<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 2000
REGISTRATION NOS. 33-42391
811-6391
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 14 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 16 /X/
(Check appropriate box or boxes)
------------------------------
PRUDENTIAL PACIFIC GROWTH FUND, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-3028
ROBERT C. ROSSELOT, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
TITLE OF SECURITIES BEING REGISTERED.....SHARES OF COMMON STOCK, $.001 PAR VALUE
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--------------------------------------------------------------------------------
<PAGE>
Prospectus and Financial Privacy Notice February , 2001
PRUDENTIAL
PACIFIC GROWTH FUND, INC.
FUND TYPE Global stock
OBJECTIVE Long-term growth of capital
Build on the Rock
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares, nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state otherwise.
[PRUDENTIAL LOGO]
<PAGE>
TABLE OF CONTENTS
-------------------------------------
<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
4 Fees and Expenses
6 HOW THE FUND INVESTS
6 Investment Objective and Policies
7 Other Investments and Strategies
10 Investment Risks
13 HOW THE FUND IS MANAGED
13 Board of Directors
13 Manager
14 Investment Adviser
14 Portfolio Managers
14 Distributor
15 FUND DISTRIBUTIONS AND TAX ISSUES
15 Distributions
16 Tax Issues
17 If You Sell or Exchange Your Shares
19 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
19 How to Buy Shares
27 How to Sell Your Shares
31 How to Exchange Your Shares
33 Telephone Redemptions and Exchanges
34 FINANCIAL HIGHLIGHTS
34 Class A Shares
35 Class B Shares
36 Class C Shares
37 Class Z Shares
38 THE PRUDENTIAL MUTUAL FUND FAMILY
i YOUR FINANCIAL SECURITY, YOUR SATISFACTION & YOUR PRIVACY
FOR MORE INFORMATION (Back Cover)
</TABLE>
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PRUDENTIAL PACIFIC GROWTH FUND, INC. [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
-------------------------------------
This section highlights key information about the PRUDENTIAL PACIFIC GROWTH
FUND, INC., which we refer to as "the Fund." Additional information follows this
summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is LONG-TERM GROWTH OF CAPITAL. This means we look for
investments that we think will increase in value over a period of years. We
normally invest at least 65% of the Fund's total assets in equity-related
securities, primarily common stock, of companies doing business in or domiciled
in the Pacific Basin region, including Japan, Australia, Hong Kong, Singapore,
South Korea, Malaysia, Thailand, Indonesia, the Philippines and New Zealand. The
equity-related securities in which the Fund primarily invests are common stocks.
We also may use derivatives for hedging or to improve the Fund's returns. There
is no limit on the percentage of the Fund's assets that may be invested in any
single country.
To achieve our objective of long-term growth of capital, we look for
securities that are undervalued and/or show growth potential. While we make
every effort to achieve our objective, we can't guarantee success.
In selecting securities for the Fund, we use a bottom-up approach based on a
company's growth potential, and we focus the Fund's portfolio on those areas
within the Pacific Basin with the most attractive near-term prospects.
Generally, we consider selling a security when the security no longer displays
the conditions for growth, is no longer undervalued, or falls short of
expectations.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests primarily in equity-related securities, principally common stock, there
is the risk that the value of a particular security we own could go down and
cause you to lose money. Also, because the Fund invests primarily in a single
region of the world, its investments are geographically concentrated. This can
result in more pronounced risks based upon economic conditions
-------------------------------------------------------------------
WE'RE GROWTH INVESTORS
We look primarily for stock that we believe is undervalued and/or will grow
faster--and earn better profits--than other companies. We also look for
companies with strong competitive advantages, effective research, product
development, strong management or financial strength.
-------------------------------------------------------------------
--------------------------------------------------------------------------------
1
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
that impact the Pacific Basin region more or less than other global regions.
In addition to an individual security losing value, the value of equity
markets as a whole could go down. Investing in foreign securities presents
additional risks, since foreign political, economic and legal systems may be
less stable than those of the U.S. and foreign stock markets could decline. The
changing value of foreign currencies could also affect both the value of the
assets we hold and our performance. In the case of investments in emerging
market securities, these risks are heightened and may result in greater
volatility in the value of your investment.
During the last three years, economic conditions in East and Southeast Asia
have weakened dramatically and several countries are experiencing recessions.
These conditions have resulted in declines in share prices and market averages,
as well as lower values of foreign currencies compared to the U.S. dollar. Thus,
the Fund's net asset value has been adversely affected by declines of both share
price and currency values. Although some countries and markets in the region
appear to have emerged from these conditions, we cannot guarantee that we will
successfully identify those countries and markets that will sustain economic
recovery in the region.
Some of our investment strategies--such as using derivatives--also involve
above-average risks. The Fund may use risk management techniques to try to
preserve assets or enhance return. Derivatives may not fully offset the
underlying positions and this could result in losses to the Fund that would not
otherwise have occurred.
There is always the risk that investments will not perform as we thought
they would. Like any mutual fund, an investment in the Fund could lose value,
and you could lose money. The Fund does not represent a complete investment
program.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Fund performs. The following
bar chart shows the Fund's performance for each full calendar year of operation.
The bar chart and table below demonstrate the risk of investing in the Fund by
showing how returns can change from year to year. Past performance is not an
indication that the Fund will achieve similar results in the future.
-------------------------------------------------------------------
2 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
ANNUAL RETURNS(1) (CLASS A SHARES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1993 66.55%
1994 -8.79%
1995 5.36%
1996 2.40%
1997 -32.53%
1998 -0.89%
1999 68.15%
2000
</TABLE>
BEST QUARTER: ____% (___ quarter of ____) WORST QUARTER: ____% (___ quarter of
____)
1 THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN.
AVERAGE ANNUAL RETURNS(1) AS OF 12-31-99
<TABLE>
<CAPTION>
1 YR 5 YR SINCE INCEPTION
<S> <C> <C> <C>
Class A shares % % % (since 7-24-92)
Class B shares % % % (since 7-24-92)
Class C shares % % % (since 8-1-94)
Class Z shares % N/A % (since 3-1-96)
MSCI Asia Pacific(2) % % %
Lipper Average(3) % % %
</TABLE>
1 THE FUND'S RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.
2 THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) AC ASIA PACIFIC INDEX IS A
WEIGHTED, UNMANAGED INDEX COMPRISED OF APPROXIMATELY 950 SECURITIES LISTED
ON THE STOCK EXCHANGES OF AUSTRALIA, HONG KONG, JAPAN, MALAYSIA, SINGAPORE,
INDONESIA, SRI LANKA, CHINA (FREE), PAKISTAN, TAIWAN, INDIA, KOREA, THE
PHILIPPINES AND THAILAND. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY
SALES CHARGES OR OPERATING EXPENSES OF A MUTUAL FUND. THESE RETURNS WOULD
BE LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES AND OPERATING
EXPENSES. MSCI PACIFIC INDEX RETURNS SINCE THE INCEPTION OF EACH CLASS ARE
% FOR CLASS A, % FOR CLASS B, % FOR CLASS C AND % FOR CLASS Z
SHARES.
3 THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN
THE LIPPER PACIFIC REGION FUNDS CATEGORY AND DOES NOT INCLUDE THE EFFECT OF
ANY SALES CHARGES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT
OF SALES CHARGES. LIPPER RETURNS SINCE THE INCEPTION OF EACH CLASS ARE %
FOR CLASS A, % FOR CLASS B, % FOR CLASS C AND % FOR CLASS Z
SHARES. SOURCE: LIPPER, INC.
--------------------------------------------------------------------------------
3
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
FEES AND EXPENSES
These tables show the sales charges, fees and expenses for each share class of
the Fund--Class A, B, C and Z. Each share class has different sales
charges--known as loads--and expenses, but represents an investment in the same
fund. Class Z shares are available only to a limited group of investors. For
more information about which share class may be right for you, see "How to Buy,
Sell and Exchange Shares of the Fund."
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering
price) 5% None 1% None
Maximum deferred sales
charge (load) (as a
percentage of the lower of
original purchase price or
sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge (load)
imposed on reinvested
dividends and other
distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .75% .75% .75% .75%
+ Distribution and service
(12b-1) fees .30% 1.00% 1.00% None
+ Other expenses .72% .72% .72% .72%
= TOTAL ANNUAL FUND
OPERATING EXPENSES 1.77% 2.47% 2.47% 1.47%
- Waivers and/or
reimbursements(4) .05% -- -- --
= NET ANNUAL FUND OPERATING
EXPENSES 1.72% 2.47% 2.47% 1.47%
</TABLE>
1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
SALES OF SHARES.
2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B SHARES DECREASES BY
1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH YEAR.
CLASS B SHARES CONVERT TO CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER
PURCHASE.
3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN 18 MONTHS OF
PURCHASE.
4 FOR THE FISCAL YEAR ENDING OCTOBER 31, 2000, THE FUND'S DISTRIBUTOR HAS
CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE FEES FOR
CLASS A SHARES TO .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A
SHARES.
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4 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A shares during the
first year. Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $666 $1,025 $1,407 $2,476
Class B shares $750 $1,070 $1,416 $2,553
Class C shares $448 $862 $1,402 $2,878
Class Z shares $150 $465 $803 $1,757
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $666 $1,025 $1,407 $2,476
Class B shares $250 $770 $1,316 $2,553
Class C shares $348 $862 $1,402 $2,878
Class Z shares $150 $465 $803 $1,757
</TABLE>
--------------------------------------------------------------------------------
5
<PAGE>
HOW THE FUND INVESTS
-------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is LONG-TERM GROWTH OF CAPITAL. This means we
look to build an investment portfolio which, though potentially volatile in the
short term, has the potential for significant capital appreciation over the
longer term. While we make every effort to achieve our objective, we can't
guarantee success.
In pursuing our objective, we normally invest primarily (at least 65% of the
Fund's total assets) in EQUITY-RELATED SECURITIES OF COMPANIES DOING BUSINESS
IN, OR DOMICILED IN, THE PACIFIC BASIN REGION. Companies doing business in the
Pacific Basin region include companies that derive a significant portion of
their revenues from sales made in the Pacific Basin region or have principal
executive offices or significant properties located in that region. The Pacific
Basin region includes, but is not limited to, Japan, Australia, Hong Kong,
Singapore, South Korea, Malaysia, Thailand, Indonesia, the Philippines and New
Zealand. In addition to these countries, the Fund may invest directly in
companies doing business in or domiciled in Taiwan, India, Pakistan, Vietnam and
the People's Republic of China if and when each of their stock markets becomes
open to direct foreign investment.
In addition to common stock, equity-related securities include, but are not
limited to, preferred stock, rights that can be exercised to obtain stock,
warrants and debt securities or preferred stock convertible or exchangeable for
common or preferred stock and interests in master limited partnerships. The Fund
may also invest in American Depositary Receipts (ADRs). ADRs represent an equity
investment in a foreign company or some other foreign issuer that are usually
issued by a U.S. bank or trust company and are valued in U.S. dollars. We
consider ADRs to be equity-related securities. The Fund may invest up to 35% of
its total assets in equity-related securities of non-Pacific Basin companies and
in fixed-income obligations.
-------------------------------------------------------------------
OUR GROWTH STRATEGY
We look for companies that have the potential to produce strong growth in
earnings and/or sales, and whose stock prices do not reflect this potential for
future growth. These companies usually have a unique market niche, a strong new
product profile or what we believe to be superior management. We analyze
companies using both fundamental and quantitative techniques.
-------------------------------------------------------------------
-------------------------------------------------------------------
6 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
In selecting securities for the Fund, we use a bottom-up approach based on a
company's growth potential, and we focus the Fund's portfolio on those areas
within the Pacific Basin with the most attractive near-term prospects.
Generally, we consider selling a security when the security no longer displays
the conditions for growth, is no longer undervalued, or falls short of
expectations.
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Fund, its Investments and Risks." The Statement
of Additional Information--which we refer to as the SAI--contains additional
information about the Fund. To obtain a copy, see the back cover page of this
prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Fund's Board of Directors can change
investment policies that are not fundamental.
OTHER INVESTMENTS AND STRATEGIES
In addition to the principal strategies discussed above, we may also use the
following investment strategies to try to increase the Fund's returns or protect
its assets if market conditions warrant.
The Fund may participate in the initial public offering (IPO) market. IPO
investments may increase the Fund's total returns. As the Fund's assets grow,
the impact of IPO investments will decline, which may reduce the Fund's total
returns.
MONEY MARKET INSTRUMENTS, BONDS AND OTHER FIXED-INCOME OBLIGATIONS
Under normal conditions, the Fund may invest up to 35% of total assets in MONEY
MARKET INSTRUMENTS, BONDS and OTHER FIXED-INCOME OBLIGATIONS. Money market
instruments and bonds are known as fixed-income securities because issuers of
these securities are obligated to pay interest and principal. Typically,
fixed-income securities don't increase or decrease in value in relation to an
issuer's financial condition or business prospects as stock may, although their
value does fluctuate inversely to changes in interest rates generally.
Corporations and governments issue money market instruments and bonds to raise
money. The Fund may buy obligations of companies, foreign countries or the U.S.
government. Money market instruments include the commercial paper and short-term
obligations of foreign and domestic corporations, banks and governments and
their agencies.
--------------------------------------------------------------------------------
7
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
The Fund will purchase only money market instruments that have received one
of the two highest short-term debt ratings from Moody's Investors Service, Inc.
(Moody's), Standard & Poor's Rating Group (S&P), or another nationally
recognized statistical rating organization (NRSRO). For bonds and other
long-term fixed-income obligations, we may invest in "investment-grade"
obligations. An obligation is investment-grade, if it has received one of the
top four long-term debt ratings from a NRSRO. Obligations rated in the fourth
category (Baa for Moody's or BBB for S&P) have speculative characteristics and
are subject to a greater risk of loss of principal and interest. We may also
invest in obligations that are not rated, but which we believe to be of
comparable quality.
After a security has been purchased by the Fund, it may be assigned a lower
rating or cease to be rated. This does not mean that the Fund must sell the
security, but the investment adviser will consider such an event in deciding
whether the Fund should continue to hold the security in its portfolio.
The Fund may also invest up to 25% of its net assets in foreign convertible
debt obligations having a minimum rating of at least "B" by a NRSRO. These
lower-rated obligations are referred to as high-yield or "junk" bonds, and their
value is more likely to react to developments affecting market or credit risk
than higher-rated debt obligations, which react primarily to movements in the
general level of interest rates. In particular, "junk" bond investments may
increase or decrease in value due to an issuer's financial condition.
For more information about bonds and bond ratings, see the SAI, "Appendix
I--Description of Security Ratings."
TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in money market instruments.
Investing heavily in these securities limits our ability to achieve capital
appreciation and our investment objective, but can help to preserve the Fund's
assets when the equity markets are unstable.
REPURCHASE AGREEMENTS
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund.
-------------------------------------------------------------------
8 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
DERIVATIVE STRATEGIES
We may use alternative investment strategies--including DERIVATIVES--to try to
improve the Fund's returns or protect its assets, although we cannot guarantee
that these strategies will work, that the instruments necessary to implement
these strategies will be available or that the Fund will not lose money.
Derivatives--such as futures, options, forward foreign currency exchange
contracts and options on futures--involve costs and can be volatile. A futures
contract is an agreement to buy or sell a set quantity of an underlying product
at a future date, or to make or receive a cash payment based on the value of a
securities index. An option is the right to buy or sell securities in exchange
for a premium. A foreign currency forward contract is an obligation to buy or
sell a given currency on a future date and at a set price. With derivatives, the
investment adviser tries to predict whether the underlying asset, rate or
index--a security, market index, currency, interest rate or some other
benchmark--will go up or down at some future date. We may use derivatives to try
to reduce risk or to increase return taking into account the Fund's overall
investment objective. The investment adviser will consider other factors (such
as cost) in deciding whether to employ any particular strategy or use any
particular instrument. Any derivatives we may use may not match or correspond
exactly with the Fund's actual portfolio holdings. In particular, this will be
the case when we use derivatives for return enhancement. For more information
about these strategies, see the SAI, "Description of the Fund, its Investments
and Risks--Hedging and Return Enhancement Strategies."
ADDITIONAL STRATEGIES
The Fund follows certain policies when it BORROWS MONEY (the Fund can borrow up
to 20% of the value of its total assets), LENDS ITS SECURITIES to others (the
Fund can lend up to 30% of the value of its total assets, including collateral
received in the transaction), and HOLDS ILLIQUID SECURITIES (the Fund may hold
up to 15% of its net assets in illiquid securities, including securities with
legal or contractual restrictions, those without a readily available market and
repurchase agreements with maturities longer than seven days). The Fund is
subject to certain investment restrictions that are fundamental policies, which
means they cannot be changed without shareholder approval. For more information
about these restrictions, see the SAI.
--------------------------------------------------------------------------------
9
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. This chart outlines the key risks and potential rewards of the
principal strategies of the Fund and certain other investments the Fund may
make. See, too, "Description of the Fund, its Investments and Risks" in the SAI.
INVESTMENT TYPE
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
PACIFIC BASIN EQUITY- -- Geographically concentrated -- Rewards associated with foreign
RELATED SECURITIES investments can result in more securities in general and equity-
pronounced risks based upon economic related securities as described
AT LEAST 65%; UP TO 100% conditions that impact that region below
either more or less than other
global regions
-- Investments in emerging market
securities are subject to greater
volatility and price declines
-- Other risks associated with foreign
securities in general and equity-
related securities, as described
below
----------------------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES IN GENERAL -- Foreign markets, economies and -- Investors can participate in foreign
political systems, particularly markets through investments in
AT LEAST 65%; UP TO 100% those in developing countries, may companies operating in those markets
not be as stable as those in the -- Foreign currency may appreciate in
U.S. value relative to the U.S. dollar
-- Currency risk--changing values of -- Opportunities for diversification
foreign currencies
-- May be less liquid than U.S. stocks
and bonds
-- Differences in foreign laws,
accounting standards, public
information and custody and
settlement practices generally
provide less reliable information on
foreign investments and involve more
risk
-- Year 2000 conversion may be more of a
problem for some foreign issuers
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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10 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK AND OTHER EQUITY-RELATED -- Individual stocks could lose value -- Historically, stocks have
SECURITIES -- The equity markets could go down, outperformed other investments over
resulting in a decline in the value the long term
FOR U.S. COMPANIES, UP TO 35%, USUALLY of the Fund's investments -- Generally, economic growth leads to
LESS -- Companies that pay dividends may not higher corporate profits, which
do so if they don't have profits or leads to an increase in stock
FOR FOREIGN COMPANIES, AT LEAST 65%; adequate cash flow prices, known as capital
UP TO 100% -- Changes in economic or political appreciation
conditions, both domestic and -- May be a source of dividend income
international, may result in a
decline in value of the Fund's
investments
----------------------------------------------------------------------------------------------------------------------------
FIXED-INCOME OBLIGATIONS -- The Fund's holdings, share price, -- Bonds have generally outperformed
yield and total return may fluctuate money market instruments over the
UP TO 35% in response to bond market movements long term with less risk than stocks
-- Credit risk--the risk that an issuer -- Most bonds will rise in value when
will default, leaving the Fund with interest rates fall
unpaid interest or principal. The -- A source of regular interest income
lower a bond's quality, the higher -- Investment grade bonds have a lower
its potential volatility risk of default
-- Market risk--the risk that the market -- Generally more secure than stock
value of an investment may move up since companies must pay their debts
or down, sometimes rapidly or before paying dividends to
unpredictably. Market risk may stockholders
affect an industry, a sector or the
market as a whole
-- Interest rate risk--the risk that the
value of most bonds will fall when
interest rates rise; the longer a
bond's maturity and the lower its
credit quality, the more its value
typically falls. It can lead to
price volatility
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
11
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
DERIVATIVES -- Derivatives used for risk management -- Derivatives could make money and
may not fully correspond to the protect against losses if the
PERCENTAGE VARIES underlying positions and this could investment analysis proves correct
result in losses to the Fund that -- Derivatives that involve leverage
would not have otherwise occurred could generate substantial gains at
-- Derivatives such as futures, options low cost
and foreign currency forward -- One way to manage the Fund's
contracts may not have the intended risk/return balance is by locking in
effects and may result in losses or the value of an investment ahead of
missed opportunities time
-- The counterparty to a derivatives
contract could default
-- Derivatives that involve leverage
could magnify losses
-- Certain types of derivatives involve
costs that can reduce returns
----------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to value precisely -- May offer a more attractive yield or
-- May be difficult to sell at the time potential for growth than more
UP TO 15% OF NET ASSETS or price desired widely traded securities
----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS -- Limits potential for capital -- May preserve the Fund's assets
appreciation
UP TO 100% ON A TEMPORARY BASIS -- See credit risk and market risk
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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12 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
-------------------------------------
BOARD OF DIRECTORS
The Fund's Board of Directors oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers who conduct and supervise the daily business operations of
the Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM also is
responsible for supervising the Fund's investment adviser. For the fiscal year
ended October 31, 2000, the Fund paid PIFM management fees of .75% of the Fund's
average daily net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of December 31, 2000, PIFM served as the
Manager to all of the Prudential mutual funds, and as Manager or administrator
to closed-end investment companies, with aggregate assets of approximately
$76.7 billion.
The Board of Directors approved a proposal under which the Board may
authorize Prudential Investments Fund Management LLC (PIFM or the Manager),
subject to certain conditions, to enter into or amend subadvisory agreements
without obtaining further shareholder approval. One of the conditions is that
shareholders must first approve the grant of this ongoing authority to the Board
of Directors. The implementation of this proposal also is conditioned upon the
receipt of exemptive relief from the Securities and Exchange Commission
(Commission).
Subject to the satisfaction of these two conditions, which cannot be
assured, the Manager would be permitted, with Board approval, to employ new
subadvisers for a Fund (including subadvisers affiliated with PIFM), change the
terms of a Fund's subadvisory agreements or enter into new subadvisory
agreements with existing subadvisers. Shareholders of a Fund would continue to
have the right to terminate a subadvisory agreement for a Fund at any time by a
vote of the majority of the outstanding voting securities of the Fund.
