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PRUDENTIAL JENNISON GROWTH & INCOME FUND
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PROSPECTUS DATED SEPTEMBER 12, 1996
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Prudential Jennison Growth & Income Fund (the Fund) is a series of Prudential
Jennison Series Fund, Inc. (the Company), a diversified, open-end, management
investment company. The Fund's primary investment objective is long-term
growth of capital and income with current income as a secondary objective. The
Fund seeks to achieve its objectives by investing primarily in common stocks
of established companies with growth prospects believed to be underappreciated
by the market. The Fund may also invest in (i) other common stocks, preferred
stocks and securities convertible into common stock, (ii) up to 20% of its
total assets in equity and debt securities of foreign issuers, including ADRs,
and (iii) fixed-income securities, including corporate and other debt
obligations and obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. The Fund may engage in short sales and in
various derivative securities transactions, such as options on stocks, stock
indices and foreign currencies, foreign currency exchange contracts and the
purchase and sale of futures contracts on stock indices and debt securities
and options thereon to hedge its portfolio and to attempt to enhance return.
There can be no assurance that the Fund's investment objectives will be
achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
There will be an initial offering of shares of the Fund during a subscription
period commencing on or about September 20, 1996 and currently expected to end
on or about November 1, 1996. Shares of the Fund subscribed for during the
subscription period will be issued at a net asset value of $10.00 per share
(plus any applicable sales charge) on a closing date, which is expected to
occur on November 6, 1996. The continuous offering of shares is expected to
commence on November 7, 1996. See "Shareholder Guide--How to Buy Shares of the
Fund."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated September 12, 1996, which
information is incorporated herein by reference (is legally considered a part
of this Prospectus) and is available without charge upon request to the Fund
at the address or telephone number noted above.
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Investors are advised to read the Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL JENNISON GROWTH & INCOME FUND?
Prudential Jennison Growth & Income Fund is a mutual fund. A mutual fund
pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Company is an open-end,
diversified management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's primary investment objective is long-term growth of capital and
income, with current income as a secondary objective. It seeks to achieve its
objectives by investing primarily in common stocks of established companies
with growth prospects believed to be underappreciated by the market. See "How
the Fund Invests--Investment Objective and Policies" at page 6.
RISK FACTORS AND SPECIAL CHARACTERISTICS
The Fund invests primarily in common stocks of established companies with
growth prospects which are, in the opinion of the Subadviser (as defined
below), underappreciated by the market. These may include companies that are
experiencing important changes in their business structure and management
philosophy. The ability of the Subadviser to successfully identify these
changes will be an important factor in the Fund's performance record. Also, the
Fund's portfolio holdings may be characterized by volatility somewhat greater
than the overall market. Additionally, although current income is a secondary
objective, some of the Fund's holdings may pay little or no dividend income.
See "How the Fund Invests--Investment Objective and Policies" at page 6.
In addition, the Fund may invest up to 20% of its total assets in equity and
debt securities of foreign issuers. Investing in securities of foreign
companies and countries involves certain risks and considerations not typically
associated with investments in domestic companies. See "How the Fund Invests--
Risk Factors and Special Considerations of Investing in Foreign Securities" at
page 10. The Fund may invest up to 10% of its total assets in non-investment
grade debt securities or in unrated securities of comparable quality.
Securities rated lower than Baa by Moody's Investors Service or BBB by Standard
& Poor's Ratings Group, commonly known as "junk bonds," are considered
speculative and are subject to a greater risk of loss of principal and interest
than higher rated securities as well as price volatility. See "How the Fund
Invests--Risk Factors Relating to Investing in Debt Securities Rated Below
Investment Grade (Junk Bonds)" at page 11. The Fund may also engage in various
hedging and return enhancement strategies and invest in derivative securities.
See "How the Fund Invests--Hedging and Return Enhancement Strategies--Risks of
Hedging and Return Enhancement Strategies" at page 14. The Fund may also engage
in short sales which subject the Fund to additional risks. See "How the Fund
Invests--Other Investments and Policies--Short Selling" at page 9.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager), is the manager
of the Company and is compensated for its services at an annual rate of .60 of
1% of average daily net assets of the Fund. As of August 31, 1996, PMF served
as
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manager or administrator to 60 investment companies, including 38 mutual funds,
with aggregate assets of approximately $52 billion. Jennison Associates Capital
Corp. (Jennison, the Subadviser or the investment adviser) furnishes investment
advisory services in connection with the management of the Fund under a
Subadvisory Agreement with PMF. See "How the Fund is Managed--Manager" at
page 15 and "How the Fund is Managed--Subadviser" at page 15.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Company's Class A, Class B, Class C and Class Z shares and
is paid a distribution and service fee with respect to Class A shares which is
currently being charged at the annual rate of .25 of 1% of the average daily
net assets of the Class A shares and is paid a distribution and service fee
with respect to Class B and Class C shares at an annual rate of 1% of the
average daily net assets of each of the Class B and Class C shares. Prudential
Securities incurs the expense of distributing the Fund's Class Z shares under a
Distribution Agreement with the Company, none of which is reimbursed or paid
for by the Fund. See "How the Fund is Managed--Distributor" at page 16.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. There is no minimum initial investment
requirement for investors who qualify to purchase Class Z shares. The minimum
subsequent investment is $100 for all classes, except for Class Z shares for
which there is no such minimum. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 22 and "Shareholder
Guide--Shareholder Services" at page 32.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). Class Z shares are
offered to a limited group of investors at net asset value without any sales
charge. See "How The Fund Values its Shares" at page 18 and "Shareholder
Guide--How to Buy Shares of the Fund" at page 22.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares:
.Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
.Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 5%
to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing distribution-
related expenses than Class A shares, Class B shares will
automatically convert to Class A shares (which are subject
to lower ongoing expenses) approximately seven years after
purchase.
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.Class C Shares: Sold without an initial sales charge but, for one year after
purchase, are subject to a CDSC of 1% on redemptions. Like
Class B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but do not
convert to another class.
.Class Z Shares: Sold without an initial or contingent deferred sales charge
to a limited group of investors. Class Z shares are not
subject to any ongoing service or distribution-related
expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 23.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 27.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, semi-
annually and distributions of any net capital gains at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that they
be paid to you in cash. See "Taxes, Dividends and Distributions" at page 19.
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FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)....... 5% None None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends............. None None None None
Deferred Sales Load (as
a percentage of origi-
nal purchase price or
redemption proceeds,
whichever is lower)... None 5% during the first year, 1% on redemptions None
decreasing by 1% annually to made within one
1% in the fifth and year of purchase
the sixth years and
0% in the seventh year*
Redemption Fees........ None None None None
Exchange Fees.......... None None None None
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of av-
erage net assets)
Management Fees........ .60% .60% .60% .60%
12b-1 Fees (After Re-
duction)............. .25%++ 1.00% 1.00% None
Other Expenses......... .50% .50% .50% .50%
---- ---- ---- ---
Total Fund Operating
Expenses
(After Reduction).... 1.35% 2.10% 2.10% 1.10%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, as-
suming (1) 5% annual return and (2) redemption at the end of
each time period:
Class A........................................................ $63 $91
Class B........................................................ $71 $96
Class C........................................................ $31 $66
Class Z........................................................ $11 $35
You would pay the following expenses on the same investment, as-
suming no redemption:
Class A........................................................ $63 $91
Class B........................................................ $21 $66
Class C........................................................ $21 $66
Class Z........................................................ $11 $35
</TABLE>
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist an investor in understanding the various
types of costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed." "Other Expenses" include estimated
operating expenses of the Fund, for the fiscal year ending September 30, 1997,
such as Directors' and professional fees, registration fees, reports to
shareholders, transfer agency and custodian (domestic and foreign) fees (but
excludes foreign withholding taxes).
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* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges (12b-1 fees) on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on the Fund rather than on a per shareholder basis. Therefore, long-
term Class B and Class C shareholders of the Fund may pay more in total
sales charges than the economic equivalent of 6.25% of such shareholders'
investment in such shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay up to an annual rate of .30 of 1% of the average daily net assets of
the Class A shares, the Distributor has agreed to limit its distribution
fees with respect to Class A shares of the Fund so as not to exceed .25 of
1% of the average daily net assets of the Class A shares for the fiscal year
ending September 30, 1997. See "How the Fund is Managed--Distributor." Total
Fund Operating Expenses would be 1.40% absent this limitation with respect
to Class A shares.
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HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S PRIMARY INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL AND
INCOME, WITH CURRENT INCOME AS A SECONDARY OBJECTIVE. THE FUND SEEKS TO
ACHIEVE ITS OBJECTIVES BY INVESTING PRIMARILY IN COMMON STOCKS OF ESTABLISHED
COMPANIES WITH GROWTH PROSPECTS BELIEVED TO BE UNDERAPPRECIATED BY THE MARKET.
THERE CAN BE NO ASSURANCE THAT THE FUND'S OBJECTIVES WILL BE ACHIEVED. See
"Investment Objectives and Policies" in the Statement of Additional
Information.
UNDER NORMAL MARKET CONDITIONS, THE FUND WILL BE PRIMARILY INVESTED IN A
DIVERSIFIED PORTFOLIO OF COMMON STOCKS. THE FUND MAY ALSO INVEST IN PREFERRED
STOCKS AND SECURITIES CONVERTIBLE INTO COMMON STOCK. Stocks will be selected
on a company-by-company basis generally through the use of fundamental
analysis. The Fund's Subadviser looks for companies that have the potential
for growth in earnings and dividends, and, in the judgment of the Subadviser,
are attractively valued.
The Fund invests primarily in common stocks of established companies with
growth prospects which are, in the opinion of the Subadviser, underappreciated
by the market. These may include companies that are experiencing important
changes in their business structure and management philosophy. The ability of
the Subadviser to successfully identify these changes will be an important
factor in the Fund's performance record. Also, the Fund's portfolio holdings
may be characterized by volatility somewhat greater than the overall market.
Additionally, although current income is a secondary objective, some of the
Fund's holdings may pay little or no dividend income.
The Fund may also invest in (i) other equity-related securities, (ii) with
respect to 20% of its total assets, equity and debt securities of foreign
issuers, including ADRs, (iii) investment grade fixed-income securities, (iv)
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities and (v) with respect to 10% of its total assets, fixed-
income securities rated below investment grade. Under normal market
conditions, the Fund will not invest more than 30% of its total assets in
fixed-income securities, including corporate and other debt obligations, U.S.
Government securities and convertible securities.
In addition, the Fund may purchase and sell put and call options on equity
securities, stock indices and foreign currencies, purchase and sell futures
contracts on stock indices, foreign currencies and debt securities and options
thereon and enter into forward foreign currency exchange contracts to hedge
its portfolio and to attempt to enhance return. The Fund may also lend its
portfolio securities, enter into repurchase agreements, engage in short
selling and purchase securities on a when-issued and delayed delivery basis.
The Fund reserves the right as a defensive measure to hold temporarily other
types of securities without limit, including high quality commercial paper,
bankers' acceptances, non-convertible debt securities (corporate and
government) or government and high quality money market securities of United
States and non-United States issuers, or cash (foreign currencies or United
States dollars), in such proportions as, in the opinion of Jennison,
prevailing market, economic or political conditions warrant. The Fund may also
temporarily hold cash and invest in high quality foreign or domestic money
market instruments pending investment of proceeds from new sales of Fund
shares or to meet ordinary daily cash needs. See "Other Investments and
Policies" below.
THE FUND'S INVESTMENT OBJECTIVES ARE FUNDAMENTAL POLICIES AND MAY NOT BE
CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT.
INVESTMENT POLICIES THAT ARE NOT FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF
DIRECTORS.
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. Treasury
or by an agency or instrumentality of the U.S. Government. Not all U.S.
Government securities are backed by the full faith and credit of the United
States. Some are
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supported only by the credit of the issuing agency. See "Investment Objectives
and Policies--U.S. Government Securities" in the Statement of Additional
Information.
CORPORATE AND OTHER DEBT OBLIGATIONS
The Fund may invest in investment grade corporate and other debt obligations
of domestic and foreign issuers, including convertible securities and money
market instruments. See "Money Market Instruments" below. Bonds and other debt
securities are used by issuers to borrow money from investors. The issuer pays
the investor a fixed or variable rate of interest and must repay the amount
borrowed at maturity. Investment grade debt securities are rated within the
four highest quality grades as determined by Moody's Investors Service
(Moody's) (currently Aaa, Aa, A and Baa for bonds), or Standard & Poor's
Ratings Group (S&P) (currently AAA, AA, A and BBB for bonds), or by another
nationally recognized statistical rating organization (NRSRO) or, in unrated
securities which are of equivalent quality in the opinion of Jennison.
Securities rated Baa by Moody's or BBB by S&P, although considered to be
investment grade, lack outstanding investment characteristics and, in fact,
have speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make interest
and principal payments than is the case with higher grade bonds. Such lower
rated securities are subject to a greater risk of loss of principal and
interest.
NON-INVESTMENT GRADE FIXED-INCOME SECURITIES
Up to 10% of the total assets of the Fund may be invested in non-investment
grade fixed-income securities, including convertible securities. See
"Convertible Securities" below. Non-investment grade fixed-income securities
(those rated below Baa by Moody's or BBB by S&P or comparably rated by another
NRSRO or unrated securities determined by Jennison to be of comparable
quality) have speculative characteristics (including the possibility of
default or bankruptcy of the issuers of such securities, market price
volatility based upon interest rate sensitivity, questionable creditworthiness
and relative liquidity of the secondary trading market). Because these
securities have been found to be more sensitive to adverse economic changes or
individual corporate developments and less sensitive to interest rate changes
than higher-rated investments, an economic downturn could disrupt the market
for these securities and adversely affect the value of these securities and
the ability of issuers to repay principal and interest. See "Risk Factors
Relating to Investing in Debt Securities Rated Below Investment Grade (Junk
Bonds)" below.
EQUITY-RELATED SECURITIES
The Fund may invest in equity-related securities. Equity-related securities
are common stock, preferred stock, rights, warrants and debt securities or
preferred stock which are convertible or exchangeable for common stock or
preferred stock. See "Convertible Securities" below.
CONVERTIBLE SECURITIES
A CONVERTIBLE SECURITY IS A BOND OR PREFERRED STOCK WHICH MAY BE CONVERTED
AT A STATED PRICE WITHIN A SPECIFIED PERIOD OF TIME INTO A CERTAIN QUANTITY OF
THE COMMON STOCK OF THE SAME OR A DIFFERENT ISSUER. Convertible securities are
senior to common stocks in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a similar nonconvertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation
dependent upon a market price advance in the convertible security's underlying
common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
is also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying
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<PAGE>
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. The Fund may invest in
convertible securities which are rated below investment grade or in unrated
securities of comparable quality. See "Risk Factors Relating to Investing in
Debt Securities Rated Below Investment Grade" below.
In recent years, convertibles have been developed which combine higher or
lower current income with options and other features. The Fund may invest in
these types of convertible securities.
REPURCHASE AGREEMENTS
The Fund will enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the purchase price of the underlying securities
(including accrued interest earned thereon). In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss. See "Investment Objectives and Policies--
Repurchase Agreements" in the Statement of Additional Information.
MONEY MARKET INSTRUMENTS
The Fund may invest in high quality money market instruments, including
commercial paper of a U.S. or non-U.S. company, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic
and foreign banks, and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. These obligations will be U.S.
dollar denominated or denominated in a foreign currency. Money market
instruments typically have a maturity of one year or less as measured from the
date of purchase. The Fund may invest in money market instruments without
limit for temporary defensive and cash management purposes. To the extent the
Fund otherwise invests in money market instruments, it is subject to the
limitations described above.
OTHER INVESTMENTS AND POLICIES
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If
the Fund's asset coverage for borrowings falls below 300%, the Fund will take
prompt action to reduce its borrowings. The Fund will not purchase portfolio
securities when borrowings exceed 5% of the value of its total assets. See
"Borrowing" in the Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may hold up to 10% of its net assets in illiquid securities
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities
markets either within or outside of the United States. Restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended (the Securities Act) and privately placed commercial paper that have a
readily available market are not considered illiquid for purposes of this
limitation. The Fund intends to comply with any applicable state blue sky laws
restricting the Fund's investments in illiquid securities. See "Investment
Restrictions" in the Statement of Additional Information. The investment
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors. Repurchase agreements subject to demand
are deemed to have a maturity equal to the applicable notice period.
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The staff of the Securities and Exchange Commission ("SEC") has taken the
position that purchased over-the-counter (OTC) options and the assets used as
"cover" for written OTC options are illiquid securities unless the Fund and
the counterparty have provided for the Fund, at the Fund's election, to unwind
the OTC option. The exercise of such an option would ordinarily 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
securities used as "cover" as liquid. See "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is generally not expected to exceed 100%.
High portfolio turnover (over 100%) may involve correspondingly greater
brokerage commissions and other transaction costs, which will be borne
directly by the Fund. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information. In addition, high portfolio turnover may
result in increased short-term capital gains, which, when distributed to
shareholders, are treated as ordinary income. See "Taxes, Dividends and
Distributions."
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities (including equity securities) on a
when-issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place a month or more in the future in order to
secure what is considered to be an advantageous price and/or yield to the Fund
at the time of entering into the transaction. While the Fund will only
purchase securities on a when-issued or delayed delivery basis with the
intention of acquiring the securities, the Fund may sell the securities before
the settlement date, if it is deemed advisable. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed delivery basis,
the Fund will record the transaction and thereafter reflect the value, each
day, of such security in determining the net asset value of the Fund. At the
time of delivery of the securities, the value may be more or less than the
purchase price. The Fund's Custodian will maintain, in a segregated account of
the Fund, cash or liquid securities having a value equal to or greater than
the Fund's purchase commitments; the Custodian will likewise segregate
securities sold on a delayed delivery basis. Subject to this requirement, the
Fund may purchase securities on such basis without limit. See "Investment
Objectives and Policies--When-Issued and Delayed Delivery Securities" in the
Statement of Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Fund in an amount equal to at least 100%,
determined daily, of the market value of the securities loaned which are
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As with
any extensions of credit, there are risks of delay in recovery and in some
cases loss of rights in the collateral should the borrower of the securities
fail financially. As a matter of fundamental policy, the Fund cannot lend more
than 30% of the value of its total assets. See "Investment Objectives and
Policies--Lending of Securities" in the Statement of Additional Information.
The Fund may pay reasonable administration and custodial fees in connection
with a loan.
SHORT SELLING
The Portfolio may sell a security it does not own in anticipation of a
decline in the market value of that security (short sales). To complete such a
transaction, the Fund must borrow the security to make delivery to the buyer.
The Fund
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then is obligated to replace the security borrowed by purchasing it at market
price at the time of replacement. The price at such time may be more or less
than the price at which the security was sold by the Fund. Until the security
is replaced, the Fund is required to pay to the lender any dividends or
interest which accrue during the period of the loan. To borrow the security,
the Fund also may be required to pay a premium, which would increase the cost
of the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed out. Until the Fund replaces a borrowed security, the Fund
will maintain daily a segregated account, containing cash or liquid
securities, at such a level that (i) the amount deposited in the account plus
the amount deposited with the broker as collateral will equal the current
value of the security sold short and (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral
will not be less than the market value of the security at the time it was sold
short. The Fund will incur a loss as a result of the short sale if the price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a gain if
the security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium, dividends or interest the Fund may be
required to pay in connection with a short sale. No more than 20% of the
Fund's net assets will be, when added together: (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.
The Fund also may make short sales "against-the-box," in which the Fund
enters into a short sale of a security which the Fund owns or has the right to
obtain at no added cost. No more than 25% of the Fund's net assets (determined
at the time of the short sale against-the-box) may be subject to such sales.
See "Investment Objectives and Policies--Short Sales" in the Statement of
Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES
FOREIGN SECURITIES INVOLVE CERTAIN RISKS, WHICH SHOULD BE CONSIDERED
CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL OR
ECONOMIC INSTABILITY IN THE COUNTRY OF THE ISSUER, THE DIFFICULTY OF
PREDICTING INTERNATIONAL TRADE PATTERNS, THE POSSIBILITY OF IMPOSITION OF
EXCHANGE CONTROLS AND THE RISK OF CURRENCY FLUCTUATIONS. Such securities may
be subject to greater fluctuations in price than securities issued by U.S.
corporations or issued or guaranteed by the U.S. Government, its
instrumentalities or agencies. In addition, there may be less publicly
available information about a foreign company than about a domestic company.
Foreign companies generally are not subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
companies. There is generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States and
there is a possibility of expropriation, confiscatory taxation or diplomatic
developments which could affect investment.
ADDITIONAL COSTS COULD BE INCURRED IN CONNECTION WITH THE FUND'S
INTERNATIONAL INVESTMENT ACTIVITIES. Foreign brokerage commissions are
generally higher than United States brokerage commissions. Increased custodian
costs as well as administrative difficulties (such as the applicability of
foreign laws to foreign custodians in various circumstances) may be associated
with the maintenance of assets in foreign jurisdictions.
