PRUDENTIAL EUROPE GROWTH FUND INC, 485BPOS, 1999-07-13

PRUDENTIAL EUROPE GROWTH FUND INC
485BPOS, 1999-07-13

Previous: TRANSACTION NETWORK SERVICES INC, S-3, 1999-07-13

Next: MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND, 24F-2NT, 1999-07-13

<PAGE>

As filed with the Securities and Exchange Commission on July 13, 1999
Registration Nos. 33-53151, 811-7167
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 10
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
[X]
[X]
AMENDMENT NO. 12
(Check appropriate box or boxes)

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

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

GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-3028

ROBERT C. ROSSELOT, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service)

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.

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

[X] immediately upon filing pursuant to paragraph (b)

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

If appropriate, check the following box:

[_] This post-effective amendment
designates a new effective date
for a previously filled post-
effective amendment

TITLE OF SECURITIES BEING REGISTERED . . . . SHARES OF COMMON STOCK, $.001 PAR
VALUE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

FUND TYPE:
---------------------------------
Global stock

INVESTMENT OBJECTIVE:
---------------------------------
Long-term growth of capital

Prudential Europe
Growth Fund, Inc.
[GRAPHIC]

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

PROSPECTUS: JULY 13, 1999

As with all mutual funds, the
Securities and Exchange
Commission has not approved or
disapproved the Fund's shares,
nor has the SEC determined that
this prospectus is complete or
accurate. It is a criminal
offense to state otherwise.
[LOGO] Prudential
Investments
<PAGE>

- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------

<TABLE>
<C> <S>
1 Risk/Return Summary
1 Investment Objective and Principal Strategies
1 Principal Risks
3 Evaluating Performance
4 Fees and Expenses
6 How the Fund Invests
6 Investment Objective and Policies
7 Other Investments
9 Derivative Strategies
10 Additional Strategies
11 Investment Risks
14 How the Fund is Managed
14 Board of Directors
14 Manager
14 Investment Adviser
15 Portfolio Managers
15 Distributor
15 Year 2000 Readiness Disclosure
17 Fund Distributions and Tax Issues
17 Distributions
18 Tax Issues
19 If You Sell or Exchange Your Shares
21 How to Buy, Sell and Exchange Shares of the Fund
21 How to Buy Shares
29 How to Sell Your Shares
33 How to Exchange Your Shares
35 Financial Highlights
36 Class A Shares
37 Class B Shares
38 Class C Shares
39 Class Z Shares
40 The Prudential Mutual Fund Family
For More Information (Back Cover)
</TABLE>
- --------------------------------------------------------------------------------

PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Risk/Return Summary
- --------------------------------------------------------------------------------

This section highlights key information about the PRUDENTIAL EUROPE GROWTH
FUND, INC., which we refer to as "the Fund." Additional information follows
this summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is LONG-TERM GROWTH OF CAPITAL, which means we look
for investments that we think will increase in value over a period of years. We
normally invest at least 65% of the Fund's total assets in equity-related
securities of corporations doing business in or domiciled in Europe, including
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. The principal type of equity-related security in which
the Fund invests is common stock.There is no limit on the percentage of the
Fund's assets that may be invested in any single country.

In selecting securities for the Fund, we use a bottom-up approach based on a
company's growth potential, and we focus the Fund's portfolio on those areas
within Europe with the most attractive near-term prospects. Generally, we
consider selling a security when the security no longer displays the conditions
for growth, is no longer undervalued, or falls short of expectations.

To achieve our objective of long-term growth of capital, we look for
securities that are undervalued and/or show growth potential. While we make
every effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Since the Fund
invests primarily in equity-related securities, such as common stock, there is
the risk that the value of a particular stock could go down. Also, because the
Fund invests primarily in a single region of the world, its investments are
geographically concentrated. This can result in more pronounced risks

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

[SIDEBAR] WE'RE GROWTH INVESTORS
We look primarily for stock that we believe is undervalued and/or will grow
faster--and earn better profits--than other companies. We also look for
companies with strong competitive advantages, effective research, product
development, strong management or financial strength.

- --------------------------------------------------------------------------------
1
<PAGE>

- --------------------------------------------------------------------------------
Risk/Return Summary
- --------------------------------------------------------------------------------

based upon economic conditions that impact Europe more or less than other
global regions.

In addition to an individual security losing value, the value of the equity
markets as a whole could go down. Investing in foreign securities presents
additional risks, since foreign political, economic and legal systems may be
less stable than those in the U.S. and these risks or other factors may cause
foreign stock markets to decline. The changing value of foreign currencies also
affects the value of the assets we hold and our performance.

There is also risk involved in the investment strategies we may use. Some of
our strategies require us to try to predict whether the price or value of an
underlying investment will go up or down over a certain period of time. There
is always the risk that investments will not perform as we thought they would.
Like any mutual fund, an investment in the Fund could lose value, and you could
lose money. The Fund does not represent a complete investment program.

There are special risks that may arise with the continuing transition to the
euro as the common currency of the European Monetary Union. These risks include
the possibility that computing, accounting and trading systems will fail to
recognize the euro through the transition period, as well as the possibility
that the euro will cause markets to become more volatile.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

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

2 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Risk/Return Summary
- --------------------------------------------------------------------------------

EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Fund performs. The
following bar chart shows the Fund's performance for each full calendar year of
operation. The table shows how the Fund's average annual returns for the
periods indicated compare with those of a broad-based securities market index
and a group of similar mutual funds. They demonstrate the risk of investing in
the Fund and how returns can change. Past performance does not mean that the
Fund will achieve similar results in the future.

[CHART APPEARS HERE]

1995 17.31%
1996 24.12%
1997 15.04%
1998 29.17%

1 These annual returns do not include sales charges. If the sales charges were
included, the annual returns would be lower than those shown. The total
return of the Fund's Class A shares from 1-1-99 to 3-31-99 was (2.19)%.

AVERAGE ANNUAL RETURNS/1/ (AS OF 12-31-98)
<TABLE>
- -----------------------------------------------------
<CAPTION>
1 YR SINCE INCEPTION
<S> <C> <C>
Class A shares 29.17% 17.71% (since 7-13-94)
Class B shares 28.50% 16.79% (since 7-13-94)
Class C shares 28.40% 16.80% (since 7-13-94)
Class Z shares 29.65% 23.54% (since 4-15-96)
MSCI Europe Index/2/ 28.91% N/A
Lipper Average/3/ 22.58% N/A
</TABLE>

1 The Fund's returns are after deduction of sales charges and expenses.

2 The Morgan Stanley Capital International (MSCI) Europe Index is a weighted,
unmanaged index comprised of approximately 1,600 securities listed on the
stock exchanges of twenty-two European countries. These returns do not
include the effect of any sales charges or operating expenses of a mutual
fund. These returns would be lower if they included the effect of sales
charges and operating expenses. MSCI Europe Index returns since the inception
of each class as of December 31, 1998 are 18.32% for Class A, Class B and
Class C and 20.72% for Class Z shares.

3 The Lipper Average is based on the average return of all mutual funds in the
Lipper European Region Fund category and does not include the effect of any
sales charges. These returns would be lower if they included the effect of
sales charges. Lipper returns since inception of each class as of December
31, 1998, are 22.21% for Class A, Class B and Class C shares, and 25.77% for
Class Z shares.

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

3
<PAGE>

- --------------------------------------------------------------------------------
Risk/Return Summary
- --------------------------------------------------------------------------------

FEES AND EXPENSES
These tables show the sales charges, fees and expenses for each share class of
the Fund--Class A, B, C and Z. Each share class has different sales charges--
known as loads--and expenses, but represents an investment in the same fund.
Class Z shares are available only to a limited group of investors. For more
information about which share class may be right for you, see "How to Buy, Sell
and Exchange Shares of the Fund."

SHAREHOLDER FEES/1/ (PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on 5% None 1% None
purchases (as a percentage of offering
price)

Maximum deferred sales charge (load) None 5%/2/ 1%/3/ None
imposed on sales (as a percentage of the
lower of original purchase price or sale
proceeds)

Maximum sales charge (load) imposed on None None None None
reinvested dividends and other
distributions

Redemption fees None None None None

Exchange fee None None None None

ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
- ----------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fees .75% .75% .75% .75%
+ Distribution and service (12b-1) fees .30%/4/ 1.00% 1.00% None
+ Other expenses .43% .43% .43% .43%
= TOTAL ANNUAL FUND OPERATING EXPENSES 1.48% 2.18% 2.18% 1.18%
- Waivers .05%/4/ None None None
= NET ANNUAL FUND OPERATING EXPENSES 1.43% 2.18% 2.18% 1.18%
</TABLE>

1 Your broker may charge you a separate or additional fee for purchases and
sales of shares.
2 The Contingent Deferred Sales Charge (CDSC) for Class B shares decreases by
1% annually to 1% in the fifth and sixth years and 0% in the seventh year.
Class B shares convert to Class A shares approximately seven years after
purchase.
3 The CDSC for Class C shares is 1% for shares redeemed within 18 months of
purchase.
4 For the fiscal year ending April 30, 2000, the Distributor of the Fund has
contractually agreed to reduce its distribution and service fees for Class A
shares to .25 of 1% of the average daily net assets of the Class A shares.

- --------------------------------------------------------------------------------
4 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Risk/Return Summary
- --------------------------------------------------------------------------------

EXAMPLE
This example will help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. After the first year, the
example does not take into consideration the Distributor's agreement to reduce
its distribution and service (12b-1) fees for Class A shares. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $638 $930 $1,243 $2,127
Class B shares $721 $982 $1,269 $2,513
Class C shares $419 $775 $1,258 $2,588
Class Z shares $120 $375 $ 649 $1,432
</TABLE>

You would pay the following expenses on the same investment if you did not sell
your shares:

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C>
Class A shares $638 $930 $1,243 $2,127
Class B shares $221 $682 $1,169 $2,513
Class C shares $319 $775 $1,258 $2,588
Class Z shares $120 $375 $ 649 $1,432
</TABLE>

- --------------------------------------------------------------------------------
5
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is LONG-TERM GROWTH OF CAPITAL. This means we
look to build an investment portfolio which, though possibly volatile in the
short term, has the potential for significant capital appreciation over the
longer term. While we make every effort to achieve our objective, we can't
guarantee success.

In pursuing our objective, we normally invest primarily (at least 65% of
the Fund's total assets) in EQUITY-RELATED SECURITIES OF COMPANIES DOING
BUSINESS IN, OR DOMICILED IN, EUROPE. Companies doing business in Europe include
companies that derive a significant portion of their revenues from sales made in
Europe or have principal executive offices or significant properties located in
Europe. European countries include, but are not limited to, 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. Companies doing business or domiciled in Europe include: companies
organized under the laws of a European country, companies for which the
principal securities trading market is in Europe, companies which derive at
least 50% of their revenues or profits from goods produced or sold, investments
made or services performed in Europe and companies which have at least 50% of
their assets situated in Europe.

The principal type of equity-related security in which the Fund invests is
common stock. In addition to common stock, equity-related securities include,
but are not limited to, preferred stock; rights that can be exercised to obtain
stock, warrants and debt securities or preferred stock convertible or
exchangeable for common or preferred stock; and master limited partnerships.
The Fund may also invest in American Depositary Receipts (ADRs). ADRs represent
an equity investment in a foreign company or some other foreign issuer that are
usually issued by a U.S. bank or trust company and are valued in U.S. dollars.
We consider ADRs to be equity-related securities. The Fund may invest up to 35%
of its total assets in

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

[SIDEBAR] OUR GROWTH STRATEGY
We look for companies that are likely to produce strong growth in earnings
and/or sales, and whose stock prices do not reflect this future growth. These
companies usually have a unique market niche, a strong new product profile or
superior management. We analyze companies using both fundamental and
quantitative techniques.

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

6 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

equity-related securities of non-European companies and in fixed-income
obligations.
In selecting securities for the Fund, we use a bottom-up approach based on a
company's growth potential, and we focus the Fund's portfolio on those areas
within Europe with the most attractive near-term prospects. Generally, we
consider selling a security when the security no longer displays the conditions
for growth, is no longer undervalued, or falls short of expectations.
For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Fund, Its Investments and Risks." The
Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover
page of this prospectus.

The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of Directors of the Fund can
change investment policies that are not fundamental.

OTHER INVESTMENTS

In addition to the principal strategies discussed above, we may also use the
following strategies to increase the Fund's returns or protect its assets if
market conditions warrant.

MONEY MARKET INSTRUMENTS, BONDS AND OTHER FIXED-INCOME OBLIGATIONS

Under normal conditions, the Fund may invest up to 35% of total assets in MONEY
MARKET INSTRUMENTS, BONDS and other fixed-income obligations. Money market
instruments and bonds are known as fixed-income securities because they pay a
fixed rate of interest. Typically, fixed-income securities don't increase or
decrease in value in relation to an issuer's financial condition or business
prospects as stock may, although their value does fluctuate inversely with
respect to changes in interest rates generally and directly in relation to
their perceived credit quality. Corporations and governments issue money market
instruments and bonds to raise money. The Fund may buy obligations of
companies, foreign countries or the U.S. government. Money market instruments
include the commercial paper and short-term obligations of foreign and domestic
corporations, banks and governments and their agencies.

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

7
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

The Fund will purchase only money market instruments that have received one
of the two highest short-term debt ratings from Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Rating Group ("S&P"), or another nationally
recognized statistical rating organization (NRSRO). For bonds and other long-
term fixed-income obligations and convertible securities, we may invest in
"investment grade" obligations. An obligation is investment grade if it has
received one of the top four long-term debt ratings from an NRSRO. Obligations
rated in the fourth category (Baa for Moody's or BBB for S&P) have speculative
characteristics and are subject to a greater risk of loss of principal and
interest. We may also invest in obligations that are not rated, but which we
believe are of comparable quality.

After a security has been purchased by the Fund, it may be assigned a lower
rating or cease to be rated. This does not mean that the Fund must sell the
security, but the investment adviser will consider such an event in deciding
whether the Fund should continue to hold the security in its portfolio.

The Fund may also invest up to 25% of its net assets in foreign convertible
debt obligations having a minimum rating of at least "B" by an NRSRO. These
lower-rated obligations are referred to as high-yield or "junk" bonds, and
their value is more likely to react to developments affecting market or credit
risk than higher-rated debt obligations, which react primarily to movements in
the general level of interest rates. In particular, junk bond investments may
increase or decrease in value due to an issuer's financial condition.

For more information about bonds and bond ratings, see the SAI, "Appendix
I--Description of Security Ratings."

TEMPORARY DEFENSIVE INVESTMENTS

In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in money market instruments.
Investing heavily in these securities limits our ability to achieve capital
appreciation, but can help to preserve the Fund's assets when equity markets
are unstable.

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

8 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

REPURCHASE AGREEMENTS
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund.

DERIVATIVE STRATEGIES
We may use a number of alternative investment strategies--including
DERIVATIVES--to try to improve the Fund's returns or protect its assets,
although we cannot guarantee that these strategies will work, that the
instruments necessary to implement these strategies will be available or that
the Fund will not lose money. Derivatives--such as futures, options, forward
foreign currency exchange contracts and options on futures--involve costs and
can be volatile. With derivatives, the investment adviser tries to predict
whether the underlying investment--a security, market index, currency, interest
rate or some other benchmark--will go up or down at some future date. We may
use derivatives to try to reduce risk or to increase return consistent with the
Fund's overall investment objective. The investment adviser will consider
various factors (such as cost) in deciding whether or not to employ any
particular strategy or use any particular instrument. Any derivatives we may
use may not match the Fund's underlying holdings.

OPTIONS
The Fund may purchase and sell put and call options on equity securities, stock
indices and foreign currencies that are traded on U.S. or foreign securities
exchanges, on NASDAQ or in the over-the-counter market. An option is the right
to buy or sell securities or currencies in exchange for a premium. The Fund
will sell only covered options.

FUTURES CONTRACTS AND RELATED OPTIONS, FOREIGN CURRENCY FORWARD CONTRACTS
The Fund may purchase and sell stock and bond index futures contracts and
related options on stock and bond index futures. The Fund also may purchase and
sell futures contracts on foreign currencies and related options on foreign
currency futures contracts. A futures contract is an agreement to buy or sell a
set quantity of an underlying product at a future date or to make or receive a
cash payment based on the value of a securities index on a stipulated future
date. The Fund may also enter into

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

9
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

foreign currency forward contracts to protect the value of its assets against
future changes in the level of foreign exchange rates. A foreign currency
forward contract is an obligation to buy or sell a given currency on a future
date or a set price.

For more information about these strategies, see the SAI, "Description of
the Fund, its Investments and Risks--Hedging and Return Enhancement
Strategies."

ADDITIONAL STRATEGIES
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 33 1/3% of the value of its total assets); LENDS ITS SECURITIES to
others (the Fund can lend up to 30% of the value of its total assets, including
collateral received in the transaction); and HOLDS ILLIQUID SECURITIES (the
Fund may hold up to 15% of its net assets in illiquid securities, including
securities with legal or contractual restrictions, those without a readily
available market and repurchase agreements with maturities longer than seven
days). The Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.

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

10 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT RISKS

As noted, all investments involve risk, and investing in the Fund is no
exception. This chart outlines the key risks and potential rewards of the
principal strategies of the Fund and certain other investments. See, too,
"Description of the Fund, its Investments and Risks" in the SAI.

INVESTMENT TYPE
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

EUROPEAN EQUITY- . Geographically . Rewards
RELATED concentrated associated with
SECURITIES investments can foreign
result in more securities in
At least 65%; up pronounced risks general and
to 100% based upon equity-related
economic securities as
conditions that described below
impact that
region either
more or less than
other global
regions

. Computing,
accounting and
trading systems
may fail to
recognize the
euro through the
transition
period, and the
euro may cause
markets to become
more volatile

. Other risks
associated with
foreign
securities in
general and
equity-related
securities as
described below

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

FOREIGN . Foreign markets, . Investors can
SECURITIES IN economics and participate in
GENERAL political systems the growth of
may not be as foreign markets
At least 65%; up stable as in the and companies
to 100% U.S., operating in
particularly those markets
those in
developing
countries

. Currency risk--
changing values
of foreign
currencies
. May be less
liquid than U.S.
stocks and bonds

. Differences in
foreign laws,
accounting
standards, public
information,
custody and
settlement
practices

. Year 2000
conversion may be
more of a problem
for some foreign
issuers,
governments and
securities
markets
- --------------------------------------------------------------------------------

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

11
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

COMMON STOCK AND . Individual stocks . Historically,
OTHER EQUITY- could lose value stocks have
RELATED outperformed
SECURITIES . The equity other
markets could go investments over
For U.S. compa- down, resulting the long term
nies, up to 35%, in a decline in
usually less value of the . Generally,
Fund's economic growth
For foreign com- investments means higher
panies, at least corporate
65%, up to 100% . Companies that profits, which
pay dividends may leads to an
not do so if they increase in
don't have stock prices,
profits or known as capital
adequate cash appreciation
flow
. May be a source
. Changes in of dividend
economic or income
political
conditions, both
domestic and
international,
resulting in a
decline in value
of the Fund's
investments
- --------------------------------------------------------------------------------

FIXED-INCOME . The Fund's . Bonds have
OBLIGATIONS holdings, share generally
price, yield and outperformed
Up to 35% total return may money market
fluctuate in instruments over
response to bond the long term
market movements with less risk
than stocks
. Credit risk--the
risk that the
default of an . Most bonds will
issuer would rise in value
leave the Fund when interest
with unpaid rates fall
interest or
principal. The . Regular interest
lower a bond's income
quality, the
higher its . Investment grade
potential bonds have a
volatility lower risk of
default
. Market risk--the
risk that the . Generally more
market value of secure than
an investment may stock since
move up or down, companies must
sometimes rapidly pay their debts
or unpredictably. before paying
Market risk may stockholders
affect an
industry, a
sector or the
market as a whole

. Interest rate
risk--the risk
that the value of
most bonds will
fall when
interest rates
rise; the longer
a bond's maturity
and the lower its
credit quality,
the more its
value typically
falls. It can
lead to price
volatility
- --------------------------------------------------------------------------------
12 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
How the Fund Invests
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF FUND'S TOTAL RISKS POTENTIAL REWARDS
ASSETS

DERIVATIVES . Derivatives used . The Fund could
for hedging such make money and
Percentage varies as futures, protect against
options and losses if the
foreign currency investment
forward analysis proves
contracts, may correct
not fully offset
the underlying . Derivatives that
positions and involve leverage
this could result could generate
in losses to the substantial
Fund that would gains at low
not have cost
otherwise
occurred . One way to
manage the
. Derivatives used Fund's
for risk risk/return
management may balance is to
not have the lock in the
intended effects value of an
and may result in investment ahead
losses or missed of time
opportunities

. The other party
to a derivatives
contract could
default

. Derivatives can
increase share
price volatility
and those that
involve leverage
could magnify
losses

. Certain types of
derivatives
involve costs
that can reduce
returns
- --------------------------------------------------------------------------------
ILLIQUID . May be difficult . May offer a more
SECURITIES to value attractive yield
precisely or potential for
Up to 15% of net growth than more
assets . May be difficult widely traded
to sell at the securities
time or price
desired
- --------------------------------------------------------------------------------

MONEY MARKET . Limits potential . May preserve the
INSTRUMENTS for capital Fund's assets
appreciation
Up to 100% on a
temporary basis . See credit risk
and market risk

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

13
<PAGE>

- --------------------------------------------------------------------------------
How the Fund is Managed
- --------------------------------------------------------------------------------

BOARD OF DIRECTORS
The Fund's Board of Directors oversees the actions of the Manager, Investment
Adviser and Distributor and decides on general policies. The Board also
oversees the Fund's officers who conduct and supervise the daily business
operations of the Fund.

MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077

Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended April 30, 1999, the Fund paid PIFM management fees of .75% of the Fund's
average net assets.

As of April 30, 1999, PIFM served as the Manager to all 46 of the Prudential
mutual funds, and as Manager or administrator to 22 closed-end investment
companies, with aggregate assets of approximately $73 billion.

INVESTMENT ADVISER
The Prudential Investment Corporation, known as Prudential Investments, is the
Fund's investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. Prudential Investments has entered into an agreement with
PRICOA Asset Management Ltd. to assist it in performing advisory functions.
PIFM has responsibility for all investment advisory services, supervises
Prudential Investments and reimburses Prudential Investments for its reasonable
costs and expenses. Prudential Investments supervises PRICOA and reimburses
PRICOA for its reasonable costs and expenses.

- --------------------------------------------------------------------------------
14 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852

<PAGE>

- --------------------------------------------------------------------------------
How the Fund is Managed
- --------------------------------------------------------------------------------

PORTFOLIO MANAGERS

The Fund is co-managed by STEPHEN F. AUTH, CFA; WILLIAM E. HIGGINS and JEAN-
YVES CHEREAU.
STEVE AUTH is a Senior Managing Director of Prudential Investments and has
managed the Fund since October 1997. Steve has been employed by Prudential
Investments as a portfolio manager since 1985. He earned a B.A. from Princeton
University and an M.B.A. from Harvard University. He was awarded the Chartered
Financial Analyst (CFA) designation.
BILL HIGGINS is a Vice President of Prudential Investments and has been a
member of Prudential Investments' global equity investment team since 1991. He
has participated in the management of the Fund since its inception and has
served as a co-manager of the Fund since October 1997. Bill earned a B.A. from
Georgetown University, a Ph.D. from Harvard University and an M.B.A. from New
York University.

JEAN-YVES CHEREAU is a Managing Director of Prudential Investments and has
co-managed the Fund since October 1997. He has been a member of Prudential's
European investment team since 1992. Jean-Yves earned a Ph.D. (BD) from the
University of Paris La Sorbonne-Panther and a Masters from the University of
Paris.

DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund also has
Distribution and Service Plans under Rule 12b-1 of the Investment Company Act.
Under the Plans and the Distribution Agreement, PIMS pays the expenses of
distributing the Fund's Class A, B, C and Z shares and provides certain
shareholder support services. The Fund pays distribution and other fees to PIMS
as compensation for its services for each class of shares other than Class Z.
These fees--known as 12b-1 fees--are shown in the "Fees and Expenses" tables.

YEAR 2000 READINESS DISCLOSURE
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 of outside service providers.
Many computer software systems in use today cannot distinguish

- --------------------------------------------------------------------------------
15
<PAGE>

- --------------------------------------------------------------------------------
How the Fund is Managed
- --------------------------------------------------------------------------------

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. 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. The Fund and its Board receive,
and have received since early 1998, satisfactory quarterly reports from the
principal service providers as to their preparations for year 2000 readiness,
although there can be no assurance that the service providers (or other
securities market participants) will successfully complete the necessary
changes in a timely manner or that there will be no adverse impact on the Fund.
Moreover, the Fund at this time has not considered retaining alternative
service providers or directly undertaken efforts to achieve year 2000
readiness, the latter of which would involve substantial expenses without an
assurance of success.
Additionally, issuers of securities generally, as well as those 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 result in a decline in the value of the securities
held by the Fund.