Shareholders would be notified of any subadviser changes or other material
amendments to subadvisory agreements that
--------------------------------------------------------------------------------
13
<PAGE>
HOW THE FUND IS MANAGED
------------------------------------------------
occur under these arrangements.
The Board of Directors also approved a proposed new management contract with
PIFM. If shareholders approve this new contract, PIFM would be permitted to
allocate and reallocate a Fund's assets among the Fund's subadvisers, including
The Prudential Investment Corporation (PIC), Jennison Associates LLC (Jennison)
and unaffiliated subadvisers, without obtaining further shareholder approval.
INVESTMENT ADVISER
JARDINE FLEMING INTERNATIONAL MANAGEMENT INC.
46TH FLOOR, JARDINE HOUSE
1 CONNAUGHT PLACE
CENTRAL, HONG KONG
Jardine Fleming International Management Inc. (JF International) is a registered
investment adviser and an affiliate of Chase Fleming Asset Management, which was
formed as a result of the acquisition of Robert Fleming Holdings Limited by The
Chase Manhattan Corporation on August 1, 2000. Chase Fleming Asset Management
carries out its business activities in the Asia Pacific region under the name
JF Asset Management. As of , 2000, JF Asset Management's total
assets under management were $ billion. JF Asset Management's address is
46th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong. PIFM has
responsibility for all investment advisory services, supervises
JF International and compensates JF International for its services.
PORTFOLIO MANAGERS
TEXT TO BE ADDED
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays
-------------------------------------------------------------------
14 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
-------------------------------------
the expenses of distributing the Fund's Class A, B, C and Z shares and provides
certain shareholder support services. The Fund pays distribution and other fees
to PIMS as compensation for its services for each class of shares other than
Class Z. These fees--known as 12b-1 fees--are shown in the "Fees and Expenses"
table.
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA) or some other qualified tax-deferred plan or account. Dividends
and distributions from the Fund also may be subject to state income tax in the
state where you live.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues you
should be aware of, but is not meant to be tax advice. For tax advice, please
speak with your tax adviser.
DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders,
typically once a year. For example, if the Fund owns ACME Corp. stock and the
stock pays a dividend, the Fund will pay out a portion of this dividend to its
shareholders, assuming the Fund's income is more than its costs and expenses.
The dividends you receive from the Fund will be taxed as ordinary income,
whether or not they are reinvested in the Fund.
The Fund also distributes realized net CAPITAL GAINS to shareholders--
typically once a year. Capital gains are generated when the Fund sells its
assets for a profit. For example, if the Fund bought 100 shares of ACME Corp.
stock for a total of $1,000 and sold the shares more than one year later for a
total of $1,500, the Fund has net long-term capital gains of $500, which it will
pass on to shareholders (assuming the Fund's total gains are greater than any
losses it may have). Capital gains are taxed differently depending on how long
the Fund holds the security--if a security is held more than one year before it
is sold, LONG-TERM capital gains are taxed at a maximum rate of up to 20%, but
if the security is held one year or less, SHORT-TERM capital gains are taxed at
rates of up to 39.6%. Different rates
--------------------------------------------------------------------------------
15
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
------------------------------------------------
apply to corporate shareholders.
For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions will be subject
to taxes, unless your shares are held in a qualified or tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified or tax-deferred plan or account, your taxes
are deferred, so you will not receive a Form 1099. However, you will receive a
Form 1099 when you take any distributions from your qualified or tax-deferred
plan or account.
Fund distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in October, November or
December of a calendar year and actually pay them in January of the following
year. In such cases, the dividends are treated as if they were paid on
December 31 of the prior year. Corporate shareholders are eligible for the 70%
dividends-received deduction for certain dividends.
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax identification
number and certifications as to your tax status, and you fail to do this, or if
you are otherwise subject to backup withholding, we will withhold and pay to the
U.S. Treasury 31% of your distributions and sale proceeds. Dividends of net
investment income and short-term capital gains paid to a nonresident foreign
shareholder generally will be subject to a U.S. withholding tax of 30%. This
rate may be lower, depending on any tax treaty the U.S. may have with the
shareholder's country.
-------------------------------------------------------------------
16 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
------------------------------------------------
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well, since you bought shares one day and
soon thereafter received a distribution. That is not so because when dividends
are paid out, the value of each share of the Fund decreases by the amount of the
dividend to reflect the payout (although this may not be apparent because the
value of each share of the Fund will also be affected by market changes, if
any). The distribution you receive makes up for the decrease in share value.
However, the timing of your purchase does mean that part of your investment came
back to you as taxable income.
RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax free. Please contact your financial
adviser for information on a variety of Prudential mutual funds that are
suitable for retirement plans offered by Prudential.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax unless you hold shares in a qualified or tax-
deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have. If you
sell shares and realize a loss, you will not be permitted to use the loss to the
extent you replace the shares (including pursuant to the reinvestment of a
dividend) within a 61-day period (beginning 30 days before the sale of
EDGAR REPRESENTATION OF PRINTED GRAPHIC
RECEIPTS FROM SALE $ --> +$ CAPITAL GAIN
(taxes owed)
OR
RECEIPTS FROM SALE $ --> -$ CAPITAL LOSS
(offset against gain)
--------------------------------------------------------------------------------
17
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
------------------------------------------------
the shares). If you acquire shares of the Fund and sell your shares within 90
days, you may not be allowed to include certain sales charges incurred in
acquiring the shares for purposes of calculating gain or loss realized upon the
sale of the shares.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale of
your Class B shares. This opinion, however, is not binding on the IRS. For more
information about the automatic conversion of Class B shares, see "Class B
Shares Convert to Class A Shares After Approximately Seven Years" in the next
section.
-------------------------------------------------------------------
18 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 8179
PHILADELPHIA, PA 19101
You may purchase shares by check or wire. We do not accept cash or money
orders. To purchase by wire, call the number above to obtain an application.
After PMFS receives your completed application, you will receive an account
number. For additional information about purchasing shares of the Fund, see the
back cover page of this prospectus. We have the right to reject any purchase
order (including an exchange into the Fund) or suspend or modify the Fund's sale
of its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge, or CDSC), but the operating expenses each year are higher
than the Class A share expenses. With Class C shares, you pay a 1% front-end
sales charge and a 1% CDSC if you sell within 18 months of purchase, but the
operating expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
-- The amount of your investment
-- The length of time you expect to hold the shares and the impact of
the varying distribution fees
-- The different sales charges that apply to each share class--
Class A's front-end sales charge vs. Class B's CDSC vs. Class C's low
front-end sales charge and low CDSC
--------------------------------------------------------------------------------
19
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
-- Whether you qualify for any reduction or waiver of sales charges
-- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
-- Whether you qualify to purchase Class Z shares
See "How to Sell Your Shares" for a description of the impact of CDSCs.
SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Minimum purchase $1,000 $1,000 $2,500 None
amount(1)
Minimum amount for $100 $100 $100 None
subsequent
purchases(1)
Maximum initial sales 5% of the public None 1% of the public None
charge offering price offering price
Contingent Deferred None If sold during: 1% on sales made None
Sales Charge (CDSC)(2) Year 1 5% within 18 months
Year 2 4% of purchase(2)
Year 3 3%
Year 4 2%
Years 5/6 1%
Year 7 0%
Annual distribution and .30 of 1% 1% 1% None
service (12b-1) fees (.25 of 1%
(shown as a percentage currently)
of average net
assets)(3)
</TABLE>
1 THE MINIMUM INITIAL INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN
RETIREMENT AND EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS FOR MINORS.
THE MINIMUM INVESTMENT FOR PURCHASES MADE THROUGH THE AUTOMATIC INVESTMENT
PLAN IS $50. FOR MORE INFORMATION, SEE "ADDITIONAL SHAREHOLDER SERVICES--
AUTOMATIC INVESTMENT PLAN."
2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS CALCULATED, SEE
"CONTINGENT DEFERRED SALES CHARGES (CDSC)." CLASS C SHARES BOUGHT BEFORE
NOVEMBER 2, 1998 HAVE A 1% CDSC IF SOLD WITHIN ONE YEAR.
3 THESE DISTRIBUTION FEES ARE PAID FROM THE FUND'S ASSETS ON A CONTINUOUS
BASIS. OVER TIME, THE FEES WILL INCREASE THE COST OF YOUR INVESTMENT AND
MAY COST YOU MORE THAN PAYING OTHER TYPES OF SALES CHARGES. THE SERVICE FEE
FOR CLASS A, CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION FEE
FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING THE .25 OF 1% SERVICE
FEE). CLASS B AND CLASS C SHARES PAY A DISTRIBUTION FEE (IN ADDITION TO THE
SERVICE FEE) OF .75 OF 1%.
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20 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid
paying Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's sales
charge by increasing the amount of your investment. This table shows you
how the sales charge decreases as the amount of your investment
increases.
<TABLE>
<CAPTION>
SALES CHARGE AS % OF SALES CHARGE AS % OF DEALER
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED REALLOWANCE
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1 million and above* None None None
</TABLE>
* IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A SHARES, UNLESS
YOU QUALIFY TO BUY CLASS Z SHARES.
To satisfy the purchase amounts above, you can:
-- invest with a group of investors who are related to you;
-- buy the Class A shares of two or more Prudential mutual funds at the
same time;
-- use your RIGHTS OF ACCUMULATION, which allow you to combine the value
of Prudential mutual fund shares you already own (excluding money
market funds not acquired through the exchange privilege) with the
value of the shares you are purchasing for purposes of determining
the applicable sales charge (note: you must notify the Transfer Agent
if you qualify for Rights of Accumulation); or
-- sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will invest a specific dollar amount in
the Fund or other Prudential mutual funds within 13 months.
BENEFIT PLANS. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge, provided that they meet the required
minimum amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call
--------------------------------------------------------------------------------
21
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
Prudential at (800) 353-2847
MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group relating
to:
-- Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades and charges its clients a management, consulting
or other fee for its services; and
-- Mutual fund "supermarket" programs where the sponsor links its
customers' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Other investors may pay no sales charges, including
certain officers, employees or agents of Prudential and its affiliates,
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
registered representatives and employees of brokers that have entered into a
selected dealer agreement with the Distributor. To qualify for a reduction or
waiver of the sales charge, you must notify the Transfer Agent or your broker at
the time of purchase. For more information about reducing or eliminating
Class A's sales charge, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.
-------------------------------------------------------------------
22 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities or one of its affiliates. These purchases must be made within 60 days
of the redemption. To qualify for this waiver, you must
-- purchase your shares through an account at Prudential Securities,
-- purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation, or
-- purchase your shares through another broker.
This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify your
broker, who may require any supporting documents it considers appropriate.
QUALIFYING FOR CLASS Z SHARES
BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares,
provided that they meet the required minimum for amount of assets, average
account balance or number of eligible employees. For more information about
these requirements, call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares can also be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
that includes the Fund as an available option. Class Z shares can also be
purchased by investors in certain programs sponsored by broker-dealers,
investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:
-- Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades, links its clients' accounts to a master account
in the sponsor's name and charges its clients a management,
consulting or other fee for its services; and
-- Mutual fund "supermarket" programs where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of
--------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
shares in the Fund in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.
OTHER TYPES OF INVESTORS. Class Z shares of the Fund can also be purchased by
any of the following:
-- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option;
-- The Prudential Securities Cash Balance Pension Plan, an
employee-defined benefit plan sponsored by Prudential Securities;
-- Current and former directors/trustees of the Prudential Mutual Funds
(including the Fund); and
-- Prudential, with an investment of $10 million or more.
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares, and a finder's fee for Class A or Class Z
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."
-------------------------------------------------------------------
24 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation: it's the total value of the Fund (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of fund XYZ owned by shareholders, the price of one
share of the fund--or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Fund's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the price of mutual funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York time on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on national holidays and Good Friday. Because the Fund
invests in foreign securities, its NAV can change on days when you cannot buy or
sell shares. We do not determine NAV on days when we have not received any
orders to purchase, sell or exchange Fund shares, or when changes in the value
of the Fund's portfolio do not materially affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which
is the NAV next determined after we receive your order to purchase, plus an
initial sales charge (unless you're entitled to a waiver). For Class B and
Class Z shares, you will pay the NAV next determined after we receive your order
to purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge you a separate or additional fee for purchases
of shares.
-------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if fund XYZ holds ACME Corp. stock in
its portfolio and the price of ACME stock goes up, while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.
-------------------------------------------------------------------
--------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV. If you want your
distributions paid in cash, you can indicate this preference on your
application, notify your broker or notify the Transfer Agent in writing (at the
address below) at least five business days before the date we determine who
receives dividends.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: ACCOUNT MAINTENANCE
P.O. BOX 8159
PHILADELPHIA, PA 19101
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs, or SEP-IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLEs, SEP plans, Keoghs,
403(b) plans, pension and profit-sharing plans), your financial adviser will
help you determine which retirement plan best meets your needs. Complete
instructions about how to establish and maintain your plan and how to open
accounts for you and your employees will be included in the retirement plan kit
you receive in the mail.
THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory evidence of
insurability. This insurance is subject to other restrictions and is not
available in all states.
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26 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption checks.
Remember, the sale of Class B and Class C shares may be subject to a CDSC.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, he must receive your order to sell by 4:15 p.m. New York time to
process the sale on that day. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTENTION: REDEMPTION SERVICES
P.O. BOX 8149
PHILADELPHIA, PA 19101
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase shares by wire,
certified check or cashier's check. Your broker may charge a separate or
additional fee for sales of shares.
--------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
EXPEDITED REDEMPTION PRIVILEGE
If you have selected the Expedited Redemption Privilege, you may have your
redemption proceeds sent directly to your bank account. Expedited redemption
requests may be made by telephone or letter, must be received by the Fund prior
to 4:15 p.m., New York Time, to receive a redemption amount based on that day's
NAV and are subject to the terms and conditions regarding the redemption of
shares. For more information, see "Purchase, Redemption and Pricing of Fund
Shares -- Expedited Redemption Privilege" in the Statement of Additional
Information. The Expedited Redemption Privilege may be modified or terminated at
any time without notice.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. As permitted by the
Securities and Exchange Commission, this may happen during unusual market
conditions or emergencies when the Fund can't determine the value of its assets
or sell its holdings. For more information, see the SAI, "Purchase, Redemption
and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, you want the check sent to
someone or some place that is not in our records, or you are a business or a
trust and you hold your shares directly with the Transfer Agent, you may have to
have the signature on your sell order signature guaranteed by an "eligible
guarantor institution." An "eligible guarantor institution" includes any bank,
broker-dealer or credit union. For more information, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Sale of Shares."
CONTINGENT DEFERRED SALES CHARGES (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase (one year for Class C shares purchased before November 2,
1998), you will have to pay a CDSC. To keep the CDSC as low as possible, we will
sell amounts representing shares in the following order:
-- amounts representing shares you purchased with reinvested dividends
and distributions
-------------------------------------------------------------------
28 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
-- amounts representing the increase in NAV above the total amount of
payments for such shares made during the past six years for Class B
shares (five years for Class B shares purchased before January 22,
1990) and 18 months for Class C shares (one year for Class C shares
purchased before November 2, 1998)
-- amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares)
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
As we noted in the "Share Class Comparison" chart, the CDSC for Class B
shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth and 1% in the fifth and sixth years. The rate decreases on the first day
of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares-- which is applied to
shares sold within 18 months of purchase (or one year for Class C shares
purchased before November 2, 1998). For both Class B and Class C shares, the
CDSC is calculated using the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.
WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
-- after a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders as well as shares owned in joint
--------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
tenancy, provided the shares were purchased before the death or
disability;
-- to provide for certain distributions--made without IRS penalty--from
a tax-deferred retirement plan, IRA or Section 403(b) custodial
account; and
-- on certain redemptions affected through a Systematic Withdrawal Plan.
For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charges--Class B Shares."
WAIVER OF THE CDSC--CLASS C SHARES
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived for purchases of Class C
shares by both qualified and nonqualified retirement and deferred compensation
plans participating in a PruArray Plan and other plans if Prudential also
provides administrative or recordkeeping services. The CDSC will also be waived
on redemptions from Benefit Plans sponsored by Prudential and its affiliates to
the extent that the redemption proceeds are invested in The Guaranteed
Investment Account (a group annuity insurance product sponsored by Prudential),
The Guaranteed Insulated Separate Account (a separate account offered by
Prudential), and shares of The Stable Value Fund (an unaffiliated bank
collective fund).
OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit Plans
holding shares through a broker not affiliated with Prudential and for which the
broker provides administrative or recordkeeping services.
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
-------------------------------------------------------------------
30 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA or some other
qualified or tax-deferred plan or account.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest into your account any of the redemption proceeds in shares of the same
Fund and account without paying an initial sales charge. Also, if you paid a
CDSC when you redeemed your shares, we will credit your account with the
appropriate numbers of shares to reflect the amount of the CDSC you paid. In
order to take advantage of this one-time privilege, you must notify the Transfer
Agent or your broker at the time of the repurchase. See the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Sale of Shares."
RETIREMENT PLANS
To sell shares and receive a distribution from a retirement account, call your
broker or the Transfer Agent for a distribution request form. There are special
distribution and income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer or
plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in certain
other Prudential mutual funds--including certain money market funds--if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of the Fund for Class A shares of another Prudential mutual fund, but
you can't exchange Class A shares for Class B, Class C or Class Z shares.
Class B and Class C shares may not be
--------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
exchanged into money market funds other than the Prudential Special Money Market
Fund, Inc. After an exchange, the CDSC at redemption will be calculated from the
first day of the month after the initial purchase, excluding any time shares
were held in a money market fund. We may change the terms of the exchange
privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX: 8157
PHILADELPHIA, PA 19101
There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B shares into a money
market fund, the time you hold the shares in the money market account will not
be counted in calculating the required holding periods for CDSC liability.
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase either Class A
shares without paying an initial sales charge, we will automatically exchange
your Class B or Class C shares which are not subject to a CDSC for Class A
shares. We make such exchanges on a quarterly basis if you qualify for this
exchange privilege. We have obtained a legal opinion that this exchange is not a
"taxable event" for federal income tax purposes. This opinion is not binding on
the IRS.
FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may
-------------------------------------------------------------------
32 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------
have to sell portfolio securities to have the cash necessary to redeem the
market timer's shares. This can happen at a time when it is not advantageous to
sell any securities, so the Fund's performance may be hurt. When large dollar
amounts are involved, market timing can also make it difficult to use long-term
investment strategies because we cannot predict how much cash the fund will have
to invest. When, in our opinion, such activity would have a disruptive effect on
portfolio management, the Fund reserves the right to refuse purchase orders and
exchanges into the Fund by any person, group or commonly controlled accounts.
The Fund may notify a market timer of rejection of an exchange or purchase order
after the day the order is placed. If the Fund allows a market timer to trade
Fund shares, it may require the market timer to enter into a written agreement
to follow certain procedures and limitations.
TELEPHONE REDEMPTIONS AND EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852 before 4:15 p.m., New York time, to receive a redemption amount
based on that day's NAV.
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail or through your broker.
The telephone redemption and exchange privileges may be modified or
terminated at any time. If this occurs, you will receive a written notice from
the Fund.
--------------------------------------------------------------------------------
33
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------
The financial highlights are intended to help you evaluate the Fund's financial
performance for the past 5 years. The TOTAL RETURN in each chart represents the
rate that a shareholder earned on an investment in that share class of the Fund,
assuming reinvestment of all dividends and other distributions. The information
is for each share class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants which appear in the SAI and are available upon request. Additional
performance information for each share class is contained in the annual report,
which you can receive at no charge as described on the back cover of this
prospectus.
CLASS A SHARES
The financial highlights for the four years ended October 31, 2000 were audited
by , independent accountants, and the financial
highlights for the one year ended October 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS A SHARES (FISCAL YEARS ENDED 10-31)
<TABLE>
<CAPTION>
PER SHARE OPERATING
PERFORMANCE 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $9.14 $12.22 $15.86 $15.75
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) (.04) .06 .02 .07
Net realized and
unrealized gain (loss)
on investment
transactions 4.99 (1.88) (3.31) .23
TOTAL FROM INVESTMENT
OPERATIONS 4.95 (1.82) (3.29) .30
LESS DISTRIBUTIONS:
Distributions from net
investment income (.08) -- -- --
Distributions in excess
of net investment
income -- (.40) -- (.19)
Distributions from net
realized gains -- (.86) (.35) --
TOTAL DISTRIBUTIONS (.08) (1.26) (.35) (.19)
NET ASSET VALUE, END OF
YEAR $14.01 $9.14 $12.22 $15.86
TOTAL RETURN(1) 55.11% (15.53)% (21.32)% 1.97%
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR
(000) $49,338 $22,624 $35,860 $113,585
AVERAGE NET ASSETS (000) $31,281 $26,845 $73,942 $106,148
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution and
service (12b-1) fees(2) 1.72% 1.70% 1.48% 1.37%
Expenses, excluding
distribution and
service (12b-1) fees 1.47% 1.45% 1.17% 1.12%
Net investment income
(loss) (.34)% .63% .14% .44%
Portfolio turnover 104% 94% 81% 91%
----------------------------------------------------------------------------
</TABLE>
1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
2 THE DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY AGREED TO LIMIT ITS
DISTRIBUTION FEES TO .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF CLASS A
SHARES FOR THE FISCAL YEAR ENDING OCTOBER 31, 2000. THE EXPENSES REFLECT
THE CONTRACTUAL WAIVER.