If the security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result
in a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such
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distributions, particularly in instances in which the amount of income the
Fund is required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time the
Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater than the equivalent amount
in any such currency of such expenses at the time they were incurred. The Fund
may, but need not, enter into forward foreign currency exchange contracts,
options on foreign currencies and futures contracts on foreign currencies and
related options, for hedging purposes, including: locking-in the U.S. dollar
price of the purchase or sale of securities denominated in a foreign currency;
locking-in the U.S. dollar equivalent of dividends to be paid on such
securities which are held by the Fund; and protecting the U.S. dollar value of
such securities which are held by the Fund.
SHAREHOLDERS SHOULD BE AWARE THAT INVESTING IN THE EQUITY MARKETS OF
DEVELOPING COUNTRIES INVOLVES EXPOSURE TO ECONOMIES THAT ARE GENERALLY LESS
DIVERSE AND MATURE, AND TO POLITICAL SYSTEMS WHICH CAN BE EXPECTED TO HAVE
LESS STABILITY THAN THOSE OF DEVELOPED COUNTRIES. HISTORICAL EXPERIENCE
INDICATES THAT THE MARKETS OF DEVELOPING COUNTRIES HAVE BEEN MORE VOLATILE
THAN THE MARKETS OF DEVELOPED COUNTRIES. THE RISKS ASSOCIATED WITH INVESTMENTS
IN FOREIGN SECURITIES, DESCRIBED ABOVE, MAY BE GREATER WITH RESPECT TO
INVESTMENTS IN DEVELOPING COUNTRIES.
RISK FACTORS RELATING TO INVESTING IN DEBT SECURITIES RATED BELOW INVESTMENT
GRADE (JUNK BONDS)
The Fund may invest up to 10% of its total assets in non-investment grade
debt securities, including convertible securities. Fixed-income securities are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated (i.e., high yield or high risk) securities
(commonly referred to as junk bonds) are more likely to react to developments
affecting market and credit risk than are more highly rated securities, which
react primarily to movements in the general level of interest rates. The
Subadviser considers both credit risk and market risk in making investment
decisions for the Fund.
Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be
as liquid as the secondary market for more highly rated securities and, from
time to time, it may be more difficult to value high yield securities than
more highly rated securities. Under adverse market or economic conditions, the
secondary market for high yield securities could contract further, independent
of any specific adverse changes in the condition of a particular issuer. As a
result, the Subadviser could find it more difficult to sell these securities
or may be able to sell the securities only at prices lower than if such
securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices in calculating the Fund's net asset value.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting
in a decline in the overall credit quality of the debt portion of its
portfolio and increasing the exposure of the Fund to the risks of high yield
securities.
From time to time, federal laws have been enacted which have required the
divestiture by companies of their investments in high yield bonds and have
limited the deductibility of interest by certain corporate issuers of high
yield bonds. These types of laws could adversely affect the Fund's net asset
value and investment practices, the secondary market for high yield
securities, the financial condition of issuers of these securities and the
value of outstanding high yield securities. There is currently no legislation
pending that would adversely impact the market for junk bonds. However, there
can be no assurance that such legislation will not be proposed or enacted in
the future.
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HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN. These strategies
currently include the use of derivatives, such as options, forward currency
exchange contracts and futures contracts and options thereon. The Fund's
ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations and there can be no assurance that
any of these strategies will succeed. See "Investment Objectives and Policies"
and "Taxes" in the Statement of Additional Information. Jennison does not
intend to buy all of these instruments or use all of these strategies to the
full extent permitted unless it believes that doing so will help the Fund
achieve its objectives. New financial products and risk management techniques
continue to be developed and the Fund may use these new investments and
techniques to the extent consistent with its investment objectives and
policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES, STOCK INDICES AND CURRENCIES THAT ARE TRADED ON U.S. OR FOREIGN
SECURITIES EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ENHANCE RETURN OR TO
HEDGE ITS PORTFOLIO. These options will be on equity securities, stock indices
(e.g., S&P 500) and foreign currencies. The Fund may write covered put and
call options to generate additional income through the receipt of premiums,
purchase put options in an effort to protect the value of securities (or
currencies) that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
(or currencies) it intends to purchase. The Fund may also purchase put and
call options to offset previously written put and call options of the same
series. See "Investment Objectives and Policies--Options on Securities" in the
Statement of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE RIGHT
FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY SUBJECT
TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE). The
writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities
or currency in excess of the exercise price of the option during the period
that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so long
as the Fund is obligated under the option, it owns an offsetting position in
the underlying security or currency or maintains cash or liquid securities
with a value sufficient at all times to cover its obligations in a segregated
account. See "Investment Objectives and Policies--Options on Securities" in
the Statement of Additional Information. There is no limitation on the amount
of call options the Fund may write. The Fund has undertaken with certain state
securities commissions that, so long as shares of the Fund are registered in
those states, it will not (a) write puts having aggregate exercise prices
greater than 25% of total net assets, (b) invest more than 10% of its total
assets in puts and calls, or (c) purchase (i) put options on stocks not held
in its portfolio, (ii) put options on stock indices or foreign currencies or
(iii) call options on stock, stock indices or foreign currencies if, after any
such purchase, the aggregate premiums paid for such options would exceed 10%
of the Fund's total assets; provided, however, that the Fund may purchase put
options on stocks held by the Fund if after such purchase the aggregate
premiums paid for such options do not exceed 20% of the Fund's total assets.
The aggregate value of the securities underlying call options and the
obligations underlying put options (as of the date the options are sold) will
not exceed 25% of the Fund's net assets.
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FORWARD CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS ASSETS AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. The Fund may enter into such contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market
or on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days agreed upon by the parties from the date of the contract at a price set
on the date of the contract.
THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross hedge). Although
there are no limits on the number of forward contracts which the Fund may
enter into, the Fund may not position hedge (including cross hedges) with
respect to a particular currency for an amount greater than the aggregate
market value (determined at the time of making any sale of forward currency)
of the securities being hedged. See "Investment Objectives and Policies--Risks
Related to Forward Foreign Currency Exchange Contracts" in the Statement of
Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE
CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN
ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION
(CFTC). These futures contracts and related options will be on debt
securities, stock indices and foreign currencies. 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. A stock index futures contract is an
agreement to purchase or sell cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made. The Fund
may purchase and sell futures contracts or related options as a hedge against
changes in market conditions.
The Fund may not purchase or sell futures contracts and related options to
attempt to enhance return, if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. The Fund may purchase and sell futures
contracts and related options, without limitation, for bona fide hedging
purposes in accordance with regulations of the CFTC (i.e., to reduce certain
risks of its investments). The value of all futures contracts sold will not
exceed the total market value of the Fund's portfolio.
Futures contracts and related options are generally subject to segregation
and coverage requirements of the CFTC or the SEC. If the Fund does not hold
the security or currency underlying the futures contract, the Fund will be
required to segregate on an ongoing basis with its Custodian cash or liquid
securities in an amount at least equal to the Fund's obligations with respect
to such futures contracts.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET
AND IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements
in the price of a futures contract and the movements in the index or price of
the currencies underlying the futures contract is imperfect and there is a
risk that the value of the indices or currencies underlying the futures
contract may increase or decrease at a greater rate than the related futures
contracts resulting in losses to the Fund. Certain futures exchanges or
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boards of trade have established daily limits on the amount that the price of
futures contracts or related options may vary, either up or down, from the
previous day's settlement price. These daily limits may restrict the Fund's
ability to purchase or sell certain futures contracts or related options on
any particular day.
The Fund's ability to enter into futures contracts and options thereon is
limited by the requirements of the Internal Revenue Code for qualification as
a regulated investment company. See "Taxes" in the Statement of Additional
Information. See "Investment Objectives and Policies" in the Statement of
Additional Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the Subadviser's
predictions of movements in the direction of the securities, foreign currency
and interest rate markets are inaccurate, the adverse consequences to the Fund
may leave the Fund in a worse position than if such strategies were not used.
Risks inherent in the use of options, foreign currency and futures contracts
and options on futures contracts include (1) dependence on the Subadviser's
ability to predict correctly movements in the direction of interest rates,
securities prices and currency markets; (2) imperfect correlation between the
price of options and futures contracts and options thereon and movements in
the prices of the securities or currencies being hedged; (3) the fact that
skills needed to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a liquid secondary
market for any particular instrument at any time; (5) the possible need to
defer closing out certain hedged positions to avoid adverse tax consequences;
and (6) the possible inability of the Fund to purchase or sell a portfolio
security at a time that otherwise would be favorable for it to do so, or the
possible need for the Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain "cover" or to segregate
securities in connection with hedging transactions. See "Taxes" in the
Statement of Additional Information.
The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if management believes that the
other party to options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will
continue to exist or that the other party will continue to make a market.
Thus, it may not be possible to close an options or futures transaction. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio. There is also
the risk of loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE COMPANY HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON
MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.
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The Fund is responsible for the payment of certain fees and expenses
including, among others, the following: (i) management and distribution fees;
(ii) the fees of unaffiliated Directors; (iii) the fees of the Fund's
Custodian and Transfer and Dividend Disbursing Agent; (iv) the fees of the
Fund's legal counsel and independent accountants; (v) brokerage commissions
incurred in connection with portfolio transactions; (vi) all taxes and charges
of governmental agencies; (vii) the reimbursement of organization expenses;
and (viii) expenses related to shareholder communications including all
expenses of shareholders' and Board of Directors' meetings and of preparing,
printing and mailing reports, proxy statements and prospectuses to
shareholders.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE COMPANY AND IS
COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .60 OF 1% OF THE FUND'S
AVERAGE DAILY NET ASSETS. IT WAS INCORPORATED IN MAY 1987 UNDER THE LAWS OF
THE STATE OF DELAWARE. SEE "MANAGER" IN THE STATEMENT OF ADDITIONAL
INFORMATION.
As of August 31, 1996, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $52 billion.
Under the Management Agreement with the Company, PMF manages the investment
operations of the Fund and also administers the Company's corporate affairs.
See "Manager" in the Statement of Additional Information.
SUBADVISER
JENNISON ASSOCIATES CAPITAL CORP. (JENNISON OR THE SUBADVISER), 466
LEXINGTON AVENUE, NEW YORK, NEW YORK, 10017, IS THE SUBADVISER TO THE COMPANY.
It was incorporated in 1969 under the laws of the State of New York. As of
June 30, 1996, Jennison has over $30.8 billion in assets under management for
institutional and mutual fund clients, including over $231 million in "growth
and income" assets.
PURSUANT TO A SUBADVISORY AGREEMENT WITH PMF, JENNISON FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE COMPANY AND IS
COMPENSATED BY PMF FOR ITS SERVICES AT AN ANNUAL RATE OF .30 OF 1% OF THE
FUND'S AVERAGE DAILY NET ASSETS UP TO AND INCLUDING $300 MILLION AND .25 OF 1%
OF THE FUND'S AVERAGE DAILY NET ASSETS IN EXCESS OF $300 MILLION.
Under the Subadvisory Agreement, Jennison, subject to the supervision of
PMF, is responsible for managing the assets of the Fund in accordance with its
investment objectives, investment program and policies. Jennison determines
what securities and other instruments are purchased and sold for the Fund and
is responsible for obtaining and evaluating financial data relevant to the
Fund.
Bradley Goldberg is the portfolio manager and Peter Reinemann and G. Todd
Silva are associate portfolio managers of the Fund. Mr. Goldberg is an
Executive Vice President and Director of Jennison, and is responsible for the
day-to-day management of the Fund. Mr. Goldberg has been employed as a
portfolio manager with Jennison since 1974. Mr. Reinemann, a Senior Vice
President and Director, joined Jennison in 1992 as an associate portfolio
manager. Prior to that time, he served as a Vice President at Paribas Asset
Management, Inc. Mr. Silva, a Senior Vice President of Jennison, joined
Jennison in June 1996. He was previously a Vice President and assistant
portfolio manager in the Growth & Income Group at Scudder, Stevens & Clark
Inc. and an equity analyst at Putnam Investments.
PMF and Jennison are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
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DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-
OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES (ALSO THE DISTRIBUTOR) INCURS
THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C SHARES.
PRUDENTIAL SECURITIES ALSO INCURS THE EXPENSES OF DISTRIBUTING THE FUND'S
CLASS Z SHARES UNDER THE DISTRIBUTION AGREEMENT, NONE OF WHICH IS REIMBURSED
BY OR PAID FOR BY THE FUND. These expenses include commissions and account
servicing fees paid to, or on account of, financial advisers of Prudential
Securities and Pruco Securities Corporation (Prusec), an affiliated broker-
dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks)
which have entered into agreements with the Distributor, advertising expenses,
the cost of printing and mailing prospectuses to potential investors and
indirect and overhead costs of Prudential Securities and Prusec associated
with the sale of Fund shares, including lease, utility, communications and
sales promotion expenses. The State of Texas requires that shares of the Fund
may be sold in that state only by dealers or other financial institutions
which are registered there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY PRUDENTIAL SECURITIES FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. Prudential Securities has
agreed to limit its distribution-related fees payable under the Class A Plan
to .25 of 1% of the average daily net assets of the Class A shares for the
fiscal year ending September 30, 1997.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES FOR
ITS DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B
AND CLASS C SHARES. The Class B and Class C Plans provide for the payment to
Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of the Class B and Class C shares, respectively, and
(ii) a service fee of .25 of 1% of the average daily net assets of each of the
Class B and Class C shares. The service fee is used to pay for personal
service and/or the maintenance of shareholder accounts. Prudential Securities
also receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
Distribution expenses attributable to the sale of shares of the Fund will be
allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Fund other than expenses allocable to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Company, including a
majority of the Directors who are not "interested persons" of the Company (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement
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related to the Plan (the Rule 12b-1 Directors), vote annually to continue the
Plan. Each Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors or of a majority of the outstanding shares of the
applicable class of the Fund. The Fund will not be obligated to pay expenses
incurred under any Plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers 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.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the
allegations asserted against it, PSI consented to the entry of an SEC
Administrative Order which stated that PSI's conduct violated the federal
securities laws, directed PSI to cease and desist from violating the federal
securities laws, pay civil penalties, and adopt certain remedial measures to
address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of
$10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purposes of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the
signing of the agreement, provided that PSI complies with the terms of the
agreement. If, upon completion of the three year period, PSI has complied with
the terms of the agreement, no prosecution will be instituted by the United
States for the offenses charged in the complaint. If on the other hand, during
the course of the three year period, PSI violates the terms of the agreement,
the U.S. Attorney can then elect to pursue these charges. Under the terms of
the agreement, PSI agreed, among other things, to pay an additional
$330,000,000 into the fund established by the SEC to pay restitution to
investors who purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may
be obtained at no cost by calling 1-800-225-1852.
The Company is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
FEE WAIVERS AND SUBSIDY
PMF may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. Fee waivers
and expense subsidies will increase the Fund's total return. See "Performance
Information" in the Statement of Additional Information and "Fund Expenses."
17
<PAGE>
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant for
the Fund provided that the commissions, fees or other remuneration it receives
are fair and reasonable. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
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 Company.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15
P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Company's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. See "Net Asset Value" in the
Statement of Additional Information.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject. The NAV of Class
Z shares will generally be higher than the NAV of the other three classes
because Class Z shares are not subject to any distribution and/or service
fees. It is expected, however, that the NAV of the four classes will tend to
converge immediately after the recording of dividends, which will differ by
approximately the amount of distribution and/or service fee expense accrual
differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES. These figures are
based on historical earnings and are not
18
<PAGE>
intended to indicate future performance. The "total return" shows how much an
investment in the Fund would have increased (decreased) over a specified
period of time (i.e., one, five, or ten years or since inception of the Fund)
assuming that all distributions and dividends by the Fund were reinvested on
the reinvestment dates during the period and less all recurring fees. The
"aggregate" total return reflects actual performance over a stated period of
time. "Average annual" total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. "Average annual" total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither "average
annual" total return nor "aggregate" total return takes into account any
federal or state income taxes which may be payable upon redemption. The
"yield" refers to the income generated by an investment in the Fund over a
one-month or 30-day period. This income is then "annualized;" that is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as
a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing
the Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., and other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information will be contained in the Fund's annual and semi-annual reports to
shareholders, which will be available without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND INTENDS TO ELECT TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT
TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL GAINS, IF
ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Fund. See "Taxes" in the Statement of Additional
Information.
In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts).
At the end of each year, such investments held by the Fund will be required to
be "marked to market" for federal income tax purposes; that is, treated as
having been sold at market value. Sixty percent of any gain or loss recognized
on these "deemed sales" and on actual dispositions may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes" in the Statement of Additional Information.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition are
treated as ordinary gain or loss. These gains or losses increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency fluctuation
losses exceed other investment company taxable income during a taxable year,
distributions made by the Fund during the year would be characterized as a
return of capital to shareholders, reducing the shareholder's basis in his or
her Fund shares.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. See "Taxes" in the Statement of Additional Information.
19
<PAGE>
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net long-term capital gains
distributed to shareholders will be taxable as such to the shareholder,
whether or not reinvested and regardless of the length of time a shareholder
has owned his or her shares. The maximum long-term capital gains rate for
corporate shareholders is currently the same as the maximum tax rate for
ordinary income. The maximum long-term capital gains rate for individual
shareholders is currently 28% and the maximum tax rate for ordinary income is
39.6%.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, on
shares that are held for six months or less, will be treated as a long-term
capital loss to the extent of any capital gain distributions received by the
shareholder.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A or Class Z shares or the exchange of
Class A shares for Class Z shares constitutes a taxable event for federal
income tax purposes. However, such opinions are not binding on the Internal
Revenue Service.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds, payable on the accounts of those shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case
of certain foreign shareholders) with the required certifications regarding
the shareholder's status under the federal income tax law.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes" in the Statement of
Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, SEMI-
ANNUALLY AND TO MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-
TERM CAPITAL LOSSES AT LEAST ANNUALLY. Dividends paid by the Fund with respect
to each class of shares, to the extent any dividends are paid, will be
calculated in the same manner, at the same time, on the same day and will be
in the same amount except that each class will bear its own distribution
and/or service fee charges, generally resulting in lower dividends for Class B
and Class C shares in relation to Class A and Class Z shares and lower
dividends for Class A shares in relation to Class Z shares. Distribution of
net capital gains, if any, will be paid in the same amount for each class of
shares. See "How The Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES, BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS
THAN FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attn: Account Maintenance Unit, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
WHEN THE FUND GOES "EX-DIVIDEND," ITS NAV IS REDUCED BY THE AMOUNT OF THE
DIVIDEND OR DISTRIBUTION. IF YOU BUY SHARES JUST PRIOR TO THE EX-DIVIDEND DATE
(WHICH GENERALLY OCCURS FOUR BUSINESS DAYS PRIOR TO THE RECORD DATE), THE
PRICE YOU PAY WILL INCLUDE THE DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR
INVESTMENT WILL BE RETURNED TO YOU AS A TAXABLE DISTRIBUTION. YOU SHOULD,
THEREFORE, CONSIDER THE TIMING OF DIVIDENDS WHEN MAKING YOUR PURCHASES.
20
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE COMPANY WAS INCORPORATED IN MARYLAND ON AUGUST 10, 1995. THE COMPANY IS
AUTHORIZED TO ISSUE 2.5 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER
SHARE, DIVIDED INTO TWO SERIES OR PORTFOLIOS, THE FUND AND PRUDENTIAL JENNISON
GROWTH FUND. EACH SERIES IS FURTHER DIVIDED INTO FOUR CLASSES, DESIGNATED
CLASS A, CLASS B, CLASS C AND CLASS Z COMMON STOCK. OF THE AUTHORIZED SHARES
OF COMMON STOCK OF THE FUND, 500 MILLION SHARES CONSIST OF CLASS A COMMON
STOCK, 250 MILLION SHARES CONSIST OF CLASS B COMMON STOCK, 250 MILLION SHARES
CONSIST OF CLASS C COMMON STOCK AND 250 MILLION SHARES CONSIST OF CLASS Z
COMMON STOCK. Each class of common stock of the Fund represents an interest in
the same assets of the Fund and is identical in all respects except that (i)
each class (with the exception of Class Z shares) is subject to different
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 arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class of the
funds, (iii) each class has a different exchange privilege and (iv) only Class
B shares have a conversion feature. See "How The Fund Is Managed--
Distributor." The Company is permitted to issue and sell multiple classes of
common stock. Currently, the Company is offering four classes, designated
Class A, Class B, Class C and Class Z shares. In accordance with the Company's
articles of incorporation, the Board of Directors may authorize the creation
of additional series of common stock and classes within such series, with such
preferences, privileges, limitations and voting and dividend rights as the
Board may determine.
The Company's expenses generally are allocated between the Fund and the
other series of the Company on the basis of relative net assets at the time of
allocation, except that expenses directly attributable to the Fund or the
other series of the Company are charged to the Fund or the other series, as
the case may be.
