<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1998
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. 6 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 8 [X]
(CHECK APPROPRIATE BOX OR BOXES)
PRUDENTIAL EUROPE GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7530
S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of the Registration Statement.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
[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.
Title of Securities Being Shares of common stock, $.001 par
Registered...................... value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<C> <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 Highlights; 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
Part B
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............ Directors and Officers
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 and
Brokerage
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, Dividends and Distribution
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.
- -------------------------------------------------------------------------------
PROSPECTUS DATED JULY 1, 1998
- -------------------------------------------------------------------------------
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 related securities (including common stock, preferred stock, rights,
warrants and debt securities or preferred stock which are convertible or
exchangeable for common stock or preferred stock and master limited
partnerships) 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 related securities of other
companies and in non-convertible debt securities, engage in various
derivatives transactions, including options on equity securities, financial
indices and foreign currencies, futures contracts on foreign currencies and
foreign currency exchange contracts and may purchase and sell futures
contracts on foreign currencies, groups of currencies and 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 "How
the Fund Invests--Investment Objective and Policies." The Fund's address is
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, 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."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated July 1, 1998, 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. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.
- -------------------------------------------------------------------------------
Investors are advised to read the Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS PRUDENTIAL 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 related
securities of companies domiciled in Europe. There can be no assurance that
the Fund's investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies" at page 9.
WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
Under normal circumstances, the Fund anticipates that at least 65% of its
total assets will consist of equity related securities of companies
domiciled in Europe. See "How the Fund Invests--Investment Objective and
Policies" at page 9. 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 U.S. Government securities and securities of domestic
companies, including 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. See "How the Fund Invests--Risk Factors and Special
Considerations of Investing in Foreign Securities" at page 11. 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 12. The
Fund may also engage in various hedging and return enhancement strategies,
including the use of derivatives transactions. See "How the Fund Invests--
Hedging and Return Enhancement Strategies--Risks of Hedging and Return
Enhancement Strategies" at page 14. As with an investment in any mutual
fund, an investment in this Fund can decrease in value and you can lose
money.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM 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, 1998, PIFM
served as manager or administrator to 67 investment companies, including 45
mutual funds, with aggregate assets of approximately $65 billion. The
Prudential Investment Corporation, doing business as Prudential Investments
(the Subadviser) furnishes investment advisory services in connection with
the management of the Fund under a Subadvisory Agreement with PIFM. See "How
the Fund is Managed--Manager" at page 17.
WHO DISTRIBUTES THE FUND'S SHARES?
On and after July 1, 1998, Prudential Investment Management Services LLC
will act as Distributor of the Fund's Class A, Class B, Class C and Class Z
shares. Before July 1, 1998, Prudential Securities Incorporated (Prudential
Securities) served as Distributor of Fund shares. Prudential Securities and
Prudential Investment Management Services LLC are each referred to as the
Distributor. The Distributor is paid a distribution and service fee with
respect to Class A shares which is currently being charged at the annual
rate of .25 of 1% of the average daily net assets of the Class A shares and is
paid a distribution and service fee with respect to Class B and Class C shares
at the annual rate of 1% of the average daily net assets of each of the Class B
and Class C shares. The Distributor incurs the expenses of distributing Class Z
shares under a Distribution Agreement with the Fund, none of which is
reimbursed by or paid for by the Fund. See "How the Fund is Managed--
Distributor" at page 18.
2
<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 Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 24 and "Shareholder
Guide--Shareholder Services" at page 35.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through the Distributor or brokers or
dealers that have entered into agreements to act as participating or
introducing brokers for the Distributor (Dealers) or directly from the Fund,
through its transfer agent, Prudential Mutual Fund Services LLC (PMFS or the
Transfer Agent). In each case, sales are made at the net asset value per share
(NAV) next determined after receipt of your purchase order by the Transfer
Agent, a Dealer or the Distributor 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). Class Z shares are offered to a limited group of
investors at NAV without any sales charge. Dealers may charge their customers a
separate fee for handling purchase transactions. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about Class Z shares. See "How the Fund
Values its Shares" at page 20 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 24.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares through this Prospectus:
.Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
.Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 5%
to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing distribution-
related expenses than Class A shares, Class B shares will
automatically convert to Class A shares (which are subject
to lower ongoing distribution-related expenses)
approximately seven years after purchase.
.Class C Shares: Sold without an initial sales charge but, for one year
after purchase, are subject to a CDSC of 1% on redemptions.
Class C shares are subject to higher ongoing distribution-
related expenses than Class A shares but, unlike Class B
shares, do not convert to another class.
.Class Z Shares: Sold without either an initial sales charge or CDSC to
a limited group of investors. Class Z shares are not subject
to any ongoing service or distribution expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 25.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after the
Transfer Agent or the Distributor receives your sell order. The proceeds of
redemptions of Class B and Class C shares may be subject to a CDSC. Dealers may
charge their customers a separate fee for handling sale transactions. See
"Shareholder Guide-- How to Sell Your Shares" at page 29. Participants in
programs sponsored by Prudential Retirement Services should contact their
client representative for more information about selling their Class Z shares.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, and make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 21.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER CLASS A SHARES CLASS B SHARES CLASS C SHARES
TRANSACTION EXPENSES+ -------------- ------------------------------------------- ----------------------------
<S> <C> <C> <C>
Maximum Sales Load
Imposed on
Purchases (as a
percentage of
offering price).... 5.00% None None
Maximum Sales Load
or Deferred Sales
Load Imposed on
Reinvested
Dividends.......... None None None
Maximum Deferred
Sales Load (as a
percentage of
original purchase
price or
redemption
proceeds, 5% during the first year, decreasing
whichever is by 1% annually to 1% in the fifth and 1% on redemptions made
lower)............. None the sixth years and 0% in the seventh year* within one year of purchase.
Redemption Fees..... None None None
Exchange Fees....... None None None
<CAPTION>
ANNUAL FUND OPERATING CLASS A SHARES CLASS B SHARES CLASS C SHARES
EXPENSES -------------- ------------------------------------------- ----------------------------
<S> <C> <C> <C>
(as a percentage of average net assets)
Management Fees..... .75% .75% .75%
12b-1 Fees+......... .25%++ 1.00% 1.00%
Other Expenses...... .39% .39% .39%
---- ---- ----
Total Fund
Operating
Expenses........... 1.39%++ 2.14% 2.14%
==== ==== ====
<CAPTION>
SHAREHOLDER CLASS Z SHARES
TRANSACTION EXPENSES+ --------------
<S> <C>
Maximum Sales Load
Imposed on
Purchases (as a
percentage of
offering price).... None
Maximum Sales Load
or Deferred Sales
Load Imposed on
Reinvested
Dividends.......... None
Maximum Deferred
Sales Load (as a
percentage of
original purchase
price or
redemption
proceeds,
whichever is
lower)............. None
Redemption Fees..... None
Exchange Fees....... None
<CAPTION>
ANNUAL FUND OPERATING CLASS Z SHARES
EXPENSES --------------
<S> <C>
(as a percentage of average net assets)
Management Fees..... .75%
12b-1 Fees+......... None
Other Expenses...... .39%
--------------
Total Fund
Operating
Expenses........... 1.14%
====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<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..................................... $63 $92 $122 $208
Class B..................................... $72 $97 $125 $219
Class C..................................... $32 $67 $115 $247
Class Z..................................... $12 $36 $ 63 $138
You would pay the following expenses on the
same investment, assuming no redemption:
Class A..................................... $63 $92 $122 $208
Class B..................................... $22 $67 $115 $219
Class C..................................... $22 $67 $115 $247
Class Z..................................... $12 $36 $ 63 $138
</TABLE>
The above example is based on data for the Fund's fiscal year ended April
30, 1998. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the
various types of costs and expenses that an investor in the Fund will
bear, whether directly or indirectly. For more complete descriptions of
the various costs and expenses, see "How the Fund is Managed." "Other
Expenses" includes estimated operating expenses of the Fund, such as
Directors' and professional fees, registration fees, reports to
shareholders, transfer agency and custodian (domestic and foreign) fees
(but excludes foreign withholding taxes).
----------
* Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See "Shareholder Guide--
Conversion Feature--Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers,
Inc., the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation
is imposed on the Fund rather than on a per shareholder basis.
Therefore, long-term shareholders of the Fund may pay more in total
sales charges than the economic equivalent of 6.25% of such
shareholders' investment in such shares. See "How the Fund is Managed--
Distributor."
++ Although the Class A Distribution and Service Plan provides that the
Fund may pay up to an annual rate of .30 of 1% of the average daily net
assets of the Class A shares, the Distributor has voluntarily limited
its distribution fees with respect to Class A shares of the Fund to .25
of 1% of the average daily net assets of the Class A shares. The
Distributor may voluntarily terminate this waiver at any time. Total
operating expenses without such limitation would have been 1.44%. See
"How the Fund is Managed--Distributor."
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)
The following financial highlights for the fiscal years ended April 30,
1998, and April 30, 1997, have been audited by Price Waterhouse LLP,
independent accountants. The following information for the year ended April
30, 1996 and the period ended April 30, 1995 have been audited by other
independent auditors, whose reports thereon were 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 share of common stock
outstanding, total return, ratio to average net assets and other supplemental
data for the period indicated. Further performance information is contained in
the annual report, which may be obtained without charge. See "Shareholders
Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS A
------------------------------------
JULY 13,
1994(B)
YEAR ENDED THROUGH
APRIL 30, APRIL
--------------------------- 30,
1998(C) 1997 1996(C) 1995(C)
------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 15.46 $ 13.69 $ 11.77 $ 11.40
------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment gain (loss)............. .01 .09 .06 .01
Net realized and unrealized gain on
investment and foreign currency
transactions.......................... 6.38 2.24 1.86 .36
------- ------- ------- --------
Total from investment operations....... 6.39 2.33 1.92 .37
------- ------- ------- --------
LESS DISTRIBUTIONS
Distributions in excess of net
investment income..................... (.14) -- -- --
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions......... (1.80) (.56) -- --
------- ------- ------- --------
Total distributions.................... (1.94) (.56) -- --
------- ------- ------- --------
Net asset value, end of period......... $ 19.91 $ 15.46 $ 13.69 $ 11.77
======= ======= ======= ========
TOTAL RETURN(D):....................... 44.93% 17.20% 16.31% 3.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $55,507 $38,807 $47,789 $ 41,963
Average net assets (000)............... $42,885 $37,834 $47,183 $ 29,598
Ratios to average net assets:
Expenses, including distribution
fees................................. 1.39% 1.36% 1.53% 1.84%(a)
Expenses, excluding distribution
fees................................. 1.14% 1.11% 1.28% 1.59%(a)
Net investment income (loss).......... .08% .57% .44% .06%(a)
Portfolio turnover rate................ 50% 31% 65% 25%
Average commission rate per share...... $0.0260(e) $0.0463 $0.0233 N/A
</TABLE>
- ---------
(a) Annualized.
(b) Commencement of class operations.
(c) Based on average shares outstanding, by class.
(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) Unaudited.
N/A--Data not required for these periods.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)
The following financial highlights for the fiscal years ended April 30,
1998, and April 30, 1997, have been audited by Price Waterhouse LLP,
independent accountants. The following information for the year ended April
30, 1996 and the period ended April 30, 1995 have been audited by other
independent auditors, whose reports thereon were 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 B share of common stock
outstanding, total return, ratio to average net assets and other supplemental
data for the period indicated. Further performance information is contained in
the annual report, which may be obtained without charge. See "Shareholders
Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------
JULY 13,
YEAR ENDED 1994(B)
APRIL 30, THROUGH
------------------------------ APRIL 30,
1998(C) 1997 1996(C) 1995(C)
-------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 15.12 $ 13.49 $ 11.69 $ 11.40
-------- -------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net investment gain (loss)...... (.11) (.04) (.04) (.06)
Net realized and unrealized gain
on investment and foreign
currency transactions.......... 6.15 2.23 1.84 .35
-------- -------- -------- ---------
Total from investment
operations..................... 6.04 2.19 1.80 .29
-------- -------- -------- ---------
LESS DISTRIBUTIONS
Distributions in excess of net
investment income.............. (.01) -- -- --
Distributions paid to
shareholders from net realized
gains on investment and foreign
currency transactions.......... (1.80) (.56) -- --
-------- -------- -------- ---------
Total distributions............. (1.81) (.56) -- --
-------- -------- -------- ---------
Net asset value, end of period.. $ 19.35 $ 15.12 $ 13.49 $ 11.69
======== ======== ======== =========
TOTAL RETURN(D):................ 43.25% 16.41% 15.40% 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................... $175,857 $139,277 $125,868 $ 106,081
Average net assets (000)........ $147,492 $133,135 $122,255 $ 85,623
Ratios to average net assets:
Expenses, including
distribution fees............. 2.14% 2.11% 2.28% 2.59%(a)
Expenses, excluding
distribution fees............. 1.14% 1.11% 1.28% 1.59%(a)
Net investment income (loss)... (.69)% (.27)% (.33)% (.71)%(a)
Portfolio turnover rate........ 50% 31% 65% 25%
Average commission rate per
share.......................... $ 0.0260(e) $ 0.0463 $ 0.0233 N/A
</TABLE>
- ---------
(a) Annualized.
(b) Commencement of class operations.
(c) Based on average shares outstanding, by class.
(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) Unaudited.
N/A--Data not required for these periods.
6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS C SHARES)
The following financial highlights for the fiscal years ended April 30,
1998, and April 30, 1997, have been audited by Price Waterhouse LLP,
independent accountants. The following information for the year ended April
30, 1996 and the period ended April 30, 1995 have been audited by other
independent auditors, whose reports thereon were 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 C share of common stock
outstanding, total return, ratio to average net assets and other supplemental
data for the period indicated. Further performance information is contained in
the annual report, which may be obtained without charge. See "Shareholders
Guide--Shareholder Services--Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS C
--------------------------------------
JULY 13,
YEAR ENDED 1994(B)
APRIL 30, THROUGH
--------------------------- APRIL 30,
1998(C) 1997 1996(C) 1995(C)
------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................. $ 15.12 $ 13.49 $ 11.69 $ 11.40
------- ------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment gain (loss).......... (.11) (.04) (.04) (.06)
Net realized and unrealized gain on
investment and foreign currency
transactions....................... 6.18 2.23 1.84 .35
------- ------- ------- ---------
Total from investment operations.... 6.07 2.19 1.80 .29
------- ------- ------- ---------
LESS DISTRIBUTIONS
Distributions in excess of net
investment income.................. (.01) -- -- --
Distributions paid to shareholders
from net realized gains on
investment and foreign currency
transactions....................... (1.80) (.56) -- --
------- ------- ------- ---------
Total distributions................. (1.81) (.56) -- --
------- ------- ------- ---------
Net asset value, end of period...... $ 19.38 $ 15.12 $ 13.49 $ 11.69
======= ======= ======= =========
TOTAL RETURN(D):.................... 43.55% 16.41% 15.40% 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $11,122 $ 8,010 $ 7,741 $ 7,260
Average net assets (000)............ $ 8,526 $ 8,002 $ 7,768 $ 6,094
Ratios to average net assets:
Expenses, including distribution
fees.............................. 2.14% 2.11% 2.28% 2.59%(a)
Expenses, excluding distribution
fees.............................. 1.14% 1.11% 1.28% 1.59%(a)
Net investment income (loss)....... (.66)% (.25)% (.30)% (.71)%(a)
Portfolio turnover rate............ 50% 31% 65% 25%
Average commission rate per share... $0.0260(e) $0.0463 $0.0233 N/A
</TABLE>
- ---------
(a) Annualized.
(b) Commencement of class operations.
(c) Based on average shares outstanding, by class.
(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) Unaudited.
N/A--Data not required for these periods.
7
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS Z SHARES)
The following financial highlights for the fiscal years ended April 30,
1998, and April 30, 1997, have been audited by Price Waterhouse LLP,
independent accountants. The following information for the period ended April
30, 1996 has been audited by other independent auditors, 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 Z share of common stock outstanding, total return, ratio to
average net assets and other supplemental data for the period indicated.
Further performance information is contained in the annual report, which may
be obtained without charge. See "Shareholders Guide--Shareholder Services--
Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS Z
----------------------------
JULY 15,
1996(B)
YEAR ENDED THROUGH
APRIL 30, APRIL
------------------ 30,
1998(C) 1997 1996(C)
------- ------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........... $ 15.51 $ 13.68 $ 13.40
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment gain (loss)..................... .04 .02 .28
Net realized and unrealized gain on investment
and foreign currency transactions............. 6.37 2.37 --
------- ------- --------
Total from investment operations............... 6.41 2.39 .28
------- ------- --------
LESS DISTRIBUTIONS
Distributions in excess of net investment
income........................................ (.19) -- --
Distributions paid to shareholders from net
realized gains on investment and foreign
currency transactions......................... (1.80) (.56) --
------- ------- --------
Total distributions............................ (1.99) (.56) --
------- ------- --------
Net asset value, end of period................. $ 19.93 $ 15.51 $ 13.68
======= ======= ========
TOTAL RETURN(D):............................... 44.95% 17.66% 2.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................ $ 3,090 $11,949 $ 204(e)
Average net assets (000)....................... $12,148 $ 7,958 $ 203(e)
Ratios to average net assets:
Expenses, including distribution fees......... 1.14% 1.11% 1.28%(a)
Expenses, excluding distribution fees......... 1.14% 1.11% 1.28%(a)
Net investment income (loss).................. .26% .22% .54%(a)
Portfolio turnover rate....................... 50% 31% 65%
Average commission rate per share.............. $0.0260(f) $0.0463 $ 0.0233
</TABLE>
- ---------
(a) Annualized.
(b) Commencement of class operations.
(c) Based on average shares outstanding, by class.
(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.
(f) Unaudited.
8
<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 RELATED
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 related securities include common stock,
preferred stock, rights, warrants and debt securities or preferred stock which
are convertible or exchangeable for common stock or preferred stock and master
limited partnerships, among others. 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 EQUITY RELATED SECURITIES OF ISSUERS DOMICILED OUTSIDE OF EUROPE,
DEBT OBLIGATIONS, REPURCHASE AGREEMENTS AND MAY HOLD CASH, SUBJECT TO THE
LIMITATIONS DESCRIBED HEREIN, OR THE FUND MAY ENGAGE IN VARIOUS DERIVATIVES
TRANSACTIONS, INCLUDING OPTIONS IN EQUITY SECURITIES, FINANCIAL INDICES,
FOREIGN CURRENCIES AND FOREIGN CURRENCY EXCHANGE CONTRACTS, AND MAY PURCHASE
AND SELL FUTURES CONTRACTS ON FOREIGN CURRENCIES, GROUPS OF CURRENCIES AND
FINANCIAL OR STOCK INDICES TO HEDGE ITS PORTFOLIO AND ATTEMPT TO ENHANCE
RETURN. 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'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.
AS WITH AN INVESTMENT IN ANY MUTUAL FUND, AN INVESTMENT IN THIS FUND CAN
DECREASE IN VALUE AND YOU CAN LOSE MONEY.
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 countries and 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 EQUITY RELATED SECURITIES OF ISSUERS DOMICILED OR DOING BUSINESS 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 domiciled or doing business
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.
9
<PAGE>
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 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, Inc. (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 as
determined by the investment adviser. See the "Description of Security
Ratings" in the Appendix to this 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 debt 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.
Depositary receipts also involve the risks of other investments in foreign
securities, as discussed below.
THE FUND MAY INVEST UP TO 5% OF ITS NET ASSETS IN WARRANTS. A warrant gives
the holder thereof the right to subscribe by a specified date to a stated
number of shares of stock of the issuer at a fixed price. Warrants tend to be
more volatile than the underlying stock, and if at a warrant's expiration date
the stock is trading at a price below the price set in the warrant, the
warrant
10
<PAGE>
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 (WHICH
DURING PERIODS OF MARKET VOLATILITY COULD BE FOR AN EXTENDED PERIOD OF TIME),
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.
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 RELATED 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 are of similar 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 a security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result
in a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund 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.
11
<PAGE>
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 (EG., 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.
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, and thus investors, may lose money through any unsuccessful use of these
strategies. 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
12
<PAGE>
and Policies" and "Taxes, Dividends and Distributions" 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 to the purchaser, depending upon the terms
of the option contract, the underlying securities or currency upon receipt of
the exercise price or a specified amount of cash. When the Fund writes a call
option, the Fund gives up the potential 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 or deliver a specified amount of cash to the purchaser. 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. A written option is covered if,
as long as the Fund is obligated under the option, it (i) owns an offsetting
position in the underlying security or currency or (ii) segregates cash or
other liquid, unencumbered assets, marked to market daily with a value
sufficient at all times to cover its obligations. See "Investment Objective
and Policies--Options on Securities" in the Statement of Additional
Information. There is no limitation on the amount of options the Fund may
write.
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
13
<PAGE>
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. The Fund, and
thus investors, may lose money through any unsuccessful use of these
strategies. 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 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 OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET,
REQUIRES SKILLS AND TECHNIQUES DIFFERENT FROM THOSE USED IN SELECTING
PORTFOLIO SECURITIES 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 or close out futures contracts and options
thereon is limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company. See "Taxes, Dividends and
Distributions" 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. The Fund, and thus
investors, may lose money through any unsuccessful use of the 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 the 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.
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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.
OTHER INVESTMENTS AND POLICIES
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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
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
Investments Fund Management LLC 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.
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SEGREGATED ACCOUNTS
The Fund will establish a segregated account with its Custodian, State Street
Bank and Trust Company (State Street), in which it will maintain cash, U.S.
Government securities, equity securities (including foreign securities), debt
securities or other liquid, unencumbered assets equal in value to its
obligations in respect of potentially leveraged transactions. These include
forward contracts, when-issued and delayed delivery securities, futures
contracts, written options and options on futures contracts (unless otherwise
covered). If collateralized or otherwise covered, in accordance with SEC
guidelines, these will not be deemed to be senior securities. The assets
deposited in the segregated account will be marked-to-market daily.
ILLIQUID SECURITIES
The Fund may hold up to 15% 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 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 200%. 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."
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 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 segregate cash, U.S.
Government securities, equity securities or other liquid, unencumbered assets,
marked to market daily, having a value equal to or greater than the Fund's
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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
segregated 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 hedging for
a limited period of time certain long positions maintained by the Fund. 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. In
certain limited circumstances, a short sale against-the-box may be entered
into without triggering the recognition of gains of an appreciated financial
position in the security being sold short, but the short position must be
closed within 30 days of the close of the tax year of the Fund to avoid
recognition of gain for federal income tax purposes.
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.
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, 1998, total expenses of Class A, Class B,
Class C and Class Z shares as a percentage of average net assets were 1.39%,
2.14%, 2.14% and 1.14%, respectively. See "Financial Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF
0.75 OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS. PIFM IS ORGANIZED IN NEW
YORK AS A LIMITED LIABILITY COMPANY. FOR THE FISCAL YEAR ENDED APRIL 30, 1998,
THE FUND PAID MANAGEMENT FEES TO PMF AND PIFM OF .75% OF THE FUND'S AVERAGE
DAILY NET ASSETS. SEE "MANAGER" IN THE STATEMENT OF ADDITIONAL INFORMATION.
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As of May 31, 1998, PIFM served as the manager to 45 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 $65 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. SEE
"MANAGER" IN THE STATEMENT OF ADDITIONAL INFORMATION.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI), PI THROUGH A
SUB-INVESTMENT MANAGEMENT AGREEMENT WITH PRICOA ASSET MANAGEMENT LTD. (PRICOA
AND COLLECTIVELY WITH PI, THE INVESTMENT ADVISER), FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND. PI reimburses
PRICOA, and PIFM reimburses PI, for its reasonable costs and expenses incurred
in providing such services. PIFM continues to have responsibility for all
investment advisory services pursuant to the Management Agreement and
supervises the investment adviser's performance of such services. In October
1997, portfolio management for the Fund was assumed by Stephen F. Auth,
William E. Higgins and Jean-Yves Chereau, as co-managers.
Stephen F. Auth is Senior Managing Director of PI. He manages global equity
portfolios for institutional clients, including The Prudential Insurance
Company of America (Prudential), as well as Prudential Global Genesis Fund,
Inc. and Prudential Pacific Growth Fund, Inc. Mr. Auth has co-managed the
Fund's portfolio since October 1997 and has been employed by PI as a portfolio
manager since 1985. Mr. Auth heads PI's global and international investment
management organization. Mr. Auth is a Chartered Financial Analyst.
William E. Higgins is a Vice President of PI and, since 1991, has been a
member of PI's global equity investment team. His primary focus is on stocks
in Europe. Mr. Higgins has served as co-manager of the Fund since October
1997.
Jean-Yves Chereau is a Managing Director of PI and, since June 1997, has been
responsible for managing European stocks. Mr. Chereau has been employed by PI
since 1992, and has served as a portfolio manger since 1994. Prior to joining
PI, Mr. Chereau was employed by Goldman Sachs International in London, where
he worked as a securities analyst. Mr. Chereau has served as co-manager of the
Fund since October 1997.
