to 5% of the Fund's assets in debt
securities rated below investment grade. We consider a company to be "primarily
engaged" in the utility industries if either:

> more than 50% of the company's assets are devoted to the ownership or
operation of one or more facilities described above, or

[sidebar]

HOW WE INVEST
Investments are selected on the basis of fundamental analysis to identify those
securities that provide current income and potential for growth of income and
long-term capital appreciation. Fundamental analysis involves assessing a
company and its business environment, management, balance sheet, income
statement, anticipated earnings and dividends and other related measures of
value. We monitor and evaluate the economic and political climate and the
principal securities markets of the country in which each company is located.
The relative weightings among common stocks, debt securities and preferred
stocks will vary from time to time based upon the investment adviser's judgment
of the extent to which investments in each category will contribute to meeting
the Fund's investment objective.

[end sidebar]

> more than 50% of the company's operating revenues are derived from the
business or combination of businesses described above.

The Fund will invest in the securities of companies located in at least
three countries, one of which will be the United States. Under normal cir-

1
<PAGE>

Risk/Return Summary

cumstances, the percentage of the Fund's assets invested in the U.S. will be
higher than that invested in any single other country.
We can invest up to 35% of the Fund's total assets in non-utility
equity-related securities, debt obligations and money market instruments. We
also may use derivatives (including futures, options, foreign currency forward
contracts and options on futures). While we make every effort to achieve our
objective, we can't guarantee success.

PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests primarily in income-producing securities, there is the risk that
interest rates will go up significantly, which generally causes the prices of
these securities to go down.
Because the Fund focuses its investments in the utilities industry, the
value of your fund shares may rise and fall more than the value of shares of a
fund that invests more broadly. In addition, a change in prevailing interest
rates is likely to affect the Fund's net asset value because prices of debt
securities and equity securities of utility companies tend to increase when
interest rates decline and decrease when interest rates rise.
The utility companies in which the Fund invests, both in the U.S. and in
foreign countries, are subject to substantial regulation. Such regulation, while
intended to ensure appropriate standards for review and adequate capacity to
meet public demand, can adversely impact the profitability of investment in
these companies.
Since we invest in foreign securities, there are more risks than if we
invested only in obligations of the U.S. Government and U.S. corporations. The
amount of income available for distribution may be affected by our foreign
currency gains or losses and certain hedging activities. Foreign markets,
especially those in developing countries, tend to be more volatile than U.S.
markets and changes in currency exchange rates can reduce or increase market
performance. There is less public information available regarding foreign
companies, and such companies are not subject to the same accounting, auditing
and financial reporting standards and requirements of domestic companies.

The Fund may use risk management techniques to try to preserve assets or
enhance return. These strategies may present above average risks. Derivatives
may not fully offset the underlying positions and this could result in losses to
the Fund that would not otherwise have occurred.

GLOBAL UTILITY FUND, INC. (800) 225-1852
<PAGE>

Risk/Return Summary

Some of our investment strategies involve additional risks. Like any mutual
fund, an investment in the Fund could lose value, and you could lose money. For
more detailed information about the risks associated with the Fund, see
"Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

EVALUATING PERFORMANCE
A number of factors -- including risk -- affect how the Fund performs. The
following bar chart and table show the Fund's performance for each full calendar
year of operation. They demonstrate the risk of investing in the Fund by showing
how returns can change from year to year. Past performance does not mean that
the Fund will achieve similar results in the future.

3
<PAGE>

Risk/Return Summary

ANNUAL RETURNS1 (CLASS A SHARES)

[NEW PLOTTING FIGURES TO COME]

Best quarter: __% (_th quarter of __) WORST quarter: __% (_rd quarter of ___)

1 THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES
WERE INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. THE
TOTAL RETURN ON THE FUND'S CLASS A SHARES FROM 1-1-99 TO 9-30-99 WAS
____________%.

AVERAGE ANNUAL RETURNS1 AS OF 12/31/98
1 YR 5 YRS SINCE INCEPTION
Class A shares ( )% % % (Since 1-2-90)
Class B shares ( )% % % (Since 3-18-91)
Class C shares % % % (Since 8-1-94)
Class Z shares % N/A % (Since 12-16-96)
FT/S&P
Actuaries World
Utilities Index2 % % % (Since 1-1-90)
Lipper Average3 % % % (Since 1-1-90)

1 THE FUND'S RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.

2 SOURCE: GOLDMAN, SACHS & CO. THE FINANCIAL TIMES (FT)/S&P ACTUARIES WORLD
UTILITIES INDEX IS AN UNMANAGED INDEX AND IS CURRENTLY COMPRISED OF
APPROXIMATELY 183 WORLD UTILITY STOCKS REPRESENTING APPROXIMATELY 29
COUNTRIES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX.

3 THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN
THE LIPPER UTILITY FUND CATEGORY AND DOES NOT INCLUDE THE EFFECT OF ANY
SALES CHARGES. AGAIN, THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE
EFFECT OF SALES CHARGES. LIPPER RETURNS SINCE INCEPTION OF EACH CLASS ARE %
FOR CLASS A, % FOR CLASS B, % FOR CLASS C AND % FOR CLASS Z SHARES.
SOURCE: LIPPER, INC.

FEES AND EXPENSES
These tables show the sales charges, fees and expenses for each share class of
the Fund -- Class A, B, C and Z. Each share class has different sales
charges -- known as loads -- and expenses, but represents an investment in the
same fund. Class Z shares are availablE only to a limited group of investors.
For more information about which share class may be right for you, see "How to
Buy, Sell and Exchange Shares of the Fund."

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

Risk/Return Summary

SHAREHOLDER FEES1 (PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 5% None 1% None

Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or sale proceeds) None 5%2 1%3 None

Maximum sales charge (load) imposed
on reinvested dividends and other distributions None None None None

Redemption fees None None None None

Exchange fee None None None None

ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)

CLASS A CLASS B CLASS C CLASS Z
Management fees .67% .67% .67% .67%
+ Distribution and service (12b-1) fees .30%4 1.00% 1.00% None
+ Other expenses .26% .26% .26% .26%
= Total annual Fund operating expenses 1.23% 1.93% 1.93% .93%
- Fee waiver or expense reimbursement .05% None None None
= Net annual Fund operating expenses 1.18% 1.93% 1.93% .93%
</TABLE>

1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
SALES OF SHARES.

2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B SHARES DECREASES BY
1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH YEAR.
CLASS B SHARES CONVERT TO CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER
PURCHASE.

3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN 18 MONTHS OF
PURCHASE.

4 FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2000, THE DISTRIBUTOR OF THE FUND
HAS CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12B-1)
FEES FOR CLASS A SHARES TO .25% OF THE AVERAGE DAILY NET ASSETS OF THE
CLASS A SHARES.

<PAGE>

Risk/Return Summary

EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:

1 yr 3 yrs 5 yrs 10 yrs
Class A shares $000 $000 $000 $000
Class B shares $000 $000 $000 $000
Class C shares $000 $000 $000 $000
Class Z shares $000 $000 $000 $000

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

1 yr 3 yrs 5 yrs 10 yrs
Class A shares $000 $000 $000 $000
Class B shares $000 $000 $000 $000
Class C shares $000 $000 $000 $000
Class Z shares $000 $000 $000 $000

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

How the Fund Invests

INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide TOTAL RETURN. While we make every
effort to achieve our objective, we can't guarantee success.
In pursuing our objective, we normally invest at least 65% of the Fund's
total assets in a diversified portfolio of common stocks, debt securities and
preferred stocks issued by domestic and foreign companies engaged in the
ownership or operation of facilities used in the generation, transmission or
distribution of electricity, telecommunications, gas or water. The Fund normally
may invest up to 35% of the Fund's total assets in debt securities.
We can invest up to 35% of the Fund's total assets in non-utility
equity-related securities, debt obligations and money market instruments. We
also may use derivatives.
As a "global" fund, we usually invest in issuers from at least three
different countries, one of which will be the United States. Although the Fund
adjusts this mix as market conditions and economic outlooks change, it typically
invests a higher percentage of its total assets in U.S. securities than in the
securities of any single other country. The Fund may invest in securities of
developing countries, which may be subject to more abrupt or erratic market
movements than those of developed countries.

EQUITY-RELATED SECURITIES
The Fund may invest all of its assets in EQUITY-RELATED SECURITIES. These
securities include common stocks, preferred stocks, warrants and rights that can
be exercised to obtain stock, American Depository Receipts (ADRs) and similar
securities. ADRs are certificates representing the right to receive foreign
securities that have been deposited with a U.S. bank (or a foreign branch of a
U.S. bank). Convertible securities are bonds, debentures, corporate notes and
preferred stocks that can be converted into the company's common stock or some
other equity security.

DEBT SECURITIES
Most of the Fund's debt securities are "investment-grade." This means major
rating services, like Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"), have rated the securities within one of
their four highest quality grades. Up to 5% of the Fund's total assets may be
invested in lower-rated securities (i.e., below Baa or BBB), which are

7
<PAGE>

How the Fund Invests

riskier and considered "speculative." We also may invest in obligations that are
not rated, but that we believe are of comparable quality to the obligations
described above.

DERIVATIVE STRATEGIES
We may use alternative investment strategies -- including investing in
DERIVATIVES -- to try to improve the Fund's returns or protect its assets,
although we cannot guarantee that these strategies will work, that the
instruments necessary to implement these strategies will be available or that
the Fund will not lose money. Although our investments in derivatives are not
expected to be principal investments of the Fund, they may be utilized to
varying degrees to help pursue the Fund's objective.
Derivatives -- such as futures, options, foreign currency forward contracts
and options on futures -- involve costs and can be volatile. With derivatives,
the investment adviser tries to predict whether the underlying investment -- a
security, market index, currency, interest rate or some other benchmark -- will
go up or down at some future date. We may use derivatives to try to reduce risk
or to increase return consistent with the Fund's overall investment objective.
The investment adviser will consider other factors (such as cost) in deciding
whether to employ any particular strategy or use any particular instrument.
Because we are a global fund and invest in securities denominated in
different foreign currencies, we may use "currency hedges." Currency hedges can
help protect the Fund's net asset value or NAV from declining if a particular
foreign currency were to decrease in value compared to the U.S. dollar.
The Fund may enter into forward foreign currency exchange 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. The Fund, and
thus the investor, may lose money through any unsuccessful use of these
strategies. Transaction hedging is the purchase or sale of a forward contract

GLOBAL UTILITY FUND, INC. (800) 225-1852
<PAGE>
How the Fund Invests

with respect to specific receivables or payables of the Fund generally arising
in connection with the purchase or sale of its portfolio securities and accruals
of interest or dividends receivable and Fund expenses. Position hedging is the
sale of a foreign currency with respect to portfolio security positions
denominated or quoted in that currency or in a currency bearing a high degree of
positive correlation to the value of the currency (cross hedge). Although there
are no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge with respect to a particular currency for an
amount greater than the aggregate market value (determined at the time of making
any sale of forward currency) of the securities held in its Portfolio
denominated or quoted in, or currently convertible into, such currency.
For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks -- Additional Investment Policies."

OTHER PRINCIPAL INVESTMENTS
Up to 35% of the Fund's assets may be invested in equity and debt
securities of companies outside the utility industry.
The Fund may also use a variety of "hedging" strategies intended to help
protect the value of the Fund's securities rather than to make a profit. These
may include derivative transactions which are described in more detail in the
Fund's Statement of Additional Information.
For more information about this Fund and its investments, see "Investment
Risks" and the Statement of Additional Information, "Description of the Fund,
Its Investments and Risks." The Statement of Additional Information -- which we
refer to as the SAI -- contains additional information about the Fund. To obtain
a copy, see the back cover page of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
that are not fundamental.

OTHER INVESTMENTS AND STRATEGIES
We may also use the following investments or strategies to increase the Fund's
return or protect its assets if market conditions warrant. These investments are
generally not considered principal investments of the Fund.

9
<PAGE>

How the Fund Invests

TEMPORARY DEFENSIVE INVESTMENTS AND CASH MANAGEMENT
Under normal circumstances, the Fund may invest in equity-related securities and
debt securities. In response to adverse market, economic or political
conditions, we may temporarily invest up to 100% of the Fund's assets in
high-quality securities denominated in U.S. dollars, U.S. Treasury securities or
hold cash. Investing heavily in these securities limits our ability to achieve
capital appreciation, but can help to preserve the Fund's assets when the
markets are volatile.

REPURCHASE AGREEMENTS
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time.

ADDITIONAL STRATEGIES
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 331/3% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund can lend up to 30% of the value of its total assets, including
collateral received in the transaction); and holds ILLIQUID SECURITIES (the Fund
may hold up to 15% of its net assets in illiquid securities, including
securities with legal or contractual restrictions, those without a readily
available market, and repurchase agreements with maturities longer than seven
days). The Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

How the Fund Invests

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

INVESTMENT TYPE
% OF FUND'S ASSETS
SECURITIES OF UTILITY COMPANIES

AT LEAST 65% OF TOTAL ASSETS

RISKS

> Inflationary and other cost increases in fuel and other operating expenses
including costs of capital

> Utilities' earnings growth may be slower than broad market indices

> Deregulation of utility companies may increase competition, reduce revenues
and depress their earnings

> Changes in regulatory environment

> See equity-related securities and debt securities

POTENTIAL REWARDS

> Potential for both current income and capital appreciation

> Utilities are regulated by the government so earnings are more consistent
and less susceptible to economic cycles

> Most utility stocks have higher yields than other sectors of the market

> Deregulation of utility companies may present opportunities for significant
capital appreciation

EQUITY-RELATED SECURITIES
UP TO 100% OF TOTAL ASSETS

RISKS

> Individual stocks could lose value

> The equity markets could go down resulting in a decline in value of the
Fund's investments

> Companies that pay dividends may not do so if they don't have profits or
adequate cash flow

> Changes in economic or political conditions, both domestic and
international, may result in a decline in value of the Fund's investments

POTENTIAL REWARDS

> Historically, stocks have out-performed other investments

> Generally, economic growth means higher corporate profits, which leads to
an increase in stock prices, known as capital appreciation

> May be a source of dividend income

<PAGE>

How the Fund Invests

INVESTMENT TYPE (CONT'D)
% OF FUND'S ASSETS

DEBT SECURITIES
UP TO 35% OF TOTAL ASSETS

RISKS

> The Fund's share price, yield and total return may fluctuate in response to
bond market movements

> Credit risk--the default of an issuer would leave the Fund with unpaid
interest or principal. The lower a bond's quality, the higher its potential
volatility and credit risk

> Market risk--the risk that the market value of an investment may move up or
down, sometimes rapidly or unpredictably. Market risk may affect an
industry, a sector or the market as a whole

> Interest rate risk--most bonds will fall in value when interest rates rise

> Interest rate risk--the value of most bonds will fall when interest rates
rise; the longer a bond's maturity and the lower its credit quality, the
more its value typically falls. It can lead to price volatility,
particularly for junk bonds and stripped securities

> Not all government securities are insured or guaranteed by the government
or by the issuing agency

> Junk bonds (rated BB/Ba or lower) have a higher risk of default, tend to be
less liquid and may be more difficult to value

POTENTIAL REWARDS

> Bonds have generally outperformed money market instruments over the long
term with less risk than stocks

> Most bonds will rise in value when interest rates fall

> Regular interest or dividend income

> Generally more secure than stock since companies must pay their debts
before paying stockholders

> Investment-grade bonds have a lower risk of default

> Principal and interest on government securities may be guaranteed by the
issuing government

> Junk bonds offer higher yields and higher potential gains

12
GLOBAL UTILITY FUND, INC. (800) 225-1852
<PAGE>

How the Fund Invests

INVESTMENT TYPE (CONT'D)
% OF FUND'S ASSETS

FOREIGN SECURITIES
PERCENTAGE VARIES

RISKS

> Foreign markets, economies and political systems may not be as stable as in
the U.S., particularly those in developing countries

> Currency risk -- changing values of foreign currencies

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

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

> Differences in foreign laws, accounting standards, public information,
custody and settlement practices

> Year 2000 conversion may be more of a problem for some foreign issuers

POTENTIAL REWARDS

> Investors can participate in foreign markets and companies operating in
those markets

> Changing value of foreign currencies

> Opportunities for diversification

DERIVATIVES
PERCENTAGE VARIES

RISKS

> Derivatives such as futures, options and foreign currency forward contracts
that are used for hedging purposes may not fully offset the underlying
positions and this could result in losses to the Fund that would not have
otherwise occurred

> Derivatives used for risk management may not have the intended effects and
may result in losses or missed opportunities

> The other party to a derivatives contract could default

> Certain types of derivatives involve costs to the Fund that can reduce
returns

POTENTIAL REWARDS

> The Fund could make money and protect against losses if the investment
analysis proves correct

> One way to manage the Fund's risk/return balance is by locking in the value
of an investment ahead of time

> May be used to hedge against changes in currency exchange rates

<PAGE>

How the Fund Invests

INVESTMENT TYPE (CONT'D)
% OF FUND'S ASSETS

ILLIQUID SECURITIES
UP TO 15% OF NET ASSETS

RISKS

> May be difficult to value precisely

> May be difficult to sell at the time or price desired

POTENTIAL REWARDS

> May offer a more attractive yield or potential for growth than more widely
traded securities

MONEY MARKET INSTRUMENTS
UP TO 100% ON A TEMPORARY BASIS

RISKS

> Limits potential for capital appreciation

> See Credit risk and Market risk

POTENTIAL REWARDS

> May preserve the Fund's assets

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

How the Fund is Managed

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

Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended September 30, 1999, the Fund paid PIFM management fees of __% of the
Fund's average net assets.

PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of September 30, 1999, PIFM served as the
Manager to all 46 of the Prudential Mutual Funds, and as Manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $72.6 billion.

INVESTMENT ADVISER
WELLINGTON MANAGEMENT COMPANY, LLP ("WELLINGTON MANAGEMENT") 75 STATE STREET,
BOSTON, MASSACHUSETTS 02109, IS THE FUND'S INVESTMENT ADVISER. WELLINGTON
MANAGEMENT FURNISHES INVESTMENT ADVISORY SERVICES IN CONNECTION WITH THE
MANAGEMENT OF THE FUND. For the fiscal year ended September 30, 1999, PIFM paid
fees to Wellington Management at the rate of 0. % of the Fund's average net
assets. PIFM continues to have responsibility for all investment advisory
services in accordance with the management agreement and supervises Wellington
Management's performance of such services.

Wellington Management is a Massachusetts limited liability partnership of
which the following persons are managing partners: Robert W. Doran, Duncan M.
McFarland, and John R. Ryan. Wellington Management is a professional investment
counseling firm which provides investment services to investment companies,
employee benefit plans, endowment funds, foundations and other institutions and
individuals. As of October 31, 1999, Wellington Management held investment
authority over approximately $ billion of assets. Wellington Management is not
affiliated with the Manager or any of its affiliates.

How the Fund is Managed

PORTFOLIO MANAGERS
Mark J. Beckwith, a Vice President of Wellington Management, has been
responsible for managing the equity portion of the Fund's portfolio since June
1999. Mr. Beckwith has been a portfolio manager with Wellington Management since
1995. Mr. Beckwith specializes in utilities analysis and

<PAGE>
serves as portfolio manager for a variety of the Firm's institutional and mutual
fund clients. Prior to joining Wellington Management, Mr. Beckwith was an
electric utilities analyst and assistant portfolio manager with Silcap, Inc. The
fixed-income portion of the Fund's portfolio is managed by Earl E. McEvoy, a
Senior Vice President and Partner of Wellington Management. Mr. McEvoy has been
an investment professional with Wellington Management since 1978 and currently
manages significant assets for a variety of the firm's institutional and mutual
fund clients.

DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act for its Class
A, B, and C shares. Under the Plans and the Distribution Agreement, PIMS pays
the expenses of distributing the Fund's Class A, B, C and Z shares and provides
certain shareholder support services. The Fund pays distribution and other fees
to PIMS as compensation for its services for each class of shares other than
Class Z. These fees -- known as 12b-1 fees -- are shown in the "Fees and
Expenses" table. Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.

YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
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, Investment Adviser, the

How the Fund is Managed

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. The Fund and its Board receive and have
received since early 1998 satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>
How the Fund is Managed

market participants) will successfully complete the necessary changes in a
timely manner or that there will be no adverse impact on the Fund. Moreover, the
Fund at this time has not considered retaining alternative service providers or
directly undertaken efforts to achieve year 2000 readiness, the latter of which
would involve substantial expenses without an assurance of success.

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

<PAGE>

Fund Distributions and Tax Issues

Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA) or some other qualified or tax-deferred plan or account.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified or tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues
you should be aware of, but is not meant to be tax advice. For tax advice,
please speak with your tax adviser.