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 are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares (with the exception of
Class Z shares, which are not subject to any distribution or service fees).
Except for the conversion feature applicable to the Class B shares, there are
no conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses of the Fund have been
paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of
those classes are likely to be lower than to Class A shareholders and to Class
Z shareholders, whose shares are not subject to any distribution and/or
service fees. The Company's shares do not have cumulative voting rights for
the election of Directors.
THE COMPANY DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE COMPANY WILL NOT BE REQUIRED TO HOLD MEETINGS
OF SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO
BE ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS
HAVE CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10%
OR MORE OF THE COMPANY'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE
REMOVAL OF ONE OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under
the Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
21
<PAGE>
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
INITIAL OFFERING OF SHARES
Prudential Securities will solicit subscriptions for Class A, Class B, Class
C and Class Z shares of the Fund during a subscription period (the
Subscription Period) commencing on or about September 20, 1996, and currently
expected to end on or about November 1, 1996. Shares of the Fund subscribed
for during the Subscription Period will be issued at a net asset value of
$10.00 per share (plus any applicable sales charge) on a closing date (which
is expected to occur on November 6, 1996 or the third business day after the
end of the Subscription Period). An initial sales charge of 5% (5.26% of the
net amount invested ) is imposed on each transaction in Class A shares. This
initial sale charge may be reduced, depending on the amount of the purchase,
as set forth in the table under "Continuous Offering of Shares." Each
investor's dealer will notify such investor of the end of the Subscription
Period and payment will be due within three days thereafter. If any orders
received during the Subscription Period are accompanied by payment, such
payment will be returned unless instructions have been received authorizing
investment in a money market fund. All such funds received and invested in a
money market fund, including any dividends received on these funds, will be
automatically invested in the Fund on the closing date without any further
action by the investor. Shareholders who purchase their shares during the
Subscription Period will not receive stock certificates. The minimum initial
investment during the Subscription Period is $1,000 per class for Class A and
Class B shares and $5,000 for Class C shares. There are no minimum investment
requirements for investors who qualify to purchase Class Z shares and for
certain retirement and employee saving plans or custodial accounts for the
benefit of minors. The Fund reserves the right to delay commencement of a
continuous offering to new investors until up to 5 business days after the end
of the Subscription Period.
Subscribers for shares will not have any of the rights of a shareholder of
the Fund until the shares subscribed for have been paid for and their issuance
has been reflected in the books of the Fund. The Fund reserves the right to
withdraw, modify or terminate the initial offering without notice and to
refuse any order in whole or in part.
CONTINUOUS OFFERING OF SHARES
The Fund reserves the right to delay commencement of offering of its shares
to the public for a period (the Closing Period) of up to 5 business days after
the end of the Subscription Period, although redemptions will be permitted
during this time. Immediately after the expiration of the Closing Period, the
Fund expects to commence a continuous offering of its shares.
You may purchase shares of the Fund through Prudential Securities, Prusec or
directly from the Fund, through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The offering price is
the NAV next determined following receipt of an order by the Transfer Agent or
Prudential Securities plus a sales charge which, at your option, may be
imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at net asset value without any sales charge. See
"Alternative Purchase Plan" below. See also "How the Fund Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive stock
certificates.
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. There is no minimum initial investment
requirement for Class Z shares. The minimum subsequent investment is $100 for
all
22
<PAGE>
classes, except for Class Z shares for which there is no such minimum. All
minimum investment requirements are waived for certain retirement and employee
savings plans or custodial accounts for the benefit of minors. For purchases
through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Services."
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares."
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you
to your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Jennison Series Fund, Inc., Prudential
Jennison Growth & Income Fund, specifying on the wire the account number
assigned by PMFS and your name and identifying the sales charge alternative
(Class A, Class B, Class C or Class Z shares).
If you arrange for receipt by State Street of federal funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Jennison Series
Fund, Inc., Prudential Jennison Growth & Income Fund, Class A, Class B, Class
C or Class Z shares and your name and individual account number. It is not
necessary to call PMFS to make subsequent purchase orders utilizing federal
funds. The minimum amount which may be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS FOUR CLASSES OF SHARES (CLASS A, CLASS B, CLASS C AND CLASS
Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE
STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE,
THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT
CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge .30 of 1% Initial sales charge waived
of 5% of the public offering (currently being or reduced for certain
price charged at a rate purchases
of .25 of 1%)
CLASS B Maximum contingent deferred 1% Shares convert to Class A
sales charge or CDSC of 5% shares approximately seven
of the lesser of the amount years after purchase
invested or the redemption
proceeds; declines to zero
after six years
CLASS C Maximum CDSC of 1% of the 1% Shares do not convert to
lesser of the amount another class
invested or the redemption
proceeds on redemptions made
within one year of purchase.
CLASS Z None None Sold to a limited group of
investors
</TABLE>
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<PAGE>
The four classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
(with the exception of Class Z shares which are not subject to any
distribution or service fees) bears the separate expenses of its Rule 12b-1
distribution and service plan, (ii) each class has exclusive voting rights on
any matter submitted to shareholders that relates solely to its arrangement
and has separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class,
and (iii) only Class B shares have a conversion feature. The four classes also
have separate exchange privileges. See "How to Exchange Your Shares" below.
The income attributable to each class and the dividends payable on the shares
of each class will be reduced by the amount of the distribution fee (if any)
of each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C or Class Z shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund.
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to 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.
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class A or Class B shares over Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money
invested initially because the sales charge on Class A shares is deducted at
the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in net asset value, the effect of
the return on the investment over this period of time or redemptions during
which the CDSC is applicable.
All purchases of $1 million or more, either as part of a single investment
or under Rights of Accumulation or Letters of Intent, must be for Class A
shares unless the purchaser is eligible to purchase Class Z shares. See
"Reduction and Waiver of Initial Sales Charges" below.
24
<PAGE>
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
--------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
The Distributor may reallow the entire initial sales charge to dealers.
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares
a finders' fee based on a percentage of the net asset value of shares sold by
such persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "Purchase and Redemption
of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares"
in the Statement of Additional Information.
BENEFIT PLANS. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 or 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the plan has existing assets of at
least $1 million invested in shares of Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange
privilege) or 250 eligible employees or participants. In the case of Benefit
Plans whose accounts are held directly with the Transfer Agent or Prudential
Securities and for which the Transfer Agent or Prudential Securities does
individual account recordkeeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary Prototype
Benefit Plans), Class A shares may be purchased at NAV by participants who are
repaying loans made from such plans to the participant.
PRUARRAY AND SMARTPATH PLANS. Class A shares may be purchased at NAV by
certain retirement and deferred compensation plans, qualified or non-qualified
under the Internal Revenue Code, including pension, profit-sharing, stock-
bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code and deferred compensation and annuity plans under Sections 457 or
403(b)(7) of the Internal Revenue Code that participate in the Prudential's
PruArray and SmartPath Programs (benefit plan recordkeeping services)
(hereafter referred to as a PruArray or SmartPath Plan); provided that the
plan has at least $1 million in existing assets or 250 eligible employees or
participants. The term "existing assets" for this purpose includes stock
issued by a PruArray or SmartPath Plan sponsor, shares of non-money market
Prudential Mutual Funds and shares of certain unaffiliated non-money market
mutual funds that participate in the PruArray or SmartPath Program
(Participating Funds). "Existing assets" also include shares of money market
funds acquired by exchange from a Participating Fund.
25
<PAGE>
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers and current and former Directors/Trustees of the Prudential Mutual
Funds (including the Fund), (b) employees of Prudential Securities and PMF and
their subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent, (c)
employees and special agents of Prudential and its subsidiaries and all
persons who have retired directly from active service with Prudential or one
of its subsidiaries, (d) registered representatives and employees of dealers
who have entered into a selected dealer agreement with Prudential Securities
provided that purchases at NAV are permitted by such person's employer and (e)
investors who have a business relationship with a financial adviser who joined
Prudential Securities from another investment firm, provided that (i) the
purchase is made within 180 days of the commencement of the financial
adviser's employment at Prudential Securities, or within one year in the case
of Benefit Plans, (ii) the purchase is made with proceeds of a redemption of
shares of any open-end fund sponsored by the financial adviser's previous
employer (other than a money market fund or other no-load fund which imposes a
distribution or service fee of .25 of 1% or less) and (iii) the financial
adviser served as the client's broker on the previous purchase.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation
of your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, Prudential Securities or Prusec.
Although there is no sales charge imposed at the time of purchase, redemption
of Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." The Distributor will pay sales
commissions of up to 4% of the purchase price of Class B shares to dealers,
financial advisers and other persons who sell Class B shares at the time of
sale from its own resources. This facilitates the ability of the Fund to sell
the Class B shares without an initial sales charge being deducted at the time
of purchase. The Distributor anticipates that it will recoup its advancement
of sales commissions from the combination of the CDSC and the distribution
fee. See "Distributor." In connection with the sale of Class C shares, the
Distributor will pay dealers, financial advisers and other persons which
distribute Class C shares a sales commission of up to 1% of the purchase price
at the time of the sale.
CLASS Z SHARES
Class Z shares are available for purchase by (i) pension, profit sharing or
other employee benefit plans qualified under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 and
403(b)(7) of the Internal Revenue Code, and non-qualified plans for which the
Fund is an available option (collectively, Benefit Plans), provided such
Benefit Plans (in combination with other plans sponsored by the same employer
or group of related employers) have at least $50 million in defined
contribution assets; (ii) participants in any fee-based program sponsored by
Prudential Securities (or one of its affiliates) which includes mutual funds
as investment options and for which the Fund is an available option; and (iii)
certain participants in The MEDLEY SM Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the Prudential
Mutual Funds are an available investment option. After a Benefit Plan
qualifies to purchase Class Z shares, all subsequent purchases will be for
Class Z shares.
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 which distribute shares a finders' fee based on a percentage of the
net asset value of shares sold by such persons.
26
<PAGE>
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER SHARE
NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How the Fund Values its Shares."
In certain cases, however, redemption proceeds will be reduced by the amount
of any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be
sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services, Inc., Attention: Redemption Services, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Prudential
Preferred Financial Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST EXCEPT AS INDICATED BELOW. Such payment may be postponed or
the right of redemption suspended at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or (d) during any other period when
the SEC, by order, so permits; provided that applicable rules and regulations
of the SEC shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY
WIRE OR BY CERTIFIED OR OFFICIAL BANK CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the SEC. Securities will be readily marketable and will be
valued in the same manner as a regular redemption. See "How the Fund Values
its Shares." If your shares are redeemed in kind, you would incur transaction
costs in converting the assets into cash. The Company has, however, elected to
be governed by Rule 18f-1 under the Investment Company Act, under which the
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund during the 90-day period for any one
shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net
27
<PAGE>
asset value of less than $500 due to a redemption. The Fund will give any such
shareholder 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales
charge will be imposed on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of redemption. No sales charge will apply to such repurchases. YOU WILL
RECEIVE PRO RATA CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGE PAID IN
CONNECTION WITH THE REDEMPTION OF CLASS B OR CLASS C SHARES. YOU MUST NOTIFY
THE FUND'S TRANSFER AGENT, EITHER DIRECTLY OR THROUGH PRUDENTIAL SECURITIES OR
PRUSEC, AT THE TIME THE REPURCHASE PRIVILEGE IS EXERCISED THAT YOU ARE
ENTITLED TO CREDIT FOR THE CONTINGENT DEFERRED SALES CHARGE PREVIOUSLY PAID.
EXERCISE OF THE REPURCHASE PRIVILEGE WILL NOT AFFECT THE FEDERAL INCOME TAX
TREATMENT OF ANY GAIN REALIZED UPON REDEMPTION. IF THE REDEMPTION RESULTS IN A
LOSS, SOME OR ALL OF THE LOSS, DEPENDING ON THE AMOUNT REINVESTED, WILL NOT BE
ALLOWED FOR FEDERAL INCOME TAX PURPOSES.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares to an amount which is lower
than the amount of all payments by you for shares during the preceding six
years, in the case of Class B shares, and one year, in the case of Class C
shares. A CDSC will be applied on the lesser of the original purchase price or
the current value of the shares being redeemed. Increases in the value of your
shares or shares purchased through reinvestment of dividends or distributions
are not subject to CDSC. The amount of any contingent deferred sales charge
will be paid to and retained by the Distributor. See "How the Fund is
Managed--Distributor" and "Waiver of the Contingent Deferred Sales Charges"
below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- -------------------------
<S> <C>
First......................................... 5.0%
Second........................................ 4.0%
Third......................................... 3.0%
Fourth........................................ 2.0%
Fifth......................................... 1.0%
Sixth......................................... 1.0%
Seventh....................................... None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results generally in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of Fund shares made during the preceding
six years; then of
28
<PAGE>
amounts representing the cost of shares held beyond the applicable CDSC
period; and finally, of amounts representing the cost of shares held for the
longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
NAV had appreciated to $12 per share, the value of your Class B shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), or a trust, at the time of death or
initial determination or disability, provided that the shares were purchased
prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a tax-
deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service, i.e.,
following voluntary or involuntary termination of employment or following
retirement. Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan unless such
redemptions otherwise qualify as a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC
was not previously deducted will thereafter be subject to a CDSC without
regard to the time such amounts were previously invested. In the case of a
401(k) plan, the CDSC will also be waived upon the redemption of shares
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to
waiver of the CDSC. The waiver will be granted subject to confirmation of your
entitlement.
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
29
<PAGE>
accordance with the following formula: (i) the ratio of (a) the amounts paid
for Class B shares purchased at least seven years prior to the conversion date
to (b) the total amount paid for all Class B shares purchased and then held in
your account (ii) multiplied by the total number of Class B shares then in
your account. Each time any Eligible Shares in your account convert to Class A
shares, all shares or amounts representing Class B shares then in your account
that were acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described above will generally be either more or less
than the number of shares actually purchased approximately seven years before
such conversion date. For example, if 100 shares were initially purchased at
$10 per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 or 47.62% multiplied by 200 shares or 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase
of such shares.
The conversion feature is subject to the continuing availability of opinions
of counsel 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.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH THE OTHER
SERIES OF THE COMPANY AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE
OR MORE SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT
REQUIREMENTS OF SUCH FUNDS. CLASS A, CLASS B, CLASS C AND CLASS Z SHARES MAY
BE EXCHANGED FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES, RESPECTIVELY,
OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. No sales charge will be
imposed at the time of exchange. Any applicable CDSC payable upon the
redemption of shares exchanged will be that imposed by the fund in which
shares are initially purchased and will be calculated from the first day of
the month after the initial purchase, excluding the time shares were held in a
money market fund. Class B and Class C shares may not be exchanged into money
market funds other than Prudential Special Money Market Fund. For purposes of
calculating the
30
<PAGE>
holding period applicable to the Class B conversion feature, the time period
during which Class B shares were held in a money market fund will be excluded.
See "Conversion Feature--Class B Shares" above. An exchange will be treated as
a redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may
call the Fund at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. (THE FUND OR ITS AGENTS
COULD BE SUBJECT TO LIABILITY IF THEY FAIL TO EMPLOY REASONABLE PROCEDURES.)
All exchanges will be made on the basis of the relative NAV of the two funds
next determined after the request is received in good order. The exchange
privilege is available only in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. (See "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares, will have
their Class B and Class C shares which are not subject to a CDSC and their
Class A shares exchanged for Class Z shares on a quarterly basis. Eligibility
for this exchange privilege will be calculated on the business day prior to
the date of the exchange. Amounts representing Class B or Class C shares which
are not subject to a CDSC include the following: (1) amounts representing
Class B or Class C shares acquired pursuant to the automatic reinvestment of
dividends and distributions, (2) amounts representing the increase in the net
asset value above the total amount of payments for the purchase of Class B or
Class C shares and (3) amounts representing Class B or Class C shares held
beyond the applicable CDSC period. Class B and Class C shareholders must
notify the Transfer Agent either directly or through Prudential Securities or
Prusec that they are eligible for this special exchange privilege.
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 JOIN THE 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
PSI'S
31
<PAGE>
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 PSI 401(K) PLAN FOLLOWING
SEPARATION OF SERVICE (I.E., VOLUNTARY OR INVOLUNTARY TERMINATION OF
EMPLOYMENT OR RETIREMENT) WILL HAVE THEIR CLASS Z SHARES EXCHANGED FOR CLASS A
SHARES AT NET ASSET VALUE.
The Fund reserves the right to reject any exchange order including exchanges
(and market timing transactions) which are of a size and/or frequency engaged
in by one or more accounts acting in concert or otherwise, that have or may
have an adverse effect on the ability of the Subadviser to manage the
portfolio. The determination that such exchanges or activity may have an
adverse effect and the determination to reject any exchange order shall be in
the discretion of the Manager and the Subadviser.
The exchange privilege may be modified or terminated at any time on sixty
days' notice.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTION WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your financial
adviser.
. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec registered
representative or the Transfer Agent directly.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." See also "Shareholder Investment
Account--Systematic Withdrawal Plan" in the Statement of Additional
Information.
. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 (toll-free) or by writing to the Fund at One
Seaport Plaza, New York, New York 10292. In addition, monthly unaudited
financial data are available upon request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A. at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
32
<PAGE>
APPENDIX A--HISTORICAL PERFORMANCE DATA
JENNISON ASSOCIATES CAPITAL CORP.
Set forth below is historical performance data relating to Jennison
Associates Capital Corp. (Jennison)/1/. See "Management of the Fund--
Subadviser" in the Prospectus. The data is provided to illustrate past
performance in managing similar portfolios as measured against the Standard &
Poor's 500 (S&P 500) Index and certain debt instruments. The returns quoted
for Jennison are time weighted total rates of return which include the impact
of capital appreciation as well as the reinvestment of interest and dividends,
as appropriate. Investors should not consider this performance data as an
indication of the future performance of the Fund.
All information relies on data supplied by Jennison or from statistical
services, reports or other sources believed by the Manager to be reliable
including data from S&P and The Wall Street Journal. However, such information
has not been verified and is unaudited. Performance figures for Jennison do
not reflect all of Jennison's assets under management and may not accurately
reflect the performance of all accounts managed by Jennison.
The performance figures reflected herein have been adjusted by the deduction
of Jennison's advisory fees, as indicated. The figures do not reflect the
operating expenses of the Fund (such as Rule 12b-1 fees) or any applicable
sales charges. See "Fund Expenses" in the Prospectus. The net effect of the
deduction of the operating expenses of the Fund on annualized performance,
including the compounded effect over time, will vary by the size of the fee
and the account's investment performance, and may be substantial. The accounts
reflected in the performance data below have been determined by Jennison based
on the manner in which it prepares performance data generally. Performance
data includes institutional accounts managed under the growth and income
strategy. These accounts are not registered investment companies. In addition,
they do not have the ability to engage in short sales.
- -------
/1/ The historical performance data reflects "total return" and "annualized
total return," as indicated. Total return reflects actual performance over a
stated period. Total return shows how much an investment has increased
(decreased) over a specified period of time assuming the reinvestment of
dividends and interest, as appropriate. Annualized total return is a
hypothetical rate of return that if achieved annually would have produced the
same aggregate total return if performance had been constant over the period.
See "Performance Information" in the Statement of Additional Information. The
charts on pages A-2, A-5 and A-6 show annualized total returns. The charts on
pages A-3, A-4 and A-7 show actual total returns.
The Jennison composite is a time-weighted rate of total return calculated in
accordance with Performance Presentation Standards of the Association for
Investment Management and Research (AIMR). It is calculated by dividing the
period of time under study into subperiods whose boundaries are the dates of
cash and other asset flows into and from the fund and by computing the
internal rate of return for each subperiod. The time weighted rate of return
is the average of the rates for these subperiods with each rate being given a
weight proportionate to the length of time in its subperiod.
A-1
<PAGE>
ANNUALIZED TOTAL RETURNS AS OF JUNE 30, 1996 (AFTER FEES)
<TABLE>
<CAPTION>
PERIOD JENNISON GROWTH & INCOME/1/ S&P 500 INDEX/2/
------ --------------------------- ----------------
<S> <C> <C>
Since August 31, 1980
(inception)-1996 18.1% 15.5%
15 Years (1981-1996) 17.5 15.6
10 Years (1986-1996) 16.2 13.8
7 Years (1989-1996) 16.5 14.6
5 Years (1991-1996) 17.2 15.7
3 Years (1993-1996) 16.9 17.2
1 Year (1995-1996) 19.1 25.9
</TABLE>
- -------
Source: Jennison Associates Capital Corp.
/1/Jennison's results are based on the time-weighted rate of return achieved
for "Growth & Income" accounts managed by Jennison. As of June 30, 1996,
Jennison managed 2 accounts representing approximately $231 million in
assets using a "Growth & Income" strategy. These accounts consist of
institutional accounts whose investment objectives and techniques are
similar to those of the Fund. Performance results are net of advisory fees
and assume the reinvestment of dividends and distributions. As of June 30,
1996, the "Growth & Income" accounts represented 1.4% of all equity assets
(approximately $17.0 billion) managed by Jennison, and 0.7% of the
aggregate assets (approximately $30.8 billion) managed by Jennison.