-------------------------------------------------------------------
34 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
CLASS B SHARES
The financial highlights for the four years ended October 31, 2000 were audited
by , independent accountants, and the financial
highlights for the one year ended October 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS B SHARES (FISCAL YEARS ENDED 10-31)
<TABLE>
<CAPTION>
PER SHARE OPERATING
PERFORMANCE 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $8.79 $11.77 $15.40 $15.38
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) (.12) (.01) (.09) (.04)
Net realized and
unrealized gain (loss)
on investment
transactions 4.84 (1.82) (3.19) .25
TOTAL FROM INVESTMENT
OPERATIONS 4.72 (1.83) (3.28) .21
LESS DISTRIBUTIONS:
Distributions from net
investment income (.01) -- -- --
Distributions in excess
of net investment
income -- (.29) -- (.19)
Distributions from net
realized gains -- (.86) (.35) --
TOTAL DISTRIBUTIONS (.01) (1.15) (.35) (.19)
NET ASSET VALUE, END OF
YEAR $13.50 $8.79 $11.77 $15.40
TOTAL RETURN(1) 54.28% (16.32)% (21.84)% 1.36%
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR
(000) $107,769 $74,457 $128,694 $327,315
AVERAGE NET ASSETS (000) $85,193 $91,983 $244,462 $357,548
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution and
service (12b-1) fees 2.47% 2.45% 2.23% 2.12%
Expenses, excluding
distribution and
service (12b-1) fees 1.47% 1.45% 1.17% 1.12%
Net investment income
(loss) (1.09)% (.12)% (.61)% (.25)%
Portfolio turnover 104% 94% 81% 91%
--------------------------------------------------------------------------------
</TABLE>
1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
--------------------------------------------------------------------------------
35
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
CLASS C SHARES
The financial highlights for the four years ended October 31, 2000 were audited
by , independent accountants, and the financial
highlights for the one year ended October 31, 1996 were audited by other
independent auditors, whose reports were unqualified.
CLASS C SHARES (FISCAL YEARS ENDED 10-31)
<TABLE>
<CAPTION>
PER SHARE OPERATING
PERFORMANCE 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $8.79 $11.77 $15.40 $15.38
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) (.12) (.01) (.09) (.04)
Net realized and
unrealized gain (loss)
on investment
transactions 4.84 (1.82) (3.19) .25
TOTAL FROM INVESTMENT
OPERATIONS 4.72 (1.83) (3.28) .21
LESS DISTRIBUTIONS:
Distributions from net
investment income (.01) -- -- --
Distributions in excess
of net investment
income -- (.29) -- (.19)
Distributions from net
realized gains -- (.86) (.35) --
TOTAL DISTRIBUTIONS (.01) (1.15) (.35) (.19)
NET ASSET VALUE, END OF
YEAR $13.50 $8.79 $11.77 $15.40
TOTAL RETURN(1) 54.28% (16.32)% (21.84)% 1.36%
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR
(000) $7,073 $1,654 $2,932 $12,360
AVERAGE NET ASSETS (000) $3,103 $2,276 $6,557 $6,402
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution and
service (12b-1) fees 2.47% 2.45% 2.23% 2.12%
Expenses, excluding
distribution and
service (12b-1) fees 1.47% 1.45% 1.17% 1.12%
Net investment income
(loss) (1.09)% (.12)% (.61)% (.25)%
Portfolio turnover 104% 94% 81% 91%
---------------------------------------------------------------------------
</TABLE>
1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
-------------------------------------------------------------------
36 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
CLASS Z SHARES
The financial highlights for the four years ended October 31, 2000 were audited
by , independent accountants, and the financial
highlights for the period from March 1, 1996 through October 31, 1996 were
audited by other independent auditors, whose reports were unqualified.
CLASS Z SHARES (FISCAL YEARS ENDED 10-31)
<TABLE>
<CAPTION>
PER SHARE OPERATING
PERFORMANCE 2000 1999 1998 1997 1996(1)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $9.17 $12.28 $15.89 $16.57
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) -- .08 .06 .11
Net realized and
unrealized gain (loss)
on investment
transactions 5.06 (1.89) (3.32) (.79)
TOTAL FROM INVESTMENT
OPERATIONS 5.06 (1.81) (3.26) (.68)
LESS DISTRIBUTIONS:
Distributions from net
investment income (.11) -- -- --
Distributions in excess
of dividends from net
investment income -- (.44) -- --
Distributions from net
realized gains -- (.86) (.35) --
TOTAL DISTRIBUTIONS (.11) (1.30) (.35) --
NET ASSET VALUE, END OF
YEAR $14.12 $9.17 $12.28 $15.89
TOTAL RETURN(2) 56.05% (15.36)% (21.02)% (4.09)%
-------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996(1)
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR
(000) $43,311 $12,429 $19,520 $37,288
AVERAGE NET ASSETS (000) $22,811 $15,099 $31,945 $33,868
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution fees 1.47% 1.45% 1.23% 1.12%(3)
Expenses, excluding
distribution fees 1.47% 1.45% 1.17% 1.12%(3)
Net investment income
(loss) (.03)% .82% .39% .68%(3)
Portfolio turnover 104% 94% 81% 91%
-------------------------------------------------------------------------------------
</TABLE>
1 INFORMATION SHOWN IS FOR THE PERIOD 3-1-96 (WHEN CLASS Z SHARES WERE FIRST
OFFERED), THROUGH 10-31-96.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED. TOTAL RETURN FOR A PERIOD OF LESS THAN A FULL YEAR IS NOT
ANNUALIZED.
3 ANNUALIZED.
--------------------------------------------------------------------------------
37
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
-------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Please read the prospectus carefully before you invest or
send money.
STOCK FUNDS
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON EQUITY
OPPORTUNITY FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL COMPANY FUND, INC.
PRUDENTIAL TAX-MANAGED FUNDS
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL VALUE FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH
EQUITY FUND
TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL NATURAL RESOURCES
FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
PRUDENTIAL GLOBAL GROWTH FUND
PRUDENTIAL INTERNATIONAL VALUE FUND
PRUDENTIAL JENNISON INTERNATIONAL GROWTH FUND
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
INTERNATIONAL EQUITY FUND
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
PRUDENTIAL INTERNATIONAL BOND
FUND, INC.
-------------------------------------------------------------------
38 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
-------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL SHORT-TERM CORPORATE
BOND FUND, INC.
INCOME PORTFOLIO
TARGET FUNDS
TOTAL RETURN BOND FUND
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
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39
<PAGE>
Notes
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40 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
Notes
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41
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Notes
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42 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
Notes
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43
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Notes
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44 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
Notes
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45
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Notes
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46 PRUDENTIAL PACIFIC GROWTH FUND, INC. [TELEPHONE ICON] (800) 225-1852
<PAGE>
FOR MORE INFORMATION:
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 8098
PHILADELPHIA, PA 19101
(800) 225-1852
(732) 482-7555 (if calling from outside the U.S.)
Outside Brokers should contact
PRUDENTIAL MUTUAL FUND
SERVICES LLC
P.O. BOX 8310
PHILADELPHIA, PA 19101
(800) 778-8769
Visit Prudential's web site at
http://www.prudential.com
Additional information about the Fund can
be obtained without charge and can be
found in the following documents
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows
BY MAIL
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
(The SEC charges a fee to copy documents.)
BY ELECTRONIC REQUEST
[email protected]
IN PERSON
Public Reference Room in Washington, DC
(For hours of operation, call
1-202-942-8090.)
VIA THE INTERNET
http://www.sec.gov
CUSIP Numbers NASDAQ Symbols
Class A 743941-10-6 PRPGA
Class B 743941-20-5 PRPGB
Class C 743941-30-4 PRPGC
Class Z 743941-40-3 PRPGZ
Investment Company Act File No. 811-6391
MF157A
[RECYCLED LOGO]
Printed on Recycled Paper
<PAGE>
PRUDENTIAL PACIFIC GROWTH FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY , 2001
Prudential Pacific Growth Fund, Inc. (the Fund) is an open-end, diversified
management investment company whose investment objective is long-term growth of
capital. The Fund seeks to achieve this objective by investing primarily in
equity-related securities (common stock, preferred stock, rights, warrants and
debt securities or preferred stock which are convertible or exchangeable for
common stock or preferred stock and interests in master limited partnerships,
among others) of companies doing business in or domiciled in the Pacific Basin
region. Under normal circumstances, the Fund intends to invest at least 65% of
its total assets in such securities. The Fund may invest in equity-related
securities of other companies and fixed income obligations. The Fund may also
engage in various transactions involving derivatives, such as those involving
options on stock, stock indices, foreign currencies and futures contracts on
foreign currencies and groups of currencies so as to hedge its portfolio and to
attempt to enhance return. There can be no assurance that the Fund's investment
objective will be achieved. See "Description of the Fund, its Investments and
Risks."
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated February , 2001, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Fund History................................................ B-2
Description of the Fund, its Investments and Risks.......... B-2
Investment Restrictions..................................... B-14
Management of the Fund...................................... B-15
Control Persons and Principal Holders of Securities......... B-18
Investment Advisory and Other Services...................... B-19
Brokerage Allocation and Other Practices.................... B-22
Capital Stock and Organization.............................. B-24
Purchase, Redemption and Pricing of Fund Shares............. B-24
Shareholder Investment Account.............................. B-34
Net Asset Value............................................. B-38
Taxes, Dividends and Distributions.......................... B-39
Performance Information..................................... B-42
Financial Statements........................................ B-44
Report of Independent Accountants........................... B-59
Appendix I--Description of Security Ratings................. I-1
Appendix II--General Investment Information................. II-1
Appendix III--Historical Performance Data................... III-1
</TABLE>
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MF157B
<PAGE>
FUND HISTORY
The Fund was organized under the laws of Maryland on August 14, 1991 as a
corporation.
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
(a) CLASSIFICATION
The Fund is a diversified open-end management investment company.
(b) INVESTMENT STRATEGIES AND RISKS
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity-related securities
(common stock, preferred stock, rights, warrants and debt securities or
preferred stock which are convertible or exchangeable for common stock or
preferred stock and master limited partnerships, among others) of companies
doing business in or domiciled in the Pacific Basin region, including, but not
limited to, Japan, Australia, Hong Kong, Singapore, South Korea, Malaysia,
Thailand, Indonesia, the Philippines and New Zealand. There can be no assurance
that the Fund's investment objective will be achieved. For a further description
of the Fund's investment objective and policies, see "How the Fund
Invests--Investment Objective and Policies" in the Prospectus.
EQUITY-RELATED SECURITIES
The Fund may invest in equity-related securities. Equity-related securities
include common stock, preferred stock, rights, warrants and also debt securities
or preferred stock which are convertible into or exchangeable for common stock
or preferred stock and interests in master limited partnerships, among others.
With respect to equity-related securities, the Fund may purchase American
Depositary Receipts ("ADRs"). ADRs are U.S. dollar-denominated certificates
issued by a United States bank or trust company and represent the right to
receive securities of a foreign issuer deposited in a domestic bank or foreign
branch of a United States bank and traded on a United States exchange or in an
over-the-counter market. Generally, ADRs are in registered form. There are no
fees imposed on the purchase or sale of ADRs when purchased from the issuing
bank or trust company in the initial underwriting, although the issuing bank or
trust company may impose charges for the collection of dividends and the
conversion of ADRs into the underlying securities. Investment in ADRs has
certain advantages over direct investment in the underlying foreign securities
since: (i) ADRs are U.S. dollar-denominated investments that are registered
domestically, easily transferable, and for which market quotations are readily
available; and (ii) issuers whose securities are represented by ADRs are usually
subject to auditing, accounting, and financial reporting standards comparable to
those of domestic issuers.
The Fund may purchase sponsored or unsponsored ADRs. In a sponsored program,
the foreign issuer arranges for the bank or trust company to hold the underlying
foreign securities and issue the dollar-denominated certificates. An unsponsored
program is not initiated or "sponsored" by the foreign issuer. As such, there
may be less information available about a foreign issuer for which an
unsponsored program was initiated than a foreign issuer that participates in a
sponsored program.
RISK FACTORS AND SPECIAL CONSIDERATION OF INVESTING IN EURO-DENOMINATED
SECURITIES
The Fund may invest in companies that are doing business in the Pacific
Basin region but are domiciled elsewhere, such as Europe. Effective January 1,
1999, 11 of the 15 member states of the European Union introduced the "euro" as
a common currency. During a three year transitional period, the euro will
coexist as legal tender with each member state's national currency. By July 1,
2002, the euro is expected to become the sole legal tender of the member states.
During the transition period, the Fund will treat the euro as a separate
currency from the national currency of any member state.
The adoption by the member states of the euro will eliminate the substantial
currency risk among member states and will likely affect the investment process
and considerations of the Fund's investment adviser. To the extent the Fund
holds non-U.S. dollar-denominated securities, including those denominated in the
euro, the Fund will still be subject to currency risk due to fluctuations in
those currencies as compared to the U.S. dollar.
B-2
<PAGE>
The medium to long-term impact of the introduction of the euro in member
states cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general long-term ramifications
can be expected, such as changes in the economic environment and changes in the
behavior of investors, all of which will impact the Fund's investments.
CONVERTIBLE SECURITIES
A convertible security is a bond or preferred stock which may be converted
at a stated price within a specified period of time into a certain quantity of
the common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a common
stock but lower than that afforded by a similar nonconvertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation dependent upon a
market price advance in the convertible security's underlying common stock. The
Fund may invest up to 25% of its net assets in foreign convertible securities
having a minimum rating of at least "B" by a nationally recognized statistical
rating organization.
In general, the market value of a convertible security is at least the
higher of its "investment value" (I.E., its value as a fixed-income security) or
its "conversion value" (I.E., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
WARRANTS
The Fund may invest up to 5% of its net assets in warrants. A warrant gives
the holder thereof the right to subscribe by a specified date to a stated number
of shares of stock of the issuer at a fixed price. Warrants tend to be more
volatile than the underlying stock, and if at a warrant's expiration date the
stock is trading at a price below the price set in the warrant, the warrant will
expire worthless. Conversely, if at the expiration date the underlying stock is
trading at a price higher than the price set in the warrant, the Fund can
acquire the stock at a price below its market value.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Fund may purchase
or sell securities on a when-issued or delayed delivery basis, that is, delivery
and payment can take place a month or more after the date of the transaction.
The Fund will make commitments to purchase such when-issued securities only with
the intention of actually acquiring the securities. The Fund's custodian, State
Street Bank and Trust Company, will maintain, in a separate account of the Fund,
cash or other liquid unencumbered assets marked-to-market daily, having a value
equal to or greater than such 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. If the Fund chooses to dispose of the when-issued
security prior to its receipt of, and payment for, the security, it could, as
with the disposition of any other portfolio security, incur a gain or loss due
to market fluctuations. The Fund does not intend to have more than 5% of its net
assets (determined at the time of entering into the transaction) involved in
transactions on a when-issued or delayed delivery basis during the coming year.
SHORT SALES AGAINST-THE-BOX
As a matter of current operating policy, the Fund will not engage in
short-sales other than short sales against-the-box. This means that the Fund may
make short sales of securities or maintain a short position, provided that at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for an equal amount of the securities of the same
issuer as the securities sold short (a short sale against-the-box). Not more
than 25% of the Fund's net assets (determined at the time of the short sale) may
be subject to such sales. The Fund does not intend to have more than 5% of its
net assets (determined at the time of the short sale) subject to short sales
against-the-box during the coming year.
B-3
<PAGE>
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. The Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury Department. 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 may invest in securities issued by agencies of the
U.S. Government or instrumentalities of 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 meets its commitments. Securities in which the Fund may
invest which are not backed by the full faith and credit of the United States
include obligations such as those issued by the Federal Home Loan Bank, the
Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage
Association, the Student Loan Marketing Association, Resolution Funding
Corporation and the Tennessee Valley Authority, each of which 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. FHLMC investments may include
collateralized mortgage obligations.
Obligations issued or guaranteed as to principal and interest by the United
States Government may be acquired by the Fund in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain United States treasury notes or bonds. Such notes and bonds are held
in custody by a bank on behalf of the owners. These custodial receipts are
commonly referred to as Treasury strips.
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in mortgage-backed securities, including
those which represent undivided ownership interest in pools of mortgages. The
U.S. Government or the issuing agency or instrumentality guarantees the payment
of interest on and principal of these securities. However, the guarantees do not
extend to the yield or value of the securities nor do the guarantees extend to
the yield or value of the Fund's shares. These securities are in most cases
pass-through instruments through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees. Because the prepayment characteristics of the underlying
mortgages vary, it is not possible to predict accurately the average life of a
particular issue of pass-through certificates. Mortgage-backed securities are
often subject to more rapid repayment than their maturity date would indicate as
a result of the pass-through of prepayments of principal on the underlying
mortgage obligations. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
The Fund's ability to invest in high-yielding mortgage-backed securities will be
adversely affected to the extent that prepayments of mortgages must be
reinvested in securities which have lower yields than the prepaid mortgages.
Moreover, prepayments of mortgages which underlie securities purchased at a
premium could result in capital losses. During periods of rising interest rates,
the rate of prepayment of mortgages underlying mortgage-backed securities can be
expected to decline, extending the projected average maturity of the
mortgage-backed securities. This maturity extension risk may effectively change
a security which was considered short- or intermediate-term at the time of
purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short- or
intermediate-term securities.
The Fund may invest in both Adjustable Rate Mortgage Securities (ARMs),
which are pass-through mortgage securities collateralized by adjustable rate
mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are collateralized
by fixed-rate mortgages.
The values of U.S. Government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods of
falling U.S. interest rates, the values of U.S. Government securities generally
rise and, conversely, during periods of rising interest rates, the values of
such securities generally decline. The magnitude of these fluctuations will
generally be greater for securities with longer-term maturities.
B-4
<PAGE>
SECURITIES OF FOREIGN ISSUERS
The value of the Fund's foreign investments may be significantly affected by
changes in currency exchange rates. The dollar value of a foreign security
generally decreases when the value of the dollar rises against the foreign
currency in which the security is denominated and tends to increase when the
value of the dollar falls against such currency. In addition, the value of the
Fund's assets may be affected by losses and other expenses incurred in
converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions and exchange control regulation.
The economies of many of the countries in which the Fund may invest are not
as developed as the economy of the U.S. and may be subject to significantly
different forces. Political or social instability, expropriation or confiscatory
taxation, and limitations on the removal of funds or other assets, could also
adversely affect the value of investments.
Foreign companies are generally not subject to the regulatory controls
imposed on U.S. issuers and, in general, there is less publicly available
information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by the Fund may be reduced by a withholding tax at the source
which would reduce dividend income payable to shareholders.
Brokerage commission rates in foreign countries, which are generally fixed
rather than subject to negotiation as in the U.S. are likely to be higher. The
securities markets in many of the countries in which the Fund may invest will
have substantially less trading volume than the principal U.S. markets. As a
result, the securities of some companies in these countries may be less liquid
and more volatile than comparable U.S. securities. There is generally less
government regulation and supervision of foreign stock exchanges, brokers and
issuers, which may make it difficult to enforce contractual obligations.
FOREIGN DEBT SECURITIES
The Fund is permitted to invest in foreign corporate and government debt
securities. "Foreign government debt securities" include debt securities issued
or guaranteed, as to payment of principal and interest, by governments,
quasi-governmental entities, governmental agencies, supranational entities and
other governmental entities (collectively, Government Entities) of foreign
countries denominated in the currency of another such country.
A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of quasi-governmental issuers include,
among others, the Province of Ontario and the City of Stockholm. Foreign
government debt securities shall also include debt securities of Government
Entities denominated in European Currency Units. A European Currency Unit
represents specified amounts of the currencies of certain of the member states
of the European Community. Foreign government debt securities shall also include
mortgage-backed securities issued by foreign Government Entities including
quasi-governmental entities.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements, whereby the seller of the
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 extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Fund's money is invested in the
repurchase agreement. The Fund's repurchase agreements will be collateralized by
U.S. Government obligations. The Fund will enter into repurchase transactions
only with parties meeting creditworthiness standards approved by the Fund's
Board of Directors. The Fund's investment adviser will monitor the
creditworthiness of such parties, under the general supervision of the Board of
Directors. In the event of a default or bankruptcy by a seller, the Fund will
promptly seek to liquidate the collateral. To the extent that the proceeds from
any sale of such collateral upon a default in the obligation to repurchase are
less than the repurchase price, the Fund will suffer a loss.
The Fund participates in a joint repurchase agreement account with other
investment companies managed by Prudential Investments Fund Management LLC
(PIFM) pursuant to an order of the Securities and Exchange Commission (SEC). On
a daily basis, any uninvested cash balances of the Fund may be aggregated with
those of such investment companies and invested in one or more repurchase
agreements. Each fund participates in the income earned or accrued in the joint
account based on the percentage of its investment.
B-5
<PAGE>
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 30% of the value of the
Fund's total assets and provided that such loans are callable at any time by the
Fund and are at all times secured by cash or equivalent collateral (or the Fund
obtains a letter of credit) that is equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive payments in lieu of the interest and dividends of
the loaned securities, while at the same time earning interest either directly
from the borrower or on the collateral which will be invested in short-term
obligations.
A loan may be terminated by the borrower on one business day's notice or by
the Fund at any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates, and the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms determined to be
creditworthy pursuant to procedures approved by the Board of Directors of the
Fund. On termination of the loan, the borrower is required to return the
securities to the Fund, and any gain or loss in the market price during the loan
would inure to the Fund.
Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.
BORROWING
The Fund may borrow up to 20% of the value of its total assets (calculated
when the loan is made) from banks for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20% of
its total assets to secure these borrowings. If the Fund borrows to invest in
securities, any investment gains made on the securities in excess of interest
paid on the borrowing will cause the net asset value of the shares to rise
faster than would otherwise be the case. On the other hand, if the investment
performance of the additional securities purchased fails to cover their cost
(including any interest paid on the money borrowed) to the Fund, the net asset
value of the Fund's shares will decrease faster than would otherwise be the
case. This is the speculative factor known as "leverage." The Fund does not
intend to borrow more than 5% of its total assets for investment purposes.
SEGREGATED ACCOUNTS
When the Fund is required to segregate assets in connection with certain
hedging transactions, it will maintain cash or liquid securities in a segregated
account with the Fund's Custodian. "Liquid assets" mean cash, U.S. Government
securities, equity securities (including foreign securities), debt obligations
or other liquid unencumbered assets, marked-to-market daily.
