PRUDENTIAL MULTI-SECTOR FUND, INC.
(CLASS Z SHARES)
- --------------------------------------------------------------------------------
PROSPECTUS DATED JUNE 28, 1996
- --------------------------------------------------------------------------------
Prudential Multi-Sector Fund, Inc. (the Fund) is an open-end, diversified,
management investment company whose primary investment objective is long-term
growth of capital. The Fund seeks to achieve this objective by focusing its
investments in domestic and foreign securities, primarily equity securities, of
companies in the economic sectors described in the Appendix to the attached
Prospectus. The investment adviser expects to make significant shifts in the
Fund's investments among those sectors that the investment adviser believes may
benefit from economic, demographic or other changes in the 1990's and into the
21st century. Current income is a secondary objective. The Fund's portfolio is
aggressively managed and therefore an investment in the Fund should not be
considered to be a complete investment program. The Fund may engage in
short-selling and short-term trading and may utilize derivatives. These
techniques may be considered speculative and may result in higher risks and
costs to the Fund. There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies." The Fund's address is One Seaport Plaza, New York, New York 10292,
and its telephone number is (800) 225-1852.
- --------------------------------------------------------------------------------
Class Z shares are offered exclusively for sale to participants in the PSI
401(k) Plan, an employee benefit plan sponsored by Prudential Securities
Incorporated (the PSI 401(k) Plan or the Plan). Only Class Z shares are offered
through this Prospectus. The Fund also offers Class A, Class B and Class C
shares through the attached Prospectus dated June 28, 1996 (the Retail Class
Prospectus), which is a part hereof.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated June 28, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<TABLE>
FUND EXPENSES
<CAPTION>
Shareholder Transaction Expenses Class Z Shares
--------------
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............................................. None
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested Dividends......... None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, whichever is lower) ..................................... None
Redemption Fees................................................................... None
Exchange Fee...................................................................... None
Class Z Shares
Annual Fund Operating Expenses --------------
(as a percentage of average net assets)
Management Fees................................................................... .63%
12b-1 Fees ....................................................................... None
Other Expenses.................................................................... .35%
----
Total Fund Operating Expenses..................................................... .98%
====
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
Example year years years years
- ------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming:
(1) 5% annual return and (2) redemption at the end of each time
period:
Class Z ............................................................... $10 $31 $54 $122
</TABLE>
The above example is based on restated data for the fiscal year ended April 30,
1996. The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in Class Z shares of the Fund will bear,
whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed." "Other Expenses" includes
operating expenses of the Fund, such as Directors' and professional fees,
registration fees, reports to shareholders, transfer agency and custodian fees
and franchise taxes.
2
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the indicated period)
(Class Z Shares)
The following financial highlights have been audited by Deloitte & Touche
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and the
notes thereto, which appear in the Statement of Additional Information. The
financial highlights contain selected data for a Class Z share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the period indicated. The information is based on data contained in the
financial statements. Further performance information is contained in the annual
report, which may be obtained without charge. See "ShareholderGuide--
Shareholder Services--Reports to Shareholders" in the Retail Class
Prospectus.
Class Z
----------------
March 1, 1996(a)
Through
April 30, 1996
----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................ $13.91
------
Income from investment operations
Net investment income ............................... .01
Net realized and unrealized gain on investments
and foreign currency transactions ................. .49
------
Total from investment operations ................ .50
------
Less distributions
Dividends from net investment income ................ --
Distributions from net capital and currency gains ... --
Total distributions ............................. --
------
Net asset value, end of period ...................... $14.41
======
TOTAL RETURN(c): .................................... 3.59%
RATIOS/SUPPLEMENTAL DATA:(d)
Net assets, end of period (000) ..................... $20,616
Average net assets (000) ............................ $20,298
Ratios to average net assets:
Expenses .......................................... .98%(b)
Net investment income ............................. .54%(b)
Portfolio turnover rate ............................. 136%
Average commission rate paid per share .............. $.0537
- ------------
(a) Commencement of offering of Class Z shares.
(b) Annualized.
(c) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of the period reported and includes reinvestment
of dividends and distributions. Total returns are not annualized.
(d) Because of the event referred to in (a) and the timing of such, the ratios
of Class Z shares are not necessarily comparable to those of Class A, B or
C shares and are not necessarily indicative of future ratios.
3
<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED-MANAGER" IN THE
RETAIL CLASS PROSPECTUS.
For the period from March 1, 1996 through April 30, 1996, the Fund's expenses
as a percentage of average net assets for Class Z shares were .98% (annualized).
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR" IN
THE RETAIL CLASS PROSPECTUS:
Prudential Securities serves as the Distributor of Class Z shares and incurs
the expenses of distributing the Fund's Class Z shares under a Distribution
Agreement with the Fund, none of which is reimbursed by or paid for by the
Fund.
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND VALUES ITS SHARES" IN THE
RETAIL CLASS PROSPECTUS:
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 and/or service fee. It is expected, however,
that the NAV of the four classes will tend to converge immediately after the
recording of dividends, which will differ by approximately the amount of the
distribution-related expense accrual differential among the classes.
THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND
DISTRIBUTIONS--TAXATION OF SHAREHOLDERS" IN THE RETAIL CLASS PROSPECTUS:
As a qualified plan, the PSI 401(k) Plan generally pays no federal income tax.
Individual participants in the Plan should consult Plan documents and their own
tax advisers for information on the tax consequences associated with
participating in the PSI 401(k) Plan.
The per share dividends on Class Z shares will generally be higher than the
per share dividends on Class A, Class B or Class C shares as a result of the
fact that Class Z shares are not subject to any distribution or service fee.
THE FOLLOWING INFORMATION REPLACES THE INFORMATION UNDER "SHAREHOLDER
GUIDE--HOW TO BUY SHARES OF THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR
SHARES" IN THE RETAIL CLASS PROSPECTUS:
Class Z shares of the Fund are offered exclusively for sale to participants in
the PSI 401(k) Plan. Such shares may be purchased or redeemed only by the Plan
on behalf of individual Plan participants at NAV without any sales or
redemption charge. Class Z shares are not subject to any minimum investment
requirements. The Plan purchases and redeems shares to implement the investment
choices of individual Plan participants with respect to contributions in the
Plan. All purchases through the Plan will be for Class Z shares. Effective as
of March 1, 1996, Class A shares held through the PSI 401(k) Plan on behalf of
participants were automatically exchanged at relative net asset value for Class
Z shares. Individual Plan participants should contact the Prudential Securities
Benefits Department for information on making or changing investment choices.
The Prudential Securities Benefits Department is located at One Seaport Plaza,
33rd Floor, New York, New York 10292 and may be reached by calling (212)
214-7194.
The average net asset value per share at which shares of the Fund are
purchased or redeemed by the Plan for the accounts of individual Plan
participants might be more or less than the net asset value per share
prevailing at the time that such participants made their investment choices or
made their contributions to the Plan.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE YOUR
SHARES" IN THE RETAIL CLASS PROSPECTUS:
Class Z shareholders of the Fund may exchange their Class Z shares for Class Z
shares of certain other Prudential Mutual Funds on the basis of the relative
net asset value. You should contact the Prudential Securities Benefits
Department about how to exchange your Class Z shares. See "How to Buy Shares of
the Fund" above. Participants who wish to transfer their Class Z shares out of
the PSI 401(k) Plan following separation from service (i.e., voluntary or
involuntary termination of employment or retirement) will have their Class Z
shares exchanged for Class A shares at net asset value.
4
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
PROSPECTUS DATED JUNE 28, 1996
- --------------------------------------------------------------------------------
Prudential Multi-Sector Fund, Inc. (the Fund) is an open-end, diversified,
management investment company whose primary investment objective is long-term
growth of capital. The Fund seeks to achieve this objective by focusing its
investments in domestic and foreign securities, primarily equity securities, of
companies in the economic sectors described in the Appendix to this Prospectus.
The investment adviser expects to make significant shifts in the Fund's
investments among those sectors that the investment adviser believes may benefit
from economic, demographic or other changes in the 1990's and into the 21st
century. Current income is a secondary objective. The Fund's portfolio is
aggressively managed and therefore an investment in the Fund should not be
considered to be a complete investment program. The Fund may engage in
short-selling and short-term trading and may utilize derivatives. These
techniques may be considered speculative and may result in higher risks and
costs to the Fund. There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies." The Fund's address is One Seaport Plaza, New York, New York 10292,
and its telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated June 28, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL MULTI-SECTOR FUND, INC.?
Prudential Multi-Sector Fund, Inc. is a mutual fund. A mutual fund pools
the resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's primary investment objective is long-term growth of capital. It
seeks to achieve this objective by focusing its investments in domestic and
foreign securities, primarily equity securities, of companies in the economic
sectors described in the Appendix to this Prospectus. Current income is a
secondary objective. There can be no assurance that the Fund's objectives will
be achieved. See "How the Fund Invests--Investment Objective and Policies" at
page 8.
RISK FACTORS AND SPECIAL CHARACTERISTICS
The Fund may focus its investments in certain economic sectors, thereby
increasing its vulnerability to single economic, political or regulatory
developments. The Fund may also engage in short-selling and short-term trading,
both techniques which may be considered speculative and may result in higher
risks and costs to the Fund. See "How the Fund Invests--Investment Objective and
Policies" at page 8. The Fund may also engage in various hedging and income
enhancement strategies, including utilizing derivatives. See "How the Fund
Invests--Hedging and Return Enhancement Strategies--Risks of Hedging Strategies"
at page 13.
The Fund may invest in foreign securities without limit. Investing in
securities of foreign companies and countries involves certain considerations
and risks not typically associated with investing in securities of domestic
companies. See "How the Fund Invests--Investment Objective and Policies--Risks
of Investing in Foreign Securities" at page 10.
