PRUDENTIAL EUROPE GROWTH FUND INC, 497, 1994-07-18

PRUDENTIAL EUROPE GROWTH FUND INC
497, 1994-07-18

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Rule 497
File No. 33-53151
PRUDENTIAL EUROPE GROWTH FUND, INC.

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PROSPECTUS DATED JULY 11, 1994
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Prudential Europe 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 securities (common stock, securities convertible into common stock and
preferred stock) of companies domiciled in Europe. Under normal circumstances,
the Fund intends to invest at least 65% of its total assets in such securities.
The Fund may also invest in equity securities of other companies and in
non-convertible debt securities, options on stocks, stock indices, foreign
currencies, futures contracts on foreign currencies and foreign currency
exchange contracts and may purchase and sell futures contracts on foreign
currencies and groups of currencies and on financial or stock indices to hedge
its portfolio and to attempt to enhance income. There can be no assurance that
the Fund's investment objective will be achieved. See 'How the Fund
Invests--Investment Objective and Policies.' The Fund's address is One Seaport
Plaza, New York, New York 10292, and its telephone number is (800) 225-1852.

The Fund is not intended to constitute a complete investment program. Because of
its investment objective and policies, including its European orientation, the
Fund is subject to greater investment risks than certain other mutual funds. See
'How the Fund Invests--Risk Factors and Special Considerations of Investing in
Foreign Securities.'

The Fund offers three classes of shares, which may be purchased at the next
determined net asset value per share plus a sales charge which, at the election
of the investor, may be imposed either (i) at the time of purchase (the Class A
shares) or (ii) on a deferred basis (the Class B or Class C shares). Class A
shares are subject to a maximum initial sales charge of 5% and an annual
distribution and service fee which is currently being charged at the rate of .25
of 1% of the average daily net asset value of the Class A shares. Class B shares
are subject to a contingent deferred sales charge or CDSC (declining from 5% to
zero) which will be imposed on certain redemptions made within six years of
purchase and an annual distribution and service fee of 1% of the average daily
net asset value of the Class B shares. Class C shares are subject to a CDSC of
1% on redemptions made within one year of purchase and an annual distribution
and service fee of 1% of the average daily net asset value of the Class C
shares. See 'Shareholder Guide--How to Buy Shares of the Fund.'
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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 July 11, 1994, 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 the 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 EUROPE GROWTH FUND, INC.?

Prudential Europe Growth Fund, Inc. is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed
to achieve its investment objective. Technically, the Fund is an open-end,
diversified management investment company.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is long-term growth of capital. It
seeks to achieve this objective by investing primarily in equity
securities (common stock, securities convertible into common stock and
preferred stock) of companies domiciled in Europe. There can be no
assurance that the Fund's objective will be achieved. See 'How the Fund
Invests -- Investment Objective and Policies' at page 5.

RISK FACTORS AND SPECIAL CHARACTERISTICS

Under normal circumstances, the Fund anticipates that at least 65% of
its total assets will consist of European equity securities, primarily
common stock and other securities convertible into common stock. See 'How
the Fund Invests -- Investment Objective and Policies' at page 5. The Fund
intends to invest in developing countries, and in countries with new or
developing capital markets such as companies domiciled in Eastern and
Central Europe. Investing in securities of foreign companies and countries
involves certain risks and considerations not typically associated with
investments in domestic companies. See 'How the Fund Invests -- Risk
Factors and Special Considerations of Investing in Foreign Securities' at
page 7. The Fund is permitted to invest up to 25% of its net assets in
lower quality foreign convertible debt securities provided that such
securities have a minimum rating of at least B as determined by a
nationally recognized securities rating organization (NRSRO), such as
Standard & Poor's Ratings Group or another NRSRO or, if unrated, are of
equivalent quality. Lower rated securities are subject to a greater risk
of loss of principal and interest. See 'How the Fund Invests -- Risk
Factors Relating to Investing in Foreign Debt Securities Rated Below

Investment Grade (Junk Bonds)' at page 8. The Fund may also engage in
various hedging and income enhancement strategies and invest in derivative
securities. See 'How the Fund Invests--Hedging and Income Enhancement
Strategies -- Risks of Hedging and Income Enhancement Strategies' at page
11.

WHO MANAGES THE FUND?

Prudential Mutual Fund Management, Inc. (PMF or the Manager), is the
manager of the Fund and is compensated for its services at an annual rate
of .75 of 1% of the Fund's average daily net assets. As of June 30, 1994,
PMF served as manager or administrator to 66 investment companies,
including 37 mutual funds, with aggregate assets of approximately $47
billion. The Prudential Investment Corporation (PIC or the Subadviser)
furnishes investment advisory services in connection with the management
of the Fund under a Subadvisory Agreement with PMF. See 'How the Fund is
Managed -- Manager' at page 14. The management fee is higher than that
paid by most other investment companies.

WHO DISTRIBUTES THE FUND'S SHARES?

Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the
Distributor of the Fund's Class A shares and is paid an annual
distribution and service fee which is currently being charged at the rate
of .25 of 1% of the average daily net assets of the Class A shares.

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Prudential Securities Incorporated (Prudential Securities or PSI), a
major securities underwriter and securities and commodities broker, acts
as the Distributor of the Fund's Class B and Class C shares and is paid
for its services at an annual rate of 1% of the average daily net assets
of each of the Class B and Class C shares.

See 'How the Fund is Managed -- Distributor' at page 15.

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000 per class for Class A and
Class B shares and $5,000 for Class C shares. The minimum subsequent
investment is $100 for all classes. There is no minimum investment
requirement for certain retirement and employee savings plans or custodial
accounts for the benefit of minors. For purchases made through the
Automatic Savings Accumulation Plan, the minimum initial and subsequent
investment is $50. See 'Shareholder Guide -- How to Buy Shares of the
Fund' at page 20 and 'Shareholder Guide -- Shareholder Services' at page
29.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Fund through Prudential Securities,
Pruco Securities Corporation (Prusec) or directly from the Fund, through
its transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the
Transfer Agent), at the net asset value per share (NAV) next determined

after receipt of your purchase order by the Transfer Agent or Prudential
Securities plus a sales charge which may be imposed either (i) at the time
of purchase (Class A shares) or (ii) on a deferred basis (Class B or Class
C shares). See 'How the Fund Values its Shares' at page 16 and
'Shareholder Guide -- How to Buy Shares of the Fund' at page 20.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Fund offers three classes of shares:

o Class A Shares: Sold with an initial sales charge of up to 5% of
the offering price.

o Class B Shares: Sold without an initial sales charge but are
subject to a contingent deferred sales charge or
CDSC (declining from 5% to zero of the lower of the
amount invested or the redemption proceeds) which
will be imposed on certain redemptions made within
six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related
expenses than Class A shares, Class B shares will
automatically convert to Class A shares (which are
subject to lower ongoing expenses) approximately
seven years after purchase.

o Class C Shares: Sold without an initial sales charge but, for one
year after purchase, are subject to a CDSC of 1% on
redemptions. Like Class B shares, Class C shares
are subject to higher ongoing distribution-related
expenses than Class A shares but do not convert to
another class.

See 'Shareholder Guide -- Alternative Purchase Plan' at page 22.

HOW DO I SELL MY SHARES?

You may redeem your shares at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell
order. However, the proceeds of redemptions of Class B and Class C shares
may be subject to a CDSC. See 'Shareholder Guide -- How to Sell Your
Shares' at page 24.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

The Fund expects to pay dividends of net investment income and 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 18.

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FUND EXPENSES

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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------------------ ------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)........ 5% None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends.............. None None None
Deferred Sales Load (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower).... None 5% during the 1% on redemptions
first year, made within one
decreasing by 1% year of purchase
annually to 1% in
the fifth and the
sixth years and 0%
in the seventh
year*
Redemption Fees.......... None None None
Exchange Fees............ None None None

<CAPTION>
ANNUAL FUND OPERATING EX- CLASS A CLASS B CLASS C
PENSES (as a percentage of SHARES SHARES SHARES
average net assets) ------- ------------------ ------------------
<S> <C> <C> <C>
Management Fees.......... .75% .75% .75%
12b-1 Fees............... .25%++ 1.00% 1.00%
Other Expenses........... .95% .95% .95%
---- ---- ----
Total Fund Operating
Expenses............... 1.95%++ 2.70% 2.70%
---- ---- ----
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
----------------------------- ------ -------
<S> <C> <C>
You would pay the following
expenses on a $1,000

investment, assuming (1) 5%
annual return and (2)
redemption at the end of
each time period:
Class A.................. $69 $108
Class B.................. $77 $114
Class C.................. $37 $ 84
You would pay the following
expenses on the same
investment, assuming no
redemption:
Class A.................. $69 $108
Class B.................. $27 $ 84
Class C.................. $27 $ 84
</TABLE>

The above example is based on data for the Fund's fiscal year ending April
30, 1995. 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 an investor 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' include estimated operating expenses of the Fund, such as
Directors' and professional fees, registration fees, reports to
shareholders, transfer agency and custodian (domestic and foreign) fees
(but excludes foreign withholding taxes).

---------------
*Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See 'Shareholder
Guide -- Conversion Feature -- Class B Shares.'

+Pursuant to rules of the National Association of Securities Dealers,
Inc., the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation
is imposed on the Fund rather than on a per shareholder basis.
Therefore, long-term shareholders of the Fund may pay more in total
sales charges than the economic equivalent of 6.25% of such
shareholders' investment in such shares. See 'How the Fund is Managed --
Distributor.'

++Although the Class A Distribution and Service Plan provides that the
Fund may pay up to an annual rate of .30 of 1% of the average daily net
assets of the Class A shares, the Distributor has agreed to limit its
distribution fees with respect to Class A shares of the Fund so as not
to exceed .25 of 1% of the average daily net assets of the Class A
shares for the fiscal year ending April 30, 1995. Total operating
expenses without such limitation would be 2.00%. See 'How the Fund is
Managed -- Distributor.'

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HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES

THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND
SEEKS TO ACHIEVE THIS OBJECTIVE BY INVESTING PRIMARILY IN EQUITY SECURITIES OF
COMPANIES DOMICILED IN EUROPE. EUROPEAN COUNTRIES INCLUDE AUSTRIA, BELGIUM, THE
CZECH REPUBLIC, DENMARK, FINLAND, FRANCE, GERMANY, GREECE, HUNGARY, IRELAND,
ITALY, LUXEMBOURG, THE NETHERLANDS, NORWAY, POLAND, PORTUGAL, RUSSIA, SLOVAKIA,
SPAIN, SWEDEN, SWITZERLAND, TURKEY AND THE UNITED KINGDOM. Equity securities in
which the Fund may invest include common stock, preferred stock and common stock
equivalents, such as warrants and convertible debt securities (rated investment
grade or below investment grade, or non-rated, as described below). Current
income from dividends and interest will not be an important consideration in
selecting portfolio securities. THE FUND ANTICIPATES THAT, UNDER NORMAL MARKET
CONDITIONS, AT LEAST 65% OF ITS TOTAL ASSETS WILL CONSIST OF EQUITY SECURITIES
OF EUROPEAN COMPANIES. THE FUND MAY INVEST IN THE EQUITY SECURITIES OF COMPANIES
DOMICILED IN ANY COUNTRY WITHIN EUROPE THAT THE INVESTMENT ADVISER BELIEVES TO
BE STABLE. THERE IS NO LIMIT ON THE PERCENTAGE OF FUND ASSETS THAT MAY BE
INVESTED IN ANY SINGLE COUNTRY. UNDER NORMAL CIRCUMSTANCES, THE FUND MAY INVEST
THE REMAINDER OF ITS ASSETS IN SECURITIES OF ISSUERS DOMICILED OUTSIDE OF
EUROPE, DEBT OBLIGATIONS, REPURCHASE AGREEMENTS AND MAY HOLD CASH, SUBJECT TO
THE LIMITATIONS DESCRIBED HEREIN. The Fund reserves the right as a defensive
measure to hold temporarily other types of securities without limit, including
commercial paper, bankers' acceptances, non-convertible debt securities
(corporate and government) or government and high quality money market
securities of United States and non-United States issuers, or cash (foreign
currencies or United States dollars), in such proportions as, in the opinion of
the Fund's investment adviser, prevailing market, economic or political
conditions warrant. The Fund may also temporarily hold cash and invest in high
quality foreign or domestic money market instruments pending investment of
proceeds from new sales of Fund shares or to meet ordinary daily cash needs.
THERE CAN BE NO ASSURANCE THAT THE FUND'S OBJECTIVE WILL BE ACHIEVED. See
'Investment Objective and Policies' in the Statement of Additional Information.

THE FUND INTENDS TO INVEST IN DEVELOPING COUNTRIES, AND IN COUNTRIES WITH
NEW OR DEVELOPING CAPITAL MARKETS, SUCH AS THOSE IN EASTERN AND CENTRAL EUROPE.
These countries may have relatively unstable governments, economies based on
only a few industries and securities markets that trade a limited number of
securities. Securities of issuers located in these countries tend to have
volatile prices and offer the potential for substantial loss as well as gain. In
addition, these securities may be less liquid than investments in more
established markets as a result of inadequate trading volume or restrictions on
trading imposed by the governments of such countries. See 'Risk Factors and
Special Considerations of Investing in Foreign Securities' below.