PIFM, PI and PRICOA 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 THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND, UNTIL APPROXIMATELY
JULY 1, 1998, SERVES AS THE DISTRIBUTOR OF THE CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL. ON OR ABOUT JULY 1, 1998, PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC (THE DISTRIBUTOR), THREE GATEWAY CENTER, 100 MULBERRY STREET,
NEWARK, NEW JERSEY 07102-4077, WILL BEGIN ACTING AS THE FUND'S DISTRIBUTOR.
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC IS A LIMITED LIABILITY COMPANY
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND IT IS A 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), THE DISTRIBUTOR INCURS THE EXPENSES
OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. The
Distributor also incurs the expenses of distributing the Fund's Class Z shares
under the Distribution Agreement, none of which are reimbursed by or paid for
by the Fund. These expenses include commissions and account servicing fees
paid to, or on account of, Financial Advisors of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account
of, other broker-
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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 the Distributor, Prudential Securities and Prusec associated
with the sale of Fund shares, including lease, utility, communications and
sales promotion expenses.
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.
The distribution and/or service fees may be used by the Distributor to
compensate on a continuing basis Dealers in consideration for the
distribution, marketing, administrative and other services and activities
provided by Dealers with respect to the promotion of the sale of the Fund's
shares and the maintenance of related shareholder accounts.
UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR 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. The Distributor
has voluntarily limited 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.
This voluntary waiver may be terminated at any time without notice.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS THE DISTRIBUTOR 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
the Distributor 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. The Distributor 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 Class A, Class B and Class
C shares of the Fund will be allocated to each class based upon the ratio of
sales of each such class to the sales of all Class A, Class B and Class C
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 (including Prudential Securities)
and other persons which distribute shares of the Fund (including Class Z
shares). Such payments may be calculated by reference to the NAV 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.
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FEE WAIVERS AND SUBSIDY
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. Fee waivers
and expense subsidies will increase the Fund's total return. The Distributor
has voluntarily waived a portion of its distribution fee for the Class A
shares as described above under "Distributor." This voluntary waiver may be
terminated at any time without notice. See "Performance Information" in the
Statement of Additional Information and "Fund Expenses."
PORTFOLIO TRANSACTIONS
Affiliates of the Distributor may act as a broker or futures commission
merchant for the Fund provided that the commissions, fees or other
remuneration it receives are fair and reasonable. See "Portfolio Transactions
and Brokerage" in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109,
serves as Custodian for the Fund's portfolio securities and cash and, in that
capacity, maintains certain financial and accounting books and records
pursuant to an agreement with the Fund.
Prudential Mutual Fund Services LLC (the Transfer Agent), 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. The Transfer Agent is a wholly-owned subsidiary of PIFM. Its mailing
address is P.O. Box 15005, New Brunswick, New Jersey 08906-5005.
YEAR 2000
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although at this time,
there can be no assurance that there will be no adverse impact on the Fund,
the Manager, the Distributor, the Transfer Agent and the Custodian have
advised the Fund that they have been actively working on necessary changes to
their computer systems to prepare for the year 2000 and expect that their
systems, and those outside service providers, will be adapted in time for the
event.
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 or, if such quotations are deemed not representative of fair value,
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.
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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.
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. The NAV of Class
Z shares will generally be higher than the NAV of the other three classes
because Class Z shares are not subject to any distribution and/or service
fees. It is expected, however, that the NAV of the four classes will tend to
converge immediately after the recording of dividends, if any, 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, CLASS C AND CLASS Z SHARES. These figures are based on historical
earnings and are not intended to indicate future performance. The total return
shows how much an investment in the Fund would have increased (decreased) over
a specified period of time (i.e., one, five, or ten years or since inception
of the Fund) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. The aggregate total return reflects actual performance over a stated
period of time. Average annual total return is a hypothetical rate of return
that, if achieved annually, would have produced the same aggregate total
return if performance had been constant over the entire period. Average annual
total return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average
annual total return nor aggregate total return takes into account any federal
or state income taxes which may be payable upon redemption. The yield refers
to the income generated by an investment in the Fund over a one-month or 30-
day period. This income is then annualized; that is, the amount of income
generated by the investment during that 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage
of the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period. The Fund also may include
comparative performance information in advertising or marketing the Fund's
shares. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., and other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. 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 corporations treated for federal
income tax purposes as passive foreign investment companies ("PFICs"). PFICs
are foreign corporations which own mostly passive assets or that derive a
majority of their income from passive sources. The Fund's investments in PFICs
are subject to special tax provisions that may subject the Fund to federal
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income taxes and a charge in the nature of interest with respect to certain
gains and income realized by the Fund. See "Taxes, Dividends and
Distributions" 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, i.e., treated as having
been sold at market value. Sixty percent of any gain or loss recognized on
these "deemed sales" and on actual dispositions will be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes, Dividends and Distributions" 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 taxable 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 and properly designated by the Fund will be
taxable as such to the shareholders, whether or not reinvested and regardless
of the length of time a shareholder has owned his or her shares. The maximum
long-term capital gains rate for corporate 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 for
securities held more than 18 months is 20%. Legislation pending before
Congress would extend the maximum rate of 20% to securities held more than one
year. The maximum tax rate for individual shareholders 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, Dividends and Distributions" 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 loss, however, on the sale,
exchange or redemption of 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.
Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise disposes
of such shares within 90 days of acquisition may not be allowed to take into
account 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.
Distributions by the Fund to a shareholder that is a qualified retirement
plan would generally not be taxable to participants in the plan. Distributions
from a qualified retirement plan (or non-qualified arrangement) to a
participant or beneficiary are subject to special rules. These rules vary
greatly with individual situations; therefore, potential investors are urged
to consult with their own tax advisors.
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 any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
22
<PAGE>
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit to
the U.S. Treasury 31% of dividends, capital gain income and redemption
proceeds, payable on the accounts of those shareholders who fail to furnish
their correct 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, DIVIDENDS AND
DISTRIBUTIONS" 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 Class A, Class B and Class C shares will bear their own distribution
charges, generally resulting in lower dividends for Class B and Class C shares
in relation to Class A and Class Z shares and lower dividends for Class A
shares in relation to Class Z shares. Distribution of net capital gains, if
any, will be paid in the same amount per share 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 LLC., 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.
IF YOU BUY SHARES ON OR IMMEDIATELY BEFORE THE RECORD DATE (THE DATE THAT
DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING
OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.
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 fees) which may affect
performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "How the Fund is Managed--Distributor." 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.
23
<PAGE>
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 (with the exception of
Class Z shares, which are not subject to any distribution for service fees)
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 and to Class Z shareholders,
whose Class Z shares are not subject to any distribution or service fees. 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 Commission under
the Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at
the office of the Commission in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH THE DISTRIBUTOR, THROUGH DEALERS,
INCLUDING PRUDENTIAL SECURITIES AND PRUSEC, OR DIRECTLY FROM THE FUND, THROUGH
ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND SERVICES LLC, ATTENTION: INVESTMENT
SERVICES, P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The purchase
price is the NAV next determined following receipt of an order in proper form
(in accordance with procedures established by the Transfer Agent in connection
with investors' accounts) by the Transfer Agent or the Distributor 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). Class
Z shares are offered to a limited group of investors at NAV without any sales
charge. Participants in programs sponsored by Prudential Retirement Services
should contact their client representative for more information about Class Z
shares. Payment may be made by wire, check or through your brokerage account.
See "Alternative Purchase Plan" below. See also "How the Fund Values its
Shares."
Application forms can be obtained from the Transfer Agent or the Distributor.
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. There is no minimum investment
requirement for Class Z shares. The minimum subsequent investment is $100 for
all classes except for Class Z shares, for which there is no such minimum. All
minimum investment requirements are waived for certain retirement and
24
<PAGE>
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.
Dealers may charge their customers a separate fee for processing purchases
and redemptions. In addition, transactions in Fund shares may be subject to
postage and handling charges imposed by your Dealer. Any such charges are
retained by the Dealer and are not remitted to the Fund.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone the Transfer Agent at (800) 225-
1852 (toll-free) to receive an account number. The following information will
be requested: your name, address, tax identification number, class election,
dividend distribution election, amount being wired and wiring bank.
Instructions should then be given by you to your bank to transfer funds by
wire to 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 the Transfer Agent and your name and identify the
class in which you are eligible to invest. (Class A, Class B, Class C or Class
Z 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, Class C or Class Z shares and your name and
individual account number. It is not necessary to call the Transfer Agent to
make subsequent purchase orders utilizing federal funds. The minimum amount
which may be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS FOUR CLASSES OF SHARES THROUGH THIS PROSPECTUS (CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST
BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE
AMOUNT OF THE PURCHASE, THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND
OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------------ -------------------------- --------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of .30 of 1% (currently being Initial sales charge waived or
5% of the public offering price charged at a rate of .25 reduced for certain purchases
of 1%)
Class B Maximum contingent deferred 1% Shares convert to Class A
sales charge or CDSC of 5% of shares approximately seven years
the lesser of the amount invested after purchase
or the redemption proceeds; declines
to zero after six years
Class C Maximum CDSC of 1% of the 1% Shares do not convert to
lesser of the amount invested or another class
the redemption proceeds on
redemptions made within one year
of purchase.
Class Z None None Sold to a limited group
of investors
</TABLE>
25
<PAGE>
The four 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
(with the exception of Class Z shares, which are not subject to any
distribution or service fees) which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differs from the
interests of any other class, (iii) only Class B shares have a conversion
feature and (iv) Class Z shares are offered exclusively for sale to a limited
group of investors. The four 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 (if any) 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 and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C shares or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of
any applicable sales charge (whether imposed at the time of purchase or
redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund.
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 5% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6-year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.
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 NAV, 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
UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See "Reduction
and Waiver of Initial Sales Charges" and "Class Z Shares" below.
26
<PAGE>
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
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED 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>
The Distributor may reallow the entire sales charge to Dealers. Dealers may
be deemed to be underwriters, as that term is defined under the federal
securities laws. The Distributor reserves the right, without prior notice to
any Dealer, to suspend or eliminate Dealer concessions or commissions.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
may pay Dealers, financial advisers and other persons which distribute Class A
shares a finder's fee based on a percentage of the NAV of shares sold by such
persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "Purchase and Redemption
of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares"
in the Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (collectively, Benefit Plans), provided that the plan
has existing assets of at least $1 million invested in shares of Prudential
Mutual Funds (excluding money market funds other than those acquired pursuant
to the exchange privilege) or 250 eligible employees or participants. In the
case of Benefit Plans whose accounts are held directly with the Transfer Agent
or Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account record keeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by Prudential Securities or its
subsidiaries (Prudential Securities 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.
Prudential Retirement Programs. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or non-
qualified under the Internal Revenue Code, for which Prudential serves as the
plan administrator or recordkeeper, provided that (i) the plan has at least $1
million in existing assets or 250 eligible employees and (ii) the Fund is an
available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 or
403(b)(7) of the Internal Revenue Code and plans that participate in the
Transfer Agent's PruArray and SmartPath Programs (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan). All plans
of a company for which Prudential serves as plan administrator or recordkeeper
are aggregated in meeting the $1 million threshold. The term "existing assets"
as used herein includes stock issued by a plan sponsor, shares of Prudential
Mutual Funds and shares of certain unaffiliated mutual funds that participate
in the PruArray or SmartPath Program (Participating Funds). "Existing assets"
also include monies invested in The
27
<PAGE>
Guaranteed Interest Account (GIA), a group annuity insurance product issued by
Prudential, and units of The Stable Value Fund (SVF), an unaffiliated bank
collective fund. Class A shares may also be purchased at NAV by plans that
have monies invested in GIA and SVF, provided (i) the purchase is made with
the proceeds of a redemption from either GIA or SVF and (ii) Class A shares
are an investment option of the plan.
PruArray Association Benefit Plans. Class A shares are also offered at NAV to
Benefit Plans or non-qualified plans sponsored by employers which are members
of a common trade, professional or membership association (Association) that
participate in the PruArray Program provided that the Association enters into
a written agreement with Prudential. Such Benefit Plans or non-qualified plans
may purchase Class A shares at NAV without regard to the assets or number of
participants in the individual employer's qualified Plan(s) or non-qualified
plans so long as the employers in the Association (i) have retirement plan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (ii) maintain their accounts with the Fund's transfer agent.
PruArray Savings Program. Class A shares are also offered at NAV to employees
of companies that enter into a written agreement with Prudential Retirement
Services to participate in the PruArray Savings Program. Under this Program, a
limited number of Prudential Mutual Funds are available for purchase at NAV by
Individual Retirement Accounts and Savings Accumulation Plans of the company's
employees. The Program is available only to (i) employees who open an IRA or
Savings Accumulation Plan account with the Fund's transfer agent and (ii)
spouses of employees who open an IRA account with the Fund's transfer agent.
The program is offered to companies that have at least 250 eligible employees.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
the Distributor 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 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 of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer, (d) Prudential
employees and special agents of Prudential and its subsidiaries and all
persons who have retired directly from active service with Prudential or one
of its subsidiaries, (e) registered representatives and employees of Dealers
who have entered into a selected dealer agreement with the Distributor
provided that purchases at NAV are permitted by such person's employer, (f)
investors who have a business relationship with a financial adviser who joined
Prudential Securities from another investment firm, provided that (i) the
purchase is made within 180 days of the commencement of the financial
adviser's employment at Prudential Securities or, within one year in the case
of Benefit Plans, (ii) the purchase is made with the proceeds of a redemption
of shares of any open-end, non-money market fund sponsored by the financial
adviser's previous employer (other than a fund which imposes a distribution or
service fee of .25 of 1% or less) and (iii) the financial adviser served as
the client's broker on the previous purchase, (g) investors in Individual
Retirement Accounts, provided the purchase is made with the proceeds of a tax-
free, rollover of assets from a Benefit Plan for which Prudential Investments
serves as the recordkeeper or administrator, (h) orders placed by broker-
dealers, investment advisers or financial planners who have entered into an
agreement with the Distributor, who place trades for their own accounts or the
accounts of their clients and who charge a management, consulting or other fee
for their services (e.g. mutual fund "wrap" or asset allocation programs), and
(i) orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for their own accounts if the accounts are
linked to the master account of such broker-dealer, investment adviser or
financial planner on the books and records of the broker-dealer, investment
adviser or financial planner (e.g. mutual fund "supermarket programs").
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the Dealer
facilitating the transaction that the sale
28
<PAGE>
qualifies for the reduced or waived sales charge. The reduction or waiver will
be granted subject to confirmation of your entitlement. No initial sales
charges are imposed upon Class A shares purchased upon the reinvestment of
dividends and distributions. See "Purchase and Redemption of Fund Shares--
Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, the Distributor or your Dealer.
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." The Distributor will pay, from its
own resources sales commissions of up to 4% of the purchase price of Class B
shares to dealers, financial advisers and other persons who sell Class B
shares at the time of sale from its own resources. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it
will recoup its advancement of sales commissions from the combination of the
CDSC and the distribution fee. See "How the Fund is Managed--Distributor." In
connection with the sale of Class C shares, the Distributor may pay, from its
own resources dealers, financial advisers and other persons which distribute
Class C shares a sales commission of up to 1% of the purchase price at the
time of the sale.
PruArray or SmartPath Plans. The CDSC will be waived on redemptions of Class
C shares by qualified and non-qualified retirement and deferred compensation
plans that participate in the Transfer Agent's PruArray and SmartPath
Programs.
CLASS Z SHARES
Class Z shares are currently available for purchase by the following
categories of investors: (i) pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation plans and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code, and non-qualified plans for which the Fund is an
available option (collectively, Benefit Plans), provided such Benefit Plans
(in combination with other plans sponsored by the same employer or group of
related employers) have at least $50 million in defined contribution assets;
(ii) participants in any fee-based program or trust program sponsored by
Prudential Securities Incorporated (Prudential Securities), The Prudential
Savings Bank, F.S.B. (or any affiliate) which includes mutual funds as
investment options and for which the Fund is an available option; (iii)
certain participants in the MEDLEY Program (group variable annuity contracts)
sponsored by The Prudential Insurance Company of America (Prudential) for whom
Class Z shares of the Prudential Mutual Funds are an available investment
option; (iv) Benefit Plans for which Prudential Retirement Services serves as
record keeper and that, as of September 20, 1996, (a) were Class Z
shareholders of the Prudential Mutual Funds or (b) executed a letter of intent
to purchase Class Z shares of the Prudential Mutual Funds; (v) the Prudential
Securities Cash Balance Pension Plan, an employee defined benefit plan
sponsored by Prudential Securities (only applicable to Prudential Equity
Income Fund, Prudential Europe Growth Fund, Inc. and Prudential Pacific Growth
Fund, Inc.); (vi) current and former Directors/Trustees of the Prudential
Mutual Funds (including the Fund); (vii) employees of Prudential and/or
Prudential Securities who participate in a Prudential-sponsored employee
savings plan; and (viii) Prudential with an investment of $10 million or more.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other
persons who distribute shares a finders' fee from its own resources based on a
percentage of the net asset value of shares sold by such persons.
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 (IN
ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT IN CONNECTION
WITH
29
<PAGE>
INVESTORS' ACCOUNTS) BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER.
See "How the Fund Values its Shares." In certain cases, however, redemption
proceeds will be reduced by the amount of any applicable CDSC, as described
below. See "Contingent Deferred Sales Charges--Waiver of Contingent Deferred
Sales Charges--Class B Shares" below. If you are redeeming your shares through
a Dealer, your Dealer must receive your sell order before the Fund computes
its NAV for that day (i.e., 4:15 P.M., New York time) in order to receive that
day's NAV. Your Dealer will be responsible for furnishing all necessary
documentation to the Distributor and may charge you for its services in
connection with redeeming shares of the Fund.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR PRUDENTIAL
SECURITIES FINANCIAL ADVISOR. IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A
WRITTEN REQUEST FOR REDEMPTION SIGNED BY YOU EXACTLY AS THE ACCOUNT IS
REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES, THE CERTIFICATES SIGNED IN
THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES, MUST BE RECEIVED BY THE
TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER IN ORDER FOR THE REDEMPTION
REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION,
PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO
THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All
correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services LLC, Attention:
Redemption Services, P.O. Box 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. In the case of redemptions from a
PruArray or Smartpath Plan, if the proceeds of the redemption are invested in
another option of the Plan, in the name of the record holder and at the same
address as reflected in the Transfer Agent's records, a signature guarantee is
not required.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT, THE DISTRIBUTOR OR YOUR DEALER
OF THE CERTIFICATE AND/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 Commission, by order, so
permits; provided that applicable rules and regulations of the Commission
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 CASHIER'S CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Commission. 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
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<PAGE>
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1%
of the NAV 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 CDSC will
be imposed on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest 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
the Distributor or your Dealer, at the time the repurchase privilege is
exercised to adjust your account for the CDSC you previously paid. Thereafter,
any redemptions will be subject to the CDSC applicable at the time of the
redemption. See "Contingent Deferred Sales Charges" below. Exercise of the
repurchase privilege may not affect federal tax treatment of any gain or loss
realized upon redemption. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information.
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--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of 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" below.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR SINCE PURCHASE AS A PERCENTAGE OF DOLLARS INVESTED
PAYMENT MADE OR 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>
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<PAGE>
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 NAV 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: These distributions are: (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 (including a Roth IRA), a lump-sum or other
distribution after attaining age 59 1/2 or a periodic distribution based on
life expectancy, (iii) in the case of a Section 403(b) custodial account, a
lump sum or other distribution after attaining age 59 1/2; and (iv) a tax-free
return of an excess contribution or plan distribution 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 Prudential Securities 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 the Distributor
or your Dealer, including 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.
Systematic Withdrawal Plan. The CDSC will be waived (or reduced) on certain
redemptions pursuant to a Systematic Withdrawal Plan. On an annual basis, up
to 12% of the total dollar amount subject to the CDSC may be redeemed without
charge. The Fund's Transfer Agent will calculate the total amount available
for this waiver annually on the anniversary date of your purchase or, for
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<PAGE>
shares purchased prior to March 1, 1997 on March 1 of the current year. The
CDSC will be waived (or reduced) on redemptions until this threshold 12% is
reached.
You must notify the Transfer Agent either directly or through the Distributor
or your Dealer, 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.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
PruArray or SmartPath Plans. The CDSC will be waived on the following
redemptions from certain qualified and non-qualified retirement and deferred
compensation plans that participate in the PruArray and SmartPath Programs:
(i) redemptions from a 403(b) or 457 plan; and (ii) redemptions from a
qualified or non-qualified plan, provided, that the investment options of the
plan include shares of Prudential Mutual Funds and shares of non-affiliated
mutual funds.
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 NAV 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 NAV's 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 equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. 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
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<PAGE>
are held in a money market fund, exchanges will be deemed to have been made on
the last day of the month. Class B shares acquired through exchange will
convert to Class A shares after expiration of the conversion period applicable
to the original purchase of such shares.
The conversion feature is subject to the continuing availability of opinions
of counsel (i) that the dividends and other distributions paid on Class A,
Class B, Class C and Class Z shares will not constitute preferential dividends
under the Internal Revenue Code and (ii) that the conversion of shares does
not constitute a taxable event. The conversion of Class B shares into Class A
shares may be suspended if such opinions or rulings are no longer available.
If conversions are suspended, Class B shares of the Fund will continue to be
subject, possibly indefinitely, to their higher annual distribution and
service fee.
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, CLASS C AND CLASS Z SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B,
CLASS C AND CLASS Z 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, Inc. 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. 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 ADVISOR.
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 LLC, 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 LLC, 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) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this
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<PAGE>
exchange privilege, amounts representing any Class B and Class C shares (which
are not subject to a CDSC) held in such a shareholder's account will be
automatically exchanged for Class A shares for shareholders who qualify to
purchase Class A shares at NAV on a quarterly basis, unless the shareholder
elects otherwise. Similarly, shareholders who qualify to purchase Class Z
shares will have their Class B and Class C shares which are not subject to a
CDSC and their Class A shares exchanged for Class Z shares on a quarterly
basis. Eligibility for this exchange privilege will be calculated on the
business day prior to the date of the exchange. Amounts representing Class B
or Class C shares which are not subject to a CDSC include the following: (1)
amounts representing Class B or Class C shares acquired pursuant to the
automatic reinvestment of dividends and distributions, (2) amounts
representing the increase in the NAV above the total amount of payments for
the purchase of Class B or Class C shares and (3) amounts representing Class B
or Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities, Prusec or another Dealer that they are eligible for
this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares
when they elect to have those assets become a part of the fee-based program.
Upon leaving the program (whether voluntarily or not), such Class Z shares
(and, to the extent provided for in the program, Class Z shares acquired
through participation in the program) will be exchanged for Class A shares at
NAV. Similarly, participants in Prudential Securities' 401(k) Plan for which
the Fund's Class Z shares are an available option and who wish to transfer
their Class Z shares out of the Prudential Securities 401(k) Plan following
separation from service (i.e., voluntary or involuntary termination of
employment or retirement) will have their Class Z shares exchanged for Class A
shares at NAV.
The Fund reserves the right to reject any exchange order including exchanges
(and market timing transactions) which are of the size and/or frequency
engaged in by one or more accounts acting in concert or otherwise, that have
or may have an adverse effect on the ability of the Subadviser to manage the
portfolio. The determination that such exchanges or activity may have an
adverse effect and the determination to reject any exchange order shall be in
the discretion of the Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, each Prudential Mutual Fund, including the Fund, reserves the
right to refuse purchase orders and exchanges by any person, group or commonly
controlled accounts, if, in the Manager's sole judgment, such person, group or
accounts were following a market timing strategy or were otherwise engaging in
excessive trading (Market Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading.
The Fund may notify the Market Timer of rejection of an exchange or purchase
order subsequent to the day on which the order was placed.
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:
. 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
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<PAGE>
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through your Dealer, you should contact your Dealer.
. 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 brokerage account (including a Command Account).
For additional information about this service, you may contact your Dealer or
the Transfer Agent directly.
. 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 the Distributor, your
Dealer 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.
. 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.
. 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 Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. In addition,
monthly unaudited financial data are available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone, at (800) 225-1852 (toll-free) or, from outside the U.S.A. at (732)
417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
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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.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
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. Those issuers determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
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 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.
<TABLE>
<S> <C>
TAXABLE BOND FUNDS EQUITY FUNDS
Prudential Diversified Bond Prudential Balanced Fund
Fund, Inc. Prudential Distressed Securities
Prudential Government Income Fund, Inc.
Fund, Inc. Prudential Emerging Growth Fund,
Prudential Government Securities Inc.
Trust Prudential Equity Fund, Inc.
Short-Intermediate Term Series Prudential Equity Income Fund
Prudential High Yield Fund, Inc. Prudential Index Series Fund
Prudential High Yield Total Prudential Stock Index Fund
Return Fund, Inc. Prudential Bond Market Index
Prudential Mortgage Income Fund, Fund
Inc. Prudential Europe Index Fund
Prudential Structured Maturity Prudential Pacific Index Fund
Fund, Inc. Prudential Small-Cap Index Fund
Income Portfolio Prudential Stock Index Fund
The Prudential Investment
Portfolios, Inc.
TAX-EXEMPT BOND FUNDS Prudential Active Balanced Fund
Prudential Jennison Growth Fund
Prudential California Municipal Prudential Jennison Growth &
Fund Income Fund
California Series Prudential Mid-Cap Value Fund
California Income Series Prudential Multi-Sector Fund, Inc.