The Fund is permitted to invest up to 30% of its total assets in
fixed-income securities rated Baa or lower by Moody's Investors Service or BBB
or lower by Standard & Poor's Ratings Group or in non-rated fixed-income
securities of comparable quality. Securities rated lower than Baa or BBB,
commonly known as "junk bonds," may be considered speculative and are subject to
the risk of the issuer's inability to meet principal and interest payments on
the obligations as well as price volatility. See "How the Fund
Invests--Investment Objective and Policies--Risks of Investing in High Yield
Securities" at page 9.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .65 of 1%
of the Fund's average daily net assets. For the fiscal year ending April 30,
1997, the Manager has agreed to limit its fee to .625 of 1% of the first $500
million of the Fund's average daily net assets, .55 of 1% of the next $500
million of the Fund's average daily net assets and .50 of 1% of the Fund's
average daily net assets in excess of $1 billion. As of May 31, 1996, PMF served
as manager or administrator to 60 investment companies, including 38 mutual
funds, with aggregate assets of approximately $52 billion. The Prudential
Investment Corporation (PIC or the Subadviser) furnishes investment advisory
services in connection with the management of the Fund under a Subadvisory
Agreement with PMF. PIC has entered into a consulting arrangement with Greg A.
Smith, pursuant to which Mr. Smith makes recommendations to PIC with respect to
the Fund's allocation of assets. See "How the Fund is Managed--Manager" at page
16.
2
<PAGE>
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class A, Class B and Class C shares. PSI is paid a
distribution and service fee which is currently being charged at the annual rate
of .25 of 1% of the average daily net assets of the Class A shares and is paid a
distribution and service fee with respect to Class B and Class C shares at an
annual rate of 1% of the average daily net assets of each of the Class B and
Class C shares. See "How the Fund is Managed-Distributor" at page 17.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide-How to
Buy Shares of the Fund" at page 24 and "Shareholder Guide-Shareholder Services"
at page 33.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "How the Fund
Values its Shares" at page 19 and "Shareholder Guide-How to Buy Shares of the
Fund" at page 24.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers three classes of shares through this Prospectus:
o Class A Shares: Sold with an initial sales charge of up to 5% of
the offering price.
o Class B Shares: Sold without an initial sales charge but are
subject to a contingent deferred sales charge or CDSC (declining
from 5% to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain redemptions
made within six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically convert to
Class A shares (which are subject to lower ongoing
distribution-related expenses) approximately seven years after
purchase.
o Class C Shares: Sold without an initial sales charge and, for one
year after purchase, are subject to a 1% CDSC on redemptions.
Like Class B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but do not
convert to another class.
See "Shareholder Guide-Alternative Purchase Plan" at page 25.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide-How to Sell Your Shares" at page 28.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any,
semi-annually and make distributions of any net capital gains at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that they be
paid to you in cash. See "Taxes, Dividends and Distributions" at page 21.
3
<PAGE>
<TABLE>
<CAPTION>
FUND EXPENSES
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- ---------------
<S> <C> <C> <C>
Shareholder Transaction Expenses+
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............................. 5% None None
Maximum Sales Load or Deferred Sales Load Imposed on
Reinvested Dividends ........................................... None None None
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, whichever is lower) ............. None 5% during the first year, 1% on
decreasing by 1% annually to redemptions
1% in the fifth and sixth made within one
years and 0% the seventh year of purchase
year*
Redemption Fees .................................................. None None None
Exchange Fee ..................................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Management Fees++ ................................................ .63% .63% .63%
12b-1 Fees (After Reduction) ..................................... .25+++ 1.00 1.00
Other Expenses ................................................... .35 .35 .35
----- ----- -----
Total Fund Operating Expenses (After Reduction) .................. 1.23% 1.98% 1.98%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
Example YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
Class A .......................................................................... $62 $87 $114 $191
Class B .......................................................................... $70 $92 $117 $202
Class C .......................................................................... $30 $62 $107 $231
You would pay the following expenses on the same investment, assuming no
redemption:
Class A .......................................................................... $62 $87 $114 $191
Class B .......................................................................... $20 $62 $107 $202
Class C .......................................................................... $30 $62 $107 $231
</TABLE>
The above example is based on data for the Fund's fiscal year ended April 30,
1996. The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed." "Other Expenses" includes operating expenses of
the Fund, such as Directors' and professional fees, registration fees, reports
to shareholders, transfer agency and custodian fees and franchise taxes.
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Management Agreement provides that the Fund will pay a
management fee of .65 of 1% per annum of the average daily net assets of
the Fund, the Manager has agreed to limit its management fee to no more
than .625 of 1% of the first $500 million of the average daily net assets
of the Fund, .55 of 1% of the next $500 million and .50 of 1% thereafter
for the fiscal year ending April 30, 1997.
+++ Although the Class A Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average
daily net assets of the Class A shares, the Distributor has agreed to limit
its distribution fees with respect to the Class A shares of the Fund to no
more than .25 of 1% of the average daily net asset value of the Class A
shares for the fiscal year ending April 30, 1997. Total Fund Operating
Expenses of Class A shares without such limitation would be 1.28%. See "How
the Fund is Managed--Distributor."
4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class A Shares)
The following financial highlights for the five years ended April 30, 1996
have been audited by Deloitte & Touche LLP, independent accountants, whose
report thereon was unqualified. This information should be read in conjunction
with the financial statements and the notes thereto, which appear in the
Statement of Additional Information. The financial highlights contain selected
data for a Class A share of common stock outstanding, total return, ratios to
average net assets and other supplemental data for each of the periods
indicated. The information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide -- Shareholder
Services -- Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
JUNE 29,
1990(a)
THROUGH
YEAR ENDED APRIL 30, APRIL 30,
1996 1995(b) 1994 1993 1992 1991
--------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 13.45 $ 13.21 $ 13.19 $ 12.51 $ 12.10 $ 11.37
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .................. .09 .09 .18 .30 .23 .40
Net realized and unrealized gain on
investments and foreign currency
transactions ......................... 2.52 1.44 1.64 1.47 .50 .59
------- ------- ------- ------- ------- -------
Total from investment operations ..... 2.61 1.53 1.82 1.77 .73 .99
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income ... (.04) -- (.21) (.30) (.30) (.26)
Distributions from net capital and
currency gains ....................... (1.62) (1.29) (1.59) (.79) (.02) --
------- ------- ------- ------- ------- -------
Total distributions .............. (1.66) (1.29) (1.80) (1.09) (.32) (.26)
------- ------- ------- ------- ------- -------
Net asset value, end of period ......... $ 14.40 $ 13.45 $ 13.21 $ 13.19 $ 12.51 $ 12.10
======= ======= ======= ======= ======= =======
TOTAL RETURN(d): ....................... 20.69% 12.15% 14.16% 15.14% 6.16% 17.64%
RATIOS/SUPPLEMENTAL DATA:
------- ------- ------- ------- ------- -------
Net assets, end of period (000) ........ $211,920 $76,035 $53,237 $43,390 $52,625 $59,085
Average net assets (000) ............... $201,315 $59,316 $49,840 $46,890 $57,403 $55,545
Ratios to average net assets:
Expenses, including distribution
fees ............................... 1.23% 1.44% 1.30% 1.28% 1.29% 1.35%(c)
Expenses, excluding distribution
fees ............................... .98% 1.19% 1.08% 1.08% 1.09% 1.15%(c)
Net investment income ................. .47% .68% 1.15% 2.44% 1.83% 4.28%(c)
Portfolio turnover rate ................ 136% 122% 110% 209% 147% 253%
Average commission rate paid per share . $ .0537 N/A N/A N/A N/A N/A
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Calculated based upon weighted average shares outstanding during the year.
(c) Annualized.
(d) Total return does not consider the effect of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class B Shares)
The following financial highlights for the five years ended April 30, 1996
have been audited by Deloitte & Touche LLP, independent accountants, whose
report thereon was unqualified. This information should be read in conjunction
with the financial statements and the notes thereto, which appear in the
Statement of Additional Information. The financial highlights contain selected
data for a Class B share of common stock outstanding, total return, ratios to
average net assets and other supplemental data for each of the periods
indicated. The information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide -- Shareholder
Services -- Reports to Shareholders."
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------
June 29,
1990(a)
Year Ended April 30, Through
------------------------------------------------------- April 30,
1996 1995(b) 1994 1993 1992 1991
-------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................. $ 13.29 $ 13.16 $ 13.15 $ 12.47 $ 12.06 $ 11.37
-------- -------- -------- ------- -------- -------
Income from investment operations
Net investment income ................................ .02 (.01) .07 .19 .13 .32
Net realized and unrealized gain (loss) on investments
and foreign currency transactions .................. 2.45 1.43 1.63 1.47 .51 .59
-------- -------- -------- ------- -------- -------
Total from investment operations ................. 2.47 1.42 1.70 1.66 .64 .91
-------- -------- -------- ------- -------- -------
Less distributions
Dividends from net investment income ................. (.01) -- (.10) (.19) (.21) (.22)
Distributions from net capital and currency gains .... (1.62) (1.29) (1.59) (.79) (.02) --
-------- -------- -------- ------- -------- -------
Total Distributions .............................. (1.63) (1.29) (1.69) (.98) (.23) (.22)
-------- -------- -------- ------- -------- -------
Net asset value, end of period ....................... $ 14.13 $ 13.29 $ 13.16 $ 13.15 $ 12.47 $ 12.06
======== ======== ======== ======= ======== =======
TOTAL RETURN(d): ..................................... 19.84% 11.31% 13.22% 14.13% 5.39% 16.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ...................... $239,739 $185,474 $128,098 $92,921 $108,276 $99,537
Average net assets (000) ............................. $236,580 $153,209 $108,981 $99,072 $108,510 $82,890
Ratios to average net assets:
Expenses, including distribution fees .............. 1.98% 2.19% 2.08% 2.08% 2.09% 2.15%(c)
Expenses, excluding distribution fees .............. .98% 1.19% 1.08% 1.08% 1.09% 1.15%(c)
Net investment income (loss) ....................... (.22)% (.07)% .35% 1.64% 1.03% 3.39%(c)
Portfolio turnover rate .............................. 136% 122% 110% 209% 147% 253%
Average commission rate paid per share ............... $ .0537 N/A N/A N/A N/A N/A
</TABLE>
- ------------
(a) Commencement of investment operations.