- --------------------------------------------------------------------------------
16 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund pays DIVIDENDS of ordinary income and distributes
realized net CAPITAL GAINS, if any, to shareholders. These distributions are
subject to federal income taxes, unless you hold your shares in a 401(k) plan,
an Individual Retirement Account (IRA) or some other qualified tax-deferred
plan or account. Dividends and distributions from the Fund may also be subject
to state income tax in the state where you live.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, unless you hold your shares
in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal income tax
issues you should be aware of, but is not meant to be tax advice. For tax
advice, please speak with your tax adviser.

DISTRIBUTIONS
The Fund distributes DIVIDENDS to shareholders out of any net investment income
plus any realized net capital gains, typically once a year. For example, if the
Fund owns an ACME Corp. stock and the stock pays a dividend, the Fund will pay
out a portion of this dividend to its shareholders, assuming the Fund's income
is more than its costs and expenses. The dividends you receive from the Fund
will be taxed as ordinary income whether or not they are reinvested in the
Fund.
The Fund also distributes realized net CAPITAL GAINS to shareholders--
typically once a year. Capital gains are generated when the Fund sells its
assets for a profit. For example, if the Fund bought 100 shares of ACME Corp.
stock for a total of $1,000 and more than one year later sold the shares for a
total of $1,500, the Fund has net long-term capital gains of $500, which it
will pass on to shareholders (assuming the Fund's total gains are greater than
any losses it may have). Capital gains are taxed differently depending on how
long the Fund holds the security--if a security is held more than one year
before it is sold, LONG-TERM capital gains are taxed at the rate of 20%, but if
the security is held one year or less, SHORT-TERM capital gains are taxed at
rates of up to 39.6%. Different rates apply to corporate shareholders.
For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you

- --------------------------------------------------------------------------------
17
<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

ask us to pay the distributions in cash, we will send you the proceeds if your
account is with the Transfer Agent. Otherwise, if your account is with a
broker, you will receive a credit to your account. Either way, the
distributions may be subject to taxes, unless your shares are held in a
qualified tax-deferred plan or account. For more information about automatic
reinvestment and other shareholder services, see "Step 4: Additional
Shareholder Services" in the next section.

TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own
shares of the Fund as part of a qualified tax-deferred plan or account, your
taxes are deferred, so you will not receive a Form 1099. However, you will
receive a Form 1099 when you receive any distributions from your qualified tax-
deferred plan or account.
Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter
and actually pay them in January of the following year. In such cases, the
dividends are treated as if they were paid on December 31 of the prior year.
Corporate shareholders are eligible for the 70% dividends-received deduction
for certain dividends.

WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding we will withhold
and pay to the U.S. Treasury 31% of your distributions and sale proceeds.
Dividends of net investment income and short-term capital gains paid to a
nonresident foreign shareholder generally will be subject to a U.S. withholding
tax of 30%. This rate may be lower, depending on any tax treaty the U.S. may
have with the shareholder's country.

IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date for a distribution
(the date that determines who receives the distribution), we will pay that

- --------------------------------------------------------------------------------
18 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

distribution to you. As explained above, the distribution may be subject to
income or capital gains taxes. You may think you've done well since you bought
shares one day and soon thereafter received a distribution. That is not so
because when dividends are paid out, the value of each share of the Fund
decreases by the amount of the dividend to reflect the payout although this may
not be apparent because the value of each share of the Fund will also be
affected by market changes, if any. The distribution you receive makes up for
the decrease in share value. However, the timing of your purchase means that
part of your investment came back to you as taxable income.

QUALIFIED RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax-free. Please contact your financial
adviser for information on a variety of Prudential mutual funds that are
suitable for retirement plans offered by Prudential.

IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax unless you hold shares in a qualified tax-
deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have.
If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before
the sale of the shares). If you acquire shares of the Fund and sell your shares
within 90 days, you may not be allowed to include certain
- ------------------------------------------------------------

CAPITAL GAIN
[GRAPHIC (taxes owed)
RECEIPTS FROM SALE APPEARS OR
HERE] CAPITAL LOSS
(offset against gain)

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

19
<PAGE>

- --------------------------------------------------------------------------------
Fund Distributions and Tax Issues
- --------------------------------------------------------------------------------

charges incurred in acquiring the shares for purposes of calculating gain or
loss realized upon the sale of the shares.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event" because it does not involve an actual sale of your Class B
shares. Therefore, if the shares you exchanged have increased in value since
you purchased them, you have capital gains, which are subject to the taxes
described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.

AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale
of your Class B shares. This opinion, however, is not binding on the Internal
Revenue Service (IRS). For more information about the automatic conversion of
Class B shares, see "Class B Shares Convert to Class A Shares After
Approximately Seven Years" in the next section.

- --------------------------------------------------------------------------------
20 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

How to Buy, Sell and
- --------------------------------------------------------------------------------
Exchange Shares of the Fund
- --------------------------------------------------------------------------------

HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services
LLC (PMFS) at (800) 225-1852 or contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020

To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Fund, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Fund) or suspend or modify the Fund's sale of
its shares.

STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay the sales charge at the time of
purchase, but the operating expenses each year are lower than the expenses of
Class B and Class C shares. With Class B shares, you only pay a sales charge if
you sell your shares within six years (that is why it is called a Contingent
Deferred Sales Charge or CDSC), but the operating expenses each year are higher
than the Class A share expenses. With Class C shares, you pay a 1% front-end
sales charge and a 1% CDSC if you sell within 18 months of purchase, but the
operating expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
. The amount of your investment
. The length of time you expect to hold the shares and the impact of the
varying distribution fees

- --------------------------------------------------------------------------------
21
<PAGE>

. The different sales charges that apply to each share class--Class A's
front-end sales charge vs. Class B's CDSC vs. Class C's low front-end
sales charge and low CDSC
. Whether you qualify for any reduction or waiver of sales charges
. The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
. Whether you qualify to purchase Class Z shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.

Share Class Comparison. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you
are entitled to a reduction or waiver of any sales charges.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z

<S> <C> <C> <C> <C>
Minimum purchase $1,000 $1,000 $2,500 None
amount/1/

Minimum amount for $100 $100 $100 None
subsequent purchases/1/

Maximum initial 5% of the public None 1% of the public None
sales charge offering price offering price

Contingent Deferred None If sold during: 1% on sales None
Sales Charge Year 1 5% made within
(CDSC)/2/ Year 2 4% 18 months of
Year 3 3% purchase/2/
Year 4 2%
Years 5/6 1%
Year 7 0%
Annual distribution (12b-1) .30 of 1%; 1% 1% None
and service fees (shown as (.25 of 1%
a percentage of average net currently)
assets)/3/
</TABLE>
1 The minimum investment requirements do not apply to certain retirement and
employee savings plans and custodial accounts for minors. The minimum initial
and subsequent investment for purchases made through the Automatic Investment
Plan is $50. For more information, see "Additional Shareholder Services--
Automatic Investment Plan."
2 For more information about the CDSC and how it is calculated, see "How to
Sell Your Shares--Contingent Deferred Sales Charge (CDSC)." Class C shares
bought before November 2, 1998, have a 1% CDSC if sold within one year.
3 These distribution fees are paid from the Fund's assets on a continuous
basis. Over time, the fees will increase the cost of your investment and may
cost you more than paying other types of sales charges. The service fee for
Class A, Class B and Class C shares is .25 of 1%. The distribution fee for
Class A shares is limited to .30 of 1% (including the .25 of 1% service fee).
Class B and Class C shares pay a distribution fee (in addition to the service
fee) of .75 of 1%.

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

22 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid paying
Class A's initial sales charge.

Increase the Amount of Your Investment. You can reduce Class A's sales charge
by increasing the amount of your investment. This table shows you how the sales
charge decreases as the amount of your investment increases.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
<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 million and above* None None None
</TABLE>

* If you invest $1 million or more, you can buy only Class A shares, unless you
qualify to buy Class Z shares.

To satisfy the purchase amounts above, you can:
. invest with an eligible group of investors who are related to you;
. buy the Class A shares of two or more Prudential mutual funds at the same
time;
. use your RIGHTS OF ACCUMULATION, which allow you to combine the value of
Prudential mutual fund shares you already own with the value of the
shares you are purchasing for purposes of determining the applicable
sales charge (note: you must notify the Transfer Agent if you qualify for
Rights of Accumulation); or
. sign a LETTER OF INTENT, stating in writing that you or an eligible group
of related investors will purchase a certain amount of shares in the Fund
and other Prudential mutual funds within 13 months.

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

23
<PAGE>

of eligible employees. For more information about these requirements, call
Prudential at (800) 353-2847.

Mutual Fund Programs. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group
relating to:
. Mutual fund "wrap" or asset allocation programs, where the sponsor places
Fund trades and charges its clients a management, consulting or other fee
for its services; and
. Mutual fund "supermarket" programs where the sponsor links its customers'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.

Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

Other Types of Investors. Other investors pay no sales charge, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential Mutual Funds and
clients of brokers that have entered into a selected dealer agreement with the
Distributor. To qualify for a reduction or waiver of the sales charge, you must
notify the Transfer Agent or your broker at the time of purchase. For more
information about reducing or eliminating Class A's sales charge, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Reduction and Waiver of
Initial Sales Charge--Class A Shares."

WAIVING CLASS C'S INITIAL SALES CHARGE

Benefit Plans. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.

Investment of Redemption Proceeds from Other Investment Companies. The initial
sales charge will be waived for purchases of Class C shares if the

- --------------------------------------------------------------------------------
24 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

purchase is made with money from the redemption of shares of any unaffiliated
investment company, as long as the shares were not held in an account at
Prudential Securities Incorporated (Prudential Securities) or one of its
affiliates. Such purchases must be made within 60 days of the redemption. To
qualify for this waiver, you must:
. purchase your shares through an account at Prudential Securities;
. purchase your shares through an ADVANTAGE Account or an Investor Account
with Pruco Securities Corporation; or
. purchase your shares through another broker.

This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any
supporting documents it considers to be appropriate.

QUALIFYING FOR CLASS Z SHARES
Benefit Plans. Certain group retirement plans may purchase Class Z shares,
provided that they meet the required minimum amount of assets, average account
balance or number of eligible employees. For more information about these
requirements, call Prudential at (800) 353-2847.

Mutual Fund Programs. Class Z shares can also be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
which includes mutual funds as investment options and the Fund as an available
option. Class Z shares can also be purchased by investors in certain programs
sponsored by broker-dealers, investment advisers and financial planners who
have agreements with Prudential Investments Advisory Group relating to:
. Mutual fund "wrap" or asset allocation programs, where the sponsor places
Fund trades, links its clients' accounts to a master account in the
sponsor's name and charges its clients a management, consulting or other
fee for its services

. Mutual fund "supermarket" programs, where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services

Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of

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

25
<PAGE>

shares in the Fund in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and
other fees charged by these programs in connection with investing in each
available share class before selecting a share class.

Other Types of Investors. Class Z shares of the Fund can also be purchased by
any of the following:
. Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option
. The Prudential Securities Cash Balance Pension Plan, an employee- defined
benefit plan sponsored by Prudential Securities
. Current and former directors/trustees of the Prudential Mutual Funds
(including the Fund)
. Prudential with an investment of $10 million or more.

In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of
the purchase price for Class C shares, and a finder's fee for Class Z shares
from their own resources based on a percentage of the net asset value of shares
sold or otherwise.

CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares--
Conversion Feature--Class B Shares."

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

26 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
[SIDEBAR] MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock
in its portfolio and the price of ACME stock goes up while the value of the
fund's other holdings remains the same and expenses don't change, the NAV of
Fund XYZ will increase.

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

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. For
example, if the value of the investments held by Fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund--or the NAV--is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Fund's Board. Most national newspapers report the
NAVs of most mutual funds, which allows investors to check the prices of mutual
funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York time on days that the New York Stock Exchange is open for trading. We do
not determine the NAV on days when we have not received any orders to purchase,
sell or exchange Fund shares, or when changes in the value of the Fund's
portfolio do not materially affect the NAV.

WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an
initial sales charge (unless you're entitled to a waiver). For Class B and
Class Z shares, you will pay the NAV next determined after we receive your
order to purchase (remember, there are no up-front sales charges for these
share classes). Your broker may charge you a separate or additional fee for
purchases of shares.

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

27
<PAGE>

STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:

Automatic Reinvestment. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date
we determine who receives dividends.

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015

Automatic Investment Plan. You can make regular purchases of Fund shares for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.

Retirement Plan Services. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs or SEP IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a
401(k) or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs,
403(b) plans, pension and profit-sharing plans), your financial adviser will
help you determine which retirement plan best meets your needs. Complete
instructions about how to establish and maintain your plan and how to open
accounts for you and your employees will be included in the retirement plan kit
you receive in the mail.

The PruTector Program. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and
is not available in all states.

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

28 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.

Reports to Shareholders. Every year, we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.

HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check, by wire
or by electronic deposit to your bank account) at any time, subject to certain
restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer
Agent, the Distributor or your broker receives your order to sell (less any
applicable CDSC). If your broker holds your shares, he must receive your order
to sell by 4:15 p.m. New York time to process the sale on that day. Otherwise
contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010

Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, we will credit payment to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid this delay if you purchase shares by
wire, certified check or cashier's check. Your broker may charge you a separate
or additional fee for sales of shares.

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

29
<PAGE>

RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the
value of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, you want the check sent to
someone or some place that is not in our records, or you are a business or a
trust and if you hold your shares directly with the Transfer Agent, you will
need to have the signature on your sell order guaranteed by an "eligible
guarantor institution." An "eligible guarantor institution" includes any bank,
broker, dealer or credit union. For more information, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Sale of Shares--Signature Guarantee."

CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares
within 18 months of purchase (one year for Class C shares purchased before
November 2, 1998), you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
. Amounts representing shares you purchased with reinvested dividends and
distributions
. Amounts representing shares that represent the increase in NAV above the
total amount of your payments for shares made during the past six years
for Class B shares (five years for Class B shares purchased before
January 22, 1990) and 18 months for Class C shares (one year for Class C
shares purchased before November 2, 1998)
. Amounts representing the cost of shares held beyond the CDSC period (six
years for Class B shares and 18 months for Class C shares).

Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.

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

30 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the
cost of shares held for the longest period of time within the applicable CDSC
period.
As we noted before in the "Share Class Comparison" chart, the CDSC for Class
B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth and 1% in the fifth and sixth years. The rate decreases on the first day
of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares-- which is applied
to shares sold within 18 months of purchase (or one year for Class C shares
purchased before November 2, 1998). For both Class B and Class C shares, the
CDSC is calculated using the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding
any time shares were held in a money market fund.

WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
. after a shareholder dies or is disabled (or, in the case of a trust
account, the death or disability of the grantor). This waiver applies to
individual shareholders, as well as shares owned in joint tenancy (with
rights of survivorship), provided the shares were purchased before the
death or disability;
. to provide for certain distributions--made without IRS penalty--from a
tax-deferred retirement plan, IRA or Section 403(b) custodial account;
and
. on certain sales from a Systematic Withdrawal Plan.

For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred Sales
Charge--Class B Shares."

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

31
<PAGE>

WAIVER OF THE CDSC--CLASS C SHARES
Benefit Plans. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC will also be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.

REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.

SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your
account. We would do this to minimize the Fund's expenses paid by other
shareholders. We will give you 60 days' notice, during which time you can
purchase additional shares to avoid this action. This involuntary sale does not
apply to shareholders who own their shares as part of a 401(k) plan, an IRA, or
some other tax-deferred plan or account.

90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate number of shares
to reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares."

RETIREMENT PLANS
To sell shares and receive a distribution from your retirement account, call
your broker or the Transfer Agent for a distribution request form. There are

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

32 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

special distribution and income tax withholding requirements for distributions
from retirement plans and you must submit a withholding form with your request
to avoid delay. If your retirement plan account is held for you by your
employer or plan trustee, you must arrange for the distribution request to be
signed and sent by the plan administrator or trustee. For additional
information, see the SAI.

HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in
certain other Prudential mutual funds--including certain money market funds--if
you satisfy the minimum investment requirements. For example, you can exchange
Class A shares of the Fund for Class A shares of another Prudential mutual
fund, but you can't exchange Class A shares for Class B, Class C or Class Z
shares. Class B and Class C shares may not be exchanged into money market funds
other than Prudential Special Money Market Fund, Inc. After an exchange, at
redemption, the CDSC will be calculated from the first day of the month after
your initial purchase, excluding any time shares which were held in a money
market fund. We may change the terms of the exchange privilege after giving you
60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010

There is no sales charge for exchanges. However, if you exchange--and then
sell--Class B shares within approximately six years of your original purchase
or Class C shares within 18 months of your original purchase, you must still
pay the applicable CDSC. If you have exchanged Class B or Class C shares into a
money market fund, the time you hold the shares in the money market account
will not be counted for purposes of calculating the required holding periods
for CDSC liability.

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

33
<PAGE>

Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares.
We make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained a legal opinion that this exchange is not a
"taxable event" for federal income tax purposes. This opinion is not binding on
the IRS.

FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts
are involved, market timing can also make it difficult to use long-term
investment strategies because we cannot predict how much cash the Fund will
have to invest. When, in our opinion, such activity would have a disruptive
effect on portfolio management, the Fund reserves the right to refuse purchase
orders and exchanges into the Fund by any person, group or commonly controlled
account. The Fund may notify a market timer of rejection of an exchange or
purchase order after the day on which the order is placed. If the Fund allows a
market timer to trade Fund shares, it may require the market timer to enter
into a written agreement to follow certain procedures and limitations.

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

34 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants which appear in the annual report and the SAI and are available
upon request. Additional performance information for each share class is
contained in the annual report, which you can receive at no charge.

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

35
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS A SHARES
The financial highlights for the three years ended April 30, 1999 were audited
by PricewaterhouseCoopers LLP, and the financial highlights for the one year
ended April 30, 1996 and the period from July 13, 1994 through April 30, 1995,
were audited by other independent auditors. Their reports were unqualified.

<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL YEARS ENDED 4-30)
- ----------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE 1999/4/ 1998/4/ 1997 1996/4/ 1995/2/,/4/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $19.91 $15.46 $13.69 $11.77 $11.40
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .03 .01 .09 .06 .01
Net realized and unrealized
gain on investment and
foreign currency transactions .28 6.38 2.24 1.86 .36
TOTAL FROM INVESTMENT
OPERATIONS .31 6.39 2.33 1.92 .37
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends in excess of net
investment income (.24) (.14) -- -- --
Distributions from net
realized gains an investment
and foreign currency
transactions (1.18) (1.80) (.56) -- --
TOTAL DISTRIBUTIONS (1.42) (1.94) (.56) -- --
NET ASSET VALUE, END OF
PERIOD $18.80 $19.91 $15.46 $13.69 $11.77
TOTAL RETURN/1/ 2.03% 44.93% 17.20% 16.31% 3.25%
- ----------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD
(000) $78,074 $55,507 $38,807 $47,789 $41,963
Average net assets (000) $67,286 $42,885 $37,834 $47,183 $29,598
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution fees 1.43% 1.39% 1.36% 1.53% 1.84%/3/
Expenses, excluding
distribution fees 1.18% 1.14% 1.11% 1.28% 1.59%/3/
Net investment income .15% .08% .57% .44% .06%/3/
Portfolio turnover 62% 50% 31% 65% 25%
</TABLE>
- --------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each period
reported. Total return for a period of less than a full year is not
annualized.
2 Information shown for the period July 13, 1994, when Class A shares were
first offered, through April 30, 1995.
3 Annualized.
4 Based on average shares outstanding, by class.

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

36 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS B SHARES
The financial highlights for the three years ended April 30, 1999 were audited
by Pricewaterhouse Coopers LLP, and the financial highlights for the one year
ended April 30, 1996 and the period from July 13, 1994 through April 30, 1995,
were audited by other independent auditors. Their reports were unqualified.

<TABLE>
<CAPTION>
CLASS B SHARES (FISCAL YEARS ENDED 4-30)
- -------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE 1999/4/ 1998/4/ 1997 1996/4/ 1995/2/,/4/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $19.35 $15.12 $13.49 $11.69 $11.40
INCOME FROM INVESTMENT
OPERATIONS:
Net investment loss (.11) (.11) (.04) (.04) (.06)
Net realized and unrealized
gain on investment and
foreign currency
transactions .30 6.15 2.23 1.84 .35
TOTAL FROM INVESTMENT
OPERATIONS .19 6.04 2.19 1.80 .29
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions in excess of
net investment income (.10) (.01) -- -- --
Distributions from net
realized gains on investment
and foreign currency
transactions (1.18) (1.80) (.56) -- --
TOTAL DISTRIBUTIONS (1.28) (1.81) (.56) -- --
NET ASSET VALUE, END OF
PERIOD $18.26 $19.35 $15.12 $13.49 $11.69
TOTAL RETURN/1/ 1.39% 43.35% 16.41% 15.40% 2.54%
- -------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD
(000) $196,247 $175,857 $139,277 $125,868 $106,081
Average net assets (000) $191,220 $147,492 $133,135 $122,255 $85,623
RATIOS TO AVERAGE NET
ASSETS:
Expenses, including
distribution fees 2.18% 2.14% 2.11% 2.28% 2.59%/3/
Expenses, excluding
distribution fees 1.18% 1.14% 1.11% 1.28% 1.59%/3/
Net investment loss (.57)% (.69)% (.27)% (.33)% (.71)%/3/
Portfolio turnover 62% 50% 31% 65% 25%
</TABLE>
- --------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and any other distributions
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each
period reported. Total return for a period of less than a full year is not
annualized.
2 Information shown is for the period July 13, 1994, when Class B shares were
first offered, through April 30, 1995.
3 Annualized.
4 Based on average shares outstanding, by class.

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

37
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS C SHARES

The financial highlights for the three years ended April 30, 1999 were audited
by PricewaterhouseCoopers LLP, and the financial highlights for the one year
ended April 30, 1996 and the period from July 13, 1994 through April 30, 1995,
were audited by other independent auditors. Their reports were unqualified.

<TABLE>
<CAPTION>
CLASS C SHARES (FISCAL YEARS ENDED 4-30)
- ------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999/4/ 1998/4/ 1997 1996/4/ 1995/2/,/4/
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $19.38 $15.12 $13.49 $11.69 $11.40
INCOME FROM INVESTMENT
OPERATIONS:
Net investment loss (.11) (.11) (.04) (.04) (.06)
Net realized and unrealized gain
on investment and foreign
currency transactions .26 6.18 2.23 1.84 .35
TOTAL FROM INVESTMENT OPERATIONS .15 6.07 2.19 1.80 .29
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions in excess of net
investment income (.10) (.01) -- -- --
Distributions from net realized
gains on investment and foreign
currency transactions (1.18) (1.80) (.56) -- --
TOTAL DISTRIBUTIONS (1.28) (1.81) (.56) -- --
NET ASSET VALUE, END OF PERIOD $18.25 $19.38 $15.12 $13.49 $11.69
TOTAL RETURN/1/ 1.18% 43.55% 16.41% 15.40% 2.54%
- ------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $15,073 $11,122 $8,010 $7,741 $7,260
Average net assets (000) $13,465 $8,526 $8,002 $7,768 $6,094
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 2.18% 2.14% 2.11% 2.28% 2.59%/3/
Expenses, excluding distribution
fees 1.18% 1.14% 1.11% 1.28% 1.59%/3/
Net investment loss (.61)% (.66)% (.25)% (.30)% (.71)%/3/
Portfolio turnover 62% 50% 31% 65% 25%
</TABLE>
- --------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and any other distributions
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each period
reported. Total return for a period of less than a full year is not
annualized.
2 Information shown is for the period July 13, 1994, when shares were first
offered, through April 30, 1995.
3 Annualized.
4 Based on average shares outstanding, by class.

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

38 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

CLASS Z SHARES
The financial highlights for the three years ended April 30, 1999 were audited
by PricewaterhouseCoopers LLP, and the financial highlights for the period from
April 15, 1996 through April 30, 1996, were audited by other independent
auditors. Their reports were unqualified.

<TABLE>
<CAPTION>
CLASS Z SHARES (FISCAL YEARS ENDED 4-30)
- -------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999/4/ 1998/4/ 1997 1996/2/,/4/
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.93 $15.51 13.68 $13.40
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .05 .04 .02 .28
Net realized and unrealized gain on
investment and foreign currency
transactions .31 6.37 2.37 --
Total from investment operations .36 6.41 2.39 .28
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions in excess of net
investment income (.28) (.19) -- --
Distributions from net realized gains on
investment and foreign currency
transactions (1.18) (1.80) (.56) --
TOTAL DISTRIBUTIONS (1.46) (1.99) (.56) --
NET ASSET VALUE, END OF PERIOD $18.83 $19.93 $15.51 $13.68
TOTAL RETURN/1/ 2.35% 44.95% 17.66% 2.09%
- -------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD (000) $10,972 $3,090 $11,949 $204/5/
Average net assets (000) $8,572 $12,148 $7,958 $203/5/
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 1.18% 1.14% 1.11% 1.28%/3/
Expenses, excluding distribution fees 1.18% 1.14% 1.11% 1.28%/3/
Net investment income .25% .26% .22% .54%/3/
Portfolio turnover 62% 50% 31% 65%
</TABLE>
- --------------------------------------------------------------------------------
1 Total return assumes reinvestment of dividends and any other distributions,
but does not include the effect of sales charges. It is calculated assuming
shares are purchased on the first day and sold on the last day of each period
reported. Total return for a period of less than a full year is not
annualized.
2 Information shown for the period April 15, 1996, when Class Z Shares were
first offered, through April 30, 1996.
3 Annualized.
4 Based on average shares outstanding, by class.
5 Figures are actual and not rounded to the nearest thousand.