Prudential Municipal Bond Fund Prudential Real Estate Securities
High Yield Series Fund
Insured Series Prudential Small-Cap Quantum Fund,
Intermediate Series Inc.
Prudential Municipal Series Fund Prudential Small Company Value
Florida Series Fund, Inc.
Maryland Series Prudential Utility Fund, Inc.
Massachusetts Series Nicholas-Applegate Fund, Inc.
Michigan Series Nicholas-Applegate Growth Equity
New Jersey Series Fund
New York Series Prudential 20/20 Focus Fund
North Carolina Series
Ohio Series
Pennsylvania Series MONEY MARKET FUNDS
Prudential National Municipals
Fund, Inc. . Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
GLOBAL FUNDS National Money Market Fund
Prudential Government Securities
Prudential Developing Markets Trust
Fund Money Market Series
Prudential Developing Markets U.S. Treasury Money Market
Equity Fund Series
Prudential Latin America Prudential Special Money Market
Equity Fund Fund, Inc.
Prudential Europe Growth Fund, Money Market Series
Inc. Prudential MoneyMart Assets, Inc.
Prudential Global Genesis Fund,
Inc. . Tax-Free Money Market Funds
Prudential Global Limited Prudential Tax-Free Money Fund,
Maturity Fund, Inc. Inc.
Limited Maturity Portfolio Prudential California Municipal
Prudential Intermediate Global Fund
Income Fund, Inc. California Money Market Series
Prudential International Bond Prudential Municipal Series Fund
Fund, Inc. Connecticut Money Market Series
Prudential Natural Resources Massachusetts Money Market
Fund, Inc. Series
Prudential Pacific Growth Fund, New Jersey Money Market Series
Inc. New York Money Market Series
Prudential World Fund, Inc.
Global Series . Command Funds
International Stock Series Command Money Fund
Global Utility Fund, Inc. Command Government Fund
The Global Total Return Fund, Command Tax-Free Fund
Inc.
. Institutional Money Market Funds
Prudential Institutional Liquidity
Portfolio, Inc.
Institutional Money Market
Series
</TABLE>
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>
<CAPTION>
PAGE
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<S> <C>
FUND HIGHLIGHTS........................................................... 2
What are the Fund's Risk Factors and Special Characteristics?............ 2
FUND EXPENSES............................................................. 4
FINANCIAL HIGHLIGHTS...................................................... 5
HOW THE FUND INVESTS...................................................... 9
Investment Objective and Policies........................................ 9
Risk Factors and Special Considerations of Investing in Foreign
Securities.............................................................. 11
Risk Factors Relating to Investing in Foreign Debt Securities Rated Below
Investment Grade (Junk Bonds)........................................... 12
Hedging and Return Enhancement Strategies................................ 12
Other Investments and Policies........................................... 15
Investment Restrictions.................................................. 17
HOW THE FUND IS MANAGED................................................... 17
Manager.................................................................. 17
Distributor.............................................................. 18
Fee Waivers and Subsidy.................................................. 20
Portfolio Transactions................................................... 20
Custodian and Transfer and Dividend Disbursing Agent..................... 20
Year 2000................................................................ 20
HOW THE FUND VALUES ITS SHARES............................................ 20
HOW THE FUND CALCULATES PERFORMANCE....................................... 21
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 21
GENERAL INFORMATION....................................................... 23
Description of Common Stock.............................................. 23
Additional Information................................................... 24
SHAREHOLDER GUIDE......................................................... 24
How to Buy Shares of the Fund............................................ 24
Alternative Purchase Plan................................................ 25
How to Sell Your Shares.................................................. 29
Conversion Feature--Class B Shares....................................... 33
How to Exchange Your Shares.............................................. 34
Shareholder Services..................................................... 35
DESCRIPTION OF SECURITY RATINGS........................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... B-1
</TABLE>
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MF160A
CUSIP No.:
Class A: 74431N-10-3
Class B: 74431N-20-2
Class C: 74431N-30-1
Class Z: 74431N-40-0
PRUDENTIAL
EUROPE
GROWTH
FUND, INC.
July 1, 1998
www.prudential.com
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Additional Information
dated July 1, 1998
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 related securities (common stock, preferred stock, rights, warrants and
debt securities or preferred stocks which are convertible or exchangeable for
common stock or preferred stock and master limited partnerships, among others)
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 related securities of other companies and in non-
convertible debt securities, engage in various derivatives transactions,
including options on equity securities, financial indices and foreign
currencies, futures contracts on foreign currencies and foreign currency
exchange contracts and may purchase and sell futures contracts on foreign
currencies and groups of currencies and 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."
Prudential Mutual Fund Investment Management, a unit of The Prudential
Investment Corporation (PIC), 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.
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated July 1, 1998, 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 9
Investment Restrictions.................................. B-14 17
Directors and Officers................................... B-15 17
Manager.................................................. B-19 17
Distributor.............................................. B-21 18
Portfolio Transactions and Brokerage..................... B-23 20
Purchase and Redemption of Fund Shares................... B-24 24
Shareholder Investment Account........................... B-27 35
Net Asset Value.......................................... B-31 20
Taxes, Dividends and Distributions....................... B-32 21
Performance Information.................................. B-35 21
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants................................. B-38 20
Financial Statements..................................... B-39 --
Report of Independent Accountants........................ B-51 --
Appendix--Historical Performance Data.................... I-1 --
Appendix--General Investment Information................. II-1 --
Appendix--Information Relating to Prudential............. III-1 --
MF160B
</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 related securities,
(common stock, preferred stock, rights, warrants and debt securities or
preferred stock which are convertible or exchangeable for common stock or
preferred stock and master limited partnerships, among others) of companies
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.
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 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
B-2
<PAGE>
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
(having a duration of nine months or less) pursuant to which the purchaser, in
return for a premium paid, has the right to buy the security underlying the
option at a specified exercise price at any time during the term of the
option. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option, to deliver the underlying security
against payment of the exercise price. A put option is a similar contract
which gives the purchaser, in return for a premium, the right to sell the
underlying security at a specified price during the term of the option. The
writer of the put, who receives the premium, has the obligation to buy the
underlying security upon exercise at the exercise price. The Fund will
generally write put options when its investment adviser desires to invest in
the underlying security. The premium paid by the purchaser of an option will
reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates.
A call option written by the Fund is "covered" if the Fund owns the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
B-3
<PAGE>
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 segregated in cash
or other liquid unencumbered assets, marked-to-market daily. A put option
written by the Fund is "covered" if the Fund segregates cash, U.S. Government
securities or other liquid unencumbered assets, marked-to-market daily, with a
value equal to the exercise price, or else holds on a share-for-share basis a
put on the same security as the put written if 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, where the Fund
writes the option, the cost of the closing transaction is less than the
premium received from writing the option or, where the Fund purchases an
option, if the proceeds from the closing transaction are more than the premium
paid to purchase the option. The Fund will realize a loss from a closing
transaction in the first case if the price of the transaction is more than the
premium received from writing the option and, in the second case, if the
proceeds from the closing transaction are 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, listed on NASDAQ or traded in
the over-the-counter markets. Options on securities indices are similar to
options on securities except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount
of cash if the closing level of the securities index upon which the option is
based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to such
difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple (the multiplier).
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. All settlements on options on indices are in
cash, and gain or loss depends on price movements in the securities market
generally (or in a particular industry or segment of the market) rather than
price movements in individual securities.
B-4
<PAGE>
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 are cleared by clearinghouses whose
facilities are considered to be adequate to handle the volume of options
transactions.
B-5
<PAGE>
RISKS OF OPTIONS ON INDICES
The Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that
are not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, the Fund would not be able
to close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the Fund's policy to
purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities
in the index.
SPECIAL RISKS OF WRITING CALLS ON INDICES. Because exercises of index
options are settled in cash, a call writer such as the Fund cannot determine
the amount of its settlement obligations in advance and, unlike call writing
on specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described below under "Limitations on Purchase and Sale of Stock
Options and Options on Stock Indices, Foreign Currencies and Futures Contracts
on Foreign Currencies."
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on
the call which is not completely offset by movements in the price of the
Fund's portfolio. It is also possible that the index may rise when the Fund's
portfolio of stocks does not rise. If this occurred, the Fund would experience
a loss on the call which is not offset by an increase in the value of its
portfolio and might also experience a loss in its portfolio. However, because
the value of a diversified portfolio will, over time, tend to move in the same
direction as the market, movements in the value of the Fund in the opposite
direction as the market would be likely to occur for only a short period or to
a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be
settled within hours after receiving the notice of exercise, if the Fund fails
to anticipate an exercise, it may have to borrow from a bank (in amounts not
exceeding 33 1/3% of the Fund's total assets) pending settlement of the sale
of securities in its portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise,
and the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the price of such investments might decline before they can be sold.
This timing risk makes certain strategies involving more than one option
substantially more risky with index options than with stock options. For
example, even if an index call which the Fund has written is "covered" by an
index call held by the Fund with the same strike price, the Fund will bear the
risk that the level of the index
B-6
<PAGE>
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 other liquid, unencumbered assets, market-
to-market daily, 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 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.
B-7
<PAGE>
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, 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
B-8
<PAGE>
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.
B-9
<PAGE>
LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS AND OPTIONS ON STOCK
INDICES, FOREIGN CURRENCIES AND FUTURES CONTRACTS ON FOREIGN CURRENCIES
The Fund may write put and call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. The Fund will write put options on stock indices and foreign
currencies and futures contracts on foreign currencies only if they are
covered by segregating with the Fund's Custodian an amount of cash, U.S.
Government securities, or liquid assets equal to the aggregate exercise price
of the puts. The Fund 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, liquid securities, or a portfolio of
securities substantially replicating the movement of the index, in the
judgment of the Fund's investment adviser, with a market value at the time the
option is written of not less than 100% of the current index value times the
multiplier times the number of contracts.
If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," all of which
are stocks of issuers in such industry or market segment, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such stocks will
include stocks which represent at least 50% of the weighting of the industry
or market segment index and will represent at least 50% of the Fund's holdings
in that industry or market segment. No individual security will represent more
than 15% of the amount so segregated, pledged or escrowed in the case of
broadly-based stock market index options or 25% of such amount in the case of
industry or market segment index options. If at the close of business on any
day the market value of such qualified securities so segregated, escrowed or
pledged falls below 100% of the current index value times the multiplier times
the number of contracts, the Fund will so segregate, escrow or pledge an
amount in cash, or liquid securities equal in value to the difference. In
addition, when the Fund writes a call on an index which is in-the-money at the
time the call is written, the Fund will segregate with its Custodian or pledge
to the broker as collateral cash, U.S. Government securities or other high-
grade short-term debt obligations equal in value to the amount by which the
call is in-the-money times the multiplier times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may be applied to the
Fund's obligation to segregate additional amounts in the event that the market
value of the qualified securities falls below 100% of the current index value
times the multiplier times the number of contracts. A "qualified security" is
an equity security which is listed on a national securities exchange or listed
on NASDAQ against which the Fund has not written a stock call option and which
has not been hedged by the Fund by the sale of stock index futures. However,
if the Fund holds a call on the same index as the call written where the
exercise price of the call held is equal to or less than the exercise price of
the call written or greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, Treasury bills or other high-
grade short-term obligations in a segregated account with its Custodian, it
will not be subject to the requirements described in this paragraph.
The Fund may engage in futures contracts and options on futures transactions
as a hedge against changes, resulting from market or political conditions, in
the value of the currencies to which the Fund is subject or to which the Fund
expects to be subject in connection with future purchases. The Fund may engage
in such transactions when they are economically appropriate for the reduction
of risks inherent in the ongoing management of the Fund. The Fund may write
options on futures contracts to realize through the receipt of premium income
a greater return than would be realized in the Fund's portfolio securities
alone.
B-10
<PAGE>
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 (which during periods of market
volatility could be for an extended period of time), 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 unencumbered assets, marked to market
daily, 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 for the purpose of hedging for a
limited period of time certain long positions maintained by the Fund. In
certain limited circumstances, a short sale against-the-box may be entered
into without triggering the recognition of gains of an appreciated financial
position in the security being sold short, but the short position must be
closed within 30 days of the close of the tax year of the Fund to avoid
recognition of gain for federal income tax purposes. As a matter of current
operating policy, the Fund will not engage in short-sales other than short-
sales against-the-box.
REPURCHASE AGREEMENTS
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with
parties meeting creditworthiness standards approved by the Fund's Board of
Directors. The Fund's investment adviser will monitor the creditworthiness of
such parties, under the general supervision of the Board of Directors. In the
event of a default or bankruptcy by a seller, the Fund will promptly seek to
liquidate the collateral. To the extent that the proceeds from any sale of
such collateral upon a default in the obligation to repurchase are less than
the repurchase price, the Fund will suffer a loss.
B-11
<PAGE>
The Fund may participate in a joint repurchase agreement account with other
investment companies managed by Prudential Mutual Fund Management LLC (PIFM 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 15% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market (either within or outside of the United
States) or legal or contractual restrictions on resale. Historically, illiquid
securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having a maturity
of longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
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
B-12
<PAGE>
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 200%. For the fiscal years ended April
30, 1998, April 30, 1997 and April 30, 1996, the Fund's portfolio turnover
rate was 50%, 31% and 65%, 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 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."
B-13
<PAGE>
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. 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.
6. 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.)
7. 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.
8. Make investments for the purpose of exercising control or management.
9. 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
B-14
<PAGE>
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.
10. 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.
11. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 30% of the Fund's total assets.
12. Purchase more than 10% of all outstanding voting securities of any one
issuer.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later
change in percentage resulting from changing total or net asset values will
not be considered a violation of such policy. However, in the event that the
Fund's asset coverage for borrowings falls below 300%, the Fund will take
prompt action to reduce its borrowings, as required by applicable law.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH
(1) FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- --------------------- ------------- --------------------------------------------
<S> <C> <C>
Edward D. Beach (73) Director President and Director of BMC Fund, Inc., a
closed-end investment company; previously,
Vice Chairman of Broyhill Furniture
Industries, Inc.; Certified Public Accountant;
Secretary and Treasurer of Broyhill Family
Foundation, Inc.; Member of the Board of
Trustees of Mars Hill College and Director of
The High Yield Income Fund, Inc.
Stephen C. Eyre (75) Director Executive Director (May 1985 through December
1997) of The John A. Hartford Foundation, Inc.
(charitable foundation); Director of Faircom,
Inc.; and Trustee Emeritus of Pace University.
Delayne Dedrick Gold Director Marketing and Management Consultant; Director of
(59) The High Yield Income Fund, Inc.
*Robert F. Gunia (51) Director Vice President of Prudential Investments (since
September 1997); Executive Vice President and
Treasurer (since December 1996) of Prudential
Investments Fund Management LLC (PIFM); Senior
Vice President (since March 1987) of
Prudential Securities Incorporated (Prudential
Securities); formerly Chief Administrative
Officer (July 1990-September 1996), Director
(January 1989-September 1996) and Executive
Vice President, Treasurer and Chief Financial
Officer (June 1987-September 1996) of
Prudential Mutual Fund Management, Inc. (PMF);
Vice President and Director (since May 1989)
of The Asia Pacific Fund, Inc.; Director of
The High Yield Income Fund, Inc.
Don G. Hoff (62) Director Chairman and Chief Executive Officer (since
1980) of Intertec, Inc. (Investments);
Chairman and Chief Executive Officer of The
Lamaur Corporation; Director of Innovative
Capital Management, Inc. and The Greater China
Fund, Inc.; and Chairman and Director of The
Asia Pacific Fund, Inc.
</TABLE>
B-15
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH
(1) FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------------------- ------------- --------------------------------------------
<S> <C> <C>
Robert E. LaBlanc (63) Director President (since 1981) of Robert E. LaBlanc
Associates, Inc. (telecommunications);
formerly General Partner at Salomon Brothers;
and Vice Chairman of Continental Telecom;
Director of Storage Technology Corporation,
Titan Corporation, Salient 3 Communications,
Inc. and Tribune Company; and Trustee of
Manhattan College.
*Mendel A. Melzer Director Chief Investment Officer (since October 1996) of
CFA, ChFC, CLU (37) Prudential Mutual Funds; formerly Chief
751 Broad Street Financial Officer (November 1995-September
Newark, NJ 07102 1996) of Prudential Investments; Senior Vice
President and Chief Financial Officer of
Prudential Preferred Financial Services (April
1993-November 1995); Managing Director of
Prudential Investment Advisors (April 1991-
April 1993); and Senior Vice President of
Prudential Capital Corporation (July 1989-
April 1991); Chairman and Director of
Prudential Series Fund, Inc.; and Director of
The High Yield Income Fund, Inc.
*Richard A. Redeker (54) President and Employee of Prudential Investments; formerly
751 Broad Street Director President, Chief Executive Officer and
Newark, NJ 07102 Director (October 1993-September 1996) of PMF;
Executive Vice President, Director and Member
of the Operating Committee (October 1993-
September 1996) of Prudential Securities,
Director (October 1993-September 1996) of
Prudential Securities Group, Inc. (PSG),
Executive Vice President of the Prudential
Investment Corporation (July 1994-September
1996), Director (January 1994-September 1996),
Prudential Mutual Fund Distributors, Inc. and
Prudential Mutual Fund Services, Inc. and
Senior Executive Vice President and Director
of Kemper Financial Services, Inc. (September
1978-September 1993); and President and
Director of The High Yield Income Fund, Inc.
Robin B. Smith (58) Director Chairman and Chief Executive Officer (since
August 1996) of Publishers Clearing House;
formerly President and Chief Executive Officer
(January 1989-August 1996) and President and
Chief Operating Officer (September 1981-
December 1988) of Publishers Clearing House;
Director of BellSouth Corporation, Texaco
Inc., Springs Industries Inc. and Kmart
Corporation.
Stephen Stoneburn (54) Director President and Chief Executive Officer (since
June 1996) of Quadrant Media Corp. (a
publishing company); formerly President (June
1995-June 1996); of Argus Integrated Media,
Inc.; Senior Vice President and Managing
Director, (January 1993-1995) Cowles Business
Media; Senior Vice President (January 1991-
1992) and Publishing Vice President (May 1989-
December 1990) of Gralla Publications (a
division of United Newspapers, U.K.); and
Senior Vice President of Fairchild
Publications, Inc.
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE
(1) POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------------------- ------------------ --------------------------------------------
<S> <C> <C>
Nancy H. Teeters (67) Director Economist; Director of Inland Steel Industries;
formerly, Vice President and Chief Economist
of International Business Machines; Member of
the Board of Governors of the Federal Reserve
System; Governor of the Horace H. Rackham
School of Graduate Studies of the University
of Michigan; Assistant Director of the
Committee on the Budget of the US House of
Representatives; Senior Fellow at the Library
of Congress; Senior Fellow at the Brookings
Institution; staff at Office of Management and
Budget, Council of Economics Advisors and the
Federal Reserve Board.
S. Jane Rose (52) Secretary Senior Vice President (since December 1996) of
PIFM; Senior Vice Presidnet and Senior Counsel
(since July 1992) of Prudential Securities;
formerly Senior Vice President (January 1991-
September 1996) and Senior Counsel (June 1987-
September 1996) of PMF.
Robert C. Rosselot (37) Assistant Secretary Assistant General Counsel (since September 1997)
of PIFM; formerly, partner with the firm of
Howard & Howard, Bloomfield Hills, Michigan
(December 1995-September 1997) and Corporate
Counsel, Federated Investors (1990-1995).
Grace C. Torres (38) Treasurer and First Vice President (since December 1996) of
Principal Financial PIFM; First Vice President (since March 1994)
and Accounting of Prudential Securities; formerly, First Vice
Officer President (March 1994-September 1996) of
Prudential Mutual Fund Management, Inc. and
Vice President (July 1989-March 1994) of
Bankers Trust.
Stephen M. Ungerman (44) Assistant Treasurer Vice President and Tax Director (since March
1996) of Prudential Investments; formerly
First Vice President of Prudential Mutual Fund
Management, Inc. (February 1993-March 1996).
</TABLE>
- --------
(1) Unless otherwise noted the address for each of the above persons is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
* "Interested" director, as defined in the Investment Company Act by reason of
their affiliation with Prudential Securities or PIFM.
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Investment Management Services LLC.
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," review such actions and decide on general policy.
Directors may receive their Directors' fees pursuant to a deferred fee
arrangement 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). The
Fund's obligation to make payments of deferred Directors' fees, together with
interest thereon is a general obligation of the Fund.
B-17
<PAGE>
The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Messrs. Beach
and Eyre are scheduled to retire on December 31, 1999 and December 31, 1998,
respectively.
Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the
fees and expenses of all Directors of the Fund who are affiliated persons of
the Manager. The Fund pays each of its Directors who is not an affiliated
person of PIFM or Prudential Investments (PI) annual compensation of $3,500,
in addition to certain out-of-pocket expenses. The amount of annual
compensation paid to each Director may change as a result of the introduction
of additional funds upon which the Director may be asked to serve.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended April 30, 1998 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 Investments Fund Management LLC. (Fund
Complex) for the calendar year ended December 31, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSIONS OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS (2)
- ----------------- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Edward D. Beach--
Director $3,500 None N/A $135,000(38/63)*
Stephen C. Eyre--
Director $3,500 None N/A $ 45,000(12/13)*
Delayne D. Gold--
Director $3,500 None N/A $135,000(38/63)*
Robert F. Gunia (1)--
Director -- None N/A --
Don G. Hoff--Director $3,500 None N/A $ 45,000(12/13)*
Robert F. LaBlanc--
Director $3,500 None N/A $ 45,000(12/13)*
Mendel A. Melzer (1)--
Director -- None N/A --
Richard A. Redeker (1)--
Director -- None N/A --
Robin B. Smith--Director -- None N/A $ 90,000(27/34)*
Stephen Stoneburn--
Director $3,500 None N/A $ 45,000(12/13)*
Nancy H. Teeters--
Director $3,500 None N/A $ 90,000(23/42)*
</TABLE>
- --------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
(1) Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are
interested Directors, do not receive compensation from the Fund or any
fund in the Fund Complex.
(2) Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1997, including amounts deferred at the
election of Directors under the funds' Deferred Compensation Plans.
Including accrued interest, total deferred compensation amounted to
$139,081 for Director Robin Smith. Currently, Ms. Smith has agreed to
defer some of her fees at the T-Bill rate and other fees at the Fed Fund
rate.
As of June 5, 1998, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund. As of that
date, the only beneficial owners of greater than 5% of the outstanding shares
of any class of shares of the
B-18
<PAGE>
Fund were Mr. Daniel J. Duane and Ms. Deborah L. Duane, TEN COM, 29 Maple
Ter., Millburn, NJ who held 21,901 Class Z shares (or approximately 9% of the
outstanding Class Z shares) and Pru Defined Contribution Svcs., FBO Pru-Non-
Trust Accounts, Attn: John Surdy, 30 Scranton Office Park, Moosic, PA which
held 44,994 Class Z shares (or approximately 19% of the outstanding Class Z
shares).
As of June 5, 1998, Prudential Securities was the record holder for other
beneficial owners of 2,001,379 Class A shares (approximately 66% of such
shares outstanding), 6,858,291 Class B shares (approximately 71% of such
shares outstanding), 541,301 Class C shares (approximately 89% of such shares
outstanding) and 196,403 Class Z shares (approximately 81%). 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 Investments Fund Management LLC (PIFM
or the Manager), formerly, Prudential Mutual Fund Management LLC, Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077. PIFM serves
as manager to all of the other investment companies that, together with the
Fund, comprise the Prudential Mutual Funds. See "How the Fund is Managed--
Manager" in the Prospectus. As of May 31, 1998, PIFM managed and/or
administered open-end and closed-end management investment companies with
assets of approximately $65 billion. According to the Investment Company
Institute, as of December 31, 1997, the Prudential Mutual Funds were the 18th
largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities. PMFS, a wholly-owned
subsidiary of PIFM, 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), PIFM, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities and
other assets. In connection therewith, PIFM is obligated to keep certain books
and records of the Fund. PIFM also administers the Fund's corporate affairs
and, in connection therewith, furnishes the Fund with office facilities,
together with those ordinary clerical and bookkeeping services which are not
being furnished by Brown Brothers Harriman & Co., the Fund's custodian (the
Custodian), and PMFS, the Fund's transfer and dividend disbursing agent. The
management services of PIFM for the Fund are not exclusive under the terms of
the Management Agreement and PIFM is free to, and does, render management
services to others.
For its services, PIFM receives, pursuant to the Management Agreement, a fee
at an annual rate of .75 of 1% of the Fund's average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that, in the event the expenses of the Fund (including the fees of PIFM, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statutes or regulations of any jurisdiction in which
the Fund's shares are qualified for offer and sale, the compensation due to
PIFM will be reduced by the amount of such excess. Reductions in excess of the
total compensation payable to PIFM will be paid by PIFM to the Fund.
In connection with its management of the corporate affairs of the Fund, PIFM
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Directors who are not affiliated persons of PIFM or
the Fund's investment adviser;
B-19
<PAGE>
(b) all expenses incurred by PIFM or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation,
doing business as Prudential Investments (PI), pursuant to the Subadvisory
Agreement between PIFM and PI (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 Commission, 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 PIFM will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically
if assigned, 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 May 13, 1998, and by the initial shareholder of the
Fund on July 7, 1994.
