PRUDENTIAL EUROPE GROWTH FUND INC, 485BPOS, 1996-07-03

PRUDENTIAL EUROPE GROWTH FUND INC
485BPOS, 1996-07-03

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As filed with the Securities and Exchange Commission
on July 3, 1996

Registration Nos. 33-53151
811-7167
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 4 [X]

and/or

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 6 [X]

(Check appropriate box or boxes)

PRUDENTIAL EUROPE GROWTH FUND, INC.
(Exact name of registrant as specified in charter)

ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (212) 214-1250

S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service)

Approximate date of proposed public offering: As soon as practicable after
the effective date of the Registration Statement.

It is proposed that this filing will become effective (check
appropriate box):

[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has previously registered an indefinite number of its shares of common stock,
par value $.001 per share. The Registrant has filed a Notice under such Rule
for its fiscal year ended April 30, 1996 on or about June 28, 1996.

<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)

<TABLE>
<CAPTION>
N-1A Item No. Location
Part A
<S> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information. . . . . . . . . . Fund Expenses; Financial Highlights;
How the Fund Calculates Performance
Item 4. General Description of Registrant. . . . . . . . . Cover Page; Fund Highlights; How the
Fund Invests; General Information
Item 5. Management of the Fund . . . . . . . . . . . . . . Financial Hightlights; How
the Fund is Managed
Item 5A. Management's Discussion of Fund Performance. . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . . . Taxes, Dividends and Distributions;
General Information; Shareholder Guide
Item 7. Purchase of Securities Being Offered . . . . . . . Shareholder Guide; How the
Fund Values its Shares; How the Fund is
Managed
Item 8. Redemption or Repurchase . . . . . . . . . . . . . Shareholder Guide; How
the Fund Values its Shares
Item 9. Pending Legal Proceedings. . . . . . . . . . . . . Not Applicable

<CAPTION>
Part B
<S> <C>
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents. . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History. . . . . . . . . . General Information
Item 13. Investment Objectives and Policies . . . . . . . . Investment Objective and
Policies; Investment Restrictions
Item 14. Management of the Fund . . . . . . . . . . . . . . Directors and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders
of Securities. . . . . . . . . . . . . . . . . . . Not Applicable
Item 16. Investment Advisory and Other Services . . . . . . Manager; Distributor; Custodian,
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Practices . . . . . Portfolio Transactions
Item 18. Capital Stock and Other Securities . . . . . . . . Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered. . . . . . . . . . . . . . . . . . . Purchase and Redemption of Fund
Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . Distributor
Item 22. Calculation of Performance Data. . . . . . . . . . Performance Information
Item 23. Financial Statements . . . . . . . . . . . . . . . Financial Statements
</TABLE>

Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.

<PAGE>

Prudential Europe Growth Fund, Inc.
(Class Z Shares)

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

PROSPECTUS DATED JULY 2, 1996

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

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 and may engage in various derivative
transactions such as options on stocks, stock indices, foreign currencies,
futures contracts on foreign currencies and foreign currency exchange contracts
and the purchase and sale of futures contracts on foreign currencies and groups
of currencies and on financial or stock indices to hedge its portfolio and to
attempt to enhance returns. 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.'
- --------------------------------------------------------------------------------

Class Z shares are offered exclusively for sale to the PSI Cash Balance Pension
Plan, an employee benefit plan sponsored by Prudential Securities Incorporated
(the PSI Pension Plan or the Plan). Only Class Z shares are offered through this
Prospectus. The Fund also offers Class A, Class B and Class C shares through the
attached Prospectus dated July 2, 1996 (the Retail Class Prospectus) which is a
part hereof.

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

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated July 2, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund, at the

address or telephone number noted above.

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

Investors are advised to read this Prospectus and retain it for future
reference.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>

- --------------------------------------------------------------------------------
FUND EXPENSES

<TABLE>
<CAPTION>
CLASS Z SHARES
--------------

<S> <C>
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)....... None

Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends............ None

Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, whichever is lower).............. None

Redemption Fees............................. None

Exchange Fee................................ None

CLASS Z SHARES
--------------
<S> <C>

ANNUAL FUND OPERATING EXPENSES*
(as a percentage of average net assets)

Management Fees............................. .75%

12b-1 Fees.................................. None

Other Expenses.............................. .53
-----

Total Fund Operating Expenses............... 1.28%
-----
-----
</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 Z..................................... $ 23 $ 41
</TABLE>

The above example is based on expenses expected to have been incurred if
Class Z shares had been in existence during the entire fiscal year ended
April 30, 1996. The example should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown.

The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in Class Z shares of the Fund
will bear, whether directly or indirectly. For more complete descriptions
of the various costs and expenses, see 'How the Fund is Managed' in the
Retail Class Prospectus. 'Other Expenses' includes operating expenses of
the Fund, such as Directors' and professional fees, registration fees,
reports to shareholders, transfer agency and custodian fees and franchise
taxes.
------------------------

*Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence during the entire fiscal year ended April
30, 1996.

<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS 'FINANCIAL HIGHLIGHTS' IN THE PROSPECTUS:

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)

contained in the financial statements. Further performance information is
contained in the annual report which may be obtained without charge. See
'Shareholder Guide--Shareholder Reports to Shareholders.'

<TABLE>
<CAPTION>
CLASS Z
----------------
APRIL 15,
1996(B)
THROUGH APRIL
PER SHARE OPERATING 30, 1996
PERFORMANCE(C): ----------------
<S> <C>
Net asset value, beginning
of period............... $ 13.40
----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment gain
(loss).................. --
Net realized and
unrealized gain on
investment and
foreign currency
transactions............ .28
----------
Total from
investment
operations........ .28
----------
Net asset value, end of
period.................. $ 13.68
----------
----------
TOTAL RETURN (D):......... 2.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period.................. $ 204
Average net assets........ $ 14
Ratios to average net
assets:
Expenses, including
distribution fees.... 1.28%(a)
Expenses, excluding
distribution fees.... 1.28%(a)
Net investment income
(loss)............... .54%(a)
Portfolio turnover rate... 65%
Average commission rate
per share............ $0.0233
</TABLE>

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

(a) Annualized.

(b) Commencement of investment operations.

(d) Total return is calculated assuming a
purchase of shares on the first day
and a sale on the last day of each
period reported and includes
reinvestment of dividends and
distributions. Total returns for
periods of less than a full year are
not annualized.

3
<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS 'HOW THE FUND IS MANAGED--DISTRIBUTOR' IN
THE RETAIL CLASS PROSPECTUS:

Prudential Securities serves as the Distributor of Class Z shares and
incurs the expenses of distributing the Fund's Class Z shares under a
Distribution Agreement with the Fund, none of which are reimbursed by or
paid for by the Fund.

THE FOLLOWING INFORMATION SUPPLEMENTS 'HOW THE FUND VALUES ITS SHARES' IN THE
RETAIL CLASS PROSPECTUS:

The NAV of Class Z shares will generally be higher than the NAV of the
Class A, Class B or Class C shares because Class Z shares are not subject
to any distribution and/or service fee. It is expected, however, that the
NAV of the four classes will tend to converge immediately after the
recording of dividends, which will differ by approximately the amount of
the distribution-related expense accrual differential among the classes.

THE FOLLOWING INFORMATION SUPPLEMENTS 'TAXES, DIVIDENDS AND
DISTRIBUTIONS--TAXATION OF SHAREHOLDERS' IN THE RETAIL CLASS PROSPECTUS:

As a qualified plan, the PSI Pension Plan generally pays no federal
income tax. Individual participants in the Plan should consult the Plan
documents and their own tax advisers for information on the tax
consequences associated with participating in the PSI Pension Plan.

The per share dividends on Class Z shares will generally be higher
than the per share dividends on Class A, Class B or Class C shares because
Class Z shares are not subject to any distribution or service fee.

THE FOLLOWING INFORMATION REPLACES THE INFORMATION UNDER 'SHAREHOLDER GUIDE--HOW

TO BUY SHARES OF THE FUND' AND 'SHAREHOLDER GUIDE--HOW TO SELL YOUR SHARES' IN
THE RETAIL CLASS PROSPECTUS:

Class Z shares of the Fund are offered exclusively for sale to the PSI
Pension Plan. Such shares may be purchased or redeemed only by the Plan on
behalf of individual plan participants at NAV without any sales or
redemption charge. Class Z shares are not subject to any minimum investment
requirements. The PSI Pension Plan purchases and redeems shares pursuant to
the investment choices of the PSI Pension Committee. All purchases through
the Plan will be for Class Z shares.

The average net asset value per share at which shares of the Fund are
purchased or redeemed by the Plan might be more or less than the net asset
value per share prevailing at the time it made its investment choice.

THE FOLLOWING INFORMATION SUPPLEMENTS 'SHAREHOLDER GUIDE--HOW TO EXCHANGE YOUR
SHARES' IN THE RETAIL CLASS PROSPECTUS:

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

THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER 'FUND HIGHLIGHTS'
IN THE RETAIL CLASS PROSPECTUS AS APPROPRIATE.

4
<PAGE>

Prudential Europe Growth Fund, Inc.

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

PROSPECTUS DATED JULY 2, 1996

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

Investors are advised to read the Prospectus and retain it for future reference.

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

<PAGE>

- --------------------------------------------------------------------------------
FUND HIGHLIGHTS

The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.

WHAT IS PRUDENTIAL 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. 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. There can be no
assurance that the Fund's objective will be achieved. See 'How the Fund
Invests -- Investment Objective and Policies' at page 6.

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 6. The Fund
may invest in developing countries, and in countries with new or
developing capital markets such as those 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 8. 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 9. The Fund may also engage in various hedging and return enhancement
strategies and invest in derivative securities. See 'How the Fund
Invests -- Hedging and Return Enhancement Strategies -- Risks of Hedging
and Return Enhancement Strategies' at page 12.

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 May 31, 1996,
PMF served as manager or administrator to 60 investment companies,
including 38 mutual funds, with aggregate assets of approximately $52
billion. The Prudential Investment Corporation (PIC or the Subadviser)
furnishes investment advisory services in connection with the management
of the Fund under a Subadvisory Agreement with PMF. See 'How the Fund is
Managed -- Manager' at page 15. The management fee is higher than that
paid by most other investment companies.

WHO DISTRIBUTES THE FUND'S SHARES?

Prudential Securities Incorporated (Prudential Securities or PSI), a
major securities underwriter and securities and commodities broker, acts
as the Distributor of the Fund's Class A, Class B and Class C shares and
is paid an annual distribution and service fee which is currently being
charged at an annual rate of .25 of 1% of the average daily net assets of
the Class A shares, and 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.

<PAGE>

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 22 and 'Shareholder Guide -- Shareholder Services' at page
31.

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 18 and
'Shareholder Guide -- How to Buy Shares of the Fund' at page 22.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Fund offers three classes of shares through this Prospectus:

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

o Class B Shares: Sold without an initial sales charge but are
subject to a contingent deferred sales charge or
CDSC (declining from 5% to zero of the lower of
the amount invested or the redemption proceeds)
which will be imposed on certain redemptions made
within six years of purchase. Although Class B
shares are subject to higher ongoing
distribution-related expenses than Class A shares,
Class B shares will automatically convert to Class
A shares (which are subject to lower ongoing
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 23.

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 26.

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 19.

<PAGE>

- --------------------------------------------------------------------------------
FUND EXPENSES

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- ----------------- -----------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on
Purchases (as a
percentage of
offering price)... 5% None None
Maximum Sales Load
or Deferred Sales
Load Imposed on
Reinvested
Dividends......... None None None
Deferred Sales Load
(as a percentage

of original
purchase price or
redemption
proceeds,
whichever is
lower)............ None 5% during the 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
EXPENSES
(as a percentage of
average net assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- ----------------- -----------------
<S> <C> <C> <C>

Management Fees..... .75% .75% .75%

12b-1 Fees.......... .25%++ 1.00% 1.00%

Other Expenses...... .53% .53% .53%
---- ---- ----
Total Fund Operating
Expenses.......... 1.53%++ 2.28% 2.28%
---- ---- ----
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period:
Class A................................. $ 65 $ 96 $ 129 $223
Class B................................. $ 73 $ 101 $ 132 $216
Class C................................. $ 33 $ 71 $ 122 $262

You would pay the following expenses on the
same investment, assuming no redemption:
Class A................................. $ 65 $ 96 $ 129 $223
Class B................................. $ 23 $ 71 $ 122 $234

Class C................................. $ 23 $ 71 $ 122 $262
</TABLE>

The above example is based on data for the Fund's fiscal year ended April
30, 1996. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.

The purpose of this table is to assist 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 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 ended April 30, 1996. Total operating
expenses without such limitation would have been 1.58%. See 'How the
Fund is Managed -- Distributor.'

<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)

The following financial highlights have been audited by Deloitte & Touche
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class A, Class B and
Class C share of common stock outstanding, total return, ratio to average net
assets and other supplemental data for the period indicated. The information is
based on data contained in the financial statements. Further performance
information is contained in the annual report, which may be obtained without
charge. See 'Shareholders Guide--Shareholder Services--Reports to
Sharesholders.'