(b) Calculated based upon weighted average shares outstanding during the year.
(c) Annualized.
(d) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class C Shares)
The following financial highlights have been audited by Deloitte & Touche
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and the
notes thereto, which appear in the Statement of Additional Information. The
financial highlights contain selected data for a Class C share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for each of the periods indicated. The information is based on data
contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide -- Shareholder Services -- Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------
YEAR ENDED AUGUST 1, 1994(a)
APRIL 30, THROUGH
1996 APRIL 30, 1995(b)
------------ -----------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C>
Net asset value, beginning of period .......................................... $13.29 $13.74
------ ------
Income from investment operations
Net investment income ......................................................... .03 --
Net realized and unrealized gain on investments
and foreign currency transactions ............................................ 2.44 .84
------ ------
Total from investment operations ...................................... 2.47 .84
------ ------
LESS DISTRIBUTIONS
Dividends from net investment income .......................................... (.01) --
Distributions from net capital and currency gains ............................. (1.62) (1.29)
------ ------
Total distributions ................................................... (1.63) (1.29)
------ ------
Net asset value, end of period .............................................. $14.13 $13.29
====== ======
TOTAL RETURN(d): .............................................................. 19.84% 6.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ............................................... $5,125 $3,587
Average net assets (000) ...................................................... $5,056 $1,653
Ratios to average net assets:
Expenses, including distribution fees ........................................ 1.98% 2.37%(c)
Expenses, excluding distribution fees ........................................ .98% 1.37%(c)
Net investment income ........................................................ (.21)% .03%(c)
Portfolio turnover rate ...................................................... 136% 122%
Average commission rate paid per share ....................................... $.0537 N/A
</TABLE>
- --------------
(a) Commencement of offering of Class C shares.
(b) Calculated based upon weighted average shares outstanding during the period.
(c) Annualized.
(d) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of the period reported and includes
reinvestment of dividends and distributions. Total returns for periods
of less than a full year are not annualized.
7
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE PRIMARY INVESTMENT OBJECTIVE OF THE FUND IS LONG-TERM GROWTH OF
CAPITAL. THE FUND SEEKS TO ACHIEVE THIS OBJECTIVE BY FOCUSING ITS INVESTMENTS IN
DOMESTIC AND FOREIGN SECURITIES, PRIMARILY EQUITY SECURITIES, OF COMPANIES IN
THE ECONOMIC SECTORS DESCRIBED IN "DESCRIPTION OF ECONOMIC SECTORS" IN THE
APPENDIX TO THIS PROSPECTUS. THE INVESTMENT ADVISER EXPECTS TO MAKE SIGNIFICANT
SHIFTS IN THE FUND'S INVESTMENTS AMONG THOSE SECTORS THAT THE INVESTMENT ADVISER
BELIEVES MAY BENEFIT FROM ECONOMIC, DEMOGRAPHIC OR OTHER CHANGES IN THE 1990'S
AND INTO THE 21ST CENTURY. CURRENT INCOME IS A SECONDARY OBJECTIVE. THERE CAN BE
NO ASSURANCE THAT THESE OBJECTIVES WILL BE ACHIEVED. See "Investment Objective
and Policies" in the Statement of Additional Information.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT FUNDAMENTAL
MAY BE MODIFIED BY THE BOARD OF DIRECTORS.
Through analyzing economic, demographic and other trends, such as the aging
of the general population, shifts in population growth that may enhance the
economic potential of regions such as the Pacific Northwest, the globalization
of American businesses and increased foreign competition, the investment adviser
will identify companies whose products and services appear to respond to the
changing environment of the 1990's and beyond. In making portfolio selections,
the investment adviser will place particular emphasis on companies that it
believes have internal strengths, such as good financial resources, a
satisfactory rate of return on capital, a favorable industry position and
superior management. Companies with these characteristics are considered to have
favorable prospects of achieving consistent earnings growth, which in turn may
result in long-term capital appreciation.
IN PURSUING ITS INVESTMENT STRATEGY AND IN RESPONSE TO CHANGES IN THE GENERAL
ECONOMY OR WITHIN PARTICULAR SECTORS, THE FUND MAY INCREASE, DECREASE OR
ELIMINATE ENTIRELY A PARTICULAR SECTOR'S REPRESENTATION IN THE FUND'S PORTFOLIO.
EQUITY SECURITIES
UNDER NORMAL CIRCUMSTANCES, AT LEAST 65% OF THE FUND'S TOTAL ASSETS WILL BE
INVESTED IN EQUITY SECURITIES (INCLUDING DOMESTIC AND FOREIGN COMMON STOCKS,
CONVERTIBLE DEBT SECURITIES AND WARRANTS) OF COMPANIES IN UP TO SEVEN ECONOMIC
SECTORS. At no time will any one sector comprise more than 50% of the Fund's
total assets nor will 25% or more of the Fund's total assets be concentrated in
the securities of companies falling into any one industry or group of
industries. Nonetheless, the Fund may be affected to a greater extent by any
single economic, political or regulatory development than a mutual fund that
does not focus its investments.
The economic sectors in which the Fund will invest are described in
"Description of Economic Sectors" in the Appendix and include autos and housing,
basic industry, business services, consumer goods and services, defense and
aerospace, energy, environmental, financial services, health care, natural
resources, precious metals, public utilities, retailing, technology, and
transportation. Each of these sectors consists of several related industries,
and a single industry, or a company within an industry, may fall into more than
one sector. The Fund's investment adviser will determine the sectors in which
particular industries and companies belong on the basis of relevant market and
business considerations. Companies will be assigned to sectors based on their
principal business activity as reflected by gross revenues. Companies will not
be reassigned to other sectors unless their principal business activity changes.
WHILE THE PRINCIPAL INVESTMENT EMPHASIS WILL BE ON COMMON STOCKS, THE FUND
ALSO MAY SEEK APPRECIATION IN OTHER TYPES OF EQUITY SECURITIES, SUCH AS
CONVERTIBLE BONDS, CONVERTIBLE PREFERRED STOCKS AND WARRANTS TO PURCHASE
8
<PAGE>
COMMON STOCK, WHEN RELATIVE VALUES MAKE THESE INVESTMENTS APPEAR ATTRACTIVE
EITHER AS INDIVIDUAL ISSUES OR AS TYPES OF SECURITIES IN CERTAIN ECONOMIC
ENVIRONMENTS.
DEBT OBLIGATIONS
UNDER NORMAL CIRCUMSTANCES, THE FUND MAY INVEST UP TO 35% OF ITS TOTAL ASSETS
IN U.S. GOVERNMENT SECURITIES, FOREIGN GOVERNMENT SECURITIES AND U.S. AND
FOREIGN CORPORATE DEBT OBLIGATIONS. The Fund anticipates that, of this total, it
will primarily invest in fixed-income securities rated A or better by Moody's
Investors Service (Moody's) or Standard & Poor's Ratings Group (S&P). The Fund
may also invest up to 30% of its total assets in fixed-income securities rated
Baa or lower by Moody's or BBB or lower by S&P or in non-rated fixed-income
securities of comparable quality. Subsequent to its purchase by the Fund, a
fixed-income obligation may be assigned a lower rating or cease to be rated.
Such an event would not require the elimination of the issue from the portfolio,
but the investment adviser will consider such an event in determining whether
the Fund should continue to hold the security in its portfolio. Securities rated
Baa by Moody's or BBB by S&P have speculative characteristics and changes in
economic conditions or other circumstances could lead to a weakened capacity to
make principal and interest payments. Securities rated BB or lower by S&P or Ba
or lower by Moody's, commonly known as "junk bonds," are generally considered to
be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal. A description of corporate bond ratings is
contained in "Description of Security Ratings" in the Appendix to this
Prospectus. The Fund may also invest in unrated fixed-income securities which,
in the opinion of the investment adviser, are of a quality comparable to rated
securities in which the Fund may invest.
RISKS OF INVESTING IN 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 AND THE MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE ISSUER
(MARKET RISK). Lower rated or unrated (i.e., high yield) securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general level
of interest rates. The investment adviser considers both credit risk and market
risk in making investment decisions for the Fund. See "Investment Objective and
Policies--Risks of Investing in High Yield Securities" in the Statement of
Additional Information.
U.S. GOVERNMENT SECURITIES
THE FUND MAY INVEST IN U.S. TREASURY OBLIGATIONS, INCLUDING BILLS, NOTES,
BONDS AND OTHER DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES
THE FUND WILL ALSO INVEST IN OBLIGATIONS WHICH ARE ISSUED OR GUARANTEED BY
AGENCIES OF THE U.S. GOVERNMENT OR INSTRUMENTALITIES ESTABLISHED OR SPONSORED BY
THE U.S. GOVERNMENT. These obligations, including those which are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. Obligations of the Government National
Mortgage Association (GNMA), the Farmers Home Administration and the Small
Business Administration are backed by the "full faith and credit" of the United
States. In the case of securities not backed by the "full faith and credit" of
the United States, the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States if the agency or instrumentality does not meet
its commitments. Instruments in which the Fund may invest which are not backed
by the "full faith and credit" of the United States include obligations issued
by the Federal Home Loan Banks, the
9
<PAGE>
Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage
Association (FNMA), the Resolution Funding Corporation, the Student Loan
Marketing Association and the Tennessee Valley Authority, each of which under
certain conditions has the right to borrow from the U.S. Treasury to meet its
obligations, and obligations of the Farm Credit System, the obligations of which
may be satisfied only by the individual credit of the issuing agency.