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

39
<PAGE>

- --------------------------------------------------------------------------------
The Prudential Mutual Fund Family
- --------------------------------------------------------------------------------

Prudential offers a broad range of mutual funds designed to meet your
individual needs. For information about these funds, contact your financial
adviser or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.

STOCK FUNDS
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Asset Allocation/Balanced Funds
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund

GLOBAL FUNDS
GLOBAL STOCK FUNDS
Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Index Series Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.

GLOBAL BOND FUNDS
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
The Global Total Return Fund, Inc.

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

40 PRUDENTIAL EUROPE GROWTH FUND, INC. [GRAPHIC] (800) 225-1852
<PAGE>

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

BOND FUNDS
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Structured Maturity Fund, Inc.
Income Portfolio

TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.

MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.

TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series

COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund

INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

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

41
<PAGE>

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

[This page has been left blank intentionally.]

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

42
<PAGE>

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

[This page has been left blank intentionally.]

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

43
<PAGE>

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

[This page has been left blank intentionally.]

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

44
<PAGE>

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

[This page has been left blank intentionally.]

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

45
<PAGE>

FOR MORE INFORMATION
________________________________________________________________

Please read this prospectus before you invest in the Fund and keep it for fu-
ture reference. For information or shareholder questions contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------------------------------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- --------------------------------------------------------------------------------
Visit Prudential's Web Site At:
HTTP://WWW.PRUDENTIAL.COM
- --------------------------------------------------------------------------------
Additional information about the Fund can be obtained without charge and can be
found in the following documents:

STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)

ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance)

SEMI-ANNUAL REPORT

You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:

By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in Washington, DC
(For hours of operation, call 1(800) SEC-0330)

Via the Internet:
http://www.sec.gov
- --------------------------------------------------------------------------------
CUSIP NUMBERS:
CLASS A: 7443IN-10-3
CLASS B: 7443IN-20-2
CLASS C: 7443IN-30-1
CLASS Z: 7443IN-40-0

Investment Company Act File No:
811-7167

[RECYCLE LOGO APPEARS HERE] Printed on Recycled Paper

MF160A
<PAGE>

PRUDENTIAL EUROPE GROWTH FUND, INC.

Statement of Additional Information

dated July 13, 1999

Prudential Europe Growth Fund, Inc. (the "Fund") is an open-end, diversified
management investment company. The Fund's investment objective is long-term
growth of capital. The Fund seeks to achieve its objective by investing
primarily in equity related securities (common stock, preferred stock, rights,
warrants and debt securities or preferred stocks which are convertible or
exchangeable for common stock or preferred stock and master limited
partnerships, among others) of companies doing business in or domiciled in
Europe. Under normal circumstances, the Fund intends to invest at least 65% of
its total assets in such securities. The Fund may also invest in equity-
related securities of other companies and in non-convertible debt securities,
engage in various derivatives transactions, including options on equity
securities, financial indices and foreign currencies, futures contracts on
foreign currencies and foreign currency exchange contracts and may purchase
and sell futures contracts on foreign currencies and groups of currencies and
financial or stock indices to hedge its portfolio and to attempt to enhance
return. There can be no assurance that the Fund's investment objective will be
achieved. See "Description of the Fund, its Investments and Risks."

The Prudential Investment Corporation (PIC), the subadviser to the Fund,
through a Sub-Investment Management Agreement with PRICOA Asset Management
Ltd., maintains a group of professionals with knowledge of and experience in
European markets. Representatives of this group pay on-site visits to many
companies considered for the Fund, focus on key themes that could provide
growth potential in Europe and evaluate investment opportunities for the Fund
in the privatization of industries in Europe.

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 Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated July 13, 1999, a copy of
which may be obtained from the Fund upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fund History.............................................................. B-2
Description of the Fund, its Investments and Risks........................ B-2
Investment Restrictions................................................... B-15
Management of the Fund.................................................... B-16
Control Persons and Principal Holders of Securities....................... B-19
Investment Advisory and Other Services.................................... B-19
Brokerage Allocation and Other Practices.................................. B-23
Capital Stock and Organization............................................ B-25
Purchase, Redemption and Pricing of Fund Shares........................... B-25
Shareholder Investment Account............................................ B-35
Net Asset Value........................................................... B-39
Taxes, Dividends and Distributions........................................ B-40
Performance Information................................................... B-43
Financial Statements...................................................... B-46
Report of Independent Accountants......................................... B-59
Appendix I--Description of Security Ratings............................... I-1
Appendix II--General Investment Information............................... II-1
Appendix III--Historical Performance Data................................. III-1
Appendix IV--Information Relating to Prudential........................... IV-I
</TABLE>

- -------------------------------------------------------------------------------
MF160B
<PAGE>

FUND HISTORY

The Fund was organized under the laws of Maryland on March 16, 1994 as a
corporation.

DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

(A) CLASSIFICATION

The Fund is a diversified open-end management investment company.

(B) INVESTMENT STRATEGIES AND RISKS

The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity-related securities
(common stock, preferred stock, rights, warrants and debt securities or
preferred stock which are convertible or exchangeable for common stock or
preferred stock and master limited partnerships, among others) of companies
doing business in or domiciled in Europe. Companies domiciled in Europe
include (i) companies organized under the laws of a European country, (ii)
companies for which the principal securities trading market is in Europe,
(iii) companies which derive at least 50% of their revenues or profits from
goods produced or sold, investments made or services performed in Europe or
(iv) companies which have at least 50% of their assets situated in Europe. See
"How the Fund Invests--Investment Objective and Policies" in the Prospectus.

EQUITY-RELATED SECURITIES

The Fund may invest in equity-related securities. Equity-related securities
include common stock, preferred stock, rights, warrants and debt securities or
preferred stock which are convertible into or exchangeable for common stock or
preferred stock and interests in master limited partnerships, among others.

With respect to equity-related securities, the Fund may purchase America
Depositary Receipts ("ADRs"). ADRs are U.S. dollar-denominated certificates
issued by a United States bank or trust company and represent the right to
receive securities of a foreign issuer deposited in a domestic bank or foreign
branch of a United States bank and traded on a United States exchange or in an
over-the-counter market. Generally, ADRs are in registered form. There are no
fees imposed on the purchase or sale of ADRs when purchased from the issuing
bank or trust company in the initial underwriting, although the issuing bank
or trust company may impose charges for the collection of dividends and the
conversion of ADRs into the underlying securities. Investment in ADRs has
certain advantages over direct investment in the underlying foreign securities
since: (i) ADRs are U.S. dollar-denominated investments that are registered
domestically, easily transferable, and for which market quotations are readily
available; and (ii) issuers whose securities are represented by ADRs are
usually subject to auditing, accounting, and financial reporting standards
comparable to those of domestic issuers.

The Fund may purchase sponsored or unsponsored ADRs. In a sponsored program,
the foreign issuer arranges for the bank or trust company to hold the
underlying foreign securities and issue the dollar-denominated certificates.
An unsponsored program is not initiated or "sponsored" by the foreign issuer.
As such, there may be less information available about a foreign issuer for
which an unsponsored program was initiated than a foreign issuer that
participates in a sponsored program.

RISK FACTORS AND SPECIAL CONSIDERATION OF INVESTING IN EURO-DENOMINATED
SECURITIES

Effective January 1, 1999, 11 of the 15 member states of the European Union
introduced the "euro" as a common currency. During a three year transitional
period, the euro will coexist with each member state's currency. Beginning
July 1, 2002, the euro is expected to become the sole currency of the member
states. During the transition period, the Fund will treat the euro as a
separate currency from that of any member state.

The conversion may impact the trading in securities of issuers located in,
or denominated in the currencies of, the member states, as well as foreign
exchanges, payments, the settlement process, custody of assets and accounting.
In addition, the transition of member state's currency into the euro will
eliminate the risk among member states and will likely affect the investment
process

B-2
<PAGE>

and considerations of the Fund's investment adviser. To the extent the Fund
holds non-U.S. dollar-denominated securities, including those denominated in
the euro, the Fund will still be subject to currency risk due to fluctuations
in those currencies as compared to the U.S. dollar.

The introduction of the euro is expected to affect derivative and other
financial contracts in which the Fund may invest insofar as price sources
based upon current currencies of the member states will be replaced, and
market conventions, such as day-count fractions or settlement dates applicable
to underlying instruments may be changed to conform to the conventions
applicable to euro currency.

The overall impact of the transition of the member states' currencies to the
euro cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general short- and long-term
ramifications can be expected, such as changes in economic environment and
change in behavior of investors, all of which will impact the Fund's
investments.

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 stock 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 having a minimum rating of at least "B" by a nationally
recognized statistical rating organization.

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 its 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.

WARRANTS

The Fund may invest up to 5% of its net assets in warrants. A warrant gives
the holder thereof the right to subscribe by a specified date to a stated
number of shares of stock of the issuer at a fixed price. Warrants tend to be
more volatile than the underlying stock, and if at a warrant's expiration date
the stock is trading at a price below the price set in the warrant, the
warrant will expire worthless. Conversely, if at the expiration date the
underlying 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.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

From time to time, in the ordinary course of business, the Fund may purchase
or sell securities on a when-issued or delayed delivery basis, that is,
delivery and payment can take place a month or more after the date of the
transaction. The Fund will make commitments for such when-issued transactions
only with the intention of actually acquiring the securities. The Fund's
Custodian will maintain, in a separate account of the Fund, cash, U.S.
Government securities or other liquid unencumbered assets, marked to market
daily, having a value equal to or greater than such commitments. The
securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during the period between purchase and settlement. At
the time of delivery of the securities the value may be more or less than the
purchase price and an increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of the Fund's net asset value. If the Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any portfolio security,
incur a gain or loss due to market fluctuations.

B-3
<PAGE>

SHORT SALES AGAINST-THE-BOX

The Fund may make short sales of securities or maintain a short position,
provided that (i) at all times when a short position is open the Fund owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration for an equal amount
of the securities of the same issuer as the securities sold short (a short
sale against-the-box) and (ii) that not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such sales. Short
sales will be made primarily for the purpose of hedging for a limited period
of time certain long positions maintained by the Fund. In certain limited
circumstances, a short sale against-the-box may be entered into without
triggering the recognition of gains of an appreciated financial position in
the security being sold short, but the short position must be closed within 30
days of the close of the tax year of the Fund to avoid recognition of gain for
federal income tax purposes.

U.S. GOVERNMENT SECURITIES

U.S. TREASURY SECURITIES. For temporary defensive purposes only, as
described in the prospectus, the Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.

SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in securities issued by agencies of the
U.S. Government or instrumentalities of the U.S. Government. These
obligations, including those which are guaranteed by Federal agencies or
instrumentalities, may or may not be backed by the full faith and credit of
the United States. Obligations of the Government National Mortgage Association
(GNMA), the Farmers Home Administration and the Small Business Administration
are backed by the full faith and credit of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
Fund must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim
against the United States if the agency or instrumentality does not meet its
commitments. Securities in which the Fund may invest which are not backed by
the full faith and credit of the United States include obligations such as
those issued by the Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation (FHLMC), the Federal National Mortgage Association, the Student
Loan Marketing Association, Resolution Funding Corporation and the Tennessee
Valley Authority, each of which has the right to borrow from the U.S. Treasury
to meet its obligations, and obligations of the Farm Credit System, the
obligations of which may be satisfied only by the individual credit of the
issuing agency. FHLMC investments may include collateralized mortgage
obligations.

Obligations issued or guaranteed as to principal and interest by the United
States Government may be acquired by the Fund in the form of custodial
receipts that evidence ownership of future interest payments, principal
payments or both on certain United States Treasury notes or bonds. Such notes
and bonds are held in custody by a bank on behalf of the owners. These
custodial receipts are commonly referred to as Treasury strips.

MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in mortgage-backed securities,
including those which represent undivided ownership interests in pools of
mortgages. The U.S. Government or the issuing agency or instrumentality
guarantees the payment of interest on and principal of these securities.
However, the guarantees do not extend to the yield or value of the securities
nor do the guarantees extend to the yield or value of the Fund's shares. These
securities are in most cases "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees. Because the
prepayment characteristics of the underlying mortgages vary, it is not
possible to predict accurately the average life of a particular issue of pass-
through certificates. Mortgage-backed securities are often subject to more
rapid repayment than their maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying mortgage
obligations. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
The Fund's ability to invest in high-yielding mortgage-backed securities will
be adversely affected to the extent that prepayments of mortgages must be
reinvested in securities which have lower yields than the prepaid mortgages.
Moreover, prepayments of mortgages which underlie securities purchased at a
premium could result in capital losses. During periods of rising interest
rates, the rate of prepayment of mortgages underlying mortgage-backed
securities can be expected to decline, extending the projected average
maturity of the mortgage-backed securities. This maturity extension risk may
effectively change a security which was considered short- or intermediate-term
at the time of purchase into a long-term security. Long-term securities
generally fluctuate more widely in response to changes in interest rates than
short- or intermediate-term securities.

B-4
<PAGE>

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

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

SECURITIES OF FOREIGN ISSUERS

The value of the Fund's foreign investments may be significantly affected by
changes in currency exchange rates. The dollar value of a foreign security
generally decreases when the value of the dollar rises against the foreign
currency in which the security is denominated and tends to increase when the
value of the dollar falls against such currency. In addition, the value of the
Fund's assets may be affected by losses and other expenses incurred in
converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions and exchange control regulation.

The economies of many of the countries in which the Fund may invest are not
as developed as the economy of the U.S. and may be subject to significantly
different forces. Political or social instability, expropriation or
confiscatory taxation, and limitations on the removal of funds or other
assets, could also adversely affect the value of investments.

Foreign companies are generally not subject to the regulatory controls
imposed on U.S. issuers and, in general, there is less publicly available
information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by the Fund may be reduced by a withholding tax at the source
which would reduce dividend income payable to shareholders.

Brokerage commission rates in foreign countries, which are generally fixed
rather than subject to negotiation as in the U.S. are likely to be higher. The
securities markets in many of the countries in which the Fund may invest will
have substantially less trading volume than the principal U.S. markets. As a
result, the securities of some companies in these countries may be less liquid
and more volatile than comparable U.S. securities. There is generally less
government regulation and supervision of foreign stock exchanges, brokers and
issuers which may make it difficult to enforce contractual obligations.

FOREIGN DEBT SECURITIES

The Fund is permitted to invest in foreign corporate and government debt
securities. "Foreign government debt securities" include debt securities
issued or guaranteed, as to payment of principal and interest, by governments,
quasi-governmental entities, governmental agencies, supranational entities and
other governmental entities (collectively, Government Entities) of foreign
countries denominated in the currency of another such country.

A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank
(International Bank for Reconstruction and Development), the European
Investment Bank and the Asian Development Bank. For purposes of the Fund's
concentration policy, supranational entities are collectively considered to be
a single industry. Debt securities of "quasi-governmental entities" are issued
by entities owned by a national, state, or equivalent government or are
obligations of a political unit that are not backed by the national
government's "full faith and credit" and general taxing powers. Examples of
quasi-government issuers include, among others, the Province of Ontario and
the City of Stockholm. Foreign government debt securities shall also include
debt securities of Government Entities denominated in European Currency Units.
A European Currency Unit represents specified amounts of the currencies of
certain of the member states of the European Community. Foreign government
securities shall also include mortgage-backed securities issued by foreign
Government Entities including quasi-governmental entities.

B-5
<PAGE>

BORROWING

The Fund may borrow up to 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. Asset coverage of
300% must be maintained at all times. The Fund may pledge up to 33 1/3% of its
total assets to secure these borrowings. If the Fund borrows to invest in
securities, any investment gains made on the securities in excess of interest
paid on the borrowing will cause the net asset value of the shares to rise
faster than would otherwise be the case. On the other hand, if the investment
performance of the additional securities purchased fails to cover their cost
(including any interest paid on the money borrowed) to the Fund, the net asset
value of the Fund's shares will decrease faster than would otherwise be the
case. This is the speculative factor known as "leverage." The Fund does not
intend to borrow more than 5% of its total assets for investment purposes.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and place. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon
rate of return effective for the period of time the Fund's money is invested
in the repurchase agreement. The Fund's repurchase agreements will be
collateralized by U.S. Government obligations. The Fund will enter into
repurchase transactions only with parties meeting creditworthiness standards
approved by the Fund's Board of Directors. The Fund's investment adviser will
monitor the creditworthiness of such parties, under the general supervision of
the Board of Directors. In the event of a default or bankruptcy by a seller,
the Fund will promptly seek to liquidate the collateral. To the extent that
the proceeds from any sale of such collateral upon a default in the obligation
to repurchase are less than the repurchase price, the Fund will suffer a loss.

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

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 30% of the value of the
Fund's total assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral that is
equal to at least the market value, determined daily, of the loaned
securities. The advantage of such loans is that the Fund continues to receive
payments in lieu of the interest and dividends of the loaned securities, while
at the same time earning interest either directly from the borrower or on the
collateral which will be invested in short-term obligations.

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

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

B-6
<PAGE>

ILLIQUID SECURITIES

The Fund may hold up to 15% of its net assets in repurchase agreements which
have a maturity of longer than seven days or in other illiquid securities,
including securities that are illiquid by virtue of the absence of a readily
available market (either within or outside of the United States) or legal or
contractual restrictions on resale. Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (Securities Act), securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.

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

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

Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser
will consider, inter alia, the following factors: (1) the frequency of trades
and quotes for the security; (2) the number of dealers wishing to purchase or
sell the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by the NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (i.e. without accrued interest) or in default as to principal or
interest. With respect to municipal lease obligations, the investment adviser
also considers: (1) the willingness of the municipality to continue, annually
or biannually, to appropriate funds for payment of the lease; (2) the general
credit quality of the municipality and the essentiality to the municipality of
the property covered by the lease; (3) in the case of unrated municipal lease
obligations, an analysis of factors similar to that performed by nationally
recognized statistical rating organizations in evaluating the credit quality
of a municipal lease obligation, including (i) whether the lease can be
cancelled; (ii) if applicable, what assurance here is that the assets
represented by the lease can be sold; (iii) the strength of the lessee's
general credit (e.g., its debt, administrative, economic and financial
characteristics); (iv) the likelihood that the municipality will discontinue
appropriating funding for the leased property because the property is no
longer deemed essential to the operations of the municipality (e.g., the
potential for an event of nonappropriation); and (v) the legal recourse in the
event of failure to appropriate; and (4) any other factors unique to municipal
lease obligations as determined by the investment adviser. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.

B-7
<PAGE>

The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options
are illiquid securities unless the Fund and the counterparty have provided for
the Fund, at the Fund's election, to unwind the over-the-counter option. The
exercise of such an option ordinarily would involve the payment by the Fund of
an amount designed to reflect the counterparty's economic loss from an early
termination, but does allow the Fund to treat the assets used as "cover" as
"liquid."

SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, the Fund does not intend to invest in such
securities. If the Fund does invest in securities of other investment
companies, shareholders of the Fund may be subject to duplicate management and
advisory fees.

HEDGING AND RETURN ENHANCEMENT STRATEGIES

OPTIONS ON SECURITIES

The Fund may purchase and write (i.e., sell) put and call options on
securities that are traded on U.S. or foreign securities exchanges or that are
traded in the over-the-counter markets. A call option is a short-term contract
(having a duration of nine months or less) pursuant to which the purchaser, in
return for a premium paid, has the right to buy the security underlying the
option at a specified exercise price at any time during the term of the
option. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option, to deliver the underlying security
against payment of the exercise price. A put option is a similar contract
which gives the purchaser, in return for a premium, the right to sell the
underlying security at a specified price during the term of the option. The
writer of the put, who receives the premium, has the obligation to buy the
underlying security upon exercise at the exercise price. The Fund will
generally write put options when its investment adviser desires to invest in
the underlying security. The premium paid by the purchaser of an option will
reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates.

A call option written by the Fund is "covered" if the Fund owns the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash or liquid assets in a segregated account with its custodian. A
put option written by the Fund is "covered" if the Fund segregates cash, U.S.
Government securities or other liquid unencumbered assets, marked-to-market
daily, with a value equal to the exercise price, or else holds on a share-for-
share basis a put on the same security as the put written if the exercise
price of the put held is equal to or greater than the exercise price of the
put written.

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

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

B-8
<PAGE>

The Fund may also purchase a "protective put," i.e., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and transaction costs
in connection with, the put plus the initial excess if any, of the market
price of the underlying security over the exercise price. However, if the
market price of the security underlying the put rises, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for
the put option less any amount (net of transaction costs) for which the put
may be sold. Similar principles apply to the purchase of puts on stock
indices, as described below.

OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
Fund may also purchase and sell put and call options on securities indices
traded on U.S. or foreign securities exchanges or traded in the over-the-
counter markets. Options on securities indices are similar to options on
securities except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the securities index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the multiplier). The writer
of the option is obligated, in return for the premium received, to make
delivery of this amount. All settlements on options on indices are in cash,
and gain or loss depends on price movements in the securities market generally
(or in a particular industry or segment of the market) rather than price
movements in individual securities.

The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an
option and the current level of the underlying index. A multiplier of 100
means that a one-point difference will yield $100. Options on different
indices may have different multipliers. Because exercises of index options are
settled in cash, a call writer cannot determine the amount of its settlement
obligations in advance and, unlike call writing on specific stocks, cannot
provide in advance for, or cover, its potential settlement obligations by
acquiring and holding the underlying securities. In addition, unless the Fund
has other liquid assets which are sufficient to satisfy the exercise of a
call, the Fund would be required to liquidate portfolio securities or borrow
in order to satisfy the exercise.

Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Fund
will realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of security prices in the market generally
or in an industry or market segment rather than movements in the price of a
particular security. Accordingly, successful use by the Fund of options on
indices would be subject to the investment adviser's ability to predict
correctly movements in the direction of the securities market generally or of
a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. The investment adviser
currently uses such techniques in conjunction with the management of other
mutual funds.

RISKS OF TRANSACTIONS IN OPTIONS

An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no
secondary market on an exchange or otherwise may exist. In such event it might
not be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the exercise of call
options and upon the subsequent disposition of underlying securities acquired
through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If the Fund, as a covered call
option writer, is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.

B-9
<PAGE>

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in the
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by a clearing corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby result
in the institution by an exchange of special procedures which may interfere
with the timely execution of customers' orders. The Fund intends to purchase
and sell only those options which are cleared by clearinghouses whose
facilities are considered to be adequate to handle the volume of options
transactions.

RISKS OF OPTIONS ON INDICES

The Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that
are not present with stock options.

Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, the Fund would not be able
to close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the Fund's policy to
purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.

The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities
in the index.

SPECIAL RISKS OF WRITING CALLS ON INDICES

Because exercises of index options are settled in cash, a call writer such
as the Fund cannot determine the amount of its settlement obligations in
advance and, unlike call writing on specific stocks, cannot provide in advance
for, or cover, its potential settlement obligations by acquiring and holding
the underlying securities. However, the Fund will write call options on
indices only under the circumstances described below under "Limitations on
Purchase and Sale of Stock Options and Options on Stock Indices, Foreign
Currencies and Futures Contracts on Foreign Currencies."

Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on
the call which is not completely offset by movements in the price of the
Fund's portfolio. It is also possible that the index may rise when the Fund's
portfolio of stocks does not rise. If this occurred, the Fund would experience
a loss on the call which is not offset by an increase in the value of its
portfolio and might also experience a loss in its portfolio. However, because
the value of a diversified portfolio will, over time, tend to move in the same
direction as the market, movements in the value of the Fund in the opposite
direction as the market would be likely to occur for only a short period or to
a small degree.

Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be
settled within hours after receiving the notice of exercise, if the Fund fails
to anticipate an exercise, it may have to borrow from a bank (in amounts not
exceeding 33 1/3% of the Fund's total assets) pending settlement of the sale
of securities in its portfolio and would incur interest charges thereon.

B-10
<PAGE>

When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise,
and the time the Fund is able to sell stocks in its portfolio to generate cash
to settle the exercise. As with stock options, the Fund will not learn that an
index option has been exercised until the day following the exercise date but,
unlike a call on stock where the Fund would be able to deliver the underlying
securities in settlement, the Fund may have to sell part of its investment
portfolio in order to make settlement in cash, and the price of such
investments might decline before they can be sold. This timing risk makes
certain strategies involving more than one option substantially more risky
with index options than with stock options. For example, even if an index call
which the Fund has written is "covered" by an index call held by the Fund with
the same strike price, the Fund will bear the risk that the level of the index
may decline between the close of trading on the date the exercise notice is
filed with the clearing corporation and the close of trading on the date the
Fund exercises the call it holds or the time the Fund sells the call which, in
either case, would occur no earlier than the day following the day the
exercise notice was filed.