UNDER NORMAL CIRCUMSTANCES, THE FUND MAY INVEST UP TO 35% OF ITS TOTAL
ASSETS IN THE SECURITIES OF ISSUERS DOMICILED OUTSIDE OF EUROPE. Such
investments may include (i) securities of companies in countries which are
linked by tradition, economic markets, cultural similarities or geography to
Europe and (ii) securities of companies which have operations in Europe or which

stand to benefit from political and economic events in Europe. For example, the
Fund may invest in a company outside of Europe when the Fund's investment
adviser believes at the time of investment that the value of the company's
securities may be enhanced by conditions or developments in Europe even though
the company's production facilities are located outside of Europe.

UNDER NORMAL CONDITIONS, THE FUND MAY ALSO INVEST UP TO 35% OF ITS TOTAL
ASSETS IN DEBT OBLIGATIONS, INCLUDING OBLIGATIONS ISSUED OR GUARANTEED BY THE
U.S. GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES, OR BY FOREIGN GOVERNMENTS OR
SUPRANATIONAL ORGANIZATIONS, OBLIGATIONS ISSUED BY BANKS AND CORPORATIONS AND
OTHER

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<PAGE>
DEBT OBLIGATIONS. These obligations may be denominated in U.S. dollars or in
foreign currencies. The issuers of such securities may or may not be domiciled
in Europe. Supranational organizations include entities such as the World Bank,
which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization engaged
in cooperative economic activities; the European Coal and Steel Community, which
is an economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions.

The Fund will purchase 'investment grade' debt obligations. Investment
grade debt obligations are bonds rated within the four highest quality grades as
determined by Moody's Investors Service (Moody's) (currently Aaa, Aa, A and Baa
for bonds, MIG 1, MIG 2, MIG 3 and MIG 4 for notes and P-1 for commercial
paper), or Standard & Poor's Ratings Group (S&P) (currently AAA, AA, A and BBB
for bonds, SP-1 and SP-2 for notes and A-1 for commercial paper), or by another
nationally recognized statistical rating organization (NRSRO) or, in unrated
securities of equivalent quality. See the 'Description of Security Ratings' in
the Appendix to the Prospectus. The Fund is permitted to invest up to 25% of its
net assets in lower quality, foreign convertible debt securities provided that
such securities have a minimum rating of at least B as determined by one NRSRO
or, if unrated, are deemed by the investment adviser to be of comparable
quality. Securities rated Baa by Moody's or BBB by S&P, although considered to
be investment grade, lack outstanding investment characteristics and, in fact,
have speculative characteristics. Lower rated securities are subject to a
greater risk of loss of principal and interest. See 'Risk Factors Relating to
Investing in Foreign Debt Securities Rated Below Investment Grade (Junk Bonds)'
below.

THE FUND MAY INVEST IN SECURITIES NOT LISTED ON SECURITIES EXCHANGES. THESE
SECURITIES WILL GENERALLY HAVE AN ESTABLISHED MARKET (SUCH AS THE OVER-THE-
COUNTER MARKET), THE DEPTH AND LIQUIDITY OF WHICH MAY VARY FROM TIME TO TIME
AND FROM SECURITY TO SECURITY. See 'Other Investments and Policies -- Illiquid
Securities' below.

In addition to analyzing the companies in which investments are made, the
investment adviser also considers such factors as prospects for economic growth
for each foreign country; expected levels of inflation and interest rates;
government policies influencing business conditions; the range of individual

investment opportunities available to international investors; and other
pertinent financial, tax, social, political and national factors -- all in
relation to the prevailing prices of securities in each country.

IN ADDITION TO PURCHASING EQUITY SECURITIES OF EUROPEAN ISSUERS, THE FUND
MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS (ADRS), EUROPEAN DEPOSITARY RECEIPTS
(EDRS) OR OTHER SECURITIES CONVERTIBLE INTO SECURITIES OF CORPORATIONS DOMICILED
IN EUROPE. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in the United States securities markets
and EDRs, in bearer form, are designed for use in European securities markets.
The Fund may invest in ADRs and EDRs through both sponsored and unsponsored
arrangements. In a sponsored ADR or EDR arrangement, the foreign issuer assumes
the obligation to pay some or all of the depository's transaction fees, whereas
in an unsponsored arrangement, the foreign issuer assumes no obligations and the
depository's transaction fees are paid by the ADR or EDR holders. Foreign
issuers in respect of whose securities unsponsored ADRs or EDRs have been issued
are not necessarily obligated to disclose material information in the markets in
which the unsponsored ADRs or EDRs are traded and, therefore, there may not be a
correlation between such information and the market value of such securities.

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

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<PAGE>
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.

AS INDICATED ABOVE, WHEN CONDITIONS DICTATE A DEFENSIVE STRATEGY, THE FUND
MAY INVEST TEMPORARILY, WITHOUT LIMIT, IN HIGH QUALITY MONEY MARKET INSTRUMENTS
OF UNITED STATES AND NON-UNITED STATES ISSUERS (INCLUDING, WITH RESPECT TO
UNITED STATES ISSUERS, REPURCHASE AGREEMENTS MATURING IN SEVEN DAYS OR LESS).
The Fund will only invest in money market instruments that have short term
ratings in at least the second highest category by at least one NRSRO or are
issued by companies that have outstanding debt securities rated at least
investment grade by an NRSRO or in unrated securities of issuers that the Fund's
investment adviser has determined to be of comparable quality. Subsequent to its
purchase by the Fund, a security may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Fund should continue to hold the security in its portfolio.
Securities rated Baa by Moody's or BBB by S&P, for example, although considered
to be investment grade, lack outstanding investment characteristics and, in
fact, have speculative characteristics. See 'Description of Security Ratings' in
the Appendix.

THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND 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.

INVESTMENT POLICIES THAT ARE NOT FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF
DIRECTORS.

RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES

FOREIGN SECURITIES INVOLVE CERTAIN RISKS, WHICH SHOULD BE CONSIDERED
CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL OR ECONOMIC
INSTABILITY IN THE COUNTRY OF THE ISSUER, THE DIFFICULTY OF PREDICTING
INTERNATIONAL TRADE PATTERNS, THE POSSIBILITY OF IMPOSITION OF EXCHANGE CONTROLS
AND THE RISK OF CURRENCY FLUCTUATIONS. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. Government, its instrumentalities or agencies. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States and there is a possibility of expropriation,
confiscatory taxation or diplomatic developments which could affect investment.

ALTHOUGH THE FUND INTENDS TO INVEST PRIMARILY IN EQUITY SECURITIES, IT MAY
INVEST IN DEBT SECURITIES OF FOREIGN ISSUERS. In many instances, foreign debt
securities may provide higher yields than securities of domestic issuers which
have similar maturities and quality. These investments, however, may be less
liquid than the securities of U.S. corporations. In the event of default of any
such foreign debt obligations, it may be more difficult for the Fund to obtain
or enforce a judgment against the issuers of such securities.

ADDITIONAL COSTS COULD BE INCURRED IN CONNECTION WITH THE FUND'S
INTERNATIONAL INVESTMENT ACTIVITIES. Foreign brokerage commissions are generally
higher than United States brokerage commissions. Increased custodian costs as
well as administrative difficulties (such as the applicability of foreign laws
to foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.

If the security is denominated in a foreign currency, it will be affected
by changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund

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<PAGE>
will be required to compute and distribute its income in U.S. dollars.
Therefore, if the exchange rate for any such currency declines after the Fund's
income has been accrued and translated into U.S. dollars, the Fund could be
required to liquidate portfolio securities to make such distributions,
particularly in instances in which the amount of income the Fund is required to
distribute is not immediately reduced by the decline in such currency.
Similarly, if an exchange rate declines between the time the Fund incurs
expenses in U.S. dollars and the time such expenses are paid, the amount of such

currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred. The Fund may, but need
not, enter into forward foreign currency exchange contracts, options on foreign
currencies and futures contracts on foreign currencies and related options, for
hedging purposes, including: locking-in the U.S. dollar price of the purchase or
sale of securities denominated in a foreign currency; locking-in the U.S. dollar
equivalent of interest or dividends to be paid on such securities which are held
by the Fund; and protecting the U.S. dollar value of such securities which are
held by the Fund.

SHAREHOLDERS SHOULD BE AWARE THAT INVESTING IN THE EQUITY AND FIXED-INCOME
MARKETS OF DEVELOPING COUNTRIES (I.E., EASTERN EUROPE) INVOLVES EXPOSURE TO
ECONOMIES THAT ARE GENERALLY LESS DIVERSE AND MATURE, AND TO POLITICAL SYSTEMS
WHICH CAN BE EXPECTED TO HAVE LESS STABILITY THAN THOSE OF DEVELOPED COUNTRIES.
HISTORICAL EXPERIENCE INDICATES THAT THE MARKETS OF DEVELOPING COUNTRIES HAVE
BEEN MORE VOLATILE THAN THE MARKETS OF DEVELOPED COUNTRIES. THE RISKS ASSOCIATED
WITH INVESTMENTS IN FOREIGN SECURITIES, DESCRIBED ABOVE, MAY BE GREATER WITH
RESPECT TO INVESTMENTS IN DEVELOPING COUNTRIES.

RISK FACTORS RELATING TO INVESTING IN FOREIGN DEBT SECURITIES RATED BELOW
INVESTMENT GRADE (JUNK BONDS)

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

Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. Under adverse
market or economic conditions, the secondary market for high yield securities
could contract further, independent of any specific adverse changes in the
condition of a particular issuer. As a result, the investment adviser could find
it more difficult to sell these securities or may be able to sell the securities
only at prices lower than if such securities were widely traded. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices in calculating the Fund's net asset
value.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net

redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the debt portion of the Fund's
portfolio and increasing the exposure of the Fund to the risks of high yield
securities.

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<PAGE>
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 stocks 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
rated below investment grade. See 'Risk Factors Relating to Investing in Foreign
Debt Securities Rated Below Investment Grade (Junk Bonds).'

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.

HEDGING AND INCOME ENHANCEMENT STRATEGIES

THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES INCLUDING
DERIVATIVE TRANSACTIONS TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO
ATTEMPT TO ENHANCE INCOME. These strategies currently include the use of
options, forward currency exchange contracts and 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 Objective
and Policies' and 'Taxes' in the Statement of Additional Information. New
financial products and risk management techniques continue to be developed and
the Fund may use these new investments and techniques to the extent consistent
with its investment objective and policies.

OPTIONS TRANSACTIONS

THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES AND CURRENCIES THAT ARE TRADED ON U.S. OR FOREIGN SECURITIES

EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ENHANCE INCOME OR TO HEDGE THE
FUND'S PORTFOLIO. These options will be on equity securities, financial indices
(e.g., S&P 500) and foreign currencies. The Fund may write covered put and call
options to generate additional income through the receipt of premiums, purchase
put options in an effort to protect the value of securities (or currencies) that
it owns against a decline in market value and purchase options in an effort to
protect against an increase in the price of securities (or currencies) it
intends to purchase. The Fund may also purchase put and call options to offset
previously written put and call options of the same series. See 'Investment
Objective and Policies -- Options on Securities' in the Statement of Additional
Information.

A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY
SUBJECT TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE).
The writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, 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

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<PAGE>
for gain on the underlying securities or currency in excess of the exercise
price of the option during the period that the option is open.

A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.

THE FUND WILL WRITE ONLY 'COVERED' OPTIONS. An option is covered if, so
long as the Fund is obligated under the option, it owns an offsetting position
in the underlying security or currency or maintains cash, U.S. Government
securities or other liquid high-grade debt obligations with a value sufficient
at all times to cover its obligations in a segregated account. See 'Investment
Objective and Policies -- Options on Securities' in the Statement of Additional
Information. There is no limitation on the amount of call options the Fund may
write. The Fund has undertaken with certain state securities commissions that,
so long as shares of the Fund are registered in those states, it will not (a)
write puts having aggregate exercise prices greater than 25% of total net
assets, or (b) purchase (i) put options on stocks not held in the Fund's
portfolio, (ii) put options on stock indices or foreign currencies or (iii) call
options on stock, stock indices or foreign currencies if, after any such
purchase, the aggregate premiums paid for such options would exceed 10% of the
Fund's total assets; provided, however, that the Fund may purchase put options
on stocks held by the Fund if after such purchase the aggregate premiums paid
for such options do not exceed 20% of the Fund's net assets. The aggregate value
of the obligations underlying put options will not exceed 50% of the Fund's net
assets.