Obligations of FHLMC may include collateralized mortgage obligations (CMOs). The
Fund will invest in mortgage-backed securities (e.g., GNMA, FNMA and FHLMC
certificates) only to the extent such securities are used as collateral for
repurchase agreements entered into by the Fund.
FOREIGN GOVERNMENT SECURITIES
THE FUND MAY INVEST IN FOREIGN GOVERNMENT SECURITIES, INCLUDING DEBT
SECURITIES ISSUED OR GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
GOVERNMENTS, QUASI-GOVERNMENTAL ENTITIES, GOVERNMENT AGENCIES, SUPRANATIONAL
ENTITIES AND OTHER GOVERNMENTAL ENTITIES DENOMINATED IN THE CURRENCY OF A
FOREIGN COUNTRY OR IN U.S. DOLLARS.
A supranational entity is an entity constituted by the national governments
of several countries to promote economic development, such as the World Bank
(International Bank for Reconstruction and Development), the European Investment
Bank and the Asian Development Bank. Debt securities of quasi-governmental
entities are issued by entities owned by either a national, state or equivalent
government or are obligations of a political unit that is not backed by the
national government's full faith and credit and general taxing powers. Foreign
government securities also include debt securities denominated in European
Currency Units. A European Currency Unit represents specified amounts of the
currencies of certain of the twelve member states of the European Community.
The Fund will invest in foreign government securities rated A or better by
S&P or Moody's or in non-rated securities of comparable quality in the opinion
of the investment adviser. The Fund will invest only in foreign currency
denominated government debt securities that are freely convertible into U.S.
dollars without legal restriction at the time of purchase.
RISKS OF INVESTING IN FOREIGN SECURITIES
INVESTMENT IN FOREIGN SECURITIES INVOLVES ADDITIONAL RISKS AND
CONSIDERATIONS NOT TYPICALLY ASSOCIATED WITH INVESTING IN U.S. GOVERNMENT
SECURITIES AND DOMESTIC ISSUERS. Investments in obligations of foreign issuers
may be subject to certain risks, including future political and economic
developments, the possible imposition of withholding taxes on interest income,
the seizure or nationalization of foreign deposits and foreign exchange controls
or other restrictions. In addition, there may be less publicly available
information about foreign issuers than about domestic issuers and foreign
issuers are generally not subject to the same accounting, auditing and financial
recordkeeping standards and requirements as domestic issuers. In the event of a
default with respect to any foreign debt obligations, it may be more difficult
for the Fund to obtain or enforce a judgment against the issuer of such
securities. There is no limitation on the amount of the Fund's assets that may
be invested in foreign securities.
MONEY MARKET INSTRUMENTS
WHEN CONDITIONS DICTATE A TEMPORARY DEFENSIVE STRATEGY OR DURING TEMPORARY
PERIODS OF PORTFOLIO STRUCTURING AND RESTRUCTURING, THE FUND MAY INVEST IN MONEY
MARKET INSTRUMENTS WITHOUT LIMIT. The Fund may invest in high quality money
market instruments, including commercial paper of a U.S. or foreign company or
foreign government; certificates of deposit, bankers' acceptances and time
deposits of domestic and foreign banks; and obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities. Commercial paper will
be rated, at the time of investment, at least A-2 by S&P or Prime-2 by Moody's,
or, if not rated, issued by an entity having an outstanding unsecured debt issue
rated at least A or A-2 by S&P or A or Prime-2 by Moody's.
10
<PAGE>
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING
PURCHASING AND SELLING DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS
AND TO ATTEMPT TO ENHANCE RETURN. THESE STRATEGIES INCLUDE (1) THE PURCHASE AND
WRITING (I.E., SALE) OF CALL OPTIONS AND PURCHASE OF PUT OPTIONS ON STOCKS AND
STOCK INDICES AND (2) THE PURCHASE AND SALE OF FUTURES CONTRACTS ON
INTEREST-BEARING SECURITIES, INTEREST RATE INDICES AND STOCK INDICES AND THE
PURCHASE AND SALE OF OPTIONS THEREON. THE FUND MAY ENGAGE IN THESE TRANSACTIONS
ON NATIONAL SECURITIES EXCHANGES OR, IN THE CASE OF FUTURES, ON COMMODITIES
EXCHANGES OR, IN THE CASE OF EQUITY AND STOCK INDEX OPTIONS, IN THE
OVER-THE-COUNTER MARKET. The Fund's ability to use these strategies may be
limited by market conditions, regulatory limits and tax considerations and there
can be no assurance that any of these strategies will succeed. New financial
products and risk management techniques continue to be developed and the Fund
may use these new investments and techniques to the extent consistent with its
investment objectives and policies. See "Investment Objective and Policies" in
the Statement of Additional Information.
OPTION TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) CALL OPTIONS AND PURCHASE PUT
OPTIONS ON STOCKS AND STOCK INDICES THAT ARE TRADED ON NATIONAL SECURITIES
EXCHANGES OR THAT ARE LISTED ON NASDAQ OR IN THE OVER-THE-COUNTER MARKET TO
ATTEMPT TO ENHANCE RETURN OR HEDGE ITS PORTFOLIO INVESTMENTS.
A CALL OPTION IS A SHORT-TERM CONTRACT (HAVING A DURATION OF NINE MONTHS OR
LESS) WHICH GIVES THE PURCHASER, IN RETURN FOR A PREMIUM PAID, THE RIGHT TO BUY
THE SECURITY SUBJECT TO THE OPTION AT A SPECIFIED EXERCISE PRICE AT ANY TIME
DURING THE TERM OF THE OPTION. The writer of the call option, in return for the
premium, has the obligation, upon exercise of the option, to deliver, depending
on the terms of the option contract, the underlying security to the purchaser
upon receipt of the exercise price. When the Fund writes a call option, the Fund
gives up the potential for gain on the underlying securities in excess of the
exercise price of the option during the period that the option is open.
A PUT OPTION IS A SIMILAR CONTRACT WHICH GIVES THE PURCHASER, IN RETURN FOR
A PREMIUM, THE RIGHT, FOR A SPECIFIED PERIOD OF TIME, TO SELL THE SECURITY
SUBJECT TO THE OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE.
The writer of the put, in return for the premium, has the obligation upon
exercise of the option, to acquire the security underlying the option at the
exercise price. Successful use of stock and index options requires skills
different from those needed to select portfolio securities. The investment
adviser manages other portfolios that use these techniques.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
The Fund may also purchase a "protective put," i.e., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value. The
loss to the Fund is limited to the premium paid for, and transaction costs
incurred in connection with, the put plus the initial excess, if any, of the
market price of the underlying security over the exercise price. However, if the
market price of the security underlying the put rises, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for the
put option less any amount (net of transaction costs) for which the put may be
sold. Similar principles apply to the purchase of puts on stock indices, as
described below. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance
11
<PAGE>
that a liquid secondary market on an exchange or other trading facility will
exist for any particular option, or at any particular time, and for some options
no secondary market may exist.
OPTIONS ON STOCK INDICES. OPTIONS ON STOCK INDICES ARE SIMILAR TO OPTIONS
ON EQUITY SECURITIES EXCEPT THAT, rather than the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right, in return for a premium paid, to receive, upon exercise of the option, an
amount of cash if the closing level of the stock index upon which the option is
based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The writer of an index option, in return
for a premium, is obligated to pay the amount of cash due upon exercise of the
option.
Because exercises of index options are settled in cash, a call writer
cannot determine the amount of its settlement obligations in advance and, unlike
call writing on specific stocks, cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. In addition, unless the Fund has other liquid assets which are
sufficient to satisfy the exercise of a call, the Fund would be required to
liquidate portfolio securities or borrow in order to satisfy the exercise.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks. The investment adviser manages other portfolios that use
options on stock indices.
So long as shares of the Fund are registered in certain states, the Fund
will not purchase (i) put options on stocks not held by the Fund, (ii) put
options on indices and (iii) call options on stock or stock indices if, after
any such purchase, the total premiums paid for such options would exceed 10% of
the Fund's total assets; provided, however, that the Fund may purchase put
options on stock held by the Fund if after such purchase the aggregate premiums
paid for such options do not exceed 20% of the Fund's total net assets. In
addition, the aggregate value of the securities that are the subject of the put
options will not exceed 50% of the Fund's net assets. Except for certain
limitations under the Internal Revenue Code of 1986 (the Internal Revenue Code),
there are no other limitations on the Fund's ability to purchase and write
options. See "Taxes" in the Statement of Additional Information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS FOR
HEDGING PURPOSES. A forward contract involves an obligation to purchase or sell
a specific 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
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (typically large commercial banks) and their
customers. A forward contract generally has no deposit requirements, and no
commissions are charged for such trades. See "Investment Objective and
Policies-Forward Foreign Currency Exchange Contracts" in the Statement of
Additional Information.
When the Fund invests in foreign securities, the Fund may enter into
forward foreign currency exchange contracts in several circumstances to protect
the value of its portfolio. The Fund may not use forward contracts to generate
income, although the use of such contracts may incidentally generate income.
There is no limitation on the value of forward contracts into which the Fund may
enter.