DISTRIBUTIONS
The Fund declares daily and distributes DIVIDENDS of any net investment income
to shareholders typically every month. For example, if the Fund owns Utopia
government bonds and the bond pays income, the Fund will pay out a portion of
this income to its shareholders, assuming the Fund's income is more than its
costs and expenses. The dividends you receive from the Fund will be taxed as
ordinary income, whether or not they are reinvested in the Fund.
The amount of income available for distribution to shareholders will be
affected by any foreign currency gains or losses generated by the Fund and
cannot be predicted. This fact, coupled with the different tax and accounting
treatment of certain currency gains and losses, increases the possibility that
distributions, in whole or in part, may be a return of capital to shareholders.
The Fund also distributes realized net CAPITAL GAINS to
shareholders -- typically once a year -- which are generated when the Fund sells
its assets for a profit. For example, if the Fund bought 100 shares of ACME
Corp. stock for a total of $1,000 and more than one year later sold the shares
for a total of $1,500, the Fund has net long-term capital gains of $500, which
it will pass on to shareholders (assuming the Fund's total gains are greater
than any losses it may have). Capital gains are taxed differently depending on
how long the Fund holds the security -- if a security is held more than one year
before it is sold, LONG-TERM capital gains are taxed at the rate of 20%, but if
the security is held one year or less, SHORT-TERM capital gains are taxed at

GLOBAL UTILITY FUND, INC. (800) 225-1852

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Fund Distributions and Tax Issues

ordinary income rates of up to 39.6%. Different rates apply to corporate
shareholders.

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

TAX ISSUES
FORM 1099
Every year, you will receive a FORM 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified or tax-deferred plan or account, your taxes
are deferred, so you will not receive a Form 1099. However, you will receive a
Form 1099 when you take any distributions from your qualified or tax-deferred
plan or account.
Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders are eligible for the 70% dividends-received deduction for certain
dividends.

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

<PAGE>

Fund Distributions and Tax Issues

IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well, since you bought shares one day and
soon after received a distribution. That is not so because when dividends are
paid out, the value of each share of the Fund decreases by the amount of the
dividend and the market changes (if any) to reflect the payout. The distribution
you receive makes up for the decrease in share value. However, the timing of
your purchase does mean that part of your investment came back to you as taxable
income.

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

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

[Sidebar]
CAPITAL GAIN
(taxes owed)
RECEIPTS +$
$ OR
FROM
SALE -$ CAPITAL LOSS
(offset against gain)

[end sidebar]

GLOBAL UTILITY FUND, INC. (800) 225-1852

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Fund Distributions and Tax Issues

Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified or tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell -- or exchange -- Fund shares,
as well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.

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

<PAGE>

How to Buy, Sell and
Exchange Shares of the Fund

HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:

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

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

STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that meets your
needs. With Class A shares, you pay the sales charge at the time of purchase,
but the operating expenses each year are lower than the expenses of Class B and
Class C shares. With Class B shares, you only pay a sales charge if you sell
your shares within six years (that is why it is called a Contingent Deferred
Sales Charge, or CDSC), but the operating expenses each year are higher than the
Class A share expenses. With Class C shares, you pay a 1% front-end sales charge
and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:

> The amount of your investment

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

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

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

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

> Whether you qualify to purchase Class Z shares

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

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Minimum Purchase Amount1 $1,000 $1,000 $2,500 None
Minimum amount for $100 $100 $100 None
subsequent purchases1
Maximum initial sales charge 5% of the None 1% of the None
public offering public
price offering
price
Contingent Deferred Sales None If sold during: 1% on sales None
Charge (CDSC)2 Year 1 5% made within
Year 2 4% 18 months
Year 3 3% of purchase2
Year 4 2%
Year 5/6 1%
Year 7 0%
Annual distribution and service .30 of 1% 1% 1% None
(12b-1) fees shown as a (.25 of 1%
percentage of average net assets3 through September 30, 2000)
</TABLE>

1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN RETIREMENT AND
EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS FOR MINORS. THE MINIMUM
INITIAL AND SUBSEQUENT INVESTMENT FOR PURCHASES MADE THROUGH THE AUTOMATIC
INVESTMENT PLAN IS $50. FOR MORE INFORMATION, SEE "ADDITIONAL SHAREHOLDER
SERVICES -- AUTOMATIC INVESTMENT PLAN."

2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS CALCULATED, SEE "HOW TO
SELL YOUR SHARES -- CONTINGENT DEFERRED SALES CHARGE (CDSC)."

3 THESE DISTRIBUTION FEES ARE PAID FROM THE FUND'S ASSETS ON A CONTINUOUS
BASIS. OVER TIME, THE FEES WILL INCREASE THE COST OF YOUR INVESTMENT AND
MAY COST YOU MORE THAN PAYING OTHER TYPES OF SALES CHARGES. THE SERVICE FEE
FOR CLASS A, CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION FEE
FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING THE .25 OF 1% SERVICE
FEE) AND IS 1% (INCLUDING THE .25 OF 1% SERVICE FEE) FOR CLASS B AND CLASS
C SHARES.

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How to Buy, Sell and
Exchange Shares of the Fund

REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's sales charge by
increasing the amount of your investment. This table shows you how the sales
charge decreases as the amount of your investment increases.

SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE

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 million and above None None None

* IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A SHARES, UNLESS
YOU QUALIFY TO BUY CLASS Z SHARES.

To satisfy the purchase amounts above, you can:

> invest with an eligible group of related investors;

> buy the Class A shares of two or more Prudential mutual funds at the
same time;

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

> sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares of
the Fund and other Prudential Mutual Funds within 13 months.

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

24
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How to Buy, Sell and
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MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group relating
to:

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

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

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

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

WAIVING CLASS C'S INITIAL SALES CHARGE

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

INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at

<PAGE>

How to Buy, Sell and
Exchange Shares of the Fund

Prudential Securities Incorporated or one of its affiliates. These purchases
must be made within 60 days of the redemption. To qualify for this waiver, you
must

> purchase your shares through an account at Prudential Securities,

> purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation, or

> purchase your shares through another broker.

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

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

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

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

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

Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares of
the Fund in connection with different pricing options for their pro-

GLOBAL UTILITY FUND, INC. (800) 225-1852

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How to Buy, Sell and
Exchange Shares of the Fund

grams. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.

OTHER TYPES OF INVESTORS. Class Z shares of the Fund can be purchased by any of
the following:

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

> Current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund)

> Employees of Prudential and/or Prudential Securities who participate
in a Prudential-sponsored employee savings plan

> Prudential with an investment of $10 million or more

In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 3% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class Z shares from
their own resources based on a percentage of the net asset value of shares sold
or otherwise.

CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than those for Class B shares, converting to Class A shares lowers your
Fund expenses.
When we do the conversion, you will get fewer Class A shares than the
number of Class B shares converted if the price of the Class A shares is higher
than the price of Class B shares. The total dollar value will be the same, so
you will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares -- Conversion Feature -- Class B Shares."

27
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How to Buy, Sell and
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STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund -- known as the NET ASSET VALUE or NAV -- is
determined by a simple calculation -- it's the total value of the Fund (assets
minus liabilities) divided by thE total number of shares outstanding. For
example, if the value of the investments held by Fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund -- or the NAV -- is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Fund's Board. Most national newspapers report the
NAVs of most mutual funds, which allows investors to check the price of mutual
funds daily. The NAV is calculated separately for the Fund's Class A, Class B,
Class C and Class Z shares.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York time on days that the New York Stock Exchange is open for trading. Because
we are a global fund, the NAV can change on days when you cannot buy or sell
shares. We do not determine NAV on days when we have not received any orders to
purchase, sell or exchange Fund shares, or when changes in the value of the
Fund's portfolio do not materially affect the NAV.

SIDEBAR

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

NO SIDEBAR

WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge you a separate or additional fee for purchases
of shares.

GLOBAL UTILITY FUND, INC. (800) 225-1852

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How to Buy, Sell and
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STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:

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

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

AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the money automatically withdrawn from your bank or
brokerage account at specified intervals.

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

THE PRUTECTOR PROGRAM. Optional group term life insurance -- which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines -- is available to investors who purchase their

<PAGE>

How to Buy, Sell and
Exchange Shares of the Fund

shares through Prudential. This insurance is subject to various restrictions and
charges and is not available in all states.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.

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

HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check, by wire
or by electronic deposit to your bank account) at any time, subject to certain
restrictions.

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

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

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

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

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

CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:

> Amounts representing shares you purchased with reinvested dividends
and distributions

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

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

Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid -- or at least
minimize -- the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC
period.

<PAGE>

How to Buy, Sell and
Exchange Shares of the Fund

As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth, and 1% in the fifth and sixth year and 0% thereafter. The rate
decreases on the first day of the month following the anniversary date of your
purchase, not on the anniversary date itself. The CDSC is 1% for Class C shares
- -- which is applied to shares sold within 18 months of purchase. For both Class
B and Class C shares, the CDSC is the lesser of the original purchase price or
the redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.

WAIVER OF THE CDSC -- CLASS B SHARES The CDSC will be waived if the Class B
shares are sold:
> After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy, provided the shares were purchased before the death or
disability

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

> On certain sales from a Systematic Withdrawal Plan

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

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

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

How to Buy, Sell and
Exchange Shares of the Fund

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

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

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

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

<PAGE>

How to Buy, Sell and
Exchange Shares of the Fund

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

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

There is no sales charge for such exchanges. However, if you
exchange -- and then sell -- Class B shares within approximately six years of
your original purchase or Class C shares within 18 months of your original
purchase, you must still pay the applicable CDSC. If you have exchanged Class B
or Class C shares into a money market fund, the time you hold the shares in the
money market account will not be counted in calculating the required holding
periods for CDSC liability.
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues -- If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account -- Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge or Class Z shares, we will automatically
exchange your Class B or Class C shares which are not subject to a CDSC for
Class A or Class Z shares, as appropriate. We make such

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

How to Buy, Sell and
Exchange Shares of the Fund

exchanges on a quarterly basis if you qualify for this exchange privilege. We
have obtained a legal opinion that this exchange is not a "taxable event" for
federal income tax purposes, but the opinion is not binding on the IRS.

FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market -- also known as "market timing" -- may make it very difficult to manage
the Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When, in our opinion, such activity would have a disruptive effect on portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
into the Fund by any person, group or commonly controlled accounts. The Fund may
notify a market timer of rejection of an exchange or purchase order after the
day the order is placed. If the Fund allows a market timer to trade Fund shares,
it may require the market timer to enter into a written agreement to follow
certain procedures and limitations.

<PAGE>

Financial Highlights

The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants which appear in the annual report and the SAI and are available upon
request. Additional performance information for each share class is contained in
the annual report, which you can receive at no charge.

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

Financial Highlights

CLASS A SHARES
The financial highlights for the three years ended September 30, 1999 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the two years ended September 30, 1996 were audited by
other independent auditors, whose reports 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.

<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL YEARS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
Net realized and unrealized gain (loss)
on investment and foreign
currency transactions
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment income
Distributions in excess of
net investment income
Tax return of capital distributions
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF YEAR
TOTAL RETURN1

RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
NET ASSETS, END OF YEAR (000)
Average net assets (000)
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees
Expenses, excluding distribution fees
Net investment income
Portfolio turnover rate
</TABLE>

1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED.

<PAGE>

Financial Highlights

CLASS B SHARES
The financial highlights for the three years ended September 30, 1999 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the two years ended September 30, 1996 were audited by
other independent auditors, whose reports 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.

<TABLE>
<CAPTION>
CLASS B SHARES (FISCAL YEARS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
Net realized and unrealized gain (loss)
on investment and foreign
currency transactions
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment income
Distributions in excess of
net investment income
Tax return of capital distributions
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF YEAR
TOTAL RETURN1

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

Financial Highlights

CLASS C SHARES
The financial highlights for the three years ended September 30, 1999 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the two years ended September 30, 1996 were audited by
other independent auditors, whose reports 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.

<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL YEARS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
Net realized and unrealized gain (loss)
on investment and foreign
currency transactions
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment income
Distributions in excess of
net investment income
Tax return of capital distributions
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF YEAR
TOTAL RETURN1

Financial Highlights

CLASS Z SHARES
The financial highlights for the two years ended September 30, 1999 and for the
period from December 16, 1996 through September 30, 1997 were audited by
PricewaterhouseCoopers LLP, independent accountants, whose report was
unqualified. This information should be read in conjunction with the financial
statements and the notes thereto, which appear in the Statement of Additional
Information.

CLASS Z SHARES (FISCAL PERIODS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 1999 1998 19971

NET ASSET VALUE, BEGINNING OF YEAR
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
Net realized and unrealized gain (loss)
on investment and foreign currency transactions
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment income
Distributions in excess of net investment income
Tax return of capital distributions
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF YEAR
TOTAL RETURN2

RATIOS/SUPPLEMENTAL DATA 1999 19981 19971,2
NET ASSETS, END OF YEAR (000)
Average net assets (000) 3
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 4
Expenses, excluding distribution fees 4
Net investment income 4
Portfolio turnover rate

1 FOR THE PERIOD FROM DECEMBER 16, 1996 (WHEN CLASS Z SHARES WERE FIRST
OFFERED) THROUGH SEPTEMBER 30, 1997.

2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS.
IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON
THE LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN
A FULL YEAR IS NOT ANNUALIZED.

3 AMOUNT IS ACTUAL AND NOT ROUNDED TO THE NEAREST THOUSAND.

4 ANNUALIZED.

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

[This page has been left blank intentionally.]

<PAGE>

The Prudential Mutual Fund Family

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

STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL-CAP QUANTUM
FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGEQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND

TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE FUND

ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND

GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.

TARGET FUNDS
International Equity Fund

GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.

GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

The Prudential Mutual Fund Family

BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO

TARGET FUNDS
TOTAL RETURN BOND FUND

TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.

MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.

TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES

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

INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

<PAGE>

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44
GLOBAL UTILITY FUND, INC. (800) 225-1852

<PAGE>

[This page has been left blank intentionally.]

<PAGE>

FOR MORE INFORMATION:

Please read this prospectus before you invest in the Fund and keep it for
future reference. For information, shareholder questions or to request a copy of
the Statement of Additional Information (SAI) or the Annual Report contact:

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

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

Visit Prudential's web site at:
HTTP://WWW.PRUDENTIAL.COM

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)

ANNUAL REPORT

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

SEMI-ANNUAL REPORT

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

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

By Electronic Request:
[email protected]

(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in Washington, DC
(For hours of operation, call
1(202) 942-8090
Via the Internet:
on the EDGAR Database at
http://www.sec.gov

CUSIP Numbers:
Class A: 37936G 30 3
Class B: 37936G 20 4
Class C: 37936G 40 2
Class Z: 37936G 50 1
Investment Company Act File No: 811-5695

[Recycle Logo] Printed on Recycled Paper

MF150A

<PAGE>

GLOBAL UTILITY FUND, INC.
Statement of Additional Information
dated November , 1999

Global Utility Fund, Inc. (the Fund) is an open-end, diversified management
investment company or mutual fund. The Fund's investment objective is to provide
total return, without incurring undue risk, by investing in income-producing
securities of domestic and foreign companies primarily engaged in the utility
industries. Under normal circumstances, at least 65% of the Fund's total assets
will be invested in a diversified portfolio of equity and debt securities of
domestic and foreign utility companies, principally electric,
telecommunications, gas or water companies. There can be no assurance that the
Fund's investment objective will be achieved. See "Description of the Fund, Its
Investments and Risks."

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 November , 1999, a copy of
which may be obtained from the Fund upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Fund History .................................................. B-2
Description of the Fund, Its Investments and Risks ............ B-2
Investment Restrictions ....................................... B-17
Management of the Fund ........................................ B-18
Control Persons and Principal Holders of Securities. .......... B-20
Investment Advisory and Other Services ........................ B-21
Brokerage Allocation and Other Practices ...................... B-25
Capital Shares, Other Securities and Organization ............. B-26
Purchase, Redemption and Pricing of Fund Shares ............... B-27
Shareholder Investment Account ................................ B-36
Net Asset Value ............................................... B-40
Taxes, Dividends and Distributions ............................ B-41
Performance Information. ...................................... B-44
Financial Statements .......................................... B-46
Report of Independent Accountants ............................. B-
Description of Security Ratings ............................... A-1
Appendix I-General Investment Information ..................... I-1
Appendix II-Historical Performance Data ....................... II-1
Appendix III-Information Relating to Prudential ............... III-1
Appendix IV-Five Percent Shareholder Report ................... IV-1
</TABLE>

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

MF150B

B-1

<PAGE>

FUND HISTORY

The Fund was incorporated under the laws of Maryland on February 21, 1990.
It operated as a closed-end fund until February 1, 1991. Since February 4, 1991,
the Fund has operated as an open-end management investment company under the
Investment Company Act of 1940, as amended (1940 Act).

DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

(A) CLASSIFICATION. The Fund is a diversified, open-end management
investment company.

(B) AND (C) INVESTMENT STRATEGIES, POLICIES AND RISKS. The Fund's
investment objective is to provide total return, without incurring undue risk,
by investing in income-producing securities of domestic and foreign companies
primarily engaged in the utility industries. The Fund's total return will
consist of current income and growth of capital. Wellington Management Company
LLP, the Fund's subadviser (the Subadviser), will seek to achieve the Fund's
objective by investing, under normal circumstances, at least 65% of the Fund's
total assets in a diversified portfolio of common stocks, debt securities and
preferred stocks issued by domestic and foreign companies primarily engaged in
the ownership or operation of facilities used in the generation, transmission or
distribution of electricity, telecommunications, gas or water. There can be no
assurance that the Fund's investment objective will be achieved. Up to 5% of the
above referenced 65% may be invested in options and futures contracts on
securities in the utility industries. In addition, up to 35% of the Fund's
assets may be invested in equity and debt securities of companies outside the
utility industry.

UTILITY INDUSTRIES-DESCRIPTION AND RISK FACTORS
Utility companies in the United States and in foreign countries are
generally subject to regulation. In the United States, most utility companies
are regulated by state and/or federal authorities. Such regulation is intended
to ensure appropriate standards of service and adequate capacity to meet public
demand. Prices are also regulated, with the intention of protecting the public
while ensuring that the rate of return earned by utility companies is sufficient
to allow them to attract capital in order to grow and continue to provide
appropriate services. There can be no assurance that such pricing policies or
rates of return will continue in the future.

The nature of regulation of utility industries is evolving both in the
United States and in foreign countries. Changes in regulations in the United
States increasingly allow utility companies to provide services and products
outside their traditional geographic areas and lines of business, creating new
areas of competition within the industries. Furthermore, the Subadviser believes
that the emergence of competition will result in utility companies potentially
earning more than their traditional regulated rates of return. Although certain
companies may develop more profitable opportunities, others may be forced to
defend their core businesses and may be less profitable. The Subadviser seeks to
take advantage of favorable investment opportunities that are expected to arise
from these structural changes. Of course, there can be no assurance that
favorable developments will occur in the future.

Foreign utility companies are also subject to regulation, although such
regulation may or may not be comparable to that in the United States. Foreign
regulatory systems vary from country to country, and may evolve in ways
different from regulation in the United States. See "Foreign Securities" in this
Statement of Additional Information and in the Prospectus.

The Fund's investment policies are designed to enable it to capitalize on
evolving investment opportunities throughout the world. For example, the rapid
growth of certain foreign economies will necessitate expansion of capacity in
the utility industries in those countries. Although many foreign utility
companies currently are government owned, thereby limiting current investment
opportunities for the Fund, the Subadviser believes that in order to attract
significant capital for growth foreign governments are likely to seek global
investors through the privatization of their utility industries. Privatization,
which refers to the trend toward investor ownership of assets rather than
government ownership, is expected to occur in newer, faster-growing economies
and also in more mature economies. In addition, the economic unification of
European markets is expected to improve economic growth, reduce costs and
increase competition in Europe, which will result in opportunities for
investment by the Fund in European utility industries. Of course, there is no
assurance that such favorable developments will occur or that investment
opportunities in foreign markets for the Fund will increase.

The revenues of domestic and foreign utility companies generally reflect
the economic growth and developments in the geographic areas in which they do
business. The Subadviser takes into account anticipated economic growth rates
and other economic developments when selecting securities of utility companies.
Further descriptions of some of the anticipated opportunities and risks of
specific segments within the global utility industries are set forth below.

ELECTRIC. The electric utility industry consists of companies that are
engaged principally in the generation, transmission and sale of electric energy,
although many such companies also provide other energy-related services.
Domestic electric utility companies in general recently have been favorably
affected by lower fuel and financing costs and the full or near completion of
major construction programs. In addition, many of these companies recently have
generated cash flows in excess of current

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operating expenses and construction expenditures, permitting some degree of
diversification into unregulated businesses. Some electric utilities have also
taken advantage of the right to sell power outside of their traditional
geographic areas. Electric utility companies have historically been subject to
the risks associated with increases in fuel and other operating costs, high
interest costs on borrowings needed for capital construction programs, costs
associated with compliance with environmental, nuclear facility and other safety
regulations and changes in the regulatory climate. For example, in the United
States, the construction and operation of nuclear power facilities is subject to
increased scrutiny by, and evolving regulations of, the Nuclear Regulatory
Commission. Increased scrutiny might result in higher operating costs and higher
capital expenditures, with the risk that regulators may disallow inclusion of
these costs in rate authorizations.

TELECOMMUNICATIONS. The telephone communications industry is a distinct
utility industry segment that is subject to different risks and opportunities.
Companies that provide telephone services and access to the telephone networks
comprise the largest portion of this segment. The telephone industry is large
and highly concentrated. Telephone companies in the United States are still
experiencing the effects of the break-up of American Telephone & Telegraph
Company, which occurred in 1984. Since that date the number of local and
long-distance companies and the competition among such companies has increased.
In addition, since 1984, companies engaged in telephone communication services
have expanded their nonregulated activities into other businesses, including
cellular telephone services, data processing, equipment retailing and software
services. This expansion has provided significant opportunities for certain
telephone companies to increase their earnings and dividends at faster rates
than have been allowed in traditional regulated businesses. Increasing
competition and other structural changes, however, could adversely affect the
profitability of such utilities.