/2/The S&P 500 Index is a capital-weighted index representing the aggregate
market value of the common equity of 500 stocks primarily traded on the
NYSE. These 500 stocks are composed of 400 industrial, 40 utility, 40
financial and 20 transportation companies. The weight of each stock in the
index is proportional to its price times the number of shares outstanding.
The S&P 500 Index is an unmanaged index and includes the reinvestment of
all dividends. Investors cannot invest directly in an index.
These results are unaudited. Past performance should not be interpreted as
indicative of future performance.
A-2
<PAGE>
ANNUAL TOTAL RETURNS (AFTER FEES)
<TABLE>
<CAPTION>
YEAR JENNISON GROWTH & INCOME COMPOSITE/1/ S&P 500 INDEX/2/
---- ------------------------------------- ----------------
<S> <C> <C>
1981 0.00% (4.97)%
1982 30.86 21.61
1983 19.52 22.51
1984 1.90 6.30
1985 37.90 31.84
1986 19.58 18.71
1987 14.96 5.23
1988 11.75 16.59
1989 35.28 31.69
1990 3.70 (3.13)
1991 36.56 30.46
1992 8.53 7.62
1993 17.10 10.07
1994 (2.09) 1.31
1995 36.38 37.58
</TABLE>
- -------
Source: Jennison Associates Capital Corp.
/1/Jennison's results are based on the time-weighted rate of return achieved
for "Growth & Income" accounts managed by Jennison. As of June 30, 1996,
Jennison managed 2 accounts representing approximately $231 million in
assets using a "Growth & Income" strategy. These accounts consist of
institutional accounts whose investment objectives and techniques are
substantially similar to those of the Fund. Performance results are net of
advisory fees and assume the reinvestment of dividends and distributions.
As of June 30, 1996, the "Growth & Income" accounts represented 1.4% of all
equity assets (approximately $17.0 billion) managed by Jennison, and 0.7%
of the aggregate assets (approximately $30.8 billion) managed by Jennison.
/2/The S&P 500 Index is a capital-weighted index representing the aggregate
market value of the common equity of 500 stocks primarily traded on the
NYSE. These 500 stocks are composed of 400 industrial, 40 utility, 40
financial and 20 transportation companies. The weight of each stock in the
index is proportional to its price times the number of shares outstanding.
The S&P 500 Index is an unmanaged index and includes the reinvestment of
all dividends. Investors cannot invest directly in an index.
These results are unaudited. Past performance should not be interpreted as
indicative of future performance.
A-3
<PAGE>
Dollar Value of an Initial $10,000 Investment
Jennison Growth & Income Composite
August 1980 - June 1996
<TABLE>
<CAPTION>
CUMULATIVE RETURN $10,000
LINE CHART
*8/29/80 = $10,000
GROWTH
& INCOME S-P
-------- ---
<S> <C> <C>
6/30/80
7/31/80
8/29/80 10,000 10,000
9/30/80 10,493 10,300
10/31/80 10,622 10,506
11/28/80 11,768 11,622
12/31/80 11,605 11,279
1/30/81 11,025 10,802
2/27/81 11,424 10,987
3/31/81 12,187 11,429
4/30/81 12,560 11,205
5/29/81 13,149 11,230
6/30/81 12,380 11,166
7/31/81 11,970 11,186
8/31/81 11,322 10,540
9/30/81 10,951 10,022
10/30/81 11,617 10,560
11/30/81 11,752 10,996
12/31/81 11,605 10,718
1/29/82 11,613 10,577
2/26/82 11,216 9,982
3/31/82 11,143 9,938
4/30/82 11,612 10,384
5/28/82 11,116 10,032
6/30/82 10,978 9,881
7/30/82 10,847 9,702
8/31/82 12,069 10,891
9/30/82 12,184 11,023
10/29/82 13,707 12,288
11/30/82 15,173 12,790
12/31/82 15,186 13,035
1/31/83 15,577 13,521
2/28/83 16,212 13,826
3/31/83 16,830 14,341
4/29/83 17,732 15,468
5/31/83 17,898 15,334
6/30/83 18,767 15,928
7/29/83 17,868 15,454
8/31/83 17,665 15,691
9/30/83 18,075 15,906
10/31/83 17,500 15,721
11/30/83 18,185 16,055
12/30/83 18,150 15,969
1/31/84 17,600 15,884
2/29/84 16,613 15,326
3/30/84 16,963 15,586
4/30/84 16,892 15,738
5/31/84 15,904 14,868
6/29/84 16,712 15,187
7/31/84 16,300 15,006
8/31/84 18,226 16,664
9/28/84 18,025 16,661
10/31/84 18,292 16,729
11/30/84 17,835 16,535
12/31/84 18,495 16,975
1/31/85 20,374 18,303
2/28/85 20,568 18,526
3/29/85 20,201 18,537
4/30/85 20,019 18,519
5/31/85 21,521 19,598
6/28/85 22,037 19,905
7/31/85 21,989 19,888
8/30/85 21,848 19,712
9/30/85 21,213 19,091
10/31/85 22,604 19,983
11/29/85 24,323 21,347
12/31/85 25,505 22,380
1/31/86 26,490 22,499
2/28/86 28,566 24,178
3/31/86 30,030 25,541
4/30/86 29,422 25,265
5/30/86 31,042 26,605
6/30/86 31,079 27,051
7/31/86 29,443 25,548
8/29/86 31,214 27,438
9/30/86 28,315 25,162
10/31/86 30,325 26,628
11/28/86 31,103 27,270
12/31/86 30,499 26,567
1/30/87 34,942 30,140
2/27/87 37,185 31,326
3/31/87 37,492 32,241
4/30/87 37,426 31,947
5/29/87 38,078 32,220
6/30/87 39,347 33,860
7/31/87 40,881 35,575
8/31/87 42,968 36,894
9/30/87 42,826 36,096
10/30/87 34,222 28,311
11/30/87 32,000 25,966
12/31/87 35,060 27,957
1/29/88 35,674 29,170
2/29/88 37,973 30,482
3/31/88 37,136 29,549
4/29/88 36,907 29,915
5/31/88 36,977 30,114
6/30/88 39,637 31,520
7/29/88 39,133 31,442
8/31/88 37,695 30,331
9/30/88 39,182 31,627
10/31/88 39,344 32,550
11/30/88 38,597 32,038
12/30/88 39,178 32,595
1/31/89 41,936 35,019
2/28/89 41,508 34,094
3/31/89 42,719 34,906
4/28/89 45,648 36,776
5/31/89 48,439 38,186
6/30/89 47,954 37,987
7/31/89 51,925 41,457
8/31/89 52,786 42,225
9/29/89 52,916 42,058
10/31/89 51,549 41,117
11/30/89 52,912 41,914
12/29/89 53,001 42,924
1/31/90 49,613 40,084
2/28/90 50,296 40,528
3/30/90 51,342 41,630
4/30/90 50,623 40,635
5/31/90 56,355 44,511
6/29/90 56,727 44,247
7/31/90 56,279 44,091
8/31/90 51,197 40,111
9/28/90 48,613 38,159
10/31/90 48,549 37,997
11/30/90 52,667 40,464
12/31/90 54,961 41,581
1/31/91 58,431 43,390
2/28/91 62,547 46,495
3/28/91 65,060 47,622
4/30/91 64,612 47,725
5/31/91 67,112 49,796
6/28/91 62,865 47,512
7/31/91 65,731 49,724
8/30/91 67,010 50,898
9/30/91 66,307 50,050
10/31/91 70,004 50,721
11/29/91 66,984 48,676
12/31/91 75,053 54,245
1/31/92 74,198 53,235
2/28/92 76,672 53,923
3/31/92 73,286 52,875
4/30/92 73,332 54,427
5/29/92 73,596 54,694
6/30/92 71,557 53,880
7/31/92 74,726 56,084
8/31/92 72,267 54,936
9/30/92 73,826 55,579
10/30/92 76,237 55,772
11/30/92 79,957 57,667
12/31/92 81,455 58,377
1/29/93 82,555 58,864
2/26/93 82,132 59,676
3/31/93 85,044 60,926
4/30/93 84,194 59,453
5/28/93 87,156 61,036
6/30/93 87,236 61,222
7/30/93 88,126 60,977
8/31/93 92,298 63,285
9/30/93 92,355 62,804
10/29/93 94,191 64,102
11/30/93 92,742 63,490
12/31/93 95,387 64,257
1/31/94 99,694 66,449
2/28/94 98,282 64,644
3/31/94 93,451 61,826
4/29/94 93,802 62,620
5/31/94 95,321 63,640
6/30/94 92,049 62,087
7/29/94 95,295 64,126
8/31/94 98,726 66,749
9/30/94 96,169 65,111
10/31/94 96,207 66,576
11/30/94 93,192 64,149
12/30/94 93,394 65,102
1/31/95 94,560 66,790
2/28/95 100,479 69,391
3/31/95 105,078 71,441
4/28/95 108,487 73,535
5/31/95 110,684 76,478
6/30/95 116,982 78,260
7/31/95 121,942 80,857
8/31/95 123,290 81,060
9/29/95 124,432 84,479
10/31/95 123,137 84,178
11/30/95 128,003 87,873
12/29/95 127,366 89,565
1/31/96 130,027 92,613
2/29/96 133,506 93,466
3/31/96 135,568 94,372
4/30/96 138,923 95,763
5/31/96 141,468 98,190
6/30/96 139,345 98,564
</TABLE>
*Inception Date: 8/31/80 = $10,000
Source: Jennison Associates Capital Corp.
These results are unaudited. Of course, past performance should not be
interpreted as indicative of future performance.
This chart compares the growth of an initial $10,000 invested in Jennison
accounts using the "Growth & Income" strategy with a similar investment in the
S&P 500 Index as measured on a calendar quarterly basis from August 31, 1980
through June 30, 1996. Jennison's results are based on the time-weighted rate
of return achieved for "Growth & Income" accounts managed by Jennison. As of
June 30, 1996, Jennison managed 2 accounts representing approximately $231
million in assets using a "Growth & Income" strategy. These accounts consist of
institutional accounts whose investment objectives and techniques are similar to
those of the Fund. Performance results are net of advisory fees and assume the
reinvestment of dividends and distributions. As of June 30, 1996, the "Growth &
Income" accounts represented 1.4% of all equity assets (approximately $17.0
billion) managed by Jennison, and 0.7% of the aggregate assets (approximately
$30.8 billion) managed by Jennison.
The S&P 500 Index is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the NYSE. These
500 stocks are composed of 400 industrial, 40 utility, 40 financial and 20
transportation companies. The weight of each stock in the index is proportional
to its price times the number of shares outstanding. The S&P 500 Index is an
unmanaged index and includes the reinvestment of all dividends. Investors
cannot invest directly in an index.
A-4
<PAGE>
Five-Year Annualized Total Returns
Periods Ended June 30
<TABLE>
<CAPTION>
FIVE YEAR ANNUALIZED BAR CHART
GROWTH
& INCOME S-P
-------- ---
<S> <C> <C>
81-86 20.2 19.4
82-87 29.07 27.9
83-88 16.11 14.6
84-89 23.46 20.1
85-90 20.8 17.3
86-91 15.12 11.9
87-92 12.69 9.72
88-93 17.08 14.2
89-94 13.92 10.3
90-95 15.57 12.1
91-96 17.24 15.7
</TABLE>
*Inception Date: 8/31/80
Source: Jennison Associates Capital Corp.
These results are unaudited. Of course, past performance should not be
interpreted as indicative of future performance.
Jennison's results are based on the time-weighted rate of return achieved for
"Growth & Income" accounts managed by Jennison. As of June 30, 1996, Jennison
managed 2 accounts representing approximately $231 million in assets using a
"Growth & Income" strategy. These accounts consist of institutional accounts
whose investment objectives and techniques are similar to those of the Fund.
Performance results are net of advisory fees and assume the reinvestment of
dividends and distributions. As of June 30, 1996, the "Growth & Income" accounts
represented 1.4% of all equity assets (approximately $17.0 billion) managed by
Jennison, and 0.7% of the aggregate assets (approximately $30.8 billion) managed
by Jennison.
The S&P 500 Index is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the NYSE. These 500
stocks are composed of 400 industrial, 40 utility, 40 financial and 20
transportation companies. The weight of each stock in the index is proportional
to its price times the number of shares outstanding. The S&P 500 Index is an
unmanaged index and includes the reinvestment of all dividends. Investors cannot
invest directly in an index.
A-5
<PAGE>
DECADE-BY-DECADE COMPARATIVE PERFORMANCE
[CHART APPEARS HERE]
Source: Ibbotson Associates, Chicago. Stocks, Bonds, Bills & Inflation - 1996
Yearbook. Used with permission. All rights reserved.
This chart shows the annualized total return of U.S. Treasury Bills, long-term
U.S. Government bonds and common stocks for the period from December 31, 1925
through December 31, 1995 and assumes the reinvestment of dividends and
interest, as appropriate.
This chart is used for illustrative purposes only and is not intended to
represent future performance of the Fund. Common Stocks represent the ownership
of a corporation, which can fluctuate in value. Treasury bonds and bills are
backed by the full faith and credit of the U.S. Government. Common stock total
return is based on the Standard and Poor's 500 Composite, a market-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 an index. Long-Term Government
Bonds are represented by the annual total returns of a series of 20-year
government bonds. Treasury Bills are represented by the annual total returns of
a series of short-term Treasury bills. The returns from the S&P 500 Index for
the past fifteen years have been particularly favorable from an historical
standpoint and there can be no assurance that this growth in the overall stock
market will continue. This chart has not been adjusted for inflation. Returns
after inflation would be lower. Past performance is no guarantee of future
results.
A-6
<PAGE>
The Value of $10,000 Invested 15 Years Ago in:
12/31/80-12/31/95
[CHART]
$109,755 $79,410 $67,070 $28,024
Jennison Common Stocks Long-Term U.S. Treasury
Growth & Income (S&P 500 Index) Gov't Bonds Bills
Composite
Source: Jennison Associates Capital Corp. and Ibbotson Associates, Chicago.
Stocks, Bonds, Bills & Inflation - 1996 Yearbook. Used with permission. All
rights reserved.
This chart shows the total return of the Jennison Growth & Income Composite,
U.S. Treasury Bills, long-term U.S. Government bonds and common stocks for the
period from December 31, 1980 through December 31, 1995 and assumes the
reinvestment of dividends and interest, as appropriate.
This chart is used for illustrative purposes only and is not intended to
represent the future performance of the Fund. Common Stocks represent the
ownership of a corporation, which can fluctuate in value. Treasury bonds and
bills are backed by the full faith and credit of the U.S. Government. Common
stock total return is based on the Standard and Poor's 500 Composite, a
market-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 an index.
Long-Term Government Bonds are represented by the annual total returns of a
series of 20-year government bonds. Treasury Bills are represented by the
annual total returns of a series of short-term Treasury bills.
The Jennison Growth & Income composite commenced on 8/29/80. Jennison's
results are based on the time-weighted rate of return achieved for "Growth &
Income" accounts managed by Jennison. As of June 30, 1996, Jennison managed 2
accounts representing approximately $231 million in assets using a "Growth &
Income" strategy. These accounts consist of institutional accounts whose
investment objectives and techniques are substantially similar to those of the
Fund. Performance results are net of advisory fees and assume the reinvestment
of dividends and distributions. As of June 30, 1996, the "Growth & Income"
accounts represented 1.4% of all equity assets (approximately $17.0 billion)
managed by Jennison, and 0.7% of the aggregate assets (approximately $30.8
billion) managed by Jennison.
This chart has not been adjusted for inflation. Returns after inflation would
be lower. These results are unaudited. Of course, past performance should not
be interpreted as indicative of future performance.
A-7
<PAGE>
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<PAGE>
[This page intentionally left blank]
<PAGE>
[This page intentionally left blank]
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more information
on the Prudential Mutual Funds, including charges and expenses, contact your
Prudential Securities financial adviser or Prusec representative or telephone
the Fund at (800) 225-1852 for a free prospectus. Read the prospectus
carefully before you invest or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND
FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Series
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Companies Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
. Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
. 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
B-1
<PAGE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those con-
tained in this Prospectus, in connection with the offer contained herein, and,
if given or made, such other information or representations must not be relied
upon as having been authorized by the Fund or the Distributor. This Prospectus
does not constitute an offer by the Fund or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
FUND HIGHLIGHTS............................................................ 2
Risk Factors and Special Characteristics.................................. 2
FUND EXPENSES.............................................................. 5
HOW THE FUND INVESTS....................................................... 6
Investment Objective and Policies......................................... 6
Other Investments and Policies............................................ 8
Risk Factors and Special Considerations of
Investing in Foreign Securities.......................................... 10
Risk Factors Relating to Investing in Debt
Securities Rated Below Investment Grade (Junk Bonds)..................... 11
Hedging and Return Enhancement Strategies................................. 12
Investment Restrictions................................................... 14
HOW THE FUND IS MANAGED.................................................... 14
Manager................................................................... 15
Subadviser................................................................ 15
Distributor............................................................... 16
Fee Waivers and Subsidy................................................... 17
Portfolio Transactions.................................................... 18
Custodian and Transfer and Dividend Disbursing Agent...................... 18
HOW THE FUND VALUES ITS SHARES............................................. 18
HOW THE FUND CALCULATES PERFORMANCE........................................ 18
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 19
GENERAL INFORMATION........................................................ 21
Description of Common Stock............................................... 21
Additional Information.................................................... 21
SHAREHOLDER GUIDE.......................................................... 22
How to Buy Shares of the Fund............................................. 22
Alternative Purchase Plan................................................. 23
How to Sell Your Shares................................................... 27
Conversion Feature--Class B Shares........................................ 29
How to Exchange Your Shares............................................... 30
Shareholder Services...................................................... 32
APPENDIX A................................................................. A-1
THE PRUDENTIAL MUTUAL FUND FAMILY.......................................... B-1
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MF 172A
Class A: 74437E 50 3
CUSIP No.: Class B: 74437E 60 2
Class C: 74437E 70 1
Class Z: 74437E 80 0
P
R
O
S
P
E
C
T
U
S
PRUDENTIAL
JENNISON
GROWTH &
INCOME
FUND
PROSPECTUS
SEPTEMBER 12, 1996
Prudential Mutual Funds
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH/SM/
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Statement of Additional Information
dated September 12, 1996
Prudential Jennison Series Fund, Inc. (the Company) is an open-end,
diversified management investment company consisting of two series: Prudential
Jennison Growth Fund and Prudential Jennison Growth & Income Fund (each a
"Fund" and collectively the "Funds"). The investment objective of Prudential
Growth Fund is long-term growth of capital. Prudential Jennison Growth
Fund seeks to achieve this objective by investing primarily in equity securities
(common stock, preferred stock and securities convertible into common stock) of
established companies with above-average growth prospects. Current income, if
any, is incidental. Under normal market conditions, Prudential Jennison Growth
Fund intends to invest at least 65% of its total assets in equity securities of
companies that exceed $1 billion in market capitalization. Prudential Jennison
Growth Fund may also invest in (i) equity securities of other companies
including foreign issuers, (ii) investment grade fixed-income securities and
(iii) obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, including mortgage-backed securities. Prudential Jennison
Growth Fund may engage in various derivative securities transactions, such as
options on stocks, stock indices and foreign currencies, foreign currency
exchange contracts and the purchase and sale of futures contracts on stock
indices and options thereon to hedge its portfolio and to attempt to enhance
return.
The primary investment objective of Prudential Jennison Growth & Income
Fund is long-term growth of capital with current income as a secondary
objective. Prudential Jennison Growth & Income Fund seeks to achieve this
objective by investing primarily in common stocks of established companies with
growth prospects believed to be underappreciated by the market. The Fund may
also invest in (i) other common stocks, preferred stock and securities
convertible into common stock, (ii) with respect to 20% of its total assets,
equity and debt securities of foreign issuers, including ADRs, and (iii)
fixed-income securities, including corporate and other debt obligations and
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. Prudential Jennison Growth & Income Fund may also engage in
short sales and in various derivative securities transactions, such as options
on stocks, stock indices and foreign currencies, foreign currency exchange
contracts and the purchase and sale of futures contracts on stock indices and
debt securities and options thereon to hedge its portfolio and to attempt to
enhance return. There can be no assurance that the Funds' investment objectives
will be achieved. See "Investment Objectives and Policies."
