PRUDENTIAL STOCK INDEX FUND
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PROSPECTUS DATED NOVEMBER 29, 1996
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Prudential Stock Index Fund (the Fund) is a series of Prudential Dryden Fund
(formerly The Prudential Institutional Fund) (the Company), a diversified,
open-end, management investment company. The Fund's investment objective is to
seek to provide investment results that correspond to the price and yield
performance of Standard & Poor's 500 Composite Stock Price Index (S&P 500
Index). There can be no assurance that the Fund's investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is Gateway Center Three, Newark, NJ 07102-4077, and its telephone
number is (800) 225-1852.
THE FUND RESERVES THE RIGHT TO BORROW MONEY FOR TEMPORARY, EXTRAORDINARY OR
EMERGENCY PURPOSES OR FOR THE CLEARANCE OF TRANSACTIONS AND IN ORDER TO TAKE
ADVANTAGE OF INVESTMENT OPPORTUNITIES, WHICH MAY BE CONSIDERED SPECULATIVE DUE
TO THE INCREASED COSTS AND EXPENSES INVOLVED.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated November 29, 1996, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
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Investors are advised to read this Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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FUND HIGHLIGHTS
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The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL STOCK INDEX FUND?
Prudential Stock Index Fund is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Company is a diversified, open-end,
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek to provide investment results
that correspond to the price and yield performance of Standard & Poor's 500
Composite Stock Price Index. There can be no assurance that the Fund's
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies" at page 6.
RISK FACTORS AND SPECIAL CHARACTERISTICS
The Fund's performance will not precisely correspond to the performance of
the S&P 500 Index. The Fund will attempt to achieve a correlation between its
performance and that of the S&P 500 Index of at least 0.95, without taking into
account expenses. Potential tracking differences, brokerage and other
transaction costs and other Fund expenses may cause the Fund's return to be
lower then the return of the S&P 500 Index. See "How the Fund
Invests--Investment Objective and Policies" at page 6.
The Fund may engage in various hedging and return enhancement strategies
and invest in derivative securities. See "How the Fund Invests--Hedging and
Return Enhancement Strategies--Risks of Hedging and Return Enhancement
Strategies" at page 11. As with an investment in any mutual fund, an investment
in this Fund can decrease in value and you can lose money.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management LLC (PMF or the Manager) is the manager
of the Company and is compensated for its services at an annual rate of .30 of
1% of average daily net assets of the Fund. As of October 31, 1996, PMF served
as manager or administrator to 62 investment companies, including 40 mutual
funds, with aggregate assets of approximately $53.4 billion. The Prudential
Investment Corporation (PIC, the Subadviser or the investment adviser) furnishes
investment advisory services in connection with the management of the Fund under
a Subadvisory Agreement with PMF. See "How the Fund is Managed--Manager" at page
12 and "How the Fund is Managed--Subadviser" at page 12.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's shares. Prudential Securities incurs the expense of
distributing the Fund's shares under a Distribution Agreement with the Company,
none of which is reimbursed or paid for by the Fund. See "How the Fund is
Managed--Distributor" at page 12.
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2
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WHAT IS THE MINIMUM INVESTMENT?
There is no minimum initial or subsequent investment requirement for
investors who qualify to purchase shares. See "Shareholder Guide--How to Buy
Shares of the Fund" at page 17 and "Shareholder Guide--Shareholder Services" at
page 20.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities. Shares of the
Fund are offered to (i) investors who purchase $1 million or more of shares of
the Fund (or who already own $1 million of shares of other Prudential Mutual
Funds); (ii) participants in any fee-based program sponsored by Prudential
Securities (or one of its affiliates) which includes mutual funds as investment
options and for which the Fund is an available option and (iii) investors who
were, or who executed a letter of intent to become, shareholders of any series
of the Company on or before one or more series of the Company reorganized or who
on that date had investments in certain products for which the Company provided
exchangeability. Participants in programs sponsored by Prudential Retirement
Services should contact their client representative for more information about
purchasing shares of the Fund. See "How the Fund Values its Shares" at page 14
and "Shareholder Guide--How to Buy Shares of the Fund" at page 17.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers one class of shares, sold without an initial or contingent
deferred sales charge to a limited group of investors. Shares of the Fund are
not subject to any ongoing service- or distribution-related expenses.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order.
Participants in programs sponsored by Prudential Retirement Services should
contact their client representative for more information about selling their
shares. See "Shareholder Guide--How to Sell Your Shares" at page 19.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, and
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 15.