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------- ---------------------------------- ----------------
YEAR ENDED JULY 13, 1994(B) YEAR ENDED JULY 13, 1994(B) YEAR ENDED
PER SHARE OPERATING APRIL 30, THROUGH APRIL 30, THROUGH APRIL 30,
PERFORMANCE(C): 1996 APRIL 30, 1995 1996 APRIL 30, 1995 1996
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period............... $ 11.77 $ 11.40 $ 11.69 $ 11.40 $ 11.69
------- ------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment gain
(loss).................. .06 .01 (.04) (.06) (.04)
Net realized and
unrealized gain on
investment and
foreign currency
transactions............ 1.86 .36 1.84 .35 1.84
------- ------- -------- -------- -------
Total from
investment
operations........ 1.92 .37 1.80 .29 1.80
------- ------- -------- -------- -------
Net asset value, end of
period.................. $ 13.69 $ 11.77 $ 13.49 $ 11.69 $ 13.49
------- ------- -------- -------- -------
------- ------- -------- -------- -------
TOTAL RETURN#:............ 16.31% 3.25% 15.40% 2.54% 15.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $ 47,789 $ 41,963 $ 125,868 $ 106,081 $ 7,741
Average net assets
(000)................... $ 47,183 $ 29,598 $ 122,255 $ 85,623 $ 7,768
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.53% 1.84(a) 2.28% 2.59%(a) 2.28%

Expenses, excluding
distribution fees..... 1.28% 1.59(a) 1.28% 1.59%(a) 1.28%
Net investment income
(loss)................ .44% .06(a) (.33)% (.71)(a) (.30)%
For Class A, B and C
Shares:
Portfolio turnover rate... 65% 25%
Average commission rate
per share............... $ 0.0233 N/A

<CAPTION>
JULY 13, 1994(b)
PER SHARE OPERATING THROUGH
PERFORMANCE(C): APRIL 30, 1995
----------------
<S> <C>
Net asset value, beginning
of period............... $ 11.40
------
INCOME FROM INVESTMENT
OPERATIONS
Net investment gain
(loss).................. (.06)
Net realized and
unrealized gain on
investment and
foreign currency
transactions............ .35
------
Total from
investment
operations........ .29
------
Net asset value, end of
period.................. $ 11.69
------
------
TOTAL RETURN#:............ 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $ 7,260
Average net assets
(000)................... $ 6,094
Ratios to average net
assets:
Expenses, including
distribution fees..... 2.59%(a)
Expenses, excluding
distribution fees..... 1.59%(a)
Net investment income
(loss)................ (.71)%(a)
For Class A, B and C
Shares:

Portfolio turnover rate...
Average Commission Rate
per share...............
</TABLE>

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

(a) Annualized.

(b) Commencement of investment operations.

(d) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of dividends
and distributions. Total returns for periods of less than a full year are
not annualized.

<PAGE>

- --------------------------------------------------------------------------------
HOW THE FUND INVESTS

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,
BULGARIA, THE CZECH REPUBLIC, DENMARK, FINLAND, FRANCE, GERMANY, GREECE,
HUNGARY, IRELAND, ITALY, LUXEMBOURG, THE NETHERLANDS, NORWAY, POLAND, PORTUGAL,
ROMANIA, 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 MAY 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

<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 and other obligations 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.
Changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make interest and principal payments than is the case
with higher grade bonds. 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

<PAGE>

the price set in the warrant, the warrant will expire worthless. Conversely, if
at the expiration date the underlying stock is trading at a price higher than
the price set in the warrant, the Fund can acquire the stock at a price below
its market value.

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

<PAGE>

and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency 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 AND CENTRAL 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 used 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.

<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 RETURN 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 RETURN. 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 RETURN 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

<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

<PAGE>

certain member states of the European Economic Community, a European economic
cooperative organization. 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 RETURN 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.

<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 hold up to 10% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act) and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
Investing in Rule 144A securities could, however, have the effect of increasing
the level of Fund illiquidity to the extent that qualified institutional buyers
become, for a limited time, uninterested in purchasing these securities. The
Fund intends to comply with any applicable state blue sky laws restricting the
Fund's investments in illiquid securities. 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.'

<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. 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.

<PAGE>

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HOW THE FUND IS MANAGED

THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON MATTERS
OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.

For the fiscal year ended April 30, 1996, total expenses of Class A, Class
B and Class C shares as a percentage of average net assets were 1.53%, 2.28% and
2.28%, respectively. See 'Financial Highlights.'

MANAGER

PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .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 May 31, 1996, PMF served as the manager to 38 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $52 billion.

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

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 other investment companies advised by PIC, including
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.

DISTRIBUTOR

PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A,
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), PRUDENTIAL SECURITIES (THE DISTRIBUTOR) INCURS
THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C SHARES.
These expenses include commissions and account servicing fees paid to, or on
account of, financial advisers of Prudential Securities and representatives

<PAGE>

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 PRUDENTIAL SECURITIES FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. Prudential Securities has agreed
to limit its distribution-related fees payable under the Class A Plan to .25 of
1% of the average daily net assets of the Class A shares for the fiscal year
ending April 30, 1997.

UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C
SHARES AT AN ANNUAL RATE OF 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.

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. (the NASD) governing maximum sales charges. See
'Distributor' in the Statement of Additional Information.

<PAGE>

On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.

Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.

In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern Disctrict of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.

For more detailed information concerning the foregoing matters, see
'Distributor' in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.

The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by Brown Brothers Harriman & Co., an
independent custodian, are separate and distinct from PSI.

FEE WAIVERS AND SUBSIDY

PMF may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. Fee waivers
and expense subsidies will increase the Fund's total return. See 'Performance
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.

<PAGE>

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.

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

<PAGE>

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. 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.'

- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT TO
FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF ANY,
THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.

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

<PAGE>

shareholders is currently the same as the maximum corporate 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 'passed through' to
shareholders who may then have the option of claiming such taxes as either a
deduction or a tax credit. 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.

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 Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.

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.

<PAGE>

- --------------------------------------------------------------------------------
GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

THE FUND IS AUTHORIZED TO OFFER 2 BILLION SHARES OF COMMON STOCK, $.001 PAR
VALUE PER SHARE, DIVIDED INTO FOUR CLASSES OF SHARES, DESIGNATED CLASS A, CLASS
B, CLASS C AND CLASS Z SHARES, EACH CONSISTING OF 500 MILLION AUTHORIZED SHARES.
Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service fees (except for Class Z shares
which are not subject to any distribution and/or service fee), (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted

to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are not subject
to any sales or redemption charge and are offered exclusively for sale to the
PSI Cash Balance Pension Plan. Since Class B and Class C shares generally bear
higher distribution expenses than Class A shares, the liquidation proceeds to
shareholders of those classes are likely to be lower than to Class A
shareholders and to Class Z shareholders, whose shares are not subject to any
distribution and/or service fee. In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series and classes within such series, with such preferences, privileges,
limitations and voting and dividend rights as the Directors may determine.
Currently, the Fund is offering four classes, designated Class A, Class B, Class
C and Class Z shares.

The Board of Directors may increase or decrease the number of authorized
shares without approval by shareholders. Shares of the Fund, when issued, are
fully paid, nonassessable, fully transferable and redeemable at the option of
the holder. Shares are also redeemable at the option of the Fund under certain
circumstances as described under 'Shareholder Guide -- How to Sell Your Shares.'
Each share of each class of common stock is equal as to earnings, assets and
voting privileges, except as noted above, and each class bears the expenses
related to the distribution of its shares. Except for the conversion feature
applicable to the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of common stock of
the Fund is entitled to its portion of all of the Fund's assets after all debts
and expenses of the Fund have been paid. 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.

<PAGE>

- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC
OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The 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.'

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'
below.

The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See 'How to Sell Your Shares.'

Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.

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

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. See 'Net Asset Value' in the Statement of Additional Information.

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.

<PAGE>

ALTERNATIVE PURCHASE PLAN

THE FUND OFFERS THREE CLASSES OF SHARES THROUGH THIS PROSPECTUS (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 Initial sales charge
charge of 5% of the being charged at a waived or reduced for
public offering rate of .25 of 1%) certain purchases
price

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

Class C Maximum CDSC of 1% of 1% Shares do not convert
the lesser of the to another class
amount invested or the
redemption proceeds on

redemptions made
within one year
of purchase.
</TABLE>

The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class is
subject to different sales charges and distribution and/or service fees, (ii)
each class has exclusive voting rights on any matter submitted to shareholders
that relates solely to its arrangement and has separate voting rights on any
matter submitted to shareholders in which the interests of one class differs
from the interests of any other class 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.

<PAGE>

If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 5% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6-year period, you
should consider purchasing Class C shares over either Class A or Class B shares.

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. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine

<PAGE>

the applicable reduction. See 'Purchase and Redemption of Fund Shares --
Reduction and Waiver of Initial Sales Charges -- Class A Shares' in the
Statement of Additional Information.

BENEFIT PLANS. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the plan has existing assets of at
least $1 million invested in shares of Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege) or
1,000 eligible employees or participants. In the case of Benefit Plans whose
accounts are held directly with the Transfer Agent or Prudential Securities and
for which the Transfer Agent or Prudential Securities does individual account
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.

PRUARRAY AND SMARTPATH PLANS. Class A shares may be purchased at NAV by
certain retirement and deferred compensation plans, qualified or non-qualified
under the Internal Revenue Code of 1986, as amended, (the Code), including
pension, profit-sharing, stock-bonus or other employee benefit plans under
Section 401 of the Code and deferred compensation and annuity plans under
Sections 457 and 403(b)(7) of the Code that participate in Prudential's PruArray
and SmartPath Programs benefit plan record keeping services (hereafter referred
to as a PruArray or SmartPath Plan); provided (i) that the plan has at least $1
million in existing assets or 250 eligible employees or participants and (ii)
that Prudential Mutual Funds constitute at least one-half of the plan's
investment options. The term 'existing assets' for this purpose includes stock
issued by a PruArray or SmartPath Plan sponsor and shares of non-money market
Prudential Mutual Funds and shares of certain unaffiliated non-money market
mutual funds that participate in the PruArray or SmartPath Program
(Participating Funds). 'Existing assets' also include shares of money market
funds acquired by exchange from a Participating Fund.

Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.

OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
'employee related' account at Prudential Securities or the Transfer Agent, (c)
employees and special agents of Prudential and its subsidiaries and all persons
who have retired directly from active service with Prudential or one of its
subsidiaries, (d) registered representatives and employees of dealers who have
entered into a selected dealer agreement with Prudential Securities provided
that purchases at NAV are permitted by such person's employer and (e) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 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 money market or other no-load fund
which imposes a distribution or service fee of .25 of 1% or less) and (iii) the
financial adviser served as the client's broker on the previous 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
acquired upon the reinvestment of dividends and distributions. See 'Purchase and
Redemption of Fund Shares -- Reduction and Waiver of Initial Sales
Charges -- Class A Shares' in the Statement of Additional Information.

<PAGE>

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 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 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

<PAGE>

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.

90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of redemption. Any contingent deferred sales charge or CDSC paid in
connection with such redemption will be credited (in shares) to your account.
(If less than a full repurchase is made, the credit will be on a pro rata
basis.) You must notify the Fund's Transfer Agent, either directly or through
Prudential Securities, at the time the repurchase privilege is exercised to
adjust your account for the CDSC you previously paid. Thereafter, any
redemptions will be subject to the CDSC applicable at the time of the
redemption. See 'Contingent Deferred Sales Charges' below. Exercise of the
repurchase privilege will generally not affect federal tax treatment of any gain
realized upon redemption. However, if the redemption was made within a 30 day
period of the repurchase and if the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, may not be allowed for federal
income tax purposes.

CONTINGENT DEFERRED SALES CHARGES

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

<PAGE>

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
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 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

<PAGE>

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 be effected at
relative net asset value without the imposition of any additional sales charge.
The first conversion of Class B shares occurred in February 1995, when the
conversion feature was first implemented.

Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares 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. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have

<PAGE>

been made on the last day of the month. Class B shares acquired through exchange
will convert to Class A shares after expiration of the conversion period
applicable to the original purchase of such shares.

The conversion feature 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. The conversion of Class B shares into Class A shares
may be suspended if such opinions or rulings are no longer available. If
conversions are suspended, Class B shares of the Fund will continue to be
subject, possibly indefinitely, to their higher annual distribution and service
fee.

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 held in a money market fund will be
excluded. See 'Conversion Feature -- Class B Shares' above. An exchange will be
treated as a redemption and purchase for tax purposes. See 'Shareholder
Investment Account -- Exchange Privilege' in the Statement of Additional
Information.

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. (The Fund or its agents could be subject to liability
if they fail to employ reasonable procedures.) All exchanges will be made on the
basis of the relative NAV of the two funds next determined after the request is
received in good order. The exchange privilege is available only in states where

the exchange may legally be made.

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE 'HOW TO SELL YOUR SHARES' ABOVE.

You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.

IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.

SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See 'Alternative
Purchase Plan -- Class A Shares -- Reduction and Waiver of Initial Sales
Charges' above. Under this exchange privilege, amounts representing any Class B
and Class C shares

<PAGE>

(which are not subject to a CDSC) held in such a shareholder's account will be
automatically exchanged for Class A shares for shareholders who qualify to
purchase Class A shares at NAV on a quarterly basis, unless the shareholder
elects otherwise. Eligibility for this exchange privilege will be calculated on
the business day prior to the date of the exchange. Amounts representing Class B
or Class C shares which are not subject to a CDSC include the following: (1)
amounts representing Class B or Class C shares acquired pursuant to the
automatic reinvestment of dividends and distributions, (2) amounts representing
the increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares and (3) amounts representing Class B or
Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities or Prusec that they are eligible for this special exchange
privilege.

The exchange privilege may be modified or terminated at any time on 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 DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 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.

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.

<PAGE>

[This page intentionally left blank]

<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 Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust

TAX-EXEMPT BOND FUNDS

Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.

GLOBAL FUNDS

Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
Global Utility Fund, Inc.
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.

EQUITY FUNDS

Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential Jennison Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS

o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.

Institutional Money Market Series

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

<TABLE>
<S> <C>
PAGE
----
FUND HIGHLIGHTS.............................. 2
Risk Factors and Special
Characteristics....................... 2
FUND EXPENSES................................ 4
FINANCIAL HIGHLIGHTS......................... 5
HOW THE FUND INVESTS......................... 6
Investment Objective and Policies....... 6
Risk Factors and Special Considerations
of Investing in Foreign Securities.... 8
Risk Factors Relating to Investing in
Foreign Debt Securities Rated Below
Investment Grade (Junk Bonds)......... 9
Hedging and Return Enhancement
Strategies............................ 10
Other Investments and Policies.......... 13
Investment Restrictions................. 14
HOW THE FUND IS MANAGED...................... 15
Manager................................. 15
Distributor............................. 15
Fee Waivers and Subsidy................. 17
Portfolio Transactions.................. 17
Custodian and Transfer and Dividend
Disbursing Agent...................... 18
HOW THE FUND VALUES ITS SHARES............... 18
HOW THE FUND CALCULATES PERFORMANCE.......... 18
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 19
GENERAL INFORMATION.......................... 21
Description of Common Stock............. 21
Additional Information.................. 21
SHAREHOLDER GUIDE............................ 22
How to Buy Shares of the Fund........... 22
Alternative Purchase Plan............... 23
How to Sell Your Shares................. 26
Conversion Feature -- Class B Shares.... 29
How to Exchange Your Shares............. 30

Shareholder Services.................... 31
DESCRIPTION OF SECURITY RATINGS.............. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY............ B-1
</TABLE>

- ------------------------------------------------------
MF160Z 42MO25U

Class A: 74431N-10-3
CUSIP No.: Class B: 74431N-20-2
Class C: 74431N-30-1

PRUDENTIAL
EUROPE
GROWTH
FUND, INC.

