<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
- -------------------------------------------------------------------------------
PROSPECTUS DATED JULY 1, 1998
(REVISED AS OF OCTOBER 14, 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. 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.
- -------------------------------------------------------------------------------
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
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), through a Sub-Investment Management Agreement with PRICOA
Asset Management Ltd., furnishes investment advisory services in connection
with the management of the Fund. See "How the Fund is Managed--Manager" at
page 17.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Investment Management Services LLC (the Distributor) acts as the
Distributor of the Fund's Class A, Class B, Class C and Class Z shares. The
Distributor is paid a distribution and/or 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 Investment 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 (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. 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 your
Dealer, the Distributor or the Transfer Agent 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.
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."
+ Dealers may independently charge additional fees for shareholder
transactions or advisory services. 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.
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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
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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.
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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 (E.G., 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
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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
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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 manager 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 INVESTMENT MANAGEMENT SERVICES LLC (THE DISTRIBUTOR), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS A LIMITED
LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE THAT
SERVES AS THE DISTRIBUTOR OF CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF
THE FUND. IT IS A WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL. Prudential Securities
Incorporated (Prudential Securities), One Seaport Plaza, New York, New York
10292, served as the distributor of Fund shares until July 1, 1998. Prudential
Securities is an indirect, wholly-owned subsidiary of Prudential.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION
AGREEMENTS (THE DISTRIBUTION AGREEMENTS), 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, Dealers or financial institutions which have
entered into agreements with the Distributor, advertising expenses, the cost
of printing and mailing prospectuses to potential investors and indirect and
overhead costs of the Distributor associated with the sale of the Fund's
shares, including lease, utility, communications and sales promotion expenses.
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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 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. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
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
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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 brokers or futures commission
merchants for the Fund provided that the commissions, fees or other
remuneration they receive 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 15035, New Brunswick, New Jersey 08906-5035.
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.
Additionally, issuers of securities generally as well as issues of securities
purchased by the Fund may confront year 2000 compliance issues which, if
material and not resolved, could have an adverse impact on securities markets
and/or a specific issuer's performance and could result in a decline in the
value of securities held by the Fund.
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.
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.
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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
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"
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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.
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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 15035, New
Brunswick, New Jersey 08906-5035. 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,
OR DIRECTLY FROM THE FUND THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC, ATTENTION: INVESTMENT SERVICES, P.O. BOX 15035, NEW BRUNSWICK,
NEW JERSEY 08906-5035. 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
Distributor, your Dealer or the Transfer Agent, 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. 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."
In order to receive that day's NAV, your order must be received before the
Fund's NAV is computed (currently 4:15 p.m., New York time). If you purchase
shares through your Dealer, the Dealer must receive your order before the
Fund's NAV is computed that day and must transmit the order to the Distributor
that same day for you to receive that day's NAV.
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 employee
savings plans or custodial accounts for the benefit of minors. For purchases
through the Automatic Savings Accumulation Investment Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below.
24
<PAGE>
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."
Application forms can be obtained from the Transfer Agent,. the Distributor,
or a Dealer. 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 in street name with their Dealer will not
receive stock certificates.
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 placement of the
order.
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.
You must notify the Transfer Agent either directly or through your Dealer
that you are entitled to the waiver of the sales charge. The reduction or
waiver will be granted subject to confirmation of your entitlement.
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
and for which the Transfer Agent does individual account record keeping
(Direct Account Benefit Plans), Class A shares may be purchased at NAV by
participants who are repaying loans made from such plans to the participant.
Special Rules Applicable to Retirement Plans. After a Benefit 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 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 the Distributor and PIFM and their subsidiaries and members
of the families of such persons who maintain an "employee related" account at
the Distributor 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
27
<PAGE>
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 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, (g) 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
(h) 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 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 in proper form 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.
CLASS Z SHARES
Class Z shares are currently available for purchase by: (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 an affiliate of the Distributor 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 an affiliate of the Distributor, for whom
Class Z shares of the Prudential Mutual Funds are an available investment
option; (iv) Benefit Plans for which an affiliate of the Distributor serves as
recordkeeper 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 certain affiliates of the Distributor
who participate in an employer-sponsored employee savings plan; and (viii)
Prudential with an investment of $10 million or more.
28
<PAGE>
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 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 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
15035, New Brunswick, New Jersey 08906-5035, the Distributor or your Dealer.
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.
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 A DEALER, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL
BE CREDITED TO YOUR ACCOUNT AT YOUR DEALER UNLESS YOU INDICATE OTHERWISE. Such
payment may be postponed or the right of redemption suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekends
and holidays, (b) when trading on such Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or (d) during any
other period when the 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, WHICH MAY TAKE UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE
PURCHASE CHECK BY THE FUND OR 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
29
<PAGE>
cash. The Fund has, however, elected to be governed by Rule 18f-1 under the
Investment Company Act, under which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the NAV of the Fund
during any 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 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
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>
30
<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.
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, 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
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.
31
<PAGE>
You must notify the Transfer Agent either directly or through 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.
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 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.
32
<PAGE>
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.
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 15035, New Brunswick,
New Jersey 08906-5035.
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 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 their Dealer that they are eligible for this special
exchange privilege.
33
<PAGE>
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
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through your Dealer, you should contact your Dealer.
. AUTOMATIC INVESTMENT PLAN (AIP). Under AIP 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. 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.
34
<PAGE>
. 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.
35
<PAGE>
APPENDIX
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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>
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
----
<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.................................................. 19
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....................................... 32
How to Exchange Your Shares.............................................. 33
Shareholder Services..................................................... 34
DESCRIPTION OF SECURITY RATINGS........................................... A-1
</TABLE>
- --------------------------------------------------------------------------------
MF160P
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
PROSPECTUS
[ART]
JULY 1, 1998
[REVISED OCTOBER 14, 1998]
LOGO PRUDENTIAL
INVESTMENTS