12
<PAGE>
FUTURES TRANSACTIONS
THE FUND MAY BUY AND SELL FUTURES CONTRACTS ON INTEREST-BEARING SECURITIES,
INTEREST RATE INDICES AND STOCK INDICES (FUTURES CONTRACTS) AND MAY BUY AND
WRITE (I.E., SELL) OPTIONS THEREON TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS
AND, WITH RESPECT TO WRITING CALL OPTIONS ON FUTURES CONTRACTS, TO ATTEMPT TO
ENHANCE RETURN. The Fund will engage in transactions in only those futures
contracts and options thereon that are traded on a commodities exchange or a
board of trade. Exchanges and boards of trade may impose daily market price
limits for certain futures contracts.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act are exempt from the definition of
"commodity pool operator", subject to compliance with certain conditions. The
exemption is conditioned upon the Fund's purchasing and selling futures
contracts and options thereon for bona fide hedging transactions, except that
the Fund may purchase and sell futures contracts and options thereon for any
other purpose to the extent that the aggregate initial margin and option
premiums do not exceed 5% of the liquidation value of the Fund's total assets.
There are no limitations on the percentage of the Fund which may be hedged, and
there are no limitations on the use of assets to cover futures contracts and
options thereon, except that the aggregate value of the securities that are the
subject of put options will not exceed 50% of the Fund's net assets. See "Taxes"
in the Statement of Additional Information.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
OF INTEREST RATES AND REQUIRES SKILLS AND TECHNIQUES DIFFERENT FROM THOSE USED
IN SELECTING PORTFOLIO SECURITIES. The correlation between movements in the
price of the futures contract and the price of the securities being hedged is
imperfect, particularly when the composition of the Fund's portfolio diverges
from the composition of the relevant index. With respect to interest rate
futures contracts, there is a risk that the futures contracts will not correlate
with interest rates. In addition, if the Fund purchases futures contracts to
hedge against market advances before it can invest in common stock or
fixed-income securities in an advantageous manner and the market declines, the
Fund might incur a loss on the futures contract. The Fund's ability to establish
and maintain positions will depend on market liquidity. In addition, the ability
of the Fund to close out a futures position or an option depends upon a liquid
secondary market. There is no assurance that liquid secondary markets will exist
for any particular futures contract or option at any particular time. The
investment adviser manages other portfolios that use futures contracts and
options thereon.
THE FUND'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON MAY
ALSO BE LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE FOR
QUALIFICATION AS A REGULATED INVESTMENT COMPANY.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT RISKS
AND TRANSACTION COSTS TO WHICH THE FUND WOULD NOT BE SUBJECT ABSENT THE USE OF
THESE STRATEGIES. If the investment adviser's prediction of movements in the
direction of the securities and interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than if
such strategies were not used. Risks inherent in the use of options and futures
contracts and options on futures contracts include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and markets; (2) imperfect correlation between
the price of options and stock index futures and options thereon and movements
in the prices of the securities being hedged; (3) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the possible
inability of the Fund to purchase or sell a portfolio security at a time that
otherwise would be favorable for it to do so, or the possible need for the Fund
to sell a portfolio security at a disadvantageous time, due to the need for the
Fund to maintain "cover" or to
13
<PAGE>
segregate securities in connection with hedging transactions. See "Investment
Objective and Policies" and "Taxes" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place as much as a month or more in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. The Fund's Custodian will maintain, in a
segregated account of the Fund, cash, U.S. Government securities or other liquid
high-grade debt obligations having a value equal to or greater than the Fund's
purchase commitments. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during the period between
purchase and settlement. At the time of delivery of the securities the value may
be more or less than the purchase price and an increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Fund's net asset
value.
REPURCHASE AGREEMENTS
The Fund may on occasion enter into repurchase agreements whereby the
seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The repurchase date is usually within a day
or two of the original purchase, although it may not be for a number of months.
The resale price is in excess of the purchase price, reflecting an agreed-upon
rate of return effective for the period of time the Fund's money is invested in
the repurchase agreement. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the resale price. The
instruments held as collateral are valued daily, and if the value of the
instruments declines, the Fund will require additional collateral. If the seller
defaults and the value of the collateral securing the repurchase agreement
declines, the Fund may incur a loss. The Fund participates in a joint repurchase
account with other investment companies managed by Prudential Mutual Fund
Management, Inc. pursuant to an order of the Securities and Exchange Commission
(SEC).
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act), and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. The Fund's investment in Rule
144A securities could have the effect of increasing illiquidity to the extent
that qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. The Fund intends to comply with any applicable
state blue sky laws restricting the Fund's investments in illiquid securities.
See "Investment Restrictions" in the Statement of Additional Information.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the applicable notice period.
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options are
illiquid securities unless the Fund and the counterparty have provided for the
Fund,
14
<PAGE>
at the Fund's election, to unwind the over-the-counter option. The exercise of
such an option ordinarily would involve the payment by the Fund of an amount
designed to reflect the counterparty's economic loss from an early termination,
but does allow the Fund to treat the assets used as "cover" as "liquid."
SHORT SELLING
The Fund may sell a security it does not own in anticipation of a decline
in the market value of that security (short sales). To complete such a
transaction, the Fund must borrow the security to make delivery to the buyer.
The Fund then is obligated to replace the security borrowed by purchasing it at
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay to the lender any dividends or
interest which accrue during the period of the loan. To borrow the security, the
Fund also may be required to pay a premium, which would increase the cost of the
security sold. The proceeds of the short sale will be retained by the broker, to
the extent necessary to meet margin requirements, until the short position is
closed out. Until the Fund replaces a borrowed security, the Fund will maintain
daily a segregated account, containing cash or U.S. Government securities, at
such a level that (i) the amount deposited in the account plus the amount
deposited with the broker as collateral will equal the current value of the
security sold short and (ii) the amount deposited in the segregated account plus
the amount deposited with the broker as collateral will not be less than the
market value of the security at the time it was sold short. The Fund will incur
a loss as a result of the short sale if the price of the security increases
between the date of the short sale and the date on which the Fund replaces the
borrowed security. The Fund will realize a gain if the security declines in
price between those dates. This result is the opposite of what one would expect
from a cash purchase of a long position in a security. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of any
premium, dividends or interest the Fund may be required to pay in connection
with a short sale. No more than 25% of the Fund's net assets will be, when added
together: (i) deposited as collateral for the obligation to replace securities
borrowed to effect short sales; and (ii) allocated to segregated accounts in
connection with short sales.
The Fund also may make short sales "against-the-box," in which the Fund
enters into a short sale of a security which the Fund owns or has the right to
obtain at no added cost. Not more than 25% of the Fund's net assets (determined
at the time of the short sale against-the-box) may be subject to such sales. See
"Investment Objective and Policies-Short Sales Against-the-Box" in the Statement
of Additional Information.
BORROWING
The Fund may borrow up to 20% of the value of its total assets (computed at
the time the loan is made) for temporary, extraordinary or emergency purposes or
for the clearance of transactions and to take advantage of investment
opportunities. Such borrowings shall be made only from banks, unless the Fund
receives an order from the SEC to permit borrowings from entities other than
banks. The Fund may pledge up to 20% of its total assets to secure such
borrowings. If the Fund's asset coverage for borrowings falls below 300%, the
Fund will take prompt action to reduce its borrowings. If the Fund borrows to
invest in securities, any investment gains made on the securities in excess of
interest paid on the borrowing will cause the net asset value of the shares to
rise faster than would otherwise be the case. On the other hand, if the
investment performance of the additional securities purchased fails to cover
their cost (including any interest paid on the money borrowed) to the Fund, the
net asset value of the Fund's shares will decrease faster than would otherwise
be the case. This is the speculative factor known as "leverage." See "Investment
Restrictions" in the Statement of Additional Information.
SECURITIES LENDING
The Fund is permitted to lend its portfolio securities. See "Investment
Objective and Policies-Lending of Portfolio Securities" in the Statement of
Additional Information.
15
<PAGE>
Subject to shareholder approval, the Board of Directors has approved a
change in the Fund's investment restrictions and policies which would permit the
Fund to make loans of portfolio securities in an amount up to 30% of the Fund's
total assets. This change will be submitted to shareholders for their approval
at a special meeting scheduled to be held on or about October 8, 1996.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund is not expected to exceed 200%
under normal circumstances. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the average
monthly value of the Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. High portfolio turnover
may involve correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Fund. See "Portfolio Transactions and
Brokerage" in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objectives, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND
SUPERVISES THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
For the fiscal year ended April 30, 1996, the Fund's expenses as a
percentage of average net assets for Class A, Class B and Class C shares, were
1.23%, 1.98% and 1.98%, respectively. See "Financial Highlights."
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .65 OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS. It was incorporated in May 1987 under the laws of the State of Delaware.
For the fiscal year ended April 30, 1996, the Fund paid management fees to PMF
of .628% of the Fund's average net assets. For the fiscal year ending April 30,
1997, the Manager has agreed to limit its management fee to .625 of 1% of the
first $500 million of the Fund's average net assets, .55 of 1% of the next $500
million and .50 of 1% of the Fund's average daily net assets in excess of $1
billion. See "Manager" in the Statement of Additional Information.
As of May 31, 1996, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $52 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
16
<PAGE>
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
The current portfolio manager of the Fund is Gregory Goldberg, a Managing
Director of Prudential Mutual Fund Investment Management, a unit of PIC. Mr.
Goldberg has responsibility for the day-to-day management of the Fund's
portfolio. Mr. Goldberg has managed the Fund's portfolio since March 1994. Mr.
Goldberg was previously employed by Daiwa International Capital Management
(January 1988-December 1993) as a portfolio manager for institutional clients.
Prior thereto, he was employed by Industrial Bank of Japan (October 1986-January
1988). Mr. Goldberg joined PIC on January 11, 1994.
THE FUND'S SUBADVISER HAS ENTERED INTO A CONSULTING ARRANGEMENT WITH GREG
A. SMITH, PURSUANT TO WHICH MR. SMITH MAKES RECOMMENDATIONS TO PIC WITH RESPECT
TO THE FUND'S ALLOCATION OF ASSETS. Mr. Smith is a consultant to Prudential
Securities Incorporated, an affiliate of both the Subadviser and the Fund, and
the President of Greg A. Smith Asset Management Corporation, a registered
investment adviser. Mr. Smith is a consultant to PIC with respect to the
allocation of assets for Prudential Allocation Fund (Strategy Portfolio). Mr.