For the fiscal years ended April 30, 1998, April 30, 1997 and April 30, 1996
PIFM received management fees of $1,582,883, $1,401,970 and $1,329,043,
respectively (0.75% of the average net assets of the Fund).
PIFM has entered into the Subadvisory Agreement with PI, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PI will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PI is obligated to keep certain books and
records of the Fund. PIFM continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PI's
performance of such services. PI is reimbursed by PIFM for the reasonable
costs and expenses incurred by PI 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 May 13, 1998, and by the initial shareholder of the Fund on July 7,
1994.
B-20
<PAGE>
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PIFM or 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.
DISTRIBUTOR
Beginning July 1, 1998, Prudential Investment Management Services LLC (the
Distributor), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077, will act as the exclusive distributor of the Class A, Class B,
Class C and Class Z shares of the Fund. Prior to July 1, 1998, Prudential
Securities (also referred to as the Distributor) served as the distributor of
the Fund's shares.
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), the Distributor incurs
the expenses of distributing the Fund's Class A, Class B and Class C shares.
The Distributor also incurs the expenses of distributing the Fund's Class Z
shares under the Distribution Agreement, none of which are reimbursed by or
paid for by the Fund. See "How the Fund is Managed--Distributor" in the
Prospectus.
On May 13, 1998, 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, 1998, the Fund paid
distribution fees of $107,213 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, the Distributor received approximately $81,800 in initial sales
charges with respect to the sale of Class A shares.
Class B Plan. For the fiscal year ended April 30, 1998, the Distributor
received $1,474,915 from the Fund under the Class B Plan and spent
approximately $681,000 in distributing the Class B shares of the Fund. It is
estimated that of the latter amount, approximately $14,100 (2.1%) was spent on
printing and mailing of prospectuses to other than current shareholders,
$150,800 (22.1%) 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 $516,100 (75.8%) on the aggregate of (i) payment of commissions
and account servicing fees to financial advisers ($316,600 or 46.5%), and (ii)
an allocation on account of overhead and other branch office distribution-
related expenses ($199,500 or 29.3%). The term "overhead and other branch
office distribution-related expenses" represents (a) the expenses of operating
branch offices of Prusec and the Distributor 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.
B-21
<PAGE>
The Distributor 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, 1998, the
Distributor received approximately $335,600 in contingent deferred sales
charges attributable to the Class B shares.
Class C Plan. For the fiscal year ended April 30, 1998, the Distributor
received $85,261 from the Fund under the Class C Plan and spent approximately
$102,400 in distributing the Fund's Class C shares. It is estimated that of
the latter amount approximately $15,400 (15.0%) was spent on printing and
mailing of prospectuses to other than current shareholders; $900 (0.9%) 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 $86,100 (84.1%) on the aggregate of (i)
payments of commission and account servicing fees to financial advisors
$78,300 (76.5%) and (ii) an allocation of overhead and other branch office
distribution-related expenses $7,800 (7.6%). The term "overhead and other
branch office distribution-related expenses" represents (a) the expenses of
operating branch offices of Prusec and the Distributor in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefits
of operations and sales support personnel, utility costs, communications costs
and the costs of stationery and supplies, (b) the costs of client sales
seminars, (c) expenses of mutual fund sales coordinators to promote the sale
of Fund shares and (d) other incidental expenses relating to branch promotion
of Fund sales.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by holders of Class 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, 1998,
the Distributor received approximately $6,500 in contingent deferred sales
charges attributable to Class C shares.
The Plans 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 the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. In the case of
Class B shares, interest charges equal to the prime rate plus one percent per
annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not required to be included in the calculation
of the 6.25% limitation. The annual asset-based sales charge with respect to
Class B and Class C shares of the Fund may not exceed .75 of 1%. The 6.25%
limitation applies to the Fund rather than on a per shareholder basis. If
aggregate sales charges were to exceed 6.25% of total gross sales of any
class, all sales charges on shares of that class would be suspended.
B-22
<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 Commission.
This limitation, in the opinion of the Fund, will not significantly affect the
Fund's ability to pursue its present investment objective. However, in the
future in other circumstances, the Fund may be at a disadvantage because of
this limitation in comparison to other funds with similar objectives but not
subject to such limitations.
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 of orders among brokers and the commission rates paid are reviewed
periodically by the Fund's Board of Directors. The Fund will not pay for
research in principal transactions.
B-23
<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 years ended April 30, 1998, April 30, 1997 and April 30,
1996 the Fund paid brokerage commissions of $586,618, and $336,933 and
$538,259, 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 (NAV) 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 to a limited group of investors at net asset value without any sales
charge. 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 to a
limited group of investors. See "Distributor" and "Shareholder Investment
Account--Exchange Privilege."
B-24
<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 NAV. Using the Fund's NAV at
April 30, 1998, 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.................. $19.91
Maximum sales charge (5% of offering price)............................. 1.05
------
Offering price to public................................................ $20.96
======
CLASS B
Net asset value, redemption price and offering price to public per Class
B share*............................................................... $19.35
======
CLASS C
Net asset value, redemption price and offering price to public per Class
C share*............................................................... $19.38
======
CLASS Z
Net asset value and redemption price per Class Z share.................. $19.93
======
</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;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more 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).
B-25
<PAGE>
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 any retirement or group plans.
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. However, the value of shares
held directly with the Transfer Agent and through Prudential Securities will
not be aggregated to determine the reduced sales charge. All shares must be
held either directly with the Transfer Agent or through Prudential Securities.
The 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 group 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 NAV by entering into a Letter of
Intent 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 Letter 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 number of eligible employees or participants. In the event the
Letter of Intent goal 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.
B-26
<PAGE>
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.
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 A copy of the Social Security Administration
will be considered disabled award letter or a letter from a physician on
if he or she is unable to the physician's letterhead stating that the
engage in any substantial shareholder (or, in the case of a trust, the
gainful activity by reason grantor) is permanently disabled. The letter
of any medically determin- must also indicate the date of disability.
able physical or mental im-
pairment which can be ex-
pected to result in death
or to be of long-continued
and indefinite duration.
Distribution from an IRA or A copy of the distribution form from the
403(b) Custodial Account custodial firm indicating (i) the date of birth
of the shareholder and (ii) that the
shareholder is over age 59 1/2 and is taking a
normal distribution--signed by the shareholder.
Distribution from Retirement A letter signed by the plan
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.
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
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,
B-27
<PAGE>
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 the relative NAV next
determined after receipt of an order in proper form. An exchange will be
treated as a redemption and purchase for tax purposes. Shares may be exchanged
for shares of another fund only if shares of such fund may legally be sold
under applicable state laws. For retirement and group plans having a limited
menu of Prudential Mutual Funds, the Exchange Privilege is available for those
funds eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
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 (Short-Intermediate Term Series) and shares of the
money market funds specified below. No fee or sales load will be imposed upon
the exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire
Class A shares of the Prudential Mutual Funds participating in the Exchange
Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series) (Class A shares)
(U.S. Treasury Money Market Series) (Class A shares)
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, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, 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.
B-28
<PAGE>
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 other
Prudential Mutual Funds. No fee or sales load will be imposed upon the
exchange.
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 $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(/1/)
- --------
(/1/)Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition,
fees, room and board for the 1993-1994 academic year.
B-29
<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>
- --------
(/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.
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 the Distributor 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 NAV on
shares held under this plan. See "Shareholder Investment Account--Automatic
Reinvestment of Dividends and/or Distributions" above.
The Distributor 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.
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 are available
through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-
B-30
<PAGE>
direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, and the
administration, custodial fees and other details are available from Prudential
Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn (or, in the case of a Roth IRA, the avoidance
of federal income tax on such income). The following chart represents a
comparison of the earnings in a personal savings account with those in an IRA,
assuming a $2,000 annual contribution, an 8% rate of return and a 39.6%
federal income tax bracket and shows how much more retirement income can
accumulate within an IRA as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(/1/)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- -------- --------
<S> <C> <C>
10 years.......................... $ 26,165 $ 31,291
15 years.......................... 44,676 58,649
20 years.......................... 68,109 98,846
25 years.......................... 97,780 157,909
30 years.......................... 135,346 244,692
</TABLE>
- --------
(/1/)The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable
versus tax-deferred compounding for the periods and on the terms
indicated. Earnings in a traditional IRA account will be subject to tax
when withdrawn from the account. Distributions from a Roth IRA which meet
the conditions under the Internal Revenue Code will not be subject to tax
withdrawal from the account.
ISSUANCE OF FUND SHARES FOR SECURITIES. Transactions involving the issuance
of Fund shares for securities (rather than cash) will be limited to (i)
reorganizations, (ii) statutory mergers, or (iii) other acquisitions of
portfolio securities that: (a) meet the investment objective and policies of
the Fund, (b) are liquid and not subject to restrictions on resale, (c) have a
value that is readily ascertainable via listing on or trading in a recognized
United States or international exchange or market, and (d) are approved by the
Fund's investment adviser.
NET ASSET VALUE
Under the Investment Company Act, with respect to securities for which
market quotations are not readily available, 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,
or at the bid price on such day in the absence of an asked price 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 at a price provided by a broker-
dealer or independent pricing service. 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
B-31
<PAGE>
makers. 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. Quotations of foreign securities in a foreign currency are converted
to U.S. dollar equivalents at the current rate obtained from a recognized bank
or dealer and forward currency exchange contracts are valued at the current
cost of covering or offsetting such contracts. Should an extraordinary event,
which is likely to affect the value of the security, occur after the close of
an exchange on which a portfolio security is traded, such security will be
valued at fair value considering factors determined in good faith by the
investment adviser under procedures established by and under the general
supervision of the Fund's Board of Directors.
Securities or other assets for which 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
NAV at 4:15 P.M., New York time, on each day the New York Stock Exchange is
open for trading except on days on which no orders to purchase, sell or redeem
Fund shares have been received or days on which changes in the value of the
Fund's portfolio securities do not affect NAV. In the event the New York Stock
Exchange closes early on any business day, the NAV of the Fund's shares shall
be determined at a time between such closing and 4:15 P.M., New York time. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
NAV is calculated separately for each class. 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. The NAV of Class Z shares will generally be higher than the NAV of
Class A, Class B or Class C shares as a result of the fact that Class Z shares
are not subject to any distribution or service fee. It is expected, however,
that the NAV 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, DIVIDENDS AND DISTRIBUTIONS
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 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 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 (c) the Fund
distribute to its shareholders at least 90% of its net investment income
(including net short-term capital gains) other than net capital gains in each
year.
B-32
<PAGE>
Gains or losses on sales of securities by the Fund will generally be treated
as long-term capital gains or losses if the securities have been held by it
for more than one year except in certain cases where the Fund acquires a put
or writes a call thereon or, in certain cases, makes a short sale against-the-
box as described in "Investment Objectives and Policies." 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 as defined
in the Prospectus). If an option written by the Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund
of the option from its holder, the Fund will generally realize 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, straddle, constructive sale and conversion
transaction provisions of the Internal Revenue Code which may, among other
things, require the Fund to recognize gain or defer losses. In addition, debt
securities acquired by the Fund may be subject to original issue discount
rules, which may cause the Fund to accrue income in advance of the receipt of
cash with respect to interest, and market discount rules, which may cause
gains to be treated as ordinary income.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. See "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, (i.e., 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.
Forward currency contracts, options and futures contracts entered into by
the Fund may create "straddles" for federal income tax purposes. 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.
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 taxable 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. The Fund may make a "mark-to-
market" election with respect to certain stock it holds of a PFIC and avoid
the foregoing tax and interest obligation. 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. Any loss will be recognized on PFIC
stock to the extent of previously reported mark-to-market gains.
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. Because the election to treat a PFIC as a qualified
electing fund cannot be made without the provision of certain information by
the PFIC, it is unlikely that the Fund will be able to make such an election.
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
B-33
<PAGE>
time the Fund actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or losses on
forward foreign currency exchange contracts or dispositions of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gain or loss. These gains,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable
income available to be distributed to its shareholders as ordinary income,
rather than increasing or decreasing the amount of the Fund's net capital
gain. If Section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary
dividend distributions, or distributions made before the losses were realized
would be recharacterized as a return of capital to shareholders, rather than
as an ordinary dividend, reducing each shareholder's basis in his or her Fund
shares.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during
the 12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from
the prior year or the twelve-month period ending on October 31 of such prior
year, respectively. To the extent it does not meet these distribution
requirements, the Fund will be subject to a nondeductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which the
Fund pays income tax is treated as distributed.
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by
the per share amount of the dividends. Furthermore, such dividends, although
in effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of the Fund, the investor should carefully consider
the impact of dividends, including capital gains distributions, which are
expected to be or have been announced.
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 fees 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, generally 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. 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-34
<PAGE>
If the Fund is liable for foreign income taxes, and if more than 50% of the
value of the Fund's assets at the end of the taxable year consist of
securities of foreign corporations, the Fund may elect to "pass through" to
the Fund's shareholders the amount of foreign income taxes paid by the Fund.
The Fund expects to meet the requirements 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. If the Fund made the election,
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, subject to various limitations, 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.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P (1 + T) to the nth power = ERV
Where:P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof).
Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.
B-35
<PAGE>
The average annual, total return for Class A shares for the one year, three
year, and for the period from July 13, 1994 (commencement of operations) to
April 30, 1998 was 37.7%, 23.4% and 19.0%, respectively. The average annual
total return for Class B shares for the one-year, three year, and for the
period from July 13, 1994 (commencement of operations) to April 30, 1998 was
38.4%, 23.8% and 19.3%, respectively. The average annual total return for
Class C shares for the one-year, three-year, and for the period from July 13,
1994 (commencement of operations) to April 30, 1998 was 42.6%, 24.5% and
19.7%, respectively. The average annual total return for Class Z shares for
the one-year period ended April 30, 1998 was 45.0% and for the period from
April 15, 1996 (commencement of operations) to April 30, 1998 was 31.2%.
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, three year, and from July 13,
1994 (commencement of investment operations) to April 30, 1998, for the Fund's
(i) Class A shares were 44.9%, 97.6% and 104.0%, respectively, (ii) Class B
shares were 43.4%, 92.6% and 97.5%, respectively, and (iii) Class C shares
were 43.6%, 92.8% and 97.7%, respectively. The aggregate total return for the
one year period ended and from April 15, 1996 (commencement of offering of
Class Z shares) to April 30, 1998 was 45.0% and 74.1%, respectively.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
YIELD. A Series may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B, Class C
and Class Z shares. This yield will be computed by dividing a Series' net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of the period. Yield is calculated
according to the following formula:
a -- b
YIELD = 2 [( ______ +1) to the 6th power - 1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
Yield fluctuates and an annualized yield quotation is not a representation
by a Series as to what an investment in such Series will actually yield for
any given period.
B-36
<PAGE>
From time to time, the performance of a Series 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/
A LOOK AT PERFORMANCE OVER THE LONG-TERM
AVERAGE ANNUAL RETURNS
1/1/26 - 12/31/97
[GRAPH APPEARS HERE]
COMMON STOCKS 11.0%
LONG-TERM GOV'T BONDS 5.2%
INFLATION 3.1%
/1/Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1997
Yearbook", (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). All rights reserved. Common stock returns are based on the
Standard & Poor's 500 Stock Index, a market-weighted, unmanaged index of 500
common stocks in a variety of industry sectors. It is a commonly used
indicator of broad stock price movements. This chart is for illustrative
purposes only, and is not intended to represent the performance of any
particular investment or fund. Investors cannot invest directly in an index.
Past performance is not a guarantee of future results.
B-37
<PAGE>
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109,
serves as Custodian for the Fund's portfolio securities and cash and in that
capacity maintains certain financial and accounting books and records pursuant
to an agreement with the Fund. Subcustodians provide custodial services for
the Fund's foreign assets held outside the United States. See "How the Fund is
Managed--Custodian and Transfer and Dividend Disbursing Agent" in the
Prospectus.
Prudential Mutual Fund Services LLC (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 PIFM. PMFS provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, 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, 1998 the Fund incurred
fees of approximately $243,300 for such services.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
serves as the Fund's independent accountants and in that capacity have audited
the Fund's financial statements for the fiscal year ended April 30, 1998.
B-38
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF APRIL 30, 1998
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--96.2%
COMMON STOCKS--92.9%
- ---------------------------------------------------------------
BELGIUM--2.9%
8,963 Barco Industries NV (Electrical &
electronics) $ 2,371,201
8,500 Kredietbank NV (Banking) 4,789,988
------------
7,161,189
- ---------------------------------------------------------------
DENMARK--0.2%
28,793 Holm, (Jacob) & Sons AS(a) (Textiles
& apparel manufacturing) 403,803
- ---------------------------------------------------------------
FEDERAL REPUBLIC OF GERMANY--6.8%
9,867 Deutsche Pfandbrief Hypothekenbank
AG (Banking) 761,326
6,020 Linde AG (Machinery & engineering) 4,155,309
16,600 SAP AG (Computer products &
services) 7,860,724
5,848 Schwarz Pharma AG (Medical
products) 471,750
2,889 SGL Carbon AG (Chemicals) 304,351
3,984 Volkswagen AG (Automobiles & auto
parts) 3,171,664
------------
16,725,124
- ---------------------------------------------------------------
FINLAND--2.4%
86,800 Nokia Corp. (Telecommunication
equipment) 5,812,658
- ---------------------------------------------------------------
FRANCE--11.4%
3,500 Carrefour SA (Retail) 2,003,573
8,959 Ciments Francais (Building
products) 521,045
4,297 Compagnie Francaise d'Etudes et de
Construction Technip
(Construction) 545,515
35,127 Dollfus-Mieg & Cie SA(a) (Textiles
& apparel manufacturing) 1,040,151
365 Galeries Lafayette (Retail) 320,239
2,268 GFI Industries SA (Manufacturing) 565,304
- ---------------------------------------------------------------
</TABLE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
1,145 Le Carbone-Lorraine (Electrical &
electronics) $ 468,997
18,600 Legrand SA (Electrical &
electronics) 4,914,257
961 L'Europeenne d'Extincteurs
(Manufacturing) 80,323
8,100 Rexel SA (Electrical & electronics) 3,250,499
14,850 Seb SA (Appliances & household
durables) 2,319,541
29,685 Sidel SA (Machinery & engineering) 2,269,043
33,391 Societe Generale d'Entreprises
SA(a) (Construction) 1,301,128
19,900 Total SA (Oil production &
services) 2,364,324
57,100 Valeo SA (Automobiles & auto parts) 5,673,945
4,558 Vallourec SA (Manufacturing) 384,756
------------
28,022,640
- ---------------------------------------------------------------
IRELAND--0.5%
46,613 Adare Printing Group PLC (Printing) 680,306
97,514 Anglo Irish Bank Corp. PLC
(Banking) 260,007
29,272 DCC PLC (Diversified operations) 267,011
------------
1,207,324
- ---------------------------------------------------------------
ITALY--7.1%
24,215 Autogrill SpA (Restaurants) 167,495
21,257 Banca Popolare di Bergamo Credito
Varesino SpA (Banking) 515,867
118,622 Banca Popolare di Milano (Banking) 1,091,576
61,319 Bulgari SpA(a) (Retail) 374,101
1,300,000 Credito Italiano SpA (Banking) 6,830,631
703,000 Istituto Nazionale delle
Assicurazioni (Insurance) 2,100,821
17,911 Mediolanum SpA (Financial services) 536,762
160,941 Pirelli SpA (Manufacturing) 531,362
927,900 Telecom Italia Mobile SpA(a)
(Telecommunication services) 5,289,204
------------
17,437,819
- ---------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
B-39
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF APRIL 30, 1998
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
NETHERLANDS--5.2%
12,490 DOCdata NV(a) (Manufacturing) $ 378,174
17,064 Getronics NV (Computer products &
services) 754,738
45,300 Hagemeyer NV (Wholesale &
international trading) 2,162,735
11,750 Heineken NV (Beverages) 2,724,069
15,932 Internatio-Muller NV (Diversified
operations) 551,755
5,939 Koninklijke BAM Groep NV
(Construction) 499,505
66,375 Koninklijke Numico NV (Food
products & services) 2,216,594
41,600 Royal Dutch Petroleum Co. (Oil
production & services) 2,294,807
27,589 Royal Volker Wessels Stevin NV
(Construction) 918,605
9,670 Twentsche Kabel Holding NV
(Diversified operations) 369,814
------------
12,870,796
- ---------------------------------------------------------------
NORWAY--2.9%
143,572 Agresso Group ASA(a) (Computer
products & services) 615,857
50,431 ASK ASA(a) (Computer products &
services) 513,773
32,030 Det Sondenfjelds-Norske
Dampskibsselskab(a) (Oil
production & services) 790,014
12,078 Seateam Technology ASA(a) (Oil
production & services) 291,426
58,279 Tandberg Television ASA(a)
(Telecommunication equipment) 769,499
126,975 Tomra System ASA (Waste management) 4,084,975
------------
7,065,544
- ---------------------------------------------------------------
PORTUGAL--0.2%
9,995 Portugal Telecom SA
(Telecommunication services) 537,075
- ---------------------------------------------------------------
</TABLE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
SPAIN--8.1%
206,196 Banco Central Hispanoamericano
(Banking) $ 6,858,661
6,857 Banco Pastor SA (Banking) 782,321
12,228 Bodegas y Bebidas SA (Beverages) 568,791
4,951 Grupo Acciona SA (Construction) 1,113,811
3,888 Miquel y Costas & Miquel SA
(Forest products & paper) 202,279
33,525 Tele Pizza SA (Restaurants) 4,816,860
134,181 Telefonica de Espana
(Telecommunication services) 5,598,855
------------
19,941,578
- ---------------------------------------------------------------
SWEDEN--3.6%
112,800 Astra AB (Healthcare) 2,243,289
28,400 Enator AB (Computer products &
services) 814,192
104,200 Hennes & Mauritz AB (Retail) 5,422,856
10,921 NetCom Systems AB(a)
(Telecommunication services) 370,914
------------
8,851,251
- ---------------------------------------------------------------
SWITZERLAND--8.3%
970 Ares-Serono Group (Medical
products) 1,390,055
11,300 Credit Suisse Group (Financial
services) 2,485,503
364 Gurit-Heberlein AG (Chemicals) 1,298,007
1,300 Julius Baer Holding AG (Banking) 3,587,283
1,441 Kardex AG (Electrical &
electronics) 456,225
5,866 Mikron Holding AG(a)
(Machinery & engineering) 1,466,207
1,150 Nestle SA (Food products &
services) 2,230,554
280 Phonak Holding AG (Medical
products) 246,351
2,133 PubliGroupe SA (Media) 554,469
250 Roche Holding AG (Medical products) 2,533,660
575 Sarna Kunststoff Holding AG
(Building products) 977,304
328 SIG Schweizerische
Industrie-Gesellschaft Holding
AG (Machinery & engineering) 272,841
</TABLE>
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-40
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF APRIL 30, 1998
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
SWITZERLAND (CONT'D.)