The Company's address is One Seaport Plaza, New York, New York 10292, and
its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Prudential Jennison Growth Fund,
dated October 27, 1995 (as supplemented April 15, 1996), and the Prospectus of
Prudential Jennison Growth & Income Fund, dated September 12, 1996, copies of
which may be obtained from the Company upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
CROSS-REFERENCE TO PAGE IN
TO PAGE IN PROSPECTUS
PROSPECTUS OF PRUDENTIAL
OF PRUDENTIAL JENNISON GROWTH
JENNISON GROWTH &
PAGE FUND INCOME FUND
----- ---------------- ----------------
<S> <C> <C> <C>
General Information............................................ B-2
Investment Objectives and Policies............................. B-2 5 6
Investment Restrictions........................................ B-11 13 14
Directors and Officers......................................... B-13 13 14
Manager........................................................ B-14 13 15
Distributor.................................................... B-16 14 16
Portfolio Transactions and Brokerage........................... B-18 16 18
Purchase and Redemption of Fund Shares......................... B-19 20 22
Shareholder Investment Account................................. B-21 20 22
Net Asset Value................................................ B-24 16 18
Taxes.......................................................... B-25 17 19
Performance Information........................................ B-27 17 18
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants...................................... B-28 16 18
Independent Auditors' Report................................... B-29 --
Financial Statements........................................... B-30 --
Appendix--Historical Performance Data.......................... A-1 --
Appendix--General Investment Information....................... A-5 --
Appendix--Information Relating to The Prudential............... A-6 --
Appendix--Information about Jennison Associates Capital
Corp......................................................... A-9 --
</TABLE>
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MF172B
<PAGE>
GENERAL INFORMATION
The Company changed its name from Prudential Jennison Fund, Inc. to
Prudential Jennison Series Fund, Inc., effective on September 10, 1996, in
connection with the offering of a second series, Prudential Jennison Growth &
Income Fund. The existing series of the Company was redesignated Prudential
Jennison Growth Fund.
INVESTMENT OBJECTIVES AND POLICIES
Prudential Jennison Series Fund, Inc. is an open-end, diversified
management investment company consisting of two series. Each series operates as
a separate fund with its own investment objectives and policies. The investment
objective of Prudential Jennison Growth Fund is long-term growth of capital.
Prudential Jennison Growth Fund seeks to achieve this objective by investing
primarily in equity securities (common stock, preferred stock and securities
convertible into common stock) of established companies with above-average
growth prospects. Current income, if any, is incidental. Under normal market
conditions, Prudential Jennison Growth Fund intends to invest at least 65% of
its total assets in equity securities of companies that exceed $1 billion in
market capitalization. The primary investment objective of Prudential Jennison
Growth & Income Fund is long-term growth of capital with income as a secondary
objective. Prudential Jennison Growth & Income Fund seeks to achieve its
objectives by investing primarily in common stocks of established companies with
growth prospects believed to be underappreciated by the market. See "How the
Fund Invests--Investment Objective and Policies" in the Prospectus of each
Fund. There can be no assurance that the Funds' investment objectives will be
achieved.
The term "investment adviser" as used herein refers to Jennison
Associates Capital Corp., the Subadviser. See "Manager" below.
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. Each 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. Each Fund may invest in securities issued by agencies of the
U.S. Government or instrumentalities of the U.S. Government except that
Prudential Jennison Growth & Income Fund does not intend to invest in
mortgage-related securities. 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, a 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 a 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 a 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. Prudential Jennison Growth 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
B-2
<PAGE>
which have lower yields than the prepaid mortgages. Moreover, prepayments of
mortgages which underlie securities purchased at a premium could result in
capital losses.
Prudential Jennison Growth Fund may invest in both Adjustable Rate Mortgage
Securities (ARMs), which are pass-through mortgage securities collateralized by
adjustable rate mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are
collateralized by fixed-rate mortgages.
The values of U.S. Government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods of
falling U.S. interest rates, the values of U.S. Government securities generally
rise and, conversely, during periods of rising interest rates, the values of
such securities generally decline. The magnitude of these fluctuations will
generally be greater for securities with longer-term maturities.
FOREIGN DEBT SECURITIES
Each Fund is permitted to invest in foreign corporate and government
securities. "Foreign Government securities" include debt securities issued or
guaranteed, as to payment of principal and interest, by governments,
quasi-governmental entities, governmental agencies, supranational entities and
other governmental entities (collectively, Government Entities) of foreign
countries denominated in the currencies of such countries or in U.S. dollars
(including debt securities of a Government Entity in any such country
denominated in the currency of another such country).
A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of "quasi-governmental entities" are
issued by entities owned by a national, state, or equivalent government or are
obligations of a political unit that are not backed by the national government's
"full faith and credit" and general taxing powers. Examples of
quasi-government issuers include, among others, the Province of Ontario and the
City of Stockholm. "Foreign government securities" 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.
OPTIONS ON SECURITIES
Each Fund may purchase and write (i.e., sell) put and call options on
securities that are traded on U.S. or foreign securities exchanges or that are
traded in the over-the-counter markets. A call option is a short-term contract
pursuant to which the purchaser, in return for a premium paid, has the right to
buy the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. A put option is a
similar contract which gives the purchaser, in return for a premium, the right
to sell the underlying security at a specified price during the term of the
option. The writer of the put, who receives the premium, has the obligation to
buy the underlying security upon exercise at the exercise price. A 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 a 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 securities in a segregated account with its Custodian. A put option
written by a Fund is "covered" if the Fund maintains cash or liquid securities
with a value equal to the exercise price in a segregated account with its
Custodian, or else holds on a share-for-share basis a put on the same security
as the put written where the exercise price of the put held is equal to or
greater than the exercise price of the put written.
If the writer of an option wishes to terminate the obligation, he or she
may effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she had been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is generally required to pledge
for the benefit of the broker the underlying security or other assets in
accordance with the rules of the relevant exchange or clearinghouse, such as The
Options Clearing
B-3
<PAGE>
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.
A 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; a Fund will realize a loss from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option may be offset in whole or in
part if the Fund holds the underlying security by appreciation of the underlying
security owned by the Fund.
A 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, a 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 a 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 a 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 a 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.
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 a 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 a Fund as a covered call option writer is unable to effect a
closing purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the underlying
security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
B-4
<PAGE>
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. Each 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
A 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, a 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 policy of each Fund 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. A 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 a 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, a Fund will write call options on indices only
under the circumstances described below under "Limitations on Purchase and Sale
of Stock Options, Options on Stock Indices and Foreign Currencies and Futures
Contracts and Related Options."
Price movements in a Fund's portfolio probably will not correlate precisely
with movements in the level of the index and, therefore, a 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 a 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 a Fund in the opposite direction as the market would
be likely to occur for only a short period or to a small degree.
Unless a 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 a Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of
such Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.
When a Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, a 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 a Fund would
be able to deliver the underlying securities in settlement, a 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 a 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 a 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
B-5
<PAGE>
multiplier) to the assigned writer. Although a 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 RELATED TO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A Fund may enter into forward foreign currency exchange contracts in
several circumstances. When a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when a 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, a 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, a 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. If a Fund enters into a hedging
transaction as described above, the transaction will be "covered" by the
position being hedged, or the Fund's Custodian will place cash or liquid
securities into a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward foreign
currency exchange contracts (less the value of the 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 so that the value of
the account will, at all times, equal the amount of the Fund's net commitments
with respect to such contracts.
A Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a 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 a 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 a 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 a 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.
A Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. Of course, a 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 a 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 a 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 a
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
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FUTURES CONTRACTS
As a purchaser of a futures contract, a Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the futures contract
at a specified time in the future for a specified price. As a seller of a
futures contract, a Fund incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price. Prudential Jennison Growth & Income Fund may purchase futures contracts
on debt securities, including U.S. Government securities, aggregates of debt
securities, stock indices and foreign currencies. Prudential Jennison Growth
Fund may purchase futures contracts on stock indices and foreign currencies.
A Fund will purchase or sell futures contracts for the purpose of hedging
its portfolio (or anticipated portfolio) securities against changes in
prevailing interest rates. If the investment adviser anticipates that interest
rates may rise and, concomitantly, the price of the Fund's portfolio securities
may fall, a Fund may sell a futures contract. If declining interest rates are
anticipated, a Fund may purchase a futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by a Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts. In addition, futures contracts will
be bought or sold in order to close out a short or long position in a
corresponding futures contract.
Although most futures contracts call for actual delivery or acceptance of
securities or cash, the contracts usually are closed out before the settlement
date without the making or taking of delivery. A futures contract sale is closed
out by effecting a futures contract purchase for the same aggregate amount of
the specific type of security and the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would pay the difference and would realize a loss. Similarly,
a futures contract purchase is closed out by effecting a futures contract sale
for the same aggregate amount of the specific type of security (or currency) and
the same delivery date. If the offsetting sale price exceeds the purchase price,
the purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that a Fund will be able to enter into a closing transaction.
When a Fund enters into a futures contract it is initially required to
deposit with its Custodian, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash or U.S. Government
securities equal to approximately 2-3% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on a futures
contract which will be returned to a Fund upon the proper termination of the
futures contract. The margin deposits made are marked-to-market daily and a Fund
may be required to make subsequent deposits into the segregated account,
maintained at its Custodian for that purpose, of cash or U.S. Government
securities, called "variation margin," in the name of the broker, which are
reflective of price fluctuations in the futures contract.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures contracts as
a hedging device. In the case of futures contracts on securities indices, the
correlation between the price of the futures contract and the movements in the
index may not be perfect. Therefore, a correct forecast of market trends by the
investment adviser may still not result in a successful hedging transaction.
Although a 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 a 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. Currently, index futures contracts are available on various
U.S. and foreign securities indices.
Successful use of futures contracts by a 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 the securities market
generally. If a 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. A 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 a 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.
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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. 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, OPTIONS ON STOCK INDICES AND
FOREIGN CURRENCIES AND FUTURES CONTRACTS AND RELATED OPTIONS
A Fund may write put and call options on stocks only if they are covered as
described above, and such options must remain covered so long as the Fund is
obligated as a writer. A Fund will write put options on stock indices and
foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or liquid securities equal to the aggregate exercise
price of the puts. Each Fund has undertaken with certain state securities
commissions that, so long as shares of the Fund are registered in those states,
it will not (a) write puts having aggregate exercise prices greater than 25% of
total net assets; or (b) purchase (i) put options on stocks not held in its
portfolio, (ii) put options on stock indices or foreign currencies or (iii) call
options on stocks, stock indices or foreign currencies if, after any such
purchase, the aggregate premiums paid for such options would exceed 10% of such
Fund's total net assets; provided, however, that a Fund may purchase put options
on stocks held by the Fund if after such purchase the aggregate premiums paid
for such options do not exceed 20% of such Fund's net assets. In addition, a
Fund will not enter into futures contracts or related options if the aggregate
initial margin and premiums exceed 5% of the liquidation value of such Fund's
total assets, taking into account unrealized profits and losses on such
contracts, provided, however, that in the case of an option that is
in-the-money, the in-the-money amount may be excluded in computing such 5%. The
above restriction does not apply to the purchase or sale of futures contracts
and related options for bona fide hedging purposes, within the meaning of
regulations of the Commodity Futures Trading Commission. A 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. See "Hedging and Return Enhancement Strategies--Options Transactions"
in the Prospectus.
Except as described below, a 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 a 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 or liquid securities or a portfolio of stocks 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 a 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, and that, in the
judgment of the investment adviser, substantially replicate the movement of the
index 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, a Fund will so segregate,
escrow or pledge an amount in cash or liquid securities equal in value to the
difference. In addition, when a 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 or liquid securities 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 a 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
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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 securities in a segregated account with its Custodian, it will not be
subject to the requirements described in this paragraph.
POSITION LIMITS. Transactions by a 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 a Fund may write or purchase may be affected by the futures contracts and
options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.
DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, a Fund may temporarily invest
in money market instruments, including commercial paper of corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks, obligations issued or guaranteed by the U.S. Government, its
agencies or its instrumentalities and repurchase agreements (described more
fully below). Such investments may be subject to certain risks, including future
political and economic developments, the possible imposition of withholding
taxes on interest income, the seizure or nationalization of foreign deposits and
foreign exchange controls or other restrictions.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, a 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. A
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 or liquid securities having a
value equal to or greater than such commitments. If a Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio security, incur a gain or loss
due to market fluctuations.
SHORT SALES
Each Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for an equal amount of the
securities of the same issuer as the securities sold short (a short sale
against-the-box), and that not more than 25% of the Fund's net assets
(determined at the time of the short sale) may be subject to such sales. Short
sales will be made primarily to defer realization of gain or loss for federal
tax purposes. As a matter of current operating policy, Prudential Jennison
Growth Fund will not engage in short sales other than short sales
against-the-box. Prudential Jennison Growth & Income Fund will engage in short
sales, including short sales against-the-box. See "How the Fund Invests--Other
Investments and Policies--Short Selling" in the Prospectus of Prudential
Jennison Growth & Income Fund and "Investment Restrictions" below.
REPURCHASE AGREEMENTS
A Fund's repurchase agreements will be collateralized by U.S. Government
obligations. A Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Company's Board of Directors.
The 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, a 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.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, a 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 (including a
letter of credit) 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 a 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
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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
Company. 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, a 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. A 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.
BORROWING
A Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated at the time of the borrowing) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. A Fund
may pledge up to 20% of its total assets to secure these borrowings. If a Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings. If the 300% asset coverage should decline as a result
of market fluctuations or other reasons, the Fund may be required to sell
portfolio securities to reduce the debt and restore the 300% asset coverage,
even though it may be disadvantageous from an investment standpoint to sell
securities at that time. Such liquidations could cause the Fund to realize gains
on securities held for less than three months. Because no more than 30% of a
Fund's gross income may be derived from the sale or disposition of securities
held for less than three months to maintain the Fund's status as a regulated
investment company under the Internal Revenue Code, such gains would limit the
ability of the Fund to sell other securities held for less than three months
that the Fund might wish to sell. See "Taxes." A Fund will not purchase
portfolio securities when borrowings exceed 5% of the value of its total assets.
Borrowing for investment purposes is generally known as "leveraging."
Leveraging exaggerates the effect on net asset value of any increase or decrease
in the market value of a Fund's portfolio. Money borrowed for leveraging will be
subject to interest costs which may or may not be recovered by appreciation of
the securities purchased and may exceed the income from the securities
purchased. In addition, a Fund may be required to maintain minimum average
balances in connection with such borrowing or pay a commitment fee to maintain a
line of credit which would increase the cost of borrowing over the stated
interest rate.
ILLIQUID SECURITIES
A Fund may not hold more than 10% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market (either within or outside of the United States) or
legal or contractual restrictions on resale. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (Securities Act), securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security
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and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). In addition, in order
for commercial paper that is issued in reliance on Section 4(2) of the
Securities Act to be considered liquid, (i) it must be rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations (NRSRO), or if only one NRSRO rates the securities, by that
NRSRO, or, if unrated, be of comparable quality in the view of the investment
adviser; and (ii) it must not be "traded flat" (i.e., without accrued
interest) or in default as to principal or interest. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
SECURITIES OF OTHER INVESTMENT COMPANIES
A Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, a Fund does not intend to invest in such
securities. If a Fund does invest in securities of other investment companies,
shareholders of the Fund may be subject to duplicate management and advisory
fees. See "Investment Restrictions."
PORTFOLIO TURNOVER
As a result of the investment policies described above, a Fund may engage
in a substantial number of portfolio transactions, but the Fund's portfolio
turnover rate is not expected to exceed 100%. 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 a Fund. In addition, high portfolio turnover may also mean
that a proportionately greater amount of distributions to shareholders will be
taxed as ordinary income rather than long-term capital gains compared to
investment companies with lower portfolio turnover. See "Portfolio Transactions
and Brokerage" and "Taxes."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of a Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means with respect to each Fund, 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.
A 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 20% 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 20% 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. With respect to Prudential Jennison Growth Fund, purchase any security
if as a result the Fund would then have more than 5% of its total assets
(determined at the time of investment) invested in securities of companies
(including predecessors) less than three years old, except that the Fund may
invest in the securities of any U.S. Government agency or instrumentality, and
in any security guaranteed by such an agency or instrumentality. (This
restriction does not apply to Prudential Jennison Growth & Income Fund.)
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6. Buy or sell real estate or interests in real estate, except that the
Fund may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Fund may not purchase interests
in real estate limited partnerships which are not readily marketable.
7. Buy or sell commodities or commodity contracts, except that the Fund
may purchase and sell financial futures contracts and options thereon. (For
purposes of this restriction, futures contracts on currencies and on securities
indices and, with respect to Prudential Jennison Growth & Income Fund, futures
contracts on debt securities, and forward foreign currency exchange contracts
are not deemed to be commodities or commodity contracts.)
8. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws. Neither Fund has adopted a fundamental
investment policy with respect to investments in restricted securities. See
"Illiquid Securities."
9. Make investments for the purpose of exercising control or management.
10. Invest in securities of other investment companies, except by purchases
in the open market involving only customary brokerage commissions and as a
result of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5% of
its total assets in any one investment company and will not have invested more
than 10% of its total assets (determined at the time of investment) in such
securities of one or more investment companies, or except as part of a merger,
consolidation or other acquisition.
11. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
12. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 30% of the Fund's total assets.
13. Purchase more than 10% of all outstanding voting securities of any one
issuer.
In order to comply with certain "blue sky" restrictions, a Fund will not
as a matter of operating policy:
1. Invest in oil, gas and mineral leases.
2. Invest in securities of any issuer if any officer or Director of the
Company or the Company's Manager or Subadviser (as defined below) owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
3. Purchase warrants if as a result a Fund would then have more than 5% of
its assets (determined at the time of investment) invested in warrants. Warrants
will be valued at the lower of cost or market and investment in warrants which
are not listed on the New York Stock Exchange or American Stock Exchange or a
major foreign exchange will be limited to 2% of a Fund's net assets (determined
at the time of investment). For purposes of this limitation, warrants acquired
in units or attached to securities are deemed to be without value.
4. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities of
issuers which are restricted as to disposition, if more than 15% of its total
assets would be invested in such securities. This restriction shall not apply to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
5. Invest in securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and equity
securities of issuers which are not readily marketable, if more than 5% of its
total assets would be invested in such securities.
6. Invest more than 10% of its total assets in securities of real estate
investment trusts.
7. Invest in shares of registered open-end investment companies unless it
waives any duplicate management and advisory fees.
8. Engage in short sales if the value of securities of any one issuer in
which Prudential Jennison Growth & Income Fund is short exceeds the lesser of 2%
of the value of such Fund's net assets or 2% of the securities of any class of
any issuer.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Fund's asset
coverage for borrowings falls below 300%, the Fund will take prompt action to
reduce its borrowings, as required by applicable law.
B-12
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION WITH PRINCIPAL OCCUPATIONS
AND AGE COMPANY DURING PAST 5 YEARS
- ---------------------- -------------- --------------------------------------------------------
<S> <C> <C>
Eugene C. Dorsey (69) Director Retired President, Chief Executive Officer and Trustee
c/o Prudential Mutual of the Gannett Foundation (now Freedom Forum); former
Fund Management, Inc. Publisher of four Gannett newspapers and Vice
One Seaport Plaza President of the Gannett Company; past Chairman,
New York, NY Independent Sector, Washington D.C. (national
coalition of philanthropic organizations); former
Chairman of the American Council for the Arts;
Director of the Advisory Board of Chase Manhattan Bank
of Rochester.
*Richard A. Redeker President and President, Chief Executive Officer and Director (since
(53) Director October 1993), PMF; Executive Vice President, Director
One Seaport Plaza and Member of the Operating Committee (since October
New York, NY 1993), Prudential Securities; Director (since October
1993) of Prudential Securities Group, Inc.; Executive
Vice President, The Prudential Investment Corporation
(since July 1994); Director (since January 1994) of
Prudential Mutual Fund Distributors, Inc. (PMFD) and
Prudential Mutual Fund Services, Inc. (PMFS); formerly
Senior Executive Vice President and Director of Kemper
Financial Services, Inc. (September 1978-September
1993); Director and President of The High Yield Income
Fund, Inc.**
Robin B. Smith (57) Director Chairman (since August 1996), Chief Executive Officer
382 Channel Drive (since January 1988) and formerly President
Port Washington, NY (1981-1996), Publishers Clearing House; Director of
BellSouth Corporation, The Omnicon Group, Inc., Texaco
Inc., Spring Industries Inc., First Financial Fund,
Inc., The High Yield Income Fund, Inc. and The High
Yield Plus Fund, Inc.
Robert F. Gunia (49) Vice President Director (since January 1989), Chief Administrative
Officer (since July 1990) and Executive Vice
President, Treasurer and Chief Financial Officer
(since June 1987) of PMF; Comptroller of Money
Management Group of The Prudential Insurance Company
of America (since 1996); Senior Vice President (since
March 1987) of Prudential Securities; Executive Vice
President, Treasurer and Comptroller (since March
1991) of PMFD; Director (since June 1987) of PMFS;
Vice President and Director of The Asia Pacific Fund,
Inc. (since May 1989).
S. Jane Rose (50) Secretary Senior Vice President and Senior Counsel of PMF; Senior
One Seaport Plaza Vice President and Senior Counsel of Prudential
New York, NY Securities (since July 1992); formerly Vice President
and Associate General Counsel of Prudential
Securities.
Eugene S. Stark (38) Treasurer and First Vice President (since January 1990) of PMF.