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

PROSPECTUS
JULY 2, 1996

PRUDENTIAL MUTUAL FUNDS
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH(Service Mark)

<PAGE>

[This page intentionally left blank]

<PAGE>

[This page intentionally left blank]

<PAGE>

[This page intentionally left blank]

<PAGE>

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

TABLE OF CONTENTS

Shareholder Services.................... 31
DESCRIPTION OF SECURITY RATINGS.............. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY............ B-1
</TABLE>

- ------------------------------------------------------
MF160Z 42MO25U

CUSIP No.: Class Z: 74431N-40-0

PRUDENTIAL
EUROPE
GROWTH
FUND, INC.

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

(CLASS Z SHARES)
----------------

PROSPECTUS
JULY 2, 1996

PRUDENTIAL MUTUAL FUNDS
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH(Service Mark)

<PAGE>

PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 2, 1996

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, and may engage in various derivative
transactions such as options on stocks, stock indices, foreign currencies and
futures contracts on foreign currencies and the purchase and sale of futures
contracts on foreign currencies and groups of currencies and on financial or
stock indices to hedge its portfolio and to attempt to enhance return. There can
be no assurance that the Fund's investment objective will be achieved. See
'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 2, 1996, 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 6
Investment Restrictions.......................................................................... B-14 14
Directors and Officers........................................................................... B-16 15
Manager.......................................................................................... B-18 15
Distributor...................................................................................... B-21 15
Portfolio Transactions and Brokerage............................................................. B-24 17
Purchase and Redemption of Fund Shares........................................................... B-25 22
Shareholder Investment Account................................................................... B-29 31
Net Asset Value.................................................................................. B-32 18
Taxes............................................................................................ B-33 19
Performance Information.......................................................................... B-37 18
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants.................... B-38 18

Independent Auditors' Report..................................................................... B-48 --
Financial Statements............................................................................. B-39 --
Appendix-Historical Performance Data............................................................. A-1 --
Appendix-General Investment Information.......................................................... A-4 --
Appendix-Information Relating to The Prudential.................................................. A-5 --
</TABLE>

<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 Mutual Fund Investment Management, 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 (FHLMC), the Federal National Mortgage
Association, the Student Loan Marketing Association, Resolution Funding
Corporation and the Tennessee Valley Authority, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the

Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. FHLMC investments may include
collateralized mortgage obligations. 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

B-2

<PAGE>

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 may invest in both Adjustable Rate Mortgage Securities (ARMs),
which are pass-through mortgage securities collateralized by adjustable rate
mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are collateralized
by fixed-rate mortgages.

The values of U.S. Government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods of
falling U.S. interest rates, the values of U.S. Government securities generally
rise and, conversely, during periods of rising interest rates, the values of
such securities generally decline. The magnitude of these fluctuations will
generally be greater for securities with longer-term maturities.

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.

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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 on the same security as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written.

If the writer of an option wishes to terminate the obligation, he or she
may effect a 'closing purchase transaction.' This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she had been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a 'closing sale transaction.' This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is generally required to pledge
for the benefit of the broker the underlying security or other assets in
accordance with the rules of the relevant exchange or clearinghouse, such as The
Options Clearing Corporation (OCC), an institution created to interpose itself
between buyers and sellers of options in the United States. Technically, the
clearinghouse assumes the other side of every purchase and sale transaction on
an exchange and, by doing so, guarantees the transaction.

The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option may be offset in whole or in
part 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

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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 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

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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

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involving more than one option substantially more risky with index options than
with stock options. For example, even if an index call which the Fund has
written is 'covered' by an index call held by the Fund with the same strike
price, the Fund will bear the risk that the level of the index may decline
between the close of trading on the date the exercise notice is filed with the
clearing corporation and the close of trading on the date the Fund exercises the
call it holds or the time the Fund sells the call which, in either case, would
occur no earlier than the day following the day the exercise notice was filed.

If the Fund holds an index option and exercises it before final
determination of the closing index value for that day, it runs the risk that the
level of the underlying index may change before closing. If such a change causes
the exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although the
Fund may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising an
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.

RISKS OF OPTIONS ON FOREIGN CURRENCIES

Options on foreign currencies involve the currencies of two nations and
therefore, developments in either or both countries affect the values of 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 U.S. Government securities or other high-grade debt obligations in
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
contract (less the value of any 'covering' positions, if any). If the value of
the securities placed in the segregated account declines, additional cash or
securities will

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be placed in the account on a daily basis so that the value of the account will
equal the amount of the Fund's net commitment 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 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,

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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 return 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.

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LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS AND OPTIONS ON STOCK INDICES,
FOREIGN CURRENCIES AND FUTURES CONTRACTS ON FOREIGN CURRENCIES

The Fund may write put and call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. The Fund will write put options on stock indices and foreign currencies
and futures contracts on foreign currencies only if they are covered by
segregating with the Fund's Custodian an amount of cash, U.S. Government
securities, or 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

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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, 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 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.

B-11

<PAGE>

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 Fund at any time. If the borrower fails to
maintain the requisite amount of collateral, the loan automatically terminates,
and the Fund could use the collateral to replace the securities while holding
the borrower liable for any excess of replacement cost over collateral. As with
any extensions of credit, there are risks of delay in recovery and in some cases
loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms determined to be creditworthy pursuant to procedures approved by the Board
of Directors of the Fund. On termination of the loan, the borrower is required
to return the securities to the Fund, and any gain or loss in the market price
during the loan would inure to the Fund.

Since voting or consent rights which accompany loaned securities pass to

the borrower, the Fund will follow the policy of calling the loan, in whole or
in part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan. The Fund will pay reasonable
finders', administrative and custodial fees in connection with a loan of its
securities or may share the interest earned on collateral with the borrower.

ILLIQUID SECURITIES

The Fund may not hold more than 10% 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

B-12

<PAGE>

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. (NASD).

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%. For the fiscal year ended April
30, 1996, and for the period from July 13, 1994 (commencement of investment
operations) through April 30, 1995, the Fund's portfolio turnover rate was 65%
and 25%, respectively. The portfolio turnover rate is generally the percentage
computed by dividing the lesser of portfolio purchases or sales (excluding all
securities, including options, whose maturities or expiration date at
acquisition were one year or less) by the monthly average value of the
portfolio. High

B-13

<PAGE>

portfolio turnover (over 100%) involves correspondingly greater brokerage

commissions and other transaction costs, which are borne directly by the Fund.
In addition, high portfolio turnover may also mean that a proportionately
greater amount of distributions to shareholders will be taxed as ordinary income
rather than long-term capital gains compared to investment companies with lower
portfolio turnover. See '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 voting shares are present in person or
represented by proxy or (ii) more than 50% of the outstanding voting 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.)

B-14

<PAGE>

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.

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 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.

B-15

<PAGE>

DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
NAME, ADDRESS POSITION WITH PRINCIPAL OCCUPATION
AND AGE FUND DURING PAST 5 YEARS
- ------------------------- ---------------------- ---------------------------------------------------------------
<S> <C> <C>

Eugene C. Dorsey (68) Director Retired President, Chief Executive Officer and Trustee of the
c/o Prudential Mutual Gannett Foundation (now Freedom Forum); former Publisher of
Fund Management, Inc. four Gannett newspapers and Vice President of the Gannett
One Seaport Plaza Company; past Chairman, Independent Sector, Washington, D.C.
New York, NY (national coalition of philanthropic organizations); former
Chairman of the American Council for the Arts; Director of
the Advisory Board of Chase Manhattan Bank of Rochester.

*Richard A. Redeker (51) Director and President, Chief Executive Officer and Director (since October
One Seaport Plaza President 1993), PMF; Executive Vice President, Director and Member of
New York, NY the Operating Committee (since October 1993), Prudential

Securities; Director (since October 1993) of Prudential
Securities Group, Inc.; Executive Vice President, The
Prudential Investment Corporation (since July 1994); Director
(since January 1994) of Prudential Mutual Fund Distributors,
Inc. (PMFD) and Prudential Mutual Fund Services, Inc. (PMFS);
formerly Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September 1978-September
1993); Director and President of The Global Yield Fund, Inc.

Robin B. Smith (55) Director President (since September 1981) and Chief Executive Officer
328 Channel Drive (since January 1988), Publishers Clearing House; Director of
Port Washington, NY BellSouth Corporation, The Omnicom Group, Inc., Texaco Inc.,
Spring Industries Inc., First Financial Fund, Inc., The
Global Total Return Fund, Inc., The High Yield Income Fund,
Inc. and The High Yield Plus Fund, Inc.

Robert F. Gunia (49) Vice President Director (since January 1989), Chief Administrative Officer
One Seaport Plaza (since July 1990) and Executive Vice President, Treasurer and
New York, NY Chief Financial Officer (since June 1987) of PMF; Senior Vice
President (since March 1987) of Prudential Securities;
Executive Vice President, Treasurer and Comptroller (since
March 1991) of PMFD; Director (since June 1987) of PMFS; Vice
President and Director of The Asia Pacific Fund, Inc. (since
May 1989).

S. Jane Rose (50) Secretary Senior Vice President (since January 1991) and Senior Counsel
One Seaport Plaza (since June 1987) of PMF; Senior Vice President and Senior
New York, NY Counsel of Prudential Securities (since July 1992); formerly
Vice President and Associate General Counsel of Prudential
Securities.
</TABLE>

B-16

<PAGE>

<TABLE>
<S> <C> <C>
Grace Torres (36) Treasurer and First Vice President (since March 1994) of PMF; First Vice
One Seaport Plaza Principal Financial President (since March 1993) of Prudential Securities; Vice
New York, NY and Accounting Officer President of Bankers Trust (July 1989-March 1994).

Ellyn C. Vogin (35) Assistant Vice President and Associate General Counsel (since March 1995)
One Seaport Plaza Secretary of PMF; Vice President and Associate General Counsel of
New York, NY Prudential Securities (since March 1995); prior thereto,
associated with the law firm of Fulbright & Jaworski L.L.P.

Stephen M. Ungerman (43) Assistant Treasurer First Vice President (since February 1993) of PMF; Tax Director
One Seaport Plaza of the Money Management Group and the Private Asset Group of
New York, NY The Prudential Insurance Company of America (since March
1996); prior thereto, Senior Tax Manager at Price Waterhouse
LLP.

</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.

The Board of Directors has nominated a new slate of Directors for the Fund
which will be submitted to shareholders at a special meeting to be held on or
about October 1996.

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 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.

The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended April 30, 1996 to the Directors who are not affiliated
with the Manager and the aggregate compensation paid to such Directors for
service on the Fund's Board and that of any other investment companies managed
by Prudential Mutual Fund Management, Inc. (Fund Complex) for the calendar year
ended December 31, 1995.

B-17

<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM COMPANY
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF COMPANY BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
- ----------------------------------------------------- ------------ ------------------ ---------------- ------------
<S> <C> <C> <C> <C>
Eugene C. Dorsey** .................................. $ 10,000 None N/A 75,500(9)*
Director

Robin B. Smith** .................................... 10,000 None N/A $ 85,500(9)*
Trustee
</TABLE>

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

** All compensation from the Fund for the fiscal period ended April 30, 1995
represents deferred compensation. Aggregate compensation from the Fund for
the fiscal year ended April 30, 1996, including accrued interest, amounted to
approximately $10,606 and $11,586 for each of Mr. Dorsey and Ms. Smith,
respectively. Aggregate compensation from the Fund Complex for the calendar
year ended December 31, 1995, including accrued interest, amounted to
approximately $85,783 and $100,741 for each of Mr. Dorsey and Ms. Smith,
respectively.

As of June 7, 1996, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund and there were no
beneficial owners of greater than 5% of the outstanding shares of any class of
shares of the Fund.

As of June 7, 1996, the only beneficial owner, directly or indirectly of
more than 5% of any class of shares of the Fund was Prudential Mutual Fund
Services, Audit Account, P.O. Box 15025, New Brunswick, NJ 08906-5025 which
owned 14 shares (100%) of the outstanding Class Z shares of the Fund.

As of June 7, 1996, Prudential Securities was the record holder for other
beneficial owners of 1,626,042 Class A shares (approximately 59% of such shares
outstanding), 7,289,548 Class B shares (approximately 79% of such shares

outstanding) and 508,645 Class C shares (approximately 67% of such shares
outstanding). In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy materials to
beneficial owners for which it is the record holder.

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 May 31, 1996, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $52
billion. According to the Investment Company Institute, as of December 31, 1995,
the Prudential Mutual Funds were the 13th largest family of mutual funds in the
United States.

PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, record keeping and
management and administration services to qualified plans.

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

B-18

<PAGE>

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.

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 last approved by the Board of Directors of the Fund, including all of the
Directors who are not parties to the contract or interested persons of any such
party, as defined in the Investment Company Act, on June 13, 1995, and by the
initial shareholder of the Fund on July 7, 1994.

For the fiscal year ended April 30, 1996, and for the period from July 13,
1994 (commencement of investment operations) through April 30, 1995, PMF
received management fees of $1,329,043 and $725,254 respectively (0.75% of the
average net assets of the Fund).

B-19

<PAGE>

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. Investment advisory
services are provided to the Fund by a unit of the Subadviser, known as
Prudential Mutual Fund Investment Management.

The Subadvisory Agreement was last 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 April 9, 1996, 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 Subadviser are subsidiaries of Prudential, which is one of
the largest diversified financial services institutions in the world and, based
on total assets, the largest insurance company in North America as of December
31, 1994. Its primary business is to offer a full range of products and services
in three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs nearly
100,000 persons worldwide, and maintains a sales force of approximately 19,000
agents, 3,400 insurance brokers and 6,000 financial advisors. It insures or
provides other financial services to more than 50 million people worldwide.
Prudential is a major issuer of annuities, including variable annuities.
Prudential seeks to develop innovative products and services to meet consumer
needs in each of its business areas. For the year ended December 31, 1994,
Prudential through its subsidiaries provided financial services to more than 50
million people worldwide--more than one of every five people in the United
States. As of December 31, 1994, Prudential through its subsidiaries provided
automobile insurance for more than 1.8 million cars and insured more than 1.5
million homes. For the year ended December 31, 1994, The Prudential Bank, a
subsidiary of Prudential, served 940,000 customers in 50 states providing credit
card services and loans totaling more than $1.2 billion. Assets held by
Prudential Securities Incorporated (PSI) for its clients totaled approximately
$150 billion at December 31, 1994. During 1994, over 28,000 new customer
accounts were opened each month at PSI. The Prudential Real Estimate Affiliates,
the fourth largest real estate brokerage network in the United States, has more
than 34,000 brokers and agents and more than 1,100 offices in the United States.