FORWARD CURRENCY EXCHANGE CONTRACTS

THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS ASSETS AGAINST FUTURE CHANGES IN THE LEVEL OF CURRENCY
EXCHANGE RATES. The Fund may enter into such contracts on a spot, i.e., cash,
basis at the rate then prevailing in the currency exchange market or on a
forward basis, by entering into a forward contract to purchase or sell currency.
A forward contract on foreign currency is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days agreed
upon by the parties from the date of the contract at a price set on the date of
the contract.

THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross hedge). Although there
are no limits on the number of forward contracts which the Fund may enter into,
the Fund may not position hedge (including cross hedges) with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of forward currency) of the
securities being hedged. See 'Investment Objective and Policies -- Risks Related
to Forward Foreign Currency Exchange Contracts' in the Statement of Additional
Information.

FUTURES CONTRACTS AND OPTIONS THEREON

THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR CERTAIN
HEDGING, RETURN ENHANCEMENT AND RISK MANAGEMENT PURPOSES IN ACCORDANCE WITH
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. These futures contracts
and related options will be on financial indices and foreign currencies or
groups of foreign currencies such as the European Currency Unit. A European
Currency Unit is a basket of specified amounts of the currencies of

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<PAGE>
certain member states of the European Economic Community, a European economic
cooperative organization including France, Germany, The Netherlands and the
United Kingdom. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities or currencies at a set price for delivery in the
future.

The Fund may not purchase or sell futures contracts and related options for
return enhancement or risk management purposes, 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. The value of all futures contracts sold will not exceed the total
market value of the Fund's portfolio.

THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the movements in the index or price of the
currencies being hedged is imperfect and there is a risk that the value of the
indices or currencies being hedged may increase or decrease at a greater rate
than the related futures contracts resulting in losses to the Fund. Certain
futures exchanges or boards of trade have established daily limits on the amount
that the price of futures contracts or 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 'Taxes' in the Statement of Additional
Information.

RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES

PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the investment
adviser's predictions of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were not
used. Risks inherent in the use of options, foreign currency and futures
contracts and options on futures contracts include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; (5) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain 'cover' or to
segregate securities in connection with hedging transactions. See '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 management 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.

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<PAGE>
OTHER INVESTMENTS AND POLICIES

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 purchase price of the underlying securities
(including accrued interest earned thereon). 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 with
other investment companies managed by Prudential Mutual Fund Management, Inc.
pursuant to an order of the Securities and Exchange Commission (SEC). See
'Investment Objective and Policies -- Repurchase Agreements' in the Statement of
Additional Information.

BORROWING

The Fund may borrow an amount equal to no more than 33 1/3% 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 33 1/3% 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.

ILLIQUID SECURITIES

The Fund may invest up to 5% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act) and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. Repurchase agreements subject
to demand are deemed to have a maturity equal to the applicable notice period.

The staff of the SEC has taken the position that purchased OTC options and
the assets used as 'cover' for written OTC options are illiquid securities.
However, the Fund may treat the securities it uses as 'cover' for written OTC
options on U.S. Government securities as liquid provided it follows a specified
procedure. The Fund may sell OTC options on U.S. Government securities only to
qualified dealers who agree that the Fund may repurchase options it writes for a

maximum price to be calculated by a predetermined formula. In such cases, OTC
options would be considered liquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
See 'Investment Objective and Policies -- Illiquid Securities' in the Statement
of Additional Information.

PORTFOLIO TURNOVER

As a result of the Fund's investment policies, its portfolio turnover rate
may exceed 100%, although the rate is not expected to exceed 150%. High
portfolio turnover (over 100%) may involve correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. See 'Portfolio Transactions and Brokerage' in the Statement of Additional
Information. In addition, high portfolio turnover may result in increased
short-term capital gains, which, when distributed to shareholders, are treated
as ordinary income. See 'Taxes, Dividends and Distributions.'

12
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place a month or more in the future in order to secure what is considered to be
an advantageous price and yield to the Fund at the time of entering into the
transaction. 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, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
Fund's purchase commitments; the Custodian will likewise segregate securities
sold on a delayed delivery basis. Subject to this requirement, the Fund may
purchase securities on such basis without limit. See 'Investment Objective and
Policies -- 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 Objective and
Policies -- Lending of Securities' in the Statement of Additional Information.

SHORT SALES AGAINST-THE-BOX

The Fund may make short sales against-the-box for the purpose of deferring
realization of gain or loss for federal income tax purposes. A short sale
'against-the-box' is a short sale in which the Fund owns an equal amount of the
securities sold short or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same issue as,
and equal in amount to, the securities sold short.

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
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THE FUND HAS A BOARD OF DIRECTORS 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.

The Fund is responsible for the payment of certain fees and expenses
including, among others, the following: (i) management and distribution fees;
(ii) the fees of unaffiliated Directors; (iii) the fees of the Fund's Custodian
and Transfer and Dividend Disbursing Agent; (iv) the fees of the Fund's legal
counsel and independent accountants; (v) brokerage commissions incurred in
connection with portfolio transactions; (vi) all taxes and charges of
governmental agencies; (vii) the reimbursement of organization expenses; and
(viii) expenses related to shareholder communications including all expenses of
shareholders' and Board of Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses to shareholders.

MANAGER

PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .75 OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS. IT WAS INCORPORATED IN MAY 1987 UNDER THE LAWS OF THE STATE OF DELAWARE.
SEE 'MANAGER' IN THE STATEMENT OF ADDITIONAL INFORMATION.

As of June 30, 1994, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 29 closed-end investment companies with aggregate assets of
approximately $47 billion.

UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. SEE
'MANAGER' IN THE STATEMENT OF ADDITIONAL INFORMATION.

UNDER THE SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services. The Fund is
managed under the supervision of Daniel J. Duane, a Managing Director and Chief
Investment Officer for Global Equity Investments of Prudential Investment
Advisors, a unit of PIC. Mr. Duane has supervised the management of the Fund's
portfolio since its inception and has been employed by PIC as a portfolio
manager since 1990. He was formerly with First Investors Asset Management from
1986 to 1990 as a senior portfolio manager and head of global equity
investments. Mr. Duane is a Chartered Financial Analyst. Mr. Duane also serves
as the portfolio manager of the Prudential Series Fund (Global Equity
Portfolio), Prudential Global Fund, Prudential Global Genesis Fund and
Prudential Pacific Growth Fund.

PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.

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<PAGE>
DISTRIBUTOR

PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD), 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 CLASS A SHARES OF THE FUND. IT IS
A WHOLLY-OWNED SUBSIDIARY OF PMF.

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 CLASS B AND
CLASS C SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL.

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS
B PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION AGREEMENTS
(THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES (COLLECTIVELY, THE
DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND
CLASS C SHARES. These expenses include commissions and account servicing fees
paid to, or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,

other broker-dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of Prudential and Prusec associated with the sale of Fund
shares, including lease, utility, communications and sales promotion expenses.
The State of Texas requires that shares of the Fund may be sold in that state
only by dealers or other financial institutions which are registered there as
broker-dealers.

Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.

UNDER THE CLASS A PLAN, THE FUND MAY PAY PMFD FOR ITS DISTRIBUTION-RELATED
ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO .30 OF 1%
OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The Class A Plan provides
that (i) up to .25 of 1% of the average daily net assets of the Class A shares
may be used to pay for personal service and/or the maintenance of shareholder
accounts (service fee) and (ii) total distribution fees (including the service
fee of .25 of 1%) may not exceed .30 of 1% of the average daily net assets of
the Class A shares. PMFD has agreed to limit its distribution-related fees
payable under the Class A Plan to .25 of 1% of the average daily net assets of
the Class A shares for the fiscal year ending April 30, 1995.

UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C
SHARES AT AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE
CLASS B AND CLASS C SHARES. The Class B and Class C Plans provide for the
payment to Prudential Securities of (i) an asset-based sales charge of .75 of 1%
of the average daily net assets of the Class B and Class C shares, respectively,
and (ii) a service fee of .25 of 1% of the average daily net assets of each of
the Class B and Class C shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. Prudential Securities
also receives contingent deferred sales charges from certain redeeming
shareholders. See 'Shareholder Guide -- How to Sell Your Shares -- Contingent
Deferred Sales Charges.'

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

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<PAGE>
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not 'interested persons' of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the

Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the Fund.
The Fund will not be obligated to pay expenses incurred under any Plan if it is
terminated or not continued.

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

The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See 'Distributor' in
the Statement of Additional Information.

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
Information' in the Statement of Additional Information and 'Fund Expenses.'

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

Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, 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.

Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.

- --------------------------------------------------------------------------------
HOW THE FUND VALUES ITS SHARES
- --------------------------------------------------------------------------------

THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF DIRECTORS HAS 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.

16
<PAGE>
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See 'Net Asset Value' in the
Statement of Additional Information.

The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. See 'Net Asset Value' in the Statement of
Additional Information.

Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. It is
expected, however, that the NAV of the three classes will tend to converge
immediately after the recording of dividends, which will differ by approximately
the amount of distribution-related expense accrual differential among the
classes.

- --------------------------------------------------------------------------------
HOW THE FUND CALCULATES PERFORMANCE
- --------------------------------------------------------------------------------

FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
'AVERAGE ANNUAL' TOTAL RETURN AND 'AGGREGATE' TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. These figures are based on
historical earnings and are not intended to indicate future performance. The
'total return' shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (i.e., one, five, or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The 'aggregate' total return reflects actual performance
over a stated period of time. 'Average annual' total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return if performance had been constant over the entire period.
'Average annual' total return smooths out variations in performance and takes
into account any applicable initial or contingent deferred sales charges.
Neither 'average annual' total return nor 'aggregate' total return takes into
account any federal or state income taxes which may be payable upon redemption.
The 'yield' refers to the income generated by an investment in the Fund over a
one-month or 30-day period. This income is then 'annualized;' that is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as a
percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also

may include comparative performance information in advertising or marketing the
Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., and other industry
publications, business periodicals and market indices. See 'Performance
Information' in the Statement of Additional Information. The Fund will include
performance data for each class of shares of the Fund in any advertisement or
information including performance data of the Fund. Further performance
information will be contained in the Fund's annual and semi-annual reports to
shareholders, which will be available without charge. See 'Shareholder Guide --
Shareholder Services -- Reports to Shareholders.'

17
<PAGE>
- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------

TAXATION OF THE FUND

THE FUND INTENDS TO ELECT 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.

The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Fund. See 'Taxes' in the Statement of Additional
Information.

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.

Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition are treated
as ordinary gain or loss. These gains or losses increase or decrease the amount
of the Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If currency fluctuation losses exceed other
investment company taxable income during a taxable year, distributions made by
the Fund during the year would be characterized as a return of capital to
shareholders, reducing the shareholder's basis in his or her Fund shares.

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%.

The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders. See
'Taxes' in the Statement of Additional Information.

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.

The Fund has obtained an opinion of counsel to the effect that conversion
of Class B shares into Class A shares does not constitute a taxable event for
federal income tax purposes. However, such opinion is not binding on the
Internal Revenue Service.

18
<PAGE>
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.

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
MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM CAPITAL
LOSSES ON AN ANNUAL BASIS. Dividends paid by the Fund with respect to each class
of shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount except
that each class will bear its own distribution charges, generally resulting in
lower dividends for Class B and Class C shares. Distribution of net capital
gains, if any, will be paid in the same amount for each class of shares. See
'How the Fund Values its Shares.'

DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES, BASED
ON THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., 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
advisor 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 COMMON STOCK

THE FUND WAS INCORPORATED IN MARYLAND ON MARCH 18, 1994. THE FUND IS
AUTHORIZED TO ISSUE 2 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE,
DIVIDED INTO THREE CLASSES, DESIGNATED CLASS A, CLASS B AND CLASS C COMMON
STOCK. OF THE AUTHORIZED SHARES OF COMMON STOCK, 1 BILLION SHARES CONSIST OF
CLASS A COMMON STOCK, 500 MILLION SHARES CONSIST OF CLASS B COMMON STOCK AND 500
MILLION SHARES CONSIST OF CLASS C COMMON STOCK. Each class of common stock
represents an interest in the same assets of the Fund and is identical in all
respects except that (i) each class bears different distribution expenses, (ii)
each class has exclusive voting rights with respect to its distribution and
service plan (except that the Fund has agreed with the SEC in connection with
the offering of a conversion feature on Class B shares to submit any amendment
of the Class A distribution and service plan to both Class A and Class B
shareholders, (iii) each class has a different exchange privilege and (iv) only
Class B shares have a conversion feature. See 'How the Fund is Managed --
Distributor.' Pursuant to an

19
<PAGE>
order of the SEC, the Fund is permitted to issue and sell multiple classes of
common stock. Currently, the Fund is offering three classes, designated Class A,
Class B and Class C shares. In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series of common stock and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board may
determine.

The Board of Directors may increase or decrease the number of authorized
shares. Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also

redeemable at the option of the Fund under certain circumstances as described
under 'Shareholder Guide -- How to Sell Your Shares.' Each share of each class
of common stock is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. Except for the conversion feature applicable to the Class B shares,
there are no conversion, preemptive or other subscription rights. In the event
of liquidation, each share of common stock of the Fund is entitled to its
portion of all of the Fund's assets after all debts and expenses of the Fund
have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Directors.

THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OR MORE
OF THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.

ADDITIONAL INFORMATION

This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. 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. The offering price is the
NAV next determined following receipt of an order by the Transfer Agent or
Prudential Securities plus a sales charge which, at your option, may be imposed
either (i) at the time of purchase (Class A shares) or (ii) on a deferred basis
(Class B or Class C shares). See 'Alternative Purchase Plan' below. See also
'How the Fund Values its Shares.'

20
<PAGE>
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates.

The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See 'Shareholder Services.'

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 fifth business day following the investment.

Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS 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 Bankers Trust Company, New York; ABA
number: 021-001-033; A/C: Brown Brothers Harriman & Co., New York, Account:
01-501-026; REF: Prudential Europe Growth Fund, Inc., Account: 8114597. You
should specify on the wire the account number assigned by PMFS and your name and
identify the sales charge alternative (Class A, Class B or Class C shares).

If you arrange for receipt by Bankers Trust 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 Bankers
Trust directly and should be sure that the wire specifies Prudential Europe
Growth Fund, Inc., Class A, Class B or Class C shares and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing federal funds. The minimum amount which may be
invested by wire is $1,000.

21
<PAGE>
ALTERNATIVE PURCHASE PLAN

THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C
SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH
OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).

<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES

(AS A % OF AVERAGE
SALES CHARGE DAILY NET ASSETS) OTHER INFORMATION
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Class A Maximum initial sales .30 of 1% (currently
charge of 5% of the being charged at a Initial sales charge
public rate waived or reduced for
offering price of .25 of 1%) certain purchases

Class B Maximum contingent 1%
deferred sales charge
or CDSC of 5% of the
lesser of the amount
invested or the Shares convert to
redemption proceeds; Class A shares
declines to zero after approximately seven
six years years after purchase

Class C Maximum CDSC of 1% of 1%
the lesser of the
amount invested or the
redemption proceeds on
redemptions made
within one year Shares do not convert
of purchase. to another class
</TABLE>

The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading 'General Information -- Description of Common Stock')
and (iii) only Class B shares have a conversion feature. The three classes also
have separate exchange privileges. See 'How to Exchange Your Shares' below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.

Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.

IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see 'How to
Exchange Your Shares' below) and (5) the fact that Class B shares automatically
convert to Class A shares approximately seven years after purchase (see
'Conversion Feature -- Class B Shares' below).

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

If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 5% and Class B

22
<PAGE>
shares are subject to a CDSC of 5% which declines to zero over a 6-year period,
you should consider purchasing Class C shares over either Class A or Class B
shares.

If you intend to hold your investment for 7 years or more and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and because all
of your money would be invested initially in the case of Class B shares, you
should consider purchasing Class A or Class B shares over Class C shares.

If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during which the CDSC is
applicable.

ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES. SEE 'REDUCTION AND WAIVER OF INITIAL SALES CHARGES' BELOW.

CLASS A SHARES

The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF

OFFERING PRICE INVESTED AMOUNT OFFERING PRICE
----------------- ----------------- -----------------
<S> <C> <C> <C>
Less than $25,000...... 5.00% 5.26% 4.75%
$25,000 to $49,999..... 4.50 4.71 4.25
$50,000 to $99,999..... 4.00 4.17 3.75
$100,000 to $249,999... 3.25 3.36 3.00
$250,000 to $499,999... 2.50 2.56 2.40
$500,000 to $999,999... 2.00 2.04 1.90
$1,000,000 and above... None None None
</TABLE>

Selling dealers may be deemed to be underwriters, as that term is defined
in the Securities Act.

REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Sales charges are reduced
under Rights of Accumulation and Letters of Intent. Class A shares may be
purchased at NAV, without payment of an initial sales charge, by pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 and 403(b)(7) of the Internal Revenue Code (Benefit Plans),
provided that the plan has existing assets of at least $1 million invested in
shares of Prudential Mutual Funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) or 1,000 eligible employees or
members. In the case of Benefit Plans whose accounts are held directly with the
Transfer

23
<PAGE>
Agent or Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account record keeping (Direct Account Benefit Plans)
and Benefit Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary
Prototype Benefit Plans), Class A shares may be purchased at NAV by participants
who are repaying loans made from such plans to the participant. Additional
information concerning the reduction and waiver of initial sales charges is set
forth in the Statement of Additional Information.

In addition, Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by the following persons: (a) Directors and
officers of the Fund and other Prudential Mutual Funds, (b) employees of
Prudential Securities and PMF and their subsidiaries and members of the families
of such persons who maintain an 'employee related' account at Prudential
Securities or the Transfer Agent, (c) employees and special agents of Prudential
and its subsidiaries and all persons who have retired directly from active
service with Prudential or one of its subsidiaries, (d) registered
representatives and employees of dealers who have entered into a selected dealer
agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares of
any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service fee

of .25 of 1% or less) on which no deferred sales load, fee or other charge was
imposed on redemption and (iii) the financial adviser served as the client's
broker on the previous purchases.

You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See 'Purchase
and Redemption of Fund Shares -- Reduction and Waiver of Initial Sales
Charges -- Class A Shares' in the Statement of Additional Information.

CLASS B AND CLASS C SHARES

The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, Prudential Securities or Prusec.
Although there is no sales charge imposed at the time of purchase, redemption of
Class B and Class C shares may be subject to a CDSC. See 'How to Sell Your
Shares -- Contingent Deferred Sales Charges.'

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.'
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable contingent deferred sales charge, as described below. See
'Contingent Deferred Sales Charges' below.

IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES SIGNED IN THE 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

24
<PAGE>
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 Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as a regular redemption. See 'How the Fund Values its Shares.' If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund 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 Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
any such shareholder 60 days' prior written notice in which to purchase
sufficient additional shares to avoid such redemption. No contingent deferred
sales charge will be imposed on any involuntary redemption.

30-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 30 days after the
date of redemption. No sales charge will apply to such repurchases. You will
receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B or Class C shares. You must notify the
Fund's Transfer Agent, either directly or through Prudential Securities or

Prusec, at the time the repurchase privilege is exercised that you are

25
<PAGE>
entitled to credit for the contingent deferred sales charge previously paid.
Exercise of the repurchase privilege will not affect the federal income tax
treatment of any gain realized upon redemption. If the redemption resulted in a
loss, some or all of the loss, depending on the amount reinvested, will not be
allowed for federal income tax purposes.

CONTINGENT DEFERRED SALES CHARGES

Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid to
you. The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and one year, in the case of Class C shares. A CDSC will
be applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
purchased through reinvestment of dividends or distributions are not subject to
CDSC. The amount of any contingent deferred sales charge will be paid to and
retained by the Distributor. See 'How the Fund is Managed -- Distributor' and
'Waiver of the Contingent Deferred Sales Charges' below.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month after
the initial purchase, excluding the time shares were held in a money market
fund. See 'How to Exchange Your Shares.'

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

<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 generally in the lowest
possible rate. It will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value
above the total amount of payments for the purchase of Fund shares made during
the preceding six years; then of amounts representing the cost of shares held
beyond the applicable CDSC period; and finally, of amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.

For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated

26
<PAGE>
to $12 per share, the value of your Class B shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the value of the reinvested
dividend shares and the amount which represents appreciation ($260). Therefore,
$240 of the $500 redemption proceeds ($500 minus $260) would be charged at a
rate of 4% (the applicable rate in the second year after purchase) for a total
CDSC of $9.60.

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

WAIVER OF CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust, at the time of death or initial
determination or 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 the following distributions made without penalty under the
Internal Revenue Code from a tax-deferred retirement plan, an IRA or Section
403(b) custodial account: (i) in the case of a tax-deferred retirement plan, a
lump-sum or other distribution after retirement; (ii) in the case of an IRA or
Section 403(b) custodial account, a lump-sum or other distribution after
attaining age 59 1/2; and (iii) a tax-free return of an excess contribution or
plan distributions following the death or disability of the shareholder,
provided that the shares were purchased prior to death or disability. The waiver
does not apply in the case of a tax-free rollover or transfer of assets, other
than one following a separation from service (i.e., following voluntary or
involuntary termination of employment or following retirement). Under no
circumstances will the CDSC be waived on redemptions resulting from the
termination of a tax-deferred retirement plan, unless such redemptions otherwise

qualify for a waiver as described above. In the case of Direct Account and PSI
or Subsidiary Prototype Benefit Plans, the CDSC will be waived on redemptions
which represent borrowings from such plans. Shares purchased with amounts used
to repay a loan from such plans on which a CDSC was not previously deducted will
thereafter be subject to a CDSC without regard to the time such amounts were
previously invested. In the case of a 401(k) plan, the CDSC will also be waived
upon the redemption of shares purchased with amounts used to repay loans made
from the account to the participant and from which a CDSC was previously
deducted.

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

You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC and provide the Transfer Agent with such supporting documentation as
it may deem appropriate. The waiver will be granted subject to confirmation of
your entitlement. See 'Waiver of the Contingent Deferred Sales Charge -- Class B
Shares' in the Statement of Additional Information.

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 occur during
the month following each calendar quarter and will be effected at relative net
asset value without the imposition of any additional sales charge. It is
currently anticipated that conversions will occur on the first Friday or next
business day of the month following each calendar quarter.

Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares

27
<PAGE>
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 then 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 or 47.62% multiplied by 200 shares or 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.

Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus, although
the aggregate dollar value will be the same, you may receive fewer Class A
shares than Class B shares converted. See 'How the Fund Values its Shares.'

For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. The
conversion feature described above will not be implemented and, consequently,
the first conversion of Class B shares will not occur before February, 1995, but
as soon thereafter as practicable. At that time, all amounts representing Class
B shares then outstanding beyond the applicable conversion period will
automatically convert to Class A shares, together with all shares or amounts
representing Class B shares acquired through the automatic reinvestment of
dividends and distributions then held in your account.

The conversion feature is subject to the continuing availability of
opinions of counsel (i) that the dividends and other distributions paid on Class
A, Class B, and Class C shares will not constitute 'preferential dividends'
under the Internal Revenue Code and (ii) that the conversion of shares does not
constitute a taxable event.

HOW TO EXCHANGE YOUR SHARES

AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A,
CLASS B AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B AND CLASS C
SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. No sales
charge will be imposed at the time of the exchange. Any applicable CDSC payable
upon the redemption of shares exchanged will be that imposed by the fund in
which shares are initially purchased and will be calculated from the first day
of the month after the initial purchase, excluding the time shares were held in
a money market fund. Class B and Class C shares may not be exchanged into money
market funds other than Prudential Special Money Market Fund. For purposes of
calculating the holding period applicable to the Class B conversion feature, the
time period during which Class B shares were

28
<PAGE>
held in a money market fund will be excluded. See 'Conversion Feature -- Class B
Shares' above. As of the date of this Prospectus, Class C shares are not being

offered by other Prudential Mutual Funds. Accordingly, Class C shares may be
exchanged only for shares of Prudential Special Money Market Fund. Class C
shares may be exchanged into Class C shares of other Prudential Mutual Funds
when such shares are available, however, there can be no assurance that other
Prudential Mutual Funds will offer Class C shares. An exchange will be treated
as a redemption and purchase for tax purposes. See 'Shareholder Investment
Account -- Exchange Privilege' in the Statement of Additional Information.

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM 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.

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 exchange privilege may be modified or terminated at any time on sixty
days' notice.

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:

o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTION WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.

o AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including a
Command Account). For additional information about this service, you may contact
your Prudential Securities financial adviser, Prusec representative or the
Transfer Agent directly.

29
<PAGE>
o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
'tax-sheltered accounts' under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.

o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See 'How to Sell Your
Shares -- Contingent Deferred Sales Charges.' 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 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.

o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A. at (908) 417-7555 (collect).

For additional information regarding the services and privileges described
above, see 'Shareholder Investment Account' in the Statement of Additional
Information.

30
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
DESCRIPTION OF SECURITY RATINGS
- --------------------------------------------------------------------------------

MOODY'S INVESTORS SERVICE

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

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuations 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 which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

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

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

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

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

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

C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

COMMERCIAL PAPER

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.

P-1: The designation 'Prime-1' or 'P-1' indicates the highest quality
repayment capacity of the rated issue.

P-2: The designation 'Prime-2' or 'P-2' indicates a strong capacity for
repayment.

A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP

AAA: Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A: Debt rated A has strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.

BB, B, CCC, CC: Debt rated BB, B, CCC, and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.

COMMERCIAL PAPER

Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt having an original maturity of no more than
270 days.

A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is very strong.

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

A-2
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------

Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Funds at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.

TAXABLE BOND FUNDS

Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund
Prudential Government Plus Fund
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund
Prudential Structured Maturity Fund
Income Portfolio
Prudential U.S. Government Fund
The Black Rock 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
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund

GLOBAL FUNDS

Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund
Prudential Global Natural Resources Fund
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.

Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.