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

RISKS OF OPTIONS ON FOREIGN CURRENCIES

Options on foreign currencies involve the currencies of two nations and,
therefore, developments in either or both countries affect the values of
options on foreign currencies. These risks include government actions
affecting currency valuation and the movements of currencies from one country
to another. The quantity of currency underlying option contracts represent odd
lots in a market dominated by transactions between banks; this can mean extra
transaction costs upon exercise. Option markets may be closed while round-the-
clock interbank currency markets are open, and this can create price and rate
discrepancies.

RISKS RELATED TO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. The Fund may enter into forward foreign
currency exchange contracts in several circumstances. When the Fund enters
into a contract for the purchase or sale of a security denominated in a
foreign currency, or when the Fund anticipates the receipt in a foreign
currency of dividends or interest payments on a security which it holds, the
Fund may desire to "lock-in" the U.S. dollar price of the security or the U.S.
dollar equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for a fixed amount of dollars, for the
purchase or sale of the amount of foreign currency involved in the underlying
transactions, the Fund may be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar
and the foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.

Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible since the future
value of securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date on which
the forward contract is entered into and the date it matures. The projection
of short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain. The
Fund's Custodian will place cash or other liquid, unencumbered assets, marked-
to-market daily, in a segregated account of the Fund in an amount equal to the
value of the Fund's total assets committed to the consummation of forward
foreign currency exchange contract (less the value of any "covering"
positions, if any). If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account
on a daily basis so that the value of the account will equal the amount of the
Fund's net commitment with respect to such contracts.

B-11
<PAGE>

The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, if a decision is made to sell the security and make delivery of
the foreign currency and if the market value of the security is less than the
amount of foreign currency that the Fund is obligated to deliver, then it
would be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase).

If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices
decline during the period between the Fund's entering into a forward contract
for the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Fund will realize a
gain to the extent that the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
contract prices increase, the Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.

The Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. Of course, the Fund
is not required to enter into such transactions with regard to its foreign
currency-denominated securities. It also should be recognized that this method
of protecting the value of the Fund's portfolio securities against a decline
in the value of a currency does not eliminate fluctuations in the underlying
prices of the securities which are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.

Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

The Fund may purchase and sell financial futures contracts which are traded
on a commodities exchange or board of trade. A 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. There are several risks in connection
with the use of futures contracts as a hedging device. Due to the imperfect
correlation between the price of futures contracts and movements in the
currency or group of currencies, the price of a futures contract may move more
or less than the price of the currencies being hedged. In the case of futures
contracts on securities indices, one party agrees to deliver to another an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific securities index at the close of the last trading day
of the contract and the price at which the agreement is made. The correlation
between the price of the futures contract and the movements in the index may
not be perfect. Therefore, a correct forecast of currency rates, market trends
or international political trends by the investment adviser may still not
result in a successful hedging transaction.

Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance
that it will be possible, at any particular time, to close a futures position.
In the event the Fund could not close a futures position and the value of such
position declined, the Fund would be required to continue to make daily cash
payments of variation margin. There is no guarantee that the price movements
of the portfolio securities denominated in foreign currencies will, in fact,
correlate with the price movements in the futures contract and thus provide an
offset to losses on a futures contract. Currently, currency futures contracts
are available on various foreign currencies including the Australian Dollar,
British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, German Mark and the
Euro. Index futures contracts are available on various U.S. and foreign
securities indices.

B-12
<PAGE>

Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the
Investment Company Act), are exempt from the definition of "commodity pool
operator," subject to compliance with certain conditions. The exemption is
conditioned upon a requirement that all of the Fund's futures or options
transactions constitute bona fide hedging transactions within the meaning of
the regulations of the Commodity Futures Trading Commission (CFTC). The Fund
will use currency futures and options on futures or commodity options
contracts in a manner consistent with this requirement. The Fund may also
enter into futures or related options contracts for return enhancement and
risk management purposes if the aggregate initial margin and option premiums
do not exceed 5% of the liquidation value of the Fund's total assets, after
taking into account unrealized profits and unrealized losses on any such
contracts, provided, however, that in the case of an option that is in-the-
money, the in-the-money amount may be excluded in computing such 5%. The above
restriction does not apply to the purchase and sale of futures and related
options contracts for bona fide hedging purchases.

Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of markets and other factors affecting currencies or the securities
market generally. For example, if the Fund had hedged against the possibility
of an increase in currency rates which would adversely affect the price of
securities in its portfolio and the price of such securities increases
instead, the Fund will lose part or all of the benefit of the increased value
of its securities because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient cash
to meet daily variation margin requirements, it may need to sell securities to
meet such requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it is disadvantageous to do so.

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

OPTIONS ON FUTURES CONTRACTS

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

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

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

The Fund may write put and call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. The Fund will write put options on stock indices and foreign
currencies and futures contracts on foreign currencies only if they are
covered by segregating with the Fund's Custodian an amount in cash, U.S.
Government securities, or liquid assets equal to the aggregate exercise price
of the puts. The Fund will not enter into futures contracts or related options
if the aggregate initial margin and premiums exceed 5% of the liquidation
value of the Fund's total assets, taking into account unrealized profits and
losses on such contract, provided, however, that in the case of an option that
is in-the-money, the in-the-money amount may be excluded in computing such 5%.
The above restriction does not apply to the purchase or sale of futures
contracts and related options or bona fide hedging purposes within the meaning
of regulations of the Commodities Futures Trading Commission. The Fund does
not intend to purchase options on equity securities or securities indices if
the aggregate premiums paid for such outstanding options would exceed 10% of
the Fund's total assets.

B-13
<PAGE>

Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, cash, liquid securities, or a portfolio of
securities substantially replicating the movement of the index, in the
judgment of the Fund's investment adviser, with a market value at the time the
option is written of not less than 100% of the current index value times the
multiplier times the number of contracts.

If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," all of which
are stocks of issuers in such industry or market segment, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such stocks will
include stocks which represent at least 50% of the weighting of the industry
or market segment index and will represent at least 50% of the Fund's holdings
in that industry or market segment. No individual security will represent more
than 15% of the amount so segregated, pledged or escrowed in the case of
broadly-based stock market index options or 25% of such amount in the case of
industry or market segment index options. If at the close of business on any
day the market value of such qualified securities so segregated, escrowed or
pledged falls below 100% of the current index value times the multiplier times
the number of contracts, the fund will so segregate, escrow or pledge an
amount in cash, or liquid securities equal in value to the difference. In
addition, when the Fund writes a call on an index which is in-the-money at the
time the call is written, the Fund will segregate with its Custodian or pledge
to the broker as collateral cash, U.S. Government securities or other high-
grade short-term debt obligations equal in value to the amount by which the
call is in-the-money times the multiplier times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may be applied to the
Fund's obligation to segregate additional amounts in the event that the market
value of the qualified securities falls below 100% of the current index value
times the multiplier times the number of contracts. A "qualified security" is
an equity security which is listed on a national securities exchange or listed
on NASDAQ against which the Fund has not written a stock call option and which
has not been hedged by the Fund by the sale of stock index futures. However,
if the Fund holds a call on the same index as the call written where the
exercise price of the call held is equal to or less than the exercise price of
the call written or greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, Treasury bills or other high-
grade short-term obligations in a segregated account with its Custodian, it
will not be subject to the requirements described in this paragraph.

The Fund may engage in futures contracts and options on futures transactions
as a hedge against changes, resulting from market or political conditions, in
the value of the currencies to which the Fund is subject or to which the Fund
expects to be subject in connection with future purchases. The Fund may engage
in such transactions when they are economically appropriate for the reduction
of risks inherent in the ongoing management of the Fund. The Fund may write
options on futures contracts to realize through the receipt of premium income
a greater return than would be realized in the Fund's portfolio securities
alone.

POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which the Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.

When conditions dictate a defensive strategy (which during periods of market
volatility could be for an extended period of time), the Fund may temporarily
invest in money market instruments, including commercial paper of
corporations, certificates of deposit, bankers' acceptances and the
obligations of domestic and foreign banks, obligations issued or guaranteed by
the U.S. Government or foreign governments and their respective agencies or
instrumentalities and repurchase agreements maturing in seven days or less. In
addition to the risks typically associated with money market instruments, such
as credit risk and market risk, money market instruments issued by foreign
issuers may be subject to additional risks, including future political and

B-14
<PAGE>

economic developments, the possible imposition of withholding taxes on
interest income, the seizure or nationalization of foreign deposits and
foreign exchange controls or other restrictions.

(D) PORTFOLIO TURNOVER

As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions. The portfolio turnover rate
is generally the percentage computed by dividing the lesser of portfolio
purchases or sales (excluding all securities, including options, whose
maturities or expiration date at acquisition were one year or less) by the
monthly average value of the portfolio. High portfolio turnover (over 100%)
involves correspondingly greater brokerage commissions and other transaction
costs, which are borne directly by the Fund. In addition, high portfolio
turnover may also mean that a proportionately greater amount of distributions
to shareholders will be taxed as ordinary income rather than long-term capital
gains compared to investment companies with lower portfolio turnover. See
"Taxes, Dividends and Distributions."

INVESTMENT RESTRICTIONS

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

The Fund may not:

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

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

3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks up to 33 1/3% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 33
1/3% of the value of its total assets to secure such borrowings. For purposes
of this restriction, the purchase or sale of securities on a when-issued or
delayed delivery basis, forward foreign currency exchange contracts and
collateral arrangements relating thereto, and collateral arrangements with
respect to futures contracts and options thereon and with respect to the
writing of options and obligations of the Fund to Directors pursuant to
deferred compensation arrangements are not deemed to be a pledge of assets or
the issuance of a senior security.

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

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

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

7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws. The fund has not adopted a fundamental
investment policy with respect to investments in restricted securities.

B-15
<PAGE>

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

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

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

11. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 30% of the Fund's total assets.

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

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

MANAGEMENT OF THE FUND

(A) DIRECTORS

The Fund has Directors who, in addition to overseeing the actions of the
Fund's Management, Subadviser and Distributor, decide upon matters of general
policy.

The Directors also review the actions of the Fund officers who conduct and
supervise the daily business operations of the Fund.

(B) MANAGEMENT INFORMATION--DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE (1) POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
------------------------- ------------------ --------------------------------------------
<C> <C> <S>
Edward D. Beach (74) Director President and Director of BMC
Fund, Inc., a closed-end
investment company; previously,
Vice Chairman of Broyhill
Furniture Industries, Inc.;
Certified Public Accountant;
Secretary and Treasurer of
Broyhill Family Foundation, Inc.;
Member of the Board of Trustees
of Mars Hill College and Director
of the High Yield Income Fund,
Inc.
Delayne Dedrick Gold (60) Director Marketing and Management
Consultant; Director of The High
Yield Income Fund, Inc.
*Robert F. Gunia (52) Director and Vice President Vice President of Prudential
Investments since September 1997;
Executive Vice President and
Treasurer (since December 1996)
of Prudential Investments Fund
Management LLC (PIFM); Senior
Vice President (since March 1987)
of Prudential Securities
Incorporated (Prudential
Securities); formerly Chief
Administrative Officer (July
1990-September 1996). Director
(January 1989-September 1996) and
Executive Vice President,
Treasurer and Chief Financial
Officer (June 1987-September
1996) of Prudential Mutual Fund
Management, Inc. (PMF); Vice
President and Director (since May
1989) of The Asia Pacific Fund
Inc.; Director of The High Yield
Income Fund, Inc.
</TABLE>

B-16
<PAGE>

<TABLE>
<CAPTION>
NAME, ADDRESS AND
AGE (1) POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
----------------- ------------------ --------------------------------------------
<C> <C> <S>
Don G. Hoff (63) Director Chairman and Chief Executive Officer
(since 1980) of Intertec, Inc.
(Investments); Chairman and Chief
Executive Officer of The Lamaur
Corporation, Inc.; Director of
Innovative Capital Management, Inc.
and The Greater China Fund, Inc.; and
Chairman and Director of The Asia
Pacific Fund, Inc.
Robert E. LaBlanc (64) Director President (since 1981) of Robert E.
LaBlanc Associates, Inc.
(telecommunications); formerly General
Partner at Salomon Brothers; and Vice
Chairman of Continental Telecom;
Director of Storage Technology
Corporation, Titan Corporation,
Salient 3 Communications, Inc. and
Tribune Company; and Trustee of
Manhattan College.
Robin B. Smith (59) Director Chairman and Chief Executive Officer
(since August 1996) of Publishers
Clearing House; formerly President and
Chief Executive Officer (January 1989-
August 1996) and President and Chief
Operating Officer (September 1981-
December 1988) of Publishers Clearing
House; Director of BellSouth
Corporation, Texaco Inc., Springs
Industries Inc. and Kmart Corporation.
Stephen Stoneburn (55) Director President and Chief Executive Officer
(since June 1996) of Quadrant Media
Corp. (a publishing company); formerly
President (June 1995-June 1996) of
Argus Integrated Media, Inc.; Senior
Vice President and Managing Director
(January 1993-1995), Cowles Business
Media; Senior Vice President (January
1991-1992) and Publishing Vice
President (May 1989-December 1990) of
Gralla Publications (a division of
United Newspapers, U.K.); and Senior
Vice President of Fairchild
Publications, Inc.
*John R. Strangfeld (45) Director and President Chief Executive Officer, Chairman,
President and Director of The
Prudential Investment Corporation
(since January 1990); Executive Vice
President of the Prudential Global
Asset Management Group of Prudential
(since February 1998); Chairman of
Pricoa Capital Group (since August
1989); Chief Executive Officer of
Private Asset Management Group of
Prudential (November 1994-December
1998).
Nancy H. Teeters (68) Director Economist; Director of Inland Steel
Industries (since July 1991); formerly
Vice President and Chief Economist
(March 1986-June 1990) of
International Business Machines
Corporation; Director of The High
Yield Income Fund, Inc.
Grace C. Torres (40) Treasurer and First Vice President (since December
Principal Financial 1996) of PIFM; First Vice President
and Accounting (since March 1994) of Prudential
Officer Securities; formerly, First Vice
President (March 1994-September 1996)
of Prudential Mutual Fund Management,
Inc. and Vice President (July 1989-
March 1994) of Bankers Trust
Corporation.
Robert C. Rosselot (39) Secretary Assistant General Counsel (since
September 1997) of PIFM; formerly,
partner with the firm of Howard &
Howard, Bloomfield Hills, Michigan
(December 1995-September 1997) and
Corporate Counsel, Federated Investors
(1990-1995).
Stephen M. Ungerman (45) Assistant Treasurer Vice President and Tax Director (since
March 1996) of Prudential Investments;
formerly First Vice President of
Prudential Mutual Fund Management,
Inc. (February 1993-September 1996).
</TABLE>

B-17
<PAGE>

- ----------
(/1/)Unless otherwise noted the address for each of the above persons is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, 9th Floor, Newark, New Jersey 07102-4077.

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

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

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

The Fund pays each of its Directors who is not an affiliated person of PIFM
or Prudential Investments (PI) annual compensation of $3,500, in addition to
certain out-of-pocket expenses. The amount of annual compensation paid to each
Director may change as a result of the introduction of additional funds upon
which the Director may be asked to serve.

Directors may receive their Directors' fees pursuant to a deferred fee
arrangement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees in installments which accrue interest at a
rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
bills at the beginning of each calendar quarter or, pursuant to an SEC
exemptive order, at the daily rate of return of the Fund (the Fund rate). The
Fund's obligation to make payments of deferred Directors' fees, together with
interest thereon, is a general obligation of the Fund.

The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Mr. Beach is
scheduled to retire on December 31, 1999.

The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended April 30, 1999 and the aggregate compensation paid to such Directors for
service on the Fund's Board and that of any other investment companies managed
by PIFM, (Fund Complex) for the calendar year ended December 31, 1998. Below
are listed the Directors who have served the Fund during its most recent
fiscal year.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS (2)
----------------- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Edward D. Beach-- $3,500 None N/A $135,000(44/71)*
Director
Stephen C. Eyre--Former $3,500 None N/A $ 45,000(14/17)*
Director
Delayne D. Gold-- $3,500 None N/A $135,000(44/71)*
Director
Robert F. Gunia (1)-- -- None N/A --
Director
Don G. Hoff--Director $3,500 None N/A $ 45,000(14/17)*
Robert F. LaBlanc-- $3,500 None N/A $ 45,000(14/17)*
Director
Mendel A. Melzer (1)-- -- None N/A --
Former Director
Richard A. Redeker (1)-- -- None N/A --
Former Director
Robin B. Smith (2)-- $3,500 None N/A $ 90,000(32/41)*
Director
Stephen Stoneburn-- $3,500 None N/A $ 45,000(14/17)*
Director
Brian Storms (1)--Former -- None N/A --
Director
Nancy H. Teeters-- $3,500 None N/A $ 90,000(26/47)*
Director
</TABLE>
- ----------
*Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.

(1) Directors who are "interested" do not receive compensation from the Fund
Complex (including the Fund).

(2) Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1998, including amounts deferred at the
election of Directors under the funds' Deferred Compensation Plans.
Including accrued interest, total deferred compensation amounted to
$116,225 for Robin B. Smith. Currently, Ms. Smith has agreed to defer some
of her fees at the T-Bill rate and other fees at the Fund rate.

B-18
<PAGE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of June 18, 1999, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.

As of June 18, 1999, the beneficial owners, directly or indirectly, of more
than 5% of the outstanding shares of any class of shares of the Fund were: Pru
Defined Contributions SVCS, FBO PRU-NON-TRUST ACCOUNTS, Attn: John Surdy, 30
Scranton Office Park, Moosic, PA 18507 held 75,255 Class Z shares (12.2% of
Class Z shares); and Prudential Trust Company, FBO PRU-DC TRUST ACCOUNTS,
Attn: John Surdy, 30 Scranton Office Park, Moosic, PA 18507 held 30,787 Class
Z shares (5.0% of Class Z shares).

As of June 18, 1999, Prudential Securities was the record holder for other
beneficial owners of 2,323,599 Class A shares (or approximately 58.1% of the
outstanding Class A shares), 7,058,361 Class B shares (or approximately 67.9%
of the outstanding Class B shares), 641,783 Class C shares (or approximately
80.1% of the outstanding Class C shares) and 505,699 Class Z shares (or
approximately 81.7% of the outstanding Class Z shares) of the Fund. In the
event of any meetings of shareholders, Prudential Securities will forward, or
cause the forwarding of, proxy materials to beneficial owners for which it is
the record holder.

INVESTMENT ADVISORY AND OTHER SERVICES

(A) INVESTMENT ADVISERS

The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM serves as manager to all of the other investment companies
that, together with the Fund, comprise the "Prudential Mutual Funds." See "How
the Fund is Managed--Manager" in the Prospectus. As of April 30, 1999, PIFM
managed and/or administered open-end and closed-end management investment
companies with assets of approximately $73 billion. According to the
Investment Company Institute, as of November 30, 1998 the Prudential Mutual
Funds were the 18th largest family of mutual funds in the United States.

PIFM is a subsidiary of Prudential Securities. PMFS, a wholly-owned
subsidiary of PIFM, serves as the transfer agent for the Prudential Mutual
Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.

Pursuant to the Management Agreement with the Fund (the Management
Agreement), PIFM, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition of portfolio securities. In
this regard, PIFM provides supervision of the Fund's investments, furnishes a
continuous investment program for the Fund's portfolio and places purchase and
sale orders for portfolio securities of the Fund and other investments. Under
the Management Agreement, PIFM administers the Fund's corporate affairs,
subject to the supervision of the Company's Board of Directors and, in
connection therewith, furnishes the Fund with office facilities and ordinary
clerical and bookkeeping services which are not furnished by the Fund's
Custodian or PMFS. The management services of PIFM for the Fund are not
exclusive under the terms of the Management Agreement and PIFM is free to, and
does, render management services to others.

For its services, PIFM receives, pursuant to the Management Agreement, a fee
at an annual rate equal to .75 of 1% of the average daily net assets of the
Fund. The fee is computed daily and payable monthly. The Management Agreement
also provides that, in the event the expenses of the Fund (including the fees
of PIFM, but excluding interest, taxes, brokerage commissions, distribution
fees and litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business) for any
fiscal year exceed the lowest applicable annual expense limitation established
and enforced pursuant to the statutes or regulations of any jurisdiction in
which the Fund's shares are qualified for offer and sale, the compensation due
to PIFM will be reduced by the amount of such excess. Reductions in excess of
the total compensation payable to PIFM will be paid by PIFM to the Fund.

In connection with its management of the corporate affairs of the Fund, PIFM
bears the following expenses:

(a) the salaries and expenses of all of its and the Company's personnel
except the fees and expenses of Directors who are not affiliated persons of
PIFM or the Fund's investment adviser;

(b) all expenses incurred by PIFM or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those
assumed by the Fund, as described below; and

B-19
<PAGE>

(c) the costs and expenses payable to The Prudential Investment
Corporation, doing business as Prudential Investments (PI or the
Subadviser), pursuant to a Subadvisory Agreement between PIFM and PI (the
Subadvisory Agreement).

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

The Management Agreement provides that PIFM will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties. The Management Agreement provides that it will terminate
automatically if assigned, and that it may be terminated without penalty by
either PIFM or the Company (by the Board of Directors or vote of a majority of
the outstanding voting securities of the Fund, as defined in the Investment
Company Act) upon not more than 60 days' nor less than 30 days' written
notice. The Management Agreement will continue in effect for a period of more
than two years from the date of execution only so long as such continuance is
specifically approved at least annually in accordance with the requirements of
the Investment Company Act.

For the fiscal years ended April 30, 1999, 1998, and 1997, PIFM received net
management of $2,104,075, $1,582,883 and $1,401,970.

PIFM has entered into the Subadvisory Agreement with PI, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that PI, through
a Sub-Investment Management Agreement with PRICOA Asset Management Ltd.,
(PRICOA), will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, PI is obligated to keep
certain books and records of the Fund. PIFM continues to have responsibility
for all investment advisory services pursuant to the Management Agreement and
supervises PI's performance of such services. PRICOA is reimbursed by PI, and
PI is reimbursed by PIFM, for the reasonable costs and expenses incurred in
furnishing investment advisory services.

The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party, as defined in the Investment Company Act
on May 25, 1999, and by the initial shareholder of the Fund on July 7, 1994.
The Sub-Investment Management Agreement with PRICOA was last approved by the
Board of Directors, including a majority of the Directors who are not parties
to the contract or interested persons of any such party, as defined in the
Investment Company Act on May 25, 1999.

The Subadvisory Agreement and the Sub-Investment Management Agreement each
provides that it will terminate in the event of its assignment (as defined in
the Investment Company Act) or upon the termination of the Management
Agreement. The Subadvisory Agreement may be terminated by the Fund, PIFM or
PIC upon not more than 60 days', nor less than 30 days', written notice. The
Subadvisory Agreement provides that it will continue in effect for a period of
more than two years from its execution only so long as such continuance is
specifically approved at least annually in accordance with the requirements of
the Investment Company Act.

(B) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12B-1 PLANS

Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. The Fund is engaged in a
continuous offering

B-20
<PAGE>

of securities and pursuant to its Distribution Agreement with the Fund. The
Distributor is obligated to use its best efforts to effect sales of shares of
the Fund, but shall not be obligated to sell any specific number of shares.
Prior to June 1, 1998, Prudential Securities Incorporated (Prudential
Securities) was the Fund's distributor. PIMS and Prudential Securities are
subsidiaries of Prudential.

Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively the "Plans") adopted pursuant
to Rule 12b-1 under the Investment Company Act and a distribution agreement
(the "Distribution Agreement"), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares. The Distributor
also incurs the expenses of distributing the Fund's Class Z shares under the
Distribution Agreement, none of which are reimbursed by or paid for by the
Fund. See "How the Fund is Managed--Distributor" in the Prospectus.

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 also be used by the Distributor to
compensate dealers on a continuing basis 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.

CLASS A PLAN. 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 (1) 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 (2) total
distribution fees (including the service fee of .25 of 1%) may not exceed .30
of 1%. The Distributor has contractually agreed to limit its distribution-
related fees payable under the Class A Plan to .25 of 1% of the average daily
net assets of the Class A shares for the fiscal year ending April 30, 2000,
and voluntarily limited its distribution-related fees for the fiscal year
ended April 30, 1999, to .25 of 1% of the average daily net assets of the
Class A shares.

For the fiscal year ended April 30, 1999, the Distributor and Prudential
Securities collectively received payments of approximately $168,200 under the
Class A Plan and spent approximately $459,000 in distributing the Fund's
shares. This amount was primarily expended for payments of account servicing
fees to financial advisers and other persons who sell Class A shares. For the
fiscal year ended April 30, 1999, the Distributor and Prudential Securities
also collectively received approximately $355,400 in initial sales charges in
connection with the sale of Class A shares.