Based on data for the year ended December 31, 1994 for the Prudential
Mutual Funds, on an average day, there are approximately $80 million in common
stock transactions, over $100 million in bond transactions and over $4.1 billion
in money market transactions. In 1994, the Prudential Mutual Funds effected more
than 57,000 trades in money market securities and held on average $21 billion of
money market securities. Based on complex-wide data for the year ended December
31, 1994, on an average day, 7,168 shareholders telephoned Prudential Mutual
Fund Services, Inc., the Transfer Agent of the Prudential Mutual Funds, on the
Prudential Mutual Funds' toll-free number. On an annual basis, that represents
1.8 million telephone calls and approximately 1.1 million fund transactions.

From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.

B-20

<PAGE>

DISTRIBUTOR

Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the Class A,
Class B and Class C shares of the Fund. Prior to January 2, 1996, Prudential
Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New York, New York
10292, acted as distributor of the Class A 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 April 9, 1996, 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, approved the continuance
of the Plans and Distribution Agreements. 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. For the fiscal year ended April 30, 1996, the Fund paid
distribution fees of $117,958 to PMFD and PSI under the Class A Plan. This
amount was primarily expended for payment of account servicing fees to financial
advisers and other persons who sell Class A shares. In addition, during the same
period, PMFD and PSI received approximately $112,100 in initial sales charges
with respect to the sale of Class A shares.

CLASS B PLAN. For the fiscal year ended April 30, 1996, Prudential
Securities received $1,222,547 from the Fund under the Class B Plan and spent
approximately $1,044,000 in distributing the Class B shares of the Fund. It is
estimated that of the latter amount, approximately $41,000 (4%) was spent on
printing and mailing of prospectuses to other than current shareholders,

$235,000 (22%) on compensation to Pruco Securities Corporation, an affiliated
broker-dealer, for commissions to its representatives and other expenses,
including an allocation on account of overhead and other branch office
distribution-related expenses incurred by it for distribution of Fund shares;
and $768,000 (74%) on the aggregate of (i) payment of commissions and account
servicing fees to financial advisers ($363,000 or 35%), and (ii) an allocation
on account of overhead and other branch office distribution-related expenses
($405,000 or 39%). The term 'overhead and other branch office distribution-
related expenses' represents (a) the expenses of operating branch
offices of Prusec and Prudential Securities in connection with the sale of Fund
shares, including lease costs, the salaries and employee benefits of operations
and sales support personnel, utility costs, communications costs and the costs
of stationery and supplies, (b) the costs of client sales seminars, (c) expenses
of mutual fund sales coordinators to promote the sale of Fund shares and (d)
other incidental expenses relating to branch promotion of Fund sales. Prior to
August 1, 1994, the Class A and B Plans operated as 'reimbursement type' plans
and, in the case of Class B, provided for the reimbursement of distribution
expenses incurred in current and prior years.

Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class B shares. See
'Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges'
in the Prospectus. For the fiscal year ended April 30, 1996, Prudential
Securities received approximately $490,600 in contingent deferred sales charges
attributable to the Class B shares.

B-21

<PAGE>

CLASS C PLAN. For the fiscal year ended April 30, 1996, Prudential
Securities received $77,679 from the Fund under the Class C Plan and spent
approximately $74,000 in distributing the Fund's Class C shares. It is estimated
that of the latter amount approximately $2,000 (3%) was spent on printing and
mailing of prospectuses to other than current shareholders; $2,000 (3%) on
compensation to Pruco Securities Corporation, an affiliated broker-dealer, for
commissions to its representatives and other expenses, including an allocation
of overhead and other branch office distribution-related expenses, incurred by
it for distribution of Fund shares; $70,000 (94%) on the aggregate of (i)
payments of commission and account servicing fees to financial advisors $62,000
(84%) and (ii) an allocation of overhead and other branch office distributon-
related expenses $8,000 (10%). The term 'overhead and other branch office
distribution-related expenses' represents (a) the expenses of operating
Prudential Securities' branch offices in connection with the sale of Fund
shares, including lease costs, the salaries and employee benefits of operations
and sales support personnel, utility costs, communications costs and the costs
of stationery and supplies, (b) the costs of client sales seminars, (c)
expenses of mutual fund sales coordinators to promote the sale of Fund shares
and (d) other incidental expenses relating to branch promotion of Fund sales.

Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class C shares upon certain redemptions of
Class C shares. See 'Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges' in the Prospectus. For the fiscal year ended April 30,
1996, Prudential Securities received approximately $4,700 in contingent deferred
sales charges atttibutable to Class C shares.

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
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the Securities Act. On November 3, 1995, the Board of
Directors approved the transfer of the Distribution Agreement for Class A shares
with PMFD to Prudential Securities, and on April 9, 1996, the Board of
Directors, including a majority of the Rule 12b-1 Directors, approved a restated
distribution agreement between the Fund and Prudential Securities relating to
all four classes of shares.

On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's

conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with;

B-22

<PAGE>

(ii) directed PSI to cease and desist from violating the federal securities laws
and imposed a $10 million civil penalty; and (iii) required PSI to adopt certain
remedial measures including the establishment of a Compliance Committee of its
Board of Directors. Pursuant to the terms of the SEC settlement, PSI established
a settlement fund in the amount of $330,000,000 and procedures, overseen by a
court approved Claims Administrator, to resolve legitimate claims for
compensatory damages by purchasers of the partnership interests. PSI has agreed
to provide additional funds, if necessary, for that purpose. PSI's settlement
with the state securities regulators included an agreement to pay a penalty of
$500,000 per jurisdiction. PSI consented to a censure and to the payment of a
$5,000,000 fine in settling the NASD action. In settling the above referenced
matters, PSI neither admitted nor denied the allegations asserted against it.

On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend solicitation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Texas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.

On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent 'ombudsman' whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a three-

year period.

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.

B-23

<PAGE>

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 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.

B-24

<PAGE>

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

During the fiscal year ended April 30, 1996 and for the period from July
13, 1994 (commencement of investment operations) through April 30, 1995, the
Fund paid brokerage commissions of $538,259 and $582,226, respectively, of which
none were paid to Prudential Securities.

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). Class Z shares of the Fund
are not subject to any sales or redemption charge and are offered exclusively
for sale to the PSI Cash Balance Pension Plan, a defined contribution plan
sponsored by Prudential Securities (the PSI Pension Plan). See 'Shareholder
Guide--How to Buy Shares of the Fund' in the Prospectus.

Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service fees (except for Class Z shares,
which are not subject to any sales or redemption charge or to any distribution
and/or service fee), (ii) each class has exclusive voting rights with respect to
any matter submitted to shareholders that relates solely to its arrangement and
has separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to
the PSI Pension Plan. See 'Distributor' and 'Shareholder Investment Account--
Exchange Privilege.'

B-25

<PAGE>

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*, Class C* and Class Z shares are sold at net asset value. Using the Fund's
net asset value at April 30, 1996, 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..................................... $13.69
Maximum sales charge (5% of offering price)................................................ .72
------
Offering price to public................................................................... $14.41
------
------
CLASS B
Net asset value, redemption price and offering price to public per Class B share*.......... $13.49
------
------
CLASS C
Net asset value, redemption price and offering price to public per Class C share*.......... $13.49
------
------
CLASS Z
Net asset value and redemption price per Class Z share..................................... $13.68
------
------
</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.

B-26

<PAGE>

In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more 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 shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. 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 also available to investors
(or an eligible group of related investors), including retirement and groups
plans, who enter into a written Letter of Intent providing for the purchase,
within a thirteen-month period, of shares of the Fund and shares of other
Prudential Mutual Funds (Investment Letter of Intent). Retirement and group
plans may also qualify to purchase Class A shares at net asset value by entering
into an LOI whereby they agree to enroll, within a thirteen-month period, a
specified number of eligible employees or participants (Participant Letter of
Intent).

For purposes of the Investment Leter of Intent, all shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
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.

A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number of
investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the reduced
sales charge applicable to the amount represented by the goal as if it were a
single investment. In the case of a Participant Letter of Intent, each
investment made during the period will be made at net asset value. Escrowed
Class A shares totaling 5% of the dollar amount of the Letter of Intent will be
held by the Transfer Agent in the name of the purchaser, except in the case of
retirement and group plans where the employer or plan sponsor will be
responsible for paying any applicable sales charge. The effective date of an
Investment Letter of Intent (except in the case of retirement and group plans)
may be back-dated up to 90 days, in order that any investment made during this
90-day period, valued at the purchaser's cost, can be applied to the fulfillment
of the Letter of Intent goal.

The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. Similarly, the Participant Letter of
Intent does not obligate the retirement or group plan to enroll the indicated

B-27

<PAGE>

number of eligible employees or participants. In the event the Letter of Intent
goals is not achieved within the thirteen-month period, the purchaser (or the
employer or plan sponsor in the case of any retirement or group plan) is
required to pay the difference between the sales charge otherwise applicable to
the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
will liquidate sufficient escrowed shares to obtain such difference. Investors
electing to purchase Class A shares of the Fund pursuant to a Letter of Intent
should carefully read such Letter of Intent.

The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or, in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. Letters of Intent are not available to any
individual participant in any retirement or group plans.

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

Distribution from an IRA or 403(b) Custodial Account A copy of the distribution form from the custodial firm
indicating (i) the date of birth of the shareholder and
(ii) that the shareholder is over age 59 1/2 and is
taking a normal distribution--signed by the shareholder.

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

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

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

B-28

<PAGE>

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing 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 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. Such shareholder will receive credit for any
contingent deferred sales charge paid in connection with the amount of proceeds
being reinvested.

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

B-29

<PAGE>

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 through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.

CLASS Z. Class Z shares may be exchanged for Class Z shares of the funds
listed below which participate in the PSI Pension Plan. No fee or sales load
will be imposed upon the exchange.

Prudential Equity Income Fund

Prudential Pacific Growth Fund, Inc.

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)

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

(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.

B-30

<PAGE>

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

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY
INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years............. $ 110 $ 165 $ 220 $ 275
20 Years............. 176 264 352 440
15 Years............. 296 444 592 740
10 Years............. 555 833 1,110 1,388
5 Years.............. 1,371 2,057 2,742 3,428
</TABLE>

See 'Automatic Savings Accumulation Plan.'

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 may 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.

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.

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

B-31

<PAGE>

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 an 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>

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

- ------------------
(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.

B-32

<PAGE>

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 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 more than 60 days, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
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. In the event
the New York Stock Exchange closes early on any business day, the net asset
value of the Fund's shares shall be determined at a time between such closing
and 4:15 P.M., New York time.

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 has elected to qualify and intends 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

B-33

<PAGE>

option from its holder, the Fund will generally realize short-term capital gain
or loss. If securities are sold by the Fund pursuant to the exercise of a call
option written by it, the Fund will include the premium received in the sale
proceeds of the securities delivered in determining the amount of gain or loss
on the sale. Certain of the Fund's transactions may be subject to wash sale,
short sale, conversion transaction 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 conversion transaction rules may apply to
certain transactions to treat all or a portion of the gain thereon as ordinary
income rather than as capital gain.

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

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.

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,

B-34

<PAGE>

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.

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 dividends on Class Z shares will generally be higher than the per share
dividends on Class A, Class B or Class C shares because Class Z shares are not
subject to any distribution or service fees. The per share capital gains
distributions will be paid in the same amounts for Class A, Class B, Class C and
Class Z 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 at regular rates on any dividends

and capital gain distributions which are effectively connected with a U.S. trade
or business of the foreign shareholder.

Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent 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.

B-35

<PAGE>

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 in computing their U.S. income tax liability unless the
dividends paid to them by the Fund are effectively connected with a U.S. trade
or business. Accordingly, a foreign shareholder may recognize additional taxable
income as a result of the Fund's election to 'pass-through' the foreign taxes to
shareholders.

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 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 (other than

high withholding tax 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.

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.

B-36

<PAGE>

PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B 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)n = ERV

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

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

The average annual total return for the one year and from July 13, 1994
(commencement of operations) to April 30, 1995 periods for the Fund's (i) Class
A shares were 10.50% and -1.75%, respectively, (ii) Class B shares were 10.40%
and -2.46%, respectively, and (iii) Class C shares were 14.40% and -2.46%,
respectively. Class Z shares commenced offering April 15, 1996.

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).

The aggregate total return for the one year and from July 13, 1994
(commencement of investment operations) to April 30, 1995, for the Fund's (i)
Class A shares were 16.31% and 3.25%, respectively, (ii) Class B shares were
15.40% and 2.54%, respectively, and (iii) Class C shares were 15.40% and 2.54%,
respectively. The aggregate total return for the period from April 15, 1996
(commencement of offering of Class Z shares) to April 30, 1996 was 2.1%.

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.

B-37

<PAGE>

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)

[CHART]

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

(1) Source: Ibbotson Associates, 'Stocks, Bonds, Bills and Inflation--1995
Yearbook', (annually updates the work of Roger G. Ibbotson and Rex
A. Sinquefield). All rights reserved. Common stock returns are based
on the Standard & Poor's 500 Stock Index, a market-weighted,
unmanaged index of 500 common stocks in a variety of industry
sectors. It is a commonly used indicator of broad stock price
movements. This chart is for illustrative purposes only, and is not
intended to represent the performance of any particular investment
or fund. Investors cannot invest directly in an index. Past
performance is not a guarantee of future results.

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 per shareholder
account, a new account set-up fee for each manually established account and a
monthly inactive zero balance account fee per shareholder account. PMFS is also
reimbursed for its out-of-pocket expenses, including but not limited to postage,
stationery, printing, allocable communication expenses and other costs. For the
fiscal year ended April 30, 1996 the Fund incurred fees of approximately
$284,000 for such services.

Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Fund's independent accountants, and in that capacity audits
the Fund's annual reports.

B-38

<PAGE>

Portfolio of Investments as of April 30, 1996PRUDENTIAL EUROPE GROWTH FUND, INC.
- -----------------------------------------------------

<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
--------------------------------------------------------------------
------------------------------------------------------------

LONG-TERM INVESTMENTS--91.7%
COMMON STOCKS--91.7%
--------------------------------------------------------------------
BELGIUM--5.4%
37,500 Barco Industries N.V. (Electrical &
electronics) $ 5,969,978
4,975 Bekaert S.A., N.V. (Building materials
& components) 3,845,472
--------------
9,815,450
------------------------------------------------------------
FEDERAL REPUBLIC OF GERMANY--8.6%
9,100 Hoechst AG* (Chemicals) 3,064,537
7,520 Linde AG (Machinery & engineering) 4,597,316
23,600 SAP AG (Data processing & reproduction) 3,059,730
9,000 Siemens AG (Electrical & electronics) 4,927,795
--------------
15,649,378
------------------------------------------------------------
FINLAND--1.2%
62,500 Nokia Corp. (Telecommunications
equipment) 2,233,211
------------------------------------------------------------
FRANCE--21.5%
7,800 Carrefour (Retail) 6,090,380
16,600 Hermes International (Textiles &
apparel manufacturing) 4,394,354
18,721 Imetal S.A. (Miscellaneous materials &
commodities) 2,928,607
75,650 La Farge Coppee (Building materials &
components) 4,841,951
23,600 Legrand S.A. (Electrical & electronics) 4,586,290
28,800 Rexel S.A. (Electrical & electronics) 6,899,971
18,100 Seb SA (Appliances & household
durables) 3,044,958
9,570 Sidel S.A. (Machinery & engineering) 2,276,148
69,500 Valeo S.A. (Automobiles & auto parts) 3,854,317
--------------
38,916,976

<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
--------------------------------------------------------------------

------------------------------------------------------------
ITALY--5.7%

304,300 Bulgari* (Retail) $ 3,801,916
2,965,400 Telecom Italia Mobile*
(Telecommunications) 6,554,935
--------------
10,356,851
------------------------------------------------------------
NETHERLANDS--6.3%

49,400 Hagemeyer (Wholesale & international
trading) 3,382,475
16,950 Heineken NV (Beverages & tobacco) 3,548,049
54,400 IHC Caland NV (Oil services) 2,137,094
16,800 Royal Dutch Petroleum ORD (Energy
sources) 2,393,794
--------------
11,461,412
------------------------------------------------------------
SPAIN--6.7%

18,100 Acerinox S.A. (Regd) (Metals - steel) 2,045,232
25,800 Banco Popular Esp. (Regd) (Banking) 4,273,615
249,300 Centros Commerciales (Pryca) (Retail) 5,749,571
--------------
12,068,418
------------------------------------------------------------
SWEDEN--8.2%

133,600 Astra B Free (Health & personal care) 5,908,101
43,600 Hennes & Mauritz B Free (Retail) 3,012,846
73,600 Missouri Och Domsjo AB (Forest products
& paper) 3,923,102
280,300 Skand Enskilda (Banking) 2,110,755
--------------
14,954,804
------------------------------------------------------------
UNITED KINGDOM--23.3%

455,100 Bank of Ireland (Banking) 3,295,288
334,500 British Sky Broadcasting Group, PLC
(Broadcasting & publishing) 2,411,956
</TABLE>

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

See Notes to Financial Statements. B-39

<PAGE>

Portfolio of Investments as of April 30, 1996PRUDENTIAL EUROPE GROWTH FUND, INC.

- -----------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
--------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM--CONT'D

278,600 Carpetright PLC (Retail) $ 2,420,744
685,800 Compass Group (Leisure & tourism) 5,658,875
332,500 Dixons Group (Retail) 2,472,771
607,700 Electrocomponents PLC ORD (Electronic
components & instruments) 3,653,111
254,100 EMAP Publishing PLC (Broadcasting &
publishing) 2,598,841
172,648 Guest Keen & Nettlefolds ORD
(Automobiles & auto parts) 2,558,818
216,600 Reed International ORD (Broadcasting &
publishing) 3,734,651
255,000 Siebe PLC (Machinery & engineering) 3,304,294
289,800 Standard Chartered (Banking) 2,719,156
960,900 Vodafone Group PLC (Telecommunications) 3,848,469
315,100 Whitbread ORD (Beverages & tobacco) 3,569,716
--------------
42,246,690
------------------------------------------------------------
UNITED STATES--4.8%

100,700 Gucci Group NV* (Retail) 5,475,562
67,500 SGS Thompson Microelectronics NV*
(Electronic components & instruments) 3,172,500
--------------
8,648,062
--------------
Total common stocks
(cost US$134,973,049) 166,351,252
--------------

Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
--------------------------------------------------------------------
------------------------------------------------------------

SHORT-TERM INVESTMENTS--3.7%
--------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--3.7%
$ 6,660 Federal Home Loan Mortgage Corporation,
Zero Coupon, 5/1/96
(cost US$6,660,000) $ 6,660,000
---------------
------------------------------------------------------------
TOTAL INVESTMENTS--95.4%
(cost US$141,633,049; Note 4) 173,011,252
Other assets in excess of
liabilities--4.6% 8,386,891
---------------
Net Assets--100.0% $ 181,398,143
---------------
---------------
</TABLE>

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

*Non-income producing security

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

- ---- B-40 See Notes to Financial Statements.

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

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

<TABLE>
<CAPTION>
April 30,
1996
---------------
<S> <C>
ASSETS

Investments, at value (cost $141,633,049)....................................................................... $ 173,011,252
Foreign currency, at value (cost $19,786,354)................................................................... 19,675,995
Cash............................................................................................................ 42,517
Dividends and interest receivable............................................................................... 762,095
Receivable for investments sold................................................................................. 420,708
Receivable for Fund shares sold................................................................................. 157,355
Deferred expenses and other assets.............................................................................. 150,001
---------------
Total assets................................................................................................ 194,219,923
---------------
LIABILITIES
Payable for investments purchased............................................................................... 11,782,557
Payable for Fund shares reacquired.............................................................................. 449,571
Accrued expenses................................................................................................ 360,442
Distribution fee payable........................................................................................ 118,140
Management fee payable.......................................................................................... 111,070
---------------
Total liabilities........................................................................................... 12,821,780
---------------
NET ASSETS...................................................................................................... $ 181,398,143
---------------
---------------
Net assets were comprised of:
Common stock, at par......................................................................................... $ 13,396
Paid-in capital in excess of par............................................................................. 151,361,660
---------------
151,375,056
Accumulated net realized loss on investments and foreign currency transactions............................... (1,254,598)
Net unrealized appreciation on investments and foreign currencies............................................ 31,277,685
---------------
Net Assets, April 30, 1996...................................................................................... $ 181,398,143
---------------
---------------

Class A:
Net asset value and redemption price per share
($47,788,846 DIVIDED BY 3,492,047 shares of common stock issued and outstanding)......................... $13.69
Maximum sales charge (5% of offering price).................................................................. .72
-----
Maximum offering price to public............................................................................. $14.41
-----
-----
Class B:
Net asset value and redemption price per share
($125,868,441 DIVIDED BY 9,329,819 shares of common stock issued and outstanding)........................ $13.49
-----
-----
Class C:
Net asset value and redemption price per share
($7,740,652 DIVIDED BY 573,736 shares of common stock issued and outstanding)............................ $13.49
-----
-----
Class Z:
Net asset value and redemption price per share
($204.18 DIVIDED BY 14.93 shares of common stock issued and outstanding)................................. $13.68
-----
-----
</TABLE>

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

See Notes to Financial Statements. B-41

<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF OPERATIONS

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

<TABLE>
<CAPTION>
Year Ended
April 30,
1996
------------
<S> <C>
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes
of $423,316)............................. $ 3,140,868
Interest.................................... 327,515
------------
Total income............................... 3,468,383
------------
Expenses
Management fee.............................. 1,329,043
Distribution fee--Class A................... 117,958
Distribution fee--Class B................... 1,222,547
Distribution fee--Class C................... 77,679
Transfer agent's fees and expenses.......... 284,000
Custodian's fees and expenses............... 240,000
Registration fees........................... 143,000
Reports to shareholders..................... 115,000
Amortization of organzation expense......... 50,000
Directors' fees and expenses................ 35,000
Audit fee and expenses...................... 25,000
Legal fees and expenses..................... 20,000
Miscellaneous............................... 27,040
------------
Total operating expenses................... 3,686,267
------------
Net investment loss............................ (217,884)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investment transactions..................... 3,260,520
Foreign currency transactions............... (8,114)
------------
3,252,406
------------

Net change in unrealized
appreciation/depreciation on:
Investments................................. 22,031,098
Foreign currencies.......................... (126,080)
------------
21,905,018
------------
Net gain on investments and foreign
currencies..................................... 25,157,424
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................... $24,939,540
------------
------------
</TABLE>

PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS

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

<TABLE>
<CAPTION>
July 13,
1994+
Year Ended through
April 30, April 30,
1996 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations
Net investment loss.......... $ (217,884) $ (507,198)
Net realized gain (loss) on
investment and foreign
currency transactions..... 3,252,406 (4,674,403)
Net change in unrealized
appreciation/depreciation
of investments and foreign
currencies................ 21,905,018 9,372,667
------------- -------------
Net increase in net assets
resulting from operations.... 24,939,540 4,191,066
------------- -------------
Fund share transactions (net of
share conversions) (Note 5)
Net proceeds from shares
sold...................... 213,839,301 189,831,561
Cost of shares reacquired.... (212,685,204) (38,818,121)
------------- -------------
Net increase in net assets
from Fund share
transactions.............. 1,154,097 151,013,440
------------- -------------
Total increase.................. 26,093,637 155,204,506
NET ASSETS
Beginning of year............... 155,304,506 100,000
------------- -------------
End of year..................... $ 181,398,143 $ 155,304,506
------------- -------------
------------- -------------
</TABLE>

- ---------------
+Commencement of investment operations.

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

- ----- See Notes to Financial Statements.
B-42

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

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

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 had no 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"). The Fund commenced investment
operations on July 13, 1994. The investment objective of the Fund is to seek
long-term capital growth by investing primarily in equity securities of
companies domiciled in Europe.

- -----------------------------------------------------
NOTE 1. ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.

SECURITIES VALUATION: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund.

Short-term securities which mature in more than 60 days are valued based upon
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost which approximates market value.

In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.

FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:

(i) market value of investment securities, other assets and liabilities--at
the closing daily rate of exchange as reported by a major bank;

(ii) purchases and sales of investment securities, income and expenses--at the
rate of exchange prevailing on the respective dates of such transactions.

Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the fiscal year, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at fiscal year end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term portfolio securities sold
during the fiscal period. Accordingly, realized foreign currency gains (losses)
are included in the reported net realized gains on investment transactions.

Net realized losses on foreign currency transactions of $8,114 represents net
foreign exchange gains or losses from holding of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends and foreign
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net currency gains and losses from valuing foreign
currency denominated assets and liabilities (other than investments) at year end
exchange rates are reflected as a component of net unrealized appreciation on
investments and foreign currencies.

Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.

SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
currency transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date, and interest income is recorded on
an accrual basis.

Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of the Fund based
upon the relative proportion of net assets of each class at the beginning of the
day.

EQUALIZATION: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of

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

B-43

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

- --------------------------------------------------------------------------------
the transaction, is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or reacquisitions of the Fund's shares.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountant's Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect caused by
applying this statement was to decrease paid-in capital in excess of par by
$225,998, decrease accumulated net investment loss by $217,884, and decrease
accumulated net realized loss on investments and foreign currency transactions
by $8,114 for the fiscal year ended April 30, 1996. Net realized losses and net
assets were not affected by this change.

DIVIDENDS AND DISTRIBUTIONS: The Fund expects to pay dividends of net investment
income and distributions of net realized capital and currency gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions.

FEDERAL INCOME TAXES: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.

Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.

DEFERRED ORGANIZATION EXPENSES: Approximately $250,000 of expenses were incurred
in connection with the organization of the Fund. These costs have been deferred
and are being amortized ratably over a period of sixty months from the date the
Fund commenced investment operations.

- -----------------------------------------------------
NOTE 2. AGREEMENTS

The Fund has a management agreement with PMF. Pursuant to this agreement, PMF
has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation ("PIC"); PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the cost of the subadviser's services, the compensation of officers of
the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The
Fund bears all other costs and expenses.

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

The Fund has distribution agreements with Prudential Mutual Fund Distributors,
Inc. ("PMFD"), which acted as the distributor of the Class A shares of the Fund
through January 1, 1996. Effective January 2, 1996 Prudential Securities
Incorporated ("PSI") became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also distributor of the Class B, Class C and Class
Z shares of the Fund. The Fund compensated PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the "Class A, B and C Plans") regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.

Pursuant to the Class A, B and C Plans, the Fund compensates PSI and PMFD for
the period May 1, 1995 through January 1, 1996 with respect to Class A shares,
for distribution-related activities at an annual rate of up to .30 of 1%, 1% and
1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Class A, Class B and Class C Plans were
.25 of 1%, 1% and 1%, respectively of the average daily net assets of the Class
A, Class B and Class C shares for the fiscal year ended April 30, 1996.

PMFD and PSI have advised the Fund that they have received approximately
$112,100 in front-end sales charges resulting from sales of Class A shares
during the fiscal year ended April 30, 1996. From these fees, PMFD and PSI paid
such sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to sales persons and incurred other distribution
costs.

PSI has advised the Fund that for the fiscal year ended April 30, 1996, it
received approximately $485,700 and $4,700 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect
wholly-owned subsidiaries of The Prudential Insurance Company of America.

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

- ---- B-44
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.

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

NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES

Prudential Mutual Fund Services, Inc. ("PMFS"), a wholly owned subsidiary of
PMF, serves as the Fund's transfer agent. During the fiscal year ended April 30,
1996, the Fund incurred fees of approximately $241,000 for the services of PMFS.
As of April 30, 1996, approximately $24,500 of such fees were due to PMFS.
Transfer agent's fees and expenses in the Statement of Operations include
certain out-of-pocket expenses paid to non-affiliates.