2,000 Valora Holding AG(a) (Restaurants) $ 522,562
3,800 Zurich Versicherungs-Gesellschaft
(Insurance) 2,315,004
------------
20,336,025
- ---------------------------------------------------------------
UNITED KINGDOM--31.0%
719,157 Aggregate Industries PLC (Building
products) 889,533
76,214 Alliance Unichem PLC (Medical
products) 522,306
72,436 Arriva PLC (Diversified operations) 510,944
280,200 Bank of Ireland (Banking) 5,718,606
203,408 Baird, (William) PLC (Textiles &
apparel manufacturing) 890,791
159,500 Barclays PLC (Banking) 4,598,923
68,488 Blacks Leisure Group PLC (Retail) 400,672
83,878 British-Borneo Petroleum Syndicate
PLC (Oil production & services) 487,202
246,100 British Sky Broadcasting Group PLC
(Media) 1,789,399
88,329 Cadcentre Group PLC (Computer
products & services) 375,010
145,930 Capita Group PLC (Computer products
& services) 1,231,806
396,400 Compass Group PLC (Food products &
services) 6,857,730
161,730 Datrontech Group PLC (Electronic
components & instruments) 324,398
95,451 David Brown Group PLC
(Manufacturing) 358,979
219,076 Dialog Corp. PLC(a) (Media) 649,979
218,900 Dixons Group PLC (Retail) 2,089,240
558,900 Electrocomponents PLC (Electronic
components & instruments) 5,432,381
151,325 Finelist Group PLC (Automobiles &
auto parts) 1,011,759
169,105 FirstGroup PLC (Transportation) 1,099,826
146,280 FKI PLC (Manufacturing) 503,684
179,148 GKN PLC (Automobiles & auto parts) 5,174,425
351,800 Hays PLC (Business & public
services) 5,980,303
122,686 Headlam Group PLC (Wholesale &
international trading) 771,575
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ----------------------------------------------------------------
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
- -----------------------------------------------------------------
<C> <S> <C>
163,629 Hewden Stuart PLC (Construction) $ 503,251
43,464 Inspec Group PLC (Chemicals) 212,502
76,482 Jarvis PLC (Construction) 848,216
234,915 Jarvis Hotels PLC (Hotels) 624,330
65,428 Johnson Matthey PLC (Electronic
components & instruments) 662,739
148,668 Johnston Press PLC (Media) 546,697
51,052 Lex Service PLC (Retail) 516,267
76,885 London Clubs International PLC
(Casinos) 264,737
83,957 Low & Bonar PLC (Manufacturing) 468,716
165,655 Mayflower Corp. (The) PLC
(Automobiles & auto parts) 670,080
55,000 Misys PLC (Computer products &
services) 2,643,059
791,416 Mowlem, (John) & Company PLC
(Construction) 1,481,594
96,160 Newsquest PLC(a) (Media) 483,802
179,319 Partco Group PLC (Automobiles &
auto parts) 893,201
109,500 Siebe PLC (Machinery & engineering) 2,477,923
171,103 Skillsgroup PLC (Computer products
& services) 780,776
156,400 SmithKline Beecham PLC (Medical
products) 1,863,943
584,200 Vodafone Group PLC
(Telecommunication services) 6,396,012
138,045 Westminster Health Care Holdings
PLC (Healthcare) 913,739
288,900 Whitbread PLC (Beverages) 4,988,319
31,824 WWP Group PLC (Media) 201,871
------------
76,111,245
- ---------------------------------------------------------------
UNITED STATES--2.3%
114,750 Baan Company NV(a) (Computer
products & services) 5,092,031
18,460 Dr. Solomon's Group PLC (ADR)(a)
(Computer products & services) 549,185
------------
5,641,216
Total commom stocks
(cost $140,257,468) 228,125,287
------------
</TABLE>
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-41
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF APRIL 30, 1998
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
PREFERRED STOCKS--3.3%
- ---------------------------------------------------------------
FEDERAL REPUBLIC OF GERMANY--3.1%
2,368 Fresenius AG (Medical products) $ 567,924
7,275 Henkel KGaA (Chemicals) 567,409
148 Hugo Boss AG (Textiles & apparel
manufacturing) 275,181
2,501 KSB AG (Manufacturing) 835,989
889 Porsche AG (Automobiles & auto
parts) 2,223,738
3,275 Wella AG (Cosmetics & toiletries) 2,983,078
------------
7,453,319
- ---------------------------------------------------------------
NETHERLANDS--0.2%
11,400 Ballast Nedam NV (Construction) 538,625
------------
Total preferred stocks
(cost $6,038,433) 7,991,944
------------
Total long-term investments
(cost $146,295,901) 236,117,231
------------
PRINCIPAL
AMOUNT
(000)
SHORT-TERM INVESTMENTS--2.9%
- ---------------------------------------------------------------
REPURCHASE AGREEMENT--2.9%
$7,146 Bear Stearns & Co. Inc.,
5.51%, dated 4/30/98, due 5/1/98
in the amount of $7,147,094
(cost $7,146,000; the value of
the collateral including accrued
interest is $7,395,492) 7,146,000
------------
- ---------------------------------------------------------------
TOTAL INVESTMENTS--99.1%
(cost $153,441,901; Note 4) 243,263,231
Other assets in excess of
liabilities--0.9% 2,313,096
------------
Net Assets--100% $245,576,327
============
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
PRUDENTIAL EUROPE GROWTH FUND, INC.
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of April 30, 1998 was as
follows:
Banking............................................... 14.6%
Computer Products & Services.......................... 8.7
Telecommunication Services............................ 8.2
Automobiles & Auto Parts.............................. 7.7
Electrical & Electronics.............................. 4.7
Retail................................................ 4.6
Food Products & Services.............................. 4.6
Machinery & Engineering............................... 4.3
Construction.......................................... 3.5
Beverages............................................. 3.3
Medical Products...................................... 3.1
Telecommunication Equipment........................... 2.7
Electronic Components & Instruments................... 2.6
Oil Production & Services............................. 2.5
Business & Public Services............................ 2.4
Restaurants........................................... 2.3
Insurance............................................. 1.8
Waste Management...................................... 1.7
Media................................................. 1.7
Manufacturing......................................... 1.6
Cosmetics & Toiletries................................ 1.2
Financial Services.................................... 1.2
Wholesale & International Trading..................... 1.2
Building Products..................................... 1.0
Miscellaneous......................................... 5.0
Other assets in excess of liabilities
(including Joint Repurchase Agreement).............. 3.8
-----
100.0%
=====
- -------------------------------------------------------------
See Notes to Financial Statements.
B-42
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS APRIL 30, 1998
<S> <C>
Investments, at value (cost $153,441,901)................................................................... $ 243,263,231
Foreign currency, at value (cost $1,807,415)................................................................ 1,799,620
Cash........................................................................................................ 142,548
Receivable for foreign currency sold........................................................................ 4,573,790
Receivable for investments sold............................................................................. 1,222,722
Receivable for Fund shares sold............................................................................. 3,071,227
Dividends and interest receivable........................................................................... 599,382
Other assets................................................................................................ 675
--------------
Total assets............................................................................................. 254,673,195
--------------
LIABILITIES
Payable for foreign currency purchased...................................................................... 5,708,164
Payable for Fund shares reacquired.......................................................................... 2,153,749
Payable for investments purchased........................................................................... 698,754
Accrued expenses............................................................................................ 228,781
Distribution fee payable.................................................................................... 159,878
Management fee payable...................................................................................... 147,542
--------------
Total liabilities........................................................................................ 9,096,868
--------------
NET ASSETS.................................................................................................. $ 245,576,327
==============
Net assets were comprised of:
Common stock, at par..................................................................................... $ 12,605
Paid-in capital in excess of par......................................................................... 135,216,092
--------------
135,228,697
Distributions in excess of net investment income......................................................... (2,136,884)
Accumulated net realized gain on investments and foreign currency transactions........................... 22,662,552
Net unrealized appreciation on investments and foreign currencies........................................ 89,821,962
--------------
Net Assets, April 30, 1998.................................................................................. $ 245,576,327
==============
Class A:
Net asset value and redemption price per share
($55,507,359 / 2,787,849 shares of common stock issued and outstanding)............................... $19.91
Maximum sales charge (5% of offering price).............................................................. 1.05
--------------
Maximum offering price to public......................................................................... $20.96
==============
Class B:
Net asset value, offering price and redemption price per share
($175,857,043 / 9,088,546 shares of common stock issued and outstanding).............................. $19.35
==============
Class C:
Net asset value, offering price and redemption price per share
($11,121,710 / 573,859 shares of common stock issued and outstanding)................................. $19.38
==============
Class Z:
Net asset value, offering price and redemption price per share
($3,090,215 / 155,070 shares of common stock issued and outstanding).................................. $19.93
==============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
B-43
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF OPERATIONS
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
NET INVESTMENT INCOME April 30, 1998
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $311,014)..................... $ 2,780,854
Interest.................................. 268,941
--------------
Total income........................... 3,049,795
--------------
Expenses
Management fee............................ 1,582,883
Distribution fee--Class A................. 107,213
Distribution fee--Class B................. 1,474,915
Distribution fee--Class C................. 85,261
Transfer agent's fees and expenses........ 297,000
Custodian's fees and expenses............. 250,000
Reports to shareholders................... 104,000
Registration fees......................... 47,000
Audit fees and expenses................... 35,000
Directors' fees and expenses.............. 28,000
Amortization of organization expenses..... 26,678
Legal fees and expenses................... 15,000
Miscellaneous............................. 10,993
--------------
Total operating expenses............... 4,063,943
--------------
Net investment loss.......................... (1,014,148)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS
NET REALIZED GAIN (LOSS) ON:
Investment transactions................... 36,949,864
Foreign currency transactions............. (967,463)
--------------
35,982,401
--------------
Net change in unrealized appreciation on:
Investment transactions................... 43,514,496
Foreign currency transactions............. 149,579
--------------
43,664,075
--------------
Net gain on investments and foreign
currencies................................ 79,646,476
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................... $ 78,632,328
==============
</TABLE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) Year Ended April 30,
IN NET ASSETS 1998 1997
<S> <C> <C>
Operations
Net investment loss.......... $ (1,014,148) $ (149,582)
Net realized gain on
investment and foreign
currency transactions..... 35,982,401 15,600,006
Net change in unrealized
appreciation of
investments and foreign
currencies................ 43,664,075 14,880,202
------------- -------------
Net increase in net assets
resulting from
operations................ 78,632,328 30,330,626
------------- -------------
Dividends and distributions (Note 1):
Dividends in excess of net
investment income
Class A................... (321,821) --
Class B................... (81,896) --
Class C................... (4,853) --
Class Z................... (139,871) --
------------- -------------
(548,441) --
------------- -------------
Distributions from net
realized gains
Class A................... (4,137,694) (1,314,232)
Class B................... (14,741,276) (4,996,228)
Class C................... (873,579) (297,634)
Class Z................... (1,346,354) (382,973)
------------- -------------
(21,098,903) (6,991,067)
------------- -------------
Fund share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold...................... 432,031,984 563,381,129
Net asset value of shares
issued in reinvestment of
distributions............. 20,131,598 6,574,997
Cost of shares reacquired.... (461,615,189) (576,650,878)
------------- -------------
Net decrease in net assets
from Fund share
transactions.............. (9,451,607) (6,694,752)
------------- -------------
Total increase.................. 47,533,377 16,644,807
NET ASSETS
Beginning of year............... 198,042,950 181,398,143
------------- -------------
End of year..................... $ 245,576,327 $ 198,042,950
============= =============
</TABLE>
- ----------------------------------------------------------------
See Notes to Financial Statements.
B-44
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Prudential Europe Growth Fund, Inc. (the 'Fund') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is to seek long-term capital
growth by investing primarily in equity securities of companies domiciled in
Europe. The Fund was incorporated in Maryland on March 18, 1994 and commenced
investment operations on July 13, 1994.
- --------------------------------------------------------------------------------
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.
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 portfolio securities sold during
the fiscal period. Accordingly, such realized foreign currency gains (losses)
related to portfolio securities are included in the net realized gains on
investment transactions.
Net realized loss on foreign currency transactions of $967,463 represents net
foreign exchange gains or losses from the sale 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. Expenses are recorded on the accrual basis which may require
the use of certain estimates by management.
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.
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.
- --------------------------------------------------------------------------------
B-45
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
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 $177,000 of expenses were incurred
in connection with the organization of the Fund. These costs have been deferred
and have been fully amortized as of the fiscal year ended April 30, 1998.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants, 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 of applying
this statement was to decrease undistributed net investment income and increase
accumulated net realized gain on investments and foreign currency transactions
by $703,073 for the year ended April 30, 1998 due to realized and recognized
currency losses during the period. Net investment income, net realized gains and
net assets were not affected by this change.
- --------------------------------------------------------------------------------
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC, through an agreement with PRICOA Asset
Management Ltd. ('PRICOA'), furnishes investment advisory services in connection
with the management of the Fund. PIFM 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 PIFM 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 a distribution agreement with Prudential Securities Incorporated
('PSI') which acts as the distributor of the Class A, B, C and Z shares of the
Fund. The Fund compensates 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. No distribution or
service fees are paid to PSI as distributor of the Class Z shares of the Fund.
Effective July 1, 1998, Prudential Investment Management Services LLC will
become the distributor of the Fund and will serve the Fund under the same terms
and conditions as under the arrangement with PSI.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI with respect to
Class A, B and C 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 year ended April 30, 1998.
PSI has advised the Fund that it has received approximately $81,800 in front-end
sales charges resulting from sales of Class A shares during the year ended April
30, 1998. From these fees 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 year ended April 1998 it received
approximately $335,600 and $6,500 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders, respectively.
PSI, PIFM and PIC are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
'Funds'), has a credit agreement (the 'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of April 30,
1998. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro rata basis by the Funds. The Agreement expired on December
30, 1997 and has been extended through December 29, 1998 under the same terms.
- ------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended
- --------------------------------------------------------------------------------
B-46
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
April 30, 1998, the Fund incurred fees of approximately $243,300 for the
services of PMFS. As of April 30, 1998, approximately $21,900 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 nonaffiliates.
- --------------------------------------------------------------------------------
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the year ended April 30, 1998 were $99,882,501 and $132,624,827,
respectively.
The cost basis of investments for federal income tax purposes at April 30, 1998
was $158,343,416 and, accordingly, net unrealized appreciation for federal
income tax purposes was $84,919,815 (gross unrealized appreciation--$85,954,761;
gross unrealized depreciation--$1,034,946).
The Fund will elect, for United States Federal income tax purposes, to treat net
currency losses of approximately $393,168 incurred in the six month period ended
April 30, 1998 as having been incurred in the following fiscal year.
- --------------------------------------------------------------------------------
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 privilege 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 employee benefit plans qualified
under Section 401, 457 and 403(b)(7) of the Internal Revenue Code, and
nonqualified plans for which the Fund is an available option. 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 shares were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
- ----------------------------------- ----------- -------------
<S> <C> <C>
Year ended April 30, 1998:
Shares sold........................ 14,645,188 $ 246,604,700
Shares issued in reinvestment of
dividends and distributions...... 265,957 4,114,350
Shares reacquired.................. (14,809,778) (249,777,100)
----------- -------------
Net increase in shares outstanding
before conversion................ 101,367 941,950
Shares issued upon conversion from
Class B.......................... 176,364 3,035,236
----------- -------------
Net increase in shares
outstanding...................... 277,731 $ 3,977,186
=========== =============
Year ended April 30, 1997:
Shares sold........................ 23,351,661 $ 344,533,412
Shares issued in reinvestment of
distributions.................... 80,872 1,196,902
Shares reacquired.................. (24,625,496) (363,626,484)
----------- -------------
Net decrease in shares outstanding
before conversion................ (1,192,963) (17,896,170)
Shares issued upon conversion from
Class B.......................... 211,034 3,125,390
----------- -------------
Net decrease in shares
outstanding...................... (981,929) $ (14,770,780)
=========== =============
<CAPTION>
Class B
- -----------------------------------
Year ended April 30, 1998:
Shares sold........................ 6,961,562 $ 115,370,566
Shares issued in reinvestment of
dividends and distributions...... 909,680 13,708,874
Shares reacquired.................. (7,814,335) (128,395,833)
----------- -------------
Net increase in shares outstanding
before conversion................ 56,907 683,607
Shares issued upon conversion from
Class A.......................... (181,159) (3,035,236)
----------- -------------
Net decrease in shares
outstanding...................... (124,252) $ (2,351,629)
=========== =============
Year ended April 30, 1997:
Shares sold........................ 9,531,575 $ 140,295,556
Shares issued in reinvestment of
distributions.................... 324,391 4,710,146
Shares reacquired.................. (9,758,102) (143,749,550)
----------- -------------
Net increase in shares outstanding
before conversion................ 97,864 1,256,152
Shares issued upon conversion
from Class A..................... (214,885) (3,125,390)
----------- -------------
Net decrease in shares
outstanding...................... (117,021) $ (1,869,238)
=========== =============
</TABLE>
- ----------------------------------------------------------------
B-47
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
- ------- ----------- -------------
<S> <C> <C>
Year ended April 30, 1998:
Shares sold........................ 3,938,227 $ 64,864,170
Shares issued in reinvestment of
dividends and distributions...... 54,970 829,494
Shares reacquired.................. (3,949,010) (64,988,945)
----------- -------------
Net increase in shares
outstanding...................... 44,187 $ 704,719
=========== =============
Year ended April 30, 1997:
Shares sold........................ 4,507,770 $ 66,198,312
Shares issued in reinvestment of
distributions.................... 19,502 283,176
Shares reacquired.................. (4,571,336) (67,391,048)
----------- -------------
Net decrease in shares
outstanding...................... (44,064) $ (909,560)
=========== =============
<CAPTION>
Class Z
- -------
Year ended April 30, 1998:
Shares sold........................ 282,034 $ 5,192,548
Shares issued in reinvestment of
dividends and distributions...... 95,720 1,478,880
Shares reacquired.................. (992,837) (18,453,311)
----------- -------------
Net decrease in shares
outstanding...................... (615,083) $ (11,781,883)
=========== =============
Year ended April 30, 1997:
Shares sold........................ 862,103 $ 12,353,849
Shares issued in reinvestment of
distributions.................... 25,963 384,773
Shares reacquired.................. (117,928) (1,883,796)
----------- -------------
Net increase in shares
outstanding...................... 770,138 $ 10,854,826
=========== =============
</TABLE>
- ----------------------------------------------------------------
B-48
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------------------------------------------------
Class A Class B
---------------------------------------------------- ---------------------
July 13, 1994(b)
Years Ended April 30, Through Years Ended April 30,
------------------------------- April 30, ---------------------
1998(c) 1997 1996(c) 1995(c) 1998(c) 1997
------- ------- ------- ---------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 15.46 $ 13.69 $ 11.77 $ 11.40 $ 15.12 $ 13.49
------- ------- ------- ------ -------- --------
Income from investment operations
Net investment income (loss)............ .01 .09 .06 .01 (.11) (.04)
Net realized and unrealized gain on
investment and foreign currency
transactions......................... 6.38 2.24 1.86 .36 6.15 2.23
------- ------- ------- ------ -------- --------
Total from investment operations..... 6.39 2.33 1.92 .37 6.04 2.19
------- ------- ------- ------ -------- --------
Less Distributions
Distributions in excess of net
investment income.................... (.14) -- -- -- (.01) --
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........ (1.80) (.56) -- -- (1.80) (.56)
------- ------- ------- ------ -------- --------
Total distributions.................. (1.94) (.56) -- -- (1.81) (.56)
------- ------- ------- ------ -------- --------
Net asset value, end of period.......... $ 19.91 $ 15.46 $ 13.69 $ 11.77 $ 19.35 $ 15.12
------- ------- ------- ------ -------- --------
------- ------- ------- ------ -------- --------
TOTAL RETURN(d):........................ 44.93% 17.20% 16.31% 3.25% 43.35% 16.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $55,507 $38,807 $47,789 $ 41,963 $175,857 $139,277
Average net assets (000)................ $42,885 $37,834 $47,183 $ 29,598 $147,492 $133,135
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.39% 1.36% 1.53% 1.84%(a) 2.14% 2.11%
Expenses, excluding distribution
fees.............................. 1.14% 1.11% 1.28% 1.59%(a) 1.14% 1.11%
Net investment income (loss)......... .08% .57% .44% .06%(a) (.69)% (.27)%
For Class A, B, C and Z shares:
Portfolio turnover rate................. 50% 31% 65% 25%
<CAPTION>
July 13, 1994(b)
Through
April 30,
1996(c) 1995(c)
-------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 11.69 $ 11.40
-------- -------
Income from investment operations
Net investment income (loss)............ (.04) (.06)
Net realized and unrealized gain on
investment and foreign currency
transactions......................... 1.84 .35
-------- -------
Total from investment operations..... 1.80 .29
-------- -------
Less Distributions
Distributions in excess of net
investment income.................... -- --
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........ -- --
-------- -------
Total distributions.................. -- --
-------- -------
Net asset value, end of period.......... $ 13.49 $ 11.69
-------- -------
-------- -------
TOTAL RETURN(d):........................ 15.40% 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $125,868 $106,081
Average net assets (000)................ $122,255 $ 85,623
Ratios to average net assets:
Expenses, including distribution
fees.............................. 2.28% 2.59%(a)
Expenses, excluding distribution
fees.............................. 1.28% 1.59%(a)
Net investment income (loss)......... (.33)% (.71)%(a)
For Class A, B, C and Z shares:
Portfolio turnover rate.................
</TABLE>
- ---------------
(a) Annualized.
(b) Commencement of class operations.
(c) Based on average shares outstanding, by class.
(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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-49
<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
--------------------------------------------------- -------------------
July 13, 1994(b) Years Ended April
Years Ended April 30, Through 30,
------------------------------ April 30, -------------------
1998(c) 1997 1996(c) 1995(c) 1998(c) 1997
------- ------ ------- ---------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 15.12 13.49 $11.69 $11.40 $ 15.51 $ 13.68
------- ------ ------- ----- ------- -------
Income from investment operations
Net investment income (loss)............ (.11) (.04) (.04 ) (.06) .04 .02
Net realized and unrealized gain on
investment and foreign currency
transactions......................... 6.18 2.23 1.84 .35 6.37 2.37
------- ------ ------- ----- ------- -------
Total from investment operations..... 6.07 2.19 1.80 .29 6.41 2.39
------- ------ ------- ----- ------- -------
Less Distributions
Distributions in excess of net
investment income.................... (.01) -- -- -- (.19) --
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........ (1.80) (.56) -- -- (1.80) (.56)
------- ------ ------- ----- ------- -------
Total distributions.................. (1.81) (.56) -- -- (1.99) (.56)
------- ------ ------- ----- ------- -------
Net asset value, end of period.......... $ 19.38 $15.12 $13.49 $11.69 $ 19.93 $ 15.51
------- ------ ------- ----- ------- -------
------- ------ ------- ----- ------- -------
TOTAL RETURN(d):........................ 43.55% 16.41% 15.40% 2.54% 44.95% 17.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $11,122 $8,010 $7,741 $7,260 $ 3,090 $11,949
Average net assets (000)................ $ 8,526 $8,002 $7,768 $6,094 $12,148 $ 7,958
Ratios to average net assets:
Expenses, including distribution
fees.............................. 2.14% 2.11% 2.28% 2.59%(a) 1.14% 1.11%
Expenses, excluding distribution
fees.............................. 1.14% 1.11% 1.28% 1.59%(a) 1.14% 1.11%
Net investment income (loss)......... (.66)% (.25)% (.30)% (.71)%(a) .26% .22%
<CAPTION>
April 15, 1996(b)
Through
April 30,
1996(c)
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 13.40
-----
Income from investment operations
Net investment income (loss)............ .28
Net realized and unrealized gain on
investment and foreign currency
transactions......................... --
-----
Total from investment operations..... .28
-----
Less Distributions
Distributions in excess of net
investment income.................... --
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........ --
-----
Total distributions.................. --
-----
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)
</TABLE>
- ---------------
(a) Annualized.
(b) Commencement of class operations.
(c) Based on average shares outstanding, by class.
(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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-50
<PAGE>
REPORT OF INDEPENDANT ACCOUNTANTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Prudential Europe Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Europe Growth Fund, Inc.
(the 'Fund') at April 30, 1998, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for each of
the two years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as 'financial statements') are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at April 30, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for our opinion expressed above. The accompanying financial highlights for the
year ended April 30, 1996 and the period ended April 30, 1995 were audited by
other independent accountants, whose opinion dated June 13, 1996 was
unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
June 18, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-51
<PAGE>
APPENDIX I--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 performance of major world stock markets for the
period from December 31, 1985 through December 31, 1997. It does not represent
the performance of any Prudential Mutual Fund.
Average Annual total returns ended 12/31/97 (in U.S. dollars)
EDGAR REPRESENTATION OF DATA POINTS
USED IN PRINTED GRAPHIC
The Netherlands 20.5%
Sweden 20.4%
Spain 20.4%
Hong Kong 19.7%
Belgium 19.5%
Switzerland 17.9%
USA 17.1%
UK 16.6%
France 15.6%
Germany 12.1%
Austria 9.6%
Japan 6.6%
- --------
Source: Morgan Stanley Capital International (MSCI). The above chart
illustrates the performance of major world stock markets for the period ended
December 31, 1997. MSCI country indices are unmanaged indices which include
those stocks making up the largest two-thirds of each country's total stock
market capitalization. Returns reflect the reinvestment of gross dividends.
This chart is for illustrative purposes only and is not indicative of the
past, present or future performance of any specific investment, nor is it
indicative of the countries in which the Fund may invest. Investors cannot
invest directly in stock indicies.
I-1
<PAGE>
This chart shows the long-term performance of various asset classes and the
rate of inflation.
HISTORICAL PERFORMANCE DATA
EDGAR Representation of Chart
Value of $1.00 invested
on 1/1/26 through 12/31/97.
Small Stocks $5,519.97
Common Stocks $1,828.33
Long-Term Bonds $39.07
Treasury Bills $14.25
Inflation $9.02
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 following chart shows the historical total returns of U.S. Treasury
bonds, U.S. mortgage securities, U.S. corporate bonds, U.S. high yield bonds
and world government bonds on an annual basis from 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.
I-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
<TABLE>
<CAPTION>
YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS/1/ 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4% 2.7% 9.6%
U.S. GOVERNMENT
MORTGAGE
SECURITIES/2/ 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% -1.6% 16.8% 5.4% 9.5%
U.S. INVESTMENT
GRADE CORPORATE
BONDS/3/ 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3% 3.3% 10.2%
U.S. HIGH YIELD
CORPORATE BONDS/4/ 5.0% 12.5% 0.8% -9.6% 46.2% 15.8% 17.1% -1.0% 19.2% 11.4% 12.8%
WORLD GOVERNMENT
BONDS/5/ 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3%)
DIFFERENCE BETWEEN
HIGHEST AND LOWEST
RETURNS IN PERCENT 33.2% 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1
</TABLE>
- -------
/1/ Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one
year.
/2/ Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of
the Government National Mortgage 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.