EQUITY FUNDS

Prudential Equity Fund
Prudential Equity Income Fund
Prudential FlexiFund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Growth Fund, Inc.
Prudential Growth Opportunity Fund
Prudential IncomeVertible(Registered) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund
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
Money Market Series
Prudential MoneyMart Assets
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
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

B-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
HOW THE FUND INVESTS......................... 5
Investment Objective and Policies....... 5
Risk Factors and Special Considerations
of Investing in Foreign Securities.... 7
Risk Factors Relating to Investing in
Foreign Debt Securities Rated Below
Investment Grade (Junk Bonds)......... 8
Hedging and Income Enhancement
Strategies............................ 9
Other Investments and Policies.......... 12
Investment Restrictions................. 13
HOW THE FUND IS MANAGED...................... 14
Manager................................. 14
Distributor............................. 15
Fee Waivers and Subsidy................. 16
Portfolio Transactions.................. 16
Custodian and Transfer and Dividend
Disbursing Agent...................... 16
HOW THE FUND VALUES ITS SHARES............... 16
HOW THE FUND CALCULATES PERFORMANCE.......... 17
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 18
GENERAL INFORMATION.......................... 19
Description of Common Stock............. 19
Additional Information.................. 20
SHAREHOLDER GUIDE............................ 20
How to Buy Shares of the Fund........... 20
Alternative Purchase Plan............... 22
How to Sell Your Shares................. 24
Conversion Feature -- Class B Shares.... 27
How to Exchange Your Shares............. 28
Shareholder Services.................... 29
DESCRIPTION OF SECURITY RATINGS.............. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY............ B-1
- ---------------------------------------------------
MF160A 42MO25U
Class A: 74431N-10-3
CUSIP No.: Class B: 74431N-20-2
Class C: 74431N-30-1

PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------------
P
R

O
S
P
E
C
T
U
S

JULY 11, 1994

[PRUDENTIAL MUTUAL FUNDS LOGO]
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Additional Information
dated July 11, 1994

Prudential Europe 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 securities (common stock, securities convertible into common stock and
preferred stock) of companies domiciled in Europe. Under normal circumstances,
the Fund intends to invest at least 65% of its total assets in such securities.
The Fund may also invest in equity securities of other companies and in
non-convertible debt securities, options on stocks, stock indices, foreign
currencies and futures contracts on foreign currencies and may purchase and sell
futures contracts on foreign currencies and groups of currencies and on
financial or stock indices to hedge its portfolio and to attempt to enhance
income. There can be no assurance that the Fund's investment objective will be
achieved. See "Investment Objective and Policies."

The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.

This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Fund's Prospectus dated July 11, 1994, a copy of which
may be obtained from the Fund upon request.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
------ ---------------
<S> <C> <C>
Investment Objective and Policies.................. B-2 5
Investment Restrictions............................ B-11 13
Directors and Officers............................. B-12 14
Manager............................................ B-14 14
Distributor........................................ B-15 15
Portfolio Transactions and Brokerage............... B-16 16
Purchase and Redemption of Fund Shares............. B-17 20

Shareholder Investment Account..................... B-19 29
Net Asset Value.................................... B-22 16
Taxes.............................................. B-23 18
Performance Information............................ B-25 17
Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants...................... B-27 16
Independent Auditors' Report....................... B-28
Financial Statements............................... B-29
</TABLE>
- --------------------------------------------------------------------------------
MF160B 42MO311

<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity securities, common
stocks, common stock equivalents (including warrants and convertible debt
securities) and other equity securities of companies domiciled in Europe.
Companies domiciled in Europe include (i) companies organized under the laws of
a European country, (ii) companies for which the principal securities trading
market is in Europe, (iii) companies which derive at least 50% of their revenues
or profits from goods produced or sold, investments made or services performed
in Europe or (iv) companies which have at least 50% of their assets situated in
Europe. See "How the Fund Invests--Investment Objective and Policies" in the
Prospectus. There can be no assurance that the Fund's investment objective will
be achieved.

Prudential Investment Advisors, a unit of The Prudential Investment Corporation,
the subadviser to the Fund, maintains a group of professionals with knowledge of
and experience in European markets. Representatives of this group pay on-site
visits to many companies considered for the Fund, focus on key themes that could
provide growth potential in Europe and evaluate investment opportunities for the
Fund in the privatization of industries in Europe. See "How the Fund is
Managed--Manager" in the Prospectus.

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. 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 meet 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, 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. See "Other Investments and Investment
Techniques" below.

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 interests 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.

The Fund will 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.

B-2
<PAGE>
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.

FOREIGN DEBT SECURITIES

The Fund is permitted to invest in foreign corporate and government securities.
"Foreign Government 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 currencies of such countries or in U.S. dollars (including debt securities
of a Government Entity in any such country 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 entities" are issued by
entities owned by a national, state, or equivalent government or are obligations
of a political unit that are not backed by the national government's "full faith
and credit" and general taxing powers. Examples of quasi-government issuers
include, among others, the Province of Ontario and the City of Stockholm.
"Foreign government 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 securities shall also include
mortgage-backed securities issued by foreign Government Entities including
quasi-governmental entities.

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 generally
write put options when its 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.

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 exercise
price of the call written if the difference is maintained by the Fund in cash,
U.S. Government securities or other liquid high-grade debt obligations in a
segregated account with its Custodian. A put option written by the Fund is
"covered" if the Fund maintains cash, U.S. Government securities or other liquid
high-grade debt obligations 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

B-3
<PAGE>
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 if the Fund holds the underlying security by
appreciation of the underlying security owned by the Fund.

The Fund may also purchase a "protective put," i.e., a put option acquired for
the purpose of protecting a portfolio security from a decline in market value.
In exchange for the premium paid for the put option, the Fund acquires the right
to sell the underlying security at the exercise price of the put regardless of
the extent to which the underlying security declines in value. The loss to the
Fund is limited to the premium paid for, and transaction costs in connection
with, the put plus the initial excess, if any, of the market price of the
underlying security over the exercise price. However, if the market price of the

security underlying the put rises, the profit the Fund realizes on the sale of
the security will be reduced by the premium paid for the put option less any
amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on stock indices, as described below.

OPTIONS ON SECURITIES INDICES. In addition to options on 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. All settlements on options on indices 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 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 closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying securities acquired through the
exercise of call options or upon the purchase of underlying securities for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange

B-4
<PAGE>
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 the 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 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 33-1/3%
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, 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. 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.

B-5
<PAGE>
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 options
on foreign currencies. Risks include those described in the Prospectus under
"How the Fund Invests--Risk Factors and Special Considerations of Investing in
Foreign Securities," including government actions affecting currency valuation
and the movements of currencies from one country to another. The 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

The Fund may enter into forward foreign currency exchange contracts in several
circumstances. When the Fund enters into a contract for the purchase or sale of
a security denominated in a foreign currency, or when the Fund anticipates the
receipt in a foreign currency of dividends or interest payments on a security
which it holds, the Fund may desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for a fixed amount of
dollars, for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, the Fund may be able to protect itself against a
possible loss resulting from an adverse change in the 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 in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. The Fund's Custodian will
place cash or liquid securities 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-denominated 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

B-6
<PAGE>
spread) between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

There are several risks in connection with the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. In the case of futures contracts on securities indices, the correlation
between the price of the futures contract and the movements in the index may not
be perfect. Therefore, a correct forecast of currency rates, market trends or
international political trends by the investment adviser may still not result in
a successful hedging transaction.

Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance that
it will be possible, at any particular time, to close a futures position. In the
event the Fund could not close a futures position and the value of such position
declined, the Fund would be required to continue to make daily cash payments of
variation margin. There is no guarantee that the price movements of the
portfolio securities denominated in foreign currencies will, in fact, correlate
with the price movements in the futures contract and thus provide an offset to
losses on a futures contract. Currently, 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.

Under regulations of the Commodity Exchange Act, investment companies registered
under the Investment Company Act of 1940, as amended (the Investment Company
Act), are exempt from the definition of "commodity pool operator," subject to
compliance with certain conditions. The exemption is conditioned upon a
requirement that all of the Fund's futures or options transactions constitute
bona fide hedging transactions within the meaning of the regulations of the
Commodity Futures Trading Commission (CFTC). The Fund will use currency futures
and options on futures or commodity options contracts in a manner consistent
with this requirement. The Fund may also enter into futures or related options

contracts for income enhancement and risk management purposes if the aggregate
initial margin and option premiums do not exceed 5% of the liquidation value of
the Fund's total assets, after taking into account unrealized profits and
unrealized losses on any 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 and sale
of futures and related options contracts for bona fide hedging purchases.

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 may be, but will not necessarily be, at increased
prices which reflect the rising market. The Fund may have to sell securities at
a time when it is disadvantageous to do so.

The hours of trading of futures contracts may not conform to the hours during
which the Fund may trade the underlying securities. To the extent that the
futures markets close before the securities markets, significant price and rate
movements can take place in the securities markets that cannot be reflected in
the futures markets.

OPTIONS ON FUTURES CONTRACTS

An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. Currency options can
be purchased or written with respect to futures contracts on various foreign
currencies, including the Australian Dollar, British Pound, Canadian Dollar,
Japanese Yen, Swiss Franc, German Mark and Eurodollars. With respect to stock
indices, options are traded on futures contracts for various U.S. and foreign
stock indices including the S&P 500 Stock Index and the NYSE Composite Index.

The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.

B-7
<PAGE>

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
liquid assets equal to the aggregate exercise price of the puts. The Fund has
undertaken with certain state securities commissions that, so long as shares of
the Fund are registered in those states, it will not (a) write puts having
aggregate exercise prices greater than 25% of total net assets; or (b) purchase
(i) put options on stocks not held in the Fund's portfolio, (ii) put options on
stock indices, foreign currencies or futures contracts on foreign currencies or
(iii) call options on stocks, stock indices or foreign currencies if, after any
such purchase, the aggregate premiums paid for such options would exceed 10% of
the Fund's total net assets; provided, however, that the Fund may purchase put
options on stocks held by the Fund if after such purchase the aggregate premiums
paid for such options do not exceed 20% of the Fund's net assets. In addition,
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. 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, liquid high-grade debt securities or
at least one "qualified security" 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, U.S.
Government securities or other high-grade short-term debt obligations 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, U.S. Government
securities or other high-grade short-term debt obligations 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, Treasury bills
or other high-grade short-term obligations 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,

B-8
<PAGE>
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.

DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

When conditions dictate a defensive strategy, the Fund may temporarily invest 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, its
agencies or its instrumentalities and repurchase agreements (described more
fully below). Such investments may be subject to certain risks, including future
political and economic developments, the possible imposition of withholding
taxes on interest income, the seizure or nationalization of foreign deposits and
foreign exchange controls or other restrictions.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

From time to time, in the ordinary course of business, the Fund may purchase 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 limit such purchases to those in which the date for delivery and
payment falls within 120 days of the date of the commitment. The Fund will make
commitments for such when-issued transactions only with the intention of
actually acquiring the securities. The Fund's Custodian will maintain, in a
separate account of the Fund, cash, U.S. Government securities or other liquid
high-grade debt obligations having a value equal to or greater than such
commitments. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with the disposition
of any other portfolio security, incur a gain or loss due to market
fluctuations.

SHORT SALES AGAINST-THE-BOX

The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for an equal amount of the
securities of the same issuer as the securities sold short (a short sale
against-the-box), and that not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such sales. Short
sales will be made primarily to defer realization of gain or loss for federal
tax purposes. As a matter of current operating policy, the Fund will not engage
in short-sales other than short-sales against-the-box.

REPURCHASE AGREEMENTS

The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Board of Directors.
The Fund's investment adviser will monitor the creditworthiness of such parties,
under the general supervision of the Board of Directors. In the event of a
default or bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss.

The Fund may participate in a joint repurchase agreement account with other
investment companies managed by Prudential Mutual Fund Management, Inc. (PMF or
the Manager) pursuant to an order of the Securities and Exchange Commission
(SEC). On a daily basis, any uninvested cash balances of the Fund may be
aggregated with those of such investment companies and invested in one or more
repurchase agreements. Each fund participates in the income earned or accrued in

the joint account based on the percentage of its investment.

LENDING OF 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 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.

B-9
<PAGE>
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.

ILLIQUID SECURITIES

The Fund may not invest more than 5% 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.

In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act including repurchase
agreements, commercial paper, foreign securities, municipal securities,
convertible securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.

Rule 144A under the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper and foreign
securities will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.

Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security and (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer). In addition, in order for commercial paper that is issued in reliance
on Section 4(2) of the Securities Act to be considered liquid, (i) it must be
rated in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations (NRSRO), or if only one NRSRO rates
the securities, by that NRSRO, or, if unrated, be of comparable quality in the
view of the investment adviser; and (ii) it must not be "traded flat" (i.e.,
without accrued interest) or in default as to principal or interest. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.

SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, the Fund does not intend to invest in such

securities. If the Fund does invest in securities of other investment companies,
shareholders of the Fund may be subject to duplicate management and advisory
fees.