3
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FUND EXPENSES
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<CAPTION>
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<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases .............................................. None
Maximum Deferred Sales Load .......................................................... None
Maximum Sales Load Imposed on Reinvested Dividends ................................... None
Redemption Fees ...................................................................... None
Exchange Fee ......................................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ...................................................................... .30%
12b-1 Fees ........................................................................... None
Other Expenses ....................................................................... .28%
---
Total Fund Operating Expenses ........................................................ .58%
===
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
EXAMPLE Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period ... $6 $19 $32 $73
The above example is based on restated data for the Fund's fiscal year
ended September 30, 1996 which would be expected to have been incurred if the
Fund operated in accordance with the new fee and operating expense arrangements
which were effective October 31, 1996. The example should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
The purpose of this table is to assist investors in understanding the various
types of costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed." "Other Expenses" includes estimated
operating expenses of the Fund for the fiscal year ended September 30, 1996,
such as Trustees' and professional fees, registration fees, reports to
shareholders and transfer agency and custodian fees.
</TABLE>
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4
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FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
The following financial highlights have been audited by Deloitte & Touche
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
financial highlights contain selected data for a share of beneficial interest
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements. Further performance information is contained in the
annual report, which may be obtained without charge. See "Shareholder Guide --
Shareholder Services -- Reports to Shareholders."
<TABLE>
<CAPTION>
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November 5,
Year Ended 1992(a)
September 30, Through
------------------------------ September
1996 1995 1994 30,1993
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<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...................... $14.22 $11.27 $11.12 $10.00
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INCOME FROM INVESTMENT OPERATIONS
Net investment income(b) .................................. .25 .23 .26 .23
Net realized and unrealized gain (loss) on investment
and foreign currency transactions ........................ 2.44 2.97 .11 .94
------ ------ ------ ------
Total from investment operations ......................... 2.69 3.20 .37 1.17
====== ====== ====== ======
LESS DISTRIBUTIONS:
Dividends from net investment income ...................... (.28) (.22) (.18) (.05)
Distributions from net realized income .................... (.57) (.03) (.04) --
------ ------ ------ ------
Total distributions ...................................... (.85) (.25) (.22) (.05)
------ ------ ------ ------
Net asset value, end of period ............................ $16.06 $14.22 $11.27 $11.12
====== ====== ====== ======
TOTAL RETURN(d): .......................................... 19.72% 29.02% 3.33% 11.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ........................... $184,379 $101,945 $50,119 $27,142
Average net assets (000) .................................. $142,540 $ 71,711 $38,098 $18,807
Ratios to average net assets(b):
Expenses ................................................. .60% .60% .60% .60%(c)
Net investment income .................................... 1.92% 2.55% 2.34% 2.41%(c)
Portfolio turnover rate ................................... 2% 11% 2% 1%
Average commission rate paid per share .................... $ 0.0250 N/A N/A N/A
</TABLE>
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(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and other distributions. Total return for periods
of less than a full year are not annualized. Total return includes the
effect of expense subsidies.
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5
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HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK TO PROVIDE INVESTMENT RESULTS
THAT CORRESPOND TO THE PRICE AND YIELD PERFORMANCE OF S&P 500 INDEX. THERE CAN
BE NO ASSURANCE THAT THE FUND'S OBJECTIVE WILL BE ACHIEVED. See "Investment
Objectives and Policies--Investment Policies Applicable to Prudential Stock
Index Fund" in the Statement of Additional Information.
The Fund seeks to provide investment results that correspond to the price
and yield performance of the S&P 500 Index. The S&P 500 Index is an unmanaged,
market-weighted index of 500 stocks selected by Standard & Poor's Corporation
(S&P) on the basis of their market size, liquidity and industry group
representation. Inclusion in the S&P 500 Index in no way implies an opinion by
S&P as to a stock's attractiveness as an investment. The S&P 500 Index, composed
of stocks representing more than 70% of the total market value of all publicly
traded U.S. common stocks, is widely regarded as representative of the
performance of the U.S. stock market as a whole. "Standard & Poor's(r)",
"S&P(r)", "S&P 500(r)", "Standard & Poor's 500", and "500" are trademarks of
McGraw-Hill, Inc. and have been licensed for use by The Prudential Insurance
Company of America (Prudential) and its affiliates and subsidiaries. The Fund is
not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the Fund. See "Investment Objectives
and Policies--Investment Policies Applicable to Prudential Stock Index Fund" in
the Statement of Additional Information regarding certain additional disclaimers
and limitations of liability on behalf of S&P.
Traditional methods of security analysis will not be used in connection
with the management of the Fund by PIC, the investment adviser for the Fund, in
making investment decisions. Instead, PIC will use a passive, indexing approach.
To achieve its investment objective, the Fund will purchase equity securities
that as a group reflect the price and yield performance of the S&P 500 Index.
The Fund intends to purchase all 500 stocks included in the S&P 500 Index in
approximately the same proportions as they are represented in the S&P 500 Index.
In addition, from time to time adjustments may be made in the Fund's holdings
due to changes in the composition of the S&P 500 Index or due to receipt of
distributions of securities of companies spun off from S&P 500 companies. The
Fund will not adopt a temporary defensive investment posture in times of
generally declining market conditions, and investors in the Fund therefore will
bear the risk of such market conditions.