Smith is recognized in the financial community as a leading asset allocation
strategist. Since 1983, he has been named by Institutional Investor magazine as
a member of its All-America Research Team.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE SHARES OF THE
FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES (THE DISTRIBUTOR) INCURS THE
EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. These
expenses include commissions and account servicing fees paid to, or on account
of, financial advisers of Prudential Securities and representatives of Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions and
account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) which have entered into
agreements with the Distributor, advertising expenses, the cost of printing and
mailing prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses. The State
of Texas requires that shares of the Fund may be sold in that state only by
dealers or other financial institutions which are registered there as
broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PRUDENTIAL SECURITIES FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A
17
<PAGE>
Plan provides that (i) up to .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1% of the average daily net
assets of the Class A shares. Prudential Securities has agreed to limit its
distribution-related fees payable under the Class A Plan to .25 of 1% of the
average daily net assets of the Class A shares for the fiscal year ending April
30, 1997.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C
SHARES AT AN ANNUAL RATE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF
THE CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for the
payment to Prudential Securities of (i) an asset-based sales charge of .75 of 1%
of the average daily net assets of each of the Class B and Class C shares, and
(ii) a service fee of .25 of 1% of the average daily net assets of each of the
Class B and Class C shares. The service fee is used to pay for personal service
and/or the maintenance of shareholder accounts. Prudential Securities also
receives contingent deferred sales charges from certain redeeming shareholders.
See "Shareholder Guide-How to Sell Your Shares-Contingent Deferred Sales
Charges."
For the fiscal year ended April 30, 1996, the Fund paid distribution
expenses of .25 of 1%, 1.00% and 1.00% of the average daily net assets of the
Class A, Class B and Class C shares, respectively. The Fund records all payments
made under the Plans as expenses in the calculation of net investment income.
See "Distributor" in the Statement of Additional Information.
Distribution expenses attributable to the sale of shares of the Fund will
be allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Fund other than expenses allocated to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or a majority of the outstanding shares of the applicable class of the Fund. The
Fund will not be obligated to pay distribution and service fees incurred under
any Plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers and other persons who
distribute shares of the Fund. Such payments may be calculated by reference to
the net asset value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.
18
<PAGE>
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Fund, provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
BOARD OF DIRECTORS HAS FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE
FUND'S NET ASSET VALUE TO BE AS OF 4:15 P.M., NEW YORK TIME.
19
<PAGE>
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Board of Directors. See "Net Asset Value" in the Statement of
Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
net asset values 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. It is
expected, however, that the NAV of the three classes will tend to converge
immediately after the recording of dividends, if any, which will differ by
approximately the amount of the distribution-related expense accrual
differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. These figures are based on
historical earnings and are not intended to indicate future performance. The
"total return" shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (i.e., one, five or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The "aggregate" total return reflects actual performance
over a stated period of time. "Average annual" total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return if performance had been constant over the entire period.
"Average annual" total return smooths out variations in performance and takes
into account any applicable initial or contingent deferred sales charges.
Neither "average annual" total return nor "aggregate" total return takes into
account any federal or state income taxes which may be payable upon redemption.
The "yield" refers to the income generated by an investment in the Fund over a
one-month or 30-day period. This income is then "annualized;" that is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as a
percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing the
Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder
Guide-Shareholder Services-Reports to Shareholders."
20
<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE
FUND WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME
AND CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See "Taxes"
in the Statement of Additional Information.
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold at
market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss. See
"Taxes" in the Statement of Additional Information.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders. See
"Taxes" in the Statement of Additional Information. The Fund may, from time to
time, invest in Passive Foreign Investment Companies (PFICs). PFICs are foreign
corporations which derive a majority of their income from passive sources. For
tax purposes, the Fund's investments in PFICs may subject the Fund to federal
income taxes on certain income and gains realized by the Fund.
Certain gains or losses from fluctuations in foreign currency exchange
rates (Section 988 gains and losses) will affect the amount of ordinary income
the Fund will be able to pay as dividends. See "Taxes" in the Statement of
Additional Information.
TAXATION OF SHAREHOLDERS
Any dividends out of net investment income, together with distributions of
any net short-term gains (i.e., the excess of net short-term capital gains over
net long-term capital losses) distributed to shareholders, will be taxable as
ordinary income to the shareholder whether or not reinvested. Any net capital
gains (i.e., the excess of net long-term capital gains over net short-term
capital losses) distributed to shareholders will be taxable as long-term capital
gains to the shareholders, whether or not reinvested and regardless of the
length of time a shareholder has owned his or her shares. The maximum long-term
capital gains rate for individuals is 28%. The maximum long-term capital gains
rate for corporate shareholders is the same as the maximum tax rate for ordinary
income.
Dividends received by corporate shareholders are eligible for a dividends
received deduction of 70% to the extent the Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Dividends
attributable to interest income, capital and currency gain net income, gain or
loss from Section 1256 contracts and from some other sources will not be
eligible for the corporate dividends received deduction. See "Taxes" in the
Statement of Additional Information. Corporate shareholders should consult their
tax advisers regarding other requirements applicable to the dividends received
deduction.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will generally be treated as
long-term capital gain or loss if the shares have been held more than one year
and otherwise as short-term capital gain or loss. Any such loss with respect to
shares that are held for six months or less, however, will be treated as a
long-term capital loss to the extent of any capital gain distributions received
by the shareholder.
21
<PAGE>
The Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes" in the
Statement of Additional Information.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund generally is required to withhold
and remit to the U.S. Treasury 31% of dividend, capital gain income and
redemption proceeds on the accounts of those shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of
certain foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Withholding at this rate
is also required from dividends and capital gains distributions (but not
redemption proceeds) payable to shareholders who are otherwise subject to backup
withholding. Dividends of net investment income and short-term capital gains
paid to a foreign shareholder will generally be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY SEMI-ANNUAL DIVIDENDS OF NET INVESTMENT INCOME, IF
ANY, AND MAKE ANNUAL DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET
LONG-TERM CAPITAL LOSSES. Dividends paid by the Fund with respect to each class
of shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount except
that each class will bear its own distribution charges, generally resulting in
lower dividends for Class B and Class C shares. Distributions of net capital
gains, if any, will be paid in the same amount for each class of shares. See
"How the Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE, OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis.
Certain dividends declared by the Fund will be treated as received by
shareholders on December 31 of the year the dividends are declared. This rule
applies to the dividends declared by the Fund in October, November or December
of a calendar year, payable to shareholders of record on a date in any such
month, if such dividends are paid by January 31 of the following calendar year.
WHEN THE FUND GOES "EX-DIVIDEND," THE NAV OF EACH CLASS IS REDUCED BY THE
AMOUNT OF THE DIVIDEND OR DISTRIBUTION ALLOCABLE TO EACH CLASS. IF YOU BUY
SHARES JUST PRIOR TO THE EX-DIVIDEND DATE (WHICH GENERALLY OCCURS FOUR BUSINESS
DAYS PRIOR TO THE RECORD DATE), THE PRICE YOU PAY WILL INCLUDE THE DIVIDEND OR
DISTRIBUTION AND A PORTION OF YOUR INVESTMENT WILL BE RETURNED TO YOU AS A
TAXABLE DIVIDEND OR DISTRIBUTION. YOU SHOULD, THEREFORE, CONSIDER THE TIMING OF
DIVIDENDS AND DISTRIBUTIONS WHEN MAKING YOUR PURCHASES.
22
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON FEBRUARY 21, 1990. THE FUND IS
AUTHORIZED TO ISSUE TWO BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER
SHARE, DIVIDED EQUALLY INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C
AND CLASS Z SHARES, EACH OF WHICH CONSISTS OF 500,000,000 AUTHORIZED SHARES.
Each class of common stock represents an interest in the same assets of the Fund
and is identical in all respects except that (i) each class is subject to
different sales charges and distribution and/or service fees which may affect
performance, (ii) each class has exclusive voting rights on any matter submitted
to shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion feature
and (v) Class Z shares are offered exclusively for sale to participants in the
PSI 401(k) Plan, an employee benefit plan sponsored by Prudential Securities.
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 or service fee. In accordance
with the Fund's Articles of Incorporation, the Board of Directors may authorize
the creation of additional series and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the
Directors may determine. Currently, the Fund is offering four classes,
designated Class A, Class B, Class C and Class Z shares.
The Board of Directors may increase or decrease the number of authorized
shares without approval by the shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide-How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debts and expenses of the Fund have been paid. The Fund's shares do not have
cumulative voting rights for the election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS THE ELECTION OF DIRECTORS IS REQUIRED TO BE ACTED ON BY THE
SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE CERTAIN RIGHTS,
INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE FUND'S
OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR MORE
DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
23
<PAGE>
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC
OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The purchase price is the
NAV next determined following receipt of an order by the Transfer Agent or
Prudential Securities plus a sales charge which, at your option, may be imposed
either (i) at the time of purchase (Class A shares) or (ii) on a deferred basis
(Class B or Class C shares). See "Alternative Purchase Plan" below. See also
"How the Fund Values its Shares."
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Services"
below.
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire,
you must first telephone PMFS at (800) 225-1852 (toll-free) to receive an
account number. The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Multi-Sector Fund, Inc., specifying on the wire
the account number assigned by PMFS and your name and identifying the sales
charge alternative (Class A, Class B or Class C shares).
If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Multi-Sector
Fund, Inc., Class A, Class B or Class C shares and your name and individual
account number. It is not necessary to call PMFS to make subsequent purchase
orders utilizing Federal Funds. The minimum amount which may be invested by wire
is $1,000.