CLASS B AND CLASS C PLANS. 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 up to 1% of the average daily
net assets of each of the Class B and Class C shares. The Class B Plan
provides that (1) up to .25 of 1% of the average daily net assets of the Class
B shares may be paid as a service fee and (2) up to .75 of 1% (not including
the service fee) of the average daily net assets of the Class B shares (asset-
based sales charge) may be paid for distribution-related expenses with respect
to the Class B shares. The Class C Plan provides that (1) up to .25 of 1% of
the average daily net assets of the Class C shares may be paid as a service
fee and (2) up to .75 of 1% of the average daily net assets of the Class C
shares may be paid for distribution-related expenses with respect to Class C
shares. The service fee (.25 of 1% of average daily net assets) 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 and, with respect to Class C shares, an initial sales
charge.

Class B Plan. For the fiscal year ended April 30, 1999, the Distributor and
Prudential Securities collectively received approximately $1,912,200 from the
Fund under the Class B Plan and spent approximately $2,003,000 in distributing
the Class B shares. It is estimated that of the latter amount, approximately
22.7% ($454,000) was spent on compensation to broker-dealers for commissions
to representatives and other expenses, including an allocation of overhead and
other branch office distribution-related expenses, incurred for distribution
of Class B shares; and 77.3% ($1,549,000) was spent on the aggregate of (1)
payments of commissions and account servicing fees to financial advisers
(35.7% or $716,000) and (2) an allocation of overhead and other branch office
distribution-related expenses for payments of related expenses (41.6% or
$833,000). The term "overhead and other branch office distribution-related
expenses" represents (a) the expenses of operating Prudential Securities' and
Pruco Securities

B-21
<PAGE>

Corporation's (Prusec's) branch offices in connection with the sale of Fund
shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communications costs
and the costs of stationery and supplies, (b) the costs of client sales
seminars, (c) expenses of mutual fund sales coordinators to promote the sale
of Fund shares and (d) other incidental expenses relating to branch promotion
of Fund sales.

The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. For the
fiscal year ended April 30, 1999, the Distributor and Prudential Securities
collectively received approximately $332,300 in contingent deferred sales
charges attributable to Class B shares.

Class C Plan. For the fiscal year ended April 30, 1999, the Distributor and
Prudential Securities collectively received approximately $134,600 under the
Class C Plan and spent approximately $155,000 in distributing Class C shares.
It is estimated that of the latter amount 4.0% ($6,000) was spent on
compensation to broker-dealers for commissions to representatives and other
expenses, including an allocation of overhead and other branch office
distribution-related expenses, incurred for distribution of Fund shares; and
96.0% ($149,000) was spent on the aggregate of (i) payments of commissions and
account servicing fees to financial advisers (68.6% or $106,000) and (ii) an
allocation of overhead and other branch office distribution-related expenses
for payments of related expenses (27.4% or $43,000).

For the fiscal year ended April 30, 1999, the Distributor and Prudential
Securities also collectively received approximately $25,400 in initial sales
charges in connection with the sale of Class C shares. The Distributor also
receives the proceeds of contingent deferred sales charges paid by investors
upon certain redemptions of Class C shares. For the fiscal year ended April
30, 1999, the Distributor and Prudential Securities collectively received
approximately $12,000 in contingent deferred sales charges attributable to
Class C shares.

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

The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Directors, including a majority vote of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the Class A, Class B or Class C Plan or in any agreement related
to the Plans (Rule 12b-1 Directors), cast in person at a meeting called for
the purpose of voting on such continuance. A Plan may be terminated at any
time, without penalty, by the vote of a majority of the Rule 12b-1 Directors
or by the vote of the holders of a majority of the outstanding shares of the
applicable class of the Fund on not more than 30 days' written notice to any
other party to the Plan. The Plans may not be amended to increase materially
the amounts to be spent for the services described therein without approval by
the shareholders of the applicable class (by both Class A and Class B
shareholders, voting separately, in the case of material amendments to the
Class A Plan), and all material amendments are required to be approved by the
Board of Directors in the manner described above. Each Plan will automatically
terminate in the event of its assignment. The Fund will not be contractually
obligated to pay expenses incurred under the Class A Plan, Class B Plan or
Class C Plan if such Plan is terminated or not continued.

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

Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1993, as amended.

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 to dealers (including Prudential Securities) and other persons
which distribute shares of the Fund (including Class Z shares). Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.

B-22
<PAGE>

FEE WAIVERS/SUBSIDIES. 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. In addition, the Distributor has contractually agreed to waive a
portion of its distribution fees for the Class A shares for the fiscal year
ending April 30, 2000. Fee waivers and subsidies will increase the Fund's
total return.

NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred
sales charges and asset-based sales charges to 6.25% of total gross sales of
each class of shares. Interest charges on unreimbursed distribution expenses
equal to the prime rate plus one percent per annum may be added to the 6.25%
limitation. Sales from the reinvestment of dividends and distributions are not
included in the calculation of the 6.25% limitation. The annual asset-based
sales charge on shares of the Fund may not exceed .75 of 1% per class. The
6.25% limitation applies to the Fund rather than on a per shareholder basis.
If aggregate sales charges were to exceed 6.25% of total gross sales of any
class, all sales charges on shares of all classes would be suspended.

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Subcustodians
provide custodial services for any foreign assets of the Fund held outside the
United States.

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the transfer and dividend disbursing agent of the
Fund. PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee per
shareholder account, a new account set-up fee for each manually established
shareholder account and a monthly inactive zero balance account fee per
shareholder account. PMFS is also reimbursed for its out-of-pocket expenses,
including but not limited to postage, stationery, printing, allocable
communication expenses and other costs.

PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity
audits the Fund's annual financial statements.

BROKERAGE ALLOCATION AND OTHER PRACTICES

Subject to policies established by the Fund's Board of Directors and the
oversight and review of the Manager, the Subadviser is primarily responsible
for the execution of the Fund's portfolio transactions and the allocation of
its brokerage business. In executing such transactions, the Subadviser will
seek to obtain the best price and execution for the Fund, taking into account
such factors as price, size of order, difficulty and risk of execution and
operational facilities of the firm involved. Securities in which the Fund
invests may be traded in the over-the-counter markets, and the Fund deals
directly with the dealers who make markets in such securities except in those
circumstances where better prices and execution are available elsewhere.
Commission rates are established pursuant to negotiation with brokers or
dealers based on the quality or quantity of services provided in light of
generally prevailing rates, and while the Subadviser generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay the
lowest commissions available. The allocation of orders among brokers and the
commission rates paid are reviewed quarterly by the Board of Directors of the
Fund.

The Fund has no obligation to deal with any broker or group of brokers in
executing transactions in portfolio securities. Subject to obtaining the best
price and execution, brokers who sell shares of the Fund or provide
supplemental research, market and statistical information and other research
services and products to the Subadviser may receive orders for transactions by
the Fund. Such information, services and products are those which brokerage
houses customarily provide to institutional investors, and include items such
as statistical and economic data, research reports on particular companies and
industries, and computer software used for research with respect to investment
decisions. Information, services and products so received are in addition to
and not in lieu of the services required to be performed by the Subadviser
under the Subadvisory Agreement and the expenses of the Subadviser are not
necessarily reduced as a result of the receipt of such supplemental
information, services and products. Such information, services and products
may be useful to the Subadviser in providing services to clients other than
the Fund, and

B-23
<PAGE>

not all such information, services and products are used by the Subadviser in
connection with the Fund. Similarly, such information, services and products
provided to the Subadviser by brokers and dealers through whom other clients
of the Subadviser effect securities transactions may be useful to the
Subadviser in providing services to the Fund. The Subadviser is authorized to
pay higher commissions on brokerage transactions for the Fund to brokers in
order to secure information, services and products described above, subject to
review by the Fund's Board of Directors from time to time as to the extent and
continuation of this practice. During the fiscal year ended April 30, 1999,
substantially all of the Fund's brokerage commissions were paid to firms which
provided research services to the Fund's Subadviser.

Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Subadviser, investments of the kind made
by the Fund may often also be made by such other accounts. When a purchase or
sale of the same security is made at substantially the same time on behalf of
the Fund and one or more other accounts managed by the Subadviser, available
investments are allocated in the discretion of the Subadviser by such means
as, in its judgment, result in fair treatment. The Subadviser aggregates
orders for purchases and sales of securities of the same issuer on the same
day among the Fund and its other managed accounts, and the price paid to or
received by the Fund and those accounts is the average obtained in those
orders. In some cases, such aggregation and allocation procedures may affect
adversely the price paid or received by the Fund or the size of the position
purchased or sold by the Fund.

In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments and agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid. The Fund will
not deal with Prudential Securities in any transaction in which Prudential
Securities acts as principal. Thus, it will not deal in over-the-counter
securities with Prudential Securities acting as market marker, and it will not
execute a negotiated trade with Prudential Securities if execution involves
Prudential Securities acting as principal with respect to any part of the
Fund's order.

Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the Commission.
This limitation, in the opinion of the Fund, will not significantly affect the
Fund's ability to pursue its present investment objective. However, in the
future in other circumstances, the Fund may be at a disadvantage because of
this limitation in comparison to other funds with similar objectives but not
subject to such limitation.

Subject to the above considerations, Prudential Securities may act as a
securities broker or dealer for the Fund. In order for Prudential Securities
to effect any portfolio transactions for the Fund, the commissions, fees or
other remuneration received by Prudential Securities must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
such brokers or dealers in connection with comparable transactions involving
similar securities sold on an exchange during a comparable period of time.
This standard would allow Prudential Securities to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
or dealer in a commensurate arms-length transaction. Furthermore, the Board of
Directors of the Fund, including a majority of the Directors who are not
"interested" directors, has adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid to Prudential
Securities are consistent with the foregoing standard. In accordance with
Section 11(a) under the Securities Exchange Act of 1934, Prudential Securities
may not retain compensation for effecting transactions on a national
securities exchange for the Fund unless the Fund has expressly authorized the
retention of such compensation in a written contract executed by the Fund and
Prudential Securities. Section 11(a) provides that Prudential Securities must
furnish to the Fund at least annually a statement setting forth the total
amount of all compensation retained by Prudential Securities for transactions
effected by the Fund during the applicable period. Brokerage transactions with
Prudential Securities are also subject to such fiduciary standards as may be
imposed by applicable law.

B-24
<PAGE>

The table below shows certain information regarding the payment of
commissions by the Fund, including the commissions paid to Prudential
Securities, for the three fiscal years ended April 30, 1999.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
---------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Total brokerage commissions paid by the Fund. $967,725 $586,618 $336,933
Total brokerage commissions paid to
Prudential Securities....................... $ 0 $ 0 $ 0
Percentage of total brokerage commissions
paid to Prudential Securities............... 0% 0% 0%
Percentage of total dollar amounts of
transactions involving commissions that were
effected through Prudential Securities...... 0% 0% 0%
</TABLE>

CAPITAL STOCK AND ORGANIZATION

THE FUND IS AUTHORIZED TO ISSUE 500 MILLION SHARES OF CLASS A COMMON STOCK,
500 MILLION SHARES OF CLASS B COMMON STOCK, 500 MILLION SHARES OF CLASS C
COMMON STOCK AND 500 MILLION SHARES OF CLASS Z COMMON STOCK OF THE FUND, $.001
PAR VALUE PER SHARE. Each class of shares represents an interest in the same
assets of the Fund and is identical in all respects except that (i) each class
is subject to different sales charges and distribution and/or service fees
(except for Class Z shares, which are not subject to any sales charges and
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 distribution and/or service fee arrangements and has
separate voting rights on any other matter submitted to shareholders in which
the interests of one class differ from the interests of another 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 sales
to a limited group of investors. In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series of common stock, and classes within series, with such preferences,
privileges, limitations and voting and dividend rights as the Board may
determine.

The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares of the Fund are also redeemable at the option of the
Fund under certain circumstances. See "How to Buy, Sell and Exchange Shares of
the Fund--How to Sell Your Shares" in the Prospectus. Each share of each class
of Common Stock is equal as to earnings, assets and voting privileges, except
as noted above, and each class bears the expenses related to the distribution
of its shares with the exception of Class Z shares, which are not subject to
any distribution or service fees. Except for the conversion feature applicable
to 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 shares are not
subject to any distribution and/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 OF THE FUND
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% 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.

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) at the time of the purchase (Class A
shares) or on a deferred basis (Class B or Class C shares). Class Z shares of
the Fund are offered to a limited group of investors at NAV without any sales
charges.

B-25
<PAGE>

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone PMFS at (800) 225-1852 (toll-free)
to receive an account number. PMFS will request the following information:
your name, address, tax identification number, class election, dividend
distribution election, amount being wired and wiring bank. You should then
give instructions to your bank to transfer funds by wire to State Street Bank
and Trust Company (State Street), Boston, Massachusetts, Custody and
Shareholder Services Division, Attention: Prudential Europe Growth Fund, Inc.,
specifying on the wire the account number assigned by PMFS and your name and
identifying 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 State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day.

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Europe Growth
Fund, Inc., Class A, Class B, Class C or Class Z shares and your name and
individual account number. You do not need to call PMFS to make subsequent
purchase orders utilizing Federal Funds. The minimum amount which may be
invested by wire is $1,000.

ISSUANCE OF FUND SHARES FOR SECURITIES

Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that meet the investment
objective and policies of the Fund, are liquid and not subject to restrictions
on resale, have a value that is readily ascertainable via listing on or
trading in a recognized United States or international exchange or market, and
are approved by the Fund's investment adviser.

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, the Distributor sells Class A shares at a maximum sales charge of
5%, sells Class C* shares with a 1% sales charge, and sells Class B* and Class
Z shares at NAV. Using the NAV at April 30, 1999, the maximum offering price
of the Fund's shares is as follows:

<TABLE>
<S> <C>
CLASS A
Net asset value.................................................. $18.80
Maximum sales charge (5% of offering price)...................... .99
------
Offering price to public......................................... $19.79
======
CLASS B
Net asset value, offering price and redemption price per Class B
share*.......................................................... $18.26
======
CLASS C
Net asset value, offering price and redemption price per Class C
share*.......................................................... $18.25
Sales charge (1% of offering price) ............................. .18
------
Offering price to public......................................... $18.43
======
CLASS Z
Net asset value, offering price and redemption price per Class Z
share........................................................... $18.83
======
</TABLE>
----------
*Class B and Class C shares are subject to a contingent
deferred sales charge on certain redemptions. See "How to Buy,
Sell and Exchange Shares of the Fund--How to Sell Your
Shares--Contingent Deferred Sales Charge" in the Prospectus.

SELECTING A PURCHASE ALTERNATIVE

The following will assist you in determining which method of purchase best
suits your individual circumstances, based on the Fund's current fees and
expenses:

If you intend to hold your investment in the Fund for less than 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an 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.

B-26
<PAGE>

If you intend to hold your investment for longer than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, you
should consider purchasing Class B or Class C shares over Class A shares. This
is because the initial sales charge plus the cumulative annual distribution-
related fee on Class A shares would exceed those of the Class B and Class C
shares if you redeem your investment during this time period. In addition,
more of your money would be invested initially in the case of Class C shares,
because of the relatively low initial sales charge, and all of your money
would be invested initially in the case of Class B shares, which are sold at
NAV.

If you qualify for a reduced sales charge on Class A shares, you may benefit
by purchasing 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
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 5 years in the case of
Class C shares for the higher cumulative annual distribution-related fee on
those shares plus, in the case of Class C shares, the 1% initial sales charge
to exceed the initial sales charge plus the 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 when the
CDSC is applicable.

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

Benefit Plans. Certain group retirement and savings plans may purchase Class
A shares without the initial sales charge, provided that they meet the
required minimum amount of assets, average account balance or number of
eligible employees. For more information about these requirements, call
Prudential at (800) 353-2847.

Other Waivers. In addition, Class A shares may be purchased at NAV, through
the Distributor or the Transfer Agent, by:

. officers of the Prudential Mutual Funds (including the Fund),

. employees of the Distributor, Prudential Securities, PIFM and their
subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer
Agent,

. employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer,

. 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,

. members of the Board of Directors of The Prudential Insurance Company of
America,

. registered representatives and employees of brokers who have entered
into a selected dealer agreement with the Distributor provided that
purchases at NAV are permitted by such person's employer,

. investors in Individual Retirement Accounts, provided the purchase is
made in a directed rollover to such individual Retirement Account with
the proceeds of a tax-free rollover of assets from a benefit plan for
which Prudential provides administrative or recordkeeping services and
further provided that such purchase is made within 60 days of receipt of
the benefit plan distribution,

. orders placed by broker-dealers, investment advisors 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

. orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the
accounts are linked to the master account of such broker-dealer,
investment adviser or financial planner and the broker-dealer,
investment adviser or financial planner charges its clients a separate
fee for its services (e.g. mutual fund "supermarket programs").

Broker-dealers, investment advisers or financial planners sponsoring fee-
based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" (programs) may offer their clients more than one
class of shares in the

B-27
<PAGE>

Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

For an investor to obtain any reduction or waiver of the initial sales
charges, either the Transfer Agent must be notified directly by the investor
or the Distributor must be notified by the broker facilitating the transaction
at the time of the sale 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
acquired upon the reinvestment of dividends and distributions.

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See "How to Buy, Sell and Exchange Shares of
the Fund--Reducing or Waiving Class A's Initial Sales Charge" in the
Prospectus.

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

. an individual,

. the individual's spouse, their children and their parents,

. the individual's and spouse's Individual Retirement Account (IRA),

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

. a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children,

. a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse, and

. one or more employee benefit plans of a company controlled by an
individual.

In addition, an eligible group of related investors may include an employer
(or group of related employers) and one or more qualified retirement plans of
such employer or employers (an employer controlling, controlled by or under
common control with another employer is deemed related to that employer).

The Transfer Agent, the Distributor or your broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charges will be granted subject to confirmation of the
investor's holdings. The Combined Purchase and Cumulative Purchase Privilege
does not apply to individual participants in any retirement or group plans.

RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
shares of the Fund and shares of other Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange
privilege) to determine the reduced sales charge. However, the value of shares
held directly with the Transfer Agent and through your broker will not be
aggregated to determine the reduced sales charge. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (NAV plus maximum sales charge) as of the
previous business day. The Distributor or the Transfer Agent must be notified
at the time of purchase that the investor is entitled to a reduced sales
charge. Reduced sales charges will be granted subject to confirmation of the
investor's holdings. Rights of accumulation are not available to individual
participants in any retirement or group plans.

LETTERS OF INTENT. Reduced sales charges also are available to investors (or
an eligible group of related investors), including retirement and group plans,
who enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds (Investment Letter of Intent). Retirement and group plans may
also qualify to purchase Class A shares at net asset value by entering into a
Letter of Intent whereby they agree to enroll, within a thirteen-month period,
a specified number of eligible employees or participants (Participant Letter
of Intent).

B-28
<PAGE>

For purposes of the Investment Letter of Intent, all shares of the Fund and
shares of Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent,
Prudential or its affiliates, and through your broker will not be aggregated
to determine the reduced sales charge.

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

The Investment Letter of Intent does not obligate the investor to purchase,
or the Fund to sell, the indicated amount. Similarly, the Participant Letter
of Intent does not obligate the retirement or group plan to enroll the
indicated number of eligible employees or participants. If the Letter of
Intent goal is not achieved within the thirteen-month period, the purchaser
(or the employer or plan sponsor in the case of any retirement or group plan)
must pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor will liquidate sufficient escrowed shares to obtain such
difference. If the goal is exceeded in an amount which qualifies for a lower
sales charge, a price adjustment is made by refunding to the purchaser the
amount of excess sales charge, if any, paid during the thirteen-month period.
Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.

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

CLASS B SHARES

The offering price of Class B shares is the NAV next determined following
receipt of an order in proper form by the Transfer Agent, your broker or the
Distributor. Although there is no sales charge imposed at the time of
purchase, redemptions of Class B shares may be subject to a CDSC. See
"Contingent Deferred Sales Charge" below.

The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. 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.

CLASS C SHARES

The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, 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.

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.

B-29
<PAGE>

INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT
COMPANIES. Investors may purchase Class C shares at NAV, without the initial
sales charge, with the proceeds from the redemption of shares of any
unaffiliated registered investment company which were not held through an
account with any Prudential affiliate. Such purchases must be made within 60
days of the redemption. Investors eligible for this waiver include: (i)
investors purchasing shares through an account at Prudential Securities; (ii)
investors purchasing shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation (Prusec); and (iii) investors
purchasing shares though other Dealers. This waiver is not available to
investors who purchase shares directly from the Transfer Agent. You must
notify the Transfer Agent directly or through your Dealer if you are entitled
to this waiver and provide the Transfer Agent with such supporting documents
as it may deem appropriate.

CLASS Z SHARES

BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares,
provided that they meet the required minimum amount of assets, average account
balance or number of eligible employees. For more information about these
requirements, call Prudential at (800) 353-2847.

MUTUAL FUND PROGRAMS. Class Z shares can also be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate which includes mutual funds as investment options and the Fund as an
available option. Class Z shares can also be purchased by investors in certain
programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group
relating to:

. Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades, links its clients' accounts to a master account in
the sponsor's name and charges its clients a management, consulting or
other fee for its services,

. Mutual fund "supermarket" programs, where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.

OTHER TYPES OF INVESTORS. Class Z shares of the Fund currently are also
available for purchase by the following categories of investors:

. certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential Mutual Funds are an available investment option;

. the Prudential Securities Cash Balance Pension Plan, an employee defined
benefit plan sponsored by Prudential Securities;

. current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund); and

. Prudential with an investment of $10 million or more.

In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other
persons who distribute shares a finders' fee, from its own resources, based on
a percentage of the net asset value of shares sold by such persons.

SALE OF SHARES

You can redeem your shares 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 broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described in "Contingent Deferred Sales Charges" below. If
you are redeeming your shares through a broker, your broker must receive your
sell order before the Fund computes its NAV for that day (that is, 4:15 p.m.,
New York time) in order to receive that day's NAV. Your broker 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.

B-30
<PAGE>

If you hold shares of the Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your
Prudential Securities Financial Advisor.

If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be received by the Transfer Agent, the Distributor or your
broker in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence
of authority acceptable to the Transfer Agent must be submitted before such
request will be accepted. All correspondence and documents concerning
redemptions should be sent to the Fund in care of its Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010, the Distributor or to your
broker.

Payment for shares presented for redemption will be made by check within
seven days after receipt of the certificate and/or written request by the
Transfer Agent, the Distributor or your broker, except as indicated below. If
you hold shares through a broker, payment for shares presented for redemption
will be credited to your account at your broker unless you indicate otherwise.
Such payment may be postponed or the right of redemption suspended at times
(i) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (ii) when trading on such Exchange is restricted, (iii)
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
(iv) 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 described in (ii), (iii) or (iv) 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 Transfer Agent. Such delay may be avoided by
purchasing shares by wire or by certified or cashier's check.

SIGNATURE GUARANTEE. If the proceeds of the redemption (i) exceed $100,000,
(ii) are to be paid to a person other than the record owner, (iii) are to be
sent to an address other than the address on the Transfer Agent's records, or
(iv) 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.

REDEMPTION IN KIND. If the Trustees determine 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 in a regular redemption. If your shares are redeemed in
kind, you would incur transaction costs in converting the assets into cash.
The Fund, however, has 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 Fund
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 the applicable investment minimum due to a
redemption. The Fund will give such shareholders 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 the redemption. Any 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 broker, 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
Charge" below. Exercise of the repurchase privilege

B-31
<PAGE>

will generally not affect federal tax treatment of any gain realized upon
redemption. However, if the redemption was made within a 30 day period of the
repurchase and if the redemption resulted in a loss, some or all of the loss,
depending on the amount reinvested, may not be allowed for federal income tax
purposes.

CONTINGENT DEFERRED SALES CHARGE

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 18 months of purchase (or one year in the case of
shares purchased prior to November 2, 1998), 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 18 months, in the case of Class C
shares (one year for Class C shares purchased before November 2, 1998). 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 acquired 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.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of 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.

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- -------------------------
<S> <C>
First........................................ 5.0%
Second....................................... 4.0%
Third........................................ 3.0%
Fourth....................................... 2.0%
Fifth........................................ 1.0%
Sixth........................................ 1.0%
Seventh...................................... None
</TABLE>

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results 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 Class B shares made during the preceding six years (five
years for Class B shares purchased prior to January 22, 1990) and 18 months
for Class C shares (one year for Class C shares bought before November 2,
1998); 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.

B-32
<PAGE>

WAIVER OF CONTINGENT DEFERRED SALES CHARGE--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 of 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 certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. For more information, call Prudential at (800) 353-2847.

Finally, the CDSC will be waived to the extent that the proceeds from shares
redeemed are invested in Prudential Mutual Funds. The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account, or units of The Stable
Value Fund.

Systematic Withdrawal Plan. The CDSC will be waived (or reduced) on certain
redemptions from 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 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 of 12% is reached.