GAS. Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the United States, interstate transmission
companies are regulated by the Federal Energy Regulatory Commission, which is
reducing its regulation of the industry. Many companies have diversified into
oil and gas exploration and development, making returns more sensitive to energy
prices. In the recent decade, gas utility companies have been adversely affected
by disruption in the oil industry and have also been affected by increased
concentration and competition. In the opinion of the Subadviser, however,
environmental considerations could improve the gas industry outlook in the
future. For example, natural gas is the cleanest of the hydrocarbon fuels and
this may result in incremental shifts in fuel consumption toward natural gas and
away from oil and coal.

WATER. Water supply utilities are companies that collect, purify,
distribute and sell water. In the United States and around the world, the
industry is highly fragmented, because most of the supplies are owned by local
authorities. Companies in this industry are generally mature and are
experiencing little or no per capita volume growth. In the opinion of the
Subadviser, there may be opportunities for certain companies to acquire other
water utility companies. The Subadviser believes that favorable investment
opportunities may result from consolidation within this industry.

There can be no assurance that the positive developments noted above,
including those relating to business growth and changing regulation, will occur
or that risk factors other than those noted above will not develop in the
future.

FOREIGN SECURITIES
Foreign securities in which the Fund invests generally will be denominated
in foreign currencies and will be traded on foreign markets, including foreign
stock exchanges. Foreign securities also may include securities of foreign
issuers that are traded in U.S. dollars in the United States although the
underlying security is usually denominated in a foreign currency. These
securities include, but are not limited to, securities traded in the form of
American Depository Receipts (ADRs) and securities registered in the United
States by foreign (including Canadian) governmental or private issuers, foreign
banks and foreign branches of U.S. banks. These securities also include European
Depository Receipts and Global Depository Receipts (EDRs and GDRs,
respectively).

Restrictions and controls on investment in the securities markets of some
countries may have an adverse effect on the availability and costs to the Fund
of investments in those countries. Costs may be incurred in connection with
conversions between various currencies. Moreover, there may be less publicly
available information about foreign issuers than about domestic issuers, and
foreign issuers generally are not subject to accounting, auditing and financial
reporting standards and requirements comparable to those of domestic issuers.

The value of the assets of the Fund as measured in U.S. dollars also may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. A change in the value of any such currency relative to the
U.S. dollar will result in a corresponding change in the U.S. dollar value of
the Fund's assets denominated in that currency. These changes will also affect
the Fund's return, income and distributions to shareholders. In addition,
although the Fund will receive income in such currencies, the Fund will be
required to compute and distribute its income in U.S. dollars. Therefore, if the
value of the U.S. dollar strengthens against a foreign currency after the Fund's
income has been accrued and translated into U.S. dollars,

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the Fund would experience a foreign currency loss. Similarly, if the U.S. dollar
value weakens against a foreign currency between the time the Fund incurs
expenses and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to pay such expenses in U.S.
dollars will be greater than the equivalent amount of such currency at the time
such expenses were incurred. Under the Internal Revenue Code of 1986, as amended
(the Code), changes in an exchange rate which occur between the time the Fund
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities will result in foreign exchange gains or
losses that increase or decrease investment company taxable income. Similarly,
dispositions of certain debt securities (by sale, at maturity or otherwise) at a
U.S. dollar value that is higher or lower than the Fund's original U.S. dollar
cost may result in foreign exchange gains or losses, which will increase or
decrease investment company taxable income. To the extent the Fund's currency
exchange transactions do not fully protect the Fund against adverse changes in
exchange rates, decreases in the value of the currencies of the countries in
which the Fund invests relative to the U.S. dollar will result in a
corresponding decrease in the U.S. dollar value of the Fund's assets denominated
in those currencies. The exchange rates between the U.S. dollar and other
currencies can be volatile and are determined by factors such as supply and
demand in the currency exchange markets, international balances of payments,
government intervention, speculation and other economic and political
conditions.

The costs attributable to foreign investing that the Fund must bear are
higher than those attributable to domestic investing. For example, the cost of
maintaining custody of foreign securities generally exceeds custodian costs for
domestic securities, and transaction and settlement costs of foreign investing
also frequently are higher than those attributable to domestic investing.
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other government taxes that could reduce
the return to investors on these securities. Tax treaties between the United
States and certain foreign countries, however, may reduce or eliminate the
amount of foreign tax to which the Fund would be subject. See "Taxes, Dividends
and Distributions."

The Fund may invest in debt securities issued by supranational
organizations such as the World Bank, the European Investment Bank, the European
Coal and Steel Community and the Asian Development Bank.

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

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

A change in the value of a foreign currency against the US. dollar will
result in a corresponding change in the U.S. dollar value of the Fund's assets
denominated in that currency. These currency fluctuations can result in gains or
losses for the Fund. For example, if a foreign security increases in value as
measured in its currency, an increase in value of the U.S. dollar, relative to
the currency in which the foreign security is denominated, can offset some or
all of such gains. These currency changes will also affect the Fund's return,
income and distributions to shareholders. In addition, although the Fund will
receive income in such currencies, the Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the exchange rate for any
such currency decreases after the Fund's income has been accrued and translated
into U.S. dollars, the Fund could be required to liquidate portfolio securities
to make such distributions. Similarly, if an exchange rate for any such currency
decreases between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to be converted
into U.S. dollars in order to pay such expenses in U.S. dollars will be greater
than the equivalent amount of such currency at the time such expenses were
incurred. Under the Internal Revenue Code of 1986, as amended (the Internal
Revenue Code), changes in an exchange rate which occur between the time the Fund
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities will result in foreign exchange gains or
losses that increase or decrease distributable net investment income. Similarly,
dispositions of certain debt securities (by sale, at maturity or otherwise) at a
U.S. dollar amount that is higher or lower than the Fund's original U.S. dollar
cost may result in foreign exchange gains or losses, which will increase or
decrease distributable net investment income. Gains and losses on security and
currency transactions cannot be predicted. This fact coupled with the different
tax and accounting treatment of certain currency gains and losses increases the
likelihood of distributions in whole or in part constituting a return of capital
to shareholders.

The Fund's interest income from foreign government securities issued in
local markets may, in some cases, be subject to applicable withholding taxes
imposed by governments in such markets. The Fund may sell a foreign security it
owns prior

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to maturity in order to avoid foreign withholding taxes on dividend and interest
income and buy back the same security for a future settlement date. Interest on
foreign government securities is not generally subject to foreign withholding
taxes. See "Taxes, Dividends and Distributions."

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

RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN EURO-DENOMINATED
SECURITIES

On January 1, 1999, 11 of the 15 member states of the European Monetary
Union introduced the "euro" as a common currency. During a three year
transitional period, the euro will coexist with each participating state's
currency and on July 1, 2002, the euro is expected to become the sole currency
of the participating states. During the transition period, the Fund will treat
the euro as a separate currency from that of any participating state.

The conversion may adversely affect the Fund if the euro does not take
effect as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Fund's
service providers, or by entities with which the Fund or its service providers
do business, are not capable of recognizing the euro as a distinct currency at
the time of, and following, euro conversion. In addition, the conversion could
cause markets to become more volatile.

The overall effect of the transition of member states' currencies to the
euro is not known at this time. It is likely that more general short- and
long-term ramifications can be expected, such as changes in the economic
environment and change in the behavior of investors, which would affect the
Fund's investments and its net asset value. In addition, although U.S. Treasury
regulations generally provide that the euro conversion will not, in itself,
cause a U.S. taxpayer to realize gain or loss, other changes that may occur at
the time of the conversion, such as accrual periods, holiday conventions,
indices, and other features may require the realization of a gain or loss by the
Fund as determined under existing tax law.

The Fund's Manager has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Fund and its service providers to
process transactions accurately and completely with minimal disruption to
business activities and (2) to obtain reasonable assurances that appropriate
steps have been taken by the Fund's other service providers to address the
conversion. The Fund has not borne any expense relating to these actions.

OTHER INVESTMENT STRATEGIES

At the discretion of the Subadviser, the Fund may employ the following
strategies in pursuing its investment objective.

LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. As described in the
Prospectus, consistent with applicable regulatory requirements, the Fund may
lend securities valued at up to 30% of its total assets to brokers, dealers,
banks or other recognized institutional borrowers of securities, provided that
such loans are callable at any time by the Fund and are at all times secured by
cash or equivalent collateral that is equal to at least the market value,
determined daily, of the loaned securities. If the borrower fails to maintain
the requisite amount of collateral, the loan automatically terminates and the
Fund could use the collateral to replace the securities while holding the
borrower liable for any excess of the replacement cost over the value of the
collateral. As with any extension of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. 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. The Fund may pay
reasonable administrative and custodial fees in connection with loans of its
securities.

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The Fund may purchase U.S. Government securities and concurrently enter
into "repurchase agreements" with the seller of the securities whereby the
seller agrees to repurchase the securities at a specified price within a
specified time (generally one business day). The Fund's repurchase agreements
will at all times be fully collateralized in an amount at least equal to the
repurchase price, including accrued interest earned on the loan. The collateral
will be held by the Fund's custodian bank, either physically or in a book-entry
account. The Fund will not enter into a repurchase agreement with a maturity of
more than seven days if, as a result, more than 10% of the value of its total
assets would be invested in such repurchase agreements and other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market.

The Fund will enter into securities lending and repurchase agreement
transactions only with parties that meet creditworthiness standards approved by
the Fund's Board of Directors. The Subadviser will monitor and evaluate the
creditworthiness of such parties under the general supervision of the Board of
Directors. In the event of a default or bankruptcy by a counterparty, 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.

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, i.e., delivery and payment can take place as much as
a month or more after the date of the transaction. The purchase price and other
terms of the securities are fixed on the transaction date. Such investments are
subject to market fluctuation, and no interest accrues to the Fund until
delivery and payment take place. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, it will record
the transaction and thereafter reflect the value of such investments in
determining its net asset value on each day that net asset value is determined.
The Fund will make commitments for such when-issued transactions only with the
intention of actually acquiring the underlying securities. To facilitate such
acquisitions, the Fund's custodian bank will maintain, in a separate account of
the Fund, cash or other liquid assets having a value equal to or greater than
such commitments. On delivery dates for such transactions, the Fund will meet
its obligations from maturities or sales of securities held in the separate
account and/or from then available cash flow. If the Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of other assets held in its portfolio, incur a gain or
loss due to market fluctuation.

HIGH YIELD SECURITIES. Fixed-income securities are subject to the risk of
an issuer's inability to meet principal and interest payments on the obligations
(credit risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). Lower rated or unrated (i.e.,
high yield) securities, commonly known as "junk bonds," are more likely to react
to developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The Subadviser considers both credit risk and market risk in making
investment decisions for the Fund. Investors should carefully consider the
relative risks of investing in high yield securities and understand that such
securities are not generally meant for short-term investing.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher quality securities, resulting
in a decline in the overall credit quality of the Fund's portfolio and
increasing the exposure of the Fund to the risks of high yield securities.

ADDITIONAL INVESTMENT POLICIES

In seeking to protect against the effect of changes in interest rates or
currency exchange rates that are adverse to the present or prospective position
of the Fund and to enhance returns, the Fund may employ certain hedging, yield
enhancement and risk management techniques including the purchase and sale of
options, futures and options on futures on equity and debt securities, indices
of prices of equity and debt securities, other financial indices, foreign
currencies and forward contracts on foreign currencies. The Fund's ability to
engage in these practices may be limited by tax considerations and certain other
legal considerations. See "Taxes, Dividends and Distributions."

OPTIONS ON SECURITIES

The Fund may purchase put and call options and write put and call options
on equity and debt securities, aggregates of equity and debt securities or
indices of prices thereof, other financial indices and foreign currencies. These
may include options traded on U.S. or foreign exchanges and options traded in
U.S. or foreign over-the-counter (OTC) markets. Currently, many options on
equity securities and options on currencies are exchange-traded, whereas options
on debt securities are primarily traded on the OTC market.

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When the Fund writes an option, it receives a premium which it retains
whether or not the option is exercised. The Fund's principal objective in
writing options is to realize, through the receipt of premiums, a greater return
than would be realized on the underlying securities alone.

The purchaser of a call option has the right, for a specified period of
time, to purchase the securities subject to the option at a specified price (the
exercise price or strike price). By writing a call option, the Fund becomes
obligated during the term of the option, upon exercise of the option, to sell,
depending upon the terms of the option contract, the underlying securities or a
specified amount of cash to the purchaser against receipt of the exercise price.
When the Fund writes a call option, the Fund loses the potential for a gain on
the underlying securities in excess of the exercise price of the option during
the period that the option is open.

Conversely, the purchaser of a put option has the right, for a specified
period of time, to sell the securities subject to the option to the writer of
the put at the specified exercise price. By writing a put option, the Fund
becomes obligated during the term of the option, upon exercise of the option, to
purchase the securities underlying the option at the exercise price. The Fund
might, therefore, be obligated to purchase the underlying securities for more
than their current market price.

The Fund may write only "covered" options or options for which it
establishes and maintains with its Custodian for the term of the option a
segregated account consisting of cash, U.S. Government securities, equity
securities or other liquid, unencumbered assets, marked-to-market daily, having
a value at least equal to the fluctuating market value of the optioned
securities. An option is covered so long as the Fund is obligated as the writer
of a call option, to own the underlying securities subject to the option or an
option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option. A put option
written by the Fund will be considered "covered" if, so long as the Fund is
obligated as the writer of the option, it owns an option to sell the underlying
securities subject to the option having an exercise price equal to or greater
than the exercise price of the "covered" option; otherwise the Fund will deposit
and maintain with its Custodian in a segregated account cash, U.S. Government
securities, equity securities or other liquid, unencumbered assets,
marked-to-market daily, having a value equal to or greater than the exercise
price of the option.

The Fund may also buy and write straddles (i.e., a combination of a call
and a put written on the same security at the same exercise price where the same
issue of the security is considered "cover" for both the put and the call). In
such cases, the Fund will also deposit in a segregated account with its
Custodian cash, U.S. Government securities, equity securities or other liquid,
unencumbered assets, marked-to-market daily, equivalent in value to the amount,
if any, by which the put is "in-the-money," i.e., the amount by which the
exercise price of the put exceeds the current market value of the underlying
security.

The Fund may write both American style options and European style options.
An American style option is an option which may be exercised by the holder at
any time prior to its expiration. A European style option, however, may only be
exercised as of the expiration of the option. The writer of an American style
option has no control over when the underlying securities must be sold, in the
case of a call option, or purchased, in the case of a put option, since such
options may be exercised by the holder at any time prior to the expiration of
the option. Whether or not an option expires unexercised, the writer retains the
amount of the premium. This amount may be offset or exceeded, in the case of a
covered call option, by a decline and, in the case of a covered put option, by
an increase in the market value of the underlying security during the option
period. If a call option is exercised the writer must fulfill the obligation to
sell the underlying security at the exercise price, which will usually be lower
than the then market value of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to purchase the underlying
security at the exercise price, which will usually exceed the then market value
of the underlying security.

The writer of an exchange-traded option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. (Options
of the same series are options with respect to the same underlying security,
having the same expiration date and the same strike price.) The effect of the
purchase is that the writer's position will be canceled by the exchange's
affiliated clearing organization. However, the writer of an option may not
effect a closing purchase transaction after being notified of the exercise of
the option. Likewise, an investor who is the holder of an option may liquidate a
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.

An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. If a secondary
market does not exist, it might not be possible to effect closing transactions
in a particular option the Fund has purchased with the result that the Fund
would have to exercise the option in order to realize any profit. If the Fund is
unable to effect a closing purchase transaction in a secondary market in an
option the Fund has written, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise or
it otherwise covers its position. Reasons for the absence of a liquid secondary
market include the following: (i) there may be insufficient trading

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interest in certain options; (ii) restrictions may be imposed by a securities
exchange (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 clearing organization 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 trading of options (or a particular class or series
of options), in which event the secondary market on that Exchange (or in that
class or series of options) would cease to exist, although outstanding options
would continue to be exercisable in accordance with their terms.

Exchange-traded options in the U.S. are issued by clearing organizations
affiliated with the Exchange on which the option is listed which, in effect,
give their guarantee to every exchange-traded option transaction. In contrast,
OTC options are contracts between the Fund and its contra-party with no clearing
organization guarantee. Thus when the Fund purchases an OTC option, it relies on
the dealer from which it has purchased the OTC option to make or take delivery
of the securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as the loss of the
expected benefit of the transaction. The Board of Directors will evaluate the
creditworthiness of any dealer from which the Fund proposes to purchase options.

Exchange-traded options generally have a continuous liquid market while OTC
options may not. Consequently, the Fund will generally be able to realize the
value of an OTC option it has purchased only by exercising it or reselling it to
the dealer who issued it. Similarly, when the Fund writes an OTC option, it
generally will be able to close out the OTC option prior to its expiration only
by entering into a closing purchase transaction with the dealer to which the
Fund originally sold the OTC option. While the Fund will enter into OTC options
only with dealers which agree to, and which are expected to be capable of,
entering into closing transactions with the Fund, there can be no assurance that
the Fund will be able to liquidate an OTC option at a favorable price at any
time prior to expiration. Until the Fund is able to effect a closing purchase
transaction in a covered OTC call option the Fund has written, it will not be
able to liquidate securities used as cover until the option expires or is
exercised or different cover is substituted. In the event of insolvency of the
contra-party, the Fund may be unable to liquidate an OTC option. With respect to
options written by the Fund, inability to enter into a closing purchase
transaction may result in material losses to the Fund. For example, since the
Fund must maintain a covered position with respect to any call option on a
security it writes, the Fund may be limited in its ability to sell the
underlying security while the option is outstanding. This may impair the Fund's
ability to sell a portfolio security at a time when such a sale might be
advantageous.

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

The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close out the position or
take delivery of the underlying security at the exercise price. In that case,
the Fund's return will be the premium received from writing the put option,
minus the amount by which the market price of the security is below the exercise
price. Out-of-the-money, at-the-money and in-the-money covered put options may
be written by the Fund in the same market environments in which call options are
written in equivalent buy-and-write transactions.

The Fund may purchase a call option on a security it intends to acquire in
order to hedge against (and thereby benefit from) an anticipated market
appreciation in the price of the underlying security at limited risk and with a
limited cash outlay. If the market price does rise as anticipated, the Fund will
benefit from that rise but only to the extent that the rise exceeds the premium

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paid. If the anticipated rise does not occur or if it does not exceed the
premium, the Fund will bear the expense of the option premium without gaining an
offsetting benefit.

The Fund may purchase put options on securities to hedge against a decline
in the value of its portfolio. If the market price of the Fund's portfolio
should increase, however, the profit which the Fund might otherwise have
realized will be reduced by the amount of the premium paid for the put option
and by transaction costs. The Fund may purchase call options on securities to
hedge against an anticipated rise in the price it will have to pay for
securities it intends to buy in the future. If the market price of the
securities should fall instead of rise, however, the benefit the Fund obtains
from purchasing the securities at a lower price will be reduced by both the
amount of the premium paid for the call options and transaction costs.

The Fund may purchase put options if the Fund believes that a defensive
posture is warranted for all or a portion of its portfolio. Protection is
provided during the life of the put because the put gives the Fund the right to
sell the underlying security at the put exercise price, regardless of a decline
in the underlying security's market price below the exercise price. This right
limits the Fund's losses from the security's possible decline in value below the
strike price of the option to the premium paid for the put option and related
transaction costs.

The Fund may wish to protect certain portfolio securities against a decline
in market value at a time when put options on those particular securities are
not available for purchase. The Fund may therefore purchase a put option on
other carefully selected securities, the values of which historically have a
high degree of positive correlation to the values of such portfolio securities.
If the Subadviser's judgement is correct, changes in the value of the put
options should generally offset changes in the value of the portfolio securities
being hedged. But the correlation between the two values may not be as close in
these transactions as in transactions in which the Fund purchases a put option
on an underlying security it owns. If the Subadviser's judgement is not correct,
the value of the securities underlying the put option may decrease less than the
value of the Fund's portfolio securities and therefore the put option may not
provide complete protection against a decline in the value of the Fund's
portfolio securities below the level sought to be protected by the put option.

The Fund may similarly wish to hedge against appreciation in the value of
securities that it intends to acquire at a time when call options on such
securities are not available. The Fund may, therefore, purchase call options on
other carefully selected securities, the values of which historically have a
high degree of positive correlation to values of securities that the Fund
intends to acquire. In such circumstances the Fund will be subject to risks
analogous to those summarized immediately above in the event that the
correlation between the value of call options so purchased and the value of the
securities intended to be acquired by the Fund is not as close as anticipated
and the value of the securities underlying the call options increases less than
the value of the securities to be acquired by the Fund.

FUTURES CONTRACTS

The Fund will enter into futures contracts only for certain bona fide
hedging, return enhancement and risk management purposes. The Fund may enter
into futures contracts for the purchase or sale of equity and debt securities,
aggregates of debt securities or indices of prices thereof, aggregates of equity
securities or indices of prices thereof, and other financial indices. It may
also enter futures contracts for the purchase or sale of foreign currencies
(such as the Japanese Yen, the British Pound and the German Mark) or composite
foreign currencies (such as the European Currency Unit) in which securities held
or to be acquired by the Fund are denominated, or the value of which have a high
degree of positive correlation to the value of such currencies as to constitute
an appropriate vehicle for hedging. The Fund may enter into such futures
contracts both on U.S. and foreign exchanges.