PIC believes that this investment approach will provide an effective method
of tracking the performance of the S&P 500 Index. Nevertheless, PIC does not
expect that the Fund's performance will precisely correspond to the performance
of the S&P 500 Index. The Fund will attempt to achieve a correlation between its
performance and that of the S&P 500 Index of at least 0.95, without taking into
account expenses. A correlation of 1.00 would indicate perfect correlation,
which would be achieved when the Fund's net asset value, including the value of
its dividends and capital gains distributions, increases or decreases in exact
proportion to changes in the S&P 500 Index. PIC will, of course, attempt to
minimize any tracking differential (i.e., the statistical measure of the
difference between the investment results of the Fund and that of the S&P 500
Index). Tracking will be monitored at least on a monthly basis. All tracking
maintenance activities will be reviewed regularly to determine whether any
changes in policies or techniques are necessary. However, in addition to
potential tracking differences, brokerage and other transaction costs, as well
as other Fund expenses, may cause the Fund's return to be lower than the return
of the S&P 500 Index. Consequently, there can be no assurance as to how closely
the Fund's performance will correspond to the performance of the S&P 500 Index.
The Fund intends that at least 80% of the value of its total assets will be
invested in securities included in the S&P 500 Index. The Fund may invest the
balance of its assets in: (i) other equity-related securities; (ii) obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities;
(iii) put and call options on securities and stock indices; and (iv) futures
contracts on stock indices and options thereon.
6
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Options, futures contracts, and options on futures contracts are used, if
at all, primarily to invest uncommitted cash balances, to maintain liquidity to
meet redemptions, to facilitate tracking, to reduce transaction costs or to
hedge the Fund's portfolio.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for incidental returnenhancement purposes, the Fund may also
(i) enter into repurchase agreements, when-issued, delayed delivery and forward
commitment transactions; and (ii) lend its portfolio securities.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND THEREFORE MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940
(THE INVESTMENT COMPANY ACT). INVESTMENT POLICIES THAT ARE NOT FUNDAMENTAL MAY
BE MODIFIED BY THE BOARD OF TRUSTEES OF THE COMPANY (TRUSTEES).
EQUITY-RELATED SECURITIES
The Fund may invest in equity-related securities. Equity-related securities
are common stocks, preferred stocks, rights, warrants and debt securities or
preferred stocks which are convertible or exchangeable for common stocks or
preferred stocks. See "Investment Objectives and Policies--Investment Policies
Applicable to Both Funds--Convertible Securities, Warrants and Rights" in the
Statement of Additional Information.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest a portion of its assets in equity securities of foreign
issuers denominated in U.S. currency.
The Fund may purchase American Depositary Receipts (ADRs), which 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 U.S. bank and traded on a U.S. 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 comparable auditing, accounting and financial reporting standards as
domestic issuers.
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. Treasury
or by an agency or instrumentality of the U.S. Government. Not all U.S.
Government securities are backed by the full faith and credit of the United
States. Some are supported only by the credit of the issuing agency. See
"Investment Objectives and Policies--Investment Policies Applicable to Both
Funds--U.S. Government Securities" in the Statement of Additional Information.
MONEY MARKET INSTRUMENTS
The Fund may invest in high quality money market instruments, including
commercial paper of a U.S. or non-U.S. company, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic and
foreign banks, and obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. These obligations will be U.S. dollar
denominated. Money market instruments typically have a maturity of one year or
less as measured from the date of purchase. The Fund may invest in money market
instruments without limit for temporary defensive and cash management purposes.
To the extent the Fund otherwise invests in money market instruments, it is
subject to the limitations described above.
7
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OTHER INVESTMENTS AND POLICIES
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks to take advantage of
investment opportunities, 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's asset coverage for borrowings
falls below 300%, the Fund will take prompt action to reduce its borrowings. The
Fund will not purchase portfolio securities when borrowings exceed 5% of the
value of its total assets. See "Investment Objectives and Policies--Investment
Policies Applicable to Both Funds--Borrowing" in the Statement of Additional
Information.
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act) and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. The Fund's investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. See "Investment Restrictions" in the Statement
of Additional Information. Repurchase agreements subject to demand are deemed to
have a maturity equal to the applicable notice period.
REPURCHASE AGREEMENTS
The Fund will 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
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. 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 may participate in a joint repurchase account
managed by PIC. See "Investment Objectives and Policies--Investment Policies
Applicable to Both Funds--Repurchase Agreements" in the Statement of Additional
Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities (including equity securities) on a
when-issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and/or yield to the Fund at the time of
entering into the transaction. While the Fund will only purchase securities on a
when-issued or delayed delivery basis with the intention of acquiring the
securities, the Fund may sell the securities before the settlement date, if it
is deemed advisable. At the time the Fund makes the commitment to purchase
securities on a when-issued or delayed delivery basis, the Fund will record the
transaction and thereafter reflect the value, each day, of such security in
determining the net asset value of the Fund. At the time of delivery of the
securities, the value may be more or less than the purchase price. The Fund's
Custodian will maintain, in a segregated account of the Fund, cash or liquid
assets, having a value equal to or greater than the Fund's purchase commitments.