One Seaport Plaza Principal
New York, NY Financial and
Accounting
Officer
Ellyn C. Vogin (35) Assistant Vice President and Associate General Counsel (since
One Seaport Plaza Secretary March 1995) of PMF; Vice President and Associate
New York, NY General Counsel of Prudential Securities (since March
1995); prior thereto, associated with the law firm of
Fulbright & Jaworski L.L.P.
Stephen M. Ungerman Assistant First Vice President of PMF (since February 1993); Tax
(42) Treasurer Director of the Money Management Group and the Private
One Seaport Plaza Asset Group of The Prudential Insurance Company of
New York, NY America (since March 1996); prior thereto, Senior Tax
Manager of Price Waterhouse (1981-January 1993).
</TABLE>
* "Interested" director, as defined in the Investment Company Act, by reason
of his or her affiliation with Prudential Securities or PMF.
** Mr. Redeker has resigned as President, Chief Executive Officer and Director
of PMF, effective on or before December 31, 1996. It is anticipated that Mr.
Redeker will remain associated with PMF and Prudential and will continue to
serve as President of the Company.
Directors and officers of the Company are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities.
B-13
<PAGE>
The officers conduct and supervise the daily business operations of the
Company, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," oversee such actions and decide on general
policy.
Pursuant to the Management Agreement with the Company, the Manager pays all
compensation of officers and employees of the Company as well as the fees and
expenses of all Directors of the Company who are affiliated persons of the
Manager.
The Company pays each of its Directors who is not an affiliated person of
PMF or Jennison Associates Capital Corp. (Jennison or the Subadviser) annual
compensation of $7,500, in addition to certain out-of-pocket expenses.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Company. Under the terms of the agreement, the Company
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 (the T-bill rate) or,
pursuant to an SEC (Securities and Exchange Commission) exemptive order, at the
daily rate of return of a Fund (the Fund rate). Payment of the interest so
accrued is also deferred and accruals become payable at the option of the
Director. The Company's obligation to make payments of deferred Directors' fees,
together with interest thereon, is a general obligation of the Company.
Currently, Mr. Dorsey and Ms. Smith have agreed to defer their fees at the
T-bill rate and at the Fund rate, respectively.
The Board of Directors has 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.
The Board of Directors has nominated a new slate of Directors for the Fund
which will be submitted to shareholders at a special meeting to be held on or
about October 30, 1996.
The following table sets forth estimated aggregate compensation to be paid
by the Company to the Directors who are not affiliated with the Manager for the
fiscal year ending September 30, 1996 and the aggregate compensation paid to
such Directors for service on the Boards of other investment companies managed
by Prudential Mutual Fund Management, Inc. (Fund Complex) for the calendar year
ended December 31, 1995.
<TABLE>
<CAPTION>
COMPENSATION TABLE
----------------------
<S> <C> <C> <C> <C>
TOTAL
PENSION OR COMPENSATION
ESTIMATED RETIREMENT ESTIMATED FROM COMPANY
AGGREGATE BENEFITS ACCRUED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM COMPANY EXPENSES RETIREMENT TO DIRECTORS
- ----------------- ------------ ----------------- -------------- --------------
Eugene C. Dorsey**--Director $7,500 None N/A $77,375(10/34)*
Robin B. Smith**--Director $7,500 None N/A $91,875(10/19)*
</TABLE>
- ------------------
* Indicates number of funds/portfolios in Fund Complex (including the Funds)
to which aggregate compensation relates.
** Aggregate compensation from the Fund Complex for the year ended December 31,
1995, including accrued interest, amounted to approximately $85,783 and
$100,741 for each of Mr. Dorsey and Ms. Smith, respectively.
As of March 22, 1996, the Directors and officers of the Company, as a
group, owned less than 1% of the outstanding common stock of each Fund and there
were no beneficial owners of more than 5% of any class of shares of the
outstanding common stock of a Fund.
As of August 31, 1996, Prudential Securities was the record holder for
other beneficial owners of 6,598,308 Class A shares (approximately 85.1% of such
shares outstanding), 16,352,770 Class B shares (approximately 78.6% of such
shares outstanding), 1,292,659 Class C shares (approximately 92.7% of such
shares outstanding) and 1,084,756 Class Z shares (approximately 100% of such
shares outstanding) of Prudential Jennison Growth 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.
As of September 12, 1996, Prudential Mutual Fund Management, Inc. was the
sole shareholder of shares of Prudential Jennison Growth & Income Fund.
MANAGER
The manager of the Company is Prudential Mutual Fund Management, Inc. (PMF
or the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager to all of the other investment companies that, together with the Funds,
comprise the Prudential Mutual Funds. See "How the Fund is Managed--Manager"
in the Prospectus of each Fund. As of August 31, 1996, PMF managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $52 billion. According to the Investment Company Institute, as
of August 31, 1996, the Prudential Mutual Funds were the 17th largest family of
mutual funds in the United States.
B-14
<PAGE>
PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Company's Board of Directors
and in conformity with the stated policies of each Fund, manages both the
investment operations of each Fund and the composition of each Fund's portfolio,
including the purchase, retention, disposition and loan of securities and other
assets. In connection therewith, PMF is obligated to keep certain books and
records of the Company. PMF also administers the Company's corporate affairs
and, in connection therewith, furnishes the Company with office facilities,
together with those ordinary clerical and bookkeeping services which are not
being furnished by State Street Bank and Trust Company, the Funds' custodian
(the Custodian), and PMFS, the Funds' transfer and dividend disbursing agent.
The management services of PMF for the Fund are not exclusive under the terms of
the Management Agreement and PMF is free to, and does, render management
services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .60 of 1% of each Fund's average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that, in the event the expenses of a Fund (including the fees of PMF, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PMF will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PMF will be paid by PMF to the Company. Currently, the
Company believes that the most restrictive expense limitation of state
securities commissions is 2 1/2% of a Fund's average daily net assets up to $30
million, 2% of the next $70 million of such assets and 1 1/2% of such assets in
excess of $100 million.
In connection with its management of the corporate affairs of the Company,
PMF bears the following expenses:
(a) the salaries and expenses of all personnel of the Company and the
Manager, except the fees and expenses of Directors who are not affiliated
persons of PMF or the Company's investment adviser;
(b) all expenses incurred by PMF or by the Company in connection with
managing the ordinary course of a Fund's business, other than those assumed by a
Fund as described below; and
(c) the fees payable to the Subadviser pursuant to the Subadvisory
Agreement between PMF and Jennison (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Company 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 Company'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 each Fund and of pricing each Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Company, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Company in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Company to governmental agencies, (g) the fees of
any trade associations of which the Company may be a member, (h) the cost of
stock certificates representing shares of the Company, (i) the cost of fidelity
and liability insurance, (j) certain organization expenses of the Company and
the fees and expenses involved in registering and maintaining registration of
the Company and of its shares with the SEC, registering the Company as a broker
or dealer and qualifying its shares under state securities laws, including the
preparation and printing of each 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 Company's business and (m) distribution
fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by a Fund in connection with the matters to
which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was last approved by the Board of Directors of the Company, including all of the
Directors who are not parties to the contract or interested persons of any such
party, as defined in the Investment Company Act, with respect to Prudential
Jennison Growth Fund, on April 9, 1996, and by the initial shareholder of that
Fund on September 14, 1995. The Management Agreement was approved, with respect
to
B-15
<PAGE>
Prudential Jennison Growth & Income Fund, by the Board of Directors of the
Company, including all of the Directors who are not parties to the contract or
interested persons of any such party on July 9, 1996, and by the initial
shareholder of that Fund on September 11, 1996.
PMF has entered into the Subadvisory Agreement with Jennison, a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
Jennison will furnish investment advisory services in connection with the
management of the Company. In connection therewith, Jennison is obligated to
keep certain books and records of each Fund. Under the Subadvisory Agreement,
Jennison, subject to the supervision of PMF, is responsible for managing the
assets of each Fund in accordance with its investment objectives, investment
program and policies. Jennison determines what securities and other instruments
are purchased and sold for each Fund and is responsible for obtaining and
evaluating financial data relevant to each Fund. PMF continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement. Under the Subadvisory Agreement, PMF compensates Jennison for its
services at an annual rate of .30 of 1% of each Fund's average daily net assets
up to and including $300 million and .25 of 1% of the Fund's average daily net
assets in excess of $300 million.
The Subadvisory Agreement was approved by the Board of Directors, including
a majority of the Directors who are not parties to the contract or interested
persons of any such party, as defined in the Investment Company Act, with
respect to Prudential Jennison Growth Fund, on April 9, 1996, and by the initial
shareholder of that Fund on September 14, 1995. The Subadvisory Agreement was
approved, with respect to Prudential Jennison Growth & Income Fund, by the Board
of Directors of the Company, including all of the Directors who are not parties
to the contract or interested persons of any such party on July 9, 1996, and by
the initial shareholder of that Fund on September 11, 1996.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Company, PMF or Jennison upon not more than 60 days', nor less
than 30 days', written notice. The Subadvisory Agreement provides that it will
continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the Class A,
Class B, Class C and Class Z shares of the Company.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Company under Rule 12b-1 under the Investment Company Act and a distribution
agreement (the Distribution Agreement), Prudential Securities (also the
Distributor) incurs the expenses of distributing the Company's Class A, Class B
and Class C shares. See "How the Fund is Managed--Distributor" in the
Prospectus of each Fund. Prudential Securities serves as the Distributor of
Class Z shares and incurs the expenses of distributing the Class Z shares under
a Distribution Agreement with the Company, none of which are reimbursed by or
paid for by the Fund.
On April 9, 1996, the Board of Directors, including a majority of the
Directors who are not interested persons of the Company and who have no direct
or indirect financial interest in the operation of the Class A, Class B or Class
C Plan or in any agreement related to the Plans (the Rule 12b-1 Directors), at a
meeting called for the purpose of voting on each Plan, approved the continuance
of the Plans and Distribution Agreement with respect to Prudential Jennison
Growth Fund. The Class A Plan provides that (i) .25 of 1% of the average daily
net assets of the Class A shares may be used to pay for personal service and the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1%. The
Class B and Class C Plans provide that (i) .25 of 1% of the average daily net
assets of the Class B and Class C shares, respectively, may be paid as a service
fee and (ii) .75 of 1% (not including the service fee) may be paid for
distribution-related expenses with respect to the Class B and Class C shares,
respectively (asset-based sales charge). On July 9, 1996, the Board of Directors
of the Company, including a majority of the Rule 12b-1 Directors, at a meeting
called for the purpose of voting on each Plan, approved the Class A, Class B and
Class C Plan and the Distribution Agreement with respect to Prudential Jennison
Growth & Income Fund. The Plans were each approved by the sole shareholder of
the Class A, Class B and Class C shares of Prudential Jennison Growth Fund on
September 14, 1995, and by the sole shareholder of Class A, Class B and Class C
shares of Prudential Jennison Growth & Income Fund on September 11, 1996.
The Class A, Class B and Class C Plans will continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class on not more than
60 days', nor less than 30 days' written notice to any other party to the Plans.
The Plans may not be amended to increase materially the amounts to be spent for
the services described therein without approval by the shareholders of the
applicable class, and all material amendments are required to be approved by the
Board of Directors in the manner described above. Each Plan will automatically
B-16
<PAGE>
terminate in the event of its assignment. A Fund will not be obligated to pay
expenses incurred under any Plan if it is terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
each class of shares of a Fund by the Distributor. The report will include an
itemization of the distribution expenses and the purposes of such expenditures.
In addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to the Distribution Agreement, the Company has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the Securities Act.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend solicitation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Texas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director serves as an independent "ombudsman" whom PSI employees
can call anonymously with complaints about ethics and compliance. Prudential
Securities shall report any allegations or instances of criminal conduct and
material improprieties to the new director. The new director submits compliance
reports which identify any such allegations or instances of criminal conduct and
material improprieties every three months for a three-year period.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. In the case of
Class B shares, interest charges equal to the prime rate plus one percent per
annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not required to be included in the calculation
of the 6.25% limitation. The annual asset-based sales charge with respect to
Class B and Class C shares of the Fund may not exceed .75 of 1%. The 6.25%
limitation applies to a Fund rather than on a per shareholder basis. If
aggregate sales charges were to exceed 6.25% of total gross sales of any class,
all sales charges on shares of that class would be suspended.
B-17
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities,
futures and options on securities and futures for the Company, the selection of
brokers, dealers and futures commission merchants to effect the transactions and
the negotiation of brokerage commissions, if any. The term "Manager" as used
in this section includes the Subadviser. Broker-dealers may receive negotiated
brokerage commissions on Fund portfolio transactions, including options and the
purchase and sale of underlying securities upon the exercise of options. On
foreign securities exchanges, commissions may be fixed. Orders may be directed
to any broker or futures commission merchant including, to the extent and in the
manner permitted by applicable law, Prudential Securities and its affiliates.
Equity securities traded in the over-the-counter market and bonds,
including convertible bonds, are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments and U.S. Government agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid. A Fund will not
deal with Prudential Securities or any affiliate in any transaction in which
Prudential Securities or any affiliate acts as principal, except in accordance
with rules of the SEC. Thus, it will not deal with Prudential Securities acting
as market maker, and it will not execute a negotiated trade with Prudential
Securities if execution involves Prudential Securities' acting as principal with
respect to any part of a Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities, or an affiliate, during the existence
of the syndicate, is a principal underwriter (as defined in the Investment
Company Act), except in accordance with rules of the SEC. This limitation, in
the opinion of the Company, will not significantly affect a Fund's ability to
pursue its present investment objective. However, in the future in other
circumstances, a Fund may be at a disadvantage because of this limitation in
comparison to other funds with similar objectives but not subject to such
limitations.
In placing orders for portfolio securities of a Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of a Fund, the Manager or the Manager's other clients. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. Such services are used by the
Manager in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for a Fund
may be used in managing other investment accounts. Conversely, brokers, dealers
or futures commission merchants furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than a Fund's, and the services furnished by such brokers, dealers or
futures commission merchants may be used by the Manager in providing investment
management for a Fund. Commission rates are established pursuant to negotiations
with the broker, dealer or futures commission merchant based on the quality and
quantity of execution services provided by the broker in the light of generally
prevailing rates. The Manager's policy is to pay higher commissions to brokers,
other than Prudential Securities, for particular transactions than might be
charged if a different broker had been selected, on occasions when, in the
Manager's opinion, this policy furthers the objective of obtaining best price
and execution. In addition, the Manager is authorized to pay higher commissions
on brokerage transactions for a Fund to brokers other than Prudential Securities
(or any affiliate) in order to secure research and investment services described
above, subject to review by the Company's Board of Directors from time to time
as to the extent and continuation of this practice. The allocation or orders
among brokers and the commission rates paid are reviewed periodically by the
Company's Board of Directors. The Company will not pay up for research in
principal transactions.
Subject to the above considerations, Prudential Securities (or any
affiliate) may act as a securities broker or futures commission merchant for the
Company. In order for Prudential Securities (or any affiliate) to effect any
portfolio transactions for a Fund, the commissions, fees or other remuneration
received by Prudential Securities (or any affiliate) must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers or
futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
during a comparable period of time. This standard would allow Prudential
Securities (or any affiliate) to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker or futures commission
merchant in a commensurate arm's-length transaction. Furthermore, the Board of
Directors of the Company, including a majority of the Directors who are not
"interested" persons, has adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Prudential
Securities (or any affiliate) are consistent with the foregoing standard. In
accordance with Section 11(a) of the Securities Exchange Act of 1934, Prudential
Securities may not retain compensation for effecting transactions on a national
securities exchange for a Fund unless the Fund has expressly authorized the
retention of such compensation. Prudential Securities must furnish to a Fund at
least annually a statement setting forth the total amount of all compensation
retained by Prudential Securities from transactions effected for the Fund during
the applicable period. Brokerage and futures transactions with Prudential
Securities are also subject to such fiduciary standards as may be imposed by
applicable law.
B-18
<PAGE>
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of a Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). Class Z shares of the Fund
are offered to a limited group of investors at net asset value without any sales
charges. See "Shareholder Guide--How to Buy Shares of the Fund" in the
Prospectus of each Fund.
Each class represents an interest in the same assets of a Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service expenses (except for Class Z
shares which are not subject to any sales charge or 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 arrangements
and has separate voting rights on any matter submitted to shareholders in which
the interests of one class differ from the interests of any other class, (iii)
each class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "Distributor" and "Shareholder Investment
Account--Exchange Privilege."
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Company and the
Distributor, Class A shares are sold with a maximum sales charge of 5% and Class
B*, Class C* and Class Z** shares are sold at net asset value. Using the net
asset value of Prudential Jennison Growth Fund at March 31, 1996, the maximum
offering price of Prudential Jennison Growth Fund's shares is as follows:
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON
CLASS A GROWTH FUND
-------------------
<S> <C>
Net asset value and redemption price per Class A share........................... $ 10.39
Maximum sales charge (5% of offering price)...................................... .55
-------
Offering price to public......................................................... $ 10.94
-------
-------
CLASS B
Net asset value, redemption price and offering price per Class B share*.......... $ 10.36
-------
-------
CLASS C
Net asset value, redemption price and offering price per Class C share*.......... $ 10.36
-------
-------
CLASS Z
Net asset value, offering price and redemption price per Class Z share**......... $ 10.39
-------
-------
</TABLE>
- ------------------
* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your Shares--
Contingent Deferred Sales Charges" in the Prospectus of Prudential Jennison
Growth Fund.
** Class Z shares of Prudential Jennison Growth Fund were not offered prior to
April 15, 1996.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of a Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under "Shareholder
Guide-- Alternative Purchase Plan" in the Prospectus of each Fund.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be controlled
by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
B-19
<PAGE>
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code and deferred compensation and annuity plans
under Sections 457 and 403(b)(7) of the Internal Revenue Code.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of a
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. The value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the Transfer
Agent or through Prudential Securities. The value of existing holdings for
purposes of determining the reduced sales charge is calculated using the maximum
offering or price (net asset value plus maximum sales charge) as of the previous
business day. See "How the Fund Values Its Shares" in the Prospectus of each
Fund. The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. Rights of Accumulation are
not available to individual participants in any retirement or group plans.
LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors), 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 a Fund and shares of other Prudential Mutual
Funds. All shares of a Fund and shares of other Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) which were previously purchased and are still owned are also included
in determining the applicable reduction. However, the value of shares held
directly with the Transfer Agent and through Prudential Securities will not be
aggregated to determine the reduced sales charge. All shares must be held either
directly with the Transfer Agent or through Prudential Securities. The
Distributor must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. Letters of Intent are not
available to individual participants in any retirement or group plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment, except in the case of retirement and group plans where the employer
or plan sponsor will be responsible for paying any applicable sales charge.
Escrowed Class A shares totaling 5% of the dollar amount of the Letter of Intent
will be held by the Transfer Agent in the name of the purchaser. The effective
date of a Letter of Intent may be back-dated up to 90 days, in order that any
investments made during this 90-day period, valued at the purchaser's cost, can
be applied to the fulfillment of the Letter of Intent goal, except in the case
of retirement and group plans.
The Letter of Intent does not obligate the investor to purchase, nor the
Company to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser (or the employer or
plan sponsor in the case of any retirement or group plan) is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
The contingent deferred sales charge is waived under circumstances
described in the Prospectus of each Fund. See "Shareholder Guide--How to Sell
Your Shares--Waiver of Contingent Deferred Sales Charges--Class B Shares" in
the Prospectus. In connection with these waivers, the Transfer Agent will
require you to submit the supporting documentation set forth below.
<TABLE>
<S> <C>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
Death A copy of the shareholder's death certificate
or, in the case of a trust, a copy of the
grantor's death certificate, plus a copy of
the trust agreement identifying the grantor.
</TABLE>
B-20
<PAGE>
<TABLE>
<S> <C>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
Disability - An individual will be A copy of the Social Security Administration
considered disabled if he or she is award letter or a letter from a physician on
unable to engage in any substantial the physician's letterhead stating that the
gainful activity by reason of any shareholder (or, in the case of a trust, the
medically determinable physical or grantor) is permanently disabled. The letter
mental impairment which can be must also indicate the date of disability.
expected to result in death or to be
of long-continued and indefinite
duration.
Distribution from an IRA or 403(b) A copy of the distribution form from the
Custodial Account custodial firm indicating (i) the date of
birth of the shareholder and (ii) that the
shareholder is over age 59 1/2 and is taking
a normal distribution--signed by the
shareholder.
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating the reason
for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or
the plan administrator/trustee on company
letterhead indicating the amount of the
excess and whether or not taxes have been
paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. Each Fund makes available to its
shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. For the convenience
of investors, all dividends and distributions are automatically reinvested in
full and fractional shares of the applicable Fund. An investor may direct the
Transfer Agent in writing not less than five full business days prior to the
record date to have subsequent dividends or distributions sent in cash rather
than reinvested. In the case of recently purchased shares for which registration
instructions have not been received on the record date, cash payment will be
made directly to the dealer. Any shareholder who receives a cash payment
representing a dividend or distribution may reinvest such dividend or
distribution at net asset value by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. Such investment will be
made at the net asset value per share next determined after receipt of the check
or proceeds by the Transfer Agent. Such shareholder will receive credit for any
contingent deferred sales charge paid in connection with the amount of proceeds
being reinvested.