- -----------------------------------------------------
NOTE 4. PORTFOLIO SECURITIES

Purchases and sales of investment securities, other than short-term investments,
for the fiscal year ended April 30, 1996 were $104,574,666 and $112,068,666,
respectively.
The United States federal income tax basis of the Fund's investments is
substantially the same as for financial reporting purposes and, accordingly, as
of April 30, 1996 net unrealized appreciation for federal income tax purposes
was $31,378,203 (gross unrealized appreciation--$32,809,484; gross unrealized
depreciation-- $1,431,281). For federal income tax purposes, the Fund had a
capital loss carryforward as of April 30, 1996 of approximately $1,254,600 of
which $426,600 expires in 2003 and $828,000 expires in 2004. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such carryforward.
- -----------------------------------------------------
NOTE 5. CAPITAL

The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5.00%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. A special exchange priviledge is also available for
shareholders who qualified to purchase Class A shares at net asset value.
Effective April 15, 1996 the Fund commenced offering Class Z shares. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to the participants of the Prudential Securities 401(k)
Plan, a defined contribution plan sponsored by Prudential Securities. All
classes of shares have equal rights as to earnings, assets and voting privileges
except that each class bears different distribution expenses and has exclusive
voting rights with respect to its distribution plan. There are 2 billion shares
of $.001 par value common stock authorized and divided into four classes,
designated Class A, Class B, Class C and Class Z Shares, each consisting of 500
million authorized shares.

Transactions in shares of common stock were as follows:

<TABLE>
<CAPTION>
Shares Amount
----------- --------------
<S> <C> <C>
Class A
- --------------------------------
Year ended April 30, 1996:
Shares sold..................... 11,353,245 $ 146,536,469
Shares reacquired............... (11,576,243) (149,929,575)
----------- --------------
Net decrease in shares
outstanding before
conversion.................... (222,998) (3,393,106)
Shares issued upon conversion
from Class B.................. 149,628 1,908,762
----------- --------------
Net decrease in shares
outstanding................... (73,370) $ (1,484,344)
----------- --------------
----------- --------------
July 13, 1994(a) through April
30, 1995:
Shares sold..................... 4,562,903 $ 51,186,584
Shares reacquired............... (1,479,247) (16,487,105)
----------- --------------
Net increase in shares
outstanding before
conversion.................... 3,083,656 34,699,479
Shares issued upon conversion
from Class B.................. 481,761 5,270,536
----------- --------------
Net increase in shares
outstanding................... 3,565,417 $ 39,970,015
----------- --------------
----------- --------------
Class B
- --------------------------------
Year ended April 30, 1996:
Shares sold..................... 4,965,336 $ 63,469,612
Shares reacquired............... (4,561,206) (58,326,887)
----------- --------------
Net increase in shares
outstanding before
conversion.................... 404,130 5,142,725
Shares reacquired upon
conversion into Class A....... (151,150) (1,908,762)
----------- --------------
Net increase in shares
outstanding................... 252,980 $ 3,233,963
----------- --------------
----------- --------------

July 13, 1994(a) through April
30, 1995:
Shares sold..................... 11,500,827 $ 130,710,033
Shares reacquired............... (1,939,571) (21,509,277)
----------- --------------
Net increase in shares
outstanding before
conversion.................... 9,561,256 109,200,756
Shares reacquired upon
conversion into Class A....... (484,417) (5,270,536)
----------- --------------
Net increase in shares
outstanding................... 9,076,839 $ 103,930,220
----------- --------------
----------- --------------
</TABLE>

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

B-45
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Amount
----------- --------------
<S> <C> <C>
Class C
- --------------------------------
Year ended April 30, 1996:
Shares sold..................... 295,865 $ 3,833,020
Shares reacquired............... (343,363) (4,428,742)
----------- --------------
Net decrease in shares
outstanding................... (47,498) $ (595,722)
----------- --------------
----------- --------------
July 13, 1994(a) through April
30, 1995:
Shares sold..................... 694,581 $ 7,934,944
Shares reacquired............... (73,347) (821,739)
----------- --------------
Net increase in shares
outstanding................... 621,234 $ 7,113,205
----------- --------------
----------- --------------

Class Z
- --------------------------------
April 15, 1996(a) through April
30, 1996:
Shares sold..................... 15 $ 200
Shares reacquired............... 0 0
----------- --------------
Net increase in shares
outstanding................... 15 $ 200
----------- --------------
----------- --------------
</TABLE>

- -------------
(a) Commencement of investment operations.

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

- ---- See Notes to Financial Statements. B-46

<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL EUROPE GROWTH FUND, INC.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------- ------------------------------- -------------------------------
YEAR ENDED JULY 13, 1994(B) YEAR ENDED JULY 13, 1994(B) YEAR ENDED JULY 13, 1994(B)
APRIL 30, THROUGH APRIL 30, APRIL 30, THROUGH APRIL 30, APRIL 30, THROUGH APRIL 30,
1996 1995 1996 1995 1996 1995
----------- ----------------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE(c):
Net asset value, beginning of
period...................... $ 11.77 $ 11.40 $ 11.69 $ 11.40 $11.69 $11.40
----------- ------- ----------- -------- ----------- ------
Income from investment
operations
Net investment gain (loss).... .06 .01 (.04) (.06) (.04) (.06)
Net realized and unrealized
gain on investment and
foreign currency
transactions................ 1.86 .36 1.84 .35 1.84 .35
----------- ------- ----------- -------- ----------- ------
Total from investment
operations.............. 1.92 .37 1.80 .29 1.80 .29
----------- ------- ----------- -------- ----------- ------
Net asset value, end of
period...................... $ 13.69 $ 11.77 $ 13.49 $ 11.69 $13.49 $11.69
----------- ------- ----------- -------- ----------- ------
----------- ------- ----------- -------- ----------- ------
TOTAL RETURN(d):.............. 16.31% 3.25% 15.40% 2.54% 15.40% 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $47,789 $41,963 $125,868 $106,081 $7,741 $7,260
Average net assets (000)...... $47,183 $29,598 $122,255 $ 85,623 $7,768 $6,094
Ratios to average net assets:
Expenses, including
distribution fees......... 1.53% 1.84%(a) 2.28% 2.59%(a) 2.28% 2.59%(a)
Expenses, excluding
distribution fees......... 1.28% 1.59%(a) 1.28% 1.59%(a) 1.28% 1.59%(a)
Net investment income
(loss).................... .44% .06%(a) (.33)% (.71)%(a) (.30)% (.71)%(a)
For Class A, B, C and Z
Shares:
Portfolio turnover rate....... 65% 25%
Average Comission Rate per
share....................... $0.0233 N/A

<CAPTION>
CLASS Z
-----------------
APRIL 15, 1996(B)
THROUGH APRIL 30,
1996
-----------------
<S> <C>
PER SHARE OPERATING
PERFORMANCE(c):
Net asset value, beginning of
period...................... $13.40
------
Income from investment
operations
Net investment gain (loss).... .28
Net realized and unrealized
gain on investment and
foreign currency
transactions................ --
------
Total from investment
operations.............. .28
------
Net asset value, end of
period...................... $13.68
------
------
TOTAL RETURN(d):.............. 2.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $ 204(e)
Average net assets (000)...... $ 203(e)
Ratios to average net assets:
Expenses, including
distribution fees......... 1.28%(a)
Expenses, excluding
distribution fees......... 1.28%(a)
Net investment income
(loss).................... .54%(a)
For Class A, B, C and Z
Shares:
Portfolio turnover rate.......
Average Comission Rate per
share.......................
</TABLE>

- -------------
(a) Annualized.

(b) Commencement of investment operations.

(d) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.

(e) Figures are actual and not rounded to the nearest thousand.

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

B-47

<PAGE>
INDEPENDENT AUDITORS' REPORT PRUDENTIAL EUROPE GROWTH FUND, INC.

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

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

We have audited the accompanying statement of assets and liabilities including
the portfolio of investments of Prudential Europe Growth Fund, Inc., as of April
30, 1996, the related statements of operations for the year then ended and of
changes in net assets for the year then ended and for the period July 13, 1994
(commencement of operations) to April 30, 1995 and the financial highlights for
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits 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 statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at April
30, 1996 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. 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 audits provide a reasonable basis for our
opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential Europe
Growth Fund, Inc. as of April 30, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
New York, New York
June 13, 1996

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

B-48

<PAGE>

APPENDIX--HISTORICAL PERFORMANCE DATA

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

This chart illustrates the peformance of major world stock markets for the
period from 1985 through 1995. It does not represent the performance of any
Prudential Mutual Fund.

HONG KONG 23.8%
BELGIUM 20.7%
SWEDEN 19.4%
NETHERLAND 19.3%
SPAIN 17.9%
SWITZERLAND 17.1%
FRANCE 15.3%
U.K. 15.0%
U.S. 14.8%
JAPAN 12.8%
AUSTRIA 10.9%
GERMANY 10.7%

Source: Morgan Stanley Capital International as of 12/31/95.
Morgan Stanley country indices are unmanaged indices which include
those stocks making up the largest two-thirds of each country's
total stock market capitalization. This chart is for illustrative
purposes only and is not indicative of the past, present or future
performance of any specific investment. Investors cannot invest
directly in stock indices.

A-1

<PAGE>

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

[CHART]

Source: Prudential Investment Corporation based on data from
Ibbotson Associates, EnCORR Software, Chicago, Illinois. Used with
permission. All rights reserved. This chart is for illustrative
purposes only and is not indicative of the past, present, or
future performance of any portfolio.

Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the

reinvestment of distributions. Also, stock prices are usually more volatile than
bond prices over the long-term.

Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.

Long-term government bond returns are represented by a portfolio that
contains only one bond with a maturity of roughly 20 years. At the beginning of
each year a new bond with a then-current coupon replaces the old bond. Treasury
bill returns are for a one-month bill. Treasuries are guaranteed by the
government as to the timely payment of principal and interest; equities are not.
Inflation is measured by the consumer price index (CPI).

Impact of Inflation. The 'real' rate of investment return is that which
exceeds the rate of inflation, the percentage change in the value of consumer
goods and the general cost of living. A common goal of long-term investors is to
outpace the erosive impact of inflation on investment returns.

The chart below shows the historical total returns of U.S. Treasury bonds,
U.S. mortgage securities, U.S. corporate bonds, U.S. high yield bonds and world
government bonds on an annual basis from 1987 through 1995. The total returns of
the indices include accrued interest, plus the price changes (gains or losses)
of the underlying securities during the period mentioned. The data is provided
to illustrate the varying historical total returns of different bond market
sectors and investors should not consider this performance data as an indication
of the future performance of the Fund or of any sector in which the Fund
invests.

A-2

<PAGE>

All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See 'Fund Expenses' in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.

Historical Total Returns of Different Bond Market Sectors

YEAR '87 '88 '89 '90 '91 '92 '93 '94 '95

U.S.
TREASURY
BONDS 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4%

MORTGAGE
SECURITIES 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% -1.6% 16.8%

U.S.
CORPORATE
BONDS 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3%

U.S.
HIGH YIELD
CORPORATE
BONDS 5.0% 12.5% 0.8% -9.6% 46.2% 15.8% 17.1% -1.0% 19.2%

WORLD
GOVERNMENT
BONDS 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6%

DIFFERENCE
BETWEEN
HIGHEST
AND
LOWEST
RETURN
IN
PERCENT 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5

(1)LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.

(2)LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Assocition (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).

(3)LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.

(4)LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.

(5)SALOMON BROTHERS WORLD GOVERNMENT INDEX (NON U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the U.S.,
but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.

A-3

<PAGE>

APPENDIX--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

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

DIVERSIFICATION

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

DURATION

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

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

MARKET TIMING

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

POWER OF COMPOUNDING

Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of

assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

A-4

<PAGE>

APPENDIX--INFORMATION RELATING TO THE PRUDENTIAL

Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See 'Management of the Fund--Manager' in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.

INFORMATION ABOUT PRUDENTIAL

The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1995. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.

Insurance. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.7
million cars and insures more than 1.4 million homes.

Money Management. The Prudential is one of the largest pension fund
managers in the country, providing pension services to 1 in 3 Fortune 500 firms.
It manages $36 billion of individual retirement plan assets, such as 401(k)
plans. In July 1995, Institutional Investor ranked Prudential the third largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1994. As of December 31, 1995, Prudential
had more than $314 billion in assets under management. Prudential's Money
Management Group (of which Prudential Mutual Funds is a key part) manages over

$190 billion in assets of institutions and individuals.

Real Estate. The Prudential Real Estate Affiliates, the fourth largest
real estate brokerage network in the United States, has more than 34,000 brokers
and agents and more than 1,100 offices in the United States.2

Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.

Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.

- ------------------
(1) Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to
Prudential Jennison Fund, Inc. and BlackRock Financial Management, Inc. as
subadviser to the BlackRock Government Income Trust. There are multiple
subadvisers for The Target Portfolio Trust.
(2) As of December 31, 1994.

A-5

<PAGE>

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

Prudential Mutual Fund Management is one of the sixteenth largest mutual
fund companies in the country, with over 2.5 million shareholders invested in
more than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.

The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.

Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential

Equity Fund is managed with a 'value' investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.

High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so high yield bonds, which may be
considered for purchase.(3) Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.

Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider,
among other things, sinking fund provisions and interest coverage ratios.

Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.

Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.

Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.

Prudential Mutual Funds' portfolio managers and analysts met with over
1,200 companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.

- ------------------
(3) As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.

A-6

<PAGE>

Prudential Mutual Fund global equity managers conducted many of their

visits overseas, often holding private meetings with a company in a foreign
language (our global equity managers speak 7 different languages, including
Mandarin Chinese).

Trading Data.(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets. Prudential Mutual Funds' money market desk traded
$3.2 billion in money market securities on an average day, or over $800 billion
a year. They made a trade every 3 minutes of every trading day. In 1994, the
Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.(6)

Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.

INFORMATION ABOUT PRUDENTIAL SECURITIES

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to clients
a wide range of products, including Prudential Mutual Funds and annuities. As of
December 31, 1995, assets held by Prudential Securities for its clients
approximated $168 billion. During 1994, over 28,000 new customer accounts were
opened each month at PSI.(7)

Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities 'university,'
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).

In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 'All America Research Team' survey. Five
Prudential Securities' analysts were ranked as first-team finishers.(8)

In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect(Service Mark), a state-of-the-art asset allocation software
program which helps Financial Advisors to evaluate a client's objectives and
overall financial plan, and a comprehensive mutual fund information and analysis
system that compares different mutual funds.