Subject to this requirement, the Fund may purchase securities on such basis
without limit. See "Investment Objectives and Policies--Investment
8
<PAGE>
Policies Applicable to Both Funds--When-Issued and Delayed Delivery Securities"
in the Statement of Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Fund in an amount equal to at least 100%,
determined daily, of the market value of the securities loaned which are
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As 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. As a matter of fundamental policy, the Fund cannot lend more than
30% of the value of its total assets. See "Investment Objectives and
Policies--Investment Policies Applicable to Both Funds--Securities Lending"
in the Statement of Additional Information. The Fund may pay reasonable
administration and custodial fees in connection with a loan.
SEGREGATED ACCOUNTS. The Fund will establish a segregated account with its
Custodian, State Street Bank and Trust Company (State Street), in which it will
maintain cash, U.S. Government securities, equity securities or other liquid,
unencumbered assets equal in value to its obligations in respect of potentially
leveraged transactions, including forward contracts, when-issued and delayed
delivery securities, repurchase agreements, futures contracts, written options
and options on futures contracts (unless otherwise covered). The assets
deposited in the segregated account will be marked-to-market daily.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN. THE FUND, AND THUS
THE INVESTOR, MAY LOSE MONEY THROUGH THE UNSUCCESSFUL USE OF THESE STRATEGIES.
These strategies currently include the use of derivatives, such as options,
futures contracts and options thereon. The Fund's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Investment Objectives and Policies" and "Taxes" in the Statement
of Additional Information. PIC does not intend to buy all of these instruments
or use all of these strategies to the full extent permitted unless it believes
that doing so will help the Fund achieve its objective. New financial products
and risk management techniques continue to be developed and the Fund may use
these new investments and techniques to the extent consistent with its
investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON ANY
SECURITIES IN WHICH IT MAY INVEST OR OPTIONS ON ANY SECURITIES INDEX BASED ON
SECURITIES IN WHICH THE FUND MAY INVEST. THESE OPTIONS ARE TRADED ON U.S.
EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO HEDGE ITS PORTFOLIO. The Fund may
write covered put and call options to generate additional income through the
receipt of premiums, purchase put options in an effort to protect the value of
securities that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
it intends to purchase. The Fund may also purchase put and call options to
offset previously written put and call options of the same series. See
"Investment Objectives and Policies--Investment Policies Applicable to Both
Funds--Options on Securities and Securities Indices" in the Statement of
Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR SECURITIES IN
THE INDEX SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR
9
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STRIKE PRICE). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms of
the option contract, the underlying securities or a specified amount of cash to
the purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities or
in excess of the exercise price of the option during the period that the option
is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES SUBJECT TO THE OPTION TO THE
WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of the put option,
in return for the premium, has the obligation, upon exercise of the option, to
acquire the securities underlying the option at the exercise price. The Fund
might, therefore, be obligated to purchase the underlying securities for more
than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, as
long as the Fund is obligated under the option, it (i) owns an offsetting
position in the underlying security or (ii) maintains in a segregated account,
cash or liquid assets in an amount equal to or greater than its obligation under
the option. Under the first circumstance, the Fund's losses are limited because
it owns the underlying security or currency; under the second circumstance, in
the case of a written call option, the Fund's losses are potentially unlimited.
See "Investment Objectives and Policies--Other Investments and Policies--Options
on Securities and Securities Indices" in the Statement of Additional
Information. There is no limitation on the amount of options the Fund may write.
The Fund may also write a call option, which can serve as a limited short
hedge because decreases in value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security at less than its market value.
The Fund may purchase and sell put and call options on securities indices.
Securities index options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctuations
in a single security. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
payments and does not involve the actual purchase or sale of securities. When
purchasing or selling securities index options, the Fund is subject to the risk
that the value of its portfolio securities may not change as much as or more
than the index because the Fund's investments generally will not match the
composition of the index. See "Investment Objectives and Policies--Investment
Policies Applicable to Both Funds--Options on Securities and Securities Indices"
and "Taxes" in the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE
CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN ACCORDANCE
WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC). THE FUND,
AND THUS THE INVESTOR, MAY LOSE MONEY THROUGH THE UNSUCCESSFUL USE OF THESE
STRATEGIES. These futures contracts and related options will be on securities
indices. A futures contract is an agreement to purchase or sell an agreed amount
of securities at a set price for delivery in the future. A stock index futures
contract is an agreement to purchase or sell cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. The Fund may purchase and sell futures contracts or related options as a
hedge against changes in market conditions.