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets in repurchase agreements which
have a maturity of longer than seven days or in other illiquid securities,
including securities that are illiquid by virtue of the absence of a readily
available market (either within or outside of the United States) or legal or
contractual restrictions on resale. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (Securities Act), securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them,
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
B-6
<PAGE>
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market are not considered illiquid for purposes of this limitation under
procedures established by the Board of Directors. The investment adviser will
monitor the liquidity of such restricted securities subject to the supervision
of the Board of Directors. In reaching liquidity decisions, the investment
adviser will consider, INTER ALIA, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers;
(3) dealer undertakings to make a market in the security; and (4) the nature of
the security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (I.E., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options are
illiquid securities unless the Fund and the counterparty have provided for the
Fund, at the Fund's election, to unwind the over-the-counter option. The
exercise of such an option ordinarily would involve the payment by the Fund of
an amount designed to reflect the counterparty's economic loss from an early
termination, but does allow the Fund to treat the assets used as "cover" as
"liquid."
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in securities of other
investment companies. The Fund does not intend to invest in such securities
during the coming fiscal year. If the Fund does invest in securities of other
investment companies, shareholders of the Fund may be subject to duplicate
management and advisory fees.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
OPTIONS ON SECURITIES
The Fund may purchase and write (I.E., sell) put and call options on
securities that are traded on U.S. or foreign securities exchanges or that are
traded in the over-the-counter markets. A call option is a short-term contract
pursuant to which the purchaser, in return for a premium paid, has the right to
buy the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. A put option is a
similar contract which gives the purchaser, in return for a premium, the right
to sell the underlying security at a specified price during the term of the
option. The writer of the put, who receives the premium, has the obligation to
buy the underlying security upon exercise at the exercise price. The Fund will
write put options only when the investment adviser desires to invest in the
underlying security. The premium paid by the purchaser of an option will
reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates.
The Fund will write only "covered" options. A call option written by the
Fund is "covered" if the Fund owns the security underlying the option or has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its Custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds on a share-for-share
basis a call on the same security as the call written where the exercise price
of the call held is equal to or less than the exercise price of the call written
or greater than the
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exercise price of the call written if the difference is maintained by the Fund
in cash or liquid assets in a segregated account with its Custodian. A put
option written by the Fund is "covered" if the Fund maintains cash or liquid
assets with a value equal to the exercise price in a segregated account with its
Custodian, or else holds on a share-for-share basis a put of the same security
as the put written where the exercise price of the put held is equal to or
greater than the exercise price of the put written.
If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she had been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is generally required to pledge
for the benefit of the broker the underlying security or other assets in
accordance with the rules of the relevant exchange or clearinghouse, such as The
Options Clearing Corporation (OCC), an institution created to interpose itself
between buyers and sellers of options in the United States. Technically, the
clearinghouse assumes the other side of every purchase and sale transaction on
an exchange and, by doing so, guarantees the transaction.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option may be offset in whole or in
part by any appreciation of the underlying security if the Fund holds the
underlying security in its portfolio.
The Fund may also purchase a "protective put," I.E. , a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value. The
loss to the Fund is limited to the premium paid for, and transaction costs in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
the security underlying the put rises, the profit the Fund realizes on the sale
of the security will be reduced by the premium paid for the put option less any
amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on stock indices, as described below.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
Fund may also purchase and sell put and call options on securities indices
traded on U.S. or foreign securities exchanges or traded in the over-the-counter
markets. Options on securities indices are similar to options on securities
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the multiplier). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike for
equity securities options, all settlements are in cash, and gain or loss depends
on price movements in the securities market generally (or in a particular
industry or segment of the market) rather than price movements in individual
securities.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers. Because exercises of index options are settled in cash, a
call writer cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. In addition, unless the Fund has other liquid assets
which are sufficient to satisfy the exercise of a call, the Fund would be
required to liquidate portfolio securities or borrow in order to satisfy the
exercise.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of security prices in the market generally or in an
industry or market segment rather than movements in the price of a
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particular security. Accordingly, successful use by the Fund of options on
indices would be subject to the investment adviser's ability to predict
correctly movements in the direction of the securities market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. The investment adviser
currently uses such techniques in conjunction with the management of other
mutual funds.
RISKS OF TRANSACTIONS IN OPTIONS
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect offsetting transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize any
profit and would incur brokerage commissions upon the exercise of call options
and upon the subsequent disposition of underlying securities acquired through
the exercise of call options or upon the purchase of underlying securities for
the exercise of put options. If the Fund as a covered call option writer is
unable to effect an offsetting purchase transaction in a secondary market, it
will not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an options exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in the class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms. There
is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of any
of the clearing corporations inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders. The Fund intends to purchase and sell only those
options which are cleared by clearinghouses whose facilities are considered to
be adequate to handle the volume of options transactions.
RISKS OF OPTIONS ON INDICES
The Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the Fund's policy to purchase or
write options only on indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities in
the index.
SPECIAL RISKS OF WRITING CALLS ON INDICES
Because exercises of index options are settled in cash, a call writer, such
as the Fund, cannot determine the amount of its settlement obligations in
advance and, unlike call writing on specific stocks, cannot provide in advance
for, or cover, its potential
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settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described below under "Limitations on Purchase and Sale of Stock
Options and Options on Stock Indices, Foreign Currencies and Futures Contracts
on Foreign Currencies."
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience a loss on
the call which is not offset by an increase in the value of its portfolio and
might also experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of the
Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.
When the Fund has written a call on an index, there is also a risk that the
market may decline between the time the Fund has a call exercised against it, at
a price which is fixed as of the closing level of the index on the date of
exercise, and the time the Fund is able to sell stocks in its portfolio to
generate cash to settle the exercise. As with stock options, the Fund will not
learn that an index option has been exercised until the day following the
exercise date but, unlike a call on stock where the Fund would be able to
deliver the underlying securities in settlement, the Fund may have to sell part
of its investment portfolio in order to make settlement in cash, and the price
of such investments might decline before they can be sold. This timing risk
makes certain strategies involving more than one option substantially more risky
with index options than with stock options. For example, even if an index call
which the Fund has written is "covered" by an index call held by the Fund with
the same strike price, the Fund will bear the risk that the level of the index
may decline between the close of trading on the date the exercise notice is
filed with the clearing corporation and the close of trading on the date the
Fund exercises the call it holds or the time the Fund sells the call which, in
either case, would occur no earlier than the day following the day the exercise
notice was filed.
If the Fund holds an index option and exercises it before final
determination of the closing index value for that day, it runs the risk that the
level of the underlying index may change before closing. If such a change causes
the exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although the
Fund may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising an
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.
RISKS OF OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies involve the currencies of two nations and,
therefore, developments in either or both countries affect the values of such
options. These risks include government actions affecting currency valuation and
the movements of currencies from one country to another. The quantity of
currency underlying option contracts represent odd lots in a market dominated by
transactions between banks; this can mean extra transaction costs upon exercise.
Option markets may be closed while round-the-clock interbank currency markets
are open, and this can create price and rate discrepancies.
RISKS RELATED TO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange 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. The Fund may enter into forward foreign
currency exchange contracts in several circumstances. When the Fund enters into
a contract for the purchase or sale of a security denominated in a foreign
currency, or when the Fund anticipates the receipt of dividends or interest
payments in a foreign currency with respect to a security it holds, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be. By entering
into a forward contract for a fixed amount of dollars, for the purchase or sale
of the amount of foreign currency involved in the underlying transactions, the
Fund may be able to protect itself against a possible loss resulting from an
adverse change in the
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relationship between the U.S. dollar and the foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities denominated in foreign currencies will also change as a consequence
of market movements in the value of those securities between the date on which
the forward contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain. The Fund does
not intend to enter into such forward contracts to protect the value of its
portfolio securities on a regular or continuous basis. The Fund does not intend
to enter into such forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. However, the
Manager and Subadviser believe that it is important to have the flexibility to
enter into such forward contracts when they determine that the best interests of
the Fund will thereby be served. The Fund's Custodian will place cash or other
liquid assets into a segregated account of the Fund in an amount equal to the
value of the Fund's total assets committed to the consummation of forward
foreign currency exchange contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of the Fund's commitments with respect to such contracts.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, if a decision is made to sell the security and make delivery of the
foreign currency and if the market value of the security is less than the amount
of foreign currency that the Fund is obligated to deliver, then it would be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase).
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent that the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward contract prices increase,
the Fund will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. Of course, the Fund is
not required to enter into such transactions with regard to its foreign
currency-dominated securities. It also should be recognized that this method of
protecting the value of the Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities which are unrelated to exchange rates. Additionally, although
such contracts tend to minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
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RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts which are traded
on a commodities exchange or board of trade. A futures contract is an agreement
to purchase or sell an agreed amount of securities or currencies at a set price
for delivery in the future. There are several risks in connection with the use
of futures contracts as a hedging device. Due to the imperfect correlation
between the price of futures contracts and movements in the underlying currency
or group of currencies, the price of a futures contract may move more or less
than the price of the currencies being hedged. In the case of futures contracts
on securities indices, one party agrees to deliver to another an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific securities index at the close of the last trading day of the contract
and the price at which the agreement is made. The correlation between the price
of the futures contract and the movements in the index may not be perfect.
Therefore, a correct forecast of currency rates, market trends or international
political trends by the investment adviser may still not result in a successful
hedging transaction.
Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance that
it will be possible, at any particular time, to close out a futures position. In
the event the Fund could not close out a futures position and the value of such
position declined, the Fund would be required to continue to make daily cash
payments of variation margin. There is no guarantee that the price movements of
the portfolio securities denominated in foreign currencies will, in fact,
correlate with the price movements in the futures contract and thus provide an
offset to losses on a futures contract. Currently, currency futures contracts
are available on various foreign currencies including the Australian Dollar,
British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, German Mark and
Eurodollars. Index futures contracts are available on various U.S. and foreign
securities indices.
Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of markets and other factors affecting currencies or the securities
market generally. For example, if the Fund had hedged against the possibility of
an increase in currency rates which would adversely affect the price of
securities in its portfolio and the price of such securities increases instead,
the Fund will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash to meet daily
variation margin requirements, it may need to sell securities to meet such
requirements. Such sales of securities will not necessarily be at increased
prices that reflect the rising market. The Fund may have to sell securities at a
time when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.
OPTIONS ON FUTURES CONTRACTS
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. Currently options can
be purchased or written with respect to futures contracts on various foreign
currencies, including the Australian Dollar, British Pound, Canadian Dollar,
Japanese Yen, Swiss Franc, West German Mark and Eurodollars. With respect to
stock indices, options are traded on futures contracts for various U.S. and
foreign stock indicies including the S&P 500 Stock Index and the NYSE Composite
Index.
The holder or writer of an option may close out its position by selling or
purchasing an offsetting option of the same series. There is no guarantee that
such close out transactions can be effected.
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LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS AND OPTIONS ON STOCK INDICES,
FOREIGN CURRENCIES AND FUTURES CONTRACTS ON FOREIGN CURRENCIES
The Fund may write put and call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. The Fund will write put options on stock indices and foreign currencies
and futures contracts on foreign currencies only if they are covered by
segregating with the Fund's Custodian an amount of cash, U.S. Government
securities, or other liquid assets equal to the aggregate exercise price of the
puts. The Fund will not enter into futures contracts or related options if the
aggregate initial margin and premiums exceed 5% of the liquidation value of the
Fund's total assets, taking into account unrealized profits and losses on such
contracts, provided, however, that in the case of an option that is in-the-
money, the in-the-money amount may be excluded in computing such 5%. The above
restriction does not apply to the purchase or sale of futures contracts and
related options for BONA FIDE hedging purposes within the meaning of regulations
of the Commodities Futures Trading Commission. The Fund does not intend to
purchase options on equity securities or securities indices if the aggregate
premiums paid for such outstanding options would exceed 10% of the Fund's total
assets.
Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, cash, U.S. Government securities, or other liquid
assets with a market value at the time the option is written of not less than
100% of the current index value times the multiplier times the number of
contracts.
If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," all of which are
stocks of issuers in such industry or market segment, with a market value at the
time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts. Such stocks will include
stocks which represent at least 50% of the weighting of the industry or market
segment index and will represent at least 50% of the Fund's holdings in that
industry or market segment. No individual security will represent more than 15%
of the amount so segregated, pledged or escrowed in the case of broadly-based
stock market index options or 25% of such amount in the case of industry or
market segment index options. If at the close of business on any day the market
value of such qualified securities so segregated, escrowed or pledged falls
below 100% of the current index value times the multiplier times the number of
contracts, the Fund will so segregate, escrow or pledge an amount in cash or
other liquid assets equal in value to the difference. In addition, when the Fund
writes a call on an index which is in-the-money at the time the call is written,
the Fund will segregate with its Custodian or pledge to the broker as collateral
cash or other liquid assets equal in value to the amount by which the call is
in-the-money times the multiplier times the number of contracts. Any amount
segregated pursuant to the foregoing sentence may be applied to the Fund's
obligation to segregate additional amounts in the event that the market value of
the qualified securities falls below 100% of the current index value times the
multiplier times the number of contracts. A "qualified security" is an equity
security which is listed on a national securities exchange or listed on NASDAQ
against which the Fund has not written a stock call option and which has not
been hedged by the Fund by the sale of stock index futures. However, if the Fund
holds a call on the same index as the call written where the exercise price of
the call held is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or other liquid assets in a segregated account
with its Custodian, it will not be subject to the requirements described in this
paragraph.
The Fund may engage in futures contracts and options on futures transactions
as a hedge against changes, resulting from market or political conditions, in
the value of the currencies to which the Fund is subject or to which the Fund
expects to be subject in connection with future purchases. The Fund may engage
in such transactions when they are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund. The Fund may write options
on futures contracts to realize through the receipt of premium income a greater
return than would be realized in the Fund's portfolio securities alone.
POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which the Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.
B-13
<PAGE>
(c) DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may invest without
limit in money market instruments, including commercial paper of corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks, obligations issued or guaranteed by the U.S. Government or
foreign governments and their agencies or instrumentalities and repurchase
agreements maturing in seven days or less. In addition to the risks typically
associated with money market instruments, such as credit risk and market risk,
money market instruments issued by foreign issuers may be subject to additional
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.
(d) PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions. The portfolio turnover rate
is generally the percentage computed by dividing the lesser of portfolio
purchases or sales (excluding all securities, including options, whose
maturities or expiration date at acquisition were one year or less) by the
monthly average value of the portfolio. High portfolio turnover (over 100%)
involves correspondingly greater brokerage commissions and other transaction
costs, which are borne directly by the Fund. In addition, high portfolio
turnover may also mean that a proportionately greater amount of distributions to
shareholders will be taxed as ordinary income rather than long-term capital
gains compared to investment companies with lower portfolio turnover. See
"Taxes, Dividends and Distributions."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those that cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. The term "majority of the
Fund's outstanding voting securities" means the vote of the lesser of (i) 67% or
more of the voting shares of the Fund represented at a meeting at which more
than 50% of the outstanding voting shares of the Fund are present in person or
represented by proxy, or (ii) more than 50% of the outstanding voting shares of
the Fund.
The Fund may not:
(1) Purchase the securities of any issuer if, as a result, the Fund
would fail to be a diversified company within the meaning of the 1940 Act,
and the rules and regulations promulgated thereunder, as each may be amended
from time to time except to the extent that the Fund may be permitted to do
so by exemptive order, SEC release, no-action letter or similar relief or
interpretations (collectively, the "1940 Act Laws, Interpretations and
Exemptions").
(2) Issue senior securities or borrow money or pledge its assets,
except as permitted by the 1940 Act Laws, Interpretations and Exemptions.
For purposes of this restriction, the purchase or sale of securities on a
when-issued or delayed delivery basis, reverse repurchase agreements, dollar
rolls, short sales, derivative and hedging transactions such as interest
rate swap transactions, and collateral arrangements with respect thereto,
and transactions similar to any of the foregoing and collateral arrangements
with respect thereto, and obligations of the Fund to Directors pursuant to
deferred compensation arrangements are not deemed to be a pledge of assets
or the issuance of a senior security.
(3) Buy or sell real estate, except that investment in securities of
issuers that invest in real estate and investments in mortgage-backed
securities, mortgage participations or other instruments supported or
secured by interests in real estate are not subject to this limitation, and
except that the Fund may exercise rights relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be
liquidated in an orderly manner.
(4) Buy or sell physical commodities or contracts involving physical
commodities. The Fund may purchase and sell (i) derivative, hedging and
similar instruments such as financial futures contracts and options thereon,
and (ii) securities or instruments backed by, or the return from which is
linked to, physical commodities or currencies, such as forward currency
exchange contracts, and the Fund may exercise rights relating to such
instruments, including the right to enforce security interests and to hold
physical commodities and contracts involving physical commodities acquired
as a result of the Fund's ownership of instruments supported or secured
thereby until they can be liquidated in an orderly manner.
B-14
<PAGE>
(5) Purchase any security if as a result 25% or more of the Fund's
total assets would be invested in the securities of issuers having their
principal business activities in the same industry, except for temporary
defensive purposes, and except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
(6) Act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
The Fund may make loans, including loans of assets of the Fund, repurchase
agreements, trade claims, loan participations or similar investments, or as
permitted by the 1940 Act Laws, Interpretations and Exemptions. The acquisition
of bonds, debentures, other debt securities or instruments, or participations or
other interests therein and investments in government obligations, commercial
paper, certificates of deposit, bankers' acceptances or instruments similar to
any of the foregoing will not be considered the making of a loan, and is
permitted if consistent with the Fund's investment objective.
For purposes of Investment Restriction 1, the Fund will currently not
purchase any security (other than obligations of the U.S. government, its
agencies or instrumentalities) if as a result, with respect to 75% of the Fund's
total assets, (i) more than 5% of the Fund's total assets (determined at the
time of investment) would be invested in securities of a single issuer and
(ii) the Fund would own more than 10% of the outstanding voting securities of
any single issuer.
For purposes of Investment Restriction 5, the Fund relies on The North
American Industry Classification System published by the Bureau of Economic
Analysis, U.S. Department of Commerce, in determining industry classification.
The Fund's reliance on this classification system is not a fundamental policy of
the Fund and, therefore, can be changed without shareholder approval.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that, if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total asset values will not be considered
a violation of such policy. However, if the Fund's asset coverage for borrowings
permitted by Investment Restriction 2 falls below 300%, the Fund will take
prompt action to reduce its borrowings, as required by the 1940 Act Laws,
Interpretations and Exemptions.
MANAGEMENT OF THE FUND
(a) DIRECTORS
The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, Subadvisers and Distributor, decide upon matters of general
policy.
The Directors also review the actions of the Fund officers who conduct and
supervise the daily business operations of the Fund.
B-15
<PAGE>
(b) MANAGEMENT INFORMATION--DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE (1) THE FUND DURING PAST 5 YEARS
------------------------- ------------- ---------------------
<S> <C> <C>
Delayne Dedrick Gold (62) Director Marketing Consultant.
*Robert F. Gunia (54) Vice President and Executive Vice President and Chief Administrative
Director Officer (since June 1999) of Prudential
Investments; Corporate Vice President (since
September 1997) of the Prudential Insurance
Company of America (Prudential); Executive Vice
President and Treasurer (since December 1996) of
Prudential Investments Fund Management LLC (PIFM);
President (since April 1999) of Prudential
Investment Management Services LLC (PIMS);
formerly Senior Vice President
(March 1987-May 1999) of Prudential Securities
Incorporated (Prudential Securities); formerly
Chief Administrative Officer (July 1989-September
1996), Director (January 1989-September 1996), and
Executive Vice President, Treasurer and Chief
Financial Officer (June 1987-September 1996) of
Prudential Mutual Fund Management, Inc. (PMF).
Robert E. LaBlanc (66) Director President (since 1981) of Robert E. LaBlanc
Associates, Inc. (telecommunications); formerly
General Partner at Salomon Brothers and Vice
Chairman of Continental Telecom; Director of
Storage Technology Corporation since 1979, Titan
Corporation since 1995, Salient 3 Communications,
Inc. and Tribune Company since 1981; and Trustee
of Manhattan College.
*David R. Odenath, Jr. (43) Director and President Officer in Charge, President, Chief Executive
Officer and Chief Operating Officer (since June
1999), PIFM; Senior Vice President (since June
1999), Prudential; Senior Vice President (August
1993-May 1999), PaineWebber Group, Inc.
*Judy A. Rice (53) Director Executive Vice President (since 1999) of Prudential
Investments; Executive Vice President (since 1999)
of PIFM; formerly, various positions to Senior
Vice President (1992-1999), Prudential Securities,
Inc; and various positions to Managing Director
(1975-1999), Shearson Lehman Advisors; Governor of
the Money Management Institute; Member of the
Prudential Securities Operating Council, Board
Member of the National Association for Variable
Annuities.
Robin B. Smith (61) Director Chairman and Chief Executive Officer (since
August 1996), of Publishers Clearing House;
formerly President and Chief Executive Officer
(January 1989-August 1996) and President and Chief
Operating Officer (September 1981-December 1988)
of Publishers Clearing House; Director of
BellSouth Corporation since 1994, Texaco Inc.
since 1992, Springs Industries Inc. since 1993 and
Kmart Corporation since 1996.
Stephen Stoneburn (57) Director President and Chief Executive Officer (since
June 1996) of Quadrant Media Corp. (publishing);
formerly President (June 1995-June 1996) of Argus
Integrated Media, Inc.; Senior Vice President and
Managing Director (January 1993-1995) of Cowles
Business Media; Senior Vice President (January
1991-1992) of Gralla Publications (a division of
United Newspapers, U.K.); and Senior Vice
President of Fairchild Publications, Inc.
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE (1) THE FUND DURING PAST 5 YEARS
------------------------- ------------- ---------------------
<S> <C> <C>
Nancy H. Teeters (70) Director Economist; formerly Director of Inland Steel
Industries (July 1989-1999); formerly, Vice
President and Chief Economist of International
Business Machines (July 1984-July 1990);
formerly, Governor of the Federal Reserve System
(1978-1984).