I-3
<PAGE>
APPENDIX II--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns,
while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable
returns. Owning a portfolio of securities mitigates the individual risks (and
returns) of any one security. Additionally, diversification among types of
securities reduces the risks and (general returns) of any one type of
security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer-term bonds are generally more sensitive to
changes in interest rates. When interest rates fall, bond prices generally
rise. Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of
interest rate changes on the bond's (or the bond portfolio's) price. Duration
differs from effective maturity in that duration takes into account call
provisions, coupon rates and other factors. Duration measures interest rate
risk only and not other risks such as credit risk and, in the case of non-U.S.
dollar denominated securities, currency risk. Effective maturity measures the
final maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher may not work for many investors because it is
impossible to predict with certainty how the price of a security will
fluctuate. However, owning a security for a long period of time may help
investors offset short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth
of assets. The long-term investment results of compounding may be greater than
that of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential.
Standard deviation is only one of several measures of a fund's volatility.
II-1
<PAGE>
APPENDIX III--INFORMATION RELATING TO 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, 1997 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, 1996. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs almost 79,000
persons worldwide, and maintains a sales force of approximately 10,100 agents
and 6,500 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 nearly 40 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 25 million life insurance policies and group certificates in
force today with a face value of almost $1 trillion. Prudential has the
largest capital base ($12.3 billion) of any life insurance company in the
United States. The Prudential provides auto insurance for more than 1.5
million cars and insures more than 1.2 million homes.
Money Management. 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. As of December 31, 1997, Prudential had more than $370 billion in
assets under management. Prudential Investments, a business group of
Prudential, (of which Prudential Mutual Funds is a key part) manages over $211
billion in assets of institutions and individuals. In Pensions and
Investments, May 12, 1997, Prudential was ranked third in terms of total
assets under Management.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers
and agents across the United States./2/
Healthcare. Over two decades ago, Prudential introduced the first federally-
funded, for-profit HMO in the country. Today, approximately 4.9 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $4 billion in assets and serves nearly 1.5 million
customers across 50 states.
- --------
/1/ Prudential Investments a business group 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 Prudential Active Balanced Fund, a portfolio of
Prudential Index Series Fund, Mercator Assets Management LP, as the
subadviser to International Stock Series, a portfolio of Prudential World
Fund and the BlackRock Financial Management, Inc. There are multiple
subadvisers for The Target Portfolio Trust.
/2/ As of December 31, 1997.
III-1
<PAGE>
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of December 31, 1997, Prudential Investments Fund Management LLC is the
eighteenth 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.
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.
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
approximately 200 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.
- --------
/3/ As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
III-2
<PAGE>
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.
Prudential Mutual Fund global equity managers conduct 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 6,000 financial advisors. It offers to
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1997, assets held by Prudential Securities for
its clients approximated $235 billion.
During 1997, approximately 29,000 new customer accounts were opened each
month at Prudential Securities./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 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 ArchitectSM, 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.
Standard & Poor's rates Prudential Securities Incorporated BBB+, with a
"stable outlook."
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.
III-3
<PAGE>
/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.
III-4
<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, 1998.
Statement of Assets and Liabilities as of April 30, 1998.
Statement of Operations for the fiscal year ended April 30, 1998.
Statement of Changes in Net Assets for the fiscal years ended April
30, 1998 and through April 30, 1997.
Notes to Financial Statements.
Financial Highlights.
Independent Accountant's 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 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.
4. Instruments defining rights of shareholders, incorporated by
reference to Exhibit 4 to the 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.
(c) Sub-Investment Management Agreement between The Prudential
Investment Corporation and PRICOA Asset Management Limited.*
C-1
<PAGE>
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
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 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 on
June 30, 1995.
(d) Distribution Agreement between the Registrant and Prudential
Securities Incorporated (Class Z shares) incorporated by reference
to Exhibit No. 6(d) to the Registration Statement on Form N-1A (File
No. 33-53151) filed on March 7, 1996.
(e) Distribution Agreement between the Registrant and Prudential
Investments Management Services LLC.*
(f) Form of Selected Dealer Agreement, incorporated by reference to
Exhibit 6(f) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 33-53151) filed on June 23, 1994.
(g) Form of Dealer Agreement.*
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-
3151) filed on January 6, 1995.
10. (a) 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.
(b) Opinion of Sullivan & Cromwell, incorporated by reference to
Exhibit 10(b) to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A (File No. 33-53151) on Form N-1A filed on
July 2, 1997.
11. (a) 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) 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.
(d) Amended Distribution and Service Plan for Class A, B and C
shares.*
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.
C-2
<PAGE>
17. Financial Data Schedules.*
18. Rule 18f-3 Plan, incorporated by reference to Exhibit 18 to the
Registration Statement on Form N-1A (File No.33-53151) filed on
July 3, 1996.
- ----------
* Filed herewith
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of June 5, 1998, there were 6,537, 19,511, 951 and 334 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 Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (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, as amended (Securities Act) may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed
by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.
Section 9 of the Management Agreement (Exhibit 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 Investments Fund
Management, LLC (PIMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under
the agreements.
C-3
<PAGE>
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and 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 Sections 17(h) and 17(i)
of such Act remains in effect and is 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 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 Investments Fund Management LLC.
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 PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATION
---------------- ------------------ --------------------
<C> <C> <S>
Frank W. Giordano Executive Vice Executive Vice President, Secretary
President, and General Counsel, PIFM; Senior
Secretary and General Vice President, Prudential
Counsel Securities Incorporated (Prudential
Securities)
Robert F. Gunia Executive Vice President Vice President, Prudential
and Investments; Executive Vice
Treasurer President and Treasurer, PIFM;
Senior Vice President, Prudential
Securities
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATION
---------------- ------------------ --------------------
<C> <C> <S>
Neil A. McGuinness Executive Vice President Executive Vice President and
Director of Marketing, Prudential
Mutual Fund & Annuities PMF&A;
Executive Vice President PIFM
Brian Storms Chief Executive Officer President, PMF&A; Officer-In-
and Officer-In-Charge, Charge, President, Chief Executive
President, Chief Officer, and Chief Operating
Operating Officer Officer, PIFM
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A;
Executive Vice President PIFM
</TABLE>
(b) The Prudential Investment Corporation (PIC)
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 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 PIFM PRINCIPAL OCCUPATION
---------------- ------------------ --------------------
<C> <C> <S>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of
President and Chief Prudential Investments of The
Executive Officer and Prudential Insurance Company of
Director America (Prudential)
Jonathan M. Greene Senior Vice President President--Investment Management
and Director of Prudential Investments of
Prudential; Senior Vice
President and Director, PIC
John R. Strangfeld Vice President and President of Private Asset
Director Management Group of Prudential;
Senior Vice President,
Prudential; Vice President and
Director, PIC
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated
C-5
<PAGE>
Until July 1, 1998, Prudential Securities is distributor for Cash
Accumulation Trust, 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., The Prudential Investment Portfolios, Inc., The Target Portfolio Trust,
Prudential Balanced Fund, Prudential California Municipal Fund, Prudential
Distressed Securities Fund, Inc., Prudential Diversified Bond Fund, Inc.,
Prudential Index Series Fund, Prudential Emerging Growth Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Natural Resources Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential High Yield Fund Inc.,
Prudential International Bond Fund, Inc., Prudential High Yield Total Return
Fund, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential Mid-
Cap Value Fund, 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 Real Estate Securities Fund, Prudential Small-Cap Quantum
Fund, Inc., Prudential Small Company Value Fund, Inc., Prudential Structured
Maturity Fund, Inc., First Financial Fund, Inc., Prudential Utility Fund,
Inc., Prudential World Fund, Inc., The Global Total Return Fund, Inc., Global
Utility Fund, Inc., Prudential 20/20 Focus Fund and Nicholas-Applegate Fund,
Inc. (Nicholas-Applegate Growth Equity Fund). Beginning July 1, 1998,
Prudential Investment Management Services LLC will serve as exclusive
distributor to the foregoing funds. 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
Investment Management Services LLC is set forth below:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
- ---- ------------- -------------
<S> <C> <C>
E. Michael Caulfield.... President None
Mark R. Fetting......... Executive Vice President None
Jonathan M. Greene...... Executive Vice President None
Jean D. Hamilton........ Executive Vice President None
Ronald P. Joelson....... Executive Vice President None
Brian M. Storms......... Executive Vice President None
John R. Strangfeld...... Executive Vice President None
Mario A. Mosse.......... Senior Vice President and Chief Operating Officer None
Scott S. Wallner........ Vice President, Secretary and Chief Legal Officer None
Michael G. Williamson... Vice President, Comptroller and Chief Financial Officer None
C. Edward Chaplin....... Treasurer None
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
C-6
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All account, 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, Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102, and Prudential Mutual Fund Services, LLC, Raritan
Plaza One, Edison, New Jersey. Documents required by Rules 31a-
1(b)(4)(5),(6),(7),(9),(10) and (11) and 3la-1(d) and (f) will be kept at
Gateway Center Three, Newark, New Jersey 07102-4077 and the remaining
accounts, books and other documents required by such other pertinent
provisions of Section 31(a) and the Rules promulgated thereunder will be kept
by Brown Brothers Harriman & Co. and Prudential Mutual Fund Services LLC.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is Managed--
Manager" and "How the Fund is Managed--Distributor" in the Prospectus and the
captions "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-7
<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 Newark, and
State of New Jersey, on the 30th day of June, 1998.
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL EUROPE GROWTH FUND, INC.
/s/ Richard A. Redeker
By___________________________________
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.
SIGNATURES TITLE DATE
/s/ Edward D. Beach Director
- ------------------------------------- June 30, 1998
EDWARD D. BEACH
/s/ Stephen C. Eyre Director
- ------------------------------------- June 30, 1998
STEPHEN C. EYRE
/s/ Delayne D. Gold Director
- ------------------------------------- June 30, 1998
DELAYNE D. GOLD
/s/ Robert F. Gunia Director
- ------------------------------------- June 30, 1998
ROBERT F. GUNIA
/s/ Don G. Hoff Director
- ------------------------------------- June 30, 1998
DON G. HOFF
/s/ Robert E. LaBlanc Director
- ------------------------------------- June 30, 1998
ROBERT E. LABLANC
/s/ Mendel A. Melzer Director
- ------------------------------------- June 30, 1998
MENDEL A. MELZER
/s/ Richard A. Redeker President and
- ------------------------------------- Director June 30, 1998
RICHARD A. REDEKER
/s/ Robin B. Smith Director
- ------------------------------------- June 30, 1998
ROBIN B. SMITH
/s/ Stephen Stoneburn Director
- ------------------------------------- June 30, 1998
STEPHEN STONEBURN
/s/ Nancy H. Teeters Director
- ------------------------------------- June 30, 1998
NANCY H. TEETERS
/s/ Grace C. Torres Treasurer, Principal
- ------------------------------------- Financial and June 30, 1998
GRACE C. TORRES Accounting Officer
C-8
<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 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.
(c) Sub-Investment Management Agreement between The Prudential Investment
Corporation and PRICOA Asset Management Limited.*
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 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 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 on June 30, 1995.
(d) Distribution Agreement between the Registrant and Prudential Securities
Incorporated (Class Z shares) incorporated by reference to Exhibit 6(d) to
the Registration Statement on Form N-1A (File No. 33-53151) filed on March
7, 1996.
(e) Distribution Agreement between the Registrant and Prudential
Investments Management Services LLC.*
(f) Form of Selected Dealer Agreement, incorporated by reference to Exhibit
6(f) to Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A (File No. 33-53131) filed on June 23, 1994.
(g) Form of Dealer Agreement.*
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. (a) 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.
<PAGE>
(b) Opinion of Sullivan & Cromwell, incorporated by reference to Exhibit
10(b) to Post-Effective Amendment No. 5 to the Registration Statement on
Form N-1A (File No. 33-53151) filed on July 2, 1997.
11. (a) 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.
(d) Amended Distribution and Service Plan for Class A, B and C shares.*
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.*
18. Rule 18f-3 Plan, incorporated by reference to Exhibit 18 to the
Registration Statement on Form N-1A (File No. 33-53151) filed on July 3,
1996.
- ----------
* Filed herewith
<PAGE>
Exhibit 99.5(c)
A M E N D M E N T
-----------------
TO SUB-INVESTMENT MANAGEMENT AGREEMENT ("AGREEMENT")
BETWEEN THE PRUDENTIAL INVESTMENT CORPORATION
("INVESTMENT MANAGER")
AND
PRICOA ASSET MANAGEMENT LIMITED ("SUB-INVESTMENT MANAGER")
This Amendment to the Agreement dated September 30, 1997, is dated February
11, 1998, and effective as of January 1, 1998.
WHEREAS, the parties have agreed that the Sub-Investment Manager will
provide investment advisory services to the registered investment companies
established under the Investment Company Act of 1940, the investment companies
organized under the laws of the Grand Duchy of Luxembourg and the insurance
company general accounts, listed on Schedule A;
NOW THEREFORE, it is agreed as follows:
1. Section 12 of the Agreement is hereby amended to read as follows:
TERMINATION. Sub-Investment Manager may terminate this Agreement on 60
-----------
days' written notice to Investment Manager, with respect to managed
accounts and investment companies. Investment Manager may terminate Sub-
Investment Manager's appointment as an investment manager at any time upon
written notice which will take effect immediately upon receipt. With
respect to the registered investment companies, the agreement also (i) may
be terminated without the payment of any penalty, by the board of directors
of such registered investment company or by a vote of a majority of the
outstanding voting securities on not more than 60 days' written notice to
the Sub-Investment Manager; (ii) shall continue in effect for a period 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
requirements of the Investment Company Act of 1940; and (iii) shall
terminate automatically for a particular registered investment company upon
the termination of Investment Manager's Sub-Advisory Agreement for such
registered investment company. Termination of this Agreement will be
without prejudice to the completion of transactions already initiated and
accordingly, despite termination of this Agreement, Sub-Investment Manager
shall be entitled to:
a. settle or close out all transactions entered into or for which the order
was placed with a broker or which was otherwise initiated or agreed by
Sub-Investment Manager on Investment Manager's behalf hereunder, in good
faith before Sub-Investment Manager received notice of termination (or,
if later, the expiration of such notice); and
b. require Investment Manager to pay all outstanding fees and expenses
including those incurred pursuant to paragraph (a) above.
2. Section 13 of the Agreement is hereby amended to read as follows:
<PAGE>
NO ASSIGNMENT Sub-Investment Manager may not make on assignment (as that
-------------
term is defined in the Investment Advisers Act of 1940) of this Agreement
without the prior written consent of Investment Manager. This Agreement,
with respect to registered investment companies, shall not be assigned by
either party hereto and shall automatically terminate forthwith in the
event of such assignment (as that term is defined in the Investment Company
Act of 1940).
3. Schedules A and B to the Agreement are hereby amended and substituted by
the attached Schedules A and B, respectively:
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed as
of the date indicated above.
THE PRUDENTIAL INVESTMENT CORPORATION
BY: /s/ Jonathan M. Greene
-------------------------
NAME: Jonathan M. Greene
----------------------
TITLE: Senior Vice President
---------------------
PRICOA ASSET MANAGEMENT LIMITED
BY: /s/ Peter G. Spencer
-------------------------
NAME: Peter G. Spencer
-----------------------
TITLE: Director
----------------------
BY: /s/ Jean-Yves Chereau
-------------------------
NAME: Jean-Yves Chereau
-----------------------
TITLE: Director
----------------------
<PAGE>
SCHEDULE A (AMENDED)
---------------------
TO THE SUB-INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LIMITED
SCHEDULE OF REMUNERATION
<TABLE>
<CAPTION>
LIST OF FUNDS ANNUAL FEE
-------------- ----------
<S> <C>
BOND FUNDS
- -----------
Prudential International Bond Fund, Inc.
(formerly The Global Government Plus Fund, Inc.) Cost + 5% of cost
The Global Total Return Fund, Inc. Cost + 5% of cost
Prudential Intermediate Global Income Fund, Inc. Cost + 5% of cost
Prudential Global Limited Maturity Fund, Inc. Cost + 5% of cost
PRICOA Worldwide Investors Portfolio, Global Bond Fund 30 basis points
MONEY MARKET FUNDS
- ------------------
PRICOA Money Market Portfolio, Deutsche Mark Series 30 basis points
PRICOA Money Market Portfolio, Pound Sterling Series 0 basis points
EQUITY FUNDS Prudential General Account:
- ------------
-European Portion of the Small Cap Account Cost + 5% of cost
-European Small Cap Account Cost + 5% of cost
European Large Cap Account Cost + 5% of cost
-European Portion of the Global Small Cap Account Cost + 5% of cost
Prudential Group Trust Account (Pru Plan)
-European Portion of International Large Cap Account Cost + 5% of cost
-European Portion of International Small Cap Account Cost + 5% of cost
TOLI GLOBAL-Roche Retiree Welfare Investment Trust Cost + 5% of cost
Prudential Global Genesis Fund, Inc. Cost + 5% of cost
Prudential Europe Growth Fund, Inc. Cost + 5% of cost
</TABLE>
<PAGE>
PRICOA Worldwide Investors Portfolio,
European Growth Fund 55 basis points
- -------------------------------------------------------------------------------
1. The fee payable for each quarter is calculated at the above rates on the
average funds under management during the quarter.
2. Sub-Investment Manager will invoice Investment Manager at the end of each
quarter for actual fees due as calculated in accordance with 1 above and
invoices will be payable within 30 days of invoice date.
3. Investment Manager will undertake to use best endeavors to prepay each
quarter's estimated fees at the beginning of the relevant quarter (1 January,
1 April, 1 July, 1 October)
4. Fees are calculated pro-rata where funds are not managed for the full term
of a calendar quarter.
This amended schedule is deemed to be effective as of January 1, 1998.
FOR THE PRUDENTIAL INVESTMENT CORPORATION
By: /s/ Jonathan M. Greene
--------------------------------
Date: 27 May 1998
----------------------
FOR PRICOA ASSET MANAGEMENT LIMITED
Director: /s/ Peter G. Spencer Director: /s/ Jean-Yves Chereau
-------------------- -------------------------
Date: 19 May 1998 Date: 20/5/98
------------------------ ----------------------
<PAGE>
SCHEDULE B
----------
TO THE SUB-INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE PRUDENTIAL INVESTMENT CORPORATION AND
PRICOA ASSET MANAGEMENT LTD
INVESTMENT GUIDELINES FOR CLIENT ACCOUNTS
The investment guidelines for the following Prudential Mutual Funds are as set
out in each fund's statutory documentation:
PRUDENTIAL INTERNATIONAL BOND FUND, INC. (formerly, The Global Government Plus
- ----------------------------------------
Fund, Inc.)
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund attempts to achieve its
objective by investing at least 65% of its total assets in debt securities of
issuers located in at least three countries, excluding the United States (except
in periods of market weakness). The Fund invests in foreign debt securities
issued by foreign corporate issuers as well as securities issued or guaranteed
by foreign governments, semi-governmental entities, governmental agencies,
supranational entities and other governmental entities.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
THE GLOBAL TOTAL RETURN FUND, INC.
- ----------------------------------
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund attempts to achieve its
objective by investing, under normal circumstances, at least 65% of its total
assets in governmental (including supranational), semi-governmental or
government agency debt securities or in short-term bank debt securities or
deposits in the United States and in foreign countries denominated in US dollars
or in foreign currencies, including debt securities issued or guaranteed by the
US Government and foreign governments, their agencies, authorities or
instrumentalities. The remainder is generally invested in corporate debt
securities or longer term bank debt securities.
The Fund will invest primarily in investment grade securities or in non-rated
securities determined by the Fund's investment adviser to be of equivalent
quality. The Fund may invest up to 10% of its total assets in debt securities
rated below investment grade, with a minimum rating of B, by either S&P or
Moody's or by another NRSRO, or, if unrated, are deemed to be of equivalent
quality by the investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
- ------------------------------------------------
The Fund's objective is to seek to maximize total return, the components of
which are current income and capital appreciation. The Fund will attempt to
achieve its objective by investing primarily in obligations issued or guaranteed
by the US Government, its agencies, authorities or
<PAGE>
instrumentalities and in obligations issued or guaranteed by certain foreign
governments, quasi-governmental entities, governmental agencies, supranational
entities or any of their political subdivisions or instrumentalities. The Fund
will invest primarily in investment grade securities or in non-rated securities
determined by the Fund's investment adviser to be of equivalent quality. The
Fund may invest up to 10% of its total assets in debt securities rated below
investment grade, with a minimum rating of B, by either S&P or Moody's or by
another NRSRO, or if unrated, are deemed to be of equivalent quality by the
investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
- ---------------------------------------------
The Fund's investment objective is to maximize total return, the components of
which are current income and capital appreciation. The Fund seeks to achieve
its objective by investing primarily in a portfolio of investment grade debt
securities denominated in the US dollar and a range of foreign currencies. The
Fund will maintain a weighted average maturity of more than 2, but less than 5,
years with the maturity for any individual security generally not exceeding 10
years. The Fund may also invest up to 20% of its total assets in debt
securities rated below investment grade, with a minimum rating of B, by either
S&P or Moody's or by another NRSRO, or, if unrated, are deemed to be of
equivalent quality by the investment adviser.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
PRICOA WORLDWIDE INVESTORS PORTFOLIO, GLOBAL BOND FUND
- ------------------------------------------------------
The Fund's investment objective is to seek total return, the components of which
are current income and capital appreciation. The Fund seeks to achieve its
investment objective by investing primarily in investment grade bonds issued by
governments and corporations with varying maturities. It may also have limited
exposure to non-investment grade issues from emerging markets.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus as amended from time to time.
PRICOA WORLDWIDE INVESTORS PORTFOLIO, EUROPEAN GROWTH FUND
- ----------------------------------------------------------
The Fund's investment objective is long-term growth of capital through
investment in a portfolio of transferable equity and debt securities of
companies domiciled in Europe.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus amended from time to time.
PRICOA MONEY MARKET PORTFOLIO
- -----------------------------
The Fund's investment objective is to provide the highest level of current
income in each designated currency consistent with safety of principal. Each
Series seeks to achieve this objective by investing in a portfolio of high
quality money market instruments and short-term
<PAGE>
debt obligations having a maturity of one year or less denominated (1) in the
designated currency of the Series or (2) in US dollars (or other currencies) in
combination with forward currency exchange contracts to purchase matching
amounts of the designated currency.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's offering circular as amended from time to time.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
- ------------------------------------
The Fund's investment objective is long-term growth of capital. The Fund seeks
to achieve its investment objective by investing primarily in common stocks,
common stock equivalents (such as warrants and convertible debt securities) and
other equity securities (including preferred stocks) of smaller foreign and
domestic companies. Under normal circumstances, the Fund will invest 65% of its
total assets in such securities.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
PRUDENTIAL EUROPE GROWTH FUND, INC.
- -----------------------------------
The Fund's investment objective is to seek long-term growth of capital. The
Fund attempts 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.
The Fund's detailed investment policies and investment restrictions are set out
in the Fund's Prospectus and Statement of Additional Information as amended from
time to time.
The investment guidelines for the remaining funds are as follows:
PRUDENTIAL GENERAL ACCOUNT
- --------------------------
EUROPEAN PORTION OF THE SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to $1.5 billion. The majority
of investments to be in the stocks with market capitalization less than
$750 million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at
the time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during initial portfolio building.
<PAGE>
7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO). Foreign currency futures and options contracts can
only be employed to hedge underlying currency exposure (i.e., up to but not
more than 100% of underlying exposure to a foreign currency as measured by
the value of cash plus securities held in that foreign currency).
EUROPEAN SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to $1.5 billion. The majority
of investments to be in the stocks with market capitalization less than
$750 million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at
the time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO). Foreign currency futures and options contracts can
only be employed to hedge underlying currency exposure (i.e., up to but not
more than 100% of underlying exposure to a foreign currency as measured by
the value of cash plus securities held in that foreign currency).
EUROPEAN LARGE CAP ACCOUNT
- --------------------------
1. Investments will be composed primarily of publicly traded securities of
companies headquartered in European countries, the majority of which would
also be included in the MSCI European Index.
2. The portfolio will consist of no fewer than 25 securities, and no single
security will represent more than 10% of the portfolio at the time of
purchase.
3. The portfolio will not purchase more than 10% of the issued capital of any
one company.
4. Investments in cash and related instruments, except during the initial
portfolio building period, will not exceed 15% of the portfolio.
<PAGE>
5. The portfolio may use futures contracts, forward contracts, options and
derivatives related to the underlying stock or foreign exchange markets of
the countries in which they are invested, provided such instruments are
used in bona fide hedging transactions.
6. Additional policies and guidelines will be established by the Portfolio
Management Group.
EUROPEAN PORTION OF THE GLOBAL SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Investments will be targeted in securities of small capitalization
companies. (Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to $1.5 billion. The majority
of investments to be in the stocks with market capitalization less than
$750 million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at
the time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 25% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO). Foreign currency futures and options contracts can
only be employed to hedge underlying currency exposure (i.e., up to but not
more than 100% of underlying exposure to a foreign currency as measured by
the value of cash plus securities held in that foreign currency).
Prudential Group Trust Account (PRU PLAN)
- ------------------------------ ----------
EUROPEAN PORTION OF THE INTERNATIONAL LARGE CAP ACCOUNT
1. The investment objective will be long term capital appreciation through
investment in a broadly diversified portfolio from outside the United
States. The portfolio will be measured against the Morgan Stanley
International "EAFE" Index.
2. Investments will be composed primarily of securities publicly traded in
Europe.
3. Portfolio will be invested primarily (75%) in securities of large
capitalization companies (greater than $1.5 billion).