The Fund may not purchase or sell futures contracts and related options to
attempt to enhance return, if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. The Fund may purchase and sell futures
contracts and related options, without limitation, for bona fide hedging
purposes in accordance with regulations of the CFTC (i.e., to reduce certain
risks of its investments). The value of all futures contracts sold will not
exceed the total market value of the Fund's portfolio.
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Futures contracts and related options are generally subject to segregation
and coverage requirements of the CFTC or the SEC. If the Fund does not hold the
security underlying the futures contract, the Fund will be required to segregate
on an ongoing basis with its Custodian cash or liquid assets in an amount at
least equal to the Fund's obligations with respect to such futures contracts.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the movements in the index is imperfect and
there is a risk that the value of the indices underlying the futures contract
may increase or decrease at a greater rate than the related futures contracts
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have established daily limits on the amount that the price of futures contracts
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict the Fund's ability to purchase
or sell certain futures contracts or related options on any particular day.
The Fund's ability to enter into futures contracts and options thereon is
limited by the requirements of the Internal Revenue Code for qualification as a
regulated investment company. See "Investment Objectives and Policies" and
"Taxes" in the Statement of Additional Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT RISKS
AND TRANSACTION COSTS TO WHICH THE FUND WOULD NOT BE SUBJECT ABSENT THE USE OF
THESE STRATEGIES. THE FUND, AND THUS THE INVESTOR, MAY LOSE MONEY THROUGH THE
UNSUCCESSFUL USE OF THESE STRATEGIES. Risks inherent in the use of options,
futures contracts and options on futures contracts include (1) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities being hedged; (2) the fact
that skills needed to use these strategies are different from those needed to
select portfolio securities; (3) the possible absence of a liquid secondary
market for any particular instrument at any time; (4) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences; and (5)
the possible inability of the Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need for
the Fund to sell a portfolio security at a disadvantageous time, due to the need
for the Fund to maintain "cover" or to segregate securities in connection with
hedging transactions. See "Taxes" in the Statement of Additional Information.
The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if the investment adviser believes
that the other party to options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will continue
to exist or that the other party will continue to make a market. Thus, it may
not be possible to close an options or futures transaction. The inability to
close options and futures positions also could have an adverse impact on the
Fund's ability to effectively hedge its portfolio. There is also the risk of
loss by the Fund of margin deposits or collateral in the event of bankruptcy of
a broker with whom the Fund has an open position in an option, a futures
contract or related option.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
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HOW THE FUND IS MANAGED
THE COMPANY HAS A BOARD OF TRUSTEES WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON MATTERS
OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.
For the fiscal year ended September 30, 1996, total expenses as a
percentage of average net assets were .60%.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT LLC (PMF OR THE MANAGER), GATEWAY CENTER
THREE, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER OF THE COMPANY AND IS
COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .30 OF 1% OF THE FUND'S
AVERAGE DAILY NET ASSETS. It was established as a New York limited liability
company in 1996. See "Manager and Subadvisers" in the Statement of Additional
Information. Prior to October 30, 1996, the manager of the Fund was Prudential
Institutional Fund Management, Inc. It was compensated for its services at an
annual rate of .40 of 1% of the Fund's average daily net assets.
As of October 31, 1996, PMF served as the manager to 40 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $53.4 billion.
Under the Management Agreement with the Company, PMF manages the investment
operations of the Fund and also administers the Company's business affairs. See
"Manager and Subadvisers" in the Statement of Additional Information.
SUBADVISER
THE PRUDENTIAL INVESTMENT CORPORATION, 751 BROAD STREET, NEWARK, NEW JERSEY
07102, SERVES AS SUBADVISER TO THE FUND.
PURSUANT TO A SUBADVISORY AGREEMENT WITH PMF, PIC FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE COMPANY AND IS
REIMBURSED FOR ALL REASONABLE COSTS AND EXPENSES INCURRED BY PIC.
Under the Subadvisory Agreement, PIC, subject to the supervision of PMF, is
responsible for managing the assets of the Fund in accordance with its
investment objective, investment program and policies. PIC determines what
securities and other instruments are purchased and sold for the Fund and is
responsible for obtaining and evaluating financial data relevant to the Fund.
Prudential Diversified Investment Strategies (PDI Strategies), a unit of
PIC, is responsible for the day-to-day management of the Fund. PDI Strategies
employs a team approach to the management of the Fund.
PMF and PIC are wholly owned subsidiaries of Prudential, a major
diversified insurance and financial services company, and are part of Prudential
Investments, a business group of Prudential.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE SHARES OF THE
FUND. IT IS AN INDIRECT, WHOLLY OWNED SUBSIDIARY OF PRUDENTIAL.