Clay T. Whitehead (62) Director President of National Exchange Inc. (new business
development firm) (since May 1983)
Grace C. Torres (41) Treasurer and Principal First Vice President (since December 1996) of PIFM;
Financial and First Vice President (since March 1994) of
Accounting Officer Prudential Securities; formerly First Vice
President (March 1994-September 1996), Prudential
Mutual Fund Management, Inc. and Vice President
(July 1989-March 1994) of Bankers Trust
Corporation.
Robert C. Rosselot (40) Secretary Assistant General Counsel (since September 1997) of
PIFM. Formerly, partner with the law firm of
Howard & Howard, Bloomfield Hills, Michigan
(December 1995-September 1997) and, prior
thereto, Corporate Counsel, Federated Investors
(1990-1995).
William V. Healey (47) Assistant Secretary Vice President and Associate General Counsel of
Prudential and Chief Legal Officer of Prudential
Investments, a business unit of Prudential; (since
August 1998); Director, ICI Mutual Insurance
Company (since June 1999); formerly Associate
General Counsel of The Dreyfus Corporation
(Dreyfus), a subsidiary of Mellon Bank, N.A.
(Mellon Bank), and an officer and/or director of
various affiliates of Mellon Bank and Dreyfus.
</TABLE>
------------
(1) Unless otherwise noted the address for each of the above persons is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, 9th Floor, Newark, New Jersey 07102-4077.
* "Interested" director, as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities or PIFM.
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities.
Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Directors of the Fund who are affiliated persons of the
Manager.
The Fund pays each of its Directors who is not an affiliated person of PIFM
annual compensation of $ , in addition to certain out-of-pocket expenses.
Directors who serve on Fund Committees may receive additional compensation. The
amount of annual compensation paid to each director may change as a result of
the introduction of additional funds upon which the Director may be asked to
serve.
B-17
<PAGE>
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees, which accrue interest at a rate equivalent
to the prevailing rate applicable to 90-day U.S. Treasury bills at the beginning
of each calendar quarter or, pursuant to an SEC exemptive order, at the daily
rate of return of the Fund (the Fund rate). Payment of the interest so accrued
is also deferred and accruals become payable at the option of the Director. The
Fund's obligation to make payments of deferred Directors' fees, together with
interest thereon, is a general obligation of the Fund.
The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 75.
The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended October 31, 1999 and the aggregate compensation paid to such Directors for
service on the Fund's Board and that of all other investment companies managed
by PIFM (Fund Complex) for the calendar year ended December 31, 2000. Below are
listed the Directors who have served the Fund during its most recent fiscal
year.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL 2000
COMPENSATION
AGGREGATE FROM FUND AND FUND
COMPENSATION COMPLEX PAID
NAME AND POSITION FROM FUND TO DIRECTORS(2)
------------------------------------------------------------ ------------ ------------------
<S> <C> <C>
Edward D. Beach--Former Director $ $ ( )*
Delayne D. Gold--Director $ $ ( )*
Robert F. Gunia (1)--Director -- --
Don G. Hoff--Former Director $ $ ( )*
Robert E. LaBlanc--Director $ $ ( )*
David R. Odenath, Jr. (1)--Director -- --
Judy A. Rice--Director -- --
Robin B. Smith--Director $ $ ( )*
Stephen Stoneburn--Director $ $ ( )*
Nancy H. Teeters--Director $ $ ( )*
Clay T. Whitehead $ $ ( )*
</TABLE>
------------------------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
(1) Directors who are "interested" do not receive compensation from Fund Complex
(including the Fund).
(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1999, including amounts deferred at the election of
Directors under the funds' deferred compensation plans. Including accrued
interest, total deferred compensation amounted to $156,478 for Robin B.
Smith. Currently, Ms. Smith has agreed to defer some of her fees at the
T-Bill rate and other fees at the Fund rate.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Directors of the Fund are eligible to purchase Class Z shares of each
Series, which are sold without either an initial sales charge or CDSC to a
limited group of investors.
As of , the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
As of , the beneficial owners, directly or indirectly, of more
than 5% of the outstanding common stock of the Prudential Pacific Growth Fund,
Inc. were:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME ADDRESS CLASS (% OF CLASS)
---- ------------------------ -------- ----------------
<S> <C> <C> <C>
Bear Stearns Securities 1 Metrotech Center North A ( %)
FBO 102-20267-26 Brooklyn, NY 11201
</TABLE>
B-18
<PAGE>
As of , Prudential Securities was the record holder for other
beneficial owners of the following:
<TABLE>
<CAPTION>
CLASS NO. OF SHARES/%
----- ---------------
<S> <C>
A
B
C
Z
</TABLE>
In the event of any meetings of shareholders, Prudential Securities will
forward, or cause the forwarding of, proxy materials to the beneficial owners
for which it is the record holder.
INVESTMENT ADVISORY AND OTHER SERVICES
(a) INVESTMENT ADVISERS
The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM serves as manager to all of the other investment companies
that, together with the Fund, comprise the Prudential Mutual Funds. See "How the
Fund is Managed--Manager" in the Prospectus. As of December 31, 2000, PIFM
managed and/or administered open-end and closed-end management investment
companies with assets of approximately $76.7 billion. According to the
Investment Company Institute, as of September 30, 1999, the Prudential Mutual
Funds were the 20th largest family of mutual funds in the United States.
Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), an
affiliate of PIFM serves as the transfer agent and dividend distribution agent
for the Prudential Mutual Funds and, in addition, provides customer service,
recordkeeping and management and administrative services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PIFM, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities. In
connection therewith, PIFM is obligated to keep certain books and records of the
Fund. PIFM has hired Jardine Fleming International Management Inc. (JF
International), to provide subadvisory services to the Fund. PIFM also
administers the Fund's corporate affairs and, in connection therewith, furnishes
the Fund with office facilities, together with those ordinary clerical and
bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian, and PMFS, the Fund's transfer and dividend
disbursing agent. The management services of PIFM for the Fund are not exclusive
under the terms of the Management Agreement and PIFM is free to, and does,
render management services to others.
For its services, PIFM receives, pursuant to the Management Agreement, a fee
at an annual rate of .75 of 1% of the Fund's average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that, in the event the expenses of the Fund (including the fees of PIFM, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PIFM will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PIFM will be paid by PIFM to the Fund. Currently, the
Fund believes that there are no such expense limitations.
In connection with its management of the corporate affairs of the Fund, PIFM
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel
except the fees and expenses of Directors who are not affiliated persons of
PIFM or the Fund's investment adviser;
(b) all expenses incurred by PIFM or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those
assumed by the Fund as described below; and
(c) the costs and expenses payable to the Subadviser pursuant to the
Subadvisory Agreement between PIFM and JF International (the Subadvisory
Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated with PIFM or the
Fund's Investment
B-19
<PAGE>
Adviser, (c) the fees and certain expenses of the Custodian and Transfer Agent,
including the cost of providing records to the Manager in connection with its
obligation of maintaining required records of the Fund and of pricing the Fund's
shares, (d) the charges and expenses of legal counsel and independent
accountants for the Fund, (e) brokerage commissions and any issue or transfer
taxes chargeable to the Fund in connection with its securities transactions, (f)
all taxes and corporate fees payable by the Fund to governmental agencies,
(g) the fees of any trade associations of which the Fund may be a member,
(h) the cost of stock certificates representing shares of the Fund, (i) the
cost of fidelity and liability insurance, (j) certain organization expenses of
the Fund and the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the SEC, registering the Fund
and qualifying its shares under state securities laws, including the preparation
and printing of the Fund's registration statements and prospectuses for such
purposes, and paying the fees and expenses of notice filings made in accordance
with State securities law, (k) allocable communications expenses with respect
to investor services and all expenses of shareholders' and Directors' meetings
and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders in the amount necessary for distribution to the
shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees.
The Management Agreement provides that PIFM will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned
(as defined in the Investment Company Act), and that it may be terminated
without penalty by either party upon not more than 60 days' nor less than 30
days' written notice. The Management Agreement will continue in effect for a
period of more than two years from the date of execution only so long as such
continuance is specifically approved at least annually in conformity with the
Investment Company Act.
For the fiscal years ended October 31, 2000, 1999 and 1998, PIFM received
management fees of $ , $1,067,910 and $1,021,518, respectively.
PIFM has entered into the Subadvisory Agreement with JF International. The
Subadvisory Agreement provides that JF International will furnish investment
advisory services in connection with the management of the Fund. In connection
therewith, JF International is obligated to keep certain books and records of
the Fund. PIFM continues to have responsibility for all investment advisory
services pursuant to the Management Agreement and supervises JF International's
performance of such services. JF International is compensated by PIFM for JF
International's services in the amount of .375% of the Fund's daily net assets.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PIFM or PI upon not more than 60 days', nor less than 30
days', written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the Investment Company Act.
(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLANS
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. PIFM is an affiliate of PIMS.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the Distribution Agreement), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares. PIMS serves as the
Distributor of the 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 are reimbursed or paid for by the Fund. See "How the Fund is Managed--
Distributor" in the Prospectus.
The Class A Plan provides that (i) up to .25 of 1% of the daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. The Class B and Class C Plans
provide for the payment to the Distributor of (i) an asset-based sales charge of
.75 of 1% of the average daily net assets of each of the Class B and Class C
shares and (ii) a service fee of .25 of 1% of the average daily net assets of
each of the Class B and Class C shares.
B-20
<PAGE>
The distribution and/or service fees may also be used by the Distributor to
compensate dealers on a continuing basis in consideration for the distribution,
marketing, administrative and other services and activities provided by dealers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.
CLASS A PLAN. For the fiscal year ended October 31, 2000, Prudential
Securities and PIMS collectively received payments of $ from the Fund, under
the Class A Plan. These amounts were expended on commission credits to
Prudential Securities and Pruco Securities Corporation, an affiliated
broker-dealer (Prusec), for payments of commissions and account servicing fees
to financial advisers and other persons who sell Class A shares. For the fiscal
year ended October 31, 2000, Prudential Securities and PIMS also collectively
received approximately $ in initial sales charges.
CLASS B PLAN. For the fiscal year ended October 31, 2000, Prudential
Securities and PIMS collectively received $ from the Fund under the Class B
Plan and spent approximately $ , in distributing the Class B shares of the
Fund. It is estimated that of the latter amounts $ ( %), was spent on printing
and mailing of prospectuses to other than current shareholders; $ ( %), on
compensation to Prusec for commissions to its representatives and other
expenses, including an allocation on account of overhead and other branch office
distribution-related expenses incurred by it for distribution of Class B shares;
and $ ( %), on the aggregate of (i) payments of commissions and account
servicing fees to its financial advisers $ ( %) and (ii) an allocation on
account of overhead and other branch office distribution-related expenses $
( %). The term "overhead and other branch office distribution-related expenses"
as used herein represents (a) the expenses of operating Prusec's and Prudential
Securities' branch offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) expenses of mutual fund
sales coordinators to promote the sale of Fund shares, and (d) other incidental
expenses relating to branch promotion of Fund sales.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by holders of Class B shares upon certain redemptions of Class B
shares. For the fiscal year ended October 31, 2000, Prudential Securities and
PIMS collectively received approximately $ in contingent deferred sales
charges.
CLASS C PLAN. For the fiscal year ended October 31, 2000, Prudential
Securities and PIMS collectively received $ from the Fund under the Class C
Plan and spent approximately $ in distributing the Class C shares of the
Fund. It is estimated that of the latter amounts approximately; $ ( %) was
spent on compensation to Prusec for commissions to its representatives and other
expenses, including an allocation on account of overhead and other branch office
distribution-related expenses incurred by it for distribution of Class C shares;
and $ ( %), on the aggregate of (i) payments of commissions and account
servicing fees to its financial advisers $ ( %), and (ii) an allocation on
account of overhead and other branch office distribution-related expenses $
( %). For the fiscal year ended October 31, 2000, PIMS also collectively
received approximately $ in initial sales charges.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class C shares. For the
fiscal year ended October 31, 2000, Prudential Securities and PIMS collectively
received contingent deferred sales charges of approximately $ .
The Class A, Class B and Class C Plans will continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the Class A, Class B and Class C Plan or in any agreement
related to the Plans (the Rule 12b-1 Directors), cast in person at a meeting
called for the purpose of voting on such continuance. The Plans may each be
terminated at any time, without penalty, by the vote of a majority of the
Rule 12b-1 Directors or by the vote of the holders of a majority of the
outstanding shares of the applicable class on not more than 30 days' written
notice to any other party to the Plans. The Plans may not be amended to increase
materially the amounts to be spent for the services described therein without
approval by the shareholders of the applicable class (by both Class A and
Class B shareholders, voting separately, in the case of material amendments to
the Class A Plan), and all material amendments are required to be approved by
the Board of Directors in the manner described above. Each Plan will
automatically terminate in the event of its assignment. The Fund will not be
contractually obligated to pay expenses incurred under any Plan if it is
terminated or not continued.
B-21
<PAGE>
Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report includes an itemization of
the distribution expenses and the purposes of such expenditures. In addition, as
long as the Plans remain in effect, the selection and nomination of Rule 12b-1
Directors shall be committed to the Rule 12b-1 Directors.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers and other persons which
distribute shares of the Fund (including Class Z shares). Such payments may be
calculated by reference to the net asset value of shares sold by such persons or
otherwise.
FEE WAIVERS/SUBSIDIES
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has contractually agreed to waive a portion of its distribution
fees for the Class A shares as described above. Fee waivers and subsidies will
increase the Fund's total return.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not required to
be included in the calculation of the 6.25% limitation. The annual asset-based
sales charge on shares of the Fund may not exceed .75 of 1% per class. The 6.25%
limitation applies to the Fund rather than on a per shareholder basis. If
aggregate sales charges were to exceed 6.25% of total gross sales of any class,
all sales charges on shares of that class would be suspended.
(c) OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States.
Prudential Mutual Fund Services LLC (PMFS), 194 Wood Avenue South, Iselin,
New Jersey 08853, serves as the Transfer Agent of the Fund. PMFS is a
wholly-owned subsidiary of PIFM. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, the payment of dividends and distributions and related functions. For
these services, PMFS receives an annual fee per shareholder account, a new
account set-up fee for each manually established account and a monthly inactive
zero balance account fee per shareholder account. PMFS is also reimbursed for
its out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communication expenses and other costs. For the fiscal year
ended October 31, 2000, the Fund incurred fees of approximately $ for the
services of PMFS.
, serves
as the Fund's independent accountants and in that capacity audits the Fund's
annual financial statements.
(d) CODE OF ETHICS
The Board of Trustees has adopted a Code of Ethics, in addition, the
Manager, Subadviser and Distributor have each adopted a Code of Ethics
(collectively, the Codes). The Codes permit personnel subject to the Codes to
invest in securities including securities that may be purchased or held by the
Fund. However, the protective provisions of the Codes prohibit certain
investments and limit such personnel from making investments during periods when
the Fund is making such investments. The Codes are on public file with, and are
available from, the Commission.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. The term "Manager" as used in this
section includes the Subadviser. On a national securities exchange,
broker-dealers may receive negotiated brokerage commissions on Fund portfolio
transactions, including options and
B-22
<PAGE>
the purchase and sale of underlying securities upon the exercise of options. On
foreign securities exchanges, commissions may be fixed. Orders may be directed
to any broker or futures commission merchant including, to the extent and in the
manner permitted by applicable law, Prudential Securities and its affiliates.
Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. The Fund will not deal with
Prudential Securities or any affiliate in any transaction in which Prudential
Securities or any affiliate acts as principal. Thus, it will not deal with
Prudential Securities acting as market maker, and it will not execute a
negotiated trade with Prudential Securities if execution involves Prudential
Securities' acting as principal with respect to any part of the Fund's order.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of the Fund, the Manager or the Manager's other clients. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by the
Manager in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for the Fund
may be used in managing other investment accounts. Conversely, brokers, dealers
or futures commission merchants furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than the Fund's, and the services furnished by such brokers, dealers or
futures commission merchants may be used by the Manager in providing investment
management for the Fund. Commission rates are established pursuant to
negotiations with the broker, dealer or futures commission merchant based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The Manager's policy is to pay higher commissions
to brokers, other than Prudential Securities, for particular transactions than
might be charged if a different broker had been selected, on occasions when, in
the Manager's opinion, this policy furthers the objective of obtaining best
price and execution. In addition, the Manager is authorized to pay higher
commissions on brokerage transactions for the Fund to brokers other than
Prudential Securities in order to secure research and investment services
described above, subject to review by the Fund's Board of Directors from time to
time as to the extent and continuation of this practice. The allocation or
orders among brokers and the commission rates paid are reviewed periodically by
the Fund's Board of Directors. The Fund will not pay up for research in
principal transactions.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities, or any affiliate, during the existence
of the syndicate, is a principal underwriter (as defined in the Investment
Company Act), except in accordance with rules of the Commission. This
limitation, in the opinion of the Fund, will not significantly affect the Fund's
ability to pursue its present investment objective. However, in the future in
other circumstances, the Fund may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not subject
to such limitations.
Subject to the above considerations, Prudential Securities may act as a
securities broker or futures commission merchant for the Fund. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by Prudential
Securities (or any affiliate) must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers or futures
commission merchants in connection with comparable transactions involving
similar securities or futures being purchased or sold on an exchange during a
comparable period of time. This standard would allow Prudential Securities (or
any affiliate) to receive no more than the remuneration which would be expected
to be received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Fund, including a majority of the noninterested Directors, has adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to Prudential Securities (or any affiliate) are
consistent with the foregoing standard. In accordance with Section 11(a) of the
Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential Securities
(or any affiliate) are also subject to such fiduciary standards as may be
imposed upon Prudential Securities (or such affiliate) by applicable law.
B-23
<PAGE>
The table presented below shows certain information regarding the payment of
commissions by the Fund, including the amount of such commissions paid to
Prudential Securities, for the three year period ended October 31, 2000.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund.... $ 923,130 $ 676,675
Total brokerage commissions paid to Prudential
Securities..................................... $ -0- $ -0-
Percentage of total brokerage commissions paid
to Prudential Securites........................ -0-% -0-%
Percentage of total dollar amount of
transactions involving commissions that were
effected through Prudential Securities......... -0-% -0-%
</TABLE>
CAPITAL STOCK AND ORGANIZATION
THE FUND IS AUTHORIZED TO ISSUE 2,000,000,000 SHARES OF COMMON STOCK, $.001
PER SHARE DIVIDED INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. Currently, the Fund is offering all four classes. In accordance
with the Fund's Articles of Incorporation, the Directors may authorize the
creation of additional series and classes within such series, (the proceeds of
which would be invested in separate, independently managed series with distinct
investment objectives and policies and share purchase, redemption and net asset
value procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Trustees may determine. All consideration received by the
Fund for shares of any additional series, and all assets in which such
consideration is invested, would belong to that series (subject only to the
rights of creditors of that series) and would be subject to the liabilities
related thereto. Pursuant to the Investment Company Act, shareholders of any
additional series of shares would normally have to approve the adoption of any
advisory contract relating to such series and of any changes in the investment
policies related thereto. The Directors have no intention of authorizing
additional series at the present time.
The Articles of Incorporation further provide that no Director, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor is
any Director, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise from
his or her own bad faith, willful misfeasance, gross negligence or reckless
disregard of his or her duties. It also provides that all third parties shall
look solely to the Fund property for satisfaction of claims arising in
connection with the affairs of the Fund. With the exceptions stated, the
Articles of Incorporation permit the Directors to provide for the
indemnification of Directors, officers, employees or agents of the Fund against
all liability in connection with the affairs of the Fund.
The Fund shall continue without limitation of time subject to the provisions
in the Articles of Incorporation concerning termination by action of the
shareholders or by the Directors by written notice to the shareholders.
The Directors have the power to alter the number and the terms of office of
the Directors and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Directors have been elected by the
shareholders of the Fund. The voting rights of shareholders are not cumulative,
so that holders of more than 50 percent of the shares voting can, if they
choose, elect all Directors being selected, while the holders of the remaining
shares would be unable to elect any Directors.
The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents during their most recent fiscal year. As of October 31, 2000,
the Fund held securities of .
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (i) at the time of purchase (Class A shares
and Class C shares) or (ii) on a deferred basis (Class B and Class C shares).
Class Z shares of the Fund are offered to a limited group of investors at NAV
without any sales charge.
B-24
<PAGE>
Each class of shares represents an interest in the same assets of the Fund
and is identical in all respects except that (i) each class is subject to
different sales charges and distribution and/or service fees (except for
Class Z shares, which are not subject to any sales charge or distribution and/or
service fee), 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 a limited group of investors.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and 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 Pacific Growth Fund, Inc., specifying on the
wire the account number assigned by PMFS and your name and identifying the class
in which you are investing (Class A, Class B, Class C or Class Z shares).
If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value."
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Pacific Growth
Fund, Inc., Class A ,Class B, Class C or Class Z shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing Federal Funds. The minimum amount which may be
invested by wire is $1,000.
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, and (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) is approved by the Fund's investment adviser.
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5%, Class C*
shares are sold at net asset value plus a maximum sales charge of 1% and
Class B* and Class Z shares are sold at net asset value. Using the Fund's net
asset value at October 31, 1999, the maximum offering price of the Fund's shares
is as follows:
<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share...... $14.01
Maximum sales charge (5% of offering price)................. .74
------
Maximum offering price to public............................ $14.75
======
CLASS B
Net asset value, offering price and redemption price per
Class B share*............................................. $13.50
======
CLASS C
Net asset value and redemption price per Class C share*..... $13.50
Maximum sales charge (1% of offering price)................. .14
------
Maximum offering price to public............................ $13.64
======
CLASS Z
Net asset value, offering price and redemption price per
Class Z share.............................................. $14.12
======
</TABLE>
-------------------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "How to Buy, Sell and Exchange
Shares of the Fund--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus.