24
<PAGE>
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THROUGH THIS PROSPECTUS THREE CLASSES OF SHARES (CLASS A,
CLASS B AND CLASS C SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES
CHARGE STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES, GIVEN THE AMOUNT OF THE
PURCHASE, THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT
CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------------- ------------------------ ------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 5% of .30 of 1% (Currently Initial sales charge waived or
the public offering price being charged at a rate reduced for certain purchases
of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares approximately seven
charge or CDSC of 5% of the lesser of years after purchase
the amount invested or the redemption
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another class
the amount invested or the redemption
proceeds on redemptions made within
one year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its Plan (except as
noted under the heading "General Information--Description of Common Stock"), and
(iii) only Class B shares have a conversion feature. The three classes also
have separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and distribution-related fees, as noted above, (3) whether you qualify for any
reduction or waiver of any applicable sales charge, (4) the various exchange
privileges among the different classes of shares (see "How to Exchange Your
Shares" below) and (5) the fact that Class B shares automatically convert to
Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales 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.
25
<PAGE>
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions when the CDSC is applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES.
See "Reduction and Waiver of Initial Sales Charges" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ -------------- --------------- -----------------
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the plan has existing assets of at
least $1 million invested in shares of Prudential Mutual Funds (excluding
26
<PAGE>
money market funds other than those acquired pursuant to the exchange privilege)
or 250 eligible employees or participants. In the case of Benefit Plans whose
accounts are held directly with the Transfer Agent or Prudential Securities and
for which the Transfer Agent or Prudential Securities does individual account
recordkeeping (Direct Account Benefit Plans) and Benefit Plans sponsored by PSI
or its subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from such
plans to the participant.
PruArray and SmartPath Plans. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or
non-qualified under the Internal Revenue Code, including pension,
profit-sharing, stock-bonus or other employee benefit plans under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 and 403(b)(7) of the Internal Revenue Code that participate in
Prudential's PruArray or SmartPath Programs (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan); provided that
the plan has at least $1 million in existing assets or 250 eligible employees or
participants. The term "existing assets" for this purpose includes stock issued
by a PruArray or SmartPath Plan sponsor and shares of non-money market
Prudential Mutual Funds and shares of certain unaffiliated non-money market
mutual funds that participate in the PruArray or SmartPath Program
(Participating Funds). "Existing assets" also include shares of money market
funds acquired by exchange from a Participating Fund.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent, (c)
employees and special agents of Prudential and its subsidiaries and all persons
who have retired directly from active service with Prudential or one of its
subsidiaries, (d) registered representatives and employees of dealers who have
entered into a selected dealer agreement with Prudential Securities provided
that purchases at NAV are permitted by such person's employer and (e) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities, or within one year in the case of Benefit Plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end fund
sponsored by the financial adviser's previous employer (other than a money
market or other no-load fund which imposes a distribution or service fee of .25
of 1% or less) and (iii) the financial adviser served as the client's broker on
the previous purchase.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class
A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
shares and Class C may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
27
<PAGE>
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV PER SHARE NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES."
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION TO BE
PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR
FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST
BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST, EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the SEC, by
order, so permits; provided that applicable rules and regulations of the SEC
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and the redeemed securities will
be valued in the same manner as a regular redemption. See "How the Fund Values
its Shares." If your shares are redeemed in kind, you would incur transaction
costs in converting the assets into cash. The Fund, however, has elected to be
governed by Rule 18f-1 under the Investment Company Act, under which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90-day period for any one
shareholder.
28
<PAGE>
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board of
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will be
credited (in shares) to your account. (If less than a full repurchase is made,
the credit will be on a pro rata basis.) You must notify the Fund's Transfer
Agent, either directly or through Prudential Securities, at the time the
repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege will generally not affect
the federal tax treatment of any gain realized upon redemption. However, if the
redemption was made within a 30 day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss, depending on the amount
reinvested, may not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares to an amount which is lower than the amount of
all payments by you for shares during the preceding six years, in the case of
Class B shares, and one year, in the case of Class C shares. A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of your shares or shares acquired
through reinvestment of dividends or distributions are not subject to a CDSC.
The amount of any CDSC will be paid to and retained by the Distributor. See "How
the Fund is Managed--Distributor" and "Waiver of the Contingent Deferred Sales
Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund. See "How
to Exchange Your Shares."
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- --------------------------
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 1.0%
Sixth ...................... 1.0%
Seventh .................... None
29
<PAGE>
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 net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years;
then of amounts representing the cost of shares held beyond the applicable CDSC
period; and finally, of amounts representing the cost of shares held for the
longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of your Class B shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be applied to
the value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be charged at a rate of 4% (the applicable rate in the second year
after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC and provide the Transfer Agent with such supporting documentation as
it may deem appropriate. The waiver will be granted subject to confirmation of
your entitlement. See "Purchase and Redemption of Fund Shares--Waiver of the
Contingent Deferred Sales Charge--Class B Shares" in the Statement of Additional
Information.
A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement of
Additional Information.
30
<PAGE>
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
The first conversion of Class B shares occurred in February 1995, when the
conversion feature was first implemented.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus, although
the aggregate dollar value will be the same, you may receive fewer Class A
shares than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange or
a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
31
<PAGE>
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE (THE EXCHANGE
PRIVILEGE) WITH CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF
SUCH FUNDS. CLASS A, CLASS B AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS A,
CLASS B AND CLASS C SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE
RELATIVE NAV. No sales charge will be imposed at the time of the exchange. Any
applicable CDSC payable upon the redemption of shares exchanged will be
calculated from the first day of the month after the initial purchase, excluding
the time the shares were held in a money market fund. Class B and Class C shares
may not be exchanged into money market funds other than Prudential Special Money
Market Fund. For purposes of calculating the holding period applicable to the
Class B conversion feature, the time period during which Class B and Class C
shares were held in a money market fund will be excluded. See "Conversion
Feature--Class B Shares" above. An exchange will be treated as a redemption and
purchase for tax purposes. See "Shareholder Investment Account--Exchange
Privilege" in the Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE THE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. (THE FUND OR ITS AGENTS COULD BE SUBJECT TO LIABILITY
IF THEY FAIL TO EMPLOY REASONABLE PROCEDURES.) All exchanges will be made on the
basis of the relative NAV of the two funds next determined after the request is
received in good order. The Exchange Privilege is available only in states where
the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above. Under this exchange privilege, amounts representing any Class B and Class
C shares (which are not subject to a CDSC) held in such a shareholder's account
will be automatically exchanged for Class A shares on a quarterly basis, unless
the shareholder elects otherwise. Eligibility for this exchange privilege will
be calculated on the business day prior to the date of the exchange. Amounts
representing Class B or Class C shares which are not subject to a CDSC include
the following: (1) amounts representing Class B or Class C shares acquired
pursuant to the automatic reinvestment of dividends and distributions, (2)
amounts representing the increase in the net asset value above the total amount
of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through Prudential Securities or Prusec that they are eligible for this
special exchange privilege.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
32
<PAGE>
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder in the Fund, you can
take advantage of the following services and privileges:
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than five full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
o AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including a
Command Account). For additional information about this service, you may contact
your Prudential Securities financial adviser, Prusec representative or the
Transfer Agent directly.
o TAX DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges" above.
o REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
is available upon request from the Fund.
o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
33
<PAGE>
APPENDIX A
DESCRIPTION OF ECONOMIC SECTORS
The Fund will seek to achieve its investment objective by investing among the
following economic sectors:
AUTOS AND HOUSING SECTOR--Companies engaged in the design, production and
sale of automobiles, automobile parts, tires and other rubber products, building
materials, mobile homes and related products, and in the design, construction,
renovation and refurbishing of residential dwellings. The value of automobile
industry securities is affected by foreign competition, consumer confidence,
consumer debt and installment loan rates. The housing construction industry is
affected by the level of consumer confidence, consumer debt, mortgage rates and
the inflation outlook.
BASIC INDUSTRY SECTOR--Companies engaged in the research, development or
manufacture of products, processes or services relating to electrical equipment,
machinery, chemicals, containers, pollution control and construction services,
such as transformers, motors, turbines, hand tools, earth-moving equipment and
waste disposal services. The profitability of most companies in this group may
fluctuate significantly in response to capital spending and general economic
conditions. Since some of the materials and processes used by these companies
involve hazardous components, there are risks associated with their production,
handling and disposal. The risk of product obsolescence also is present.
BUSINESS SERVICES SECTOR--Companies providing office supplies such as paper
and pens, furnishings and computer equipment; advertising agencies; data
processing and other technical services; employment and temporary help agencies;
uniform supply and service companies; training companies; engineering and
construction companies; and other service providers to businesses. Companies in
this sector may be adversely affected by increases in unemployment and economic
slowdowns.
CONSUMER GOODS AND SERVICES SECTOR--Companies engaged in providing consumer
goods and services such as the design, processing, production and storage of
packaged, canned, bottled and frozen foods, beverages and tobacco, and the
design, production and sale of home furnishings, textiles, appliances, other
household products, clothing, accessories, cosmetics and perfumes. Certain of
these companies are subject to government regulation affecting the
permissibility of using various food additives and production methods, which
regulations could affect company profitability. The success of food and
fashion-related products may be strongly affected by fads, marketing campaigns
and other factors affecting supply and demand.
DEFENSE AND AEROSPACE SECTOR--Companies engaged in the research, manufacture
or sale of products or services such as air transport, data processing or
computer-related services; communications systems; military weapons and
transportation; general aviation equipment, missiles, space launch vehicles and
spacecraft; units for guidance, propulsion and control of flight vehicles; and
airborne and ground-based equipment essential to the testing, operation and
maintenance of flight vehicles. Since these companies rely largely on U.S. (and
other) governmental demand for their products and services, their financial
conditions are heavily influenced by federal (and other governmental) defense
spending policies. Companies in this sector may be affected by the success or
failure of their products and government investigations into defense contract
procurement practices.