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UNDER A DISTRIBUTION AGREEMENT (THE DISTRIBUTION AGREEMENT), PRUDENTIAL
SECURITIES (ALSO THE DISTRIBUTOR) INCURS THE EXPENSES OF DISTRIBUTING THE FUND'S
SHARES, NONE OF WHICH IS REIMBURSED BY OR PAID FOR BY THE FUND. These expenses
include commissions and account servicing fees paid to, or on account of,
financial advisers of Prudential Securities and Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, commissions and account servicing fees
paid to, or on account of, other broker-dealers or financial institutions (other
than national banks) which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors and indirect and overhead costs of Prudential Securities and Prusec
associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
The Manager (or one of its affiliates) may make payments to dealers and
other persons which distribute shares of the Fund. Such payments may be
calculated by reference to the net asset value of shares sold by such persons or
otherwise.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. (NASD) to resolve allegations that from
1980 through 1990 PSI sold certain limited partnership interests in violation of
securities laws to persons for whom such securities were not suitable and
misrepresented the safety, potential returns and liquidity of these investments.
Without admitting or denying the allegations asserted against it, PSI consented
to the entry of an SEC Administrative Order which stated that PSI's conduct
violated the federal securities laws, directed PSI to cease and desist from
violating the federal securities laws, pay civil penalties, and adopt certain
remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purposes of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Company is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street, an independent custodian, are
separate and distinct from PSI.
FEE WAIVERS AND SUBSIDY
PMF 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. Fee waivers
and expense subsidies will increase the Fund's total return. See "Performance
and Yield Information" in the Statement of Additional Information and "Fund
Expenses" above.
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PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Fund provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Company.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. THE TRUSTEES FIXED THE SPECIFIC TIME OF DAY FOR
THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Company's Trustees. See "Net Asset Value" in the Statement of
Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. See "Net Asset Value" in the Statement of
Additional Information.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. These figures are based on historical
earnings and are not intended to indicate future performance. The "total return"
shows how much an investment in the Fund would have increased (decreased) over a
specified period of time (i.e., one, five or ten years or since inception of the
Fund) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period and less all recurring fees. The
"aggregate" total return reflects actual performance over a stated period of
time. "Average annual" total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. "Average annual" total
return smooths out variations in performance. Neither "average annual" total
return nor "aggregate" total return takes into account any federal or state
income taxes which may be payable upon redemption. The "yield" refers to the
income
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generated by an investment in the Fund over a one-month or 30-day period. This
income is then "annualized;" that is, the amount of income generated by the
investment during that 30-day period is assumed to be generated each 30-day
period for twelve periods and is shown as a percentage of the investment. The
income earned on the investment is also assumed to be reinvested at the end of
the sixth 30-day period. The Fund also may include comparative performance
information in advertising or marketing the Fund's shares. Such performance
information may include data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc., and other industry publications, business periodicals and
market indices. See "Performance and Yield Information" in the Statement of
Additional Information. Further performance information will be contained in the
Fund's annual and semi-annual reports to shareholders, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT TO
FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF ANY,
THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts). At
the end of each year, such investments held by the Fund will be required to be
"marked-to-market" for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any gain or loss recognized on these
"deemed sales" and on actual dispositions may be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss. See "Taxes" in the Statement of Additional Information.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net long-term capital gains
distributed to shareholders will be taxable as such to the shareholder, whether
or not reinvested and regardless of the length of time a shareholder has owned
his or her shares. The maximum long-term capital gains rate for corporate
shareholders is currently the same as the maximum tax rate for ordinary income.
The maximum long-term capital gains rate for individual shareholders is
currently 28% and the maximum tax rate for ordinary income is 39.6%.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, on shares
that are held for six months or less, will be treated as a long-term capital
loss to the extent of any capital gain distributions received by the
shareholder.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds, payable on the accounts of those shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of
certain foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law.
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<PAGE>
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes" in the Statement of
Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, AND TO
MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL
LOSSES AT LEAST ANNUALLY. SEE "HOW THE FUND VALUES ITS SHARES."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES, BASED
ON THE NAV ON THE RECORD DATE OR SUCH OTHER DATE AS THE TRUSTEES MAY DETERMINE,
UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS DAYS PRIOR
TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS IN CASH. Such
election should be submitted to Prudential Mutual Fund Services, Inc., Attn:
Account Maintenance Unit, P.O. Box 15015, New Brunswick, New Jersey 08906-5015.
The Fund will notify each shareholder after the close of the Fund's taxable year
both of the dollar amount and the taxable status of that year's dividends and
distributions on a per share basis. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash.
When the Fund goes "ex-dividend," its NAV is reduced by the amount of the
dividend or distribution. If you buy shares just prior to the ex-dividend date
(which generally occurs four business days prior to the record date), the price
you pay will include the dividend or distribution and a portion of your
investment will be returned to you as a taxable distribution. You should,
therefore, consider the timing of dividends when making your purchases.
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE COMPANY WAS ESTABLISHED AS A DELAWARE BUSINESS TRUST ON MAY 11, 1992.