4. No more than 10% of the portfolio will be invested in any one company at
the time of purchase.
<PAGE>
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 15% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO).
EUROPEAN PORTION OF THE INTERNATIONAL SMALL CAP ACCOUNT
1. Investments will be composed primarily of securities publicly traded in
Europe.
2. Portfolio will be primarily (70%) in securities of small capitalization
companies.(Stocks which primarily make up the lowest 20 percent of the
total market capitalization of $30 million to $1.5 billion. The majority of
investments to be in the stocks with market capitalization less than $750
million.)
3. No more than 10% of the portfolio will be invested in stocks larger than
$1.5 billion and not represented in the Salomon Brothers Extended Market
Index ("EMI").
4. No more than 10% of the portfolio will be invested in any one company at
the time of purchase.
5. The portfolio will not purchase more than 10% of the issued capital of any
one company.
6. Investments in cash and related instruments will not exceed 15% of the
portfolio, except during initial portfolio building.
7. Currency hedging of underlying stock positions only (requires approval of
Global Equities CIO).
TOLI GLOBAL- ROCHE RETIREE WELFARE INVESTMENT TRUST (EUROPEAN PORTION OF THE
GLOBAL ACCOUNT)
1. Investment will be composed primarily of securities publicly traded
represented in the EMI as well as the stock exchanges of Mexico, Thailand,
Indonesia, Philippines, Taiwan, and South Korea, as well as options and
futures contracts related to those securities and convertible bonds of
small capitalization companies. No options, futures, or other derivatives
will add any leverage to the portfolio. Investment may also be made in
cash or in the equivalents of cash or in any commingled money market
account maintained by Prudential.
2. Investments will be targeted primarily (i.e. a minimum of 70% of the
invested portion of the portfolio) in securities of companies which meet
Global Equities definition of small capitalization companies. Throughout
the world, Global Equities uses the largest market cap of the stocks in
lowest 20% of the market capitalization, within the U. S. markets as its
upper capitalization limit (currently $1.5 billion), except in Japan where
Global Equities applies the 20% test separately due to currency
fluctuations. (In Japan, the upper limit is currently $1.5 billion). The
majority of investments to be in the stocks with
<PAGE>
market capitalization less than $750 million. Stocks which are included in
the portfolio not meeting the cap size definition should normally be ones
which are constituents of the EMI, except for Southeast Asia where larger
traded stocks may be used.
3. No more than 7% of any regional sub-portfolio will be invested in any one
company at the time of purchase; no more than 3% of the total global
portfolio will be so invested.
4. The portfolio will not purchase more than 10% of the issued capital of any
one company. The regional portfolios are generally kept diversified in 30
to 60 names. Industry weights are determined on a bottom up basis but
monitored at the portfolio level and may cut back to limit potential sector
risk.
5. Investments in cash and related instruments will not exceed 17% of the
portfolio, except during initial building.
6. Currency hedging will be allowed, although it is not anticipated that
Global Equities will employ an active currency overlay program. Any
currency hedging must be covered by an underlying cash/stock position.
7. Within the global portfolio, none of the four regions (Japan, Southeast
Asia, Europe, or North America) will be weighted at time of purchase (or
allocation shift) by more than 12% of the benchmark weight or less than 12%
of the benchmark weight. This 12% guideline will also apply to country
weights within each regional sub-portfolio.
GENERAL
- -------
SUBJECT TO THE INVESTMENT GUIDELINES FOR THE CLIENT ACCOUNTS DESCRIBED HEREIN OR
AS SUBSEQUENTLY NOTIFIED TO SUB-INVESTMENT MANAGER IN WRITING:
1. The Client Accounts may contain securities which are or were the subject of
a relevant offer or issue, whether at the time Sub-Investment Manager
acquires them on behalf of Investment Manager, within a period of 12 months
preceding that or otherwise. For the purpose of this paragraph, a
"relevant offer or issue" is an offer or issue of any securities (whether
or not those securities are to be listed on the London Stock Exchange or
any other recognized or designated investment exchange) which is or was
sponsored, underwritten, managed or arranged, or in connection with which
other services were provided, by Sub-Investment Manager or a connected
person.
2. Sub-Investment Manager may not commit Investment Manager to any obligation
to underwrite any issue or offer for sale of securities.
3. Sub-Investment Manager may, on behalf of Investment Manager, acquire or
dispose of units in a regulated collective investment scheme, whether or
not operated, managed or advised by Sub-Investment Manager or a connected
person.
4. Sub-Investment Manager may enter into repo or reverse repo transactions but
may not otherwise lend or borrow securities for any purpose.
<PAGE>
5. Sub-Investment Manager is authorized by Investment Manager to deal in
warrants, options (including traded options) futures or contracts for
differences on behalf of Investment Manager (provided they are investments
as defined herein). The limits on margins will vary as between the Client
Accounts as set out in Schedule B above and the Prospectuses and Statements
of Additional Information mentioned therein.
6. Where the requisite currency of settlement is not the Client Accounts
Currency Sub-Investment Manager shall be entitled to use spot or forward
foreign exchange contracts (and accordingly enter into them on Investment
Manager's behalf) to fund the acquisition of spot or forward investments or
dispose of sale proceeds in a foreign currency. Notwithstanding Sub-
Investment Manager's right to do this, Investment Manager accepts that if a
liability in one currency is matched by an asset in a different currency,
or if any investment acquired or sold hereunder is denominated or paid for
in a currency other than the Client Accounts Currency, a movement of
exchange rates may be unfavorable rather than favorable, on the gain or
loss otherwise experienced on the investment.
<PAGE>
EXHIBIT 99.6(e)
PRUDENTIAL EUROPE GROWTH FUND, INC.
Distribution Agreement
----------------------
Agreement made as of June 1, 1998, between Prudential Europe Growth
Fund, Inc. (the Fund), and Prudential Investment Management Services LLC, a
Delaware limited liability company (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
shares for sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or
series (all such shares being referred to herein as Shares) and the Fund
currently is authorized to offer Class A, Class B, Class C and Class Z Shares;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, the Fund has adopted a plan (or plans) of distribution
pursuant to Rule 12b-1 under the Investment Company Act with respect to certain
of its classes and/or series of Shares (the Plans) authorizing payments by the
Fund to the Distributor with respect to the distribution of such classes and/or
series of Shares and the maintenance of related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
------------------------------
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Shares of the Fund to sell Shares to the public on behalf
of the Fund and the Distributor hereby accepts such appointment and agrees to
act hereunder. The Fund hereby agrees during the term of this Agreement to sell
Shares of the Fund through the Distributor on the terms and conditions set forth
below.
<PAGE>
Section 2. Exclusive Nature of Duties
--------------------------
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of
the Fund shall not apply to Shares of the Fund issued in connection with the
merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions or
through the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from the Fund
--------------------------------
3.1 The Distributor shall have the right to buy from the Fund on
behalf of investors the Shares needed, but not more than the Shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Shares placed with the Distributor by investors or registered and qualified
securities dealers and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of the Fund
and delivered by the Distributor or selected dealers, as described in Section
6.4 hereof, to investors at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all
classes and/or series of its Shares at times when redemption is suspended
pursuant to the conditions in Section 4.3 hereof or at such other times as may
be determined by the Board. The Fund shall also have the right to suspend the
sale of any or all classes
2
<PAGE>
and/or series of its Shares if a banking moratorium shall have been declared by
federal or New Jersey authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund
----------------------------------------------
4.1 Any of the outstanding Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Declaration of Trust as amended from time to time, and in
accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
4.3 Redemption of any class and/or series of Shares or payment may be
suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
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 during any
other period when the Securities and Exchange Commission, by order, so permits.
3
<PAGE>
Section 5. Duties of the Fund
------------------
5.1 Subject to the possible suspension of the sale of Shares as
provided herein, the Fund agrees to sell its Shares so long as it has Shares of
the respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board and the shareholders, all necessary action to
fix the number of authorized Shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to notify such states as the
Distributor and the Fund may approve of its intention to sell any appropriate
number of its Shares; provided that the Fund shall not be required to amend its
Articles of Incorporation or By-Laws to comply with the laws of any state, to
maintain an office in any state, to change the terms of the offering of its
Shares in any state from the terms set forth in its Registration Statement, to
qualify as a foreign corporation in any state or to consent to service of
process in any state other than with respect to claims arising out of the
offering of its Shares. Any such notification may be withheld, terminated or
withdrawn by the Fund at any time in its discretion. As provided in Section 9
hereof, the expense of notification and maintenance of notification shall be
borne by the Fund. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the Fund
in connection with such notifications.
4
<PAGE>
Section 6. Duties of the Distributor
-------------------------
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Shares, but shall not be obligated to sell any specific number of
Shares. Sales of the Shares shall be on the terms described in the Prospectus.
The Distributor may enter into like arrangements with other investment
companies. The Distributor shall compensate the selected dealers as set forth
in the Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts
in all respects duly to conform with the requirements of all federal and state
laws relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of Securities Exchange Act Rule 10b-10 and the rules of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Shares only to such selected dealers as are
members in good standing of the NASD or are institutions exempt from
registration under applicable federal securities laws. Shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. Payments to the Distributor
---------------------------
7.1 With respect to classes and/or series of Shares which impose a
front-end sales charge, the Distributor shall receive and may retain any portion
of any front-end sales charge which is imposed on such sales and not reallocated
to selected dealers as set forth in the Prospectus, subject to the limitations
of Rule 2830 of the Conduct Rules of the NASD. Payment of these amounts to the
Distributor is not contingent upon the adoption or continuation of any
applicable Plans.
7.2 With respect to classes and/or series of Shares which impose a
contingent deferred sales charge, the Distributor shall receive and may retain
any contingent deferred sales charge which is imposed on such sales as set forth
in the Prospectus, subject to the limitations of Rule 2830 of the Conduct Rules
of the NASD. Payment of these amounts to the Distributor is not contingent upon
the adoption or
5
<PAGE>
continuation of any Plan.
Section 8. Payment of the Distributor under the Plan
-----------------------------------------
8.1 The Fund shall pay to the Distributor as compensation for
services under any Plans adopted by the Fund and this Agreement a distribution
and service fee with respect to the Fund's classes and/or series of Shares as
described in each of the Fund's respective Plans and this Agreement.
8.2 So long as a Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of the commissions and account servicing fees
with respect to the relevant class and/or series of Shares to be paid by the
Distributor to account executives of the Distributor and to broker-dealers,
financial institutions and investment advisers which have dealer agreements with
the Distributor. So long as a Plan (or any amendment thereto) is in effect, at
the request of the Board or any agent or representative of the Fund, the
Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities with respect to the relevant class and/or
series of Shares.
Section 9. Allocation of Expenses
----------------------
The Fund shall bear all costs and expenses of the continuous offering
of its Shares (except for those costs and expenses borne by the Distributor
pursuant to a Plan and subject to the requirements of Rule 12b-1 under the
Investment Company Act), including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and all amendments and supplements thereto, and preparing
and mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of making notice
filings for the Shares for sale, and, if necessary or advisable in connection
therewith, of qualifying the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5.4 hereof and the cost and expense payable to
each such state for continuing notification therein until the Fund decides to
discontinue such notification pursuant to Section 5.4 hereof. As set forth in
Section 8 above, the Fund shall also bear the expenses it assumes pursuant to
any Plan, so long as such Plan is in effect.
Section 10. Indemnification
---------------
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its
6
<PAGE>
officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, members or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
member or controlling person unless a court of competent jurisdiction shall
determine in a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of directors or directors who are neither
"interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and members and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or members, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office. The Fund agrees
promptly to notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issue and sale of any Shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any reasonable counsel fees incurred in connection therewith) which the
Fund, its officers and directors or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished by the Distributor to the Fund for use in the Registration
Statement or Prospectus or shall arise out of or be based upon any alleged
7
<PAGE>
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary to make
such information not misleading. The Distributor's agreement to indemnify the
Fund, its officers and directors and any such controlling person as aforesaid,
is expressly conditioned upon the Distributor's being promptly notified of any
action brought against the Fund, its officers and directors or any such
controlling person, such notification being given to the Distributor at its
principal business office.
Section 11. Duration and Termination of this Agreement
------------------------------------------
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of the Fund, or by the vote of a majority of the
outstanding voting securities of the applicable class and/or series of the Fund,
and (b) by the vote of a majority of those directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of any of the
Fund's Plans or in any agreement related thereto (Independent directors), cast
in person at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the independent directors or by vote of
a majority of the outstanding voting securities of the applicable class and/or
series of the Fund, or by the Distributor, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments to this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of the Fund, or by the vote of a majority
of the outstanding voting securities of the applicable class and/or series of
the Fund, and (b) by the vote of a majority of the independent directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. Separate Agreement as to Classes and/or Series
----------------------------------------------
The amendment or termination of this Agreement with respect to any
class and/or series shall not result in the amendment or termination of this
Agreement
8
<PAGE>
with respect to any other class and/or series unless explicitly so provided.
Section 14. Governing Law
-------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New Jersey as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New Jersey, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Investment Management Services LLC
By: /s/ Jonathan M. Greene
-------------------------------
Jonathan M. Greene
Executive Vice President
Prudential Europe Growth Fund, Inc.
By: /s/ Richard A. Redeker
-------------------------------
Richard A. Redeker
President
9
<PAGE>
Exhibit 99.6(g)
FORM OF
DEALER AGREEMENT
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
Prudential Investment Management Services LLC ("Distributor") and
_________________ ("Dealer") have agreed that Dealer will participate in the
distribution of shares ("Shares") of all the funds and series thereof (as they
may exist from time to time) comprising the Prudential Mutual Fund Family (each
a "Fund" and collectively the "Funds") and any classes thereof for which
Distributor now or in the future serves as principal underwriter and
distributor, subject to the terms of this Dealer Agreement ("Agreement"). Any
such additional Funds will be included in this Agreement upon Distributor's
written notification to Dealer.
1. LICENSING
---------
a. Dealer represents and warrants that it is: (i) a broker-dealer
registered with the Securities and Exchange Commission ("SEC"); (ii) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and (iii) licensed by the appropriate regulatory agency of each state or other
jurisdiction in which Dealer will offer and sell Shares of the Funds, to the
extent necessary to perform the duties and activities contemplated by this
Agreement.
b. Dealer represents and warrants that each of its partners, directors,
officers, employees, and agents who will be utilized by Dealer with respect to
its duties and activities under this Agreement is either appropriately licensed
or exempt from such licensing requirements by the appropriate regulatory agency
of each state or other jurisdiction in which Dealer will offer and sell Shares
of the Funds.
c. Dealer agrees that: (i) termination or suspension of its registration
with the SEC; (ii) termination or suspension of its membership with the NASD; or
(iii) termination or suspension of its license to do business by any state or
other jurisdiction or federal regulatory agency shall immediately cause the
termination of this Agreement. Dealer further agrees to immediately notify
Distributor in writing of any such action or event.
d. Dealer agrees that this Agreement is in all respects subject to the
Conduct Rules of the NASD and such Conduct Rules shall control any provision to
the contrary in this Agreement.
e. Dealer agrees to be bound by and to comply with all applicable state
and federal laws and all rules and regulations promulgated thereunder generally
affecting the sale or distribution of mutual fund shares.
2. ORDERS
------
a. Dealer agrees to offer and sell Shares of the Funds (including those of
each of its classes) only at the regular public offering price applicable to
such Shares and in effect at the time of each transaction. The procedures
relating to all orders and the handling of each order (including the manner of
computing the net asset value of Shares and the effective time of orders
A-1
<PAGE>
received from Dealer) are subject to: (i) the terms of the then current
prospectus and statement of additional information (including any supplements,
stickers or amendments thereto) relating to each Fund, as filed with the SEC
("Prospectus"); (ii) the new account application for each Fund, as supplemented
or amended from time to time; and (iii) Distributor's written instructions and
multiple class pricing procedures and guidelines, as provided to Dealer from
time to time. To the extent that the Prospectus contains provisions that are
inconsistent with this Agreement or any other document, the terms of the
Prospectus shall be controlling.
b. Distributor reserves the right at any time, and without notice to
Dealer, to suspend the sale of Shares or to withdraw or limit the offering of
Shares. Distributor reserves the unqualified right not to accept any specific
order for the purchase or sale of Shares.
c. In all offers and sales of the Shares to the public, Dealer is not
authorized to act as broker or agent for, or employee of, Distributor, any Fund
or any other dealer, and Dealer shall not in any manner represent to any third
party that Dealer has such authority or is acting in such capacity. Rather,
Dealer agrees that it is acting as principal for Dealer's own account or as
agent on behalf of Dealer's customers in all transactions in Shares, except as
provided in Section 3.i. hereof. Dealer acknowledges that it is solely
responsible for all suitability determinations with respect to sales of Shares
of the Funds to Dealer's customers and that Distributor has no responsibility
for the manner of Dealer's performance of, or for Dealer's acts or omissions in
connection with, the duties and activities Dealer provides under this Agreement.
d. All orders are subject to acceptance by Distributor in its sole
discretion and become effective only upon confirmation by Distributor.
e. Distributor agrees that it will accept from Dealer orders placed
through a remote terminal or otherwise electronically transmitted via the
National Securities Clearing Corporation ("NSCC") Fund/Serv Networking program,
provided, however, that appropriate documentation thereof and agreements
relating thereto are executed by both parties to this Agreement, including in
particular the standard NSCC Networking Agreement and any other related
agreements between Distributor and Dealer deemed appropriate by Distributor, and
that all accounts opened or maintained pursuant to that program will be governed
by applicable NSCC rules and procedures. Both parties further agree that, if
the NSCC Fund/Serv Networking program is used to place orders, the standard NSCC
Networking Agreement will control insofar as there is any conflict between any
provision of the Dealer Agreement and the standard NSCC Networking Agreement.
3. DUTIES OF DEALER
----------------
a. Dealer agrees to purchase Shares only from Distributor or from Dealer's
customers.
b. Dealer agrees to enter orders for the purchase of Shares only from
Distributor and only for the purpose of covering purchase orders Dealer has
already received from its customers or for Dealer's own bona fide investment.
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<PAGE>
c. Dealer agrees to date and time stamp all orders received by Dealer and
promptly, upon receipt of any and all orders, to transmit to Distributor all
orders received prior to the time described in the Prospectus for the
calculation of each Fund's net asset value so as to permit Distributor to
process all orders at the price next determined after receipt by Dealer, in
accordance with the Prospectus. Dealer agrees not to withhold placing orders for
Shares with Distributor so as to profit itself as a result of such inaction.
d. Dealer agrees to maintain records of all purchases and sales of Shares
made through Dealer and to furnish Distributor or regulatory authorities with
copies of such records upon request. In that regard, Dealer agrees that, unless
Dealer holds Shares as nominee for its customers or participates in the NSCC
Fund/Serv Networking program, at certain matrix levels, it will provide
Distributor with all necessary information to comply properly with all federal,
state and local reporting requirements and backup and nonresident alien
withholding requirements for its customer accounts including, without
limitation, those requirements that apply by treating Shares issued by the Funds
as readily tradable instruments. Dealer represents and agrees that all Taxpayer
Identification Numbers ("TINs") provided are certified, and that no account that
requires a certified TIN will be established without such certified TIN. With
respect to all other accounts, including Shares held by Dealer in omnibus
accounts and Shares purchased or sold through the NSCC Fund/Serv Networking
program, at certain matrix levels, Dealer agrees to perform all federal, state
and local tax reporting with respect to such accounts, including without
limitation redemptions and exchanges.
e. Dealer agrees to distribute or cause to be delivered to its customers
Prospectuses, proxy solicitation materials and related information and proxy
cards, semi-annual and annual shareholder reports and any other materials in
compliance with applicable legal requirements, except to the extent that
Distributor expressly undertakes to do so in writing.
f. Dealer agrees that if any Share is repurchased by any Fund or is
tendered for redemption within seven (7) business days after confirmation by
Distributor of the original purchase order from Dealer, Dealer shall forfeit its
right to any concession or commission received by Dealer with respect to such
Share and shall forthwith refund to Distributor the full concession allowed to
Dealer or commission paid to Dealer on the original sale. Distributor agrees to
notify Dealer of such repurchase or redemption within a reasonable time after
settlement. Termination or cancellation of this Agreement shall not relieve
Dealer from its obligation under this provision.
g. Dealer agrees that payment for Shares ordered from Distributor shall be
in Fed Funds, New York clearinghouse or other immediately available funds and
that such funds shall be received by Distributor by the earlier of: (i) the end
of the third (3rd) business day following Dealer's receipt of the customer's
order to purchase such Shares; or (ii) the settlement date established in
accordance with Rule 15c6-1 under the Securities Exchange Act of 1934, as
amended. If such payment is not received by Distributor by such date, Dealer
shall forfeit its right to any concession or commission with respect to such
order, and Distributor reserves the right, without notice, forthwith to cancel
the sale, or, at its option, to sell the Shares ordered back to the Fund, in
which case Distributor may hold Dealer responsible for any loss, including loss
of profit, suffered by Distributor resulting from Dealer's failure to make
payment as aforesaid. If a purchase is made by check, the purchase is deemed
made upon conversion of the purchase instrument into Fed Funds, New York
clearinghouse or other immediately available funds.
A-3
<PAGE>
h. Dealer agrees that it: (i) shall assume responsibility for any loss to
the Fund caused by a correction to any order placed by Dealer that is made
subsequent to the trade date for the order, provided such order correction was
not based on any negligence on Distributor's part; and (ii) will immediately pay
such loss to the Fund upon notification.
i. Dealer agrees that in connection with orders for the purchase of Shares
on behalf of any IRAs, 401(k) plans or other retirement plan accounts, by mail,
telephone, or wire, Dealer shall act as agent for the custodian or trustee of
such plans (solely with respect to the time of receipt of the application and
payments), and Dealer shall not place such an order with Distributor until it
has received from its customer payment for such purchase and, if such purchase
represents the first contribution to such a retirement plan account, the
completed documents necessary to establish the retirement plan. Dealer agrees
to indemnify Distributor and its affiliates for any claim, loss, or liability
resulting from incorrect investment instructions received by Distributor from
Dealer.
j. Dealer agrees that it will not make any conditional orders for the
purchase or redemption of Shares and acknowledges that Distributor will not
accept conditional orders for Shares.
k. Dealer agrees that all out-of-pocket expenses incurred by it in
connection with its activities under this Agreement will be borne by Dealer.
l. Dealer agrees that it will keep in force appropriate broker's blanket
bond insurance policies covering any and all acts of Dealer's partners,
directors, officers, employees, and agents adequate to reasonably protect and
indemnify the Distributor and the Funds against any loss which any party may
suffer or incur, directly or indirectly, as a result of any action by Dealer or
Dealer's partners, directors, officers, employees, and agents.
m. Dealer agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.
4. DEALER COMPENSATION
-------------------
a. On each purchase of Shares by Dealer from Distributor, the total sales
charges and dealer concessions or commissions, if any, payable to Dealer shall
be as stated on Schedule A to this Agreement, which may be amended by
Distributor from time to time. Distributor reserves the right, without prior
notice, to suspend or eliminate such dealer concession or commissions by
amendment, sticker or supplement to the then current Prospectus for each Fund.
Such sales charges and dealer concessions or commissions, are subject to
reduction under a variety of circumstances as described in each Fund's then
current Prospectus. For an investor to obtain any reduction, Distributor must
be notified at the time of the sale that the sale qualifies for the reduced
sales charge. If Dealer fails to notify Distributor of the applicability of a
reduction in the sales charge at the time the trade is placed, neither
Distributor nor any Fund will be liable for amounts necessary to reimburse any
investor for the reduction that should have been effected. Dealer acknowledges
that no sales charge or concession or commission will be paid to Dealer on the
reinvestment of dividends or capital gains reinvestment or on Shares acquired in
exchange for Shares of another Fund, or class thereof, having the same
A-4
<PAGE>
sales charge structure as the Fund, or class thereof, from which the exchange
was made, in accordance with the Prospectus.
b. In accordance with the Funds' Prospectuses, Distributor or any
affiliate may, but is not obligated to, make payments to dealers from
Distributor's own resources as compensation for certain sales that are made at
net asset value ("Qualifying Sales"). If Dealer notifies Distributor of a
Qualifying Sale, Distributor may make a contingent advance payment up to the
maximum amount available for payment on the sale. If any of the Shares
purchased in a Qualifying Sale are redeemed within twelve (12) months of the end
of the month of purchase, Distributor shall be entitled to recover any advance
payment attributable to the redeemed Shares by reducing any account payable or
other monetary obligation Distributor may owe to Dealer or by making demand upon
Dealer for repayment in cash. Distributor reserves the right to withhold
advances to Dealer, if for any reason Distributor believes that it may not be
able to recover unearned advances from Dealer.
c. With respect to any Fund that offers Shares for which distribution
plans have been adopted under Rule 12b-1 under the Investment Company Act of
1940, as amended ("Rule 12b-1 Plans"), Distributor also is authorized to pay the
Dealer continuing distribution and/or service fees, as specified in Schedule A
and the relevant Fund Prospectus, with respect to Shares of any such Fund, to
the extent that Dealer provides distribution, marketing, administrative and
other services and activities regarding the promotion of such Shares and the
maintenance of related shareholder accounts.
d. In connection with the receipt of distribution fees and/or service fees
under Rule 12b-1 Plans applicable to Shares purchased by Dealer's customers,
Distributor directs Dealer to provide enhanced shareholder services such as:
processing purchase and redemption transactions; establishing shareholder
accounts; and providing certain information and assistance with respect to the
Funds. (Redemption levels of shareholder accounts assigned to Dealer will be
considered in evaluating Dealer's continued ability to receive payments of
distribution and/or service fees.) In addition, Dealer agrees to support
Distributor's marketing efforts by, among other things, granting reasonable
requests for visits to Dealer's office by Distributor's wholesalers and
marketing representatives, including all Funds covered by a Rule 12b-1 Plan on
Dealer's "approved," "preferred" or other similar product lists, if applicable,
and otherwise providing satisfactory product, marketing and sales support.