ENERGY SECTOR--Oil, gas, electricity and coal as well as nuclear, geothermal,
oil shale and solar energy companies. The business of these companies may
include production, generation, transmission, marketing, control or measurement
of energy or energy fuels; provision of component parts or services to companies
engaged in such activities; energy research or experimentation; environmental
activities related to the solution of energy problems; and activities resulting
from technological advances or research discoveries in the energy field. The
value of securities of these companies varies based on the price and supply of
energy fuels and may be affected by events relating to
A-1
<PAGE>
international politics, energy conservation, the success of exploration
projects, environmental considerations and the tax and other regulatory policies
of various governments. Utilities involved in nuclear power generation are
particularly susceptible to regulatory and environmental policies and have
extremely high construction costs as well.
ENVIRONMENTAL SECTOR--Companies involved in environmental concerns of every
type, from pretreatment programs for air, noise and water pollution to waste
management, solid waste disposal and hazardous waste clean-up, including
asbestos removal. Products and services in this sector could quickly become
obsolete and since the processes used by these companies often are used in
hazardous situations, there are special risks involved.
FINANCIAL SERVICES SECTOR--Commercial banks and savings and loan
associations; consumer and industrial finance companies; securities brokerage
companies; leasing companies; investment management companies; and firms in all
segments of the insurance field. These kinds of companies are subject to
extensive governmental regulations, some of which are currently being studied by
Congress. The profitability of these groups may fluctuate significantly as a
result of volatile interest rates, current concerns about the savings and loan
industry and the value of their assets and concerns about the viability of
certain securities brokerage companies and general economic conditions.
HEALTH CARE SECTOR--Companies engaged in the design, manufacture,
distribution or sale of products or services used in connection with health care
or medicine include pharmaceutical companies and providers of medical, dental
and optical products, hardware or services; companies involved in biotechnology,
medical diagnostic and biochemical research and development; and companies
involved in the operation of health care facilities. Many of these companies are
subject to government regulation, which could affect the price and availability
of their products and services. Products and services in this sector could
quickly become obsolete.
LEISURE SECTOR--Companies engaged in the design, production or distribution
of goods or services in the leisure industry, such as television and radio
broadcasting or manufacture, motion pictures and photography, recordings and
musical instruments; publishing; sporting goods, camping and recreational
equipment; sports arenas; toys and games; amusement and theme parks;
travel-related services; hotels and motels; fast food and other restaurants; and
gaming casinos. Many products produced by companies in this sector may quickly
become obsolete. Companies engaged in broadcasting and gambling are subject to
government regulation.
NATURAL RESOURCES SECTOR--Companies engaged in the research, development,
manufacture or marketing of products, processes or services related to the
agriculture, forest products, ferrous and non-ferrous metals, strategic metals,
hydrocarbons and steel industries, such as synthetic and natural materials;
paper; wood products; steel and cement. Certain companies in this sector are
subject to regulation by state and federal authorities which could require
alteration or cessation of production of a product, payment of fines or cleaning
of a disposal site. Since some of the materials and processes used by these
companies involve hazardous components, there are risks associated with their
production, handling and disposal. The risk of product obsolescence is also
present.
PRECIOUS METALS SECTOR--Companies engaged in exploration, mining, processing
or dealing in gold, platinum, silver, diamonds or other precious metals and
companies which invest in companies engaged in these activities. A significant
portion of this sector may be represented by securities of foreign companies and
investors should understand the special risks related thereto. These securities
also depend heavily on prices in metals, some of which may experience extreme
price volatility based on international economic and political developments.
PUBLIC UTILITIES SECTOR--Companies deriving a substantial portion of their
revenues from the manufacture, production, generation, transmission,
distribution and sale of gas and electric energy, and companies engaged in the
communications field, such as telephone, telegraph, satellite and microwave and
the provision of other communication facilities to the public. The gas and
electric utilities industries are subject to various uncertainties, including
government regulation policies, the outcome of political issues concerning the
environment, prices of fuel for electric generation, availability of natural gas
and risks associated with the construction and operation of nuclear power
facilities.
A-2
<PAGE>
RETAILING SECTOR--Companies engaged in the retail distribution of home
furnishings, food products, clothing, pharmaceuticals, leisure products and
other consumer goods and companies that provide services and supplies to these
companies. The value of securities in this sector will fluctuate based on
consumer spending patterns, which depend on inflation and interest rates, level
of consumer debt and seasonal shopping habits. The success or failure of a
particular company in this highly competitive sector will depend on the
company's ability to predict rapidly changing consumer tastes.
TECHNOLOGY SECTOR--Companies which have or are expected to develop products,
processes or services which will provide or will benefit significantly from
technological advances and improvements or future automation trends in the
office and factory, such as semiconductors; computers and peripheral equipment;
scientific instruments; computer software; telecommunications; and electronic
components, instruments and systems. These companies are sensitive to foreign
competition and import tariffs and many products produced by these companies may
quickly become obsolete.
TRANSPORTATION SECTOR--Companies involved in the provision of transportation
of people and products, such as airlines, railroads and trucking firms,
transportation equipment and leasing companies. Revenues of companies in this
sector will be affected by fluctuations in fuel prices resulting from domestic
and international events, and government regulation of fares.
A-3
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment 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 a ranking in the lower end of
that 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.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
P-1: Issuers rated Prime-1 or P-1 (or supporting institutions) have a
superior ability for repayment of senior short~term debt obligations.
P-2: Issuers rated Prime-2 or P-2 (or supporting institutions) have a
strong ability for repayment of senior short term debt obligations.
B-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC AND C: Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely stong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
B-2
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
Taxable Bond Funds
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o 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
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
C-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
FUND HIGHLIGHTS ....................................................... 2
Risk Factors and Special Characteristics ............................. 2
FUND EXPENSES ......................................................... 4
FINANCIAL HIGHLIGHTS .................................................. 5
HOW THE FUND INVESTS .................................................. 8
Investment Objective and Policies .................................... 8
Hedging and Return Enhancement Strategies ............................ 11
Other Investments and Policies ....................................... 14
Investment Restrictions .............................................. 16
HOW THE FUND IS MANAGED ............................................... 16
Manager .............................................................. 16
Distributor .......................................................... 17
Portfolio Transactions ............................................... 19
Custodian and Transfer and Dividend Disbursing Agent ................. 19
HOW THE FUND VALUES ITS SHARES ........................................ 19
HOW THE FUND CALCULATES PERFORMANCE ................................... 20
TAXES, DIVIDENDS AND DISTRIBUTIONS .................................... 21
GENERAL INFORMATION ................................................... 23
Description of Common Stock .......................................... 23
Additional Information ............................................... 23
SHAREHOLDER GUIDE ..................................................... 24
How to Buy Shares of the Fund ........................................ 24
Alternative Purchase Plan ............................................ 25
How to Sell Your Shares .............................................. 28
Conversion Feature - Class B Shares .................................. 31
How to Exchange Your Shares .......................................... 32
Shareholder Services ................................................. 33
DESCRIPTION OF ECONOMIC SECTORS ....................................... A-1
DESCRIPTION OF SECURITY RATINGS ....................................... B-1
THE PRUDENTIAL MUTUAL FUND FAMILY ..................................... C-1
- -------------------------------------------------------------------------------
MF142A 444123A
--------------------------------
CUSIP Nos.: Class A: 74435J108
Class B: 74435J207
Class C: 74435J306
--------------------------------
Prudential
Multi-Sector
Fund, Inc.
------------
P R O S P E C T U S
June 28, 1996
------------
Prudential Mutual Funds
Building Your Future {LOGO)
On Our Strength (SM)
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
FUND HIGHLIGHTS ....................................................... 2
Risk Factors and Special Characteristics ............................. 2
FUND EXPENSES ......................................................... 4
FINANCIAL HIGHLIGHTS .................................................. 5
HOW THE FUND INVESTS .................................................. 8
Investment Objective and Policies .................................... 8
Hedging and Return Enhancement Strategies ............................ 11
Other Investments and Policies ....................................... 14
Investment Restrictions .............................................. 16
HOW THE FUND IS MANAGED ............................................... 16
Manager .............................................................. 16
Distributor .......................................................... 17
Portfolio Transactions ............................................... 19
Custodian and Transfer and Dividend Disbursing Agent ................. 19
HOW THE FUND VALUES ITS SHARES ........................................ 19
HOW THE FUND CALCULATES PERFORMANCE ................................... 20
TAXES, DIVIDENDS AND DISTRIBUTIONS .................................... 21
GENERAL INFORMATION ................................................... 23
Description of Common Stock .......................................... 23
Additional Information ............................................... 23
SHAREHOLDER GUIDE ..................................................... 24
How to Buy Shares of the Fund ........................................ 24
Alternative Purchase Plan ............................................ 25
How to Sell Your Shares .............................................. 28
Conversion Feature - Class B Shares .................................. 31
How to Exchange Your Shares .......................................... 32
Shareholder Services ................................................. 33
DESCRIPTION OF ECONOMIC SECTORS ....................................... A-1
DESCRIPTION OF SECURITY RATINGS ....................................... B-1
THE PRUDENTIAL MUTUAL FUND FAMILY ..................................... C-1
- -------------------------------------------------------------------------------
MF142Z 444123A
--------------------------------
CUSIP No.: Class Z: 74435J405
--------------------------------
Prudential
Multi-Sector
Fund, Inc.
(Class Z Shares)
------------
P R O S P E C T U S
June 28, 1996
------------
Prudential Mutual Funds
Building Your Future {LOGO)
On Our Strength (SM)