EXCHANGE PRIVILEGE. The Company makes available to its shareholders the
Exchange Privilege. The Company makes available to its shareholders the
privilege of exchanging their shares of a 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
a Fund. All exchanges are made on the basis of relative net asset value next
determined after receipt of an order in proper form. An exchange will be treated
as a redemption and purchase for tax purposes. Shares may be exchanged for
shares of another fund only if shares of such fund may legally be sold under
applicable state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those funds
eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of a Fund may exchange their Class A shares for
shares of certain other Prudential Mutual Funds, shares of Prudential Government
Securities Trust (Short-Intermediate Term Series) and shares of the money market
funds specified below. No fee or sales load will be imposed upon the exchange.
Shareholders of money market funds who acquired such shares upon exchange of
Class A shares may use the Exchange Privilege only to acquire Class A shares of
the Prudential Mutual Funds participating in the Exchange Privilege.
B-21
<PAGE>
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of a Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of the Class B and Class C shares acquired as a
result of the exchange. The applicable sales charge will be that imposed by the
fund in which shares were initially purchased and the purchase date will be
deemed to be the date of the initial purchase, rather than the date of the
exchange.
Class B and Class C shares of a Fund may also be exchanged for shares of
Prudential Special 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 a 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 a Fund from a money market fund during the month (and
are held in the Fund at the end of the month), the entire month will be included
in the CDSC holding period. Conversely, if shares are exchanged into a money
market fund prior to the last day of the month (and are held in the money market
fund on the last day of the month), the entire month will be excluded from the
CDSC holding period.
At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec.
The Exchange Privilege may be modified, terminated or suspended on 60 days'
notice, and any fund, including a 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.
B-22
<PAGE>
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)
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>
- ---------------
(1) Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for the 1993-1994 academic year.
(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 a 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.
See "Automatic Savings Accumulation Plan."
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, an investor may
arrange to have a fixed amount automatically invested in shares of a Fund
monthly by authorizing his or her bank account or Prudential Securities Account
(including a Command Account) to be debited to invest specified dollar amounts
in shares of a Fund. The investor's bank must be a member of the Automatic
Clearing House System. Stock certificates are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Withdrawals of Class B or Class C shares may be subject to a CDSC. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus of each Fund.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment
Account--Automatic Reinvestment of Dividends and Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the plan, particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS. Various qualified retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-deferred accounts" under Section 403(b)(7) of the Internal Revenue Code
of 1986, as amended (the Internal Revenue Code) are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, and the administration, custodial fees an other
details are available from Prudential Securities or the Transfer Agent.
B-23
<PAGE>
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ---------- -------- --------
<S> <C> <C>
10 years............................. $ 26,165 $ 31,291
15 years............................. 44,676 58,649
20 years............................. 68,109 98,846
25 years............................. 97,780 157,909
30 years............................. 135,346 244,692
</TABLE>
- ---------------
(1) The chart is for illustrative purposes only and does not represent the
performance of a Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
MUTUAL FUND PROGRAMS
From time to time, the Company (or a portfolio of the Company, if
applicable) 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 promoted collectively. Typically, these programs are created with an
investment theme, e.g., 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. A 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 a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities Financial Advisor or Prudential/Pruco Securities Representative
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
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Company. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sales price on the day of valuation, or, if there was no sale on such day,
the mean between the last bid and asked prices on such day, as provided by a
pricing service. Corporate bonds (other than convertible debt securities) and
U.S. Government securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable securities
and various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by principal market makers or independent pricing agents.
Options on stock and stock indices traded on an exchange are valued at the mean
between the most recently quoted bid and asked prices on the respective exchange
and futures contracts and options thereon are valued at their last sales prices
as of the close of the commodities exchange or board of trade. Should an
extraordinary event, which is likely to affect the value of the security, occur
after the close of an exchange on which a portfolio security is traded, such
security will be valued at fair value considering factors determined in good
faith by the investment adviser under procedures established by and under the
general supervision of the Company's Board of Directors.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with interest
accrued or discount amortized to the date of maturity, if their original
maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of 60 days or more, for which market quotations are readily
available, are valued at their
B-24
<PAGE>
current market quotations as supplied by an independent pricing agent or
principal market maker. Each Fund will compute its net asset value at 4:15 P.M.,
New York time, on each day the New York Stock Exchange is open for trading
except on days on which no orders to purchase, sell or redeem Fund shares have
been received or days on which changes in the value of a Fund's portfolio
securities do not affect net asset value. In the event the New York Stock
Exchange closes early on any business day, the net asset value of a Fund's
shares shall be determined at a time between such closing and 4:15 P.M., New
York time.
Net asset value is calculated separately for each class. The net asset
value of Class B and Class C shares will generally be lower than the net asset
value of Class A or Class Z shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject and the
net asset value of Class A shares will generally be lower than that of Class Z
shares because Class Z shares are not subject to any distribution or service
fee. It is expected, however, that the net asset value per share of each class
will tend to converge immediately after the recording of dividends which will
differ by approximately the amount of the distribution and/or service fee
expense accrual differential among the classes.
TAXES
Each Fund has elected to qualify (or intends to elect to qualify) and
intends to remain qualified as a regulated investment company under Subchapter M
of the Internal Revenue Code. This relieves the Fund (but not its shareholders)
from paying federal income tax on income which is distributed to shareholders
and permits net long-term capital gains of the Fund (i.e., the excess of net
long-term capital gains over net short-term capital losses) to be treated as
long-term capital gains of the shareholders, regardless of how long shareholders
have held their shares in the Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of a Fund's annual gross income (without reduction
for losses from the sale or other disposition of securities) be derived from
interest, dividends, payments with respect to securities loans, and gains from
the sale or other disposition of securities or options thereon or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities or currencies; (b) the Fund derive less than 30% of its gross
income from gains (without reduction for losses) from the sale or other
disposition of securities, options thereon, futures contracts, options thereon,
forward contracts and foreign currencies held for less than three months (except
for foreign currencies directly related to the Fund's business of investing in
foreign securities) (the short-short rule); (c) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year (i) at least 50% of the
market value of the Fund's assets is represented by cash, U.S. Government
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of the market value of the Fund's assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities); and (d) the Fund distribute to its
shareholders at least 90% of its net investment income (including short-term
capital gains) other than long-term capital gains in each year.
Gains or losses on sales of securities by a Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where the Fund acquires a put or
writes a call thereon or makes a short sale against-the-box. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will generally be treated as gains and losses from the sale of
securities (assuming they do not qualify as Section 1256 contracts). If an
option written by a Fund on securities lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will generally realize short-term capital gain or loss. If securities are
sold by a 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 a
Fund's transactions may be subject to wash sale, short sale, conversion
transaction and straddle provisions of the Internal Revenue Code. In addition,
debt securities acquired by a Fund may be subject to original issue discount and
market discount rules.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which a Fund
may invest. See "Investment Objectives and Policies." These investments will
generally constitute Section 1256 contracts and will be required to be "marked
to market" for federal income tax purposes at the end of a Fund's taxable year;
that is, treated as having been sold at market value. Except with respect to
forward foreign currency exchange contracts, 60% of any gain or loss recognized
on such deemed sales and on actual dispositions will be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss.
Gain or loss on the sale, lapse or other termination of options on stock
and on narrowly-based stock indices will be capital gain or loss and will be
long-term or short-term depending upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain wash
sale and short sale provisions of the Internal Revenue Code. In the case of a
straddle, a Fund may be required to defer the recognition of losses on positions
it holds to the extent of any unrecognized gain on offsetting positions held by
the Fund. The conversion transaction rules may apply to certain transactions to
treat all or a portion of the gain thereon as ordinary income rather than as
capital gain.
B-25
<PAGE>
A Fund's ability to hold foreign currencies or engage in hedging activities
may be limited by the 30% short-short rule discussed above.
A "passive foreign investment company" (PFIC) is a foreign corporation
that, in general, meets either of the following tests: (a) at least 75% of its
gross income is passive or (b) an average of at least 50% of its assets produce,
or are held for the production of, passive income. If a Fund acquires and holds
stock in a PFIC beyond the end of the year of its acquisition, the Fund will be
subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain from disposition of the stock
(collectively, PFIC income), plus interest thereon, even if the Fund distributes
the PFIC income as a taxable dividend to its shareholders. The balance of the
PFIC income will be included in the Fund's investment company taxable income
and, accordingly, will not be taxable to it to the extent that income is
distributed to its shareholders. Proposed Treasury regulations provide that a
Fund may make a "mark-to-market" election with respect to any stock it holds
of a PFIC. If the election is in effect, at the end of the Fund's taxable year,
the Fund will recognize the amount of gains, if any, with respect to PFIC stock.
No loss will be recognized on PFIC stock. Alternatively, a Fund may elect to
treat any PFIC in which it invests as a "qualified electing fund," in which
case, in lieu of the foregoing tax and interest obligation, the Fund will be
required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain, even if they are
not distributed to the Fund; those amounts would be subject to the distribution
requirements applicable to the Fund described above. It may be very difficult,
if not impossible, to make this election because of certain requirements
thereof.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time a Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or ordinary
loss. Similarly, gains or losses on forward foreign currency exchange contracts
or dispositions of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition also are treated
as ordinary gain or loss. These gains, referred to under the Internal Revenue
Code as "Section 988" gains or losses, increase or decrease the amount of a
Fund's investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If Section 988 losses exceed other investment
company taxable income during a taxable year, a Fund would not be able to make
any ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's basis in his or
her Fund shares.
Each Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. Each Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements, a
Fund will be subject to a nondeductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which a Fund pays income tax
is treated as distributed.
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by the
per share amount of the dividends. Furthermore, such dividends, although in
effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of a Fund, the investor should carefully consider the
impact of dividends, including capital gains distributions, which are expected
to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of a 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 a 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 such
Fund.
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Capital gain dividends paid to a foreign shareholder
are generally not subject to withholding tax. A foreign shareholder will,
however, be required to pay U.S. income tax on any dividends and capital gain
distributions which are effectively connected with a U.S. trade or business of
the foreign shareholder.
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent a Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Interest income, capital gain net income, gain or loss from Section 1256
contracts (described above), dividend income from foreign corporations and
income from other sources will not constitute qualified dividends. Individual
shareholders are not eligible for the dividends-received deduction.
B-26
<PAGE>
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which a Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary. A Fund does not expect to
meet the requirements of the Internal Revenue Code for "passing-through" to
its shareholders any foreign income taxes paid.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. A Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "How the Fund
Calculates Performance" in the Prospectus of each Fund.
Average annual total return is computed according to the following formula:
P ( 1+T ) to the nth power = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the 1,
5 or 10 year periods (or fractional portion thereof).
Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.
The average annual total return for the period from November 2, 1995
(commencement of investment operations) to March 31, 1996 for the Class A, Class
B and Class C shares of Prudential Jennison Growth Fund was -1.29%, -1.40% and
2.60%, respectively. Class Z shares of Prudential Jennison Growth Fund were not
offered prior to April 15, 1996. Shares of Prudential Jennison Growth & Income
Fund were not offered prior to September 12, 1996.
AGGREGATE TOTAL RETURN. A 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. See "How the Fund Calculates Performance" in the
Prospectus of each Fund.
Aggregate total return represents the cumulative change in the value of an
investment in a Fund and is computed according to the following formula:
ERV - P
----------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).
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. The aggregate total return for the period
from November 2, 1995 (commencement of investment operations) to March 31, 1996
for the Class A, Class B and Class C shares of Prudential Jennison Growth Fund
was 3.90%, 3.60% and 3.60%, respectively. Class Z shares of Prudential Jennison
Growth Fund were not offered prior to April 15, 1996. Shares of Prudential
Jennison Growth & Income Fund were not offered prior to September 12, 1996.
B-27
<PAGE>
From time to time, the performance of a Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of inflation.(1)
[CHART]
- ---------------
(1) Source: Ibbotson Associates Stocks, Bonds, Bills and Inflation--1995
Yearbook (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Common
stock returns are based on the Standard and Poor's 500 Stock Index,
a market-weighted, unmanaged index of 500 common stocks in a variety
of industry sectors. It is a commonly used indicator of broad stock
price movements. This chart is for illustrative purposes only and is
not intended to represent the performance of any particular
investment or fund. Investors cannot invest directly in an index.
Past performance is not a guarantee of future results.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the portfolio securities of each
Fund and cash and in that capacity maintains certain financial and accounting
books and records pursuant to an agreement with the Company. Subcustodians
provide custodial services for a Fund's foreign assets held outside the United
States. See "How the Fund is Managed--Custodian and Transfer and Dividend
Disbursing Agent" in the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of each
Fund. PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary transfer
agency services to each Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and related
functions. For these services, PMFS receives an annual fee per shareholder
account of $9.50, a new account set-up fee for each manually established account
of $2.00 and a monthly inactive zero balance account fee per shareholder account
of $.20. PMFS is also reimbursed for its out-of-pocket expenses, including but
not limited to postage, stationery, printing, allocable communication expenses
and other costs.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Company's independent accountants, and in that capacity
audits the annual reports of each Fund.
B-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholder and Board of Directors of
Prudential Jennison Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Prudential Jennison Fund, Inc. as of September 13, 1995. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Prudential Jennison Fund, Inc.
as of September 13, 1995, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
September 14, 1995
B-29
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
September 13,
ASSETS 1995
--------------
<S> <C>
Cash...................................................................................... $100,000
Deferred organization costs (Note 1)...................................................... 250,000
--------------
Total assets.......................................................................... 350,000
--------------
LIABILITIES
Deferred organization costs payable (Note 1).............................................. 250,000
--------------
Net Assets (Note 1)
Applicable to 10,000 shares of common stock............................................. $100,000
--------------
--------------
Calculation of Offering Price
Class A:
Net asset value and redemption price per Class A share.................................. $10.00
Maximum sales charge (5.0% of offering price)........................................... .53
--------------
Offering price to public................................................................ $10.53
--------------
--------------
Class B:
Net asset value, offering price and redemption price per Class B share.................. $10.00
--------------
--------------
Class C:
Net asset value, offering price and redemption price per Class C share.................. $10.00
--------------
--------------
</TABLE>
See Notes to Financial Statement.
B-30
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
NOTES TO FINANCIAL STATEMENT
NOTE 1. Prudential Jennison Fund,
Inc. ("the Fund"), which was incorporated in
Maryland on August 10, 1995, is an open-end, diversified
management investment company. The Fund has had no significant operations other
than the issuance of 3,334 shares of Class A and 3,333 shares of each Class B
and Class C common stock for $100,000 on September 13, 1995 to Prudential Mutual
Fund Management, Inc. (PMF). There are 2.5 billion shares of $.001 par value
common stock authorized divided into four classes, designated Class A, Class B,
Class C and Class Z, each of which consists of 1 billion, 500 million, 500
million and 500 million authorized shares, respectively.
Costs incurred and expected to be incurred in connection with the
organization and initial registration of the Fund will be paid initially by PMF
and will be repaid to PMF upon commencement of investment operations. These
costs will be deferred and amortized over the period of benefit not to exceed 60
months from the date the Fund commences investment operations. If any of the
initial shares of the Fund are redeemed by any holder thereof during the period
of amortization of organization expenses, the redemption proceeds will be
reduced by the pro-rata amount of unamortized organization expenses based on the
number of initial shares being redeemed to the number of the initial shares
outstanding.
NOTE 2. AGREEMENTS The Fund has entered into a
management agreement with PMF. PMF is an indirect
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential).
The management fee paid PMF will be computed daily and payable monthly, at an
annual rate of .60 of 1% of the average daily net assets of the Fund.
Pursuant to a subadvisory agreement between PMF and Jennison Associates
Capital Corp. (Jennison), a wholly-owned subsidiary of Prudential, Jennison
furnishes investment advisory services in connection with the management of the
Fund. Under the Subadvisory Agreement, Jennison, subject to the supervision of
PMF, is responsible for managing the assets of the Fund in accordance with its
investment objectives, investment program and policies. Jennison determines what
securities and other instruments are purchased and sold for the Fund and is
responsible for obtaining and evaluating financial data relevant to the Fund.
PMF pays Jennison a subadvisory fee at an annual rate of .30 of 1% of the
average daily net assets of the Fund up to and including $300 million and .25 of
1% of such assets in excess of $300 million. PMF also pays the cost of
compensation of officers and employees of the Fund, occupancy and certain
clerical and accounting costs of the Fund. The Fund bears all other costs and
expenses.
PMF has agreed that, in any fiscal year, it will reimburse the Fund for
expenses (including the fees of PMF but excluding interest, taxes, brokerage
commissions, distribution fees, litigation and indemnification expenses and
other extraordinary expenses) in excess of the most restrictive expense
limitation imposed by state securities commissions. The most restrictive expense
limitation is presently believed to be 2 1/2% of the Fund's average daily net
assets up to $30 million, 2% of the next $70 million of such assets and 1 1/2%
of such assets in excess of $100 million. Such expense reimbursement, if any,
will be estimated and accrued daily and payable monthly.
The Fund has entered into a distribution agreement with Prudential Securities
Incorporated (PSI) for distribution of the Fund's shares.
Pursuant to separate Plans of Distribution (the Class A Plan, the Class B
Plan and the Class C Plan, collectively the "Plans") adopted by the Fund under
Rule 12b-1 of the Investment Company Act of 1940, PSI (also the "Distributor")
incurs the expenses of distributing the Fund's Class A, Class B and Class C
shares. These expenses include commissions and account servicing fees paid to,
or on account of financial advisers of PSI and Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, commissions paid to, or on account of,
other broker-dealers or certain financial institutions which have entered into
agreements with the Distributor, advertising expenses, the cost of printing and
mailing prospectuses to potential investors and indirect and overhead costs of
PSI and Prusec associated with the sale of Fund shares, including lease,
utility, communications and sales promotion expenses.
Pursuant to the Class A Plan, the Fund will compensate PSI for its expenses
with respect to Class A shares at an annual rate of up to .30 of 1% of the
average daily net asset value of the Class A shares. PSI has agreed to limit its
distribution-related fees payable under the Class A Plan to .25 of 1% of the
average daily net asset value of the Class A shares for the fiscal year ending
September 30, 1996.
Pursuant to the Class B and Class C Plans, the Fund compensates PSI for its
distribution-related expenses with respect to the Class B and C shares at an
annual rate of 1% of the average daily net assets of the Class B and C shares.