Further, Dealer agrees to provide Distributor with supporting documentation
concerning the shareholder services provided, as Distributor may reasonably
request from time to time.
e. All Rule 12b-1 Plan distribution and/or servicing fees shall be based
on the value of Shares attributable to Dealer's customers and eligible for such
payment, and shall be calculated on the basis of and at the rates set forth in
the compensation schedule then in effect. Without prior approval by a majority
of the outstanding shares of a Fund, the aggregate annual fees paid to Dealer
pursuant to any Rule 12b-1 Plan shall not exceed the amounts stated as the
"annual maximums" in each Fund's Prospectus, which amount shall be a specified
percent of the value of the Fund's net assets held in Dealer's customers'
accounts that are eligible for payment pursuant to the Rule 12b-1 Plans
(determined in the same manner as each Fund uses to compute its net assets as
set forth in its then current Prospectus).
A-5
<PAGE>
f. The provisions of any Rule 12b-1 Plan between the Funds and the
Distributor shall control over this Agreement in the event of any inconsistency.
Each Rule 12b-1 Plan in effect on the date of this Agreement is described in the
relevant Fund's Prospectus. Dealer hereby acknowledges that all payments under
Rule 12b-1 Plans are subject to limitations contained in such Rule 12b-1 Plans
and may be varied or discontinued at any time.
5. REDEMPTIONS, REPURCHASES AND EXCHANGES
--------------------------------------
a. The Prospectus for each Fund describes the provisions whereby the Fund,
under all ordinary circumstances, will redeem Shares held by shareholders on
demand. Dealer agrees that it will not make any representations to shareholders
relating to the redemption of their Shares other than the statements contained
in the Prospectus and the underlying organizational documents of the Fund, to
which it refers, and that Dealer will pay as redemption proceeds to shareholders
the net asset value, minus any applicable deferred sales charge or redemption
fee, determined after receipt of the order as discussed in the Prospectus.
b. Dealer agrees not to repurchase any Shares from its customers at a
price below that next quoted by the Fund for redemption or repurchase, i.e., at
the net asset value of such Shares, less any applicable deferred sales charge,
or redemption fee, in accordance with the Fund's Prospectus. Dealer shall,
however, be permitted to sell Shares for the account of the customer or record
owner to the Funds at the repurchase price then currently in effect for such
Shares and may charge the customer or record owner a fair service fee or
commission for handling the transaction, provided Dealer discloses the fee or
commission to the customer or record owner. Nevertheless, Dealer agrees that it
shall not under any circumstances maintain a secondary market in such
repurchased Shares.
c. Dealer agrees that, with respect to a redemption order it has made, if
instructions in proper form, including any outstanding certificates, are not
received by Distributor within the time customary or the time required by law,
the redemption may be canceled forthwith without any responsibility or liability
on Distributor's part or on the part of any Fund, or Distributor, at its option,
may buy the shares redeemed on behalf of the Fund, in which latter case
Distributor may hold Dealer responsible for any loss, including loss of profit,
suffered by Distributor resulting from Distributor's failure to settle the
redemption.
d. Dealer agrees that it will comply with any restrictions and limitations
on exchanges described in each Fund's Prospectus, including any restrictions or
prohibitions relating to frequent purchases and redemptions (i.e., market
timing).
6. MULTIPLE CLASSES OF SHARES
--------------------------
Distributor may, from time to time, provide Dealer with written guidelines
or standards relating to the sale or distribution of Funds offering multiple
classes of Shares with different sales charges and distribution-related
operating expenses.
7. FUND INFORMATION
----------------
a. Dealer agrees that neither it nor any of its partners, directors,
officers, employees, and agents is authorized to give any information or make
any representations
A-6
<PAGE>
concerning Shares of any Fund except those contained in the Fund's then current
Prospectus or in materials provided by Distributor.
b. Distributor will supply to Dealer Prospectuses, reasonable quantities
of sales literature, sales bulletins, and additional sales information as
provided by Distributor. Dealer agrees to use only advertising or sales
material relating to the Funds that: (i) is supplied by Distributor, or (ii)
conforms to the requirements of all applicable laws or regulations of any
government or authorized agency having jurisdiction over the offering or sale of
Shares of the Funds and is approved in writing by Distributor in advance of its
use. Such approval may be withdrawn by Distributor in whole or in part upon
written notice to Dealer, and Dealer shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales bulletins and
advertising. Dealer is not authorized to modify or translate any such materials
without Distributor's prior written consent.
8. SHARES
------
a. Distributor acts solely as agent for the Fund and Distributor shall
have no obligation or responsibility with respect to Dealer's right to purchase
or sell Shares in any state or jurisdiction.
b. Distributor shall periodically furnish Dealer with information
identifying the states or jurisdictions in which it is believed that all
necessary notice, registration or exemptive filings for Shares have been made
under applicable securities laws such that offers and sales of Shares may be
made in such states or jurisdictions. Distributor shall have no obligation to
make such notice, registration or exemptive filings with respect to Shares in
any state or jurisdiction.
c. Dealer agrees not to transact orders for Shares in states or
jurisdictions in which it has been informed that Shares may not be sold or in
which it and its personnel are not authorized to sell Shares.
d. Distributor shall have no responsibility, under the laws regulating the
sale of securities in the United States or any foreign jurisdiction, with
respect to the qualification or status of Dealer or Dealer's personnel selling
Fund Shares. Distributor shall not, in any event, be liable or responsible for
the issue, form, validity, enforceability and value of such Shares or for any
matter in connection therewith.
e. Dealer agrees that it will make no offers or sales of Shares in any
foreign jurisdiction, except with the express written consent of Distributor.
9. INDEMNIFICATION
---------------
a. Dealer agrees to indemnify, defend and hold harmless Distributor and
the Funds and their predecessors, successors, and affiliates, each current or
former partner, officer, director, employee, shareholder or agent and each
person who controls or is controlled by Distributor from any and all losses,
claims, liabilities, costs, and expenses, including attorney fees, that may be
assessed against or suffered or incurred by any of them howsoever they arise,
and as they are incurred, which relate in any way to: (i) any alleged violation
of any statute or
A-7
<PAGE>
regulation (including without limitation the securities laws and regulations of
the United States or any state or foreign country) or any alleged tort or breach
of contract, related to the offer or sale by Dealer of Shares of the Funds
pursuant to this Agreement (except to the extent that Distributor's negligence
or failure to follow correct instructions received from Dealer is the cause of
such loss, claim, liability, cost or expense); (ii) any redemption or exchange
pursuant to instructions received from Dealer or its partners, affiliates,
officers, directors, employees or agents; or (iii) the breach by Dealer of any
of its representations and warranties specified herein or the Dealer's failure
to comply with the terms and conditions of this Agreement, whether or not such
action, failure, error, omission, misconduct or breach is committed by Dealer or
its predecessor, successor, or affiliate, each current or former partner,
officer, director, employee or agent and each person who controls or is
controlled by Dealer.
b. Distributor agrees to indemnify, defend and hold harmless Dealer and
its predecessors, successors and affiliates, each current or former partner,
officer, director, employee or agent, and each person who controls or is
controlled by Dealer from any and all losses, claims, liabilities, costs and
expenses, including attorney fees, that may be assessed against or suffered or
incurred by any of them which arise, and which relate to any untrue statement of
or omission to state a material fact contained in the Prospectus or any written
sales literature or other marketing materials provided by the Distributor to the
Dealer, required to be stated therein or necessary to make the statements
therein not misleading.
c. Dealer agrees to notify Distributor, within a reasonable time, of any
claim or complaint or any enforcement action or other proceeding with respect to
Shares offered hereunder against Dealer or its partners, affiliates, officers,
directors, employees or agents, or any person who controls Dealer, within the
meaning of Section 15 of the Securities Act of 1933, as amended.
d. Dealer further agrees promptly to send Distributor copies of (i) any
report filed pursuant to NASD Conduct Rule 3070, including, without limitation
quarterly reports filed pursuant to Rule 3070(c), (ii) reports filed with any
other self-regulatory organization in lieu of Rule 3070 reports pursuant to Rule
3070(e) and (iii) amendments to Dealer's Form BD.
e. Each party's obligations under these indemnification provisions shall
survive any termination of this Agreement.
10. TERMINATION; AMENDMENT
----------------------
a. In addition to the automatic termination of this Agreement specified in
Section 1.c. of this Agreement, each party to this Agreement may unilaterally
cancel its participation in this Agreement by giving thirty (30) days prior
written notice to the other party. In addition, each party to this Agreement
may terminate this Agreement immediately by giving written notice to the other
party of that other party's material breach of this Agreement. Such notice
shall be deemed to have been given and to be effective on the date on which it
was either delivered personally to the other party or any officer or member
thereof, or was mailed postpaid or delivered to a telegraph office for
transmission to the other party's designated person at the addresses shown
herein or in the most recent NASD Manual.
A-8
<PAGE>
b. This Agreement shall terminate immediately upon the appointment of a
Trustee under the Securities Investor Protection Act or any other act of
insolvency by Dealer.
c. The termination of this Agreement by any of the foregoing means shall
have no effect upon transactions entered into prior to the effective date of
termination and shall not relieve Dealer of its obligations, duties and
indemnities specified in this Agreement. A trade placed by Dealer subsequent to
its voluntary termination of this Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary suspension of
Dealer, will only be effective upon written notification by Distributor.
d. This Agreement is not assignable or transferable and will terminate
automatically in the event of its "assignment," as defined in the Investment
Company Act of 1940, as amended and the rules, regulations and interpretations
thereunder. The Distributor may, however, transfer any of its duties under this
Agreement to any entity that controls or is under common control with
Distributor.
e. This Agreement may be amended by Distributor at any time by written
notice to Dealer. Dealer's placing of an order or accepting payment of any kind
after the effective date and receipt of notice of such amendment shall
constitute Dealer's acceptance of such amendment.
11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
--------------------------------------------
Distributor represents and warrants that:
a. It is a limited liability company duly organized and existing and in
good standing under the laws of the state of Delaware and is duly registered or
exempt from registration as a broker-dealer in all states and jurisdictions in
which it provides services as principal underwriter and distributor for the
Funds.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's charter and
by-laws to enter into this Agreement and perform all activities and services of
the Distributor provided for herein and that there are no impediments, prior or
existing, regulatory, self-regulatory, administrative, civil or criminal matters
affecting Distributor's ability to perform under this Agreement.
d. All requisite actions have been taken to authorize Distributor to enter
into and perform this Agreement.
12. ADDITIONAL DEALER REPRESENTATIONS AND WARRANTIES
------------------------------------------------
In addition to the representations and warranties found elsewhere in this
Agreement, Dealer represents and warrants that:
a. It is duly organized and existing and in good standing under the laws
of the state, commonwealth or other jurisdiction in which Dealer is organized
and that Dealer will
A-9
<PAGE>
not offer Shares of any Fund for sale in any state or jurisdiction where such
Shares may not be legally sold or where Dealer is not qualified to act as a
broker-dealer.
b. It is empowered under applicable laws and by Dealer's organizational
documents to enter into this Agreement and perform all activities and services
of the Dealer provided for herein and that there are no impediments, prior or
existing, regulatory, self-regulatory, administrative, civil or criminal matters
affecting Dealer's ability to perform under this Agreement.
c. All requisite actions have been taken to authorize Dealer to enter into
and perform this Agreement.
d. It is not, at the time of the execution of this Agreement, subject to
any enforcement or other proceeding with respect to its activities under state
or federal securities laws, rules or regulations.
13. SETOFF; DISPUTE RESOLUTION; GOVERNING LAW
-----------------------------------------
a. Should any of Dealer's concession accounts with Distributor have a
debit balance, Distributor shall be permitted to offset and recover the amount
owed from any other account Dealer has with Distributor, without notice or
demand to Dealer.
b. In the event of a dispute concerning any provision of this Agreement,
either party may require the dispute to be submitted to binding arbitration
under the commercial arbitration rules and procedures of the NASD. The parties
agree that, to the extent permitted under such arbitration rules and procedures,
the arbitrators selected shall be from the securities industry. Judgment upon
any arbitration award may be entered by any state or federal court having
jurisdiction.
c. This Agreement shall be governed and construed in accordance with the
laws of the state of New Jersey, not including any provision which would require
the general application of the law of another jurisdiction.
14. INVESTIGATIONS AND PROCEEDINGS
------------------------------
The parties to this Agreement agree to cooperate fully in any securities
regulatory investigation or proceeding or judicial proceeding with respect to
each's activities under this Agreement and promptly to notify the other party of
any such investigation or proceeding.
15. CAPTIONS
--------
All captions used in this Agreement are for convenience only, are not a
party hereof, and are not to be used in construing or interpreting any aspect
hereof.
16. ENTIRE UNDERSTANDING
--------------------
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and supersedes all previous
agreements. This Agreement shall be binding upon the parties hereto when signed
by Dealer and accepted by Distributor.
A-10
<PAGE>
17. SEVERABILITY
------------
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law. If, however, any
provision of this Agreement is held under applicable law to be invalid, illegal,
or unenforceable in any respect, such provision shall be ineffective only to the
extent of such invalidity, and the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected or impaired in any
way.
18. ENTIRE AGREEMENT
----------------
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and supersedes all previous
agreements and/or understandings of the parties. This Agreement shall be
binding upon the parties hereto when signed by Dealer and accepted by
Distributor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year set forth below.
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
By: __________________________________
Name:__________________________________
Title:_________________________________
Date:__________________________________
DEALER: ________________________________
By: ________________________________
(Signature)
Name: ________________________________
Title: ________________________________
Address:________________________________
________________________________
________________________________
Telephone: ____________________________
NASD CRD # ___________________________
Prudential Dealer # ___________________
(Internal Use Only)
Date: _________________________________
A-11
<PAGE>
EXHIBIT 99.11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 6 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated June
18, 1998, relating to the financial statements and financial highlights of
Prudential Europe Growth Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Custodian, Transfer and
Dividend Disbursing Agent and Independent Accountants" in such Statement of
Additional Information and to the references to us under the heading "Financial
Highlights" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
June 29, 1998
<PAGE>
Exhibit 99.15(d)
PRUDENTIAL EUROPE GROWTH FUND, INC.
Amended and Restated
Distribution and Service Plan
(Class A Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Europe Growth Fund, Inc. (the Fund) and by Prudential
Investment Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor,
as compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors of the Fund, including a majority of
those 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 this Plan or any agreements related to it (the Rule 12b-1
Directors), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the
1
<PAGE>
Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network, including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
-----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class A
shares of the Fund
2
<PAGE>
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors may determine. Amounts payable under the Plan shall be
subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors. The allocation of distribution expenses among classes will
be subject to the review of the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions and trailer commissions paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch expenses;
3
<PAGE>
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class A shares of
the Fund, including sales commissions, trailer commissions paid to, or
on account of, agents and indirect and overhead costs associated with
Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A shares
of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as the
Board shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
4
<PAGE>
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class A shares of the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors of the Fund and a majority of the Rule 12b-1 Directors by votes cast
in person at a meeting called for the purpose of voting on the Plan.
5
<PAGE>
8. Rule 12b-1 Directors
--------------------
While the Plan is in effect, the selection and nomination of the Directors
shall be committed to the discretion of the Rule 12b-1 Directors.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Amended and Restated
Distribution and Service Plan
(Class B Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Europe Growth Fund, Inc. (the Fund) and by Prudential
Investment Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class B shares issued by the Fund
(Class B shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class B shares.
A majority of the Board of Directors of the Fund, including a majority 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
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption and
continuation of this Plan will benefit the Fund and its shareholders.
Expenditures under this Plan by the Fund for Distribution Activities (defined
below) are primarily intended to result in the sale of Class B shares of the
Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the
1
<PAGE>
Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class B
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund
2
<PAGE>
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall
be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among classes will be
subject to the review of the Board of Directors. Payments hereunder will be
applied to distribution expenses in the order in which they are incurred, unless
otherwise determined by the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
3
<PAGE>
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class B shares of
the Fund, including sales commissions and trailer commissions paid to,
or on account of, agents and indirect and overhead costs associated
with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class B shares
of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected
4
<PAGE>
dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class B shares of the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors of the Fund and a majority of the Rule 12b-1 Directors by votes cast
in person at a meeting called for the
5
<PAGE>
purpose of voting on the Plan.
8. Rule 12b-1 Directors
--------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Amended and Restated
Distribution and Service Plan
(Class C Shares)
--------------
Introduction
------------
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Europe Growth Fund, Inc. (the Fund) and by Prudential
Investment Management Services LLC, the Fund's distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class C shares issued by the Fund
(Class C shares). Under the Plan, the Fund wishes to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class C shares.
A majority of the Board of Directors of the Fund, including a majority 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
this Plan or any agreements related to it (the Rule 12b-1 Directors), have
determined by votes cast in person at a meeting called for the purpose of voting
on this Plan that there is a reasonable likelihood that adoption and
continuation of this Plan will benefit the Fund and its shareholders.
Expenditures under this Plan by the Fund for Distribution Activities (defined
below) are primarily intended to result in the sale of Class C shares of the
Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under
1
<PAGE>
the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
--------
The material aspects of the Plan are as follows:
1. Distribution Activities
-----------------------
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class C
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
----------------------
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund
2
<PAGE>
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors may determine.
3. Payment for Distribution Activities
-----------------------------------
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors may determine. Amounts payable under the Plan shall
be subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors. The allocation of distribution expenses among classes will be
subject to the review of the Board of Directors. Payments hereunder will be
applied to distribution expenses in the order in which they are incurred, unless
otherwise determined by the Board of Directors.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
3
<PAGE>
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class C shares of
the Fund, including sales commissions and trailer commissions paid to,
or on account of, agents and indirect and overhead costs associated
with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class C shares
of the Fund.
4. Quarterly Reports; Additional Information
-----------------------------------------
An appropriate officer of the Fund will provide to the Board of Directors
of the Fund for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors of the Fund such additional information as
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors of the Fund of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected
4
<PAGE>
dealer agreements with the Distributor.
5. Effectiveness; Continuation
---------------------------
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors of the Fund and a majority of the Rule 12b-1
Directors by votes cast in person at a meeting called for the purpose of voting
on the continuation of the Plan.
6. Termination
-----------
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors, or by vote of a majority of the outstanding voting securities
(as defined in the Investment Company Act) of the Class C shares of the Fund.
7. Amendments
----------
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors of the Fund and a majority of the Rule 12b-1 Directors by votes cast
in person at a meeting called for the
5
<PAGE>
purpose of voting on the Plan.
8. Rule 12b-1 Directors
--------------------
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors shall be committed to the discretion of the Rule 12b-1 Directors.
9. Records
-------
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated: June 1, 1998
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> EUROPE GROWTH FUND (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUN-29-1998
<INVESTMENTS-AT-COST> 1,807,415
<INVESTMENTS-AT-VALUE> 243,263,231
<RECEIVABLES> 9,467,121
<ASSETS-OTHER> 1,942,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 6,406,918
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,689,950
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134,214,549
<SHARES-COMMON-STOCK> 12,605,324
<SHARES-COMMON-PRIOR> 11,994,009
<ACCUMULATED-NII-CURRENT> 2,304,357
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22,533,774
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,523,647
<NET-ASSETS> (24,599,333)
<DIVIDEND-INCOME> 2,780,854
<INTEREST-INCOME> 268,941
<OTHER-INCOME> 0
<EXPENSES-NET> 4,063,943
<NET-INVESTMENT-INCOME> (1,014,148)
<REALIZED-GAINS-CURRENT> 35,982,401
<APPREC-INCREASE-CURRENT> 43,664,075
<NET-CHANGE-FROM-OPS> 78,632,328
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 432,031,984
<NUMBER-OF-SHARES-REDEEMED> (461,615,189)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,049,123
<ACCUMULATED-NII-PRIOR> 106,506
<ACCUMULATED-GAINS-PRIOR> 20,231,536
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,582,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,063,943
<AVERAGE-NET-ASSETS> 42,885,000
<PER-SHARE-NAV-BEGIN> 15.46
<PER-SHARE-NII> 6.39
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.94)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.91
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> EUROPE GROWTH FUND (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUN-29-1998
<INVESTMENTS-AT-COST> 1,807,415
<INVESTMENTS-AT-VALUE> 243,263,231
<RECEIVABLES> 9,467,121
<ASSETS-OTHER> 1,942,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 6,406,918
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,689,950
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134,214,549
<SHARES-COMMON-STOCK> 12,605,324
<SHARES-COMMON-PRIOR> 11,994,009
<ACCUMULATED-NII-CURRENT> 2,304,357
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22,533,774
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,523,647
<NET-ASSETS> (24,599,333)
<DIVIDEND-INCOME> 2,780,854
<INTEREST-INCOME> 268,941
<OTHER-INCOME> 0
<EXPENSES-NET> 4,063,943
<NET-INVESTMENT-INCOME> (1,014,148)
<REALIZED-GAINS-CURRENT> 35,982,401
<APPREC-INCREASE-CURRENT> 43,664,075
<NET-CHANGE-FROM-OPS> 78,632,328
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 432,031,984
<NUMBER-OF-SHARES-REDEEMED> (461,615,189)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 48,049,123
<ACCUMULATED-NII-PRIOR> 106,506
<ACCUMULATED-GAINS-PRIOR> 20,231,536
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,582,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,063,943
<AVERAGE-NET-ASSETS> 147,492,000
<PER-SHARE-NAV-BEGIN> 15.12
<PER-SHARE-NII> 6.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.81)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.35
<EXPENSE-RATIO> 2.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000921073
<NAME> PRUDENTIAL EUROPE GROWTH FUND, INC.
<SERIES>
<NUMBER> 003
<NAME> EUROPE GROWTH FUND (CLASS C)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUN-29-1998
<INVESTMENTS-AT-COST> 1,807,415
<INVESTMENTS-AT-VALUE> 243,263,231
<RECEIVABLES> 9,467,121
<ASSETS-OTHER> 1,942,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 6,406,918
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,689,950
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134,214,549
<SHARES-COMMON-STOCK> 12,605,324
<SHARES-COMMON-PRIOR> 11,994,009
<ACCUMULATED-NII-CURRENT> 2,304,357
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22,533,774
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,523,647
<NET-ASSETS> (24,599,333)
<DIVIDEND-INCOME> 2,780,854
<INTEREST-INCOME> 268,941
<OTHER-INCOME> 0
<EXPENSES-NET> 4,063,943
<NET-INVESTMENT-INCOME> (1,014,148)
<REALIZED-GAINS-CURRENT> 35,982,401
<APPREC-INCREASE-CURRENT> 43,664,075
<NET-CHANGE-FROM-OPS> 78,632,328
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 432,031,984
<NUMBER-OF-SHARES-REDEEMED> (461,615,189)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,049,123
<ACCUMULATED-NII-PRIOR> 106,506
<ACCUMULATED-GAINS-PRIOR> 20,231,536
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,582,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,063,943
<AVERAGE-NET-ASSETS> 8,526,000
<PER-SHARE-NAV-BEGIN> 15.12
<PER-SHARE-NII> 6.07
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.81)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.38
<EXPENSE-RATIO> 2.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> EUROPE GROWTH FUND (CLASS Z)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUN-29-1998
<INVESTMENTS-AT-COST> 1,807,415
<INVESTMENTS-AT-VALUE> 243,263,231
<RECEIVABLES> 9,467,121
<ASSETS-OTHER> 1,942,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 6,406,918
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,689,950
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134,214,549
<SHARES-COMMON-STOCK> 12,605,324
<SHARES-COMMON-PRIOR> 11,994,009
<ACCUMULATED-NII-CURRENT> 2,304,357
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22,533,774
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,523,647
<NET-ASSETS> (24,599,333)
<DIVIDEND-INCOME> 2,780,854
<INTEREST-INCOME> 268,941
<OTHER-INCOME> 0
<EXPENSES-NET> 4,063,943
<NET-INVESTMENT-INCOME> (1,014,148)
<REALIZED-GAINS-CURRENT> 35,982,401
<APPREC-INCREASE-CURRENT> 43,664,075
<NET-CHANGE-FROM-OPS> 78,632,328
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 432,031,984
<NUMBER-OF-SHARES-REDEEMED> (461,615,189)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,049,123
<ACCUMULATED-NII-PRIOR> 106,508
<ACCUMULATED-GAINS-PRIOR> 20,231,538
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,582,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,063,943
<AVERAGE-NET-ASSETS> 12,148,000
<PER-SHARE-NAV-BEGIN> 15.51
<PER-SHARE-NII> 6.41
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.99)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.93
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