THE COMPANY IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF SHARES OF BENEFICIAL
INTEREST, $.001 PAR VALUE PER SHARE, DIVIDED INTO TWO SERIES OR PORTFOLIOS, THE
FUND AND PRUDENTIAL ACTIVE BALANCED FUND. THE FUND OFFERS ONE CLASS OF SHARES.
Prudential Active Balanced Fund offers four classes of shares. The Company is
permitted to issue and sell multiple classes of shares. In accordance with the
Company's Declaration of Trust, the Trustees may authorize the creation of
additional series of beneficial interest and classes within such series, with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine.
The Company's expenses generally are allocated between the Fund and the
other series of the Company on the basis of relative net assets at the time of
allocation, except that expenses directly attributable to the Fund or the other
series of the Company are charged to the Fund or the other series, as the case
may be.
The Trustees may increase or decrease the number of authorized shares
without the approval of shareholders. Shares of the Fund, when issued, are fully
paid, nonassessable, fully transferable and redeemable at the option of the
holder. Shares are also redeemable at the option of the Fund under certain
circumstances as described under "Shareholder Guide--How to Sell Your Shares."
The Company's shares do not have cumulative voting rights for the election of
Trustees.
THE COMPANY DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW.THE COMPANY WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF TRUSTEES IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS,
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INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OR MORE OF THE
COMPANY'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE TRUSTEES OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Company with the SEC under
the Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC
OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. PARTICIPANTS IN PROGRAMS
SPONSORED BY PRUDENTIAL RETIREMENT SERVICES SHOULD CONTACT THEIR CLIENT
REPRESENTATIVE FOR MORE INFORMATION ABOUT PURCHASING SHARES OF THE FUND. The
offering price is the NAV next determined following receipt of an order by the
Transfer Agent or Prudential Securities. Shares of the Fund are offered to a
limited group of investors at net asset value without any sales charge. See "How
the Fund Values its Shares."
There is no minimum subsequent investment requirement for shares of the
Fund. See "Shareholder Services."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a share certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive share
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
ELIGIBLE PURCHASERS
Shares of the Fund are available for purchase by (i) investors who purchase
$1 million or more of shares (or who already own $1 million of shares of other
Prudential Mutual Funds), including those described under "Benefit Plans" and
"PruArray and SmartPath Plans" below; (ii) participants in any fee-based program
sponsored by Prudential Securities (or one of its affiliates) which includes
mutual funds as investment options and for which the Fund is an available
option; and (iii) investors who were, or executed a letter of intent to become,
shareholders of any series of the Company on or before one or more series of the
Company reorganized or who on that date had investments in certain products for
which the Company provided exchangeability.
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates will pay dealers, financial advisers and other persons which
distribute shares a finders' fee based on a percentage of the net asset value of
shares sold by such persons.
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PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire,
you must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). 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,
Boston, Massachusetts, Custody and Shareholder Services Division, Attention:
Prudential Dryden Fund, Prudential Stock Index Fund, specifying on the wire the
account number assigned by PMFS and your name.
If you arrange for receipt by State Street of federal funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Dryden Fund,
Prudential Stock Index Fund, 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.
RIGHT OF ACCUMULATION. Shares of the Fund and shares of other Prudential
Mutual Funds (excluding money market funds other than those acquired pursuant to
the exchange privilege) may be aggregated to determine eligibility. See
"Purchase and Redemption of Fund Shares" in the Statement of Additional
Information.
BENEFIT PLANS. Shares of the Fund may be purchased by pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 or 403(b)(7) of the Internal Revenue Code (collectively, Benefit
Plans), provided that the plan has existing assets of at least $1 million
invested in shares of Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) or 250 eligible
employees or participants. In the case of Benefit Plans whose accounts are held
directly with the Transfer Agent or Prudential Securities and for which the
Transfer Agent or Prudential Securities does individual account recordkeeping
(Direct Account Benefit Plans) and Benefit Plans sponsored by PSI or its
subsidiaries (PSI or Subsidiary Prototype Benefit Plans), shares may be
purchased by participants who are repaying loans made from such plans to the
participant.
PRUARRAY AND SMARTPATH PLANS. Shares of the Fund may be purchased by
certain retirement and deferred compensation plans, qualified or non-qualified
under the Internal Revenue Code, including pension, profit-sharing, stock-bonus
or other employee benefit plans under Section 401 of the Internal Revenue Code
and deferred compensation and annuity plans under Sections 457 or 403(b)(7) of
the Internal Revenue Code that participate in the Prudential's PruArray and
SmartPath Programs (benefit plan recordkeeping services) (hereafter referred to
as a PruArray or SmartPath Plan); provided that the plan has at least $1 million
in existing assets or 250 eligible employees or participants. The term "existing
assets" for this purpose includes stock issued by a PruArray or SmartPath Plan
sponsor, shares of non-money market Prudential Mutual Funds and shares of
certain unaffiliated non-money market mutual funds that participate in the
PruArray or SmartPath Program (Participating Funds). "Existing assets" also
include shares of money market funds acquired by exchange from a Participating
Fund.