PORTFOLIO TURNOVER

As a result of the investment policies described above, the Fund may engage in a
substantial number of portfolio transactions, but the Fund's portfolio turnover
rate is not expected to exceed 150%. 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

B-10
<PAGE>
rather than long-term capital gains compared to investment companies with lower
portfolio turnover. See "Portfolio Transactions and Brokerage" and "Taxes."

INVESTMENT RESTRICTIONS

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

The Fund may not:

1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a security
on margin.

2. Make short sales of securities or maintain a short position if, when added
together, more than 25% of the value of the Fund's net assets would be (i)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales and (ii) allocated to segregated accounts in connection with
short sales. Short sales "against-the-box" are not subject to this limitation.

3. Issue senior securities, borrow money or pledge its assets, except that the
Fund may borrow from banks up to 33-1/3% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to
33-1/3% of the value of its total assets to secure such borrowings. For
purposes of this restriction, the purchase or sale of securities on a
when-issued or delayed delivery basis, forward foreign currency exchange

contracts and collateral arrangements relating thereto, and collateral
arrangements with respect to futures contracts and options thereon and with
respect to the writing of options and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed to be a pledge of
assets or the issuance of a senior security.

4. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result: (i) with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (determined at the
time of investment) would then be invested in securities of a single issuer, or
(ii) 25% or more of the Fund's total assets (determined at the time of the
investment) would be invested in a single industry.

5. Purchase any security if as a result the Fund would then have more than 5% of
its total assets (determined at the time of investment) invested in securities
of companies (including predecessors) less than three years old, except that the
Fund may invest in the securities of any U.S. Government agency or
instrumentality, and in any security guaranteed by such an agency or
instrumentality.

6. Buy or sell real estate or interests in real estate, except that the Fund may
purchase and sell securities which are secured by real estate, securities of
companies which invest or deal in real estate and publicly traded securities of
real estate investment trusts. The Fund may not purchase interests in real
estate limited partnerships which are not readily marketable.

7. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon. (For purposes
of this restriction, futures contracts on currencies and on securities indices
and forward foreign currency exchange contracts are not deemed to be commodities
or commodity contracts.)

8. 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 has not adopted a fundamental
investment policy with respect to investments in restricted securities. See
"Illiquid Securities."

9. Make investments for the purpose of exercising control or management.

10. Invest in securities of other investment companies, except by purchases in
the open market involving only customary brokerage commissions and as a result
of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5% of
its total assets in any one investment company and will not have invested more
than 10% of its total assets (determined at the time of investment) in such
securities of one or more investment companies, or except as part of a merger,
consolidation or other acquisition.

11. Invest in interests in oil, gas or other mineral exploration or development
programs, except that the Fund may invest in the securities of companies which
invest in or sponsor such programs.

12. Make loans, except through (i) repurchase agreements and (ii) loans of

portfolio securities limited to 30% of the Fund's total assets.

13. Purchase more than 10% of all outstanding voting securities of any one
issuer.

B-11
<PAGE>
In order to comply with certain "blue sky" restrictions, the Fund will not as a
matter of operating policy:

1. Invest in oil, gas and mineral leases.

2. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or Director of the Fund or the Fund's Manager or Subadviser (as defined
below) owns more than 1/2 of 1% of the outstanding securities of such issuer,
and such officers and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer.

3. Purchase warrants if as a result the Fund would then have more than 5% of its
assets (determined at the time of investment) invested in warrants. Warrants
will be valued at the lower of cost or market and investment in warrants which
are not listed on the New York Stock Exchange or American Stock Exchange or a
major foreign exchange will be limited to 2% of the Fund's net assets
(determined at the time of investment). For purposes of this limitation,
warrants acquired in units or attached to securities are deemed to be without
value.

4. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities
of issuers which are restricted as to disposition, if more than 15% of its total
assets would be invested in such securities. This restriction shall not apply to
mortgage-backed securities, asset-backed securities or obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.

5. Invest more than 5% of its total assets in securities of unseasoned issuers,
including their predecessors, which have been in operation for less than three
years, and in equity securities of issuers which are not readily marketable.

6. Invest more than 10% of its total assets in securities of real estate
investment trusts.

Whenever any fundamental investment policy or investment restriction states a
maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.

DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST 5 YEARS

- ---------------- ------------- ---------------------
<S> <C> <C>
Thomas R. Anderson Director Retired. Until July 1991, Chairman, President and Chief Executive Officer of
c/o Prudential Mutual Kemper Financial Companies, Inc.; Executive Vice President and Director of
Fund Management, Inc. Kemper Corporation; Chairman and Chief Executive Officer of Kemper Financial
One Seaport Plaza Services, Inc.; and Kemper Investors Life Insurance Company. Until 1994,
New York, NY Trustee/Director of Kemper Mutual Funds and Kemper Closed-End Funds. Director
of Hinsdale Financial Corporation, Hinsdale Federal Bank for Savings, The
Real Exchange Corporation and Specialty Equipment Companies, Inc.

Eugene C. Dorsey Director Retired President, Chief Executive Officer and Trustee of the Gannett Foundation
c/o Prudential Mutual (now Freedom Forum); former Publisher of four Gannett newspapers and Vice
Fund Management, Inc. President of the Gannett Company; past Chairman, Independent Sector,
One Seaport Plaza Washington, D.C. (national coalition of philanthropic organizations); former
New York, NY Chairman of the American Council for the Arts; Director of the Advisory Board
of Chase Manhattan Bank of Rochester.

*Lawrence C. McQuade President and Vice Chairman of PMF (since 1988) and Managing Director, Investment Banking of
One Seaport Plaza Director Prudential Securities (1988-1991); Director, Quixote Corporation (since
New York, NY February 1992); Director, BUNZL, P.L.C. (since June 1991); formerly Director
of Crazy Eddie Inc. (1987-1990) of Kaiser Tech., Ltd., Kaiser Aluminum and
Chemical Corp. (March 1987-November 1988); formerly Executive Vice President
and Director of W. R. Grace & Co. (1975-1987); President and Director of The
High Yield Income Fund, Inc., The Global Yield Fund, Inc. and The Global
Government Plus Fund, Inc.
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST 5 YEARS
- ---------------- ------------- ---------------------
<S> <C> <C>
Stephen P. Munn Director Chairman (since January 1994), Director and President (since 1988) and Chief
c/o Prudential Mutual Executive Officer (1988-December 1993) of Carlisle Companies Incorporated.
Fund Management, Inc.
One Seaport Plaza
New York, NY

*Richard A. Redeker Director President, Chief Executive Officer and Director (since October 1993), PMF;
One Seaport Plaza Executive Vice President, Director and Member of the Operating Committee
New York, NY (since October 1993), Prudential Securities; Director (since October 1993) of
Prudential Securities Group, Inc.; formerly Senior Executive Vice President
and Director of Kemper Financial Services, Inc. (September 1978-September
1993); Director of The Global Government Plus Fund, Inc. and The High Yield
Income Fund, Inc.

Robin B. Smith Director President (since September 1981) and Chief Executive Officer (since January
c/o Prudential Mutual 1988), Publishers Clearing House; Director of The Omnicom Group, Inc., Texaco
Fund Management, Inc. Inc., Spring Industries Inc., First Financial Fund, Inc., Huffy Corporation,
One Seaport Plaza The Global Yield Fund, Inc., The High Yield Income Fund, Inc. and The High
New York, NY Yield Plus Fund, Inc.

Robert F. Gunia Vice President Director (since January 1989), Chief Administrative Officer (since July 1990)
One Seaport Plaza and Executive Vice President, Treasurer and Chief Financial Officer (since
New York, NY June 1987) of PMF; Senior Vice President (since March 1987) of Prudential
Securities; Vice President and Director of The Asia Pacific Fund, Inc.
(since May 1989).

S. Jane Rose Secretary Senior Vice President (since January 1991), Senior Counsel (since June 1987)
One Seaport Plaza and First Vice President (June 1987-December 1990) of PMF; Senior Vice
New York, NY President and Senior Counsel of Prudential Securities (since July 1992);
formerly Vice President and Associate General Counsel of Prudential
Securities.

Susan C. Cote Treasurer and Senior Vice President of PMF; Senior Vice President (since January 1992) and
One Seaport Plaza Principal Vice President (January 1986-December 1991) of Prudential Securities.
New York, NY Financial and
Accounting
Officer

Domenick Pugliese Assistant Vice President (since June 1992) and Associate General Counsel (since March
One Seaport Plaza Secretary 1992) of PMF; Vice President and Associate General Counsel of Prudential
New York, NY Securities (since July 1992); prior thereto, associated with the law firm of
Battle Fowler.
</TABLE>

- -----------------
* "Interested" director, as defined in the Investment Company Act,
by reason of his or her affiliation with Prudential Securities or PMF.

Directors and officers of the Fund are also trustees, directors and officers of
some or all of the other investment companies distributed by Prudential
Securities or PMFD.

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

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

The Fund pays each of its Directors who is not an affiliated person of PMF or
The Prudential Investment Corporation (PIC) or the Subadviser annual
compensation of $10,000, in addition to certain out-of-pocket expenses.

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 in installments which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills at
the beginning of each calendar quarter or, pursuant to an 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

B-13
<PAGE>

Director. The Fund's obligation to make payments of deferred Directors' fees,
together with interest thereon, is a general obligation of the Fund. Currently,
Mr. Dorsey and Ms. Smith have elected to defer their fees at the Fund rate.

As of June 23, 1994, the Directors and officers of the Fund, as a group, owned
less than 1% of the outstanding common stock of the Fund.

MANAGER

The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or the
Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager to
all of the other investment companies that, together with the Fund, comprise the
Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus. As of June 30, 1994, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $47
billion. According to the Investment Company Institute, as of April 30, 1994,
the Prudential Mutual Funds were the 12th largest family of mutual funds in the
United States.

Pursuant to the Management Agreement with the Fund (the Management Agreement),
PMF, 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 and other assets. In
connection therewith, PMF is obligated to keep certain books and records of the
Fund. PMF 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
Brown Brothers Harriman & Co., the Fund's custodian (the Custodian), and
Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), the Fund's
transfer and dividend disbursing agent. The management services of PMF for the
Fund are not exclusive under the terms of the Management Agreement and PMF is
free to, and does, render management services to others.

For its services, PMF 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 PMF, 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 PMF will be reduced by the
amount of such excess. Reductions in excess of the total compensation payable to
PMF will be paid by PMF to the Fund. Currently, the Fund believes that the most
restrictive expense limitation of state securities commissions is 2-1/2% of the
Fund's average daily net assets up to $30 million, 2% of the next $70 million of
such assets and 1-1/2% of such assets in excess of $100 million.

In connection with its management of the corporate affairs of the Fund, PMF
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 PMF or the
Fund's investment adviser;

(b) all expenses incurred by PMF 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 PIC pursuant to the Subadvisory Agreement
between PMF and PIC (the Subadvisory Agreement).

Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the Fund may be a member, (h) the cost of stock
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) 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 as a broker or dealer and
qualifying its shares under state securities laws, including the preparation and
printing of the Fund's registration statements and prospectuses for such
purposes, (k) allocable communications expenses with respect to investor
services and all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing reports, proxy statements and prospectuses to
shareholders in the amount necessary for distribution to the shareholders, (l)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business and (m) distribution
fees.

B-14
<PAGE>
The Management Agreement provides that PMF will not be liable for any error of
judgment or for any loss suffered by the Fund in connection with the matters to
which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was approved by the Board of Directors of the Fund, including all of the
Directors who are not parties to the contract or interested persons of any such
party, as defined in the Investment Company Act, on June 23, 1994, and by the
initial shareholder of the Fund on July 7, 1994.

PMF has entered into the Subadvisory Agreement with PIC, a wholly-owned

subsidiary of Prudential. The Subadvisory Agreement provides that PIC will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PMF continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PIC's
performance of such services. PIC is reimbursed by PMF for the reasonable costs
and expenses incurred by PIC in furnishing those services.

The Subadvisory Agreement was approved by the Board of Directors, including a
majority of the Directors who are not parties to the contract or interested
persons of any such party, as defined in the Investment Company Act, on June 23,
1994, and by the initial shareholder of the Fund on July 7, 1994.

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, PMF or PIC 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.

The Manager and the Subadviser are subsidiaries of The Prudential which, as of
December 31, 1993, was the largest insurance company in the United States and
the second largest insurance company in the world. Prudential has been engaged
in the insurance business since 1875. In July 1993, Institutional Investor
ranked The Prudential the third largest institutional money manager of the 300
largest money management organizations in the United States as of December 31,
1992.

DISTRIBUTOR

Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New York,
New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities Incorporated (Prudential Securities), One Seaport Plaza,
New York, New York 10292, acts as the distributor of the Class B and Class C
shares of the Fund.

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 separate distribution agreements
(the Distribution Agreements), PMFD and Prudential Securities (collectively, the
Distributor) incur the expenses of distributing the Fund's Class A, Class B and
Class C shares. See "How the Fund is Managed--Distributor" in the Prospectus.