A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price at a specified future time. Certain
futures contracts are settled on a net cash payment basis rather than by the
sale and delivery of the securities or currency underlying the futures
contracts. U.S. futures contracts have been designed by exchanges that have been
designated as "contract markets" by the Commodity Futures Trading Commission
(the CFTC), an agency of the U.S. Government, and must be executed through a
futures commission merchant (i.e., a brokerage firm) which is a member of the
relevant contract market. Futures contracts trade on these contract markets and
the exchange's affiliated clearing organization guarantees performance of the
contracts as between the clearing members of the exchange.

At the time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment (initial margin). It is expected that
the initial margin on U.S. exchanges will vary from 3% to 15% of the value of
the securities or the commodities underlying the contract. Under certain
circumstances, however, such as periods of high volatility, the Fund may be
required by an exchange to increase the level of its initial margin payment.
Thereafter, the futures contract is valued daily

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and the payment in cash of "variation margin" may be required, a process known
as "mark to market." Each day the Fund is required to provide or is entitled to
receive variation margin in an amount equal to any decline (in the case of a
long futures position) or increase (in the case of short futures position) in
the contract's value since the preceding day.

Although futures contracts by their terms may call for the actual delivery
or acquisition of underlying securities or currency, in most cases the
contractual obligation is extinguished or offset before the expiration of the
contract without having to make or take delivery of the securities or currency.
The offsetting of a contractual obligation is accomplished by buying (to offset
an earlier sale) or selling (to offset an earlier purchase) an identical futures
contract calling for delivery in the same month. Such a transaction cancels the
obligation to make or take delivery of the underlying securities or currency. In
all transactions on a U.S. futures exchange, the Fund will incur brokerage fees
and related transaction costs when it purchases or sells futures contracts. The
Fund may also incur brokerage fees and related transaction costs when it
purchases or sells futures contracts in markets outside the United States.

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

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

If the Fund seeks to hedge against a decline in the value of its portfolio
securities and sells futures contracts for that purpose on other securities
which historically have had a high degree of positive correlation to the value
of the portfolio securities, the value of its portfolio securities might decline
more rapidly than the value of a poorly correlated futures contract rises. In
that case, the hedge will be less effective than if the correlation had been
greater. In a similar but more extreme situation, the value of the futures
position might in fact decline while the value of portfolio securities holds
steady or rises. This would result in a loss that would not have occurred but
for the attempt to hedge.

OPTIONS ON FUTURES CONTRACTS

The Fund will also enter into options on futures contracts for certain bona
fide hedging, return enhancement and risk management purposes. The Fund may
purchase put and call options and write (i.e., sell) put and call options on
futures contracts that are traded on U.S. and foreign futures exchanges. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, 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 a short futures position (if the
option is a call) or a long futures 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.

The Fund will be considered "covered" with respect to a call option it
writes on a futures contract if the Fund owns the securities or currency which
is deliverable under the futures contract or an option to purchase that futures
contract having a strike price equal to or less than the strike price of the
"covered" option and having an expiration date not earlier than the expiration
date of the "covered" option; otherwise, it will segregate and maintain with its
Custodian for the term of the option cash, U.S. Government securities, equity
securities or other liquid, unencumbered assets, marked-to-market daily, equal
to the fluctuating value of the optioned futures. The Fund will be considered
"covered" with respect to a put option it writes on

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a futures contract if it owns an option to sell that futures contract having a
strike price equal to or greater than the strike price of the "covered" option
and having an expiration date not earlier than the expiration date of the
"covered" option; otherwise, it will segregate and maintain with its Custodian
for the term of the option cash or other liquid assets at all times equal in
value to the exercise price of the put (less any initial margin deposited by the
Fund with its Custodian with respect to such put option). There is no limitation
on the amount of the Fund's assets which can be placed in the segregated
account.

Writing a put option on a futures contract serves as a partial hedge
against an increase in the value of securities the Fund intends to acquire. If
the futures price at expiration of the option is above the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase that may have occurred in the price of the securities
the Fund intends to acquire. If the market price of the underlying futures
contract when the option is exercised is below the exercise price, however, the
Fund will incur a loss, which may be wholly or partially offset by the decrease
in the value of the securities the Fund intends to acquire.

Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written call
option is below the exercise price, the Fund will retain the full amount of the
option premium, thereby partially hedging against any decline that may have
occurred in the Fund's holdings of debt securities. If the futures price when
the option is exercised is above the exercise price, however, the Fund will
incur a loss, which may be wholly or partially offset by the increase in the
value of the securities in the Fund's portfolio which were being hedged.

The Fund will purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the debt securities it
owns as a result of rising interest rates or fluctuating currency exchange
rates. The Fund will also purchase call options on futures contracts as a hedge
against an increase in the value of securities the Fund intends to acquire as a
result of declining interest rates or fluctuating currency exchange rates.

INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON

The Fund will purchase or sell interest rate futures contracts to take
advantage of, or to protect the Fund against, fluctuations in interest rates
affecting the value of debt securities which the Fund holds or intends to
acquire. For example, if interest rates are expected to increase, the Fund might
sell futures contracts on debt securities, the values of which historically have
a high degree of positive correlation to the values of the Fund's portfolio
securities. Such a sale would have an effect similar to selling an equivalent
value of the Fund's portfolio securities. If interest rates increase, the value
of the Fund's portfolio securities will decline, but the value of the futures
contracts to the Fund will increase at approximately an equivalent rate thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have. The Fund could accomplish similar results by selling debt securities
with longer maturities and investing in debt securities with shorter maturities
when interest rates are expected to increase. However, since the futures market
may be more liquid than the cash market, the use of futures contracts as a risk
management technique allows the Fund to maintain a defensive position without
having to sell its portfolio securities.

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

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

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

The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price,

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

CURRENCY FUTURES AND OPTIONS THEREON

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

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

OPTIONS ON CURRENCIES

Instead of purchasing or selling futures or forward currency exchange
contracts, the Fund may attempt to accomplish similar objectives by purchasing
put or call options on currencies either on exchanges or in OTC markets or by
writing put options or covered call options on currencies. A put option gives
the Fund the right to purchase a currency at the exercise price until the option
expires. A call option gives the Fund the right to purchase a currency at the
exercise price until the option expires. Both options serve to insure against
adverse currency price movements in the underlying portfolio assets designated
in a given currency. Currency options traded on U.S. or other exchanges may be
subject to position limits which may limit the ability of the Fund to fully
hedge its positions by purchasing such options.

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

SPECIAL CHARACTERISTICS OF FORWARD CURRENCY CONTRACTS AND ASSOCIATED RISKS

The Fund may use forward currency contracts to protect against uncertainty
in the level of future exchange rates. The Fund will not speculate with forward
currency contracts or foreign currency exchange rates. A forward currency
contract involves bilateral obligations of one party to purchase, and another
party to sell, a specified currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time the contract is entered into.

The Fund may enter into forward currency contracts with respect to specific
transactions. For example, 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

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the receipt in a foreign currency of dividend or interest payments on a security
that 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 payment, as the case may be, by
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars per unit of foreign currency, of the amount of foreign currency
involved in the underlying transaction. The Fund will thereby be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the currency exchange rates during the period between the
date on which the security is purchased or sold, or on which the payment is
declared, and the date on which such payments are made or received.

The Fund also may use forward currency contracts to "lock-in" the U.S.
dollar value of portfolio positions, to increase the Fund's exposure to foreign
currencies that the Subadviser believes may rise in value relative to the U.S.
dollar or to shift the Fund's exposure to foreign currency fluctuations from one
country to another. For example, when the Subadviser believes that the currency
of a particular foreign country may suffer a substantial decline relative to the
U.S. dollar or another currency, it may enter into a forward contract to sell
the amount of the former foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. This
investment practice generally is referred to as "cross-hedging" when another
foreign currency is used. The Fund may only cross-hedge using a currency
bearing, in the Subadviser's view, a high degree of positive correlation to the
currency being hedged.

The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it is sold. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and transaction costs. The Fund may enter into forward
contracts or maintain a net exposure on such contracts only if (1) the
consummation of the contracts would not 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 or (2) the Fund maintains cash, U.S.
Government securities, equity securities or other liquid, unencumbered assets,
marked-to-market daily, in a segregated account in an amount not less than the
value of the Fund's total assets committed to the consummation of the contract.
Under normal circumstances, consideration of the prospect for currency parities
will be incorporated into the longer term investment decisions made with regard
to overall diversification strategies. However, the Subadviser believes that it
is important to have the flexibility to enter into such forward contracts when
it determines that the best interests of the Fund will be served.

At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.

The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commission are involved.
The use of forward contracts does not eliminate fluctuations in the prices of
the underlying securities the Fund owns or intends to acquire, but it does fix a
rate of exchange in advance. In addition, although forward currency contracts
limit the risk of loss due to a decline in the value of the hedged currencies,
at the same time they limit any potential gain that might result should the
value of the currencies increase.

Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund may convert foreign currency 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 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.

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

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

Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.
If so, this would limit the ability of the Fund to fully hedge against these
risks.

Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions in such options
is subject to the maintenance of a liquid secondary market. To mitigate this
problem, the Fund will not purchase or write options on foreign currency futures
contracts unless and until, in the Subadviser's opinion, the market for such
options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with transactions in the
underlying foreign currency futures contracts. Compared to the purchase or sale
of foreign currency futures contracts, the purchase of call or put options
thereon involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a foreign
currency futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract, when use
of the underlying futures contract would not.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options market until they
reopen. Because foreign currency transactions occurring in the interbank market
involve substantially larger amounts than those that may be involved in the use
of foreign currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.

The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.

A holder of a stock index option who exercises it before the closing index
value for that day is available runs the risk that the level of the underlying
index may subsequently change. For example, in the case of a call, if such a
change causes the closing index value to fall below the exercise price of the
option on that index, the exercising holder will be required to pay the
difference between the closing index value and the exercise price of the option.

SPECIAL RISK CONSIDERATIONS RELATING TO FUTURES AND OPTIONS THEREON

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

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Successful use of futures contracts and options thereon by the Fund is
subject to the ability of the Fund's Subadviser to predict correctly movements
in the direction of interest rates and currency exchange rates and other factors
affecting markets for securities. If the Subadviser's expectations are not met,
the Fund would be in a worse position than if a hedging strategy had not been
pursued. For example, if the Fund has hedged against the possibility of an
increase in interest 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 have 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.

LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS

The Fund will engage in transactions in interest rate and foreign currency
futures contracts and options thereon only for bona fide hedging, return
enhancement and risk management purposes, in each case in accordance with the
rules and regulations of the CFTC, and not for speculation. In instances
involving the purchase of futures contracts or call options thereon or the
writing of put options thereon by the Fund, an amount of cash, U.S. Government
securities, equity securities or other liquid, unencumbered assets,
marked-to-market daily, equal to the market value of the futures contracts and
options thereon (less any related margin deposits), will be deposited in a
segregated account with the Fund's Custodian to cover the position, or the Fund
will own an offsetting position in securities, currencies or other options,
forward-currency contracts or futures contracts sufficient to ensure that the
use of such techniques is unleveraged. There are no limitations on the Fund's
use of futures contracts and options on futures contracts beyond the
restrictions set forth above and the economic limitations that are implicit in
the use of futures and options on futures, within these restrictions, only for
bona fide hedging, yield enhancement and risk management purposes, in each case
in accordance with rules and regulations of the CFTC and not for speculation.

Although the Fund intends to purchase or sell futures and options on
futures only on exchanges where there appears to be an active market, there is
no guarantee that an active market will exist for any particular contract or at
any particular time. If there is not a liquid market at a particular time, it
may not be possible to close a futures position at such time, and, in the event
of adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, when futures positions are used to
hedge portfolio securities, such securities will not be sold until the futures
positions can be liquidated. In such circumstances, an increase in the price of
securities, if any, may partially or completely offset losses on the futures
contracts.

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. Securities eligible for resale in
accordance with Rule 144A under the Securities Act of 1933, as amended (the
Securities Act) and privately placed commercial paper with legal or contractual
restrictions on resale but with a readily available market are not considered
illiquid for purposes of this limitation. The Subadviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act, securities which are not otherwise readily
marketable, and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased,
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities, and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted securities in order to
dispose of them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities 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.

B-15

<PAGE>

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 Subadviser anticipates that the market for
certain restricted securities such as foreign convertible securities will expand
further as a result of this new 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 Subadviser will monitor the
liquidity of restricted securities in the Fund's portfolio under the supervision
of the Board of Directors. In reaching liquidity decisions, the Subadviser 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 Commission has taken the position that purchased OTC
Options and the assets used as "cover" for written OTC Options are illiquid
securities unless the Fund and the counterparty have provided for the Fund, at
the Fund's election, to unwind the OTC 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."

BORROWING

As stated in the Prospectus, the Fund may borrow an amount up to 33 1/3% of
the value of its total assets (computed at the time the loan is made) from banks
for temporary or emergency purposes. However, the Fund will not purchase
portfolio securities if borrowings exceed 5% of the Fund's total assets. Upon
the vote of the Board of Directors to change the nonfundamental policy described
above, the Fund is authorized, at the Subadviser's discretion and under the
supervision of the Board of Directors, to borrow from banks amounts up to 33
1/3% of the Fund's total assets (including the amount borrowed), less all
liabilities and indebtedness other than the specific bank borrowing, which is
equivalent to permitting such borrowing to equal 50% of the value of the Fund's
net assets.

SEGREGATED ASSETS

When the Fund is required to segregate assets in connection with certain
hedging transactions, it will mark cash or liquid assets as segregated with the
Fund's Custodian. "Liquid assets" means cash, U.S. Government securities, equity
securities (including foreign securities), debt obligations or other liquid,
unencumbered assets, marked-to-market daily.

When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in securities denominated in U.S. dollars or U.S. Treasury
securities or hold cash.

(D) PORTFOLIO TURNOVER

The Fund's portfolio turnover rate is not expected to exceed 100%. The
portfolio turnover rates for the Fund for the fiscal years ended September 30,
1999 and 1998 were % and 20%, respectively. The portfolio turnover rate is
generally the percentage computed by dividing the lesser of portfolio purchases
or sales (excluding all securities, including options, whose maturities or
expiration date at acquisition were one year or less) by the monthly average
value of the long-term portfolio. High portfolio turnover (100% or more)
involves correspondingly greater brokerage commissions and other transaction
costs, which are borne directly by the Fund. In addition, high portfolio
turnover may also mean that a proportionately greater amount of distributions to
shareholders will be taxed as ordinary income rather than long-term capital
gains compared to investment companies with lower portfolio turnover. See
"Brokerage Allocations and Other Practices" and "Taxes, Dividends and
Distributions."

B-16

<PAGE>

INVESTMENT RESTRICTIONS

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

The Fund may not:

(1) Invest 25% or more of its total assets in any nonutility industry. (The
Fund will invest 25% or more of its total assets in the utility industries as a
group. Utility industries for this purpose consist of companies primarily
engaged in the ownership or operation of facilities used in the generation,
transmission or distribution of electricity, telecommunications, gas or water.)
For this purpose "industry" does not include the U.S. Government and agencies
and instrumentalities of the U.S. Government.

(2) Invest more than 5% of its total assets in securities of companies
having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to U.S. Government
agencies and instrumentalities.

(3) As to 75% of its total assets, invest more than 5% of the market or
other fair value of its total assets in the securities of any one issuer (other
than U.S. Government securities) or purchase more than 10% of the voting
securities, or more than 10% of any class of securities, of any one issuer. For
purposes of this restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is considered as
one class.

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

(5) Invest in securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets; provided that the Fund may invest in securities issued by foreign
investment companies to the extent permitted by the 1940 Act.

(6) Make short sales of securities or maintain a short position, except in
connection with the use of options, futures contracts, options thereon and
forward currency contracts.

(7) Issue senior securities, as defined in the 1940 Act, except that the
Fund may borrow money from banks in an amount at the time of the borrowing not
in excess of 33 1/3% of the Fund's total assets (including the amount borrowed)
less all liabilities and indebtedness other than the borrowing. Transactions
involving options, futures contracts, options on futures contracts and forward
currency contracts as described in the Prospectus and collateral arrangements
with respect thereto are not considered by the Fund to be the issuances of
senior securities; and neither such arrangements, the purchase or sale of
securities on a when-issued or delayed delivery basis nor obligations of the
Fund to the Directors pursuant to deferred compensation arrangements, are deemed
to be the issuance of a senior security.

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

(9) Make loans, except loans of portfolio securities and repurchase
agreements, provided that for purposes of this restriction the purchase of debt
securities in accordance with the Fund's investment objective and policies are
not considered by the Fund to be "loans."

(10) Make investments for the purpose of exercising control or management
over the issuer of any security.

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

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-17

<PAGE>

MANAGEMENT OF THE FUND

<TABLE>
<CAPTION>
NAME, ADDRESS+ POSITION(S) HELD PRINCIPAL OCCUPATIONS
AND AGE WITH THE FUND DURING PAST FIVE YEARS
- ------------------------------- ------------------ -------------------------------------------------------------------
<S> <C> <C>
Eugene C. Dorsey (72) Director Retired President, Chief Executive Officer and Trustee of the Gannett
Foundation (now Freedom Forum); former Publisher of four Gannett
Newspapers and Vice President of Gannett Co., Inc.; past Chairman,
Independent Sector, Washington, D.C. (largest national coalition of
philanthropic organizations); former Chairman of the American Council
for the Arts; Director of the Advisory Board of Chase Manhattan Bank of
Rochester, First Financial Fund, Inc., The High Yield Plus Fund, Inc.
and The High Yield Income Fund, Inc.; Trustee of the Target Portfolio
Trust and Prudential Diversified Funds.

Douglas H. McCorkindale (60) Director President (since September 1997) and Vice Chairman (since March 1984) of
Gannett Co., Inc.; Director of Continental Airlines, Inc., Gannett Co.
Inc., Frontier Corporation, First Financial Fund, Inc. and The High
Yield Plus Fund,Inc.; Trustee of the Target Portfolio Trust and
Prudential Diversified Funds.

Thomas T. Mooney (58) Director President of the Greater Rochester Metro Chamber of Commerce; former
55 St. Paul Street Rochester City Manager; Trustee of Center for Governmental Research,
Rochester, NY 14604 Inc.; Director of Blue Cross of Rochester, The Business Council of New
York State, Executive Service Corps of Rochester, Monroe County Water
Authority, Rochester Jobs, Inc., Northeast- Midwest Institute, Monroe
County Industrial Development Corporation, and The High Yield Income
Fund, Inc.; President, Director and Treasurer of First Financial Fund,
Inc. and The High Yield Plus Fund, Inc.; Trustee of the Target Portfolio
Trust and Prudential Diversified Funds.

*John R. Strangfeld, Jr. (45) Director and Chief Executive Officer, Chairman, President and Director of The
President Prudential Investment Corporation (since January 1990); Executive Vice
President of the Prudential Global Asset Management Group of Prudential
(since February 1998); Chairman of Pricoa Capital Group (since August
1989); Chief Executive Officer of Private Asset Management Group of
Prudential (November 1994-December 1998).

David F. Connor (35) Secretary Assistant General Counsel (since March 1998) of Prudential Investment
Fund Management LLC (PIFM); Associate Attorney, Drinker Biddle & Reath
LLP prior thereto.

Robert F. Gunia (52) Director and Vice President (since September 1997) of Prudential Insurance Company of
Vice President America; Executive Vice President and Treasurer (since December 1996) of
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.; Vice President and
Director of The Asia Pacific Fund, Inc. (since May 1989); Director of
The High Yield Income Fund, Inc.

</TABLE>

B-18

<PAGE>

<TABLE>
<CAPTION>
NAME, ADDRESS+ POSITION(S) HELD PRINCIPAL OCCUPATIONS
AND AGE WITH THE FUND DURING PAST FIVE YEARS
- ------------------------------- ------------------ -------------------------------------------------------------------
<S> <C> <C>
Grace C. Torres (40) Treasurer First Vice President (since December 1996) of PIFM; First Vice President
and Principal (since March 1994) of Prudential Securities; formerly First Vice
Financial and President (March 1994-September 1996) of Prudential Mutual Fund
Accounting Officer Management, Inc.; Vice President (July 1989-March 1994) of Bankers Trust
Corporation.

Stephen M. Ungerman (46) Assistant Tax Director (since March 1996) of Prudential Investments and the
Treasurer Private Asset Group of The Prudential Insurance Company of America
(Prudential); formerly First Vice President (February 1993-September
1996) of Prudential Mutual Fund Management, Inc. (February
1993-September 1996) and Senior Tax Manager (1981-January 1993) of Price
Waterhouse LLP.
</TABLE>

- ----------

* Indicates those Directors that are "interested persons" of the Fund as defined
in the 1940 Act.

+ Unless otherwise indicated, the address of the Directors and Officers is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077.

The Directors of the Fund are also trustees, directors and officers of some
or all of the other investment companies distributed by Prudential Investment
Management Services LLC.

The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Management of the Fund" below, review such actions and decide on general
policy.

The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Mr. Dorsey is scheduled to retire on December
31, 1999.

Pursuant to the terms of the Management Agreement with the Fund, the
Manager or Subadviser, as appropriate, 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 or Subadviser. The Fund pays each
of its Directors who is not an affiliated person of the Manager or the
Subadviser annual compensation of $6,000, 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 on the boards of which the
Director will be asked to serve.