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

You must notify the Fund's Transfer Agent either directly or through your
broker, 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.

In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.

<TABLE>
<S> <C>
</TABLE>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION

Death A copy of the shareholder's death
certificate or, in the case of a
trust, a copy of the grantor's death
certificate, plus a copy of the
trust agreement identifying the
grantor.

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

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

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

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

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

B-33
<PAGE>

QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994

The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994, if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchased an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares
of the Fund following the second purchase was $550,000, the quantity discount
would be available for the second purchase of $450,000 but not for the first
purchase of $100,000. The quantity discount will be imposed at the following
rates depending on whether the aggregate value exceeded $500,000 or $1
million:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
--------------------------------------
YEAR SINCE PURCHASE
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
------------------- ---------------------- ---------------
<S> <C> <C>
First.......................... 3.0% 2.0%
Second......................... 2.0% 1.0%
Third.......................... 1.0% 0%
Fourth and thereafter.......... 0% 0%
</TABLE>

You must notify the Fund's Distributor or Transfer Agent either directly or
through Prudential Securities, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES

Benefit Plans. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with
Prudential provide administrative or recordkeeping services. The CDSC will
also be waived for certain redemptions by benefit plans sponsored by
Prudential and its affiliates. For more information, call Prudential at (800)
353-2847.

CONVERSION FEATURE--CLASS B SHARES

Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected
at relative net asset value without the imposition of any additional sales
charge.

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 purchased and then held in your account.
Each time any Eligible Shares in your account convert to Class A shares, all
shares or amounts representing Class B shares then in your account that were
acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.

For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described above will generally be either more or less
than the number of shares actually purchased approximately seven years before
such conversion date. For example, if 100 shares were initially purchased at
$10 per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 or 47.62%, multiplied by 200 shares 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.

B-34
<PAGE>

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 would 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 may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (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.

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. The Fund makes available
to its shareholders the following privileges and plans:

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at net
asset value per share. An investor may direct the Transfer Agent in writing
not less than five full business days prior to the record date to have
subsequent dividends and/or distributions sent in cash rather than reinvested.
In the case of recently purchased shares for which registration instructions
have not been received on the record date, cash payment will be made directly
to the broker. Any shareholder who receives dividends and/or distributions in
cash may subsequently reinvest any such distribution at NAV within 30 days
after the payment date. Such reinvestment will be made at the NAV next
determined after receipt of the distribution check or proceeds by the Transfer
Agent. Shares purchased with reinvested dividends and/or distributions will
not be subject to any CDSC upon redemption.

EXCHANGE PRIVILEGE

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

It is contemplated that the exchange privilege may be applicable to new
mutual funds (including new series of the Fund), the shares of which may be
distributed by the Distributor.

In order to exchange shares by telephone, you must elect the telephone
exchange privilege 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

B-35
<PAGE>

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 shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.

If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be returned in order for the shares to be
exchanged.

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

In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services LLC at the address noted above.

CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Short-Intermediate Term Series) and shares of the
money market funds specified below. No fee or sales load will be imposed upon
the exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire
Class A shares of the Prudential Mutual Funds participating in the Exchange
Privilege.

The following money market funds participate in the Class A Exchange
Privilege: Prudential California Municipal Fund (California Money Market
Series); Prudential Government Securities Trust (Money Market Series and U.S.
Treasury Money Market Series) (Class A shares); Prudential Municipal Series
Fund (Connecticut Money Market Series, Massachusetts Money Market Series, New
York Money Market Series and New Jersey Money Market Series); Prudential
MoneyMart Assets, Inc. (Class A shares); and Prudential Tax-Free Money Fund,
Inc.

CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares of the Fund for Class B and Class C shares, respectively, of
certain other Prudential Mutual Funds and shares of Prudential Special Money
Market Fund, a money market fund. No CDSC will be payable upon such exchange,
but a CDSC may be payable upon the redemption of the Class B and Class C
shares acquired as a result of an exchange. The applicable sales charge will
be that imposed by the fund in which shares were initially purchased and the
purchase date will be deemed to be the first day of the month after the
initial purchase, rather than the date of the exchange.

Class B and Class C shares of the Fund may also be exchanged for Class B and
Class C shares, respectively, of an eligible money market fund without
imposition of any CDSC at the time of exchange. Upon subsequent redemption
from such money market fund or after re-exchange into the Fund, such shares
will be subject to the CDSC calculated without regard to the time such shares
were held in the money market fund. In order to minimize the period of time in
which shares are subject to a CDSC, shares exchanged out of the money market
fund will be exchanged on the basis of their remaining holding periods, with
the longest remaining holding periods being transferred first. In measuring
the time period shares are held in a money market fund and "tolled" for
purposes of calculating the CDSC holding period, exchanges are deemed to have
been made on the last day of the month. Thus, if shares are exchanged into the
Fund from a money market fund during the month (and are held in the Fund at
the end of the month), the entire month will be included in the CDSC holding
period. Conversely, if shares are exchanged into a money market fund prior to
the last day of the month (and are held in the money market fund on the last
day of the month), the entire month will be excluded from the CDSC holding
period. For purposes of calculating the seven year 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.

At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund without subjecting such shares to any CDSC. Shares of any fund
participating in the Class B or Class C exchange privilege that were acquired
through reinvestment of dividends or distributions may be exchanged for Class
B or Class C shares of other funds without being subject to any CDSC.

B-36
<PAGE>

CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for
shareholders who qualify to purchase Class Z shares. 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 net asset
value above the total amount of payments for the purchase of Class B or Class
C shares and (3) amounts representing Class B or Class C shares held beyond
the applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities, Prusec or
another broker that they are eligible for this special exchange privilege.

Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares
when they elect to have those assets become a part of the fee-based program.
Upon leaving the program (whether voluntarily or not), such Class Z shares
(and, to the extent provided for in the program, Class Z shares acquired
through participation in the program) will be exchanged for Class A shares at
net asset value. Similarly, participants in Prudential Securities' 401(k) Plan
for which the Fund's Class Z shares is 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 Prudential Securities Cash Balance Pension Plan may only exchange its
Class Z shares for Class Z shares of those Prudential Mutual Funds which
permit investment by the Prudential Securities Cash Balance Pension Plan.

Additional details about the exchange privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent, the
Distributor or your broker. The exchange privilege may be modified, terminated
or suspended on sixty days' notice, and any fund, including the Fund, or the
Distributor, has the right to reject any exchange application relating to such
fund's shares.

DOLLAR COST AVERAGING

Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more
shares when the price is low and fewer shares when the price is high. The
average cost per share is lower than it would be if a constant number of
shares were bought at set intervals.

Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class beginning in 2011, the cost of four years at
a private college could reach $210,000 and over $90,000 at a public
university./1/

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

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

See "Automatic Investment Plan."

B-37
<PAGE>

- ----------
/1/Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics;
and the U.S. Department of Education. Average costs for private institutions
include tuition, fees and room and board for the 1993-1994 academic year.

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

AUTOMATIC INVESTMENT PLAN (AIP)

Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account
or brokerage account (including a Prudential Securities Command Account) to be
debited to invest specified dollar amounts in shares of the Fund. The
investor's bank must be a member of the Automatic Clearing House System. Stock
certificates are not issued to AIP participants.

Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly,
quarterly, semi-annual or annual checks in any amount, except as provided
below, up to the value of the shares in the shareholder's account. Withdrawals
of Class B or Class C shares may be subject to a CDSC.

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

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

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

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

TAX-DEFERRED RETIREMENT PLANS

Various tax deferred retirement plans, including a 401(k) Plan, self-
directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants or a pooled account arrangement. Information regarding the
establishment of these plans, their administration, custodial fees and other
details are available from the Distributor or the Transfer Agent.

Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.

B-38
<PAGE>

TAX-DEFERRED RETIREMENT ACCOUNTS

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

TAX-DEFERRED COMPOUNDING/1/

<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- -------- ---
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- ----------
/1/The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings
in a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA which meets the conditions required
under the Internal Revenue Code will not be subject to tax upon withdrawal
from the account.

MUTUAL FUND PROGRAMS

From time to time, the Fund may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios
will be selected and thereafter marketed collectively. Typically, these
programs are created with an investment theme, such as, to seek greater
diversification, protection from interest rate movements or access to
different management styles. In the event such a program is instituted, there
may be a minimum investment requirement for the program as a whole. The Fund
may waive or reduce the minimum initial investment requirements in connection
with such a program.

The mutual funds in the program may be purchased individually or as part of
a program. Since the allocation of portfolios included in the program may not
be appropriate for all investors, individuals should consult their financial
advisor concerning the appropriate blend of portfolios for them. If investors
elect to purchase the individual mutual funds that constitute the program in
an investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.

NET ASSET VALUE

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. The
Fund will compute its NAV at 4:15 P.M., New York time, on each day the New
York Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem Fund shares have been received or days on which
changes in the value of the Fund's portfolio securities do not affect NAV. In
the event the New York Stock Exchange closes early on any business day, the
NAV of the Fund's shares will be determined at a time between such closing and
4:15 p.m., New York time. The New York Stock Exchange is closed on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sale price on such exchange or system on the day of valuation or, if
there was no sale on such day, the mean between the

B-39
<PAGE>

last bid and asked prices on such day, or at the bid price on such day in the
absence of an asked price. Corporate bonds (other than convertible debt
securities) and U.S. Government securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed by the Manager in consultation with the Investment Adviser
to be over-the-counter, are valued on the basis of valuations provided by an
independent pricing agent or principal market maker which uses information
with respect to transactions in bonds, quotations from bond dealers, agency
ratings, market transactions in comparable securities and various
relationships between securities in determining value. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be over-the-
counter, are valued at the mean between the last reported bid and asked prices
provided by principal market makers. Options on stock and stock indices traded
on an exchange are valued at the mean between the most recently quoted bid and
asked prices on the respective exchange and futures contracts and options
thereon are valued at their last sale prices as of the close of trading on the
applicable commodities exchange or board of trade or, if there was no sale on
the applicable commodities exchange or board of trade on such day, at the mean
between the most recently quoted bid and asked prices on such exchange or
board of trade. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents at the current rate obtained from a
recognized bank or dealer and forward currency forward contracts are valued at
the current cost of covering or offsetting such contracts. Should an
extraordinary event, which is likely to affect the value of the security,
occur after the close of an exchange on which a portfolio security is traded,
such security will be valued at fair value considering factors determined in
good faith by the investment adviser under procedures established by and under
the general supervision of the Fund's Board of Directors.

Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker
does not provide a valuation or methodology or provides a valuation or
methodology that, in the judgment of the Manager or Subadviser (or Valuation
Committee or Board of Directors) does not represent fair value, are valued by
the Valuation Committee or Board of Directors in consultation with the Manager
or Investment Adviser including its portfolio manager, traders, and its
research and credit analysts, on the basis of the following factors: cost of
the security, transactions in comparable securities, relationships among
various securities and such other factors as may be determined by the Manager,
Subadviser, Board of Directors or Valuation Committee to materially affect the
value of the security. Short-term debt securities are valued at cost, with
interest accrued or discount amortized to the date of maturity, if their
original maturity was 60 days or less, unless this is determined by the Board
of Directors not to represent fair value. Short-term securities with remaining
maturities of more than 60 days, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
NAV at 4:15 P.M., New York time, on each day the New York Stock Exchange is
open for trading except on days on which no orders to purchase, sell or redeem
Fund shares have been received or days on which changes in the value of the
Fund's portfolio securities do not affect NAV. In the event the New York Stock
Exchange closes early on any business day, the NAV of the Fund's shares shall
be determined at the time between such closing and 4:15 P.M., New York time.

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. NAV is calculated separately for each class. The NAV of
Class B and Class C shares will generally be lower than the NAV of Class A
shares as a result of the larger distribution-related fee to which Class B and
Class C shares are subject. The NAV of Class Z shares will generally be higher
than the NAV of Class A, Class B or Class C shares as a result of the fact
that the Class Z shares are not subject to any distribution or service fee. 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 the distribution and/or service fee expense
accrual differential among the classes.

TAXES, DIVIDENDS AND DISTRIBUTIONS

The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
As a regulated investment company, the Fund will not be liable for federal
income tax on its net investment income and capital gains provided that at
least 90% of the Fund's net investment income (including net short-term
capital gains) other than long-term capital gains earned in the taxable year
is distributed. Qualification as a regulated investment company under the
Internal Revenue Code requires, among other things, that the Fund (a) derive
at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with

B-40
<PAGE>

respect to its business of investing in such securities or currencies; and (b)
diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of the Fund's assets is represented by cash,
U.S. Government securities and securities of other regulated investment
companies, and other securities (for purposes of this calculation generally
limited, in respect of any one issuer, to an amount not greater than 5% of the
market value of the Fund's assets and 10% of the outstanding voting securities
of such issuer), and (ii) not more than 25% of the value of its assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies), or two
or more issuers which the Company controls and which are determined to be
engaged in the same or similar trades or businesses. These requirements may
limit the Fund's ability to invest in other types of assets. The Fund
generally will be subject to a nondeductible excise tax of 4% to the extent
that it does not meet certain minimum distribution requirements as of the end
of each calendar year. The Fund intends to make timely distributions of its
income in compliance with these requirements and anticipates that it will not
be subject to the excise tax.

Under the Internal Revenue Code, any distributions designated as being made
from the Fund's net capital gains are taxable to its shareholders as long-term
capital gains, regardless of the holding period of such shareholders. Such
distributions of net capital gains will be designated by the Fund as a capital
gains distribution in a written notice to its shareholders which accompanies
the distribution payment. Any loss on the sale of shares held for less than
six months will be treated as a long-term capital loss for federal tax
purposes to the extent a shareholder receives net capital gain distributions
on such shares. The maximum federal income tax rate applicable to long-term
capital gains is currently 20% for individual shareholders and 35% for
corporate shareholders. Dividends and distributions are taxable as described
whether received in cash or reinvested in additional shares of the Fund.

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

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

Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates between the time the Fund accrues income,
expenses or other liabilities denominated in a foreign currency and the time
the Fund actually collects such income or pays such liabilities, are treated
as ordinary income or ordinary loss for federal income tax purposes.
Similarly, gains or losses on the disposition of debt securities held by the
Fund, if any, denominated in a foreign currency, to the extent attributable to
fluctuations in exchange rates between the acquisition and its disposition
dates are also treated as ordinary income or loss.

Gains or losses on sales of securities by the Fund will generally be treated
as long-term capital gains or losses if the securities have been held by it
for more than one year except in certain cases where the Fund acquires a put
or writes a call thereon or otherwise holds an offsetting position with
respect to the securities. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Gains and losses on the sale,
lapse or other termination of options on securities will generally be treated
as gains and losses from the sale of securities. If an option written by the
Fund on securities lapses or is terminated through a closing transaction, such
as a purchase by the Fund of the option from its holder, the Fund will
generally realize short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. If securities are sold by the Fund pursuant to the
exercise of a call option written by it, the Fund will include the premium
received in the sale proceeds of the securities delivered in determining the
amount of gain or loss on the sale. Certain of the Fund's transactions may be
subject to wash sale, straddle, constructive sale and short sale provisions of
the Internal Revenue Code which may, among other things, require the Fund to
defer losses or cause gain to be treated as ordinary income rather than as
capital gain. In addition, debt securities acquired by the Fund may be subject
to original issue discount rules which may, among other things, cause the Fund
to accrue income in advance of the receipt of cash with respect to interest,
and market discount rules which may, among other things, cause gains to be
treated as ordinary income.

Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. These investments generally will constitute Section 1256
contracts and will be required to be "marked to market" for federal income tax
purposes at the end of the Fund's taxable year, i.e., treated as having

B-41
<PAGE>

been sold at market value. Sixty percent of any capital gain or loss
recognized on such deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-
term capital gain or loss.

Forward currency contracts, options and futures contracts entered into by
the Fund may create "straddles" for federal income tax purposes, which may
result in the deferral of losses in positions held by the Fund to the extent
of any unrecognized gain on offsetting positions held by the Fund, and the
deductibility of interest or other charges incurred to purchase or carry such
positions may be limited.

A "passive foreign investment company" (PFIC) is a foreign corporation that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If the Fund acquires and holds
stock in a PFIC beyond the end of the year of its acquisition, the Fund will
be subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain from disposition of the stock
(collectively, PFIC income), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. If the
Fund elects to treat any PFIC in which it invests as a "qualified electing
fund" then in lieu of the foregoing tax and interest obligation, the Fund will
be required to include in income each year its pro rata share of the qualified
electing funds' annual ordinary earnings and net capital gain, even if they
are not distributed to such Fund; those amounts would be subject to the
distribution requirements applicable to the Fund described above. Because the
election to treat a PFIC as a qualifying fund cannot be made without the
provision of certain information by the PFIC, the Fund may not be able to make
such an election. If the Fund does not or cannot elect to treat such a PFIC as
a "qualified electing fund," the Fund can make a "mark-to-market" election,
i.e., treat the shares of the PFIC as sold on the last day of such Funds'
taxable year, and thus avoid the special tax and interest charge. The gains
the Fund recognizes from the mark-to-market election would be included as
ordinary income in the net investment income the Fund must distribute to
shareholders, notwithstanding that the Fund would receive no cash in respect
of such gains. Any loss from the mark-to-market election may be recognized to
the extent of previously reported mark-to-market gains.

Dividends of net investment income will be taxable to a U.S. shareholder as
ordinary income regardless of whether such shareholder receives such dividends
in additional shares or in cash. Dividends received from the Fund will be
eligible for the dividends-received deduction to corporate shareholders only
to the extent that the Fund's income is derived from certain dividends
received from domestic corporations. Since the Fund is not likely to have a
substantial portion of its assets invested in stock of domestic corporations,
the amount of the Fund's dividends eligible for the corporate dividends-
received deduction will be minimal. The amount of dividends qualifying for the
dividends-received deduction will be designated as such in a written notice to
shareholders mailed not later than 60 days after the end of the Fund's taxable
year. Distributions of net long-term capital gains, if any, will be taxable as
long-term capital gains regardless of whether the shareholder receives such
distribution in additional shares or in cash and regardless of how long the
shareholder has held the Fund's shares, and will not be eligible for the
dividends-received deduction for corporations.

Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income purposes in each
share so received equal to the net asset value of a share of the Fund on the
reinvestment date.

Distributions of net investment income made to a nonresident alien
individual, a nonresident alien fiduciary of a foreign estate or trust,
foreign corporation or foreign partnership (foreign shareholder) will be
subject to U.S. withholding tax at a rate of 30% (or lower treaty rate),
unless the dividends are effectively connected with the U.S. trade or business
of the shareholder and the shareholder complies with certain filing
requirements. Gains realized upon the sale or redemption of shares of the Fund
by a foreign shareholder and distributions of net long-term capital gains to a
foreign shareholder will generally not be subject to U.S. income tax unless
the gain is effectively connected with a trade or business carried on by the
shareholder within the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for more than 182 days during the taxable year and certain other conditions
are met. If distributions are effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of net investment
income and net long-term capital gains will be subject to U.S. income tax at
the graduated rates applicable to U.S. citizens or domestic corporations.
Transfers by gift of shares of the Fund by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax, but
the value of the shares of the Fund held by such a shareholder at his death
will be includable in his gross estate for U.S. federal estate tax purposes.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund.

B-42
<PAGE>

Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known.

If the Fund is liable for foreign taxes, the Fund expects to meet the
requirements of the Internal Revenue Code for "passing-through" to its
shareholders foreign income taxes paid, but there can be no assurance that the
Fund will be able to do so. Under the Internal Revenue Code, if more than 50%
of the value of the Fund's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, the Fund will be
eligible and may file an election with the Internal Revenue Service to "pass-
through" to the Fund's shareholders the amount of foreign income taxes paid by
the Fund. Pursuant to this election, shareholders will be required to: (i)
include in gross income (in addition to taxable dividends actually received)
their pro rata share of the foreign income taxes paid by the Fund; (ii) treat
their pro rata share of foreign income taxes as paid by them; and (iii) either
deduct their pro rata share of foreign income taxes in computing their taxable
income or, subject to certain limitations, use it as a foreign tax credit
against U.S. income taxes imposed on foreign source income. For this purpose,
the portion of dividends paid by the Fund from its foreign source income will
be treated as such. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. A shareholder that is a
nonresident alien individual or foreign corporation may be subject to U.S.
withholding tax on the income resulting from the election described in this
paragraph, but may not be able to claim a credit or deduction against such tax
for the foreign taxes treated as having been paid by such shareholder. A tax-
exempt shareholder will not ordinarily benefit from this election. The amount
of foreign taxes for which a shareholder may claim a credit in any year will
generally be subject to various limitations including a separate limitation
for "passive income," which includes, among other things, dividends, interest
and certain foreign currency gains.

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

The Fund may also be subject to state or local taxes in certain other states
where it is deemed to be doing business. Further, in those states which have
income tax laws, the tax treatment of the Fund and of shareholders of the Fund
with respect to distributions by the Fund may differ from federal tax
treatment. Distributions to shareholders may be subject to additional state
and local taxes. Shareholders should consult their own tax advisers regarding
specific questions as to federal, state or local taxes.

PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.

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

P(1+T)n = ERV

Where:P= a hypothetical initial payment of $1000.
T= average annual total return.
n= number of years.
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1000 payment
made at the beginning of the 1, 5, or 10 year periods.

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

B-43
<PAGE>

Below are the average annual total returns for the Fund's share classes for
the periods ended April 30, 1999.

<TABLE>
<CAPTION>
1 3 SINCE
YEAR YEARS INCEPTION
----- ----- ---------
<S> <C> <C> <C> <C>
Class A................................. -3.07% 18.08% 15.27% (7-13-94)
Class B................................. -3.61 18.45 15.45 (7-13-94)
Class C................................. -0.83 18.73 15.31 (7-13-94)
Class Z................................. 2.35 20.40 20.94 (4-15-96)
</TABLE>

AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares.

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

ERV - P
-------
T = P

Where:P= a hypothetical initial payment of $1000.
T = aggregate total return.
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1000 payment
made at the beginning of the 1, 5 or 10 year periods.

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

Below are the aggregate total returns for the Fund's share classes for the
periods ended April 30, 1999.

<TABLE>
<CAPTION>
1 3 SINCE
YEAR YEARS INCEPTION
---- ----- ---------
<S> <C> <C> <C> <C>
Class A.................................. 2.03% 73.31% 108.13% (7-13-94)
Class B.................................. 1.39 69.19 100.21 (7-13-94)
Class C.................................. 1.18 69.07 100.06 (7-13-94)
Class Z.................................. 2.35 74.55 78.20 (4-15-96)
</TABLE>

B-44
<PAGE>

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., other
industry publications, business periodicals and market indices. Set forth
below is a chart which compares the performance of different types of
investments over the long-term and the rate of inflation./1/

Performance Comparison of Diffrent Types of Investments
Over the Long Term (12/31/25 - 12/31/98)

[BAR GRAPH]

Common Stocks 11.2%
Long-Term Gov't. Bonds 5.3%
Inflation 3.1%

/1/Source: Ibbotson Associates. Used with permission. All rights reserved.
Common stock returns are based on the Standard & Poor's 500 Stock Index, a
market-weighted, unmanaged index of 500 common stocks in a variety of industry
sectors. It is a commonly used indicator of broad stock price movements. This
chart is for illustrative purposes only, and is not intended to represent the
performance of any particular investment or fund. Investors cannot invest
directly in an index. Past performance is not a guarantee of future results.