On June 23, 1994, the Board of Directors, including a majority of the Directors
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Class A, Class B or Class C Plan or
in any agreement related to the Plans (the Rule 12b-1 Directors), at a meeting
called for the purpose of voting on each Plan, adopted the Class A Plan, the
Class B Plan and the Class C Plan. The Class A Plan provides that (i) .25 of 1%
of the average daily net assets of the Class A shares may be used to pay for
personal service and the maintenance of shareholder accounts (service fee) and
(ii) total distribution fees (including the service fee of .25 of 1%) may not

exceed .30 of 1%. The Class B and Class C Plans provide that (i) .25 of 1% of
the average daily net assets of the Class B and Class C shares, respectively,
may be paid as a service fee and (ii) .75 of 1% (not including the service fee)
may be paid for distribution-related expenses with respect to the Class B and
Class C shares, respectively (asset-based sales charge). The Plans were each
approved by the sole shareholder of the Class A, Class B and Class C shares on
July 7, 1994.

CLASS A PLAN. PMFD receives the proceeds of initial sales charges upon the
purchase of Class A shares.

CLASS B PLAN. Prudential Securities receives the proceeds of contingent deferred
sales charges paid by holders of Class B shares upon certain redemptions of
Class B shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus.

CLASS C PLAN. Prudential Securities receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class C shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges"
in the Prospectus.

B-15
<PAGE>
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 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
60 days', nor less 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, 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 obligated to pay
expenses incurred under any Plan if it is terminated or not continued.

Pursuant to each Plan, the Board of Directors will review at least quarterly a
written report of the distribution expenses incurred on behalf of each class of
shares of the Fund by the Distributor. The report will include an itemization of
the distribution expenses and the purposes of such expenditures. In addition, as
long as the Plans remain in effect, the selection and nomination of Rule 12b-1
Directors shall be committed to the Rule 12b-1 Directors.

Pursuant to each Distribution Agreement, the Fund has agreed to indemnify PMFD
and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act.

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. In the case of Class B

shares, interest charges 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 with respect to Class B and
Class C shares of the Fund may not exceed .75 of 1%. 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.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Manager is responsible for decisions to buy and sell securities, futures and
options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. The term "Manager" as used in this
section includes the Subadviser. Broker-dealers may receive negotiated brokerage
commissions on Fund portfolio transactions, including options and the purchase
and sale of underlying securities upon the exercise of options. On foreign
securities exchanges, commissions may be fixed. Orders may be directed to any
broker or futures commission merchant including, to the extent and in the manner
permitted by applicable law, Prudential Securities and its affiliates.

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.

Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities, or an 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 SEC. 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.

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

B-16
<PAGE>
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 (or any affiliate) 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.

Subject to the above considerations, Prudential Securities (or any affiliate)
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 Directors who are not "interested"
persons, 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) under 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
are also subject to such fiduciary standards as may be imposed by applicable
law.

PURCHASE AND REDEMPTION OF FUND SHARES

Shares of the Fund may be purchased at a price equal to the next determined net
asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). See "Shareholder Guide--
How to Buy Shares of the Fund" in the Prospectus.

Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights, except that (i) each class bears the
separate expenses of its Rule 12b-1 distribution and service plan, (ii) each
class has exclusive voting rights with respect to its plan, (except that the
Fund has agreed with the SEC in connection with the offering of a conversion
feature on Class B shares to submit any amendment of the Class A distribution
and service plan to both Class A and Class B shareholders) and (iii) only Class
B shares have a conversion feature. See "Distributor." Each class also has
separate exchange privileges. See "Shareholder Investment Account--Exchange
Privilege."

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold with a maximum sales charge of 5% and Class
B* and Class C* shares are sold at net asset value. Using the Fund's net asset
value at June 15, 1994, 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.............. $11.40

Maximum sales charge (5% of offering price)......................... .60
------
Offering price to public............................................ $12.00
======
</TABLE>
B-17
<PAGE>
<TABLE>
<S> <C>
CLASS B

Net asset value, redemption price and offering price to
public per Class B share*......................................... $11.40
======
CLASS C

Net asset value, redemption price and offering price to public
per Class C share*................................................. $11.40
======
</TABLE>

- ------------
* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your Shares--
Contingent Deferred Sales Charges" in the Prospectus.

REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or eligible
group of related investors purchases Class A shares of the Fund concurrently
with Class A shares of other Prudential Mutual Funds, the purchases may be
combined to take advantage of the reduced sales charges applicable to larger
purchases. See the table of breakpoints under "Shareholder Guide--Alternative
Purchase Plan" in the Prospectus.

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

(a) an individual;

(b) the individual's spouse, their children and their parents;

(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be controlled
by each of its general partners);

(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;

(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and

(g) one or more employee 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 Distributor 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
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code and deferred compensation and annuity plans
under Sections 457 and 403(b)(7) of the Internal Revenue Code.

RIGHTS OF ACCUMULATION. Reduced sales charges are also available through Rights
of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of the Class A
shares of the Fund and the Class A shares of other Prudential Mutual Funds to

determine the reduced sales charge. The value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering or price (net asset value plus maximum sales charge)
as of the previous business day. See "How the Fund Values Its Shares" in the
Prospectus. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges will
be granted subject to confirmation of the investor's holdings. Rights of
Accumulation are not available 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 purchase, within a thirteen-month period, of shares of the
Fund and shares of other Prudential Mutual Funds. All Class A shares of the Fund
and Class A shares of other Prudential Mutual Funds 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 Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the Transfer
Agent or through Prudential Securities. The Distributor must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charges will be granted subject to confirmation of the investor's
holdings. Letters of Intent are not available to individual participants in any
retirement or group plans.

B-18
<PAGE>
A Letter of Intent permits a purchaser 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
purchaser. 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 purchaser's cost, can be applied to the fulfillment of the Letter of Intent
goal.

The 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
achieved within the thirteen-month period, the purchaser is required to pay the
difference between the sales charge otherwise applicable to the purchases 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. If the goal is exceeded in
an amount which qualified for a lower sales charge, a price adjustment is made
by refunding to the purchaser the amount of excess sales charge, if any, paid
during the thirteen-month period. Investors electing to purchase Class A shares
of the Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES.

The Contingent Deferred Sales Charge is waived under circumstances described in
the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit the
supporting documentation set forth below.

<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death
certificate or, in the case of a trust,
a copy of the grantor's death
certificate, plus a copy of the trust
agreement identifying the grantor.

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

Distribution from an IRA or 403(b) A copy of the distribution form from the
Custodial Account custodial 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 admin-
istrator/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.

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment Account
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 for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. For the convenience of
investors, all dividends and distributions are automatically reinvested in full
and fractional shares of the Fund. An investor may direct the Transfer Agent in
writing not less than five full business days prior to the record date to have
subsequent dividends or distributions sent in cash rather than reinvested. In
the case of

B-19
<PAGE>
recently purchased shares for which registration instructions have not been
received on the record date, cash payment will be made directly to the dealer.
Any shareholder who receives a cash payment representing a dividend or
distribution may reinvest such dividend or distribution at net asset value by
returning the check or the proceeds to the Transfer Agent within 30 days after
the payment date. Such investment will be made at the net asset value per share
next determined after receipt of the check or proceeds by the Transfer Agent.

EXCHANGE PRIVILEGE. The Fund makes available to its shareholders the privilege
of exchanging their shares of the Fund for shares of certain other Prudential
Mutual Funds, including one or more specified money market funds, subject in
each case to the minimum investment requirements of such funds. Shares of such
other Prudential Mutual Funds may also be exchanged for shares of the Fund. All
exchanges are made on the basis of relative net asset value next determined
after receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares of
another fund only if shares of such fund may legally be sold under applicable
state laws. For retirement and group plans having a limited menu of Prudential
Mutual Funds, the Exchange Privilege is available for those funds eligible for
investment in the particular program.

It is contemplated that the Exchange Privilege may be applicable to new mutual
funds whose shares may be distributed by the Distributor.

CLASS A. Shareholders of the Fund may exchange their Class A shares for Class A
shares of certain other Prudential Mutual Funds, shares of Prudential Government
Securities Trust (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 York Money Market Series)
(New Jersey Money Market Series)

Prudential MoneyMart Assets

Prudential Tax-Free Money Fund

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, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of the Class B and Class C shares acquired as a
result of 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 Class B and
Class C shares, respectively, of an eligible money market fund without
imposition of any CDSC at the time of exchange. Upon subsequent redemption from
such money market fund or after re-exchange into the Fund, such shares will be
subject to the CDSC calculated without regard to the time such shares were held
in the money market fund. In order to minimize the period of time in which
shares are subject to a CDSC, shares exchanged out of the money market fund will
be exchanged on the basis of their remaining holding periods, with the longest
remaining holding periods being transferred first. In measuring the time period
shares are held in a money market fund and "tolled" for purposes of calculating
the CDSC holding period, exchanges are deemed to have been made on the last day
of the month. Thus, if shares are exchanged into the Fund from a money market
fund during the month (and are held in the Fund at the end of the month), the
entire month will be included in the CDSC holding period. Conversely, if shares
are exchanged into a money market fund prior to the last day of the month (and
are held in the money market fund on the last day of the month), the entire
month will be excluded from the CDSC holding period.

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

B-20
<PAGE>
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.

Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,

Prudential Securities or Prusec. The 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 today averages
around $14,000 at a private college and around $4,800 at a public university.
Assuming these costs increase at a rate of 7% a year, as has been projected, for
the freshman class of 2007, the cost of four years at a private college could
reach $163,000 and over $97,000 at a public university.(1)

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

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY
INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years......... $ 110 $ 165 $ 220 $ 275

20 Years......... 176 264 352 440

15 Years......... 296 444 592 740

10 Years......... 555 833 1,110 1,388

5 Years.......... 1,371 2,057 2,742 3,428
</TABLE>

See "Automatic Savings Accumulation Plan."

AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, an investor may arrange
to have a fixed amount automatically invested in shares of the Fund monthly by
authorizing his or her bank account or 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. Stock certificates are not issued to ASAP participants.

Further information about this program and an application form can be obtained
from the Transfer Agent, Prudential Securities or Prusec.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Withdrawals of Class B or Class C shares be subject to a CDSC. See "Shareholder
Guide--How to Sell Your Shares--Contingent Deferred Sales Charges" in the
Prospectus.

In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment
Account--Automatic Reinvestment of Dividends and/or Distributions."

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

- ----------------
(1) Source information concerning the costs of education at public universities
is available from The College Board Annual Survey of Colleges, 1992.
Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics;
and the U.S. Department of Education. Average costs for private
institutions include tuition, fees, room and board.

(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 share when redeemed may be worth more or less than their
original cost.

B-21
<PAGE>
Withdrawal payments should not be considered as dividends, yield or income. If
periodic withdrawals continuously exceed reinvested dividends and distributions,
the shareholder's original investment will be correspondingly reduced and
ultimately exhausted.

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

TAX-DEFERRED RETIREMENT PLANS. Various qualified 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 of 1986, as

amended (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 or tax adviser with respect to the establishment and
maintenance of any such plan.

TAX-DEFERRED RETIREMENT ACCOUNTS

INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA) permits
the deferral of federal income tax on income earned in the account until the
earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.

TAX-DEFERRED 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 the IRA account will be subject to tax when withdrawn from the
account.

NET ASSET VALUE

Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sales price on the day of valuation, or, if there was no sale on such day,
the mean between the last bid and asked prices on such day, as provided by a
pricing service. 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 to
be over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable securities
and various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by principal market makers or independent pricing agents.
Options on stock and stock indices traded on an exchange are valued at the mean
between the most recently quoted bid and asked prices on the respective exchange
and futures contracts and options thereon are valued at their last sales prices
as of the close of the commodities exchange or board of trade. 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 market quotations are not readily available
are valued at their fair value as determined in good faith by the Board of
Directors. Short-term debt securities are valued at cost, with interest accrued
or discount amortized to the date of

B-22
<PAGE>
maturity, if their original maturity was 60 days or less, unless this is
determined by the Board of Directors not to represent fair value. Short-term
securities with remaining maturities of 60 days or more, 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 net asset value 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 net asset value.

Net asset value is calculated separately for each class. The net asset value of
Class B and Class C shares will generally be lower than the net asset value of
Class A shares as a result of the larger distribution-related fee to which Class
B and Class C shares are subject. It is expected, however, that the net asset
value per share of each class will tend to converge immediately after the
recording of dividends which will differ by approximately the amount of the
distribution expense accrual differential among the classes.

TAXES

The Fund intends to qualify and to remain qualified as a regulated investment
company under Subchapter M of the Internal Revenue Code. This relieves the Fund
(but not its shareholders) from paying federal income tax on income which is
distributed to shareholders and permits net long-term capital gains of the Fund
(i.e., the excess of net long-term capital gains over net short-term capital
losses) to be treated as long-term capital gains of the shareholders, regardless
of how long shareholders have held their shares in the Fund.