Directors may receive their Director's fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Director's fees in installments 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 exemptive order
from the Commission, at the daily rate of return of the Fund. Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Director. The Fund's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Fund. As of
December 31, 1997, Mr. Dorsey elected to reduce his Director's fees pursuant to
the deferred fee agreement.

Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.

The Fund currently pays each of its Directors who is not an affiliated
person of the Manager or the investment adviser annual compensation of $2,000,
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 on the Boards of which the Directors may be asked to serve.

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

B-19

<PAGE>

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 September 30, 1999 and the aggregate compensation paid to such Director
for service on the Fund's Board and the Boards of all other investment companies
managed by PIFM (Fund Complex) for the calendar year ended December 31, 1998.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
- -------------------------------------------- -------------- ------------------ ------------------ ------------------------
<S> <C> <C> <C> <C>
Eugene C. Dorsey*, Director $5,750 None N/A $ (16/43)**
Thomas T. Mooney*, Director $5,750 None N/A $ (31/64)**
Douglas H. McCorkindale*, Director $5,750 None N/A $ (20/35)**
John R. Strangfeld+, Director and President None None N/A N/A
</TABLE>

- ----------

* Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1998, includes amounts deferred at the
election of Directors under the funds' deferred compensation plan.
Including accrued interest, total compensation amounted to approximately $
, $ , and $ for Mr. Dorsey, Mr. McCorkindale, and Mr. Mooney, respectively.

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

+ John R. Strangfeld, who is an interested Director, did not receive
compensation from the Fund or any fund in the Fund Complex.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of November , 1999, the Directors and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding shares of beneficial interest
of the Fund, for Classes A, B, C and Z shares.

As of November , 1999, the entities owning more than 5% of the outstanding
voting securities of the classes indicated are listed on Appendix IV.

As of December 11, 1998, Prudential Securities was record holder of
6,441,058 Class A shares (or 79% of the outstanding Class A shares), 121,771
Class B shares (or 74% of the outstanding Class B shares), 5,191 Class C shares
(or 76% of the outstanding Class C shares) and 5,425 Class Z shares (or 87% of
the outstanding Class Z shares) of the Fund. In the event of any meetings of
shareholders, Prudential Securities will forward, or cause to be forwarded,
proxy material to the beneficial owners for which it is the record holder.

B-20

<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

(A) MANAGER AND INVESTMENT ADVISER

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. The Manager serves as manager to all of the other investment
companies that, together with the Fund, comprise the Prudential Mutual Funds.
See "How the Fund Is Managed-Manager" in the Prospectus. As of December 31,
1998, the Manager managed and/or administered open-end and closed-end management
investment companies with assets of approximately $70.5 billion. According to
the Investment Company Institute, as of November 30, 1998, the Prudential Mutual
Funds were the 18th largest family of mutual funds in the United States.

PIFM is a subsidiary of Prudential Securities and The Prudential Insurance
Company of America (Prudential). Prudential Mutual Fund Services LLC (the
Transfer Agent), a wholly-owned subsidiary of the Manager, 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), the Manager, subject to the supervision of the Fund's Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, the Manager is obligated to keep certain books and records of the
Fund. The Manager also administers the Fund's business 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 Custodian), the Fund's custodian,
and the Fund's Transfer Agent and dividend disbursing agent. The management
services of the Manager for the Fund are not exclusive under the terms of the
Management Agreement and the Manager is free to, and does, render management
services to others.

For its services, PIFM receives from the Fund, pursuant to the Management
Agreement, a fee at an annual rate of .70% of the average daily net assets of
the Fund up to and including $250 million, .55% of the Fund's average daily net
assets in excess of $250 million up to and including $500 million, .50% of the
Fund's average daily net assets in excess of $500 million up to and including $1
billion and .45% of the Fund's average daily net assets in excess of $1 billion.
The fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of
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 jurisdiction
currently limits the Fund's expenses.

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

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

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

(c) the costs and expenses payable to The Prudential Investment
Corporation, doing business as Prudential Investments (PI or the investment
adviser), pursuant to the subadvisory agreement between the Manager and the
Subadviser (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 Subadviser, (c) the fees and certain expenses of the Custodian and
Transfer Agent, including the cost of providing records to the Manager in
connection with its obligation of maintaining required records of the Fund and
of pricing the Fund's shares, (d) the charges and expenses of legal counsel and
independent accountants for the Fund, (e) brokerage commissions and any issue or
transfer taxes chargeable to the Fund in connection with its securities
transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade associations of which the Fund
may be a member, (h) the cost of share certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) certain organization
expenses of the Fund and the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the Commission,
including the preparation and printing of the Fund's registration statements and

B-21

<PAGE>

prospectuses for such purposes, (k) allocable communications expenses with
respect to investor services and all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders in the amount necessary for distribution to the
shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees.

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

For the fiscal years ended September 30, 1999, 1998 and 1997, the Manager
received management fees of $ , $419,960 and $559,063, respectively, from the
Fund.

Wellington Management Company, LLP (Wellington Management), 75 State
Street, Boston, Massachusetts 02109, serves as the Fund's Subadviser. The
Subadvisory Agreement provides that Wellington Management shall furnish
investment advisory services in connection with the management of the Fund. In
connection therewith, Wellington Management 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
Wellington Management's performance of such services. Under the Subadvisory
Agreement, PIFM, not the Fund, pays Wellington Management a fee, computed daily
and payable monthly, at an annual rate of .50% of the Fund's average daily net
assets for the portion of such assets up to and including $250 million, .35% of
the Fund's average daily net assets in excess of $250 million up to and
including $500 million, .30% of the Fund's average daily net assets in excess of
$500 million up to and including $1 billion and .25% of the Fund's average daily
net assets in excess of $1 billion.

The Subadvisory Agreement provides that Wellington Management 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 Subadvisory Agreement relates, except a
loss resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. The Subadvisory Agreement provides that it will terminate
automatically if assigned, and that it may be terminated without penalty by any
party upon not more than 60 days' or less than 30 days' written notice. The
Subadvisory 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 1040 Act. The
Subadvisory Agreement was last approved by the Board of Directors of the Fund,
including all of the Directors who are not parties to the contract or
"interested persons" (as defined in the Investment Company Act) of any such
party on May 26, 1999, and by shareholders of the Fund on December 30, 1991.

For the fiscal years ended September 30, 1997, 1998 and 1999, the Fund paid
$2,040,052, $2,050,958 and $ , respectively, to PIFM under the Management
Agreement and PIFM paid subadvisory fees of $1,434,579, $1,441,519 and $ ,
respectively, to Wellington Management under the Subadvisory Agreement.

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

Prudential Investment Management Services LLC (the Distributor), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts as the
distributor of the shares of the Fund. Prior to June 1, 1998, Prudential
Securities Incorporated (Prudential Securities) was the Fund's distributor. The
Distributor and Prudential Securities are subsidiaries of Prudential.

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

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

Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed

B-22

<PAGE>

its distribution and service fees, the Fund will not be obligated to pay any
additional expenses. If the Distributor's expenses are less than such
distribution and service fees, it will retain its full fees and realize a
profit.

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

Prior to February 4, 1991, the Fund operated as a closed-end fund and
offered only one class of shares (the existing Class A shares). On October 15,
1990, 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 Plans or in any agreement related to the Plans
(the Rule 12b-1 Directors), at a meeting called for the propose of voting on the
Class A Plan, adopted a plan of distribution for the Class A shares of the Fund.
On November 13, 1990, the Board of Directors, including the Rule 12b-1
Directors, at a meeting called for the purpose of voting on the Class B Plan,
adopted a plan of distribution for the Class B shares of the Fund. On February
10, 1993, the Board of Directors, including a majority of the Rule 12b-1
Directors, at a meeting called for the purpose of voting on each Plan, approved
modifications to the Fund's Class A and Class B Plans and Distribution
Agreements to conform them to recent amendments to the National Association of
Securities Dealers, Inc. (NASD) maximum sales charge rule described below. As
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 modified, the Class B Plan provides that (i) up to .25 of 1% of the
average daily net assets of the Class B shares may be paid as a service fee and
(ii) up to .75 of 1% (not including the service fee) of the average daily net
assets of the Class B shares (asset-based sales charge) may be used as
reimbursement for distribution-related expenses with respect to the Class B
shares. On May 5, 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. The Plans, as amended and
restated, were approved by the Board of Directors, including a majority of the
Rule 12b-1 Directors, on May , 1999. The Class A Plan as previously amended, was
approved by Class A and Class B shareholders, and the Class B Plan, as
previously 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 September 30, 1999, the Distributor
and Prudential Securities received payments of approximately $ and $ ,
respectively, under the Class A Plan and spent approximately $ and $ ,
respectively, in distributing the Class A shares. This amount was primarily
expended for payments of account servicing fees to financial advisers and other
persons who sell Class A shares. For the fiscal year ended September 30, 1999,
the Distributor and Prudential Securities also received approximately $ and $ ,
respectively, in initial sales charges.

CLASS B PLAN. For the fiscal year ended September 30, 1999, the Distributor
and Prudential Securities received $ and $ , respectively, from the Fund under
the Class B Plan and spent approximately $ and $ , respectively, in distributing
the Fund's Class B shares. It is estimated that of the amount spent
approximately %, % ($ , $ ) was spent on printing and mailing of prospectuses to
other than current shareholders; %, % ($ , $ ) was spent on compensation to
broker-dealers for commissions to representatives and other expenses, including
an allocation of overhead and other branch office distribution-related expenses,
incurred for distribution of Fund shares; and %, % ($ , $ ) on the aggregate of
(1) payments of commissions and account servicing fees to financial advisers (
%, % or $ , $ ) and (2) an allocation of overhead and other branch office
distribution-related expenses for payments of related expenses ( , % or $ , $ ).
The term "overhead and other branch office distribution-related expenses"
represents (a) the expenses of operating Prudential Securities' and Pruco
Securities Corporation's (Prusec's) branch offices in connection with the sale
of Fund shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communications costs and
the costs of stationery and supplies, (b) the costs of client sales seminars,
(c) expenses of mutual fund sales coordinators to promote the sale of Fund
shares and (d) other incidental expenses relating to branch promotion of Fund
sales.

The Distributor (and Prudential Securities as its predecessor) also
receives the proceeds of contingent deferred sales charges paid by investors
upon certain redemptions of Class B shares. For the fiscal year ended September
30, 1999, the Distributor and Prudential Securities received approximately $ and
$ , respectively, in contingent deferred sales charges attributable to Class B
shares.

B-23

<PAGE>

CLASS C PLAN. For the fiscal year ended September 30, 1999, the Distributor
and Prudential Securities received $ and $ , respectively, under the Class C
Plan and spent approximately $ and $ , respectively, in distributing Class C
shares. It is estimated that of the $ , approximately
%, % ($ , $ ) was spent on printing and mailing of prospectuses to other than
current shareholders; %, % ($ , $ ) on compensation to broker-dealers for
commissions to representatives and other expenses, including an allocation of
overhead and other branch office distribution-related expenses, incurred for
distribution of Fund shares; and %, % ($ , $ ) on the aggregate of (1) payments
of commissions and account servicing fees to financial advisers ( %, % or $ , $
) and (2) an allocation of overhead and other branch office distribution-related
expenses for payments of related expenses ( %,
% or $ , $ ).

The Distributor (and Prudential Securities as its predecessor) also
receives the proceeds of contingent deferred sales charges paid by investors
upon certain redemptions of Class C shares. For the fiscal year ended September
30, 1999, the Distributor and Prudential Securities received approximately $ and
$ , respectively, in contingent deferred sales charges attributable to Class C
shares.

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

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

Pursuant to each Plan, the 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 the Rule
12b-1 Directors shall be committed to the Rule 12b-1 Directors.

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

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

FEE WAIVERS/SUBSIDIES

PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has waived a portion of its distribution fees as described
above. These voluntary waivers may be terminated at any time. Fee waivers and
subsidies will increase the Fund's total return.

NASD MAXIMUM SALES CHARGE RULE

Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. Interest charges
on unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not included in the calculation of the 6.25%
limitation. The annual asset-based sales charge on shares of the Fund may not
exceed .75 of 1% per class. The 6.25% limitation applies to each class of the
Fund rather than on a per shareholder basis. If aggregate sales charges were to
exceed 6.25% of total gross sales of any class, all sales charges on shares of
that class would be suspended.

B-24

<PAGE>

(C) OTHER SERVICE PROVIDERS
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.

The Transfer Agent, Raritan Plaza One, Edison, New Jersey 08837, serves as
the transfer and dividend disbursing agent of the Fund. The Transfer Agent is a
wholly-owned subsidiary of the Manager. The Transfer Agent provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, the Transfer Agent receives an annual fee
of $13.00 per shareholder account, a new account set-up fee of $2.00 for each
manually established account and a monthly inactive zero balance account fee of
$0.20 per shareholder account. The Transfer Agent is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communication expenses and other costs.

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

Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W. Washington,
D.C. 20036, serves as counsel to the Fund (except with respect to the opinions
of counsel referred to in "Taxes, Dividends and Distributions" in the
Prospectus).

BROKERAGE ALLOCATION AND OTHER PRACTICES

Subject to policies established by the Board of Directors of the Fund and
the oversight and review of the Manager, the Subadviser will arrange for the
execution of the Fund's portfolio transactions and the allocation of brokerage.
In executing portfolio transactions, the Subadviser seeks to obtain the best net
results for the Fund, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved. The Fund may invest
in securities traded in the OTC markets and deal directly with the dealers who
make markets in the securities involved, unless a better price or execution
could be obtained by using a broker. While the Subadviser generally will seek
reasonably competitive commission rates, payment of the lowest commission or
spread is not necessarily consistent with best net results in particular
transactions. The Fund will not deal with Prudential Securities (or any
affiliate) in any transaction in which Prudential Securities (or an affiliate)
acts as principal, except in accordance with the rules of the Commission.
Purchases and sales of securities on a securities exchange are effected through
brokers who charge a negotiated commission for their services. On a foreign
securities exchange, commissions may be fixed. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
Prudential Securities.

In placing orders with brokers and dealers, the Subadviser will attempt to
obtain the best net price and the most favorable execution for orders; however,
the Subadviser may, in its discretion, purchase and sell portfolio securities
through brokers and dealers who provide the Subadviser or the Fund with
research, analysis, advice and similar services. The Subadviser may, in return
for research and analysis, pay brokers a higher commission than may be charged
by other brokers, provided that the Subadviser determines in good faith that
such commission is reasonable in terms either of that particular transaction or
of the overall responsibility of the Subadviser to the Fund and its other
clients, and that the total commission paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. Information and
research received from such brokers and dealers will be in addition to, and not
in lieu of, the services required to be performed by the Manager under its
Management Agreement with the Fund and by the Subadviser under the Subadvisory
Agreement. Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The Subadviser's policy is to
pay higher commissions to brokers or futures commission merchants other than
Prudential Securities (or any affiliate) for particular transactions than might
be charged if a different broker had been selected, on occasions when, in the
Subadviser's opinion, this policy furthers the objective of obtaining best price
and execution. The allocation of orders among brokers and the commission rates
paid are reviewed periodically by the Fund's Board of Directors. Portfolio
securities may not be purchased from any underwriting or selling syndicate of
which Prudential Securities (or any affiliate), during the existence of the
syndicate, is a principal underwriter (as defined in the Investment Company
Act), except in accordance with rules of the 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.

Purchases and sales of securities, futures or options on futures on an
exchange (including a board of trade), and options on securities may be effected
through securities brokers or futures commission merchants that charge a
commission for their

B-25

<PAGE>

services. The Fund has no obligation to deal with any broker or group of brokers
in the execution of transactions. The Fund contemplates that, consistent with
the policy of obtaining the best net results, the Fund may use Prudential
Securities and its affiliates for brokerage transactions. In order for
Prudential Securities or its affiliates to effect any such transaction for the
Fund, the commissions, fees or other remuneration received by Prudential
Securities or its affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities, futures or options on
futures being purchased or sold on an exchange during a comparable period of
time. The Fund's Board of Directors has adopted procedures designed to ensure
that all brokerage commissions, fees or other remuneration paid to such firm or
its affiliates are reasonable and fair.

Investment decisions for the Fund and for other investment accounts managed
by the Subadviser are made independently of each other in the light of differing
considerations for the various accounts. However, the same investment decision
may occasionally be made for two or more such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated to accounts according to a formula deemed equitable to
each account. While in some cases this practice could have a detrimental effect
upon the price or value of the security as far as the Fund is concerned, in
other cases it is believed to be beneficial to the Fund.

The Fund's brokerage transactions involving securities of companies
headquartered in countries other than the United States will be conducted
primarily on the markets and principal exchanges of such countries. Foreign
markets are generally not as developed as those located in the United States,
which may result in higher transaction costs, delayed settlement and less
liquidity for trades effected in foreign markets. Transactions on foreign
exchanges are usually subject to fixed commissions that generally are higher
than negotiated commissions on U.S. transactions. There is generally less
government supervision and regulation of exchanges and brokers in foreign
countries than in the United States.

In accordance with Section 11(a) under the Securities Exchange Act of 1934,
as amended, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund has
expressly authorized the retention of such compensation. Prudential Securities
must furnish to the Fund at least annually a statement setting forth the total
amount of all compensation retained by Prudential Securities from transactions
effected for the Fund during the applicable period. Brokerage transactions with
Prudential Securities (or any affiliate) are also subject to such fiduciary
standards as may be imposed upon Prudential Securities (or any affiliate) by
applicable law.

The table below sets forth information concerning the payment of
commissions by the Fund for the three years ended September 30, 1999.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund ......... $ $140,952 $174,648
</TABLE>

The Fund effected no transactions that involved the payment of commissions
through Prudential Securities during the fiscal year ended September 30, 1999.

CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

The Fund is authorized to issue an unlimited number of shares of common
stock, $.001 per share divided into four classes, designated Class A, Class B,
Class C and Class Z shares, initially all of one series. Each class of common
stock represents an interest in the same assets of the Fund and is identical in
all respects except that (1) each class is subject to different sales charges
and distribution and/or service fees (except for Class Z shares, which are not
subject to any sales charges and distribution and/or service fees), which may
affect performance, (2) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (3) each
class has a different exchange privilege, (4) only Class B shares have a
conversion feature and (5) Class Z shares are offered exclusively for sale to a
limited group of investors. In accordance with the Fund's Articles of
Incorporation, the Directors may authorize the creation of additional series and
classes within such series, with such preferences, privileges, limitations and
voting and dividend rights as the Directors may determine. The voting rights of
the shareholders of a series or class can be modified only by the majority vote
of shareholders of that series or class.

Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. Each share of
each class is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares (with the exception of Class Z

B-26

<PAGE>

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

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

Under the Articles of Incorporation, the Directors may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset value
procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Directors may determine. All consideration received by
the Fund for shares of any additional series, and all assets in which such
consideration is invested, would belong to that series (subject only to the
rights of creditors of that series) and would be subject to the liabilities
related thereto. Under the Investment Company Act, shareholders of any
additional series of shares would normally have to approve the adoption of any
advisory contract relating to such series and of any changes in the investment
policies related thereto. The Directors do not intend to authorize additional
series at the present time.

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

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

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

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 "Shareholder
Investment Account- Exchange Privilege."

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, an
investor 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: the investor's name, address, tax identification number,
class election, dividend distribution election, amount being wired and wiring
bank. Instructions should then be given by the investor to his/her bank to
transfer funds by wire to the Fund's Custodian, State Street Bank and Trust
Company, Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Prudential Global Limited Maturity Fund, Inc.-Limited Maturity
Portfolio, specifying on the wire the account number assigned by the Transfer
Agent and the investor's name and identifying the class in which the investor is
eligible to invest (Class A, Class B, Class C or Class Z shares).

If an investor arranges for receipt by the Custodian of Federal Funds prior
to the calculation of NAV (4:15 P.M., New York time), on a business day, the
investor may purchase shares of the Fund as of that day.

In making a subsequent purchase order by wire, an investor should wire the
Custodian directly and should be sure that the wire specifies Prudential Global
Limited Maturity Fund, Inc.-Limited Maturity Portfolio, Class A, Class B, Class
C or Class Z shares and the investor's 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.

B-27

<PAGE>

ISSUANCE OF FUND SHARES FOR SECURITIES

Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations, (2) statutory mergers, or (3)
other acquisitions of portfolio securities that: (a) meet the investment
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 of the Fund are sold at a maximum sales charge of
5%, Class C* shares are sold with a 1% sales charge, and Class B* and Class Z
shares of the Fund are sold at NAV. Using the NAV at September 30, 1999, the
maximum offering price of the Fund's shares is as follows:

<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share ................. $
Maximum sales charge (5% of offering price) ............................ .
-------
Maximum offering price to public ....................................... $
=======
CLASS B
Net asset value, redemption price and offering price per Class B share* $
=======
CLASS C
Net asset value and redemption price per Class C share* ................ $
Sales Charge (1% of offering price) .................................... .
-------
Offering price to public ............................................... $
=======
CLASS Z
Net asset value, redemption price and offering price per Class Z share . $
=======
</TABLE>

- ----------

* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. At September 30, 1999, no initial sales charge was
imposed on purchases of Class C shares.