B-45
<PAGE>

Portfolio of Investments as of
April 30, 1999 PRUDENTIAL EUROPE GROWTH FUND, INC.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--97.6%
COMMON STOCKS--95.2%
- ---------------------------------------------------------------
Belgium--1.9%
92,462 Kredietbank NV (Banking) $ 5,740,416
- ---------------------------------------------------------------
Federal Republic of Germany--6.9%
18,589 DePfa Deutsche Pfandbriefbank AG
(Banking) 1,553,192
29,610 Douglas Holding AG (Retail) 1,362,290
4,770 Kamps AG(a)
(Food products & services) 163,962
4,747 Karstadt AG (Retail) 2,136,293
23,400 Mannesmann AG
(Machinery & engineering) 3,083,727
4,421 MobilCom AG
(Telecommunication services) 1,131,561
12,212 SAP AG
(Computer products & services) 3,913,554
48,400 SGL Carbon AG (Chemicals) 2,664,453
47,950 Volkswagen AG
(Automobiles & auto parts) 3,402,931
49,447 Winkler & Duennebier AG(a)
(Machinery & engineering) 1,334,112
------------
20,746,075
- ---------------------------------------------------------------
Finland--3.0%
117,250 Nokia Corp.
(Telecommunication equipment) 9,046,490
- ---------------------------------------------------------------
France--13.6%
53,594 Carbone-Lorraine
(Electrical & electronics) 2,930,547
4,541 Carrefour SA (Retail) 3,602,092
11,259 Compagnie Generale de Geophysique
SA (Oil production & services) 603,740
15,570 Dassault Systemes SA
(Computer software) 573,567
16,759 Havas Advertising SA (Media) 3,403,230
88,306 Lagardere S.C.A. (Diversified
operations) 3,500,514
21,983 Legrand SA (Electrical &
electronics) 5,254,572
37,963 Pechiney SA (Manufacturing) 1,606,063
39,664 Rexel SA (Electrical & electronics) $ 3,293,124
50,586 Sidel SA (Machinery & engineering) 6,099,260
110,602 Societe Generale d'Entreprises SA
(Construction) 4,679,128
62,340 Valeo SA (Automobiles & auto parts) 5,274,712
------------
40,820,549
- ---------------------------------------------------------------
Greece--0.1%
16,297 Panafon Hellenic Telecom SA(a)
(Telecommunication services) 434,558
- ---------------------------------------------------------------
Ireland--4.2%
389,454 Allied Irish Banks PLC (Banking) 6,283,028
322,418 Bank of Ireland (Banking) 6,445,312
------------
12,728,340
- ---------------------------------------------------------------
Italy--7.8%
416,254 Autogrill SpA (Restaurants) 3,821,379
270,000 Class Editori (Publishing) 2,627,203
3,000,000 Seat Pagine Gialle SpA (Publishing) 3,744,081
1,260,052 Telecom Italia Mobile SpA
(Telecommunication services) 7,516,394
1,126,961 Unicredito Italiano SpA (Banking) 5,721,265
------------
23,430,322
- ---------------------------------------------------------------
Netherlands--5.1%
46,121 Getronics NV
(Computer products & services) 1,895,098
58,558 Hagemeyer NV
(Wholesale & international
trading) 1,981,884
90,670 Heineken NV (Beverages) 4,555,114
46,629 Nutreco Holdings NV
(Food products & services) 1,891,313
44,800 Royal Dutch Petroleum Co.
(Oil production & services) 2,610,788
45,103 United Pan-Europe Communications
NV(a) (Telecommunication
services) 2,335,071
------------
15,269,268
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-46

<PAGE>

Portfolio of Investments as of
April 30, 1999 PRUDENTIAL EUROPE GROWTH FUND, INC.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ---------------------------------------------------------------
Norway--2.0%
183,248 Agresso Group ASA(a)
(Computer products & services) $ 551,747
139,235 Tomra System ASA
(Waste management) 5,530,224
------------
6,081,971
- ---------------------------------------------------------------
Spain--7.3%
403,296 Banco Santander Central Hispano SA
(Banking) 8,769,786
113,986 Indra Sistemas SA
(Telecommunication services) 1,097,071
25,132 NH Hoteles SA (Hotel) 295,845
148,678 Telefonica SA
(Telecommunication services) 6,974,006
729,909 TelePizza SA(a) (Restaurants) 4,631,930
------------
21,768,638
- ---------------------------------------------------------------
Sweden--4.9%
44,784 Enator AB
(Computer products & services) 1,243,587
105,090 Hennes & Mauritz AB (Retail) 9,066,363
122,400 Mo och Domsjoe AB
(Paper related products) 3,151,944
33,684 NetCom AB(a)
(Telecommunication services) 1,083,254
------------
14,545,148
- ---------------------------------------------------------------
Switzerland--6.3%
1,727 Ares-Serono Group (Medical
products) 2,565,861
2,900 Holderbank Financiere Glarus AG
(Building products) 3,498,262
1,545 Julius Baer Holding AG (Banking) 5,031,765
4,170 Mikron Holding AG
(Machinery & engineering) 997,025
624 Stratec Holding AG (Medical
products) $ 1,166,546
7,000 Swisscom AG(a)
(Telecommunication services) 2,571,335
4,743 Zurich Allied AG (Insurance) 3,058,294
------------
18,889,088
- ---------------------------------------------------------------
United Kingdom--32.1%
220,230 Barclays PLC (Banking) 6,991,610
221,969 Bodycote International PLC
(Manufacturing) 3,444,873
34,060 Britannic PLC (Insurance) 546,127
467,088 British Sky Broadcasting Group PLC
(Media) 4,131,569
239,186 Capita Group PLC (Human Resources) 2,523,441
142,000 COLT Telecom Group PLC(a)
(Telecommunication services) 2,658,244
737,490 Compass Group PLC
(Food products & services) 7,507,812
348,424 Dixons Group PLC (Retail) 7,418,680
664,145 Electrocomponents PLC
(Electrical & electronics) 5,669,513
129,654 EMAP PLC (Publishing) 2,725,305
421,420 GKN PLC (Automobiles & auto parts) 7,194,303
766,046 Hays PLC(a)
(Business & public services) 8,513,075
759,262 Invensys PLC (Diversified
operations) 3,873,886
432,135 Misys PLC
(Computer products & services) 4,030,890
410,545 Securicor PLC (Commercial services) 3,858,818
237,290 SEMA Group PLC
(Computer products & services) 2,310,719
255,408 SmithKline Beecham PLC
(Medical products) 3,376,446
291,100 Standard Chartered PLC (Banking) 5,262,136
485,276 Vodafone Group PLC
(Telecommunication services) 8,936,097
320,439 Whitbread PLC (Beverages) 5,411,133
------------
96,384,677
------------
Total common stocks
(cost $196,508,830) 285,885,540
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-47
<PAGE>

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

The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of April 30, 1999 was as
follows:
<TABLE>
<S> <C>
Banking............................................... 17.2%
Telecommunication Services............................ 11.6
Retail................................................ 8.1
Automobiles & Auto Parts.............................. 6.2
Electrical & Electronics.............................. 5.7
Computer Products & Services.......................... 4.9
Machinery & Engineering............................... 3.8
Beverages............................................. 3.3
Food Products & Services.............................. 3.2
Publishing............................................ 3.0
Telecommunication Equipment........................... 3.0
Business & Public Services............................ 2.8
Restaurants........................................... 2.8
Media................................................. 2.5
Diversified Operation................................. 2.5
Medical Products...................................... 2.4
Waste Management...................................... 1.8
Manufacturing......................................... 1.7
Construction.......................................... 1.6
Commercial Services................................... 1.3
Insurance............................................. 1.2
Building Products..................................... 1.2
Oil Production & Services............................. 1.1
Paper Related Products................................ 1.0
Cosmetics & Toiletries................................ 1.0
Chemicals............................................. 0.9
Human Resources....................................... 0.8
Wholesale & International Trading..................... 0.7
Computer Software..................................... 0.2
Hotel................................................. 0.1
Other assets in excess of liabilities
(including Repurchase Agreement).................... 2.4
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-48

<PAGE>

Statement of Assets and Liabilities PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets April 30, 1999
Investments, at value (cost $206,148,792)................................................................... $ 296,559,712
Cash........................................................................................................ 2,626,614
Receivable for investments sold............................................................................. 1,944,651
Receivable for Fund shares sold............................................................................. 986,728
Dividends and interest receivable........................................................................... 400,723
--------------
Total assets............................................................................................. 302,518,428
--------------
Liabilities
Payable for investments purchased........................................................................... 949,689
Payable for Fund shares reacquired.......................................................................... 489,069
Accrued expenses............................................................................................ 212,659
Distribution fee payable.................................................................................... 190,290
Management fee payable...................................................................................... 184,949
Payable to foreign custodian................................................................................ 126,262
--------------
Total liabilities........................................................................................ 2,152,918
--------------
Net Assets.................................................................................................. $ 300,365,510
--------------
--------------
Net assets were comprised of:
Common stock, at par..................................................................................... $ 16,308
Paid-in capital in excess of par......................................................................... 214,160,224
--------------
214,176,532
Distributions in excess of net investment income......................................................... (2,902,033)
Accumulated net realized loss on investments and foreign currency transactions........................... (1,297,667)
Net unrealized appreciation on investments and foreign currencies........................................ 90,388,678
--------------
Net Assets, April 30, 1999.................................................................................. $ 300,365,510
--------------
--------------
Class A:
Net asset value and redemption price per share
($78,074,176 / 4,153,213 shares of common stock issued and outstanding)............................... $18.80
Maximum sales charge (5% of offering price).............................................................. .99
--------------
Maximum offering price to public......................................................................... $19.79
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($196,246,759 / 10,746,519 shares of common stock issued and outstanding)............................. $18.26
--------------
--------------
Class C:
Net asset value and redemption price per share
($15,073,138 / 825,815 shares of common stock issued and outstanding)................................. $18.25
Sales charge (1% of offering price)...................................................................... .18
--------------
Offering price to public................................................................................. $18.43
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($10,971,437 / 582,719 shares of common stock issued and outstanding)................................. $18.83
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-49
<PAGE>

PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Loss April 30, 1999
--------------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $396,377)..................... $ 3,671,047
Interest.................................. 819,683
--------------
Total income........................... 4,490,730
--------------
Expenses
Management fee............................ 2,104,075
Distribution fee--Class A................. 168,215
Distribution fee--Class B................. 1,912,205
Distribution fee--Class C................. 134,649
Custodian's fees and expenses............. 497,000
Transfer agent's fees and expenses........ 411,000
Reports to shareholders................... 142,000
Registration fees......................... 81,000
Audit fees and expenses................... 35,000
Directors' fees and expenses.............. 27,000
Legal fees and expenses................... 21,000
Miscellaneous............................. 5,662
--------------
Total operating expenses............... 5,538,806
--------------
Net investment loss.......................... (1,048,076)
--------------
Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions................... 4,316,595
Foreign currency transactions............. (1,224,193)
--------------
3,092,402
--------------
Net change in unrealized appreciation (depreciation) of:
Investment transactions................... 589,590
Foreign currency transactions............. (22,874)
--------------
566,716
--------------
Net gain on investments and foreign
currencies................................ 3,659,118
--------------
Net Increase in Net Assets
Resulting from Operations.................... $ 2,611,042
==============
</TABLE>

PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------

<TABLE>
<CAPTION>
Increase (Decrease) Year Ended April 30,
------------------------------
in Net Assets 1999 1998
------------ -------------
<S> <C> <C>
Operations
Net investment loss.......... $ (1,048,076) $ (1,014,148)
Net realized gain on
investment and foreign
currency transactions..... 3,092,402 35,982,401
Net change in unrealized
appreciation of
investments and foreign
currencies................ 566,716 43,664,075
------------- -------------
Net increase in net assets
resulting from
operations................ 2,611,042 78,632,328
------------- -------------
Dividends and distributions (Note 1):
Dividends in excess of net
investment income
Class A................... (830,201) (321,821)
Class B................... (1,011,041) (81,896)
Class C................... (71,585) (4,853)
Class Z................... (135,753) (139,871)
------------- -------------
(2,048,580) (548,441)
------------- -------------
Distributions from net
realized gains
Class A................... (4,081,825) (4,137,694)
Class B................... (11,930,280) (14,741,276)
Class C................... (844,703) (873,579)
Class Z................... (572,100) (1,346,354)
------------- -------------
(17,428,908) (21,098,903)
------------- -------------
Fund share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold...................... 334,649,118 432,031,984
Net asset value of shares
issued in reinvestment of
distributions............. 18,358,228 20,131,598
Cost of shares reacquired.... (281,351,717) (461,615,189)
------------- -------------
Net increase (decrease) in
net assets
from Fund share
transactions.............. 71,655,629 (9,451,607)
------------- -------------
Total increase.................. 54,789,183 47,533,377
Net Assets
Beginning of year............... 245,576,327 198,042,950
------------- -------------
End of year..................... $ 300,365,510 $ 245,576,327
============= =============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-50
<PAGE>

Notes to Financial Statements PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Prudential Europe Growth Fund, Inc. (the 'Fund') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is to seek long-term capital
growth by investing primarily in equity securities of companies domiciled in
Europe. The Fund was incorporated in Maryland on March 18, 1994 and commenced
investment operations on July 13, 1994.
- --------------------------------------------------------------------------------
Note 1. Accounting Policies

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

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

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

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

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

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

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

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

Net realized loss on foreign currency transactions of $1,224,193 represents net
foreign exchange gains or losses from the sale of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends and foreign
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net currency gains and losses from valuing foreign
currency denominated assets and liabilities (other than investments) at period
end exchange rates are reflected as a component of net unrealized appreciation
on investments and foreign currencies.

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

Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
currency transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date, and interest income is recorded on
an accrual basis. Expenses are recorded on the accrual basis which may require
the use of certain estimates by management.

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

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

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

B-51
<PAGE>

Notes to Financial Statements PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.

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

Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants, Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to increase distributions in excess of net investment income
by $2,331,507, decrease accumulated net realized gain on investments and foreign
currency transactions by $9,623,713, and increase paid-in capital by $7,292,206
due to the Fund experiencing a net investment loss, realized foreign currency
losses and for redemptions utilized as distributions for federal income tax
purposes during the year ended April 30, 1999. Net investment income, net
realized gains and net assets were not affected by this change.
- --------------------------------------------------------------------------------
Note 2. Agreements

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

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

The Fund had a distribution agreement with Prudential Securities Incorporated
('PSI'), which acted as the distributor of the Class A, B, C and Class Z shares
of the Fund through May 31, 1998. Prudential Investment Management Services LLC
('PIMS') became the distributor of the Fund effective June 1, 1998 and is
serving the Fund under the same terms and conditions as under the arrangement
with PSI. The Fund compensated PSI and PIMS for distributing and servicing the
Fund's Class A, Class B and Class C shares, pursuant to plans of distribution
(the 'Class A, B and C Plans'), regardless of expenses actually incurred by
them. The distribution fees are accrued daily and payable monthly. No
distribution or service fees are paid to PSI or PIMS as distributor of the Class
Z shares of the Fund.

Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%,
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the year ended April
30, 1999.

PSI and PIMS have advised the Fund that they received approximately $355,400 and
$25,400 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the year ended April 30, 1999. From these
fees, PSI and PIMS paid such sales charges to affiliated broker-dealers, which
in turn paid commissions to salespersons and incurred other distribution costs.

PSI and PIMS have advised the Fund that for the year ended April 30, 1999, they
received approximately $332,300 and $12,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PIFM, PIC, PIMS, PSI and PRICOA are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement for the year ended April 30, 1999. The purpose of the agreements is to
serve as an alternative source of funding for capital share redemptions.
- --------------------------------------------------------------------------------
Note 3. Other Transactions With Affiliates

Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended April 30, 1999, the
Fund incurred fees of approximately $356,200 for the services of PMFS. As of
April 30, 1999, approximately $35,800 of such fees were due to
- --------------------------------------------------------------------------------

B-52
<PAGE>

Notes to Financial Statements PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
PMFS. Transfer agent's fees and expenses in the Statement of Operations include
certain out-of-pocket expenses paid to nonaffiliates.

- --------------------------------------------------------------------------------
Note 4. Portfolio Securities

Purchases and sales of investment securities, other than short-term investments,
for the year ended April 30, 1999 were $214,246,239 and $161,997,017,
respectively.

The cost basis of investments for federal income tax purposes at April 30, 1999
was $209,072,030 and, accordingly, net unrealized appreciation for federal
income tax purposes was $87,487,682 (gross unrealized appreciation--$92,427,545;
gross unrealized depreciation--$4,939,863).

The Fund will elect, for United States Federal income tax purposes, to treat net
currency losses of approximately $1,276,462 incurred in the six month period
ended April 30, 1999 as having been incurred in the following fiscal year.

- --------------------------------------------------------------------------------
Note 5. Capital

The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Prior to November 2, 1998, Class C shares
were sold with a contingent deferred sales charge of 1% during the first year.
Effective November 2, 1998, Class C shares are sold with a front-end sales
charge of 1% and a contingent deferred sales charge of 1% during the first 18
months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualify to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to the participants of
employee benefit plans qualified under Section 401, 457 and 403(b)(7) of the
Internal Revenue Code, and nonqualified plans for which the Fund is an available
option. All classes of shares have equal rights as to earnings, assets and
voting privileges except that each class bears different distribution expenses
and has exclusive voting rights with respect to its distribution plan. There are
2 billion shares of $.001 par value common stock authorized and divided into
four classes, designated Class A, Class B, Class C and Class Z Shares, each
consisting of 500 million authorized shares.

Transactions in shares of common shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------- ----------- -------------
<S> <C> <C>
Year ended April 30, 1999:
Shares sold........................ 8,345,087 $ 157,661,177
Shares issued in reinvestment of
dividends and distributions...... 262,851 4,634,072
Shares reacquired.................. (7,460,560) (140,333,930)
----------- -------------
Net increase in shares outstanding
before conversion................ 1,147,378 21,961,319
Shares issued upon conversion from
Class B.......................... 217,986 4,151,642
----------- -------------
Net increase in shares
outstanding...................... 1,365,364 $ 26,112,961
----------- -------------
----------- -------------
Year ended April 30, 1998:
Shares sold........................ 14,645,188 $ 246,604,700
Shares issued in reinvestment of
dividends and distributions...... 265,957 4,114,350
Shares reacquired.................. (14,809,778) (249,777,100)
----------- -------------
Net increase in shares outstanding
before conversion................ 101,367 941,950
Shares issued upon conversion from
Class B.......................... 176,364 3,035,236
----------- -------------
Net increase in shares
outstanding...................... 277,731 $ 3,977,186
----------- -------------
----------- -------------
<CAPTION>
Class B
- -------
<S> <C> <C>
Year ended April 30, 1999:
Shares sold........................ 5,915,979 $ 110,988,705
Shares issued in reinvestment of
dividends and distributions...... 706,372 12,142,534
Shares reacquired.................. (4,740,107) (86,581,806)
----------- -------------
Net increase in shares outstanding
before conversion................ 1,882,244 36,549,433
Shares issued upon conversion from
Class A.......................... (224,271) (4,151,642)
----------- -------------
Net increase in shares
outstanding...................... 1,657,973 $ 32,397,791
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------

B-53
<PAGE>

Notes to Financial Statements PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ------- ----------- -------------
<S> <C> <C>
Year ended April 30, 1998:
Shares sold........................ 6,961,562 $ 115,370,566
Shares issued in reinvestment of
dividends and distributions...... 909,680 13,708,874
Shares reacquired.................. (7,814,335) (128,395,833)
----------- -------------
Net increase in shares outstanding
before conversion................ 56,907 683,607
Shares issued upon conversion from
Class A.......................... (181,159) (3,035,236)
----------- -------------
Net decrease in shares
outstanding...................... (124,252) $ (2,351,629)
=========== =============
<CAPTION>
Class C
- -------
<S> <C> <C>
Year ended April 30, 1999:
Shares sold........................ 1,963,862 $ 36,030,413
Shares issued in reinvestment of
dividends and distributions...... 51,609 887,682
Shares reacquired.................. (1,763,515) (32,324,685)
----------- -------------
Net increase in shares
outstanding...................... 251,956 $ 4,593,410
=========== =============
Year ended April 30, 1998:
Shares sold........................ 3,938,227 $ 64,864,170
Shares issued in reinvestment of
dividends and distributions...... 54,970 829,494
Shares reacquired.................. (3,949,010) (64,988,945)
----------- -------------
Net increase in shares
outstanding...................... 44,187 $ 704,719
=========== =============
<CAPTION>
Class Z
- -------
<S> <C> <C>
Year ended April 30, 1999:
Shares sold........................ 1,543,484 $ 29,968,823
Shares issued in reinvestment of
dividends and distributions...... 39,317 693,940
Shares reacquired.................. (1,155,152) (22,111,296)
----------- -------------
Net increase in shares
outstanding...................... 427,649 $ 8,551,467
=========== =============
Year ended April 30, 1998:
Shares sold........................ 282,034 $ 5,192,548
Shares issued in reinvestment of
dividends and distributions...... 95,720 1,478,880
Shares reacquired.................. (992,837) (18,453,311)
----------- -------------
Net decrease in shares
outstanding...................... (615,083) $ (11,781,883)
=========== =============
</TABLE>
- --------------------------------------------------------------------------------

B-54
<PAGE>

Financial Highlights PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
July 13, 1994(b)
Years Ended April 30, Through
------------------------------------------- April 30,
1999(c) 1998(c) 1997 1996(c) 1995(c)
------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 19.91 $ 15.46 $ 13.69 $ 11.77 $ 11.40
------- ------- ------- ------- ------
Income from investment operations
Net investment income........................................ .03 .01 .09 .06 .01
Net realized and unrealized gain on investment and foreign
currency transactions..................................... .28 6.38 2.24 1.86 .36
------- ------- ------- ------- ------
Total from investment operations.......................... .31 6.39 2.33 1.92 .37
------- ------- ------- ------- ------
Less Distributions
Distributions in excess of net investment income............. (.24) (.14) -- -- --
Distributions paid to shareholders from net realized gains on
investment and foreign currency transactions.............. (1.18) (1.80) (.56) -- --
------- ------- ------- ------- ------
Total distributions....................................... (1.42) (1.94) (.56) -- --
------- ------- ------- ------- ------
Net asset value, end of period............................... $ 18.80 $ 19.91 $ 15.46 $ 13.69 $ 11.77
======= ======= ======= ======= ======
TOTAL RETURN(d):............................................. 2.03% 44.93% 17.20% 16.31% 3.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $78,074 $55,507 $38,807 $47,789 $ 41,963
Average net assets (000)..................................... $67,286 $42,885 $37,834 $47,183 $ 29,598
Ratios to average net assets:
Expenses, including distribution fees..................... 1.43% 1.39% 1.36% 1.53% 1.84%(a)
Expenses, excluding distribution fees..................... 1.18% 1.14% 1.11% 1.28% 1.59%(a)
Net investment income..................................... .15% .08% .57% .44% .06%(a)
For Class A, B, C and Z shares:
Portfolio turnover rate...................................... 62% 50% 31% 65% 25%
</TABLE>
- ---------------
(a) Annualized.
(b) Commencement of class operations.
(c) Based on average shares outstanding, by class.
(d) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-55
<PAGE>

Financial Highlights PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------
Years Ended April 30,
-----------------------------------------------
1999(c) 1998(c) 1997 1996(c)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 19.35 $ 15.12 $ 13.49 $ 11.69
-------- -------- -------- --------
Income from investment operations
Net investment loss.......................................... (.11) (.11) (.04) (.04)
Net realized and unrealized gain on investment and foreign
currency transactions..................................... .30 6.15 2.23 1.84
-------- -------- -------- --------
Total from investment operations.......................... .19 6.04 2.19 1.80
-------- -------- -------- --------
Less Distributions
Distributions in excess of net investment income............. (.10) (.01) -- --
Distributions paid to shareholders from net realized gains on
investment and foreign currency transactions.............. (1.18) (1.80) (.56) --
-------- -------- -------- --------
Total distributions....................................... (1.28) (1.81) (.56) --
-------- -------- -------- --------
Net asset value, end of period............................... $ 18.26 $ 19.35 $ 15.12 $ 13.49
======== ======== ======== ========
TOTAL RETURN(d):............................................. 1.39% 43.35% 16.41% 15.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $196,247 $175,857 $139,277 $125,868
Average net assets (000)..................................... $191,220 $147,492 $133,135 $122,255
Ratios to average net assets:
Expenses, including distribution fees..................... 2.18% 2.14% 2.11% 2.28%
Expenses, excluding distribution fees..................... 1.18% 1.14% 1.11% 1.28%
Net investment loss....................................... (.57)% (.69)% (.27)% (.33)%
<CAPTION>
July 13, 1994(b)
Through
April 30,
1995(c)
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 11.40
-------
Income from investment operations
Net investment loss.......................................... (.06)
Net realized and unrealized gain on investment and foreign
currency transactions..................................... .35
-------
Total from investment operations.......................... .29
-------
Less Distributions
Distributions in excess of net investment income............. --
Distributions paid to shareholders from net realized gains on
investment and foreign currency transactions.............. --
-------
Total distributions....................................... --
-------
Net asset value, end of period............................... $ 11.69
=======
TOTAL RETURN(d):............................................. 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $106,081
Average net assets (000)..................................... $ 85,623
Ratios to average net assets:
Expenses, including distribution fees..................... 2.59%(a)
Expenses, excluding distribution fees..................... 1.59%(a)
Net investment loss....................................... (.71)%(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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-56
<PAGE>

Financial Highlights PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------
July 13, 1994(b)
Years Ended April 30, Through
------------------------------------------ April 30,
1999(c) 1998(c) 1997 1996(c) 1995(c)
------- ------- ------ ------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 19.38 $ 15.12 $13.49 $11.69 $11.40
------- ------- ------ ------- -----
Income from investment operations
Net investment loss.......................................... (.11) (.11) (.04) (.04) (.06)
Net realized and unrealized gain on investment and foreign
currency transactions..................................... .26 6.18 2.23 1.84 .35
------- ------- ------ ------- -----
Total from investment operations.......................... .15 6.07 2.19 1.80 .29
------- ------- ------ ------- -----
Less Distributions
Distributions in excess of net investment income............. (.10) (.01) -- -- --
Distributions paid to shareholders from net realized gains on
investment and foreign currency transactions.............. (1.18) (1.80) (.56) -- --
------- ------- ------ ------- -----
Total distributions....................................... (1.28) (1.81) (.56) -- --
------- ------- ------ ------- -----
Net asset value, end of period............................... $ 18.25 $ 19.38 $15.12 $13.49 $11.69
------- ------- ------ ------- -----
------- ------- ------ ------- -----
TOTAL RETURN(d):............................................. 1.18% 43.55% 16.41% 15.40 % 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $15,073 $11,122 $8,010 $7,741 $7,260
Average net assets (000)..................................... $13,465 $ 8,526 $8,002 $7,768 $6,094
Ratios to average net assets:
Expenses, including distribution fees..................... 2.18% 2.14% 2.11% 2.28 % 2.59%(a)
Expenses, excluding distribution fees..................... 1.18% 1.14% 1.11% 1.28 % 1.59%(a)
Net investment loss....................................... (.61)% (.66)% (.25)% (.30 )% (.71)%(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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-57
<PAGE>

B-58
<PAGE>

Report of Independent Accountants PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Prudential Europe Growth Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Europe Growth Fund, Inc.
(the 'Fund') at April 30, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at April
30, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above. The accompanying financial highlights for
the year ended April 30, 1996 and the period ended April 30, 1995 were audited
by other independent accountants, whose opinion dated June 13, 1996 was
unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
June 18, 1999
- --------------------------------------------------------------------------------

B-59
<PAGE>

Federal Income Tax Information (Unaudited) PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (April 30, 1999) as to the federal income tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that during its fiscal year ended April 30, 1999, the Fund paid an ordinary
distribution for Class A shares totaling $0.24 per share, which is taxable as
ordinary income. The Fund paid an ordinary distribution for Class B and Class C
shares totaling $0.10 per share, which is taxable as ordinary income. The Fund
paid an ordinary distribution for Class Z shares totaling $0.28 per share, which
is taxable as ordinary income. The Fund paid short-term capital gains
distributions for Class A, Class B, Class C and Class Z shares of $0.15 per
share, which are taxable as ordinary income and $1.03 per share for long-term
capital gains. The Fund utilized redemptions as distributions in the amount of
$.054, $.047 and $.564 of ordinary income, short-term capital gains and
long-term capital gains, respectively, for each class of shares. We wish to
advise you that the corporate dividends received deduction for the Fund is zero.