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

carefully before you invest or send money.

- ------------------
(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadvisor, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund Investment Management, a division of PIC, for the
year ended December 31, 1995.
(5) Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage funds.
(6) As of December 31, 1994.
(7) As of December 31, 1994.
(8) On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.

A-7

<PAGE>

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits.

(a) Financial Statements:

(1) Financial Statements included in the Prospectus
constituting Part A of this Registration Statement:

Financial Highlights.

(2) Financial Statements included in the Statement of
Additional Information constituting Part B of this
Registration Statement:

Portfolio of Investments at April 30, 1996 (audited).

Statement of Assets and Liabilities as of April 30,
1996 (audited).

Statement of Operations for the fiscal year ended April 30, 1996
(unaudited).

Statement of Changes in Net Assets for the fiscal year ended
April 30, 1996 and the period from July 13, 1994 (commencement
of operations) through April 30, 1995.

Notes to Financial Statements.

Financial Highlights.

Independent Auditors' Report.

(b) Exhibits:

1. (a) Articles of Incorporation, incorporated by
reference to Exhibit 1 to the Registration
Statement on Form N-1A (File No. 33-53151) filed on
April 15, 1994).

(b) Certificate of Correction to Articles of
Incorporation, incorporated by reference to

Exhibit 1 to the Registration Statement on
Form N-1A (File No. 33-53151) filed on
January 6, 1995.

(c) Articles Supplementary incorporated by reference
to Exhibit No. 1(c) to the Registration Statement
on Form N-1A (File No. 33-53151) filed via EDGAR
on March 7, 1996.

2. By-Laws, incorporated by reference to Exhibit 2 to
the Registration Statement on Form N-1A (File No.
33-53151) filed on April 15, 1994).

3. Not Applicable.

4. Instruments defining rights of shareholders,
incorporated by reference to Exhibit 4 to the

C-1
<PAGE>
Registration Statement on Form N-1A (File No. 33-
53151) filed on April 15, 1994).

5. (a) Management Agreement between the Registrant
and Prudential Mutual Fund Management, Inc.,
incorporated by reference to Exhibit 5 to
the Registration Statement on Form N-1A
(File No. 33-53151) filed on January 6,
1995.

(b) Subadvisory Agreement between Prudential
Mutual Fund Management, Inc. and The
Prudential Investment Corporation,
incorporated by reference to Exhibit 5 to
the Registration Statement on Form N-1A
(File No. 33-53151) filed on January 6,
1995.

6. (a) Distribution Agreement between the Registrant
and Prudential Mutual Fund Distributors, Inc.
(Class A Shares), incorporated by reference to
Exhibit No. 6(a) to Post-Effective Amendment No. 2
to the Registration Statement on Form N-1A (File
No. 33-53151) filed via EDGAR on June 30, 1995.

(b) Distribution Agreement between the Registrant
and Prudential Securities Incorporated (Class
B shares), incorporated by reference to
Exhibit No. 6(b) to Post-Effective Amendment No. 2
to the Registration Statement on Form N-1A (File
No. 33-53151) filed via EDGAR on June 30, 1995.

(c) Distribution Agreement between the Registrant
and Prudential Securities Incorporated (Class
C shares), incorporated by reference to
Exhibit No. 6(c) to Post-Effective Amendment No. 2
to the Registration Statement on Form N-1A (File
No. 33-53151) filed via EDGAR on June 30, 1995.

(d) Form of Selected Dealer Agreement, incorporated
by reference to Exhibit 6(e) to Pre-Effective
Amendment No. 1 to the Registration Statement on
Form N-1A (File No. 33-53151) filed on June 23,
1994.

(e) Form of Distribution Agreement between the
Registrant and Prudential Securities Incorporated
(Class Z shares) incorporated by reference to
Exhibit No. 6(e) to the Registration Statement on
Form N-1A (File No. 33-53151) filed via EDGAR on
March 7, 1996.

7. Not Applicable.

8. Custodian Contract between the Registrant and Brown
Brothers Harriman & Co., incorporated by reference to
Exhibit 8 to the Registration Statement on Form N-1A
(File No. 33-53151) filed on January 6, 1995.

9. Transfer Agency and Service Agreement between the
Registrant and Prudential Mutual Fund Services,
Inc., incorporated by reference to Exhibit 9 to the
Registration Statement on Form N-1A (File No. 33-53151)
filed on January 6, 1995.

10. Opinion of Shereff, Friedman, Hoffman & Goodman,
LLP, incorporated by reference to Exhibit 10 to
Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 33-53151) filed on
June 23, 1994).

11. Consent of Independent Accountants.*

12. Not Applicable.

13. Purchase Agreement, incorporated by reference to
Exhibit 13 to the Registration Statement on Form N-1A
(File No. 33-53151) filed on January 6, 1995.

14. Not Applicable.

15. (a) Distribution and Service Plan for Class A
Shares, incorporated by reference to Exhibit 15
to the Registration Statement on Form N-1A
(File No. 33-53151) filed on January 6, 1995.

(b) Distribution and Service Plan for Class B
Shares, incorporated by reference to Exhibit 15
to the Registration Statement on Form N-1A
(File No. 33-53151) filed on January 6, 1995.

C-2
<PAGE>

(c) Distribution and Service Plan for Class C
Shares, incorporated by reference to Exhibit 15
to the Registration Statement on Form N-1A
(File No. 33-53151) filed on January 6, 1995.

16. Schedule of Computation of Performance Quotations,
incorporated by reference to Exhibit 16 to the
Registration Statement on Form N-1A (File No. 33-53151)
filed on January 6, 1995.

17. Financial Data Schedules filed as Exhibit 27 for
electronic purposes.*

18. Rule 18f-3 Plan.*

- -----------
* Filed herewith.

Item 25. Persons Controlled by or under Common Control with
Registrant.

None.

Item 26. Number of Holders of Securities.

As of June 7, 1996, there were 5,572, 18,123, 792 and 2 record
holders of Class A, Class B, Class C and Class Z common stock, $.001
par value per share, of the Registrant, respectively.

Item 27. Indemnification.

As permitted by Section 17(h) and (i) of the Investment
Company Act of 1940 (the 1940 Act) and pursuant to Article VI of
the Fund's By-Laws (Exhibit 2 to the Registration Statement),
officers, directors, employees and agents of the Registrant will
not be liable to the Registrant, any shareholder, officer,
director, employee, agent or other person for any action or failure
to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be
indemnified against liabilities in connection with the Registrant,
subject to the same exceptions. Section 2-418 of the Maryland
General Corporation Law permits indemnification of directors who

acted in good faith and reasonably believed that the conduct was in
the best interests of the Registrant. As permitted by Section
17(i) of the 1940 Act, pursuant to Section 10 of each Distribution
Agreement (Exhibit 6 to the Registration Statement), each
Distributor of the Registrant may be indemnified against
liabilities which it may incur, except liabilities arising from bad
faith, gross negligence, willful misfeasance or reckless disregard
of duties.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (Securities Act) may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 1940 Act and is, therefore, unenforceable. In the

C-3
<PAGE>

event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the
Registrant in connection with the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue.

The Registrant has purchased an insurance policy insuring its
officers and directors against liabilities, and certain costs of
defending claims against such officers and directors, to the extent
such officers and directors are not found to have committed conduct
constituting willful misfeasance, bad faith, gross negligence or
reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.

Section 9 of the Management Agreement (Exhibit 5(a) to the
Registration Statement) and Section 4 of the Subadvisory Agreement
(Exhibit 5(b) to the Registration Statement) limit the liability of
Prudential Mutual Fund Management, Inc. (PMF) and The Prudential
Investment Corporation (PIC), respectively, to liabilities arising
from willful misfeasance, bad faith or gross negligence in the
performance of their respective duties or from reckless disregard
by them of their respective obligations and duties under the
agreements.

The Registrant hereby undertakes that it will apply the

indemnification provisions of its By-Laws and each Distribution
Agreement in a manner consistent with Release No. 11330 of the
Securities and Exchange Commission under the 1940 Act so long as
the interpretation of Section 17(h) and 17(i) of such Act remain in
effect and are consistently applied.

Under Section 17(h) of the 1940 Act, it is the position of the
staff of the Securities and Exchange Commission that if there is
neither a court determination on the merits that the defendant is
not liable nor a court determination that the defendant was not
guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of one's
office, no indemnification will be permitted unless an independent
legal counsel (not including a counsel who does work for either the
Registrant, its investment adviser, its principal underwriter or
persons affiliated with these persons) determines, based upon a
review of the facts, that the person in question was not guilty of
willful misfeasance, bad faith, gross negligence or reckless

C-4
<PAGE>

disregard of the duties involved in the conduct of his office.

Under its Articles of Incorporation, the Registrant may
advance funds to provide for indemnification. Pursuant to the
Securities and Exchange Commission staff's position on Section
17(h) advances will be limited in the following respect:

(1) Any advances must be limited to amounts used, or to be
used, for the preparation and/or presentation of a defense to the
action (including cost connected with preparation of a settlement);

(2) Any advances must be accompanied by a written promise by,
or on behalf of, the recipient to repay that amount of the advance
which exceeds the amount to which it is ultimately determined that
he is entitled to receive from the Registrant by reason of
indemnification;

(3) Such promise must be secured by a surety bond or other
suitable insurance; and

(4) Such surety bond or other insurance must be paid for by
the recipient of such advance.

Item 28. Business and other Connections of Investment Adviser

(a) Prudential Mutual Fund Management, Inc.

See "How the Fund is Managed -- Manager" in the Prospectus
constituting Part A of this Registration Statement and "Manager" in
the Statement of Additional Information constituting Part B of this
Registration Statement.

The business and other connections of the officers of PMF are
listed in Schedules A and D of Form ADV of PMF as currently on file
with the Securities and Exchange Commission, the text of which is
hereby incorporated by reference (File No. 801-31104, filed on
March 28, 1996).

The business and other connections of PMF's directors and
principal executive officers are set forth below. Except as
otherwise indicated, the address of each person is One Seaport
Plaza, New York, NY 10292.

<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupation
<S> <C> <C>
C-5
<PAGE>

Stephen P. Fisher Senior Vice President Senior Vice President, PMF;
Senior Vice President,
Prudential Securities; Vice
President, PMFD

Frank W. Giordano Executive Vice Executive Vice President,
President, General General Counsel, Secretary and
Counsel, Secretary Director, PMF and PMFD; Senior Vice
and Director President, Prudential Securities;
Director, Prudential Mutual Fund
Services, Inc. (PMFS)

Robert F. Gunia Executive Vice Executive Vice President,
President, Chief Chief Financial and
Financial and Administrative Officer,
Administrative Officer, Treasurer and Director, PMF;
Treasurer and Director Senior Vice President,
Prudential Securities; Executive
Vice President, Treasurer,
Comptroller and Director, PMFD;
Director PMFS

Theresa A. Hamacher Director Vice President, Prudential;
Prudential Plaza President, Director and
Newark, N.J. 07102 Chief Executive Officer, PIC;

Timothy J. O'Brien Director President, Chief Executive
Raritan Plaza One Officer, Chief Operating
Edison, N.J. 08837 Officer and Director,
PMFD; President, Chief
Executive Officer and

Director, PMFS; Director, PMF

Richard A. Redeker President, Chief President, Chief Executive
Executive Officer Officer and Director, PMF;
and Director Executive Vice President,
Director and Member of the
Operating Committee, Prudential
Securities; Director, Prudential
Securities Group, Inc. (PSG);
Executive Vice President, PIC;
Director, PMFD; Director, PMFS

S. Jane Rose Senior Vice President, Senior Vice President, Senior
Senior Counsel and Counsel and Assistant Secretary,
Assistant Secretary PMF; Senior Vice President
and Senior Counsel,

C-6
<PAGE>
Prudential Securities
</TABLE>

(b) The Prudential Investment Corporation (PIC)

See "Management of the Fund--Subadviser" in the Prospectus constituting
Part A of this Registration Statement and "Subadviser" in the Statement of
Additional Information constituting Part B of this Registration Statement.

The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07101.

<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President,
Two Gateway Center Prudential; Senior Vice
Newark, NJ 07102 President, PIC

Barry M. Gillman Director Director, PIC

Theresa A. Hamacher Vice President Vice President, Prudential;
Vice President, PIC; President,
Prudential Investment
Advisors; Director, PMF

C-7
<PAGE>

Richard A. Redeker Executive Vice President President, Chief Executive
One Seaport Plaza Officer and Director, PMF;

New York, N.Y. 10292 Executive Vice President,
Director and Member of the
Operating Committee, Prudential
Securities; Director, PSG;
Executive Vice President, PIC;
Director, PMFD; Director, PMFS

John L. Reeve Senior Vice President Managing Director, Prudential
Asset Management Group; Senior
Vice President, PIC

Eric A. Simonson Vice President and Vice President and Director,
Director PIC; Executive Vice President,
Prudential

</TABLE>

Item 29. Principal Underwriters

(a) Prudential Securities Incorporated

Prudential Securities is distributor for Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Prudential Government
Securities Trust (Intermediate Term Series, Money Market Series and
U.S. Treasury Money Market Series), Prudential MoneyMart Assets, Inc.,
Prudential Institutional Liquidity Portfolio, Inc., Prudential Special
Money Market Fund, Inc., Prudential Tax-Free Money Fund, Inc.,
Prudential Jennison fund, Inc., The Target Portfolio Trust, Prudential
Allocation Fund, Prudential California Municipal Fund, Prudential
Diversified Bond Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund Inc., Prudential
Global Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential
Global Limited Maturity Fund, Inc., Prudential Global Natural Resources
Fund, Inc., Prudential Government Income Fund, Inc., Prudential Growth
Opportunity Fund, Inc., Prudential High Yield Fund, Prudential
Intermediate Global Income Fund, Inc., Prudential Mortgage Income Fund,
Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond
Fund, Prudential Municipal Series Fund Prudential National Municipals
Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential Structured
Maturity Fund, Inc., Prudential Utility Fund, Inc., The Global
Government Plus Fund, Inc., The Global Total Return Fund, Inc., Global
Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund) and The BlackRock Government Income Trust.
Prudential Securities is also a depositor for the following unit
investment trust:

Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust

(b) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below:

<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name (1) Underwriter Registrant
<S> <C> <C>
Robert Golden............. Executive Vice President None
One New York Plaza and Director
New York, N.Y. 10292

Alan D. Hogan............. Executive Vice President None
and Director

George A. Murray.......... Executive Vice President None
and Director

Leland B. Paton........... Executive Vice President None
One New York Plaza and Director
New York, N.Y. 10292

Martin Pfinsgraff......... Executive Vice President, None
Chief Financial Officer
and Director

Vincent T. Pica, II....... Executive Vice President None
One New York Plaza and Director
New York, N.Y. 10292

Richard A. Redeker........ Executive Vice President President and Director
and Director
Hardwick Simmons.......... Chief Executive Officer, None
President and Director

C-9
<PAGE>

Lee B. Spencer ........... Executive Vice President, None
Secretary, General
Counsel and Director

</TABLE>

- -------------
(1) The address of each person named is One Seaport Plaza,
New York, New York 10292 unless otherwise indicated.