SELECTING A PURCHASE ALTERNATIVE

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

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

If you intend to hold your investment for more than 4 years, but less than
5 years, you may consider purchasing Class B or Class C shares because: (1) the
contingent-deferred sales load plus the cumulative annual distribution-related
fee on Class B shares; and (ii) the maximum 1% initial sales charge plus the
cumulative annual distribution-related fee on Class C shares would be lower than
the maximum 5% initial sales charge plus the cumulative annual
distribution-related fee on Class A shares. In addition, more of your money
would be invested initially in the case of Class C shares, because of the
relatively low initial sales charge, and all of your money would be invested
initially in the case of Class B shares, which are sold at NAV.

If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than the cumulative
annual distribution-related fee on Class B shares and less than the initial
sales charge plus the cumulative annual distribution-related fee on 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 or how long you intend to hold you investment. However, unlike
Class B shares, you would not have all of your money invested initially because
the sales charge on Class A shares is deducted at the time of purchase.

B-28

<PAGE>

REDUCTION AND WAIVER OF INITIAL SALES CHARGE-CLASS A SHARES

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

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

o officers of the Prudential Mutual Funds (including the Fund);

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

o employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer;

o 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;

o members of the Board of Directors of The Prudential Insurance Company of
America;

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

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

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

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

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

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

For 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 broker
facilitating the transaction that the purchase 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.

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 "How to Buy, Sell and Exchange Shares of the Fund-How to
Buy Shares-Reducing or Waiving Class A's Initial Sales Charge" in the
Prospectus.

B-29

<PAGE>

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

o an individual;

o the individual's spouse, their children and their parents;

o the individual's and spouse's Individual Retirement Account (IRA);

o 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);

o a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children; o a Uniform Gifts
to Minors Act/Uniform Transfers to Minors Act account created by the
individual or the individual's spouse; and

o one or more employee benefit plans of a company controlled by an
individual.

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

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

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 a broker will not be aggregated to determine the
reduced sales charge. The value of existing holdings for purposes of determining
the reduced sales charge is calculated using the maximum offering price (NAV
plus maximum sales charge) as of the previous business day. Reduced sales
charges will be granted subject to confirmation of the investor's holdings.
Rights of Accumulation are not available to individual participants in any
retirement or group plans.

LETTERS OF INTENT. Reduced sales charges are also available to investors
(or an eligible group of related investors), 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,
Prudential or its affiliates and through your broker will not be aggregated to
determine the reduced sales charge.

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

B-30

<PAGE>

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 the 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.

CLASS B SHARES

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

The Distributor will pay, from its own resources, sales commissions of up
to 3% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee.

CLASS C SHARES

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

WAIVER OF INITIAL SALES CHARGE-CLASS C SHARES

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

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

CLASS Z SHARES

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

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

B-31

<PAGE>

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

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

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

o 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;

o current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund),

o Prudential with an investment of $10 million or more.

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

SALE OF SHARES

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

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

In order to redeem shares, a written request for redemption signed by you
exactly as the account is registered is required. If you hold certificates, the
certificates must be received by the Transfer Agent, the Distributor or your
broker in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence of
authority acceptable to the Transfer Agent must be submitted before such request
will be accepted. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010, the Distributor or to the investor's broker.

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

Payment for shares presented for redemption will be made by check within
seven days after receipt of the written request, and certificates if applicable
by the Transfer Agent, the Distributor or the broker of the certificate and/or
written request, except as indicated below. If an investor holds shares through
Prudential Securities, payment for shares presented for redemption will be
credited to the investor's account at his or her broker, unless the investor
indicates otherwise. Such payment may be

B-32

<PAGE>

postponed or the right of redemption suspended at times (1) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (2)
when trading on such Exchange is restricted, (3) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (4) during any other period when the Commission,
by order, so permits; provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (2), (3) or (4) exist.

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

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

90-DAY REPURCHASE PRIVILEGE. If a shareholder redeems shares and has not
previously exercised the repurchase privilege, the shareholder 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 the shareholder's account. (If less
than a full repurchase is made, the credit will be on a pro rata basis.) The
shareholder must notify the Transfer Agent, either directly or through the
Distributor or the shareholder's broker, at the time the repurchase privilege is
exercised to adjust for the CDSC you previously paid. Thereafter, any
redemptions will be subject to the CDSC applicable at the time of the
redemption. See "Contingent Deferred Sales Charge" below. Exercise of the
repurchase privilege will generally not affect federal tax treatment of any gain
realized upon redemption. However, if the redemption was made within a 30 day
period of the repurchase and if the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, may not be allowed for federal
income tax purposes.

CONTINGENT DEFERRED SALES CHARGE

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

The amount of the CDSC, if any, will vary depending on the number of years
from the time of the purchase of shares until the time of redemption of such
shares. Solely for purposes of determining the number of years from the purchase
of shares, all purchases 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.

B-33

<PAGE>

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

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

In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in NAV above the total amount of
purchases of Fund shares made during the preceding four years for Class B shares
and 18 months for Class C shares (one year for Class C shares bought before
November 2, 1998); then of amounts representing the cost of shares held beyond
the applicable CDSC period; and finally, of amounts representing the cost of
shares held for the longest period of time within the applicable CDSC period.

For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.

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

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

The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. For more information, call Prudential at (800) 353-2847.

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

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

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

Shareholders must notify the Fund's Transfer Agent either directly or
through their broker at the time of redemption that they 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.

B-34

<PAGE>

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

<TABLE>
<S> <C>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION

Death A certified copy of the shareholder's death certificate or,
in the case of a trust, a certified copy of the grantor's
death certificate, plus a certified copy of the trust
agreement identifying the grantor.

Disability-An individual will be considered disabled if he A copy of the Social Security Administration award letter or
or she is unable to engage in any substantial gainful a letter from a physician on the physician's letterhead
activity by reason of any medically determinable physical or stating that the shareholder (or, in the case of a trust,
mental impairment which can be expected to result in death the grantor) is permanently disabled. The letter must also
or to be of long-continued and indefinite duration. indicate the date of disability. In the case of a trust, the
Transfer Agent will also require a certified copy of the
trust.

Distribution from an IRA or 403(b) Custodial Account A copy of the distribution form from the custodial firm
indicating (i) the date of birth of the shareholder and (ii)
that require a certified copy of the trust. the shareholder
is over age 591|M/2 and is taking a normal
distribution-signed by the shareholder.

Distribution from Retirement Plan A letter signed by the plan administrator/trustee indicating
the reason for the distribution.

Excess Contributions A letter from the shareholder (for an IRA) or the plan
administrator/trustee on company letterhead indicating the
amount of the excess and whether or not taxes have been
paid.

</TABLE>

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

QUANTITY DISCOUNT-SHARES PURCHASED PRIOR TO AUGUST 1, 1994

While a quantity discount is not available for Class B shares of the Fund,
a quantity discount may apply to Class B shares of another Prudential mutual
fund acquired pursuant to the exchange of Class B shares of the Fund. The
applicable quantity discount, if any, will be that applicable to the shares
acquired as a result of the exchange of Class B shares of the Fund.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE-CLASS C SHARES

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

CONVERSION FEATURE-CLASS B SHARES

Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.

Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (1)
the ratio of (a) the amounts paid for Class B shares purchased at least five
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (2) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.

For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before

B-35

<PAGE>

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.

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

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

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a share 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 at NAV. 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 and/or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the broker. Any
shareholder who receives dividends or distributions in cash may subsequently
reinvest any such dividends or distributions at NAV within 30 days after the
payment date. Such reinvestment will be made at the NAV next determined after
receipt of the check by the Transfer Agent. Shares purchased with reinvested
dividends and/or distributions will not be subject to any CDSC upon redemption.

EXCHANGE PRIVILEGE

The Fund makes available to its shareholders the privilege of exchanging
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.

B-36

<PAGE>

In order to exchange shares by telephone, a shareholder must authorize
telephone exchanges on his or her initial application form or by written notice
to the Transfer Agent and hold shares in non-certificate form. Thereafter, a
shareholder 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 8:00
P.M., New York time. For the shareholder's protection and to prevent fraudulent
exchanges, telephone calls will be recorded and the shareholder will be asked to
provide his or her personal identification number. A written confirmation of the
exchange transaction will be sent to the shareholder. 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 a shareholder holds shares through Prudential Securities, the shares
must be exchanged by contacting the shareholder's Prudential Securities
financial adviser.

If a shareholder holds 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.

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

In periods of severe market or economic conditions, the telephone exchange
of shares may be difficult to implement. A shareholder should then make
exchanges by mail by writing to the Transfer Agent at the address noted above.
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 CDSC will be imposed upon the
exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the exchange privilege only to acquire Class
A shares of the Prudential mutual funds participating in the exchange privilege.

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

Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.

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

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

B-37

<PAGE>

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

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

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

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

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

The Prudential Securities Cash Balance Pension Plan may only exchange its
Class Z shares for Class Z shares of those Prudential Mutual Funds which permit
investment by the Prudential Securities Cash Balance Pension Plan.

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

DOLLAR COST AVERAGING

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

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

B-38

<PAGE>

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

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

</TABLE>

- ----------

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

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

AUTOMATIC INVESTMENT PLAN (AIP)

Under AIP, a shareholder 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 for specified dollar amounts to be invested in shares of the Fund. The
shareholder's bank must be a member of the Automatic Clearing House System.
Share certificates are not issued to AIP participants.

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

SYSTEMATIC WITHDRAWAL PLAN

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

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

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

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

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

TAX-DEFERRED RETIREMENT PLANS

Various tax-deferred retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These

B-39

<PAGE>

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 are available from
the Distributor or the Transfer Agent.

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

TAX-DEFERRED RETIREMENT ACCOUNTS

INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, 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 COMPOUNDING1

<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, such as pursuit of 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
adviser concerning the appropriate blend of portfolios for them. If investors
elect to purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.

NET ASSET VALUE

The Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Directors have 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. 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.

Under the Investment Company Act, the Directors are responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Directors, the value of investments
listed on a securities exchange

B-40

<PAGE>

and NASDAQ National Market System securities (other than options on stock and
stock indices) are valued at the last sale price of such exchange system on the
day of valuation or, if there was no sale on such day, the mean between the last
bid and asked prices on such day, or at the bid price on such day in the absence
of an asked price. Corporate bonds (other than convertible debt securities) and
U.S. Government securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed by
the Manager in consultation with the Subadviser to be over-the-counter, are
valued on the basis of valuations provided by an independent pricing agent or
principal market maker which 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 stock and stock indices
traded on an exchange are valued at the mean between the most recently quoted
bid and asked prices on the respective exchange and futures contracts and
options thereon are valued at their last sale prices as of the close of trading
on the applicable commodities exchange or board of trade or, if there was no
sale on the applicable commodities exchange or board of trade on such day, at
the mean between the most recently quoted bid and asked prices on such exchange
or board of trade. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents at the current rate obtained from a
recognized bank or dealer, and foreign currency forward contracts are valued at
the current cost of covering or offsetting such contacts. 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 or Subadviser,
including its portfolio manager, traders, and its research and credit analysts,
on the basis of the following factors: cost of the security, transactions in
comparable securities, relationships among various securities and such other
factors as may be determined by the Manager, Subadviser, Board of Directors or
Valuation Committee to materially affect the value of the security. Short-term
debt securities are valued at cost, with interest accrued or discount amortized
to the date of maturity, if their original maturity was 60 days or less, unless
this is determined by the Directors not to represent fair value. Short-term
securities with remaining maturities of more than 60 days, for which market
quotations are readily available, are valued at their current market quotations
as supplied by an independent pricing agent or principal market maker.

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

TAXES, DIVIDENDS AND DISTRIBUTIONS

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

Gains or losses on sales of securities by the Fund will 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

B-41

<PAGE>

holds an offsetting position with respect to the securities. Other gains or
losses on the sale of securities will be short-termcapital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities. If
an option written by the Fund on securities lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will generally realize short-term capital gain or loss. If
securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will include the premium received in the sale proceeds
of the securities delivered in determining the amount of gain or loss on the
sale. Certain of the Fund's transactions may be subject to wash sale, short
sale, constructive sale, anti-conversion and straddle provisions of the Internal
Revenue Code which may, among other things, require the Fund to defer
recognition of losses. In addition, debt securities acquired by the Fund may be
subject to original issue discount and market discount rules which,
respectively, may cause the Fund to accrue income in advance of the receipt of
cash with respect to interest or cause gains to be treated as ordinary income.

Special rules apply to most options on stock indices, futures contracts and
options thereon, and foreign currency forward contracts in which the Fund may
invest. See "Description of the Fund, Its Investments and Risks." 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 foreign currency forward contracts, sixty percent
of any gain or loss recognized on such deemed sales and on actual dispositions
will be treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss.

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

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

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

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

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

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

B-42

<PAGE>

will, however, be required to pay U.S. income tax on any dividend and capital
gain distribution which is effectively connected with a U.S. trade or business
of the foreign shareholder.

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

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

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

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

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

Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.

Dividends and distributions may also be subject to state and local taxes.

B-43

<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.

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

P(1 + T)n = ERV

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

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

The average annual total returns for Class A shares for the one year, five
year and since inception (January 2, 1990) periods ended September 30, 1999 were
(. )%, % and %, respectively. The average annual total returns for Class B
shares for the one year, five year and since inception (March 18, 1991) periods
ended September 30, 1999 were (. )%, % and %, respectively. The average annual
total returns for Class C shares for the five year, one year and since inception
(August 1, 1994 ) periods ended September 30, 1999 were %, % and %,
respectively. The average annual total returns for the Class Z shares for the
one year and since inception (December 16, 1996) periods ended September 30,
1999 were % and %, 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.

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

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

Where: P = a hypothetical initial payment of $1,000.

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

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

The aggregate total returns for Class A shares for the one year, five year
and since inception periods ended on September 30, 1999 were %, % and
%, respectively. The aggregate total returns for Class B shares for the one
year, five year and since inception periods ended on September 30, 1999 were
%, %, % and %, respectively. The aggregate total returns for Class C shares
for the five year, one year, and since inception periods ended September 30,
1999 were %, % and %, respectively. The aggregate total returns for the Class Z
shares for the one year and since inception periods ended September 30, 1999
were % and %, respectively.

YIELD. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, Class
C and Class Z shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:

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

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

B-44

<PAGE>

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

The Fund's 30-day yields for the 30 days ended September 30, 1999 were %,
%, % and % for the Class A, Class B, Class C and Class Z shares,
respectively.

From time to time, the performance of the Fund may be measured against
various indices. Such performance information may include data from Lipper,
Inc., Morningstar Publications, Inc., other industry publications, business
periodicals and market indices. Set forth below is a chart which compares the
performance of different types of investments over the long-term and the rate of
inflation.(1)

[GRAPHIC OMITTED]

(1) SOURCE: IBBOTSON ASSOCIATES. USED WITH PERMISSION. ALL RIGHTS RESERVED.
COMMON STOCK RETURNS ARE BASED ON THE STANDARD & POOR'S 500 STOCK INDEX, A
MARKET-WEIGHTED, UNMANAGED INDEX OF 500 COMMON STOCKS IN A VARIETY OF
INDUSTRY SECTORS. IT IS A COMMONLY USED INDICATOR OF BROAD STOCK PRICE
MOVEMENTS. THIS CHART IS FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT INTENDED
TO REPRESENT THE PERFORMANCE OF ANY PARTICULAR INVESTMENT OR FUND. INVESTORS
CANNOT INVEST DIRECTLY IN AN INDEX. PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS.

B-45

<PAGE>

[FINANCIAL STATEMENTS TO COME] B-46

B-46

<PAGE>

DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

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

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

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

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

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

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

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 that the company ranks in the
lower end of its generic rating category.

CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

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

o Leading market positions in well-established industries.

o High rates of return on funds employed.

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

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

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

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

A-1

<PAGE>

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA:An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A: An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB: An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB, B, CCC AND CC: Obligations rated BB, B, CCC and CC are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and CC the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

COMMERCIAL PAPER RATINGS

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

A-2

<PAGE>

APPENDIX I-GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

Asset allocation is a technique for reducing risk and providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps reduce risk and potentially provide stable returns,
while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.

DIVERSIFICATION

Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.

DURATION

Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.

Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, I.E., principal and interest
rate payments. Duration is expressed as a measure of time in years-the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).

MARKET TIMING

Market timing-buying securities when prices are low and selling them when
prices are relatively higher-may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.

POWER OF COMPOUNDING

Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

STANDARD DEVIATION

Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.

I-1

<PAGE>

APPENDIX II-HISTORICAL PERFORMANCE DATA

The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.

The following chart shows the long-term performance of various asset
classes and the rate of inflation.

[GRAPHIC OMITTED]

Source: Ibbotson Associates. Used with permission. All rights reserved. This
chart is for illustrative purposes only and is not indicative of the past,
present, or future performance of any asset class or any Prudential Mutual Fund.

Generally, stock returns are due to capital appreciation and the reinvestment of
any gains. Bond returns are due to reinvesting interest. Also, stock prices
usually are 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 500 stocks (currently) in a
variety of industries. It is often used as a broad measure of stock market
performance.

Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).

II-1

<PAGE>

Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1988
through 1998. 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 "Risk/Return Summary-Fees and Expenses" in the prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time, could
be substantial.

[GRAPHIC OMITTED]

- ----------
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. Source: Lipper, Inc.

5 SALOMON SMITH BARNEY 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.

II-2

<PAGE>

This chart illustrates the performance of major world stock markets for the
period from 12/31/85 through 12/31/98. It does not represent the performance of
any Prudential Mutual Fund.

AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS 12/31/85-12/31/98 (IN
U.S. DOLLARS)

[GRAPHIC OMITTED]

Source: Morgan Stanley Capital International (MSCI) and Lipper, Inc. as of
12/31/98. 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.

This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.

[STATISTIC TO COME]

[GRAPHIC OMITTED]

Source: Lipper, Inc. Used with permission. All rights reserved. This chart is
used for illustrative purposes only and is not intended to represent the past,
present or future performance of any Prudential Mutual Fund. Common stock total
return is based on the Standard & Poor's 500 Stock Index, a
market-value-weighted index made up of 500 of the largest stocks in the U.S.
based upon their stock market value. Investors cannot invest directly in
indices.

[PLOT POINTS TO COME]

[GRAPHIC OMITTED]

----------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY REGION

WORLD TOTAL: $15.8 TRILLION

Canada 1.8%
Pacific Basin 12.5%
Europe 34.7%
U.S. 51.0%

Source: Morgan Stanley Capital International, December 31, 1998. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of approximately
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.

II-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)

[PLOT POINTS TO COME]

[GRAPHIC OMITTED]

- ----------------------------------------
Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1998. 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.

II-4

<PAGE>

APPENDIX III-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 "How the Fund is Managed-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 PIC1 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,
1997. 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 more than 79,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and 6,500
domestic and international 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 life insurance, Prudential has 25
million life insurance policies in force today with a face value of almost $1
trillion. Prudential has the largest capital base ($12.1 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 INSTITUTIONAL INVESTOR, July 1998, Prudential
was ranked eighth in terms of total assets under management as of December 31,
1997.

REAL ESTATE. The Prudential Real Estate Affiliates is one of the leading
real estate residential and commercial brokerage networks in North America, and
has more than 37,000 real estate brokers and agents with over 1,400 offices
across the United States.2

HEALTHCARE. Over two decades ago, the 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.3

FINANCIAL SERVICES. The Prudential Savings Bank FSB, a wholly-owned
subsidiary of Prudential, has nearly $1 billion in assets and serves nearly 1.5
million customers across 50 states.

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

As of November 30, 1998 Prudential Investments Fund Management was 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.

- ----------

1 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 LLC as one of the
subadvisers to The Prudential Investment Portfolios, Inc. and 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.

3 On December 10, 1998 Prudential announced its intention to sell Prudential
Health Care to Aetna, Inc. for $1 billion

III-1

<PAGE>

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.

EQUITY FUNDS. Prudential Equity Fund is managed with a "value" investment
style by PIC. In 1995, Prudential Securities introduced Prudential Jennison
Growth Fund, a growth-style equity fund managed by Jennison Associates LLC, 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.4 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. Investment grade bond analysts monitor the financial
viability of 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 trades billions in U.S. and foreign government
securities a year. PIC seeks information from government policy makers.
Prudential's portfolio managers meet 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.

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, 1998, assets held by Prudential Securities for its
clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities.5

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 and financial
planning areas.

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 ArchitectsSM, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.

For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.

- ----------

4 As of December 31, 1997. The number of bonds and the size of the Fund are
subject to change.

5 As of December 31, 1998.

III-2

<PAGE>

APPENDIX IV

FIVE PERCENT SHAREHOLDER REPORT

As of November __, 1999 each of the following entities owned more than 5%
of the outstanding voting securities of each of the classes indicated:

NAME NUMBER OF SHARES/CLASS % OWNERSHIP OF CLASS

IV-1

<PAGE>

PART C

OTHER INFORMATION

ITEM 23. EXHIBITS

(a)(1). Amended and Restated Articles of Incorporation.1

(2) Articles of Amendment to the Articles of Incorporation.1

(3) Articles of Amendment to the Articles of Incorporation.2

(4) Articles Supplementary (Class C Change).3

(b) By-Laws.4

(d)(1) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc.4

(2) Subadvisory Agreement among Registrant, Prudential Mutual Fund
Management, Inc. and Wellington Management Company.4

(e)(1) Distribution Agreement.3 (2) Form of Selected Dealer Agreement.3

(f) Not Applicable.