B-25
<PAGE>
SELECTING A PURCHASE ALTERNATIVE
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 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6-year period, you should
consider purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for longer than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, you
should consider purchasing Class B or Class C shares over Class A shares. This
is because the sales charge plus the cumulative annual distribution-related fee
on Class A shares would exceed those of the Class B and Class C shares if you
redeem your investment during this time period. In addition, more of your money
would be invested initially in the case of Class C shares, because of the
relatively low initial sales charge, and all of your money would be invested
initially in the case of Class B shares, which are sold at NAV.
If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than those of the
Class B and Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. See "Reduction
and Waiver of Initial Sales Charge--Class A shares" on the next page. However,
unlike Class B shares, you would not have all of your money invested initially
because the sales charge on Class A shares is deducted at the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and for more than 5 years in the
case of Class C shares for the higher cumulative annual distribution-related fee
on those shares plus, in the case of Class C shares, the 1% initial sales charge
to exceed the initial sales charge plus the cumulative annual
distribution-related fees on Class A shares. This does not take into account the
time value of money, which further reduces the impact of the higher Class B or
Class C distribution-related fee on the investment, fluctuations in NAV, the
effect of the return on the investment over this period of time or redemptions
when the CDSC is applicable.
REDUCTION AND WAIVER OF INITIAL SALES CHARGE--CLASS A SHARES
BENEFIT PLANS. Certain group retirement and savings plans may purchase Class
A shares without the initial sales charge if they meet the required minimum for
amount of assets, average account balance or number of eligible employees. For
more information about these requirements, call Prudential at (800) 353-2847.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, without
the initial sales charge, through the Distributor or the Transfer Agent, by:
- officers of the Prudential Mutual Funds (including the Fund),
- employees of the Distributor, Prudential Securities, PIFM and their
subsidiaries and members of the families of such person who maintain an
"employee related" account at Prudential Securities or the Transfer Agent,
- employees of subadvisers of the Prudential Mutual Funds, provided that
purchases at NAV are permitted by such person's employer,
- Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active service
with Prudential or one of its subsidiaries,
- members of the Board of Directors of Prudential,
- real estate brokers, agents and employees of real estate brokerage
companies affiliated with The Prudential Real Estate Affiliates who
maintain an account at Prudential Securities, Prusec or with the Transfer
Agent,
B-26
<PAGE>
- registered representatives and employees of brokers who have entered into
a selected dealer agreement with the Distributor, provided that purchases
at NAV are permitted by such person's employer,
- investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) the purchase is made within 180 days of the commencement of the
financial adviser's employment at Prudential Securities, or within one
year in the case of pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code of 1986, as amended (the Internal Revenue Code) and
non-qualified plans for which the Fund is an available option
(collectively, Benefit Plans), (2) the purchase is made with proceeds of a
redemption of shares of any open-end non-money market fund sponsored by
the financial adviser's previous employer (other than a fund which imposes
a distribution or service fee of .25 of 1% or less) and (3) the financial
adviser served as the client's broker on the previous purchase,
- investor in Individual Retirement Accounts, provided the purchase is made
with the proceeds of a tax-free rollover of assets from a Benefit Plan for
which Prudential provides administrative or recordkeeping services and
further provided that such purchase is made within 60 days of receipt of
the Benefit Plan distribution,
- orders placed by broker-dealers, investment advisers or financial planners
who have entered into an agreement with the Distributor, who place trades
for their own accounts or the accounts of their clients and who charge a
management consulting or other fee for their services (for example, mutual
fund "wrap" or asset allocation programs), and
- orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the accounts
are linked to the master account of such broker-dealer, investment adviser
or financial planner and the broker-dealer, investment adviser or
financial planner charges its clients a separate fee for its services (for
example, mutual fund "supermarket programs").
Broker-dealers, investment advisers or financial planners sponsoring
fee-based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" programs) may offer their clients more than one class
of shares in the Fund in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.
For an investor to obtain any reduction or waiver of the initial sales
charge, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the dealer
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charge is imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions.
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under "How to Buy, Sell and
Exchange Shares of the Fund--Reducing or Waiving Class A's Initial Sales Charge"
in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
- an individual;
- the individual's spouse, their children and their parents;
- the individual's and spouse's Individual Retirement Account (IRA);
- any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will
be deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners);
- a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
- a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
B-27
<PAGE>
- one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers. An employer controlling, controlled by or
under common control with another employer is deemed related to that employer.
The Transfer Agent, the Distributor or dealer must be notified at the time
of purchase that the investor is entitled to a reduced sales charge. The reduced
sales charge will be granted subject to confirmation of the investor's holdings.
The Combined Purchase and Cumulative Purchase Privilege does not apply to
individual participants in any retirement or group plans.
LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors), who enter into a written letter of intent
providing for the investment, within a thirteen-month period, of a specified
dollar amount in the Fund or other Prudential mutual funds.
For purposes of the letter of intent, all shares of a Fund and shares of
other Prudential mutual funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) which were previously purchased and
are still owned are also included in determining the applicable reduction.
However, the value of shares held directly with the Transfer Agent and through
your Dealer will not be aggregated to determine the reduced sales charge.
A letter of intent permits an investor to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
letter of intent will be held by the Transfer Agent in the name of the investor.
The effective date of a letter of intent may be back-dated up to 90 days, in
order that any investments made during this 90-day period, valued at the
investor's cost, can be applied to the fulfillment of the letter of intent goal.
The Investment letter of intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. In the event the letter of intent
goal is not satisfied within the thirteen-month period, the investor is required
to pay the difference between the sales charge otherwise applicable to the
investments made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
will liquidate sufficient escrowed shares to obtain such difference. Investors
electing to purchase Class A shares of the Fund pursuant to a letter of intent
should carefully read such letter.
The Transfer Agent, Distributor or dealer must be notified at the time of
purchase that the investor is entitled to a reduced sales charge. The reduced
sales charge will be granted subject to confirmation of the investor's holdings.
CLASS B AND CLASS C SHARES
The offering price of Class B shares is the NAV next determined following
receipt of an order in proper form by the Transfer Agent, your Dealer or the
Distributor. Class C shares are sold with an initial sales charge of 1%.
Redemptions of Class B and Class C shares may be subject to a CDSC. See
"Contingent Deferred Sales Charges."
The Distributor will pay, from its own resources, sales commissions at the
time of sale of up to 4% of the purchase price of Class B shares to dealers,
financial advisers and other persons who sell Class B shares. This facilitates
the ability of the Fund to sell the Class B shares without an initial sales
charge being deducted at the time of purchase. The Distributor anticipates that
it will recoup its advancement of sales commissions from the combination of the
CDSC and the distribution fee. See "How the Fund is Managed--Distributor." In
connection with the sale of Class C shares, the Distributor will pay at the time
of the sale, from its own resources, dealers, financial advisers and other
persons which distribute Class C shares, a sales commission of up to 1% of the
purchase price.
WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES
BENEFIT PLANS. Certain group retirement plans may purchase Class C shares at
NAV, without the initial sales charge. For more information, call Prudential at
(800) 353-2847.
OTHER INVESTMENT COMPANIES. Investors may purchase Class C shares at NAV,
without the initial sales charge, with the proceeds from the redemption of
shares of any unaffiliated registered investment company which were not held
through an account with any Prudential affiliate. Such purchases must be made
within 60 days of the redemption. Investors eligible for this waiver include (1)
investors purchasing shares through an account at Prudential Securities, (2)
investors purchasing shares
B-28
<PAGE>
through an ADVANTAGE Account or an Investor Account with Prusec, and (3)
investors purchasing shares through other brokers. This waiver is not available
to investors who purchase shares directly from the Transfer Agent. You must
notify the Transfer Agent directly or through your broker if you are entitled to
this waiver and provide the Transfer Agent with such supporting documents as it
may deem appropriate.
CLASS Z SHARES
Class Z shares of the Fund currently are available for purchase by the
following categories of investors:
- Benefit Plans, provided such Benefit Plans (in combination with other
plans sponsored by the same employer or group of related employers) have
at least $50 million in defined contribution assets,
- participants in any fee-based program sponsored by an affiliate of the
Distributor which includes mutual funds as investment options and for
which the Fund is an available option,
- certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential Mutual Funds are an available investment option,
- Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and as of September 20, 1996, (a)
were Class Z shareholders of the Prudential Mutual Funds or (b) executed a
letter of intent to purchase Class Z shares of the Prudential Mutual
Funds,
- the Prudential Securities Cash Balance Pension Plan, an employee defined
benefit plan sponsored by Prudential Securities,
- current and former Directors/Trustees of the Prudential mutual funds
(including the Fund),
- employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee saving plan and,
- Prudential, with an investment of $10 million or more.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
who distribute shares a finder's fee, from its own resources, based on a
percentage of the net asset value of shares sold by such persons.
Class Z shares of the Fund may also be purchased by certain savings,
retirement and deferred compensation plans, qualified or non-qualified under the
Internal Revenue Code, provided that (i) the plan purchases shares of the Fund
pursuant to an investment management agreement with The Prudential Insurance
Company of America or its affiliates, (ii) the Fund is an available investment
option under the agreement and (iii) the plan will participate in the PruArray
and SmartPath Programs (benefit plan recordkeeping services) sponsored by
Prudential Mutual Fund Services LLC. These plans include Benefit Plans.
RIGHTS OF ACCUMULATION
Reduced sales charges also are available through rights of accumulation,
under which an investor or an eligible group of related investors, as described
above under "Combined Purchase and Cumulative Purchase Privilege," may aggregate
the value of their existing holdings of shares of the Fund and shares of other
Prudential mutual funds (excluding money market funds, other than those acquired
pursuant to the exchange privilege) to determine the reduced sales charge.
Rights of accumulation may be applied across the classes of shares of the
Prudential mutual funds. However, the value of shares held directly with the
Transfer Agent and through your broker will not be aggregated to determine the
reduced sales charge. The value of existing holdings for purposes of determining
the reduced sales charge is calculated using the maximum offering price (NAV
plus maximum sales charge) as of the previous business day.
The Distributor, dealer or the Transfer Agent must be notified at the time
of purchase that the shareholder is entitled to a reduced sales charge. The
reduced sales charge will be granted subject to confirmation of the investor's
holdings. Rights of accumulation are not available to individual participants in
any retirement or group plans.
SALE OF SHARES
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of
B-29
<PAGE>
any applicable CDSC, as described below. See "Contingent Deferred Sales Charges"
below. If you are redeeming your shares through a dealer, your dealer must
receive your sell order before the Fund computes its NAV for that day (I.E.,
4:15 p.m., New York time) in order to receive that day's NAV. Your dealer will
be responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the Fund.
If you hold shares of the Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.
In order to redeem shares, a written request for redemption signed by you
exactly as the account is registered is required. If you hold certificates, the
certificates must be received by the Transfer Agent, the Distributor or your
dealer in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence of
authority acceptable to the Transfer Agent must be submitted before such request
will be accepted. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 8149, Philadelphia, PA
19101, to the Distributor or to your dealer.
Payment for redemption of recently purchased shares will be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has been
honored, which may take up to 10 calendar days from the time of receipt of the
purchase check by the Transfer Agent. Such delay may be avoided by purchasing
shares by wire or by certified or cashier's check.
EXPEDITED REDEMPTION PRIVILEGE. By electing the Expedited Redemption
Privilege, you may arrange to have redemption proceeds sent to your bank
account. The Expedited Redemption Privilege may be used to redeem shares in an
amount of $200 or more, except if an account for which an expedited redemption
is requested has a net asset value of less than $200, the entire account will be
redeemed. Redemption proceeds in the amount of $1000 or more will be remitted by
wire to your bank account at a domestic commercial bank which is a member of the
Federal Reserve system. Redemption proceeds of less than $1000 will be mailed by
check to your designated bank account. Any applicable contingent deferred sales
charge will be deducted from the redemption proceeds. Expedited redemption
requests may be made by telephone or letter, must be received by the Fund prior
to 4:15 p.m., New York Time, to receive a redemption amount based on that day's
NAV and are subject to the terms and conditions as set forth in the Prospectus
regarding redemption of shares. For more information, see "How to Buy, Sell and
Exchange Shares of the Fund -- Telephone Redemptions and Exchanges" in the
Proespectus. The Expedited Redemption Privilege may be modified or terminated at
any time without notice. To receive further information, shareholders should
contact Prudential Mutual Fund Services LLC at (800) 225-1852.
SIGNATURE GUARANTEE. If the proceeds of the redemption (a) exceed $100,000,
(b) are to be paid to a person other than the shareholder, (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 or stock power must be signature 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.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your dealer
of the certificate and written request, except as indicated below. If you hold
shares through Prudential Securities, payment for shares presented for
redemption will be credited to your account at your dealer, unless you indicate
otherwise. Such payment may be postponed or the right of redemption suspended at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such exchange is restricted,
(c) when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the 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.
REDEMPTION IN KIND. If the Directors determine that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as
in a regular redemption. See "Sale of 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 NAV of the Fund during any 90-day
period for any one shareholder.
B-30
<PAGE>
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Trustees may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest back into your
account any portion or all of the proceeds of such redemption in shares of the
Fund and account at the NAV next determined after the order is received, which
must be within 90 days after the date of the redemption. Any CDSC paid in
connection with such redemption will be credited (in shares) to your account.
(If less than a full repurchase is made, the credit will be on a PRO RATA
basis.) You must notify the Transfer Agent, either directly or through the
Distributor or your dealer, at the time the repurchase privilege is exercised to
adjust your account for the CDSC you previously paid. Thereafter, any
redemptions will be subject to the CDSC applicable at the time of the
redemption. See "Contingent Deferred Sales Charges" below. Exercise of the
repurchase privilege will generally not affect 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 eighteen months of purchase (or one year for Class C shares
purchased before November 2, 1998) will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount received by you.
The CDSC will be imposed on any redemption by you, which will reduce 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 eighteen months (or one year for Class C shares
purchased before November 2, 1998), 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.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- -------------------------
<S> <C>
First....................................................... 5.0%
Second...................................................... 4.0%
Third....................................................... 3.0%
Fourth...................................................... 2.0%
Fifth....................................................... 1.0%
Sixth....................................................... 1.0%
Seventh..................................................... None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Fund shares made during the preceding six years (five years for
Class B shares purchased prior to January 22, 1990); then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your
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<PAGE>
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
at the time of death or initial determination of disability, provided that the
shares were purchased prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. For more information, call Prudential at (800) 353-2847.
Finally, the CDSC will be waived to the extent that the proceeds from shares
redeemed are invested in Prudential mutual funds, the Guaranteed Insulated
Separate Account or units of The Stable Value Fund.
SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions effected through a Systematic Withdrawal Plan. On an annual basis,
up to 12% of the total dollar amount subject to the CDSC may be redeemed without
charge. The Transfer Agent will calculate the total amount available for this
waiver annually on the anniversary date of your purchase or, for shares
purchased prior to March 1, 1997, on March 1 of the current year. The CDSC will
be waived (or reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Transfer Agent either directly or through your broker,
at the time of redemption, that you are entitled to a waiver of the CDSC and
provide the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement. In connection with these waivers, the Transfer Agent or your broker
will require you to submit the supporting documentation set forth below.
<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A certified copy of the shareholder's death
certificate or, in the case of a trust, a certified
copy of the grantor's death certificate, plus a
copy of the trust agreement identifying the
grantor.
Disability--An individual will be A copy of the Social Security Administration award
considered disabled if he or she is letter or a letter from a physician on the
unable to engage in any substantial physician's letterhead stating that the shareholder
gainful activity by reason of any is permanently disabled. In the case of a trust, a
medically determinable physical or copy of the trust agreement identifying the grantor
mental impairment which can be expected will be required as well. The letter must also
to result in death or to be of indicate the date of disability.
long-continued and indefinite duration.
Distribution from an IRA or 403(b) A copy of the distribution form from the custodial
Custodial Account firm indicating (i) the date of birth of the
shareholder and (ii) that the shareholder is over
age 59 1/2 and is taking a normal
distribution--signed by the shareholder.
Distribution from Retirement Plan A letter signed by the plan administrator/trustee
indicating the reason for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or the
plan administrator/trustee on company letterhead
indicating the amount of the excess and whether or
not taxes have been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
B-32
<PAGE>
QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994. The
CDSC is reduced on redemptions of Class B shares of the Fund purchased prior to
August 1, 1994 if immediately after a purchase of such shares, the aggregate
cost of all Class B shares of the Fund owned by you in a single account exceeded
$500,000. For example, if you purchased $100,000 of Class B shares of the Fund
in one year and an additional $450,000 of Class B shares in the following year,
with the result that the aggregate cost of your Class B shares of the Fund
following the second purchase was $550,000, the quantity discount would be
available for the second purchase of $450,000 but not for the first purchase of
$100,000. The quantity discount will be imposed at the following rates depending
on whether the aggregate value exceeded $500,000 or $1 million:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
YEAR SINCE PURCHASE ----------------------------------------
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
--------------------------------------------------- ---------------------- ---------------
<S> <C> <C>
First.............................................. 3.0% 2.0%
Second............................................. 2.0% 1.0%
Third.............................................. 1.0% 0%
Fourth and thereafter.............................. 0% 0%
</TABLE>
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC also will be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares (excluding
shares acquired through the automatic reinvestment of dividends and other
distributions) eligible to convert to Class A shares (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 than Class B
shares, the per share NAV of the Class A shares may be higher than that of the
Class B shares at the time of conversion. Thus, although the aggregate dollar
value will be the same, you may receive fewer Class A shares than Class B shares
converted.
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For
B-33
<PAGE>
Class B shares previously exchanged for shares of a money market fund, the time
period during which such shares were held in the money market fund will be
excluded. For example, Class B shares held in a money market fund for one year
would not convert to Class A shares until approximately eight years from
purchase. For purposes of measuring the time period during which shares are held
in a money market fund, exchanges will be deemed to have been made on the last
day of the month. Class B shares acquired through exchange will convert to
Class A shares after expiration of the conversion period applicable to the
original purchase of such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (ii) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing. Certificates are issued only for full shares and may be
redeposited in the Shareholder Investment Account at any time. There is no
charge to the investor for the issuance of a certificate. The Fund makes
available to its shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. For the convenience
of investors, all dividends and distributions are automatically reinvested in
full and fractional shares of the Fund at net asset value per share. An investor
may direct the Transfer Agent in writing not less than five full business days
prior to the record date to have subsequent dividends or distributions sent in
cash rather than reinvested. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payment will be made directly to the dealer. Any shareholder who receives
dividends or distributions in cash may subsequently reinvest any such dividend
or distribution at NAV by returning the check to the Transfer Agent within 30
days after the payment date. The reinvestment will be made at the NAV per share
next determined after receipt of the check by the Transfer Agent. Shares
purchased with reinvested dividends and/or distributions will not be subject to
any CDSC upon redemption.
EXCHANGE PRIVILEGE. The Fund makes available to its shareholders the
privilege of exchanging their shares of the Fund for shares of certain other
Prudential mutual funds (the Exchange Privilege), including one or more
specified money market funds, subject in each case to the minimum investment
requirements of such funds. Shares of such other Prudential mutual funds may
also be exchanged for shares of the Fund. All exchanges are made on the basis of
the relative NAV next determined after receipt of an order in proper form. An
exchange will be treated as a redemption and purchase for tax purposes. Shares
may be exchanged for shares of another fund only if shares of such fund may
legally be sold under applicable state laws. For retirement and group plans
having a limited menu of Prudential mutual funds, the Exchange Privilege is
available for those funds eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 a.m. and 6:00 p.m., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. Neither
the Fund nor its agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine under
the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. 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.
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<PAGE>
If you hold certificates, the certificates must be returned in order for the
shares to be exchanged. See "Sale of Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 8150, Philadelphia, PA
19101.
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 LLC, at the address noted above.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of Prudential Structured Maturity Fund and Prudential Government
Securities Trust (Short-Intermediate Term Series) and shares of the money market
funds specified below. No fee or sales load will be imposed upon the exchange.
Shareholders of money market funds who acquired such shares upon exchange of
Class A shares may use the Exchange Privilege only to acquire Class A shares of
the Prudential Mutual Funds participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential mutual funds and shares of Prudential Special Money Market Fund,
Inc., a money market fund. No CDSC will be payable upon such exchange, but a
CDSC may be payable upon the redemption of Class B and Class C shares acquired
as a result of the exchange. The applicable sales charge will be that imposed by
the fund in which shares were initially purchased and the purchase date will be
deemed to be the date of the initial purchase, rather than the date of the
exchange.
Class B and Class C shares of the Fund may also be exchanged for shares of
an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after re-
exchange into the Fund, such shares will be subject to the CDSC calculated
without regard to the time such shares were held in the money market fund. In
order to minimize the period of time in which shares are subject to a CDSC,
shares exchanged out of the money market fund will be exchanged on the basis of
their remaining holding periods, with the longest remaining holding periods
being exchanged first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, respectively, without subjecting such shares to any CDSC. Shares of
any fund participating in the Class B or Class C exchange privilege that were
acquired through reinvestment of dividends or distributions may be exchanged for
Class B or Class C shares of other funds, respectively, without being subject to
any CDSC.
B-35
<PAGE>
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential mutual funds.
SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Purchase,
Redemption and Pricing of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares" above) and for shareholders who qualify to purchase
Class Z shares (see "Purchase, Redemption and Pricing of Fund Shares--Class Z
Shares" above). Under this exchange privilege, amounts representing any Class B
and Class C shares (which are not subject to a CDSC) held in the account of a
shareholder who qualifies to purchase Class A shares at NAV will be
automatically exchanged for Class A shares on a quarterly basis, unless the
shareholder elects otherwise. Similarly, shareholders who qualify to purchase
Class Z shares will have their Class B and Class C shares which are not subject
to a CDSC and their Class A shares exchanged for Class Z shares on a quarterly
basis. Eligibility for this exchange privilege will be calculated on the
business day prior to the date of the exchange. Amounts representing Class B or
Class C shares which are not subject to a CDSC include the following:
(1) amounts representing Class B or Class C shares acquired pursuant to the
automatic reinvestment of dividends and distributions, (2) amounts representing
the increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares and (3) amounts representing Class B or
Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities, Prusec or another dealer that they are eligible for this
special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value. Similarly, participants in Prudential Securities' 401(k) Plan for which
the Fund's Class Z shares is an available option and who wish to transfer their
Class Z shares out of the Prudential Securities 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 NAV.