OTHER WAIVERS. In addition, shares of the Fund may be purchased at NAV,
through Prudential Securities or the Transfer Agent, by the following persons:
(a) officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent and
(c) employees and special agents of Prudential and its subsidiaries and all
persons who have retired directly from active service with Prudential or one of
its subsidiaries.
18
<PAGE>
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER SHARE
NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES."
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION
REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION,
PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE
TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All
correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the SEC, by
order, so permits; provided that applicable rules and regulations of the SEC
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Trustees determines that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as a
regular redemption. See "How the Fund Values its Shares." If your shares are
redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Company has, however, elected to be governed by Rule 18f-1 under
the Investment Company Act, under which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund during the 90-day period for any one shareholder.
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
19
<PAGE>
asset value of less than $500 due to a redemption. The Fund will give any such
shareholder 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH THE OTHER
SERIES OF THE COMPANY AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE
OR MORE SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT
REQUIREMENTS OF SUCH FUNDS. SHAREHOLDERS WHO ARE OTHERWISE ELIGIBLE TO PURCHASE
CLASS Z SHARES HAVE THE ABILITY TO EXCHANGE THEIR SHARES OF THE FUND FOR CLASS Z
SHARES OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. SHAREHOLDERS WHO ARE
OTHERWISE ELIGIBLE TO PURCHASE CLASS A SHARES HAVE THE ABILITY TO EXCHANGE THEIR
SHARES OF THE FUND FOR CLASS A SHARES OF ANOTHER FUND ON THE BASIS OF THE
RELATIVE NAV. An exchange will be treated as a redemption and purchase for tax
purposes.
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. (THE FUND OR ITS AGENTS COULD BE SUBJECT TO LIABILITY
IF THEY FAIL TO EMPLOY REASONABLE PROCEDURES.) All exchanges will be made on the
basis of the relative NAV of the two funds next determined after the request is
received in good order.The exchange privilege is available only in states where
the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
The Fund reserves the right to reject any exchange order including
exchanges (and market timing transactions) which are of a size and/or frequency
engaged in by one or more accounts acting in concert or otherwise, that have or
may have an adverse effect on the ability of the Subadviser to manage the
portfolio. The determination that such exchanges or activity may have an adverse
effect and the determination to reject any exchange order shall be in the
discretion of the Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you
can take advantage of the following additional services and privileges:
20
<PAGE>
O AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTION. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Fund at NAV. You may direct the Transfer Agent
in writing not less than 5 full business days prior to the record date to have
subsequent dividends and/or distributions sent in cash rather than reinvested.
If you hold shares through Prudential Securities, you should contact your
financial adviser.
O TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
O SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. See also
"Shareholder Investment Account--Systematic Withdrawal Plan" in the Statement of
Additional Information.
O REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 (toll-free) or by writing to the Fund at
Gateway Center Three, Newark, New Jersey 07102-4077. In addition, monthly
unaudited financial data are available upon request from the Fund.
O SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at
Gateway Center Three, Newark, New Jersey 07102-4077, or by telephone, at (800)
225-1852 (toll-free) or, from outside the U.S.A. at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
21
<PAGE>
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<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
- --------------------------------------------------------------------------------
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
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A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS ................................................ 2
Risk Factors and Special Characteristics ...................... 2
FUND EXPENSES .................................................. 4
FINANCIAL HIGHLIGHTS ........................................... 5
HOW THE FUND INVESTS ........................................... 6
Investment Objective and Policies ............................. 6
Other Investments and Policies ................................ 8
Hedging and Return Enhancement Strategies ..................... 9
Investment Restrictions ....................................... 11
HOW THE FUND IS MANAGED ........................................ 12
Manager ....................................................... 12
Subadviser .................................................... 12
Distributor ................................................... 12
Fee Waivers and Subsidy ....................................... 13
Portfolio Transactions ........................................ 14
Custodian and Transfer and
Dividend Disbursing Agent .................................... 14
HOW THE FUND VALUES ITS SHARES ................................. 14
HOW THE FUND CALCULATES PERFORMANCE ............................ 14
TAXES, DIVIDENDS AND DISTRIBUTIONS ............................. 15
GENERAL INFORMATION ............................................ 16
Description of Shares ......................................... 16
Additional Information ........................................ 17
SHAREHOLDER GUIDE .............................................. 17
How to Buy Shares of the Fund ................................. 17
How to Sell Your Shares ....................................... 19
How to Exchange Your Shares ................................... 20
Shareholder Services .......................................... 20
THE PRUDENTIAL MUTUAL FUND FAMILY .............................. A-1
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MF174A
CUSIP No.: 74431F209
PRUDENTIAL
STOCK
INDEX
FUND
P R O S P E C T U S
November 29, 1996
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PRUDENTIAL
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