(g)(1) Custodian Contract between the Registrant and State Street Bank and
Trust Company.4

(2) Form of Amendment to Custodian Contract between the Registrant and
State Street Bank and Trust Company.*

(h) Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc.4

(i) Legal Opinion.3

(j) Accountants Consent-to be filed

(k) Not Applicable.

(l) Not Applicable.

(m)(1) Amended and Restated Distribution and Service Plan for Class A shares3

(2) Amended and Restated Distribution and Service Plan for Class B shares3

(3) Amended and Restated Distribution and Service Plan for Class C shares3

(n) Financial Data Schedules.3

(o) Amended and Restated Rule 18f-3 Plan.3

- ---------

1. Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on January
30, 1995.
2. Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on December
2, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on November
27, 1998.
4. Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on December
1, 1997.
5. Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on November
30, 1993.

* Filed herewith.

ITEM 24 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. No person
is controlled by or under common control with the Registrant.

ITEM 25. INDEMNIFICATION.
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940 (the "1940 Act") and pursuant to Article VI

C-1

<PAGE>

of the Fund's Articles of Incorporation (Exhibit (a) to the Registration
Statement) and Section 2-418 of the Maryland General Law, officers and directors
of the Registrant may be indemnified against liabilities in connection with the
Registrant unless it is proved that (i) the act or omission of the director or
officer was material to the cause of action adjudicated in the proceeding and
was committed in bad faith or with active and deliberate dishonesty, (ii) the
director actually received an improper personal benefit in money, property or
services, or (iii) in the case of a criminal proceeding, the director had
reasonable cause to believe that the act or omission was unlawful. As permitted
by Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution
Agreement (Exhibit (e) to the Registration Statement), the Distributor of the
Registrant may be indemnified against liabilities which it may incur except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended ("Securities Act"), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant intends to purchase an insurance policy insuring its
officers and directors against certain liabilities, and certain costs of
defending claims against such officers and directors, to the extent such
officers and directors are not found to have committed conduct constituting
willful misfeasance, bad faith, gross negligence or reckless disregard of their
duties. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain circumstances.

Section 9 of the Management Agreement (Exhibit (d)(1) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d) (2) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management, LLC (PIFM) and Wellington Management Company (the Subadviser),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, the Management Agreement and the Distribution
Agreement in a manner consistent with Release No. 11330 of the Securities and
Exchange Commission under the 1940 Act so long as the interpretation of Sections
17(h) and 17(i) of such Act remain, in effect.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

(a) Prudential Investments Fund Management LLC (PIFM).

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A
of this Registration Statement and "Investment Advisory and Other Services" in
the Statement of Additional Information constituting Part B of this Registration
Statement. The business and other connections of the officers of PIFM are listed
in Schedules A and D of Form ADV of PIFM as currently on file with the
Securities and Exchange Commission, the text of which is hereby incorporated by
reference (File No. 801-31104). The business and other connections of PIFM's
directors and principal executive officers are set forth below. Except as
otherwise indicated, the address of each person is 100 Mulberry Street, Gateway
Center Three, Newark, New Jersey 07102-4077.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ------------------- --------------------- ---------------------------------------------------------------------------
<S> <C> <C>
Robert F. Gunia Executive Vice Vice President, Prudential Investments; Executive Vice President and
President and Treasurer, PIFM; Senior Vice President, Prudential Securities Incorporated

Treasurer
William V. Healey Executive Vice Executive Vice President, Secretary and General Counsel, PIFM
President, Secretary
and Chief
Legal Officer
</TABLE>

(b) Wellington Management Company, the Subadviser, is a Massachusetts
partnership and is a registered investment adviser engaged in the investment
advisory business. Information as to the general partners of the Subadviser is
included in its Form ADV filed with the Securities and Exchange Commission (File
No. 801-15908), and is incorporated herein by reference thereto.

See "How the Fund is Managed-Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory and
Other Services" in the Statement of Additional Information constituting Part B
of this Registration Statement.

C-2

<PAGE>

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Prudential Investment Management Services LLC (PIMS)

PIMS is distributor for Cash Accumulation Trust, Command Money Fund,
Command Government Fund, Command Tax-Free Fund, The Global Total Return Fund,
Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Bond Fund, Inc., Prudential Emerging Growth Fund, Inc.,
Prudential Equity Fund, Inc. Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Government Income Fund, Inc., Prudential
Government Securities Trust, Prudential High Yield Fund, Inc., Prudential High
Total Return Fund, Inc., Prudential Index Series Fund, Prudential Institutional
Liquidity Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc.,
Prudential International Bond Fund, Inc., The Prudential Investment Portfolios,
Inc., Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets, Inc.,
Prudential Mortgage Income Fund, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund, Prudential National Municipals Fund, Inc.,
Prudential Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Real Estate Securities Fund, Prudential Small-Cap Quantum Fund, Inc.,
Prudential Small Company Value Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc. Prudential Tax-Free Money Fund,
Inc., Prudential 20/20 Focus Fund, Prudential Utility Fund, Inc., Prudential
World Fund, Inc. and The Target Portfolio Trust.

(b) Information concerning the officers and directors of PIMS is set forth
below.

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- --------------------------------- -------------------------------------------- ---------------
<S> <C> <C>
Margaret M. Deverell ............ Vice President and Chief None
Financial Officer
Kevin B. Frawley ................ Senior Vice President and Chief Compliance
Officer
Robert F. Gunia ................. President Vice President
Jean D. Hamilton ................ Executive Vice President None
William V. Healey ............... Senior Vice President, Secretary and Chief None
Legal Officer
Brian Henderson ................. Senior Vice President and Chief Operating None
Officer
John R. Strangfeld, Jr. ......... Advisory Board member None
</TABLE>

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

(1) Except as otherwise indicated the address of each person named is 751 Broad
Street, Newark, New Jersey 07102.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171, Wellington Management Company, 75 State Street,
Boston, Massachusetts 02109, the Registrant, Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077 and Prudential Mutual Fund Services LLC,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules 31a-1
(b)(5), (6), (7), (9), (10) and (11), 31a-1(f) 31a-1(b)(4) and 11 and 31a-1(d)
will be kept at Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102-4077
and the remaining accounts, books and other documents required by such other
pertinent provisions of Section 31(a) and the Rules promulgated thereunder will
be kept by State Street Bank and Trust Company and Prudential Mutual Fund
Services LLC.

ITEM 29. MANAGEMENT SERVICES

Other than as set forth under the caption "How the Fund is Managed" in the
Prospectus and the caption "Investment Advisory and Other Services" in the
Statement of Additional Information, constituting Parts A and B, respectively,
of this Post-Effective Amendment to the Registration Statement, Registrant is
not a party to any management-related service contract.

ITEM 30. UNDERTAKING

Not Applicable.

C-3

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 24th day of November, 1999.

GLOBAL UTILITY FUND, INC.

/s/ John R. Strangfeld
----------------------------
John R. Strangfeld, President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------- -------------------
<S> <C> <C>
/s/ Eugene C. Dorsey Director November 24, 1999
- ----------------------------
Eugene C. Dorsey

/s/ Robert F. Gunia Director November 24, 1999
- ----------------------------
Robert F. Gunia

/s/ Robert E. LaBlanc Director November 24, 1999
- ----------------------------
Robert E. LaBlanc

/s/ Douglas H. McCorkindale Director November 24, 1999
- ----------------------------
Douglas H. McCorkindale

/s/ Thomas T. Mooney Director November 24, 1999
- ----------------------------
Thomas T. Mooney

/s/ David R. Odenath, Jr. Director November 24, 1999
- ----------------------------
David R. Odenath, Jr.

/s/ Stephen Stoneburn Director November 24, 1999
- ----------------------------
Stephen Stoneburn

/s/ John R. Strangfeld President November 24, 1999
- ---------------------------- and Director
John R. Strangfeld

/s/ Grace C. Torres Treasurer and Principal November 24, 1999
- ---------------------------- Financial and Accounting Officer
Grace C. Torres

/s/ Clay T. Whitehead Director November 24, 1999
- ----------------------------
Clay T. Whitehead
</TABLE>

C-4

<PAGE>

EXHIBIT INDEX

(a)(1). Amended and Restated Articles of Incorporation.1

(2) Articles of Amendment to the Articles of Incorporation.1

(3) Articles of Amendment to the Articles of Incorporation.2

(4) Articles Supplementary (Class C Change).3

(b) By-Laws.4

(d)(1) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc.4

(2) Subadvisory Agreement among Registrant, Prudential Mutual Fund
Management, Inc. and Wellington Management Company.4

(e)(1) Distribution Agreement.3 (2) Form of Selected Dealer Agreement.3

(f) Not Applicable.

(g)(1) Custodian Contract between the Registrant and State Street Bank and
Trust Company.4

(2) Form of Amendment to Custodian Contract between the Registrant and
State Street Bank and Trust Company.*

(h) Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc.4

(i) Legal Opinion.3

(j) Accountants Consent-to be filed

(k) Not Applicable.

(l) Not Applicable.

(m (1) Amended and Restated Distribution and Service Plan for Class A shares3

(2) Amended and Restated Distribution and Service Plan for Class B shares3

(3) Amended and Restated Distribution and Service Plan for Class C shares3

(n) Financial Data Schedules.3

(o) Amended and Restated Rule 18f-3 Plan.3

- ---------
1. Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on January
30, 1995.
2. Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on December
2, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on November
27, 1998.
4. Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on December
1, 1997.
5. Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A (File No. 33-37356) filed on November
30, 1993.
* Filed herewith.

C-5

<PAGE>

Exhibit (g)(2)

AMENDMENT TO CUSTODIAN CONTRACT/AGREEMENT

This Amendment to the respective Custodian Contract/Agreement is made
as of February 22, 1999 by and between each of the funds listed on Schedule D
(including any series thereof, each, a "Fund") and State Street Bank and Trust
Company (the "Custodian"). Capitalized terms used in this Amendment without
definition shall have the respective meanings given to such terms in the
Custodian Contract/Agreement referred to below.

WHEREAS, each Fund and the Custodian have entered into a Custodian
Contract/Agreement dated as of the dates set forth on Schedule D (each contract,
as amended, a "Contract"); and

WHEREAS, each Fund and the Custodian desire to amend certain provisions
of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated
under the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, each Fund and the Custodian desire to amend and restate
certain other provisions of the Contract relating to the custody of assets of
each of the Funds held outside of the United States.

NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, to add the following new provisions which supersede the
provisions in the existing contracts relating to the custody of assets of the
Funds outside the United States.

3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.

3.1. DEFINITIONS.

Capitalized terms in this Article 3 shall have the following meanings:

"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure;
systemic custody and securities settlement practices; and laws and regulations
applicable to the safekeeping and recovery of Foreign Assets held in custody in
that country.

"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements
of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other
appropriate action of the U.S. Securities and Exchange Commission (the "SEC")),
or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act)
meeting the requirements

1
<PAGE>
of a custodian under Section 17(f) of the 1940 Act, except that the term does
not include Mandatory Securities Depositories.

"Foreign Assets" means any of the Funds' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Funds'
transactions in such investments.

"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.

"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with systemic
custodial or market practices.

3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.

Each Fund, by resolution adopted by its Board of Trustees/Directors (the
"Board"), hereby delegates to the Custodian subject to Section (b) of Rule
17f-5, the responsibilities set forth in this Article 3 with respect to Foreign
Assets of the Fund held outside the United States, and the Custodian hereby
accepts such delegation, as Foreign Custody Manager with respect to the Funds.

3.3. COUNTRIES COVERED.

The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
list of countries may be amended from time to time by the Fund with the
agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list
on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody
Manager to maintain the assets of the Funds which list of Eligible Foreign
Custodians may be amended from time to time in the sole discretion of the
Foreign Custody Manager. Mandatory Securities Depositories are listed on
Schedule B to this Contract, which Schedule B may be amended from time to time
by the Foreign Custody Manager upon reasonable notice to the Fund. The Foreign
Custody Manager will provide amended versions of Schedules A and B in accordance
with Section 3.7 of this Article 3.

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by a Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by that Fund's Board responsibility as Foreign Custody
Manager with respect to that country and to have accepted such delegation.
Execution of this Amendment by the Fund shall be deemed to be a Proper
Instruction to open an account, or

2
<PAGE>

to place or maintain Foreign Assets, in each country listed on Schedule A in
which the Custodian has previously placed or currently maintains Foreign Assets
pursuant to the terms of the Contract. Following the receipt of Proper
Instructions directing the Foreign Custody Manager to close the account of a
Fund with the Eligible Foreign Custodian selected by the Foreign Custody Manager
in a designated country, the delegation by that Fund's Board to the Custodian as
Foreign Custody Manager for that country shall be deemed to have been withdrawn
and the Custodian shall immediately cease to be the Foreign Custody Manager of
the Fund with respect to that country.

The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.

3.4. SCOPE OF DELEGATED RESPONSIBILITIES.

3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.

Subject to the provisions of this Article 3, the Fund's Foreign Custody Manager
may place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.

In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation the factors specified in Rule 17f-5(c)(1).

3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS.

The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).

3.4.3. MONITORING.

In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian (or the rules
or established

3
<PAGE>

practices and procedures in the case of an Eligible Foreign Custodian selected
by the Foreign Custody Manager which is a foreign securities depository or
clearing agency that is not a Mandatory Securities Depository). The Foreign
Custody Manager shall provide the Board at least annually with information as to
the factors used in such monitoring system. If the Foreign Custody Manager
determines that the custody arrangements with an Eligible Foreign Custodian it
has selected are no longer appropriate, the Foreign Custody Manager shall notify
the Board in accordance with Section 3.7 hereunder and withdraw the Foreign
Assets from such Eligible Foreign Custodian as soon as reasonably practicable.

3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.

For purposes of this Article 3, the Foreign Custody Manager shall have no
responsibility for Country Risk as is incurred by placing and maintaining the
Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of the Portfolios. The Fund and the Custodian each expressly
acknowledge that the Foreign Custody Manager shall not be delegated any
responsibilities under this Article 3 with respect to Mandatory Securities
Depositories.

3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO.

In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.

3.7. REPORTING REQUIREMENTS.

The Foreign Custody Manager shall report the placement of Foreign Assets with an
Eligible Foreign Custodian, the withdrawal of the Foreign Assets from an
Eligible Foreign Custodian and the placement of such Foreign Assets with another
Eligible Foreign Custodian by providing to the Board amended Schedules A or B at
the end of the calendar quarter in which an amendment to either Schedule has
occurred. The Foreign Custody Manager shall make written reports notifying the
Board of any other material change in the foreign custody arrangements of the
Funds described in this Article 3 promptly after the occurrence of the material
change.

3.8. REPRESENTATIONS WITH RESPECT TO RULE 17F-5.

The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.

3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
MANAGER.

The Board's delegation to the Custodian as Foreign Custody Manager of the Funds
shall be effective as of the date hereof and shall remain in effect until
terminated at any time, without penalty, by written notice from the terminating
party to the non-terminating party. Termination will become effective sixty (60)
days after receipt by the non-terminating party of such notice.

4
<PAGE>

The provisions of Section 3.3 hereof shall govern the delegation to and
termination of the Custodian as Foreign Custody Manager of the Funds with
respect to designated countries.

3.10. MOST FAVORED CLIENT.

If at any time prior to termination of this Amendment, the Custodian, as a
matter of standard business practice, accepts delegation as Foreign Custody
Manager for its U.S. mutual fund clients on terms of materially greater benefit
to the Funds than set forth in this Amendment, the Custodian hereby agrees to
negotiate with the Funds in good faith with respect thereto.

4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD
OUTSIDE THE UNITED STATES.

4.1 DEFINITIONS.

Capitalized terms in this Article 4 shall have the following meanings:

"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.

"Foreign Sub-Custodian" means a foreign banking institution (including a foreign
branch of the Custodian or another Bank (as defined in Section 2(a)(5) of the
1940 Act)) serving as an Eligible Foreign Custodian.

4.2. HOLDING SECURITIES.

The Custodian shall identify on its books as belonging to the Funds the foreign
securities held by each Foreign Sub-Custodian or Foreign Securities System. The
Custodian may hold foreign securities for all of its customers, including the
Funds, with any Foreign Sub-Custodian in an account that is identified as
belonging to the Custodian for the benefit of its customers, PROVIDED HOWEVER,
that (i) the records of the Custodian with respect to foreign securities of the
Funds which are maintained in such account shall identify those securities as
belonging to the Funds and (ii), to the extent permitted and customary in the
market in which the account is maintained, the Custodian shall require that
securities so held by the Foreign Sub-Custodian be held separately from any
assets of such Foreign Sub-Custodian or of other customers of such Foreign
Sub-Custodian.

4.3. FOREIGN SECURITIES SYSTEMS.

Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.

4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.

5
<PAGE>

4.4.1. DELIVERY OF FOREIGN ASSETS.

The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of the Funds held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:

(i) upon the sale of such foreign securities for the Fund in
accordance with customary market practice in the country where
such foreign securities are held or traded, including, without
limitation: (A) delivery against expectation of receiving
later payment; or (B) in the case of a sale effected through a
Foreign Securities System, in accordance with the rules
governing the operation of the Foreign Securities System;

(ii) in connection with any repurchase agreement related to foreign
securities;

(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolios;

(iv) to the issuer thereof or its agent when such foreign
securities are called, redeemed, retired or otherwise become
payable;

(v) to the issuer thereof, or its agent, for transfer into the
name of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such
Foreign Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units;

(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with reasonable
market custom; PROVIDED that in any such case the Foreign
Sub-Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Foreign Sub-Custodian's own negligence or willful
misconduct;

(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;

(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities;

6
<PAGE>

(ix) for delivery as security in connection with any borrowing by
the Funds requiring a pledge of assets by the Funds;

(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;

(xi) in connection with the lending of foreign securities; and

(xii) for any other proper purpose, BUT ONLY upon receipt of Proper
Instructions specifying the foreign securities to be
delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper
trust\corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.

4.4.2. PAYMENT OF FUND MONIES.

Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Fund in the following cases only:

(i) upon the purchase of foreign securities for the Fund, unless
otherwise directed by Proper Instructions, in accordance with
reasonable market settlement practice in the country where
such foreign securities are held or traded, including, without
limitation, (A) delivering money to the seller thereof or to a
dealer therefor (or an agent for such seller or dealer)
against expectation of receiving later delivery of such
foreign securities; or (B) in the case of a purchase effected
through a Foreign Securities System, in accordance with the
rules governing the operation of such Foreign Securities
System;

(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Fund;

(iii) for the payment of any expense or liability of the Fund,
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;

(iv) for the purchase or sale of foreign exchange or foreign
exchange contracts for the Fund, including transactions
executed with or through the Custodian or its Foreign
Sub-Custodians;

(v) in connection with trading in options and futures contracts,
including delivery as

7
<PAGE>

original margin and variation margin;

(vi) for payment of part or all of the dividends received in
respect of securities sold short;

(vii) in connection with the borrowing or lending of foreign
securities; and

(viii) for any other proper purpose, BUT ONLY upon receipt of Proper
Instructions specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper trust\corporate purpose,
and naming the person or persons to whom such payment is to be
made.

4.4.3. MARKET CONDITIONS; MARKET INFORMATION.

Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of the Funds and delivery of
Foreign Assets maintained for the account of the Funds may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs generally accepted by Institutional Clients, including, without
limitation, delivering Foreign Assets to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.

For purposes of this Agreement, the term "Institutional Clients" means U.S.
registered investment companies or major U.S. commercial banks, insurance
companies, pension funds or substantially similar institutions which, as a part
of their ordinary business operations, purchase or sell securities and make use
of global custody services.

The Custodian shall provide to the Board information with respect to material
changes in the custody and settlement practices in countries in which the
Custodian employs a Foreign Sub-Custodian. The Custodian shall provide, without
limitation, information relating to Foreign Securities Systems and other
information described in Schedule C. The Custodian may revise Schedule C from
time to time, provided that no such revision shall result in the Board being
provided with substantively less information than had previously been provided
hereunder and provided further that the Custodian shall in any event provide to
the Board at least annually the following information and opinions with respect
to the Board approved countries listed on Schedule A:

(i) legal opinions relating to whether local law restricts with
respect to U.S. registered mutual funds (a) access of a fund's
independent public accountants to books and records of a
Foreign Sub-Custodian or Foreign Securities System, (b) a
fund's ability to recover in the event of bankruptcy or
insolvency of a Foreign Sub-Custodian or Foreign Securities
System, (c) a fund's ability to recover in the event of a loss
by a Foreign Sub-Custodian or Foreign Securities System, and
(d) the

8
<PAGE>

ability of a foreign investor to convert cash and cash
equivalents to U.S. dollars;

(ii) summary of information regarding Foreign Securities Systems;
and

(iii) country profile information containing market practice for (a)
delivery versus payment, (b) settlement method, (c) currency
restrictions, (d) buy-in practices, (e) foreign ownership
limits, and (f) unique market arrangements.

4.5. REGISTRATION OF FOREIGN SECURITIES.

The foreign securities maintained in the custody of a Foreign Sub-Custodian
(other than bearer securities) shall be registered in the name of the applicable
series or in the name of the Custodian or in the name of any Foreign
Sub-Custodian or in the name of any nominee of the foregoing, and the Fund
agrees to hold any such nominee harmless from any liability as a holder of
record of such foreign securities, except to the extent that the Fund incurs
loss or damage due to failure of such nominee to meet its standard of care set
forth in the Contract. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Fund under the terms of this
Contract unless the form of such securities and the manner in which they are
delivered are in accordance with reasonable market practice.