Additional details about the exchange privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent, the
Distributor or your dealer. The special exchange privilege may be modified,
terminated or suspended on 60 days' notice, and any fund, including the Fund, or
the Distributor, has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college for the
1993-1994 academic year averaged around $14,000 at a private college and around
$6,000 at a public university. Assuming these costs increase at a rate of 7% a
year, as has been projected, for the freshman class beginning in 2011, the cost
of four years at a private college could reach $210,000 and over $90,000 at a
public university.(1)
------------
(1)Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees,
room and board for the 1993-1994 academic year.
B-36
<PAGE>
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years................................ $ 110 $ 165 $ 220 $ 275
20 Years................................ 176 264 352 440
15 Years................................ 296 444 592 740
10 Years................................ 555 833 1,110 1,388
5 Years................................ 1,371 2,057 2,742 3,428
</TABLE>
See "Automatic Savings Accumulation Plan."
------------
(2)The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares may be worth more or less than their original cost when
redeemed.
AUTOMATIC INVESTMENT PLAN (AIP). Under AIP, an investor may arrange to have
a fixed amount automatically invested in shares of the Fund by authorizing his
or her bank account or Prudential Securities Account (including a Command
Account) to be debited to invest specified dollar amounts in shares of the Fund.
The investor's bank must be a member of the Automatic Clearing House System.
Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your dealer.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such plan
provides for monthly, quarterly, semi-annual or annual redemptions in any
amount, except as provided below, up to the value of the shares in the
shareholder's account. Systematic withdrawals of Class B or Class C shares may
be subject to a CDSC.
In the case of shares held through the Transfer Agent, (i) a $10,000 minimum
account value applies, (ii) systematic withdrawals may not be for less than $100
and (iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested. See "Automatic Reinvestment of Dividends and
Distributions" above.
The Transfer Agent, the Distributor or the applicable dealer act as an agent
for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the systematic withdrawals. The systematic withdrawal plan
may be terminated at any time, and the Distributor reserves the right to
initiate a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Systematic withdrawals should not be considered as dividends, yield or
income. If systematic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each systematic withdrawal constitutes a redemption of shares,
and any gain or loss realized must be recognized for federal income tax
purposes. In addition, systematic withdrawals made concurrently with purchases
of additional shares are inadvisable because of the sales charges applicable to
(i) the purchase of Class A shares and (ii) the redemption of Class B and Class
C shares. Each shareholder should consult his or her own tax adviser with regard
to the tax consequences of the plan, particularly if used in connection with a
retirement plan.
TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-deferred accounts" under Section 403(b)(7) of the Internal Revenue Code are
available through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-direction of
accounts by participants, or a pooled account arrangement. Information regarding
the establishment of these plans, and the administration, custodial fees and
other details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel and/or tax adviser with respect to the
establishment and maintenance of any such plan.
B-37
<PAGE>
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------------ --------- ---------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,676 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
------------
(1)The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA which meet the conditions required under
the Internal Revenue Code will not be subject to tax upon withdrawal from the
account.
MUTUAL FUND PROGRAMS
From time to time, the Fund may be included in a mutual fund program with
other Prudential mutual funds. Under such a program, a group of portfolios will
be selected and thereafter marketed collectively. Typically, these programs are
created with an investment theme, E.G., to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event that such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Fund may waive or reduce
its minimum initial investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities Financial Adviser or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
The Fund's net asset value per share or NAV is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Directors have fixed the specific time of day for the computation of net asset
value to be as of 4:15 P.M., New York time.
Under the Investment Company Act, the Directors are responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Directors, the value of investments
listed on a securities exchange and NASDAQ National Market System securities
(other than options on stock and stock indices) are valued at the last sale
price of such exchange system on the day of valuation or, if there was no sale
on such day, the mean between the last bid and asked prices on such day, or at
the bid price on such day in the absence of an asked price. Corporate bonds
(other than convertible debt securities) and U.S. Government securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed by the Manager in consultation with the
Subadviser to be over-the-counter, are valued on the basis of valuations
provided by an independent pricing agent or principal market maker which uses
information with respect to transactions in bonds, quotations from bond dealers,
agency ratings, market transactions in comparable securities and various
relationships between securities in determining value. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed by the Manager in
consultation with the Subadviser to be over-the-counter, are valued at the mean
between the last reported bid and asked prices provided by principal market
makers. Options on stock and stock indices traded on an exchange are valued at
the mean between the most recently
B-38
<PAGE>
quoted bid and asked prices on the respective exchange and futures contracts and
options thereon are valued at their last sale prices as of the close of trading
on the applicable commodities exchange or board of trade or, if there was no
sale on the applicable commodities exchange or board of trade on such day, at
the mean between the most recently quoted bid and asked prices on such exchange
or board of trade. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents at the current rate obtained from a
recognized bank or dealer, and forward currency exchange contracts are valued at
the current cost of covering or offsetting such contracts. Should an
extraordinary event, which is likely to affect the value of the security, occur
after the close of an exchange on which a portfolio security is traded, such
security will be valued at fair value, considering factors determined in good
faith by the investment adviser under procedures established by and under the
general supervision of the Fund's Board of Directors.
Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Directors) does not represent fair value, are valued by the Valuation
Committee or Board of Directors in consultation with the Manager or Subadviser,
including its portfolio manager, traders, and its research and credit analysts,
on the basis of the following factors: cost of the security, transactions in
comparable securities, relationships among various securities and such other
factors, as may be determined by the Manager, Subadviser, Board of Directors or
Valuation Committee to materially affect the value of the security. Short-term
debt securities are valued at cost, with interest accrued or discount amortized
to the date of maturity, if their original maturity was 60 days or less, unless
this is determined by the Directors not to represent fair value. Short-term
securities with remaining maturities of more than 60 days, for which market
quotations are readily available, are valued at their current market quotations
as supplied by an independent pricing agent or principal market maker. The Fund
will compute its NAV at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Fund shares have been received or days on which changes in the value
of the Fund's portfolio securities do not affect NAV. In the event the New York
Stock Exchange closes early on any business day, the NAV of the Fund's shares
shall be determined at the time between such closing and 4:15 P.M., New York
time. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAVs of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class Z shares will generally be higher than the NAVs of Class A,
Class B and Class C shares as a result of the fact that the Class Z shares are
not subject to any distribution or service fee. It is expected, however, that
the NAVs of the four classes will tend to converge immediately after the
recording of dividends, if any, which will differ by approximately the amount of
the distribution and/or service fee expense accrual differential among the
classes.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code for each taxable
year. Accordingly, the Fund must, among other things, (a) derive at least 90% of
its gross income from dividends, interest, proceeds from loans of securities and
gains from the sale or other disposition of securities or foreign currencies, or
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the value of its assets is represented
by cash, U.S. Government securities, securities of other regulated investment
companies and other securities, with such other securities limited in respect of
any one issuer to an amount not greater than 5% of such Funds' assets, and not
greater than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies). These requirements may limit a Funds'
ability to invest in other types of assets.
As a regulated investment company, the Fund will not be subject to federal
income tax on its net investment income and capital gains, if any, that it
distributes to its shareholders, provided (among other things) that at least 90%
of the Funds' net investment income (including net short-term capital gains)
other than long-term capital gains earned in the taxable year is distributed.
The Fund intends to distribute annually to its shareholders all of its taxable
net investment income, which includes dividends, interest and any net short-term
capital gains in excess of net long-term capital losses. The Board of Directors
of the
B-39
<PAGE>
Fund will determine once a year whether to distribute any net long-term capital
gains in excess of any net short-term capital losses. In determining the amount
of capital gains to be distributed, any capital loss carryovers from prior years
will be offset against capital gains. A 4% nondeductible excise tax will be
imposed on the Fund to the extent such Fund does not meet certain distribution
requirements by the end of each calendar year.
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates between the time the Fund accrues income,
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such income or pays such liabilities, are treated as
ordinary income or ordinary loss for federal income tax purposes. Similarly,
gains or losses on the disposition of debt securities held by the Fund, if any,
denominated in a foreign currency, to the extent attributable to fluctuations in
exchange rates between the acquisition and its disposition dates are also
treated as ordinary income or loss.
Gains or losses on sales or securities by the Fund will generally be treated
as long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where the Fund acquires a put or
writes a call thereon or otherwise holds an offsetting position with respect to
the securities. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will generally be treated as gains and
losses from the sale of securities. If an option written by the Fund on
securities lapses or is terminated through a closing transaction, such as a
purchase by the Fund of the option from its holder, the Fund will generally
realize short-term capital gain or loss, depending on whether the premium income
is greater or less than the amount paid by the Fund in the closing transaction.
If securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will include the premium received in the sale proceeds
of the securities delivered in determining the amount of gain or loss on the
sale. Certain of the Fund's transactions may be subject to wash sale, straddle,
constructive sale or short sale provisions of the Internal Revenue Code which
may, among other things, require the Fund to defer losses, recognize gain or
cause gain to be treated as ordinary income rather than as capital gain. In
addition, debt securities acquired by the Fund may be subject to original issue
discount rules which may, among other things, cause the Fund to accrue income in
advance of the receipt of cash with respect to interest and, market discount
rules which may, among other things, cause gains to be treated as ordinary
income.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. See "Description of the Fund, its Investments and
Risks--Hedging and Return Enhancement Strategies." These investments generally
will constitute Section 1256 contracts and will be required to be "marked to
market" for federal income tax purposes at the end of the Funds' taxable year,
I.E., treated as having been sold at market value. Sixty percent of any capital
gain or loss recognized on such deemed sales and on actual dispositions will be
treated as long-term capital gain or loss, and the remainder will be treated as
short-term capital gain or loss.
Forward currency contracts, options and futures contracts entered into by
the Fund may create "straddles" for federal income tax purposes, which may
result in the deferral of losses in positions held by the Fund to the extent of
any unrecognized gain on offsetting positions held by the Fund and the
deductibility of interest or other charges incurred to purchase or carry such
positions may be limited.
A "passive foreign investment company" (PFIC) is a foreign corporation that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If the Fund acquires and holds
stock in a PFIC beyond the end of the year of its acquisition, the Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock or of any gain from disposition of the stock (collectively, PFIC
income), plus interest thereon, even if the Fund distributes the PFIC income as
a taxable dividend to its shareholders. If the Fund elects to treat any PFIC in
which it invests as a "qualified electing fund" then in lieu of the foregoing
tax and interest obligation, the Fund will be required to include in income each
year its pro rata share of the qualified electing funds' annual ordinary
earnings and net capital gain, even if they are not distributed to such Fund;
those amounts would be subject to the distribution requirements applicable to
the Fund described above. Because the election to treat a PFIC as a qualifying
fund cannot be made without the provision of certain information by the PFIC,
the Fund may not be able to make such an election. If the Fund does not or
cannot elect to treat such a PFIC as a "qualified electing fund," the Fund can
make a "mark-to-market" election, I.E., treat the shares of the PFIC as sold on
the last day of such Funds' taxable year, and thus avoid the special tax and
interest charge. The gains the Fund recognizes from the mark-to-market election
would be included as ordinary income in the net investment income the Fund must
distribute to shareholders, notwithstanding that the Fund would receive no cash
in respect of such gains. Any loss from the mark-to-market election may be
recognized by the Fund to the extent of its previously reported mark-to-market
gains.
B-40
<PAGE>
Dividends of net investment income will be taxable to a U.S. shareholder as
ordinary income regardless of whether such shareholder receives such dividends
in additional shares or in cash. Dividends received from the Fund will be
eligible for the dividends-received deduction for corporate shareholders only to
the extent that the Fund's income is derived from certain dividends received
from domestic corporations. Since the Fund is not likely to have a substantial
portion of its assets invested in stock of domestic corporations, the amount of
the Fund's dividends eligible for the corporate dividends-received deduction
will be minimal. The amount of dividends qualifying for the dividends-received
deduction will be designated as such in a written notice to shareholders mailed
not later than 60 days after the end of the Fund's taxable year. Distributions
of net long-term capital gains, if any, will be taxable as long-term capital
gains regardless of whether the shareholder receives such distribution in
additional shares in cash and regardless of how long the shareholder has held
the Fund's shares, and will not be eligible for the dividends-received deduction
for corporations.
Any dividends or capital gains distributions received by a shareholder will
have the effect of reducing the net asset value of the Funds' shares by the
exact amount of the dividend or capital gains distribution. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
a dividend or capital gains distribution, such dividend or capital gains
distribution, although constituting a return of capital, will be taxable as
described above. Prior to purchasing shares of the Fund, therefore, the investor
should carefully consider the impact of dividends or capital gains distributions
which are expected to be or have been announced.
Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for future federal income tax purposes
in each share so received equal to the net asset value of a share of the Fund on
the reinvestment date.
Distributions of net investment income made to a nonresident alien
individual, a nonresident alien fiduciary of a foreign estate or trust, foreign
corporation or foreign partnership (foreign shareholder) will be subject to U.S.
withholding tax at a rate of 30% (or lower treaty rate), unless the dividends
are effectively connected with the U.S. trade or business of the shareholder and
the shareholder complies with certain filing requirements. Gains realized upon
the sale or redemption of shares of the Fund by a foreign shareholder and
distributions of net long-term capital gains to a foreign shareholder will
generally not be subject to U.S. income tax unless the gain is effectively
connected with a trade or business carried on by the shareholder within the
United States or, in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for more than 182
days during the taxable year and certain other conditions are met. If
distributions are effectively connected with a U.S. trade or business carried on
by a foreign shareholder, distributions of net investment income and net
long-term capital gains will be annually subject to U.S. income tax at the
graduated rates applicable to U.S. citizens or domestic corporations. Transfers
by gift of shares of the Fund by a foreign shareholder who is a nonresident
alien individual will not be subject to U.S. federal gift tax, but the value of
the shares of the Fund held by such a shareholder at his death will be
includable in his gross estate for U.S. federal estate tax purposes. The tax
consequences to a foreign shareholder entitled to claim the benefits of an
applicable tax treaty may be different from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Funds' assets to be invested in
various countries is not known.
If the Fund is liable for foreign taxes, the Fund expects to meet the
requirements of the Internal Revenue Code for "passing-through" to its
shareholders foreign income taxes paid, but there can be no assurance that the
Fund will be able to do so. Under the Internal Revenue Code, if more than 50% of
the value of the Funds' total assets at the close of its taxable year consists
of stocks or securities of foreign corporations, the Fund will be eligible and
may file an election with the Internal Revenue Service to "pass-through" to the
Funds' shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to this election shareholders will be required to: (i) include in gross
income (in addition to taxable dividends actually received) their pro rata share
of the foreign income taxes paid by the Fund; (ii) treat their pro rata share of
foreign income taxes as paid by them; and (iii) either deduct their pro rata
share of foreign income taxes in computing their taxable income or, subject to
certain limitations, use it as a foreign tax credit against U.S. income taxes
imposed on foreign source income. For this purpose, the portion of dividends
paid by the Fund from its foreign source income will be treated as such. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. A shareholder that is a nonresident alien individual or foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the election described in this paragraph, but may not be able to
B-41
<PAGE>
claim a credit or deduction against such tax for the foreign taxes treated as
having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. The amount of foreign taxes for which a
shareholder may claim a credit in any year will generally be subject to various
limitations including a separate limitation for "passive income," which
includes, among other things, dividends, interest and certain foreign currency
gains.
Each shareholder will be notified within 60 days after the close of the
Funds' taxable year whether the foreign income taxes paid by the Fund will
"pass-through" for that year and , if so, such notification will designate
(a) the shareholder's portion of the foreign income taxes paid to each such
country and (b) the portion of the dividend which represents income derived from
sources within each such country.
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A or Class Z shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares and lower
on Class A shares in relation to Class Z shares. The per share distributions of
net capital gains, if any, will be paid in the same amount for Class A,
Class B, Class C and Class Z shares.
Distributions may be subject to additional state and local taxes.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.
Average annual total return is computed according to the following formula:
P(1+T)to the power of n = ERV
Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1000 payment
made at the beginning of the 1, 5 or 10 year periods.
Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.
The average annual total return of the Class A shares for the one year, five
year and since inception (July 24, 1992) periods ended October 31, 2000 was
%, ( )% and %, respectively, and for the Class B shares, was %, ( )%
and %, respectively, for the same periods. The average annual total return for
Class C shares for the one year, five year and since inception (August 1, 1994)
periods ended October 31, 2000 was %, ( )% and ( )%, respectively. The
average annual total return for Class Z shares for the one year and since
inception (March 1, 1996) periods ended October 31, 2000 was % and %,
respectively.
YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B, Class C
and Class Z shares. This yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
YIELD = 2[( a - b +1)to the power of 6 - 1]
-----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. Yields for the Fund will vary based on a number of factors
including changes in net asset value, market conditions, the level of interest
rates and the level of Fund income and expenses.
B-42
<PAGE>
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1000.
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1000 payment
made at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total return for Class A shares for the one year, five year
and since inception (July 24, 1992) periods ended October 31, 2000 was %,
( )% and %, respectively, and for Class B shares was %, ( )% and %,
respectively, for the same periods. The aggregate total return for Class C
shares for the one year, five year and since inception (August 1, 1994) periods
ended October 31, 2000 was %, ( )% and ( )%, respectively. The aggregate
total return for Class Z shares for the one year and since inception (March 1,
1996) periods ended October 31, 2000 was % and %, respectively.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term with the rate of inflation.(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE
<S> <C> <C>
COMPARISON OF DIFFERENT
TYPES OF INVESTMENTS
OVER THE LONG TERM
(12/31/1925-12/31/1999)
Common Stocks Long-Term Gov't. Bonds Inflation
11.4% 5.1% 3.1%
</TABLE>
------------
(1)Source: Ibbotson Associates' STOCKS, BONDS, BILLS AND INFLATION--1999
YEARBOOK (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). All rights reserved. Common stock returns are based on the
Standard & Poor's 500 Stock Index, a market-weighted, unmanaged index of 500
common stocks in a variety of industry sectors. It is a commonly used indicator
of broad stock price movements. This chart is for illustrative purposes only and
is not intended to represent the performance of any particular investment or
fund. Investors cannot invest directly in an index. Past performance is not a
guarantee of future results.
B-43
<PAGE>
APPENDIX I--DESCRIPTION OF SECURITY RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS:
AAA: Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions that bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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
bonds in this category than for bonds in higher rated categories.
BB,B,CCC,CC,C: Bonds rated BB,B,CCC,CC, or C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa: Bonds rated Aaa are judged to be 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 these issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds 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 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 characterize
bonds in this class.
B: Bonds 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.
Caa: Bonds 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 rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds 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.
Moody's applies the numerical modifiers 1,2, and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
I-1
<PAGE>
DESCRIPTION OF DUFF & PHELPS BOND RATINGS:
AAA: Bonds rated AAA by Duff & Phelps are considered to be of the highest
credit quality. The risk factors are negligible, being only slightly more than
for risk-free U.S. Treasury debt.
AA+, AA, AA-: Bonds rated AA+, AA, or AA- are considered to be of high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.
A+, A, A-: Bonds rated A+, A, or A- have protection factors which are
average but adequate; however, risk factors are more variable and greater in
periods of economic stress.
BBB+, BBB, BBB-: Bonds rated BBB+, BBB, or BBB- have below average
protection factors but are still considered sufficient for prudent investment.
These bonds demonstrate considerable variability in risk during economic cycles.
BB+, BB, BB-: Bonds rated BB+, BB, or BB- are below investment grade but are
still deemed likely to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently within this
category.
B+, B, B-: Bonds rated B+, B, or B- are below investment grade and possess
the risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC: Bonds rated CCC are well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest, or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/ industry conditions, and/or with unfavorable company
developments.
DD: Bonds rated DD are defaulted debt obligations. The issuer failed to meet
scheduled principal and/or interest payments.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
DESCRIPTION OF DUFF & PHELPS COMMERCIAL PAPER RATING:
Duff & Phelps commercial paper ratings are divided into three categories,
ranging from "1" for the highest quality obligations to "3" for the lowest. No
ratings are issued for companies whose paper is not deemed investment grade.
Issues assigned the Duff 1 rating are considered top grade. This category is
further divided into three gradations as follows: Duff 1 plus--highest certainty
of timely payment, short-term liquidity, including internal operating factors
and/or ready access to alternative sources of funds, is clearly outstanding and
safety is just below risk-free U.S. Treasury short-term obligations;
Duff 1--very high certainty of timely payment, liquidity factors are excellent
and supported by strong fundamental protection factors, risk factors are minor;
Duff 1 minus-high certainty of timely payment, liquidity factors are strong and
supported by good fundamental protection factors, risk factors are very small.
Issues rated Duff 2 represent a good certainty of timely payment; liquidity
factors and company fundamentals are sound; although ongoing internal funds
needs may enlarge total financing requirements, access to capital markets is
good; risk factors are small. Duff 3 represents a satisfactory grade;
satisfactory liquidity and other protection factors qualify issue as to
investment grade; risk factors are larger and subject to more variation;
nevertheless timely payment is expected.
I-2
<PAGE>
APPENDIX II--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk and providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps to reduce risk and to potentially provide stable
returns, while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, I.E., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.
II-1
<PAGE>
APPENDIX III--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and the
rate of inflation.
EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
EDGAR REPRESENTATION OF PRINTED GRAPHIC
VALUE OF $1.00 INVESTED
ON 1/1/1926 THROUGH 12/31/1999
SMALL STOCKS--$6,640.79
COMMON STOCKS--$2,845.63
LONG-TERM BONDS--$40.22
TREASURY BILLS--$15.64
INFLATION--$9.40
Source: Stocks, Bonds, Bills and Inflation 1999 Yearbook, Ibbotson Associates,
Chicago, Illinois (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. This chart is for illustrative purposes only
and is not indicative of the past, present, or future performance of any asset
class or any Prudential Mutual Fund.