Qualification as a regulated investment company requires, among other things,
that (a) at least 90% of the Fund's annual gross income (without reduction for
losses from the sale or other disposition of securities) be derived from
interest, dividends, payments with respect to securities loans, and gains from
the sale or other disposition of securities or options thereon or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities or currencies; (b) the Fund derive less than 30% of its gross
income from gains (without reduction for losses) from the sale or other
disposition of securities, options thereon, futures contracts, options thereon,
forward contracts and foreign currencies held for less than three months (except
for foreign currencies directly related to the Fund's business of investing in
foreign securities) (the short-short rule); (c) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year (i) at least 50% of the
market value of the Fund's assets is represented by cash, U.S. Government
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of the market value of the Fund's assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities); and (d) the Fund distribute to its
shareholders at least 90% of its net investment income (including short-term
capital gains) other than long-term capital gains in each year.

Gains or losses on sales of securities by the Fund will be treated as long-term
capital gains or losses if the securities have been held by it for more than one
year except in certain cases where the Fund acquires a put or writes a call
thereon or makes a short sale against-the-box. 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 (assuming they do not
qualify as Section 1256 contracts). If an option written by the Fund on
securities lapses or is terminated through a closing transaction, such as a
repurchase by the Fund of the option from its holder, the Fund will generally
realize capital gain or loss. If securities are sold by the Fund pursuant to the
exercise of a call option written by it, the Fund will include the premium
received in the sale proceeds of the securities delivered in determining the
amount of gain or loss on the sale. Certain of the Fund's transactions may be
subject to wash sale, short sale and straddle provisions of the Internal Revenue
Code. In addition, debt securities acquired by the Fund may be subject to
original issue discount and market discount rules.

Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. See "Investment Objective and Policies." These investments will
generally constitute Section 1256 contracts and will be required to be "marked
to market" for federal income tax purposes at the end of the Fund's taxable
year; that is, treated as having been sold at market value. Except with respect
to forward foreign currency exchange contracts, 60% of any gain or loss
recognized on such deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss.

Gain or loss on the sale, lapse or other termination of options on stock and on
narrowly-based stock indices will be capital gain or loss and will be long-term

or short-term depending upon the holding period of the option. In addition,
positions which are part of a straddle will be subject to certain wash sale and
short sale provisions of the Internal Revenue Code. In the case of a straddle,
the Fund may be required to defer the recognition of losses on positions it
holds to the extent of any unrecognized gain on offsetting positions held by the
Fund.

The Fund's ability to hold foreign currencies or engage in hedging activities
may be limited by the 30% short-short rule discussed above.

B-23
<PAGE>
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. The balance of the PFIC income will be
included in the Fund's investment company taxable income and, accordingly, will
not be taxable to it to the extent that income is distributed to its
shareholders. Proposed Treasury regulations provide that the Fund may make a
"mark-to-market" election with respect to any stock it holds of a PFIC. If the
election is in effect, at the end of the Fund's taxable year, the Fund will
recognize the amount of gains, if any, with respect to PFIC stock. No loss will
be recognized on PFIC stock. Alternatively, the Fund may elect to treat any PFIC
in which it invests as a "qualified electing fund," in which case, in lieu of
the foregoing tax and interest obligation, the Fund will be required to include
in income each year its pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain, even if they are not distributed to the
Fund; those amounts would be subject to the distribution requirements applicable
to the Fund described above. It may be very difficult, if not impossible, to
make this election because of certain requirements thereof. Proposed legislation
in Congress could dramatically change the manner in which U.S. shareholders of
foreign corporations are taxed. There can be no assurance that any such
legislation will become law, or if so, what its impact on U.S. shareholders of
foreign corporations will be.

Under the Internal Revenue Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains or
losses on forward foreign currency exchange contracts or dispositions of debt
securities denominated in a foreign currency attributable to fluctuations in the
value of the foreign currency between the date of acquisition of the security
and the date of disposition also are treated as ordinary gain or loss. These
gains, referred to under the Internal Revenue Code as "Section 988" gains or
losses, increase or decrease the amount of the Fund's investment company taxable
income available to be distributed to its shareholders as ordinary income,
rather than increasing or decreasing the amount of the Fund's net capital gain.
If Section 988 losses exceed other investment company taxable income during a

taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.

The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a nondeductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which the Fund pays income
tax is treated as distributed.

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

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

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

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

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

B-24

<PAGE>
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Interest income, capital gain net income, gain or loss from Section 1256
contracts (described above), dividend income from foreign corporations and
income from other sources will not constitute qualified dividends. Since the
Fund is likely to have a substantial portion of its assets invested in
securities of foreign issuers, the amount of the Fund's dividends eligible for
the corporate dividends-received deduction will be minimal. Individual
shareholders are not eligible for the dividends-received deduction.

Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Income tax treaties
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine in advance the effective rate of foreign
tax to which the Fund will be subject, since the amount of the Fund's assets to
be invested in various countries will vary.

If the Fund is liable for foreign income 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, or will elect to do so. Shareholders would be required to:
(i) include in gross income (in addition to taxable dividends actually received)
their pro rata share of the foreign income taxes paid by the Fund; and (ii)
treat their pro rata share of foreign income taxes as paid by them.
Shareholders are then permitted either to deduct their pro rata share of foreign
income taxes in computing their taxable income or use it as a foreign tax credit
against U.S. income taxes. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Foreign shareholders may not deduct
or claim a credit for foreign tax unless the dividends paid to them by the Fund
are effectively connected with a U.S. trade or business.

Each shareholder will be notified within 60 days after the close of the Fund's
taxable year whether the foreign taxes paid by the Fund will "pass through" for
that year and, if so, such notification will designate (a) the shareholder's
portion of the foreign taxes paid by the Fund and (b) the portion of the
dividend which represents income derived from foreign sources. The tax
consequences to a foreign shareholder entitled to claim the benefits of an
applicable tax treaty may be different from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.

The amount of foreign taxes for which a shareholder may claim a credit in any
year will generally be subject to a separate limitation for "passive income,"
which includes, among other things, dividends, interest and certain foreign
currency gains. Gain or loss from the sale of a security or from a Section 988
transaction which is treated as ordinary income or loss (or would have been so
treated absent an election by the Fund) will be treated as derived from sources
within the United States, potentially reducing the amount allowable as a credit
under the limitation.

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 and Class C shares. See "How the Fund Calculates
Performance" in the Prospectus.

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

P (1 + T)(nth power) = ERV

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

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

AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total return.
Aggregate total return is determined separately for Class A, Class B and Class C
shares. See "How the Fund Calculates Performance" in the Prospectus.

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

ERV - P
-------
P

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

B-25
<PAGE>
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.

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 and Class C
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:

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

Where: a = dividends and interest earned during the period.

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

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

From time to time, the performance of the Fund may be measured against various
indices. Set forth below is a chart which compares the performance of different
types of investments over the long term and the rate of inflation.(1)

[GRAPH]

A LOOK AT PERFORMANCE OVER THE LONG-TERM
(1926-1992)

Common Stocks - Average Annual Return 10.3%

Long-Term Government Bonds - Average Annual Return 4.8%

Inflation - 3.1%

- -------------------
(1) Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1993
Yearbook", (annually updates the work of Roger G. Ibbotson and Rex
A. Sinquefield). 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.

B-26
<PAGE>
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS

Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109,
serves as Custodian for the Fund's portfolio securities and cash and in that
capacity maintains certain financial and accounting books and records pursuant
to an agreement with the Fund. Subcustodians provide custodial services for the
Fund's foreign assets held outside the United States. See "How the Fund is
Managed--Custodian and Transfer and Dividend Disbursing Agent" in the
Prospectus.

Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder

communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and related
functions. For these services, PMFS receives an annual fee of $9.00 per
shareholder account, a new account set-up fee of $2.00 for each manually
established account and a monthly inactive zero balance account fee of $.20 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.

Deloitte & Touche, 1633 Broadway, New York, New York 10019, serves as the Fund's
independent accountants, and in that capacity audits the Fund's annual reports.

B-27
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

The Shareholder and Board of Directors of
Prudential Europe Growth Fund, Inc.

We have audited the accompanying statement of assets and liabilities of
Prudential Europe Growth Fund, Inc. as of June 15, 1994. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Prudential Europe Growth Fund,
Inc. as of June 15, 1994, in conformity with generally accepted accounting
principles.

Deloitte & Touche

New York, New York
June 15, 1994

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<PAGE>
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PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------

JUNE 15, 1994
-------------
<S> <C>
ASSETS

Cash......................................................... $100,000

Deferred organization costs (Note 1)......................... 250,000
--------
Total assets............................................. 350,000
--------
LIABILITIES

Deferred organization costs payable (Note 1)................. 250,000
--------
Net Assets (Note 1)
Applicable to 8,772 shares of common stock................. $100,000
========
Calculation of Offering Price

Class A:

Net asset value and redemption price per Class A share..... $11.40

Maximum sales charge (5.0% of offering price).............. .60
--------
Offering price to public................................... $12.00
========
Class B:

Net asset value, offering price and redemption price per
Class B share............................................ $11.40
========
Class C:

Net asset value, offering price and redemption price per
Class C share............................................ $11.40
========
</TABLE>

See Notes to Financial Statements.

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<PAGE>
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PRUDENTIAL EUROPE GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1.

Prudential Europe Growth Fund, Inc. ("the Fund"), which was incorporated in
Maryland on March 18, 1994, is an open-end, diversified management investment
company. The Fund has had no significant operations other than the issuance of

2,924 shares each of Class A, Class B and Class C common stock for $100,000 on
June 15, 1994 to Prudential Mutual Fund Management, Inc. (PMF). There are 2
billion shares of $.001 par value common stock authorized divided into three
classes, designated Class A, Class B and Class C, each of which consists of 1
billion, 500 million and 500 million authorized shares, respectively.

Costs incurred and expected to be incurred in connection with the organization
and initial registration of the Fund will be paid initially by PMF and will be
repaid to PMF upon commencement of investment operations. These costs will be
deferred and amortized over the period of benefit not to exceed 60 months from
the date the Fund commences investment operations. If any of the initial shares
of the Fund are redeemed by any holder thereof during the period of amortization
of organization expenses, the redemption proceeds will be reduced by the
pro-rata amount of unamortized organization expenses based on the number of
initial shares being redeemed to the number of the initial shares outstanding.

NOTE 2. AGREEMENTS

The Fund has entered into a management agreement with PMF. PMF is an indirect
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).

The management fee paid PMF will be computed daily and payable monthly, at an
annual rate of .75 of 1% of the average daily net assets of the Fund.

Pursuant to a subadvisory agreement between PMF and The Prudential Investment
Corporation (PIC), a wholly-owned subsidiary of Prudential, PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
continues to have responsibility for all investment advisory services pursuant
to the management agreement and supervises PIC's performance of such services.
PMF pays for the services of PIC, the cost of compensation of officers and
employees of the Fund, occupancy and certain clerical and accounting costs of
the Fund. The Fund bears all other costs and expenses.

PMF has agreed that, in any fiscal year, it will reimburse the Fund for
expenses (including the fees of PMF but excluding interest, taxes, brokerage
commissions, distribution fees, litigation and indemnification expenses and
other extraordinary expenses) in excess of the most restrictive expense
limitation imposed by state securities commissions. If the excess expenses
exceed the amount of the fees to PMF, then PMF will reimburse the Fund the
amount of such excess. The most restrictive expense limitation is presently
believed to be 2-1/2% of the Fund's average daily net assets up to $30 million,
2% of the next $70 million of such assets and 1-1/2% of such assets in excess
of $100 million. Such expense reimbursement, if any, will be estimated and
accrued daily and payable monthly.

The Fund has entered into distribution agreements with Prudential Mutual Fund
Distributors, Inc. (PMFD), a wholly-owned subsidiary of PMF, for distribution of
the Fund's Class A shares and with Prudential Securities Incorporated (PSI) for
distribution of the Fund's Class B and C shares.

Pursuant to separate Plans of Distribution (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 of 1940, PMFD and PSI (collectively the

"Distributor") incur the expenses of distributing the Fund's Class A, Class B
and Class C shares, respectively. These expenses include commissions and account
servicing fees paid to, or on account of financial advisers of PSI and Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions paid
to, or on account of, other broker-dealers or certain financial institutions
which have entered into agreements with the Distributor, advertising expenses,
the cost of printing and mailing prospectuses to potential investors and
indirect and overhead costs of PSI and Prusec associated with the sale of Fund
shares, including lease, utility, communications and sales promotion expenses.

Pursuant to the Class A Plan, the Fund will compensate PMFD for its expenses
with respect to Class A shares at an annual rate of up to .30 of 1% of the
average daily net asset value of the Class A shares. PMFD has agreed to limit
its distribution-related fees payable under the Class A Plan to .25 of 1% of the
average daily net asset value of the Class A shares for the fiscal year ended
April 30, 1995.

Pursuant to the Class B and C Plans, the Fund compensates PSI for its
distribution-related expenses with respect to the Class B and C shares at an
annual rate of 1% of the average daily net assets of the Class B and C shares.

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