4.6. BANK ACCOUNTS.

The Custodian shall identify on its books as belonging to the Fund cash
(including cash denominated in foreign currencies) deposited with the Custodian.
Where the Custodian is unable to maintain, or market practice does not
facilitate the maintenance of, cash on the books of the Custodian, a bank
account or bank accounts opened and maintained outside the United States on
behalf of a Fund with a Foreign Sub-Custodian shall be subject only to draft or
order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the
terms of this Contract to hold cash received by or from or for the account of
the Portfolio.

4.7. COLLECTION OF INCOME.

The Custodian shall use reasonable commercial efforts to collect all income and
other payments with respect to the Foreign Assets held hereunder to which the
Funds shall be entitled and shall credit such income, as collected, to the
applicable Fund. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to such
measures and as to the compensation and expenses of the Custodian relating to
such measures.

4.8. SHAREHOLDER RIGHTS.

With respect to the foreign securities held pursuant to this Article 4, the
Custodian will use reasonable commercial efforts to facilitate the exercise of
voting and other shareholder rights,

9
<PAGE>

subject always to the laws, regulations and practical constraints that may exist
in the country where such securities are issued. The Fund acknowledges that
local conditions, including lack of regulation, onerous procedural obligations,
lack of notice and other factors may have the effect of severely limiting the
ability of the Fund to exercise shareholder rights.

4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.

The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of the Funds. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. Subject to the standard of care to which the Custodian is held
under this Agreement, the Custodian shall not be liable for any untimely
exercise of any tender, exchange or other right or power in connection with
foreign securities or other property of the Funds at any time held by it unless
(i) the Custodian or the respective Foreign Sub-Custodian is in actual
possession of such foreign securities or property and (ii) the Custodian
receives Proper Instructions with regard to the exercise of any such right or
power, and both (i) and (ii) occur at least three business days prior to the
date on which the Custodian is to take action to exercise such right or power.

4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.

Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
Foreign Sub-Custodian's performance of such obligations. At each Fund's
election, a Fund shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that a Fund and any applicable series have not been made whole for
any such loss, damage, cost, expense, liability or claim.

4.11. TAX LAW.

Except to the extent that imposition of any tax liability arises from the
Custodian's failure to perform in accordance with the terms of this Section 4.11
or from the failure of any Foreign Sub-Custodian to perform in accordance with
the terms of the applicable subcustody agreement, the Custodian shall have no
responsibility or liability for any obligations now or hereafter imposed on a
Fund, a series thereof or the Custodian as custodian of the Fund by the tax law
of the United States or of any state or political subdivision thereof. It shall
be the responsibility of each Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the tax law of
countries other than those mentioned in the above sentence, including

10
<PAGE>

responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.

4.12. LIABILITY OF CUSTODIAN.

Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to a Fund for any loss, liability, claim or expense resulting
from or caused by anything which is (A) part of Country Risk or (B) part of the
"prevailing country risk" of the Fund, as such term is used in SEC Release Nos.
IC-22658; IS-1080 (May 12, 1997) or as such term or other similar terms are now
or in the future interpreted by the SEC or by the staff of the Division of
Investment Management of the SEC.

The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities System, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.

III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
the event of any conflict between the provisions of Articles 3 and 4
hereof, the provisions of Article 3 shall prevail.

<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.

WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY

/s/MARC L. PARSONS By: /s/RONALD E. LOGUE
- ------------------ ------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Executive Vice President

Cash Accumulation Trust
Command Government Fund
Command Money Fund
Command Tax-Free Fund
Global Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Prudential 20/20 Focus Fund
Prudential Balanced Fund
Prudential California Municipal Fund
Prudential Developing Markets Fund
Prudential Distressed Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential Diversified Funds
Prudential Index Series Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Europe Growth Fund
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Institutional Liquidity Portfolio, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
The Prudential Investment Portfolios Fund, Inc.
Prudential Mid-Cap Value Fund
Prudential MoneyMart Assets, Inc.

12
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

Prudential Mortgage Income Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Municipal Bond Fund
Prudential Municipal Series Fund
Prudential National Municipals Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Small Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Prudential Tax-Free Money Fund, Inc.
Prudential Tax-Managed Equity Fund
Prudential Utility Fund, Inc.
Prudential World Fund, Inc.
The Global Total Return Fund, Inc.
The Target Portfolio Trust
The Asia Pacific Fund, Inc.
The High Yield Income Fund, Inc.

WITNESSED BY:

By: /s/S. JANE ROSE By: /s/GRACE TORRES
--------------- ---------------
Grace Torres
Treasurer

First Financial Fund, Inc.
The High Yield Plus Fund, Inc.

WITNESSED BY:

By: /s/STEPHANIE L. BOURQUE By: /s/ARTHUR J. BROWN
----------------------- ------------------
Arthur J. Brown
Secretary

13
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES

<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Argentina Citibank, N.A. --

Australia Westpac Banking Corporation --

Austria Erste Bank der Oesterreichischen --
Sparkassen AG

Bahrain British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

Bangladesh Standard Chartered Bank --

Belgium Generale de Banque --

Bermuda The Bank of Bermuda Limited --

Bolivia Banco Boliviano Americano S.A. --

Botswana Barclays Bank of Botswana Limited --

Brazil Citibank, N.A. --

Bulgaria ING Bank N.V. --

Canada Canada Trustco Mortgage Company --

Chile Citibank, N.A. Deposito Central de Valores S.A.

People's Republic The Hongkong and Shanghai --
of China Banking Corporation Limited,
Shanghai and Shenzhen branches

Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
</TABLE>

14
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Costa Rica Banco BCT S.A. --

Croatia Privredna Banka Zagreb d.d --

Cyprus Barclays Bank Plc. --
Cyprus Offshore Banking Unit

Czech Republic Ceskoslovenska Obchodni --
Banka, A.S.

Denmark Den Danske Bank --

Ecuador Citibank, N.A. --

Egypt National Bank of Egypt --

Estonia Hansabank --

Finland Merita Bank Limited --

France Banque Paribas --

Germany Dresdner Bank AG --

Ghana Barclays Bank of Ghana Limited --

Greece National Bank of Greece S.A. The Bank of Greece,
System for Monitoring Transactions
in Securities in Book-Entry Form

Hong Kong Standard Chartered Bank --

Hungary Citibank Budapest Rt. --

Iceland Icebank Ltd.
</TABLE>

15
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
India Deutsche Bank AG --

The Hongkong and Shanghai
Banking Corporation Limited

Indonesia Standard Chartered Bank --

Ireland Bank of Ireland --

Israel Bank Hapoalim B.M. --

Italy Banque Paribas --

Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire

Jamaica Scotiabank Jamaica Trust and Merchant --
Bank Ltd.

Japan The Daiwa Bank, Limited Japan Securities Depository
Center

The Fuji Bank, Limited

Jordan British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

Kenya Barclays Bank of Kenya Limited --

Republic of Korea The Hongkong and Shanghai Banking
Corporation Limited

Latvia JSC Hansabank-Latvija --

Lebanon British Bank of the Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
</TABLE>

16
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Lithuania Vilniaus Bankas AB --

Malaysia Standard Chartered Bank --
Malaysia Berhad

Mauritius The Hongkong and Shanghai --
Banking Corporation Limited

Mexico Citibank Mexico, S.A. --

Morocco Banque Commerciale du Maroc --

Namibia (via) Standard Bank of South Africa --

The Netherlands MeesPierson N.V. --

New Zealand ANZ Banking Group --
(New Zealand) Limited

Norway Christiania Bank og --
Kreditkasse

Oman British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)

Pakistan Deutsche Bank AG --

Peru Citibank, N.A. --

Philippines Standard Chartered Bank --

Poland Citibank (Poland) S.A. --
Bank Polska Kasa Opieki S.A.

Portugal Banco Comercial Portugues --
</TABLE>

17
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Romania ING Bank N.V. --

Russia Credit Suisse First Boston AO, Moscow --
(as delegate of Credit Suisse
First Boston, Zurich)

Singapore The Development Bank --
of Singapore Limited

Slovak Republic Ceskoslovenska Obchodni Banka, A.S. --

Slovenia Bank Austria d.d. Ljubljana --

South Africa Standard Bank of South Africa Limited --

Spain Banco Santander, S.A. --

Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited

Swaziland Standard Bank Swaziland Limited --

Sweden Skandinaviska Enskilda Banken --

Switzerland UBS AG --

Taiwan - R.O.C. Central Trust of China --

Thailand Standard Chartered Bank --

Trinidad & Tobago Republic Bank Limited --

Tunisia Banque Internationale Arabe de Tunisie --

Turkey Citibank, N.A. --
Ottoman Bank
</TABLE>

18
<PAGE>

STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN NON-MANDATORY DEPOSITORIES
<S> <C> <C>
Ukraine ING Bank, Ukraine --

United Kingdom State Street Bank and Trust Company, --
London Branch

Uruguay Citibank, N.A. --

Venezuela Citibank, N.A. --

Zambia Barclays Bank of Zambia Limited --

Zimbabwe Barclays Bank of Zimbabwe Limited --

Euroclear (The Euroclear System)/State Street London Limited

Cedel, S.A. (Cedel Bank, societe anonyme)/State Street London Limited

INTERSETTLE (for EASDAQ Securities)
</TABLE>

* The global custody network approved by each fund is set forth below on
Schedules A-1 and A-2.

19
<PAGE>

SCHEDULE A-1

PRUDENTIAL MUTUAL FUNDS
STATE STREET GLOBAL CUSTODY NETWORK
<TABLE>
<CAPTION>
COUNTRY FUNDS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Argentina Mexico Global Utility Fund, Inc.
Australia Morocco Prudential 20/20 Focus Fund
Austria Netherlands Prudential Balanced Fund
Bangladesh+ New Zealand Prudential Equity Fund, Inc.
Belgium Norway Prudential Equity Income Fund
Brazil Pakistan Prudential Developing Markets Fund
Canada Peru Prudential Diversified Bond Fund, Inc.
Chile Philippines Prudential Distressed Securities Fund, Inc.
China Poland Prudential Diversified Funds
Columbia Portugal Prudential Emerging Growth Fund, Inc.
Cyprus Russia Prudential Global Genesis Fund, Inc.
Czech Republic Singapore Prudential Global Limited Maturity Fund, Inc.
Denmark Slovak Republic Prudential Index Series Fund
Ecuador South Africa Prudential Intermediate Global Income Fund, Inc.
Egypt Spain Prudential International Bond Fund, Inc.,
Finland Sri Lanka Prudential Mid-Cap Value Fund
France Sweden Prudential Natural Resources Fund, Inc.
Germany Switzerland Prudential Pacific Growth Fund, Inc.
Ghana Taiwan Prudential Real Estate Securities Fund
Greece Thailand Prudential Small-Cap Quantum Fund, Inc.
Hong Kong Turkey Prudential Small Company Value Fund, Inc.
Hungary Transnational Prudential Tax-Managed Equity Fund
India United Kingdom Prudential Utility Fund, Inc.
Indonesia Uruguay Prudential World Fund, Inc.
Ireland Venezuela The Prudential Investment Portfolios Fund, Inc.
Israel The Target Portfolio Trust
Italy The Global Total Return Fund, Inc.
Ivory Coast
Japan
Jordan
Kenya
Korea
Lebanon
Malaysia

- -----------------------------------------------------------------------------------------------
+ Countries marked by a dagger have been approved only for The Target Portfolio Trust.
</TABLE>

<PAGE>

SCHEDULE A-2

PRUDENTIAL MUTUAL FUNDS
STATE STREET GLOBAL CUSTODY NETWORK
<TABLE>
<CAPTION>
COUNTRY FUNDS
<S> <C>
- -----------------------------------------------------------------------------------------------
United Kingdom Cash Accumulation Trust
Command Government Fund
Command Money Fund
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential High Yield Income Fund, Inc.
Prudential Institutional Liquidity Portfolio, Inc.
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Structured Maturity Fund, Inc.

</TABLE>

<PAGE>

STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

COUNTRY MANDATORY DEPOSITORIES

Argentina Caja de Valores S.A.

Australia Austraclear Limited

Reserve Bank Information and
Transfer System

Austria Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)

Belgium Caisse
Interprofessionnelle
de Depot et de
Virement de Titres
S.A.

Banque Nationale de Belgique

Brazil Companhia Brasileira de Liquidacao e
Custodia (CBLC)

Bolsa de Valores de Rio de Janeiro
ALL SSB CLIENTS PRESENTLY USE CBLC

Central de Custodia e de Liquidacao
Financeira de Titulos

Canada The Canadian Depository
for Securities Limited

People's Republic Shanghai Securities Central Clearing
of China and Registration Corporation

Shenzhen Securities Central Clearing
Co., Ltd.

Croatia

Czech Republic Stredisko cennych papiru

Czech National Bank

Denmark Vaerdipapircentralen
(the Danish Securities Center)

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.

11/20/98

<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

COUNTRY MANDATORY DEPOSITORIES

Egypt Misr Company for Clearing, Settlement,
and Central Depository

Finland The Finnish Central Securities
Depository

France Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres (SICOVAM)

Germany Deutsche Borse Clearing AG

Greece The Central Securities Depository
(Apothetirion Titlon AE)

Hong Kong The Central Clearing and
Settlement System

Central Money Markets Unit

Hungary The Central Depository and Clearing
House (Budapest) Ltd. (KELER)
[MANDATORY FOR GOV'T BONDS ONLY;
SSB DOES NOT USE FOR OTHER SECURITIES]

India The National Securities Depository Limited

Indonesia Bank Indonesia

Ireland Central Bank of Ireland
Securities Settlement Office

Israel The Tel Aviv Stock Exchange Clearing
House Ltd.

Bank of Israel

Italy Monte Titoli S.p.A.

Banca d'Italia

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.

11/20/98

<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

COUNTRY MANDATORY DEPOSITORIES

Japan Bank of Japan Net System

Kenya Central Bank of Kenya

Republic of Korea Korea Securities Depository Corporation

Lebanon The Custodian and Clearing Center of
Financial Instruments for Lebanon
and the Middle East (MIDCLEAR) S.A.L.

The Central Bank of Lebanon

Malaysia The Malaysian Central Depository Sdn. Bhd.

Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
System

Mexico S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores)

Morocco Maroclear

The Netherlands Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. (NECIGEF)

De Nederlandsche Bank N.V.

New Zealand New Zealand Central Securities
Depository Limited

Norway Verdipapirsentralen (the Norwegian
Registry of Securities)

Pakistan Central Depository Company of Pakistan
Limited

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.

11/20/98

<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

COUNTRY MANDATORY DEPOSITORIES

Peru Caja de Valores y Liquidaciones S.A.
(CAVALI)

Philippines The Philippines Central Depository, Inc.

The Registry of Scripless Securities
(ROSS) of the Bureau of the Treasury

Poland The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych)

Central Treasury Bills Registrar

Portugal Central de Valores Mobiliarios (Central)

Romania National Securities Clearing, Settlement and
Depository Co.

Bucharest Stock Exchange Registry Division

Singapore The Central Depository (Pte)
Limited

Monetary Authority of Singapore

Slovak Republic Stredisko Cennych Papierov

National Bank of Slovakia

South Africa The Central Depository Limited

Spain Servicio de Compensacion y
Liquidacion de Valores, S.A.

Banco de Espana,
Central de Anotaciones en Cuenta

Sri Lanka Central Depository System
(Pvt) Limited

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.

11/20/98

<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES

COUNTRY MANDATORY DEPOSITORIES

Sweden Vardepapperscentralen AB
(the Swedish Central Securities Depository)

Switzerland Schweizerische Effekten - Giro AG

Taiwan - R.O.C. The Taiwan Securities Central
Depository Co., Ltd.

Thailand Thailand Securities Depository
Company Limited

Turkey Takas ve Saklama Bankasi A.S.
(TAKASBANK)

Central Bank of Turkey

United Kingdom The Bank of England,
The Central Gilts Office and
The Central Moneymarkets Office

Uruguay Central Bank of Uruguay

Venezuela Central Bank of Venezuela

* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.

11/20/98

<PAGE>

SCHEDULE C

MARKET INFORMATION

PUBLICATION/TYPE OF INFORMATION BRIEF DESCRIPTION
(FREQUENCY)

THE GUIDE TO CUSTODY IN WORLD MARKETS An overview of safekeeping and
settlement practices and procedures
(annually) in each market in which State Street
Bank and Trust Company offers
custodial services.

GLOBAL CUSTODY NETWORK REVIEW Information relating to the
operating history and structure of
(annually) depositories and subcustodians
located in the markets in which
State Street Bank and Trust Company
offers custodial services, including
transnational depositories.

GLOBAL LEGAL SURVEY With respect to each market in which
State Street Bank and Trust Company
(annually) offers custodial services, opinions
relating to whether local law
restricts (i) access of a fund's
independent public accountants to
books and records of a Foreign
Sub-Custodian or Foreign Securities
System, (ii) the Fund's ability to
recover in the event of bankruptcy
or insolvency of a Foreign
Sub-Custodian or Foreign Securities
System, (iii) the Fund's ability to
recover in the event of a loss by a
Foreign Sub-Custodian or Foreign
Securities System, and (iv) the
ability of a foreign investor to
convert cash and cash equivalents to
U.S. dollars.

SUBCUSTODIAN AGREEMENTS Copies of the subcustodian contracts
State Street Bank and Trust Company
(annually) has entered into with each
subcustodian in the markets in which
State Street Bank and Trust Company
offers subcustody services to its US
mutual fund clients.

Network Bulletins (weekly): Developments of interest to
investors in the markets in which
State Street Bank and Trust Company
offers custodial services.

Foreign Custody Advisories With respect to markets in which
State Street Bank and Trust Company
(as necessary): offers custodial services which
exhibit special custody risks,
developments which may impact State
Street's ability to deliver expected
levels of service.

<PAGE>

SCHEDULE D

LIST OF FUNDS,CONTRACTS AND AGREEMENTS

FUND NAME EXECUTION DATE
- --------- --------------

Cash Accumulation Trust December 12, 1997

Command Government Fund July 1, 1990

Command Money Fund July 1, 1990

Command Tax-Free Fund July 1, 1990

The Global Total Return Fund, Inc. September 5, 1990
(formerly The Global Yield Fund, Inc.)

Prudential 20/20 Focus Fund April 14, 1998

Prudential California Municipal Fund August 1, 1990

Prudential Developing Markets Fund June 1, 1998

Prudential Distressed Securities Fund, Inc. February 8, 1996

Prudential Diversified Bond Fund, Inc. January 3, 1995

Prudential Diversified Funds September 2, 1998

Prudential Emerging Growth Fund, Inc. October 21, 1996

Prudential Equity Fund, Inc. August 1, 1990

Prudential Global Limited Maturity Fund, Inc. October 25, 1990
(formerly Prudential Short-Term Global
Income Fund, Inc.)

Prudential Government Income Fund, Inc. July 31, 1990
(formerly Prudential Government Plus Fund)

Prudential Government Securities Trust July 26, 1990

Prudential High Yield Fund, Inc. July 26, 1990

Prudential High Yield Total Return Fund, Inc. May 30, 1997

Prudential International Bond Fund, Inc. January 16, 1996
(formerly The Global Government Plus Fund, Inc.)

The Prudential Investment Portfolios Fund, Inc. October 27, 1995
(formerly Prudential Jennison Series Fund, Inc.)

Prudential Mid-Cap Value Fund April 14, 1998

<PAGE>

Prudential MoneyMart Assets, Inc. July 25, 1990

Prudential Mortgage Income Fund, Inc. August 1, 1990
(formerly Prudential GNMA Fund, Inc.)

Prudential Multi-Sector Fund, Inc. June 1, 1990

Prudential Municipal Series Fund August 1, 1990

Prudential National Municipals Fund, Inc. July 26, 1990

Prudential Pacific Growth Fund, Inc. July 16, 1992

Prudential Real Estate Securities Fund February 18, 1998

Prudential Small Cap Quantum Fund, Inc. August 1, 1997

Prudential Small Company Value Fund, Inc. July 26, 1990
(formerly Prudential Growth Opportunity Fund, Inc.)

Prudential Special Money Market Fund, Inc. January 12, 1990

Prudential Structured Maturity Fund, Inc. July 25, 1989

Prudential Tax-Free Money Fund, Inc. July 26, 1990

Prudential Utility Fund, Inc. June 6, 1990

Prudential World Fund, Inc. June 7, 1990
(formerly Prudential Global Fund, Inc.)

The Target Portfolio Trust November 9, 1992

Global Utility Fund, Inc. December 21, 1989

Nicholas-Applegate Fund, Inc. April 10, 1987

Prudential Balanced Fund September 4, 1987

Prudential Equity Income Fund January 6, 1987

Prudential Global Genesis Fund, Inc. October 21, 1987

Prudential Institutional Liquidity Portfolio, Inc. November 20,. 1987

Prudential Intermediate Global Income Fund, Inc. May 19, 1988

Prudential Municipal Bond Fund August 25, 1987

Prudential Natural Resources Fund, Inc. September 18, 1987

Prudential Tax-Managed Equity Fund December 8, 1998

The Asia Pacific Fund April 24, 1987

<PAGE>

Duff & Phelps Utilities Tax-Free Income Fund, Inc. November 21, 1991

First Financial Fund, Inc. May 1, 1986

The High Yield Income Fund, Inc. November 6, 1987

The High Yield Plus Fund, Inc. March 15, 1988