C-10

<PAGE>

Item 30. Location of Accounts and Records

All accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
thereunder are maintained at the offices of Brown Brothers Harriman
& Co. 40 Water Street, Boston, Massachusetts 02109, The Prudential
Investment Corporation, Prudential Plaza, 745 Broad Street, Newark,
New Jersey, the Registrant, One Seaport Plaza, New York, New York,
and Prudential Mutual Fund Services, Inc., Raritan Plaza One,
Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6),
(7), (9), (10) and (11) and 31a-1(f) will be kept at Two Gateway
Center, documents required by Rules 31a-1(b)(4) and (11) and
31a-1(d) at One Seaport Plaza and the remaining accounts, books and
other documents required by such other pertinent provisions of
Section 31(a) and the Rules promulgated thereunder will be kept by
Brown Brothers Harriman & Co. and Prudential Mutual Fund Services,
Inc.

Item 31. Management Services

Other than as set forth under the captions "Management of the
Fund-Manager" and "Management of the Fund-Distributor" in the
Prospectus and the captions "Manager" and "Distributor" in the
Statement of Additional Information, constituting Parts A and B,
respectively, of this Registration Statement, Registrant is not a
party to any management-related service contract.

Item 32. Undertakings

Registrant makes the following undertaking:

To furnish each person to whom a Prospectus is delivered with
a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
C-11

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, and State
of New York, on the 2nd day of July, 1996.

PRUDENTIAL EUROPE GROWTH FUND, INC.

By /s/ Richard A. Redeker
-----------------------------
Richard A. Redeker
President

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

<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Eugene C. Dorsey Director July 2, 1996
- ---------------------------
Eugene C. Dorsey

/s/Richard A. Redeker President and July 2, 1996
- --------------------------- Director
Richard A. Redeker

/s/Robin B. Smith Director July 2, 1996
- ---------------------------
Robin B. Smith

/s/Grace Torres Treasurer and July 2, 1996
- --------------------------- Principal
Grace Torres Financial and
Accounting Officer
</TABLE>

C-12

<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.

EXHIBIT INDEX

1(a) Articles of Incorporation, incorporated by reference to
Exhibit 1 to the Registration Statement on Form N-1A (File No.
33-53131) filed on April 15, 1994).

(b) Certificate of Correction to Articles of Incorporation,
incorporated by reference to Exhibit 1 to the Registration
Statement on Form N-1A (File No. 33-53151) filed on January 6,
1995.

(c) Articles Supplementary incorporated by reference to Exhibit No.
1(c) to the Registration Statement on Form N-1A (File No. 33-53151)
filed via EDGAR on March 7, 1996.

2. By-Laws, incorporated by reference to Exhibit 2 to the
Registration Statement on Form N-1A (File No. 33-53131) filed
on April 15, 1994).

4. Instruments defining rights of shareholders, incorporated by
reference to Exhibit 4 to the Registration Statement on Form
N-1A (File No. 33-53131) filed on April 15, 1994).

5(a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to
Exhibit 5 to the Registration Statement on Form N-1A (File
No. 33-53151) filed on January 6, 1995.

(b) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation,
incorporated by reference to Exhibit 5 to the Registration
Statement on Form N-1A (File No. 33-53151) filed on January
6, 1995.

6(a) Distribution Agreement between the Registrant and Prudential
Mutual Fund Distributors, Inc. (Class A Shares), incorporated by
reference to Exhibit No. 6(a) to Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A (File No. 33-53151) filed
via EDGAR on June 30, 1995.

(b) Distribution Agreement between the Registrant and Prudential
Securities Incorporated (Class B shares), incorporated by
reference to Exhibit No. 6(b) to Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A (File No. 33-53151) filed
via EDGAR on June 30, 1995.

(c) Distribution Agreement between the Registrant and Prudential
Securities Incorporated (Class C shares), incorporated by
reference to Exhibit No. 6(c) to Post-Effective Amendment No. 2 to

the Registration Statement on Form N-1A (File No. 33-53151) filed
via EDGAR on June 30, 1995.

(d) Form of Selected Dealer Agreement, incorporated by reference
to Exhibit 6(e) to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 33-53131)
filed on June 23, 1994.

(e) Form of Distribution Agreement between the Registrant and
Prudential Securities Incorporated (Class Z shares incorporated by
reference to Exhibit 6(e) to the Registration Statement on Form N-1A
(File No. 33-53151) filed via EDGAR on March 7, 1996.

8. Custodian Contract between the Registrant and Brown Brothers
Harriman & Co., incorporated by reference to Exhibit 8 to the
Registration Statement on Form N-1A (File No. 33-53151) filed
on January 6, 1995.

9. Transfer Agency and Service Agreement between the Registrant
and Prudential Mutual Fund Services, Inc., incorporated by
reference to Exhibit 8 to the Registration Statement on Form
N-1A (File No. 33-53151) filed on January 6, 1995.

10. Opinion of Shereff, Friedman, Hoffman & Goodman, LLP,
incorporated by reference to Exhibit 10 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
(File No. 33-53131) filed on June 23, 1994.

11. Consent of Independent Accountants.*

13. Purchase Agreement, incorporated by reference to Exhibit 13
to the Registration Statement on Form N-1A (File No. 33-53151)
filed on January 6, 1995.

15(a) Distribution and Service Plan for Class A Shares, incorporated
by reference to Exhibit 15 to the Registration Statement on
Form N-1A (File No. 33-53151) filed on January 6, 1995.

(b) Distribution and Service Plan for Class B Shares, incorporated
by reference to Exhibit 15 to the Registration Statement on
Form N-1A (File No. 33-53151) filed on January 6, 1995.

(c) Distribution and Service Plan for Class C Shares, incorporated
by reference to Exhibit 15 to the Registration Statement on
Form N-1A (File No. 33-53151) filed on January 6, 1995.

16. Schedule of Computation of Performance Quotations, incorporated
by reference to Exhibit 16 to the Registration Statement on
Form N-1A (File No. 33-53151) filed on January 6, 1995.

17. Financial Data Schedules filed as Exhibit 27 for electronic
purposes.*

18. Rule 18f-3 Plan.*

- ---------
* Filed herewith.

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in Post-Effective Amendment No. 4 to Registration
Statement No. 33-53151 of Prudential Europe Growth Fund, Inc. of our report
dated June 13, 1996, appearing in the Statement of Additional Information, which
is a part of such Registration Statement, and to the references to us under the
headings "Financial Highlights" in the Prospectuses, which are a part of such
Registration Statement, and "Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants" in the Statement of Additional Information.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
New York, New York
July 2, 1996

PRUDENTIAL EUROPE GROWTH FUND,INC.
(the Fund)

PLAN PURSUANT TO RULE 18F-3

The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares. Any material
amendment to this plan is subject to prior approval of the Board of Directors,
including a majority of the independent Directors.

CLASS CHARACTERISTICS

<S> <C>
CLASS A SHARES: Class A shares are subject to a high initial
sales charge and a distribution and/or service
fee pursuant to Rule 12b-1 under the 1940 Act
(Rule 12b-1 fee) not to exceed .30 of 1% per
annum of the average daily net assets of the
class. The initial sales charge is waived or
reduced for certain eligible investors.

CLASS B SHARES: Class B shares are not subject to an initial
sales charge but are subject to a high
contingent deferred sales charge (declining by
1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee of not to
exceed 1% per annum of the average daily net
assets of the class. The contingent deferred
sales charge is waived for certain eligible
investors. Class B shares automatically
convert to Class A shares approximately seven
years after purchase.

CLASS C SHARES: Class C shares are not subject to an initial
sales charge but are subject to a low
contingent deferred sales charge (declining by
1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee not to exceed
1% per annum of the average daily net assets
of the class.

Class Z SHARES: Class Z shares are not subject to either an
initial or contingent deferred sales charge
nor are they subject to any Rule 12b-1 fee.
</TABLE>

INCOME AND EXPENSE ALLOCATIONS

Income, any realized and unrealized capital gains and losses,

and expenses not allocated to a particular class, will be
allocated to each class on the basis of the net asset value of
that class in relation to the net asset value of the Fund.

DIVIDENDS AND DISTRIBUTIONS

Dividends and other distributions paid by the Fund to each
class of shares, to the extent paid, will be paid on the same
day and at the same time, and will be determined in the same
manner and will be in the same amount, except that the amount
of the dividends and other distributions declared and paid by
a particular class may be different from that paid by another
class because of Rule 12b-1 fees and other expenses borne
exclusively by that class.

EXCHANGE PRIVILEGE

Each class of shares is generally exchangeable for the same
class of shares (or the class of shares with similar
characteristics), if any, of the other Prudential Mutual Funds
(subject to certain minimum investment requirements) at
relative net asset value without the imposition of any sales
charge.

Class B and Class C shares (which are not subject to a
contingent deferred sales charge) of shareholders who qualify
to purchase Class A shares at net asset value will be
automatically exchanged for Class A shares on a quarterly
basis, unless the shareholder elects otherwise.

CONVERSION FEATURES

GENERAL

A. Each class of shares shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its
arrangement and shall have separate voting rights on any
matter submitted to shareholders in which the interests of one
class differ from the interests of any other class.

B. On an ongoing basis, the Directors, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise,
will monitor the Fund for the existence of any material
conflicts among the interests of its several classes. The
Directors, including a majority of the independent Directors,
shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop. Prudential Mutual Fund
Management, Inc., the Fund's Manager, will be responsible for
reporting any potential or existing conflicts to the

Directors.

C. For purposes of expressing an opinion on the financial
statements of the Fund, the methodology and procedures for
calculating the net asset value and dividends/distributions
of the Fund's several classes and the proper allocation of
income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in
performing such examination, shall consider the factors set
forth in the relevant auditing standards adopted, from time
to time, by the American Institute of Certified Public
Accountants.

Dated: February 15, 1996

<ARTICLE> 6
<CIK> 0000921073
<NAME> PRUDENTIAL EUROPE GROWTH FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL EUROPE GROWTH FUND, INC. (CLASS A)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 141,633,049
<INVESTMENTS-AT-VALUE> 173,011,252
<RECEIVABLES> 1,340,158
<ASSETS-OTHER> 19,868,513
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 194,219,923
<PAYABLE-FOR-SECURITIES> 12,232,128
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 589,652
<TOTAL-LIABILITIES> 12,821,780
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 151,375,056
<SHARES-COMMON-STOCK> 13,395,617
<SHARES-COMMON-PRIOR> 13,263,490
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,254,598)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31,277,685
<NET-ASSETS> 181,398,143
<DIVIDEND-INCOME> 3,140,868
<INTEREST-INCOME> 327,515
<OTHER-INCOME> 0
<EXPENSES-NET> 3,686,267
<NET-INVESTMENT-INCOME> (217,884)
<REALIZED-GAINS-CURRENT> 3,252,406
<APPREC-INCREASE-CURRENT> 21,905,018
<NET-CHANGE-FROM-OPS> 24,939,540
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 213,839,301
<NUMBER-OF-SHARES-REDEEMED> (212,685,204)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26,093,637
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,515,118)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,329,043
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,686,267

<AVERAGE-NET-ASSETS> 47,183,000
<PER-SHARE-NAV-BEGIN> 11.77
<PER-SHARE-NII> 1.92
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.69
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000921073
<NAME> PRUDENTIAL EUROPE GROWTH FUND, INC.
<SERIES>
<NUMBER> 002
<NAME> PRUDENTIAL EUROPE GROWTH FUND, INC. (CLASS B)

<AVERAGE-NET-ASSETS> 122,255,000
<PER-SHARE-NAV-BEGIN> 11.69
<PER-SHARE-NII> 1.80
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.49
<EXPENSE-RATIO> 2.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000921073
<NAME> PRUDENTIAL EUROPE GROWTH FUND, INC.
<SERIES>
<NUMBER> 003
<NAME> PRUDENTIAL EUROPE GROWTH FUND, INC. (CLASS C)

<AVERAGE-NET-ASSETS> 7,768,000
<PER-SHARE-NAV-BEGIN> 11.69
<PER-SHARE-NII> 1.80
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.49
<EXPENSE-RATIO> 2.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<CIK> 0000921073
<NAME> PRUDENTIAL EUROPE GROWTH FUND, INC.
<SERIES>
<NUMBER> 004
<NAME> PRUDENTIAL EUROPE GROWTH FUND, INC. (CLASS Z)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 141633049
<INVESTMENTS-AT-VALUE> 173011252
<RECEIVABLES> 1340158
<ASSETS-OTHER> 19868513
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 194219923
<PAYABLE-FOR-SECURITIES> 12232128
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 589652
<TOTAL-LIABILITIES> 12821780
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 151375056
<SHARES-COMMON-STOCK> 13395617
<SHARES-COMMON-PRIOR> 13263490
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1254598)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 181398143
<DIVIDEND-INCOME> 3140868
<INTEREST-INCOME> 327515
<OTHER-INCOME> 0
<EXPENSES-NET> 3686267
<NET-INVESTMENT-INCOME> (217884)
<REALIZED-GAINS-CURRENT> 3252406
<APPREC-INCREASE-CURRENT> 21905018
<NET-CHANGE-FROM-OPS> 24939540
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 213839301
<NUMBER-OF-SHARES-REDEEMED> (212685204)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26093637
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4515118)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1329043
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3686267

<AVERAGE-NET-ASSETS> 178,000
<PER-SHARE-NAV-BEGIN> 13.4
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>