The Fund has elected to give the benefit of foreign tax credits to its
shareholders. Accordingly, shareholders who must report their gross income
dividends and distributions in a federal income tax return will be entitled to a
foreign tax credit, or an itemized deduction in computing their U.S. income tax
liability. It is generally more advantageous to claim rather than take a
deduction. For the fiscal year ended April 30, 1999 the Fund intends on passing
through $.0169 per share of ordinary income distributions as a foreign tax
credit.

For the purpose of preparing your annual federal income tax return, however, you
should report the amounts as reflected on the appropriate Form 1099-DIV or
substitute 1099-DIV.
- --------------------------------------------------------------------------------

B-60
<PAGE>

APPENDIX I--DESCRIPTION OF SECURITY RATINGS

DESCRIPTION OF S&P CORPORATE BOND RATINGS:

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

AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.

A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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 bonds in this category than for bonds in higher rated
categories.

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

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

AAA: Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." 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 these issues.

AA: Bonds 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 the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation 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 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 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 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
characterize bonds in this class.

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

C: Bonds 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 the numerical modifiers 1,2, and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.

I-1
<PAGE>

DESCRIPTION OF DUFF & PHELPS BOND RATINGS:

AAA: Bonds rated AAA by Duff & Phelps are considered to be of the highest
credit quality. The risk factors are negligible, being only slightly more than
for risk-free U.S. Treasury debt.

AA+, AA, AA-: Bonds rated A+, AA, or AA- are considered to be of high credit
quality. Protection factors are strong. Risk is modest but may vary slightly
from time to time because of economic conditions.

A+, A, A-: Bonds rated A+, A, or A- have protection factors which are
average but adequate; however, risk factors are more variable and greater in
periods of economic stress.

BBB+, BBB, BBB-: Bonds rated BBB+, BBB, or BBB- have below average
protection factors but are still considered sufficient for prudent investment.
These bonds demonstrate considerable variability in risk during economic
cycles.

BB+, BB, BB-: Bonds rated BB+, BB, or BB- are below investment grade but are
still deemed likely to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently within this
category.

B+, B, B-: Bonds rated B+, B, or B- are below investment grade and possess
the risk that obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for frequent changes in
the rating within this category or into a higher or lower rating grade.

CCC: Bonds rated CCC are well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest,
or preferred dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or with
unfavorable company developments.

DD: Bonds rated DD are defaulted debt obligations. The issuer failed to meet
scheduled principal and/or interest payments.

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:

Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issues rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.

DESCRIPTION OF DUFF & PHELPS COMMERCIAL PAPER RATING:

Duff & Phelps commercial paper ratings are divided into three categories,
ranging from "1" for the highest quality obligations to "3" for the lowest. No
ratings are issued for companies whose paper is not deemed investment grade.
Issues assigned the Duff 1 rating are considered top grade. This category is
further divided into three gradations as follows: Duff 1 plus--highest
certainty of timely payment, short-term liquidity, including internal
operating factors and/or ready access to alternative sources of funds, is
clearly outstanding and safety is just below risk-free U.S. Treasury short-
term obligations; Duff 1--very high certainty of timely payment, liquidity
factors are excellent and supported by strong fundamental protection factors,
risk factors are minor; Duff 1 minus--high certainty of timely payment,
liquidity factors are strong and supported by good fundamental protection
factors, risk factors are very small. Issues rated Duff 2 represent a good
certainty of timely payment; liquidity factors and company fundamentals are
sound; although ongoing internal funds needs may enlarge total financing
requirements, access to capital markets is good; risk factors are small. Duff
3 represents a satisfactory grade; satisfactory liquidity and other protection
factors qualify issue as to investment grade; risk factors are larger and
subject to more variation; nevertheless timely payment is expected.

I-2
<PAGE>

APPENDIX II--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

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

DIVERSIFICATION

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

DURATION

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

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

MARKET TIMING

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

POWER OF COMPOUNDING

Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth
of assets. The long-term investment results of compounding may be greater than
that of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

STANDARD DEVIATION

Standard Deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential.
Standard deviation is only one of several measures of a fund's volatility.

II-1
<PAGE>

APPENDIX III--HISTORICAL PERFORMANCE DATA

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

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

EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY (VALUE OF $1 INVESTED ON
12/31/25)

[GRAPH APPEARS HERE]

Value of $1.00 invested on
1/1/26 through 12/31/98

Small Stocks $5,116.95
Common Stocks $2,350.89

Long-Term Bonds $ 44.18
Treasury Bills $ 14.94
Inflation $ 9.16

Source: Ibbotson Associates. Used with permission. All rights reserved. This
chart is for illustrative purposes only and is not indicative of the past,
present, or future performance of any asset class or any Prudential Mutual
Fund.

Generally, stock returns are due to capital appreciation and the reinvestment
of distributions. Bond returns are due mainly to the reivestment of interest.
Also, stock prices usually are more volatile than bond prices over the long-
term. Small stock returns for 1926-1980 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.

Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).

III-1
<PAGE>

Set forth below is historical performance data relating to various sectors of
the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1988
through 1998. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.

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

Historical Total Returns of Different Bond Market Sectors

YEAR 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury
Bonds/1/ 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government
Mortgage
Securities/2/ 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Investment Grade
Corporate Bonds/3/ 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. High Yield
Bonds/4/ 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6%
- ------------------------------------------------------------------------------------------------------------------------------------
World Government
Bonds/5/ 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Difference between
highest and lowest
returns percent 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1% 8.4%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
/1/ Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one
year.
/2/ Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of
the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).
/3/ Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-
denominated issues and include debt issued or guaranteed by foreign
sovereign governments, municipalities, governmental agencies or
international agencies. All bonds in the index have maturities of at least
one year.
/4/ Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by S&P or Fitch Investors
Service). All bonds in the index have maturities of at least one year. Data
retrieved from Lipper, Inc.
/5/ Salomon Smith Barney Brothers World Government Index (Non U.S.) include 800
bonds issued by various foreign governments or agencies, excluding those in
the U.S., but including those in Japan, Germany, France, the U.K., Canada,
Italy, Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and
Austria. All bonds in the index have maturities of at least one year.

III-2
<PAGE>

This chart illustrates the
performance of major world stock
markets for the period from 12/31/85
through 12/31/98. It does not
represent the performance of any
Prudential Mutual Fund.

Average Annual Total Returns of
Major World Stock Markets 12/31/85-
12/31/98 (in U.S. Dollars)

[BAR GRAPH]

Belgium 22.7%
Spain 22.5%
The Netherlands 20.8%
Sweden 19.9%
Switzerland 18.3%
USA 18.1%
Hong Kong 17.8%
France 17.4%
UK 16.7%
Germany 13.4%
Austria 8.9%
Japan 6.5%

Source: Morgan Stanley Capital
International (MSCI) and Lipper,
Inc. as of 12/31/98. Used with
permission. Morgan Stanley Country
indices are unmanaged indices which
include those stocks making up the
largest two-thirds of each country's
total stock market capitalization.
Returns reflect the reinvestment of
all distributions. This chart is for
illustrative purposes only and is
not indicative of the past, present
or future performance of any
specific investment. Investors
cannot invest directly in stock
indices.

This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.

[GRAPHIC]

- --- Capital Appreciation and Reinvesting Dividends $391,707
... Capital Aprreciation only $133,525

Source: Lipper, Inc. Used with permission. All rights reserved. This chart is
used for illustrative purposes only and is not intended to represent the past,
present or future performance of any Prudential Mutual Fund. Common stock total
return is based on the Standard & Poor's 500 Stock Index, a market-value-
weighted index made up of 500 of the largest stocks in the U.S. based upon
their stock market value. Investors cannot invest directly in indices.

III-3
<PAGE>

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

World Stock Market Capitalization by Region
World Total: $15.8 Trillion

[PIE CHART]

Canada 1.8%
U.S. 51.0%
Europe 34.7%
Pacific Basin 12.5%

Source: Morgan Stanley Capital
International, December 31, 1998. Used
with permission. This chart represents
the capitalization of major world stock
markets as measured by the Morgan
Stanley Capital International (MSCI)
World Index. The total market
capitalization is based on the value of
approximately 1577 companies in 22
countries (representing approximately
60% of the aggregate market value of
the stock exchanges). This chart is for
illustrative purposes only and does not
represent the allocation of any
Prudential Mutual Fund.

III-4
<PAGE>

This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.

[LINE GRAPH APPEARS HERE]

- ------------------------------------------
Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond
from 1926-1998. Yields represent that of an annually renewed one-bond
portfolio with a remaining maturity of approximately 20 years. This chart is
for illustrative purposes and should not be construed to represent the yields
of any Prudential Mutual Fund.

III-5
<PAGE>

APPENDIX IV--INFORMATION RELATING TO PRUDENTIAL

Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating
to the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1997 and is subject to change thereafter. All information relies
on data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Fund.

INFORMATION ABOUT PRUDENTIAL

The Manager and PI/1/ are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December
31, 1997. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs more than
81,000 persons worldwide, and maintains a sales force of approximately 11,500
agents and 6,400 domestic and international financial advisors. Prudential is
a major issuer of annuities, including variable annuities. Prudential seeks to
develop innovative products and services to meet consumer needs in each of its
business areas. Prudential uses the rock of Gibraltar as its symbol. The
Prudential rock is a recognized brand name throughout the world.

Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to nearly 50 million people
worldwide. Long one of the largest issuers of life insurance, Prudential has
22 million life insurance policies in force today with a face value of almost
$1 trillion. Prudential has the largest capital base ($12.1 billion) of any
life insurance company in the United States. The Prudential provides auto
insurance for more than 1.6 million cars and insures more than 1.2 million
homes.

Money Management. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k)
plans. As of December 31, 1997, Prudential had more than $370 billion in
assets under management. Prudential Investments, a business group of
Prudential (of which Prudential Mutual Funds is a key part), manages over $211
billion in assets of institutions and individuals. In Institutional Investor,
July 1998, Prudential was ranked eighth in terms of total assets under
management as of December 31, 1997.

Real Estate. The Prudential Real Estate Affiliates, is one of the leading
real estate brokerage networks in North America and has more than 37,000 real
estate brokers and agents and more than 1,400 offices throughout the United
States.

Healthcare. Over two decades ago, Prudential introduced the first federally-
funded, for-profit HMO in the country. Today, approximately 4.9 million
Americans receive healthcare from a Prudential managed care membership./2/

Financial Services. The Prudential Savings Bank FSB, a wholly-owned
subsidiary of Prudential, has nearly $1 billion in assets and serves nearly
1.5 million customers across 50 states.

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

As of November 30, 1998 Prudential Investments Fund Management is the 18th
largest mutual fund company in the country, with over 2.5 million shareholders
invested in more than 50 mutual fund portfolios and variable annuities with
more than 3.7 million shareholder accounts.

The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
- ----------
/1/ Prudential Investments serves as the Subadvisor to substantially all of
the Prudential Mutual Funds. Wellington Management Company serves as the
subadvisor to Global Utility Fund, Inc., Nicholas-Applegate Capital
Management as the subadviser to Nicholas-Applegate Fund, Inc., Jennison
Associates Capital Corp., as one of the subadvisors to Prudential
Investment Portfolios, Inc., and Mercator Asset Management LP as the
Subadvisor to International Stock Series, a portfolio of Prudential World
Fund, Inc. There are multiple subadvisors for The Target Portfolio Trust.
/2/ On December 10, 1998, Prudential announced its intention to sell
Prudential Health Care to Aetna, Inc. for $1 billion.

IV-1
<PAGE>

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

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

High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor
approximately 200 issues held in the Prudential High Yield Fund (currently the
largest fund of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchase./3/ Non-investment grade bonds,
also known as junk bonds or high yield bonds, are subject to a greater risk of
loss of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.

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

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

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

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

INFORMATION ABOUT PRUDENTIAL SECURITIES

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1998, assets held by Prudential Securities for
its clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities.

Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.

In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architects Financial Advisors to evaluate a client's objectives and
overall financial plan, and a comprehensive mutual fund information and
analysis system that compares different mutual funds.

For more complete information about any of the Prudential Mutual Funds,
including changes and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
/3/ The number of bonds and the size of the Fund are subject to change.

IV-2
<PAGE>

PART C

OTHER INFORMATION

ITEM 23.

EXHIBITS:

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

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

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

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

(c) Instruments defining rights of shareholders, incorporated by
reference to Exhibit 4 to the Registration Statement on Form N-1A
(File No. 33-53151) filed via EDGAR on April 15, 1994.

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

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

(iii) Sub-Investment Management Agreement between The Prudential
Investment Corporation and PRICOA Asset Management Limited,
incorporated by reference to Exhibit 5(c) to the Registration
Statement on Form N-1A (File No. 33-53151) filed via EDGAR on July 1,
1998.

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

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

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

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

(v) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC, incorporated by reference to
Exhibit 6(e) to the Registration Statement on Form N-1A (File No. 33-
53151) filed via EDGAR on July 1, 1998.

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

(vii) Form of Dealer Agreement incorporated by reference to Exhibit
6(g) to the Registration Statement on Form N-1A (File No. 33-53151)
filed via EDGAR on July 1, 1998.

(f) Not Applicable.

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

C-1
<PAGE>

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

(ii) Opinion of Sullivan & Cromwell, incorporated by reference to
Exhibit 10(b) to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A (File No. 33-53151) on Form N-1A filed via
EDGAR on July 2, 1997.

(j) Consent of Independent Accountants.*

(k) Not Applicable.

(l) Not Applicable.

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

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

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

(iv) Amended Distribution and Service Plan for Class A, B and C
Shares, incorporated by reference to Exhibit 15(d) to the
Registration Statement on Form N-1A (File No. 33-53151) filed via
EDGAR on July 1, 1998.

(n) Not Applicable.

(o) Rule 18f-3 Plan, incorporated by reference to Exhibit 18 to the
Registration Statement on Form N-1A (File No. 33-53151) filed via
EDGAR on July 3, 1996.
- ----------

*Filed herewith.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 25. INDEMNIFICATION.

As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (the 1940 Act) and pursuant to Article VI of the Fund's By-
Laws (Exhibit (b) to the Registration Statement), officers, directors,
employees and agents of the Registrant will not be liable to the Registrant,
any shareholder, officer, director, employee, agent or other person for any
action or failure to act, except for bad faith, willful misfeasance, gross
negligence or reckless disregard of duties, and those individuals may be
indemnified against liabilities in connection with the Registrant, subject to
the same exceptions. Section 2-418 of the Maryland General Corporation Law
permits indemnification of directors who acted in good faith and reasonably
believed that the conduct was in the best interests of the Registrant. As
permitted by Section 17(i) of the 1940 Act, pursuant to Section 10 of the
Distribution Agreement (Exhibit (e)(v) to the Registration Statement), the
Distributor of the Registrant may be indemnified against liabilities which it
may incur, except liabilities arising from bad faith, gross negligence,
willful misfeasance or reckless disregard of duties.

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

C-2
<PAGE>

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

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

Section 9 of the Management Agreement (Exhibit (d)(i) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d)(ii) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management LLC and The Prudential Investment Corporation, respectively, to
liabilities arising from willful misfeasance, bad faith or gross negligence in
the performance of their respective duties or from reckless disregard by them
of their respective obligations and duties under the agreements.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner
consistent with Release No. 11330 of the Securities and Exchange Commission
under the 1940 Act so long as the interpretation of Sections 17(h) and 17(i)
of such Act remains in effect and is consistently applied.

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

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

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

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

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

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

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

(i) Prudential Investments Fund Management LLC (PIFM)

See "How the Fund Is Managed--Manager" in the Prospectus constituting Part A
of this Post-Effective Amendment to the Registration Statement and "Investment
Advisory and Other Services" in the Statement of Additional Information
constituting Part B of this Post-Effective Amendment to the Registration
Statement.

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

C-3
<PAGE>

The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, NJ 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
---------------- ------------------ ---------------------
<C> <C> <S>
William V. Healey Executive Vice President, Executive Vice President, Secretary and Chief
Secretary and Chief Legal Officer Legal Officer, PIFM
Robert F. Gunia Executive Vice President Vice President, Prudential Investments;
and Treasurer Executive Vice President and Treasurer,
PIFM; Senior Vice President, Prudential
Securities
Neil A. McGuinness Executive Vice President Executive Vice President and Director of
Marketing, PMF&A; Executive Vice President,
PIFM.
John V. Scicutella Officer-in-Charge, Acting President, PMF&A; Officer-in-Charge,
Acting President, Chief Acting President, Chief Executive Officer
Executive Officer and and Chief Operating Officer, PIFM
Chief Operations Officer
</TABLE>

(b) The Prudential Investment Corporation (PIC)

See "How the Fund is Managed" in the Prospectus constituting Part A of this
Post-Effective Amendment to the Registration Statement and "Investment
Advisory and Other Services in the Statement of Additional Information
constituting Part B of this Post-Effective Amendment to the Registration
Statement.

The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<C> <C> <S>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential
President and Chief Investments
Executive Officer
and Director

John P. Strangfeld Vice President and President of Private Asset Management Group
Director of Prudential; Senior Vice President,
Prudential; Vice President and Director, PIC
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS

(a) Prudential Investment Management Services LLC (PIMS)

Prudential Investment Management Services LLC is distributor for Prudential
Government Securities Trust, The Target Portfolio Trust, Cash Accumulation
Trust, Command Government Fund, Command Money Fund, Command Tax-Free Fund,
Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund), Prudential Balanced Fund, Prudential California Municipal
Fund, Prudential Developing Markets Fund, Prudential Distressed Securities
Fund, Inc., Prudential Diversified Bond Fund, Inc., Prudential Diversified
Funds, Prudential Emerging Growth Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential
Global Genesis Fund, Inc., Prudential Global Limited Maturity Fund, Inc., The
Global Total Return Fund, Inc., Prudential High Yield Fund, Inc., Prudential
Index Series Fund, Prudential MoneyMart Assets Inc., Prudential Natural
Resources Fund, Inc., Prudential Government Income Fund, Inc., Prudential High
Yield Total Return Fund, Inc., Prudential International Bond Fund, Inc.,
Prudential Institutional Liquidity Portfolio, Inc., Prudential Intermediate
Global Income Fund, Inc., The Prudential Investment Portfolios, Inc.,
Prudential Mid-Cap Value Fund, Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential National Municipals Fund, Inc., Prudential
Pacific Growth Fund, Inc., Prudential Real Estate Securities Fund, Prudential
Small-Cap Quantum Fund, Inc., Prudential Small Company Value Fund, Inc.,
Prudential Special Money Market Fund, Inc., Prudential Structured Maturity
Fund, Inc., Prudential Tax-Free Money Fund, Inc., Prudential Tax-Managed
Equity Fund, Prudential 20/20 Focus Fund, Prudential Utility Fund, Inc. and
Prudential World Fund, Inc.

C-4
<PAGE>

(b) Information concerning the directors and officers of PIMS is set forth
below.

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------- ------------- -------------
<S> <C> <C>
Robert F. Gunia......... President Vice President and Director
John R. Strangfeld, Executive Vice President President and Director
Jr. ...................
William V. Healey....... Senior Vice President, Secretary and Chief Legal Officer None
Kevin Frawley........... Senior Vice President and Chief Compliance Officer None
Margaret Deverell....... Vice President and Chief Financial Officer None
Brian Henderson......... Senior Vice President and Chief Operating Officer None
</TABLE>
- ----------
(/1/)The address of each person named is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices
of State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171; The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102; the Registrant, Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077; and Prudential
Mutual Fund Services LLC, Raritan Plaza One, Edison, New Jersey 08837.
Documents required by Rules 31a-1(b)(4), (5), (6), (7), (9), (10) and (11) and
31a-1(d) and (f) will be kept at Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077, and the remaining accounts, books and other
documents required by such other pertinent provisions of Section 31(a) and the
Rules promulgated thereunder will be kept by State Street Bank and Trust
Company and by Prudential Mutual Fund Services LLC.

ITEM 29. MANAGEMENT SERVICES

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

ITEM 30. UNDERTAKINGS

Not applicable.

C-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newark, and State of New Jersey, on the 13th day of
July, 1999.

PRUDENTIAL EUROPE GROWTH FUND, INC.

By: /s/ John R. Strangfeld
------------------------------------
JOHN R. STRANGFELD, PRESIDENT

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ Edward D. Beach Director July 13, 1999
--------------------------------------
EDWARD D. BEACH
/s/ Delayne D. Gold Director July 13, 1999
--------------------------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Director July 13, 1999
--------------------------------------
ROBERT F. GUNIA
/s/ Don G. Hoff Director July 13, 1999
--------------------------------------
DON G. HOFF
/s/ Robert E. LaBlanc Director July 13, 1999
--------------------------------------
ROBERT E. LABLANC
/s/ Robin B. Smith Director July 13, 1999
--------------------------------------
ROBIN B. SMITH
/s/ Stephen Stoneburn Director July 13, 1999
--------------------------------------
STEPHEN STONEBURN
/s/ John R. Strangfeld President and Director July 13, 1999
--------------------------------------
JOHN R. STRANGFELD
/s/ Nancy H. Teeters Director July 13, 1999
--------------------------------------
NANCY H. TEETERS
/s/ Grace C. Torres Treasurer, Principal Financial July 13, 1999
-------------------------------------- and Accounting Officer
GRACE C. TORRES
</TABLE>

C-6
<PAGE>

PRUDENTIAL EUROPE GROWTH FUND, INC.

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION

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

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

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

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

(c) Instruments defining rights of shareholders, incorporated by
reference to Exhibit 4 to the Registration Statement on Form N-1A
(File No. 33-53151) filed on April 15, 1994.

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

(vii) Form of Dealer Agreement incorporated by reference to Exhibit
6(g) to the Registration Statement on Form N-1A (File No. 33-53151)
filed on July 1, 1998.

(f) Not Applicable.

EXHIBIT DESCRIPTION
NUMBER

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

(i) (i) Opinion of Shereff, Friedman, Hoffman & Goodman, LLP,
incorporated by reference to Exhibit 10 to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A (File No. 33-53151)
filed on June 23, 1994.
(ii) Opinion of Sullivan & Cromwell, incorporated by reference to
Exhibit 10(b) to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A (File No. 33-53151) filed on July 2, 1997.

(j) Consent of Independent Accountants.*

(k) Not Applicable.

(l) Not Applicable.

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

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

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

(iv) Amended Distribution and Service Plan for Class A, B and C
shares incorporated by reference to Exhibit 15(d) to the Registration
Statement on Form N-1A (File No. 33-53151) filed on July 1, 1998.

(n) Not Applicable.

(o) Rule 18f-3 Plan, incorporated by reference to Exhibit 18 to the
Registration Statement on Form N-1A (File No. 33-53151) filed via
Edgar on July 3, 1996.
----------

* Filed herewith.

<PAGE>

Exhibit 99.J

Consent of Independent Accountants

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 10 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated June
18, 1999, relating to the financial statements and financial highlights of
Prudential Europe Growth Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Investment Advisory and Other
Services" in such Statement of Additional Information and to the reference to us
under the heading "Financial Highlights" in such Prospectus.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 13, 1999