Generally, stock returns are due to capital appreciation and the reinvestment of
distributions. Bond returns are attributable mainly to the reinvestment of
interest. Also, stock prices are usually more volatile than bond prices over the
long-term.
Small stock returns for 1926-1980 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P 500 Composite index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the U.S. government as to the
timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).
IMPACT OF INFLATION. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.
III-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1989
through 1999. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. The net effect of the deduction of the operating expenses of a
mutual fund on these historical total returns, including the compounded effect
over time, could be substantial.
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
<TABLE>
YEAR 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0% -2.56%
---------------------------------------------------------------------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0% 1.86%
---------------------------------------------------------------------------------------------
U.S. INVESTMENT
GRADE
CORPORATE BONDS(3) 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6% -1.96%
---------------------------------------------------------------------------------------------
U.S. HIGH YIELD
BONDS(4) 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6% 2.39%
---------------------------------------------------------------------------------------------
WORLD GOVERNMENT
BONDS(5) (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3% -5.07%
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN
HIGHEST AND LOWEST
RETURN PERCENT 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1% 8.4% 7.46%
</TABLE>
1 LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.
2 LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of
the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).
3 LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign
governments, municipalities, governmental agencies or international agencies.
All bonds in the index have maturities of at least one year.
4 LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or
Fitch Investors Service). All bonds in the Index have maturities of at least
one year.
5 SALOMON BROTHERS WORLD GOVERNMENT INDEX (NON U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
III-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 31, 1985 through December 31, 1999. It does not represent
the performance of any Prudential Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS
(12/31/85-12/31/99)(IN U.S. DOLLARS)
EDGAR REPRESENTATION OF PRINTED GRAPHIC
SWEDEN 22.70%
HONG KONG 20.37%
SPAIN 20.11%
NETHERLAND 18.63%
BELGIUM 18.41%
FRANCE 17.69%
USA 17.39%
UK 16.41%
EUROPE 16.28%
SWITZERLAND 15.58%
SING/MLYSIA 15.07%
DENMARK 14.72%
GERMANY 13.29%
AUSTRALIA 11.68%
ITALY 11.39%
CANADA 11.10%
JAPAN 9.59%
NORWAY 8.91%
AUSTRIA 7.09%
Source: Morgan Stanley Capital International (MSCI) based on data retrieved from
Lipper Analytical New Application (LANA) as of
December 31, 1999. Used with permission. Morgan Stanley Country indices are
unmanaged indices which include those stocks making up the largest two-thirds of
each country's total stock market capitalization. Returns reflect the
reinvestment of all distributions. This chart is for illustrative purposes only
and is not indicative of the past, present or future performance of any specific
investment. Investors cannot invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 Stock Index with and without reinvested
dividends.
EDGAR REPRESENTATION OF PRINTED GRAPHIC
<TABLE>
<CAPTION>
CAPITAL CAPITAL
APPRECIATION AND APPRECIATION ONLY
REINVESTING
DIVIDENDS
<S> <C> <C>
1969
1973
1977
1981
1985
1989
1993
1997
1999 $474,094 $159,597
</TABLE>
Source: Stocks, Bonds, Bills, and Inflation 1999 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is used for illustrative
purposes only and is not intended to represent the past, present or future
performance of any Prudential Mutual Fund. Common stock total return is based on
the Standard & Poor's 500 Stock Index, a market-value-weighted index made up of
500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.
III-3
<PAGE>
WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL: $20.7 TRILLION
EDGAR REPRESENTATION OF PRINTED GRAPHIC
CANADA--2.1%
U.S.--49.0%
EUROPE--32.5%
PACIFIC BASIN--16.4%
Source: Morgan Stanley Capital International, December 31, 1999. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of 1579 companies
in 22 countries (representing approximately 60% of the aggregate market value of
the stock exchanges). This chart is for illustrative purposes only and does not
represent the allocation of any Prudential Mutual Fund.
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
EDGAR REPRESENTATION OF PRINTED GRAPHIC
LONG TERM U.S. TREASURY BOND YIELD IN PERCENT (1926-1999)
1926
1936
1946
1956
1966
1976
1986
1996
1999
Source: Stocks, Bonds, Bills, and Inflation 1999 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1999. Yields represent that
of an annually renewed one-bond portfolio with a remaining maturity of
approximately 20 years. This chart is for illustrative purposes and should not
be construed to represent the yields of any Prudential Mutual Fund.
III-4
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) (i) Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 1 to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on January 3, 1995.
(ii) Articles Supplementary, incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 7 to the Registration Statement on
Form N-1A (File No. 33-42391) filed via EDGAR on December 9, 1995.
(b) By-Laws of the Registrant, as Revised and Restated November 18, 1999.*
(c) (i) Specimen stock certificate (Class A Shares), incorporated by
reference to Exhibit 4(a) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on December 31, 1997.
(ii) Specimen stock certificate (Class B Shares), incorporated by
reference to Exhibit 4(b) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on December 31, 1997.
(iii) Specimen stock certificate (Class C Shares), incorporated by
reference to Exhibit 4(c) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on December 31, 1997.
(iv) Specimen stock certificate (Class Z Shares), incorporated by
reference to Exhibit 4(d) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on December 31, 1997.
(v) Instruments defining rights of shareholders, incorporated by
reference to Exhibit 4(c) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on December 30, 1993 (File No. 33-42391).
(d) (i) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 9 to the Registration Statement on
Form N-1A (File No. 33-42391) filed via EDGAR on December 31, 1997.
(ii) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by reference
to Exhibit 5(b) to Post-Effective Amendment No. 9 to the Registration
Statement on Form N-1A (File No. 33-42391) filed via EDGAR on
December 31, 1997.
(iii) Amendment dated January 1, 2000 to Subadvisory Agreement between
Prudential Investments Fund Management LLC and the Prudential Investment
Corporation.*
(e) (i) Distribution Agreement between the Registrant and Prudential
Securities Incorporated, incorporated by reference to Exhibit 6 to
Post-Effective Amendment No. 8 to the Registration Statement on
Form N-1A (File No. 33-42391) filed via EDGAR on December 27, 1996.
(ii) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC, incorporated by reference to
Exhibit (e)(ii) to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A (File No. 33-42391) filed via EDGAR on
November 24, 1998.
(iii) Form of Dealer Agreement, incorporated by reference to
Exhibit (e)(iii) to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A (File No. 33-42391) filed via EDGAR on
November 24, 1998.
(f) Not Applicable.
(g) (i) Custodian Contract between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit 8(a) to
Post-Effective Amendment No. 9 to the Registration Statement on
Form N-1A (File No. 33-42391) filed via EDGAR on December 31, 1997.
C-1
<PAGE>
(ii) Form of Amendment to Custodian Contract, incorporated by reference
to Exhibit 8(b) to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A (File No. 33-42391) filed via EDGAR on November 2,
1995.
(iii) Amendment dated February 22, 1999 to Custodian Contract.*
(h) (i) Transfer Agency and Service Agreement between Registrant and
Prudential Mutual Fund Services, Inc, incorporated by reference to
Exhibit 9 to Post-Effective Amendment No. 9 to the Registration Statement
on Form N-1A (File No. 33-42391) filed via EDGAR on December 31, 1997.
(ii) Amendment dated August 24, 1999 to Transfer Agency and Service
Agreement between the Registrant and Prudential Mutual Fund Services
LLC.*
(i) Opinion of Shereff, Friedman, Hoffman & Goodman, incorporated by
reference to Exhibit 10 to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on December 31, 1997.
(j) Consent of Independent Accountants.**
(k) Not Applicable.
(l) Not Applicable.
(m) (i) Distribution and Service Plan for Class A shares dated July 1, 1993,
incorporated by reference to Exhibit 15(a)(ii) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed via
EDGAR on December 30, 1993 (File No. 33-42391).
(ii) Distribution and Service Plan for Class B shares dated July 1, 1993,
incorporated by reference to Exhibit 15(b)(ii) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A (File
No. 33-42391) filed via EDGAR on December 30, 1993 (File No. 33-42391).
(iii) Distribution and Service Plan for Class A shares, incorporated by
reference to Exhibit 15(c) to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on January 3, 1995.
(iv) Distribution and Service Plan for Class B shares, incorporated by
reference to Exhibit 15(d) to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on January 3, 1995.
(v) Distribution and Service Plan for Class C shares, incorporated by
reference to Exhibit 15(e) to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on January 3, 1995.
(vi) Amended Distribution and Service Plan for Class A shares of the
Registrant, incorporated by reference to Exhibit (m)(vi) to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A (File No. 33-42391) filed via EDGAR on November 24, 1998.
(vii) Amended Distribution and Service Plan for Class B shares of the
Registrant, incorporated by reference to Exhibit (m)(vii) to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A (File No. 33-42391) filed via EDGAR on November 24, 1998.
(viii) Amended Distribution and Service Plan for Class C shares of the
Registrant, incorporated by reference to Exhibit (m)(viii) to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A (File No. 33-42391) filed via EDGAR on November 24, 1998.
C-2
<PAGE>
(n) Not Applicable.
(o) (i) Rule 18f-3 Plan, incorporated by reference to Exhibit 18 to
Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A (File No. 33-42391) filed via EDGAR on November 2, 1995.
(ii) Amended Rule 18f-3 Plan, incorporated by reference to
Exhibit (o)(ii) to Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A (File No. 33-42391) filed via EDGAR on
November 24, 1998.
(p) (i) Code of Ethics of the Registrant.*
(ii) Code of Ethics of Prudential Investment Corporation, Prudential
Investments Fund Management LLC and Prudential Investment Management
Services LLC.*
------------------------
* Filed herewith.
** To be provided
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. INDEMNIFICATION
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended (the 1940 Act), and pursuant to Article VII of the Fund's By-Laws
(Exhibit (b) to the Registration Statement), officers, directors, employees and
agents of the Registrant will not be liable to the Registrant, any stockholder,
officer, director, employee, agent or other person for any action or failure to
act, except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of the Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interest of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit (e)(ii)
to the Registration Statement), the Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (Securities Act), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1940 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1940 Act and will be governed by the final
adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit (d)(i) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d)(ii) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
C-3
<PAGE>
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remains
in effect and is consistently applied.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Investments Fund Management LLC (PIFM)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Post-Effective Amendment to the Registration Statement and "Investment
Advisory and Other Services--Investment Advisers" in the Statement of Additional
Information constituting Part B of this Post-Effective Amendment to the
Registration Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal executive
officers within the last two years are set forth below. Except as otherwise
indicated, the address of each person is Gateway Center Three, Newark, New
Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
---------------- ------------------ ---------------------
<S> <C> <C>
Robert F. Gunia Executive Vice President & Chief Executive Vice President & Chief
Administrative Officer Administrative Officer, PIFM; Vice President,
Prudential; President, Prudential Investment
Management Services LLC (PIMS)
William V. Healey Executive Vice President, Chief Executive Vice President, Chief Legal Officer
Legal Officer and Secretary and Secretary, PIFM; Vice President and
Associate General Counsel, Prudential;
Executive Vice President, Chief Legal Officer
and Secretary, Prudential Mutual Fund Services
LLC; Senior Vice President, Chief Legal
Officer and Secretary, PIMS
David R. Odenath, Jr. Officer in Charge, President, Chief Officer in Charge, President, Chief Executive
Executive Officer and Chief Officer and Chief Operating Officer, PIFM;
Operating Officer Senior Vice President The Prudential Insurance
Company of America (Prudential)
Stephen Pelletier Executive Vice President Executive Vice President, PIFM
Judy A. Rice Executive Vice President Executive Vice President, PIFM
Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
</TABLE>
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Investment Adviser" in the Prospectus
constituting Part A of this Post-Effective Amendment to the Registration
Statement and "Investment Advisory and Other Services--Investment Advisers" in
the Statement of Additional Information constituting Part B of this
Post-Effective Amendment to the Registration Statement.
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07102-4077.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<S> <C> <C>
John R. Strangfeld, Jr. Chairman of the Board, President, Chief Executive Officer of Prudential Securities
Chief Executive Officer and Director Incorporated (since October 2000), President of
Prudential Global Asset Management Group; Senior Vice
President of Prudential
Bernard Winograd Senior Vice President and Director Chief Executive Officer, Prudential Real Estate
Investors; Senior Vice President and Director, PIC
</TABLE>
C-4
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Prudential Investment Management Services LLC is distributor for
Prudential Government Securities Trust, The Target Portfolio Trust, Cash
Accumulation Trust, COMMAND Government Fund, COMMAND Money Fund, COMMAND
Tax-Free Fund, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Diversified Bond Fund, Inc., Prudential
Diversified Funds, Prudential Emerging Growth Fund, Inc., Prudential Equity
Fund, Inc., Prudential Europe Growth Fund, Inc., Prudential Global Genesis Fund,
Inc., Prudential Global Total Return Fund, Inc., Prudential High Yield Fund,
Inc., Prudential Index Series Fund, Prudential MoneyMart Assets Inc., Prudential
Natural Resources Fund, Inc., Prudential Government Income Fund, Inc.,
Prudential High Yield Total Return Fund, Inc., Prudential International Bond
Fund, Inc., Prudential Institutional Liquidity Portfolio, Inc., The Prudential
Investment Portfolios, Inc., Prudential Mid-Cap Value Fund, Prudential Municipal
Bond Fund, Prudential Municipal Series Fund, Prudential National Municipals
Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential Real Estate
Securities Fund, Prudential Sector Funds, Inc., Prudential Small-Cap Quantum
Fund, Inc., Prudential Small Company Fund, Inc., Prudential Special Money Market
Fund, Inc., Prudential Short-Term Corporate Bond Fund, Inc., Prudential Tax-Free
Money Fund, Inc., Prudential Tax-Managed Funds, Prudential 20/20, Focus Fund,
Prudential Value Fund, Prudential World Fund, Inc., Strategic Partners Series
and Target Funds.
(b) Information concerning the directors and officers of Prudential
Investment Management Services LLC is set forth below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
---- ------------- -------------
<S> <C> <C>
Margaret Deverell Vice President and Chief Financial Officer None
Kevin Frawley Senior Vice President and Compliance None
Officer
Robert F. Gunia President Vice President and Trustee
William V. Healey Senior Vice President, Secretary and Chief Assistant Secretary
Legal Officer
John R. Strangfeld, Advisory Board Member President and Trustee
Jr.
</TABLE>
------------------------
The address of each person named is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171, The Prudential Investment Corporation, Prudential
Plaza, 751 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102 and Prudential
Mutual Fund Services LLC, 194 Wood Avenue South, Iselin, New Jersey 08853.
Documents required by Rules 31a-1(b)(4), (5), (6), (7), (9), (10) and (11) and
31a-1(d) and (f) will be kept at Gateway Center Three, Newark, New Jersey
07102-4077, and the remaining accounts, books and other documents required by
such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.
ITEM 29. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is Managed--Manager"
and "How the Fund is Managed--Distributor" in the Prospectus and the captions
"Investment Advisory and Other Services--Investment Advisers" and "Investment
Advisory and Other Services--Principal Underwriter, Distributor and Rule 12b-1
Plans" in the Statement of Additional Information, constituting Parts A and B,
respectively, of this Post-Effective Amendment to the Registration Statement,
Registrant is not a party to any management-related service contract.
ITEM 30. UNDERTAKINGS
None
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newark, and State of New
Jersey, on the 22nd day of December, 2000.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
By /s/ DAVID R. ODENATH
------------------------------------------
(David R. Odenath, PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DELAYNE D. GOLD
------------------------------ Director December 22, 2000
Delayne D. Gold
/s/ ROBERT F. GUNIA
------------------------------ Vice President and December 22, 2000
Robert F. Gunia Director
/s/ ROBERT E. LABLANC
------------------------------ Director December 22, 2000
Robert E. LaBlanc
/s/ DAVID R. ODENATH
------------------------------ Director December 22, 2000
David R. Odenath
/s/ JUDY A. RICE
------------------------------ Director December 22, 2000
Judy A. Rice
/s/ ROBIN B. SMITH
------------------------------ Director December 22, 2000
Robin B. Smith
/s/ STEPHEN STONEBURN
------------------------------ Director December 22, 2000
Stephen Stoneburn
/s/ NANCY H. TEETERS
------------------------------ Director December 22, 2000
Nancy H. Teeters
/s/ GRACE C. TORRES Treasurer and Principal
------------------------------ Financial and Accounting December 22, 2000
Grace C. Torres Officer
/s/ CLAY T. WHITEHEAD
------------------------------ Director December 22, 2000
Clay T. Whitehead
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -----------
<C> <S>
(a) (i) Amended and Restated Articles of Incorporation
incorporated by reference to Exhibit No. 1 to Post-Effective
Amendment No. 5 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on January 3, 1995.
(ii) Articles Supplementary, incorporated by reference to
Exhibit 1(b) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A (File No. 33-42391)
filed via EDGAR on December 29, 1995.
(b) By-Laws of the Registrant, as Revised and Restated
November 18, 1999.*
(c) (i) Specimen stock certificate (Class A Shares),
incorporated by reference to Exhibit 4(a) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on December 31, 1997.
(ii) Specimen stock certificate (Class B Shares),
incorporated by reference to Exhibit 4(b) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on December 31, 1997.
(iii) Specimen stock certificate (Class C Shares),
incorporated by reference to Exhibit 4(c) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on December 31, 1997.
(iv) Specimen stock certificate (Class Z Shares),
incorporated by reference to Exhibit 4(d) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on December 31, 1997.
(v) Instruments defining rights of shareholders,
incorporated by reference to Exhibit 4(c) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on December 30, 1993
(File No. 33-42391).
(d) (i) Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc, incorporated by
reference to Exhibit 5(a) to Post-Effective Amendment No. 9
to the Registration Statement on Form N-1A (File
No. 33-42391) filed via EDGAR on December 31, 1997.
(ii) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation,
incorporated by reference to Exhibit 5(b) to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on December 31, 1997.
(iii) Amendment dated January 1, 2000 to Subadvisory
Agreement between Prudential Investments Fund Management LLC
and the Prudential Investment Corporation.*
(e) (i) Distribution Agreement between the Registrant and
Prudential Securities Incorporated, incorporated by
reference to Exhibit 6 to Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A (File No. 33-42391)
filed via EDGAR on December 27, 1996.
(ii) Distribution Agreement between the Registrant and
Prudential Investment Management Services LLC, incorporated
by reference to Exhibit (e)(ii) to Post-Effective Amendment
No. 10 to the Registration Statement on Form N-1A (File
No. 33-42391) filed via EDGAR on November 24, 1998.
(iii) Form of Dealer Agreement, incorporated by reference to
Exhibit (e)(iii) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-42391)
filed via EDGAR on November 24, 1998.
(f) Not Applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -----------
<C> <S>
(g) (i) Custodian Contract between the Registrant and State
Street Bank and Trust Company, incorporated by reference to
Exhibit 8(a) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-42391)
filed via EDGAR on December 31, 1997.
(ii) Form of Amendment to Custodian Contract, incorporated
by reference to Exhibit 8(b) to Post-Effective Amendment
No. 6 to the Registration Statement on Form N-1A (File
No. 33-42391) filed via EDGAR on November 2, 1995.
(iii) Amendment dated February 22, 1999 to Custodian
Contract.*
(h) (i) Transfer Agency and Service Agreement between Registrant
and Prudential Mutual Fund Services, Inc, incorporated by
reference to Exhibit 9 to Post-Effective Amendment No. 9 to
the Registration Statement on Form N-1A (File No. 33-42391)
filed via EDGAR on December 31, 1997.
(ii) Amendment dated August 24, 1999 to Transfer Agency and
Service Agreement between the Registrant and Prudential
Mutual Fund Services LLC.*
(i) Opinion of Shereff, Friedman, Hoffman & Goodman,
incorporated by reference to Exhibit 10 to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on December 31, 1997.
(j) Consent of Independent Accountants.**
(k) Not Applicable.
(l) Not Applicable.
(m) (i) Distribution and Service Plan for Class A shares dated
July 1, 1993, incorporated by reference to
Exhibit 15(a)(ii) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed via EDGAR on
December 30, 1993 (File No. 33-42391).
(ii) Amended and Restated Distribution and Service Plan for
Class B shares dated July 1, 1993, incorporated by reference
to Exhibit 15(b)(ii) to Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A filed via EDGAR on
December 30, 1993 (File No. 33-42391).
(iii) Distribution and Service Plan for Class A shares,
incorporated by reference to Exhibit 15(c) to Post-Effective
Amendment No. 5 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on January 3, 1995.
(iv) Distribution and Service Plan for Class B shares,
incorporated by reference to Exhibit 15(d) to Post-Effective
Amendment No. 5 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on January 3, 1995.
(v) Distribution and Service Plan for Class C shares,
incorporated by reference to Exhibit 15(e) to Post-Effective
Amendment No. 5 to the Registration Statement on Form N-1A
(File No. 33-42391) filed via EDGAR on January 3, 1995.
(vi) Amended Distribution and Service Plan for Class A
shares of the Registrant, incorporated by reference to
Exhibit (m)(vi) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-42391)
filed via EDGAR on November 24, 1998.
(vii) Amended Distribution and Service Plan for Class B
shares of the Registrant, incorporated by reference to
Exhibit (m)(vii) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-42391)
filed via EDGAR on November 24, 1998.
(viii) Amended Distribution and Service Plan for Class C
shares of the Registrant, incorporated by reference to
Exhibit (m)(viii) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-42391)
filed via EDGAR on November 24, 1998.
(n) Not Applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -----------
<C> <S>
(o) (i) Rule 18f-3 Plan, incorporated by reference to Exhibit 18
to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A (File No. 33-42391) filed via EDGAR
on November 2, 1995.
(ii) Amended Rule 18f-3 Plan, incorporated by reference to
Exhibit (o)(ii) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 33-42391)
filed via EDGAR on November 24, 1998.
(p) (i) Code of Ethics of the Registrant.*
(ii) Code of Ethics of Prudential Investment Corporation,
Prudential Investments Fund Management LLC and Prudential
Investment Management Services LLC.*
</TABLE>
------------------------
* Filed herewith.
** To be provided