B-31
<PAGE>
Portfolio of Investments as of March 31, 1996
(Unaudited) PRUDENTIAL JENNISON FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--96.9%
COMMON STOCKS--96.9%
- ---------------------------------------------------------------
AEROSPACE/DEFENSE--3.4%
94,500 Boeing Co. $ 8,186,063
- ---------------------------------------------------------------
AIRLINES--1.8%
56,000 Delta Airlines, Inc. 4,305,000
- ---------------------------------------------------------------
BEVERAGES--3.3%
35,100 Coca-Cola Co. 2,900,137
80,000 PepsiCo Inc. 5,060,000
------------
7,960,137
- ---------------------------------------------------------------
BIOTECHNOLOGY--1.1%
27,900 Chiron Corp. (a) 2,741,175
- ---------------------------------------------------------------
BUSINESS SERVICES--7.9%
100,000 CUC International, Inc. (a) 2,925,000
94,200 Eagle River Interactive, Inc. (a) 1,224,600
59,600 First Data Corp. 4,201,800
112,800 Omnicom Group, Inc. 5,076,000
86,000 Reuters Holdings PLC (ADR)
(United Kingdom) 5,600,750
------------
19,028,150
- ---------------------------------------------------------------
CELLULAR COMMUNICATIONS--1.3%
85,300 Vodafone Group PLC (ADR)
(United Kingdom) 3,198,750
- ---------------------------------------------------------------
COMPUTER SYSTEMS/PERIPHERALS--4.9%
168,800 EMC Corp. (a) 3,692,500
59,300 Hewlett-Packard Co. 5,574,200
48,000 Seagate Technology, Inc. (a) 2,628,000
------------
11,894,700
- ---------------------------------------------------------------
EDP SOFTWARE & SERVICES--12.3%
72,000 America Online Inc. 4,032,000
85,600 AutoDesk, Inc. 3,231,400
75,600 Computer Associates International,
Inc. 5,414,850
62,000 General Motors Corp., Class E $ 3,534,000
48,700 Intuit Inc. 2,191,500
82,200 Macromedia Inc. (a) 3,514,050
47,000 Microsoft Corp. (a) 4,846,875
61,800 SAP AG (ADR) (Germany) 2,950,950
------------
29,715,625
- ---------------------------------------------------------------
FINANCIAL COMPANIES--2.0%
148,300 Federal National Mortgage Assn. 4,727,062
- ---------------------------------------------------------------
HEALTH CARE SERVICES--5.1%
96,000 Healthsouth Corp. (a) 3,264,000
78,400 PhyCor, Inc. (a) 3,449,600
92,600 United Healthcare Corp. 5,694,900
------------
12,408,500
- ---------------------------------------------------------------
HOUSEHOLD & PERSONAL CARE PRODUCTS--1.9%
28,900 Duracell International, Inc. 1,434,163
61,900 Gillette Co. 3,203,325
------------
4,637,488
- ---------------------------------------------------------------
HOTELS--2.4%
20,500 Hilton Hotels Corp. 1,927,000
63,300 ITT Corp. 3,798,000
------------
5,725,000
- ---------------------------------------------------------------
INDUSTRIAL TECH/INSTRUMENTS--1.2%
81,900 Symbol Technologies, Inc. (a) 2,876,738
- ---------------------------------------------------------------
INSURANCE--4.3%
28,800 CIGNA Corp. 3,290,400
49,700 ITT Hartford Group, Inc. 2,435,300
83,400 MGIC Investment Corp. 4,545,300
------------
10,271,000
- ---------------------------------------------------------------
MACHINERY--1.1%
66,400 Harnischfeger Industries, Inc. 2,573,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-32
<PAGE>
Portfolio of Investments as of March 31, 1996
(Unaudited) PRUDENTIAL JENNISON FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------
MEDIA--4.4%
115,400 Disney (Walt) Co. $ 7,371,175
73,300 Infinity Broadcasting Corp., Class
A (a) 3,179,387
------------
10,550,562
- ---------------------------------------------------------------
NETWORKING--3.9%
128,900 Cisco Systems, Inc. (a) 5,977,737
86,500 3Com Corp. (a) 3,449,187
------------
9,426,924
- ---------------------------------------------------------------
OIL SERVICES--1.0%
31,500 Schlumberger, Ltd. 2,492,438
- ---------------------------------------------------------------
PHARMACEUTICALS--11.6%
124,800 Astra AB Class A (ADR) (Sweden) 5,787,600
51,900 Ciba-Geigy AG (ADR) (Switzerland) 3,230,775
47,700 Johnson & Johnson Co. 4,400,325
76,000 Lilly (Eli) & Co. 4,940,000
76,900 Pfizer Inc. 5,152,300
83,900 Smith Kline Beecham PLC (ADR)
(United Kingdom) 4,320,850
------------
27,831,850
- ---------------------------------------------------------------
PUBLISHING--1.3%
44,700 Scholastic Corp. (a) 3,073,125
- ---------------------------------------------------------------
RETAIL--10.3%
139,900 AutoZone, Inc. (a) 4,739,112
90,000 Corporate Express, Inc. (a) 2,970,000
138,500 General Nutrition Companies, Inc.
(a) 3,462,500
115,400 Gymboree Corp. (a) 3,014,825
70,300 Home Depot, Inc. 3,365,613
50,200 Kohl's Corp. (a) 3,181,425
55,800 Micro Warehouse, Inc. (a) 2,315,700
22,200 NIKE, Inc. 1,803,750
------------
24,852,925
SEMICONDUCTORS & RELATED DEVICES--5.4%
82,500 Intel Corp. $ 4,692,187
135,500 International Rectifier Corp. (a) 2,439,000
105,300 KLA Instruments Corp. (a) 2,382,413
135,600 LSI Logic Corp. 3,627,300
------------
13,140,900
- ---------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--3.2%
110,200 Ericsson (L.M.) Telephone Co. (ADR)
(Sweden) 2,355,525
47,000 Nokia AB (ADR) (Finland) 1,609,750
76,600 Tellabs, Inc. (a) 3,705,525
------------
7,670,800
- ---------------------------------------------------------------
TELEPHONES--1.8%
141,900 MCI Communications Corp. 4,292,475
------------
Total long-term investments
(cost $220,038,850) 233,580,387
</TABLE>
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000)
- -------- ---------
<C> <C> <S> <C>
SHORT-TERM INVESTMENT--2.8%
- ----------------------------------------------------------------
CORPORATE NOTES--2.8%
P1 $ 6,684 Ford Motor Credit Corp.
5.38%, 4/1/96
(cost $6,684,000) 6,684,000
- ----------------------------------------------------------------
TOTAL INVESTMENTS--99.7%
(cost $226,722,850; Note 4) 240,264,387
Other assets in excess of
liabilities--0.3% 644,936
------------
Net Assets--100% $240,909,323
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-33
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) PRUDENTIAL JENNISON FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS MARCH 31, 1996
Investments, at value (cost $226,722,850).................................................................. $240,264,387
Cash....................................................................................................... 44,293
Receivable for Fund shares sold............................................................................ 3,613,745
Receivable for investments sold............................................................................ 1,360,851
Dividends and interest receivable.......................................................................... 208,417
Deferred expenses and other assets......................................................................... 230,130
--------------
Total assets............................................................................................ 245,721,823
--------------
LIABILITIES
Payable for investments purchased.......................................................................... 3,428,870
Payable for Fund shares reacquired......................................................................... 902,502
Accrued expenses and other liabilities..................................................................... 211,144
Distribution fees payable.................................................................................. 152,124
Management fee payable..................................................................................... 117,860
--------------
Total liabilities....................................................................................... 4,812,500
--------------
NET ASSETS................................................................................................. $240,909,323
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................................... $ 23,243
Paid-in capital in excess of par........................................................................ 233,402,585
--------------
233,425,828
Accumulated net investment loss......................................................................... (469,661)
Accumulated net realized loss on investments............................................................ (5,588,381)
Net unrealized appreciation on investments.............................................................. 13,541,537
--------------
Net assets, March 31, 1996................................................................................. $240,909,323
--------------
--------------
Class A:
Net asset value and redemption price per share
($71,302,592 / 6,863,673 shares of common stock issued and outstanding).............................. $10.39
Maximum sales charge (5.0% of offering price)........................................................... .55
--------------
Maximum offering price to public........................................................................ $10.94
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($156,909,428 / 15,152,747 shares of common stock issued and outstanding)............................ $10.36
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($12,697,303 / 1,226,160 shares of common stock issued and outstanding).............................. $10.36
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-34
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 2, 1995(a)
Through
NET INVESTMENT INCOME March 31, 1996
<S> <C>
Income
Dividends............................ $ 578,402
Interest............................. 283,597
-------------------
Total income...................... 861,999
-------------------
Expenses
Distribution fee--Class A............ 62,056
Distribution fee--Class B............ 495,519
Distribution fee--Class C............ 43,189
Management fee....................... 472,159
Transfer agent's fees and expenses... 64,000
Registration fees.................... 63,000
Custodian's fees and expenses........ 38,000
Reports to shareholders.............. 36,000
Amortization of deferred organization
expense........................... 20,663
Audit fee and expenses............... 12,500
Directors' fees...................... 11,250
Legal fees and expenses.............. 9,000
Miscellaneous........................ 4,324
-------------------
Total expenses.................... 1,331,660
-------------------
Net investment loss..................... (469,661)
-------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized loss on investment
transactions......................... (5,588,381)
Net unrealized appreciation of
investments.......................... 13,541,537
-------------------
Net gain on investments................. 7,953,156
-------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS......................... $ 7,483,495
-------------------
-------------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
PRUDENTIAL JENNISON FUND, INC.
Statement of Changes in Net Assets (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 2, 1995(a)
INCREASE (DECREASE) Through
IN NET ASSETS March 31, 1996
<S> <C>
Operations
Net investment loss.................. $ (469,661)
Net realized loss on investments..... (5,588,381)
Net unrealized appreciation on
investments....................... 13,541,537
-------------------
Net increase in net assets resulting
from operations................... 7,483,495
-------------------
Fund share transactions (Note 5)
Net proceeds from shares sold........ 270,604,646
Cost of shares reacquired............ (37,278,818)
-------------------
Net increase in net assets from Fund
share transactions................ 233,325,828
-------------------
Total increase.......................... 240,809,323
NET ASSETS
Beginning of period..................... 100,000
-------------------
End of period........................... $ 240,909,323
-------------------
-------------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-35
<PAGE>
NOTES FINANCIAL STATEMENTS (UNAUDITED) PRUDENTIAL JENNISON FUND, INC.
- --------------------------------------------------------------------------------
Prudential Jennison Fund, Inc (the "Fund"), which was incorporated in Maryland
on August 10, 1995, is registered under the Investment Company Act of 1940, as a
diversified, open-end management investment company. The Fund had no significant
operations other than the issuance of 3,334 shares of Class A and 3,333 shares
of each Class B and Class C common stock for $100,000 on September 13, 1995 to
Prudential Mutual Fund Management, Inc. ("PMF"). Investment operations
commenced on November 2, 1995.
The Fund's investment objective is to achieve long-term growth of capital by
investing primarily in equity securities (common stock, preferred stock and
securities convertible into common stock) of established companies with
above-average growth prospects.
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation: Securities listed on a securities exchange (other than
options on securities and indices) are valued at the last sales price on the day
of valuation, or, if there was no sale on such day, at the average of readily
available closing bid and asked prices on such day as provided by a pricing
service. 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 by an independent pricing service. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be
over-the-counter, are valued at the average of the most recently quoted bid and
asked prices provided by a principle market maker or dealer. Options on
securities and indices traded on an exchange are valued at the average of the
most recently quoted bid and asked prices provided by the respective exchange.
Futures contracts and options thereon are valued at the last sales price as of
the close of business of the exchange. 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 at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains or losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income (loss), other than distribution fees, and realized and
unrealized gains or losses are allocated daily to each class of shares 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, if any, semi-annually and to make distributions of any net capital gains
at least 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.
Taxes: It is the Fund's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable net income to its shareholders. Therefore, no federal income tax
provision is required.
Deferred Organization Expenses: Approximately $250,000 of expenses were incurred
in connection with the organization of the Fund. These costs have been deferred
and are being amortized ratably over a period of sixty months from the date the
Fund commenced investment operations.
- --------------------------------------------------------------------------------
NOTE 2. AGREEMENTS
The Fund has entered into a management agreement with PMF. PMF is an indirect
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential").
The management fee paid PMF will be computed daily and payable monthly, at an
annual rate of .60 of 1% of the average daily net assets of the Fund.
Pursuant to a subadvisory agreement between PMF and Jennison Associates Capital
Corp. ("Jennison"), a wholly-owned subsidiary of Prudential, Jennison
furnishes investment advisory services in connection with the management of the
Fund. Under the Subadvisory Agreement, Jennison, subject to the supervision of
PMF, is responsible for managing the assets of the Fund in accordance with its
investment objectives, investment program and policies. Jennison determines what
securities and other instruments are purchased and sold for the Fund and is
responsible for obtaining and evaluating financial data relevant to the Fund.
PMF pays Jennison a subadvisory fee at an annual rate of .30 of 1% of the
average daily net assets of the Fund up to and including $300 million and .25 of
1% of such assets in excess of $300 million. PMF also pays the cost of
compensation of officers and employees of the Fund, occupancy and
- --------------------------------------------------------------------------------
B-36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) PRUDENTIAL JENNISON FUND, INC.
- --------------------------------------------------------------------------------
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The Fund has a distribution agreement with Prudential Securities Incorporated
("PSI"), which acts as the distributor of the Class A, Class B and Class C
shares, pursuant to plans of distribution, (the "Class A, B and C Plans")
regardless of expenses actually incurred by them. The distribution fees are
accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI 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.
With respect to the Class A Plan, PSI has agreed to limit its
distribution-related costs to .25 of 1% of average daily net assets for the
fiscal year ending September 30, 1996. With respect to the Class B and Class C
Plans, the Fund compensates PSI for its distribution-related fees at an annual
rate of 1% of the average daily net assets.
PSI has advised the Fund that it has received approximately $2,500,000 in
front-end sales charges resulting from sales of Class A shares during the period
ended March 31, 1996. From these fees, PSI paid such sales charges to Pruco
Securities Corporation and affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI has advised the Fund that for the period ended March 31, 1996, it received
approximately $63,000 and $2,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B and C shareholders, respectively.
PSI is a wholly-owned subsidiary of Prudential.
- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services, Inc. ("PMFS"), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the period ended March 31,
1996, the Fund incurred fees of approximately $60,000 for the services of PMFS.
As of March 31, 1996, approximately $26,000 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
- --------------------------------------------------------------------------------
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the period ended March 31, 1996 were $262,386,656 and $36,759,424,
respectively.
The federal income tax cost basis of the Fund's investments at March 31, 1996,
was $227,397,851 and, accordingly, net unrealized appreciation of investments
for federal income tax purposes was $12,866,536 (gross unrealized
appreciation-$23,022,844; gross unrealized depreciation--$10,156,308).
- --------------------------------------------------------------------------------
NOTE 5. CAPITAL
The Fund offers Class A, Class B and Class C shares. The Fund will commence
offering Class Z shares on April 15, 1996. 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. Class C shares are sold with a contigent deferred
sales charge of 1% during the first year. Class B shares automatically convert
to Class A shares on a quarterly basis approximately seven years after purchase.
A special exchange privilege is also available for shareholders who qualified to
purchase Class A shares at net asset value.
There are 2.5 billion shares of $.001 par value common stock authorized divided
into four classes, designated Class A, Class B, Class C and Class Z, each of
which consists of 1 billion, 500 million, 500 million and 500 million authorized
shares, respectively.
Transactions in shares of common stock for the period November 2, 1995
(commencement of operations) through March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Class A SHARES AMOUNT
- ------- ---------- ------------
<S> <C> <C>
Shares sold......................... 9,776,881 $ 98,801,764
Shares reacquired................... (2,916,542) (30,029,290)
---------- ------------
Net increase in shares
outstanding....................... 6,860,339 $ 68,772,474
---------- ------------
---------- ------------
<CAPTION>
Class B
- -------
<S> <C> <C>
Shares sold......................... 15,791,915 $158,817,765
Shares reacquired................... (642,501) (6,531,020)
---------- ------------
Net increase in shares
outstanding....................... 15,149,414 $152,286,745
---------- ------------
---------- ------------
<CAPTION>
Class C
- -------
<S> <C> <C>
Shares sold......................... 1,293,658 $ 12,985,117
Shares reacquired................... (70,831) (718,508)
---------- ------------
Net increase in shares
outstanding....................... 1,222,827 $ 12,266,609
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
B-37
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED) PRUDENTIAL JENNISON FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
----------- ----------- -----------
November 2, November 2, November 2,
1995(a) 1995(a) 1995(a)
Through Through Through
March 31, March 31, March 31,
1996 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................................................. $ 10.00 $ 10.00 $ 10.00
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss.................................................................. -- (.03) (.03)
Net realized and unrealized gain on investment transactions.......................... .39 .39 .39
----------- ----------- -----------
Total from investment operations.................................................. .39 .36 .36
----------- ----------- -----------
Net asset value, end of period....................................................... $ 10.39 $ 10.36 $ 10.36
----------- ----------- -----------
----------- ----------- -----------
TOTAL RETURN(c)...................................................................... 3.90% 3.60% 3.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)...................................................... $71,303 $ 156,909 $12,697
Average net assets (000)............................................................. $60,165 $ 120,106 $10,468
Ratios to average net assets(b):
Expenses, including distribution fees............................................. 1.18% 1.93% 1.93%
Expenses, excluding distribution fees............................................. .93% .93% .93%
Net investment loss............................................................... (.09)% (.84)% (.84)%
Portfolio turnover rate.............................................................. 19% 19% 19%
Average commission rate paid per share............................................... $ .0595 $ .0595 $ .0595
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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.
- --------------------------------------------------------------------------------
B-38
<PAGE>
APPENDIX--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 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)
[CHART]
Source: Prudential Investment Corporation based on data from Ibbotson
Associates' EnCORR Software, Chicago, Illinois. Used with permission. This chart
is for illustrative purposes only and is not indicative of the past, present, or
future performance of any portfolio.
Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile than
bond prices over the long-term.
Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. At the beginning of each year
a new bond with a then-current coupon replaces the old bond. Treasury bill
returns are for a one-month bill. Treasuries are guaranteed by the government as
to the timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).
Impact of Inflation. The "real" rate of investment return is that which
exceeds the rate of inflation, the percentage change in the value of consumer
goods and the general cost of living. A common goal of long-term investors is to
outpace the erosive impact of inflation on investment returns.
A-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 1987
through 1995. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns 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 "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
Historical Returns of Different Bond Market Sectors
[CHART]
(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 Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
(5)SALOMON BROTHERS WORLD GOVERNMENT INDEX (Non U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the U.S.,
but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
A-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from 1986 through 1995. It does not represent the performance of any
Prudential Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS
OF MAJOR WORLD STOCK MARKETS
(1986-1995)(IN U.S. DOLLARS)
[CHART]
Source: Morgan Stanley Capital International (MSCI) 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.
[CHART]
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
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.
WORLD STOCK MARKET
CAPITALIZATION BY REGION
[CHART]
Source: Morgan Stanley Capital International, December 1995. 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 1579 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.
A-3
<PAGE>
This chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1994)
[CHART]
- ---------------
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1994. 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.
The following chart, although not relevant to share ownership in the Fund,
may provide useful information about the effects of a hypothetical investment
diversified over different asset portfolios. The chart shows the range of annual
total returns for major stock and bond indices for the period from December 31,
1975 through December 31, 1995. The horizontal "Best Returns Zone" band shows
that a hypothetical blended portfolio constructed of one-third U.S. stocks (S&P
500), one-third foreign stocks (EAFE Index), and one-third U.S. bonds (Lehman
Index) would have eliminated the "highest highs" and "lowest lows" of any
single asset class.
The Range of Annual Total Returns for Major Stock &
Bond Indices Over the Past 20 Years
(12/31/75-12/31/95)*
[CHART]
- ---------------
* Source: Prudential Investment Corporation based on data from Lipper Analytical
New Application (LANA). Past performance is not indicative of future results.
The S&P 500 Index is a weighted, unmanaged index comprised of 500 stocks which
provides a broad indication of stock price movements. The Morgan Stanley EAFE
Index is an unmanaged index comprised of 20 overseas stock markets in Europe,
Australia, New Zealand and the Far East. The Lehman Aggregate Index includes
all publicly-issued investment grade debt with maturities over one year,
including U.S. government and agency issues, 15 and 30 year fixed-rate
government agency mortgage securities, dollar denominated SEC registered
corporate and government securities, as well as asset-backed securities.
Investors cannot invest directly in stock or bond market indices.
A-4
<PAGE>
APPENDIX--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable
returns. Owning a portfolio of securities mitigates the individual risks (and
returns) of any one security. Additionally, diversification among types of
securities reduces the risks and (general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
A-5
<PAGE>
APPENDIX--INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC/1/ are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1995. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the Rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.7
million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k) plans.
In July 1996, Institutional Investor ranked Prudential the fifth largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1995. As of December 31, 1995, Prudential
had more than $314 billion in assets under management. Prudential's Money
Management Group (of which Prudential Mutual Funds is a key part) manages over
$190 billion in assets of institutions and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers and
agents and more than 1,100 offices in the United States./2/
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
Prudential Mutual Fund Management is one of the sixteenth largest mutual fund
companies in the country, with over 2.5 million shareholders invested in more
than 50 mutual fund portfolios and variable annuities with more than 3.7 million
shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
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.
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/1/ Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to
Prudential Jennison Series Fund, Inc. and BlackRock Financial Management,
Inc. as subadviser to The BlackRock Government Income Trust. There are
multiple subadvisers for The Target Portfolio Trust.
/2/ As of December 31, 1994.
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<PAGE>
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Growth Fund, a growth-style
equity fund managed by Jennison Associates Capital Corp., a premier
institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so 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. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
Trading Data./4/ On an average day, Prudential Mutual Funds' U.S. and foreign
equity trading desks traded $77 million in securities representing over 3.8
million shares with nearly 200 different firms. Prudential Mutual Funds' bond
trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets./5/ Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities./6/
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
- ---------------
/3/ As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
/4/ Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund Investment Management, a division of PIC, for the
year ended December 31, 1995.
/5/ Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage funds.
/6/ As of December 31, 1994.
A-7
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI./7/
Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A-(compared to an industry average
of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey.
Five Prudential Securities' analysts were ranked as first-team finishers./8/
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect/SM/, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
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/7/ As of December 31, 1994.
/8/ On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.
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<PAGE>
APPENDIX--INFORMATION ABOUT JENNISON ASSOCIATES CAPITAL CORP.
Jennison has been engaged in the equity investment management business since
1969. As of June 30, 1996, Jennison managed about $30.8 billion in assets for
179 clients, including approximately $3.2 billion (10.4%) in mutual funds.
Approximately 40% of Jennison's clients are "Fortune 500" companies (as
defined in Fortune Magazine in the issue dated April 29, 1996). Of Jennison's
$30.8 billion in assets under management, $16.8 billion in assets were in
"growth stock" portfolios for 96 clients, with an average client account size
of $174.6 million. $231 million in assets were managed using a "growth &
income" strategy for two clients, with an average client account size of $115.4
million. Jennison also had $1.7 billion under management invested in balanced
portfolios; $2.6 billion in international equity portfolios; and $9.5 billion in
fixed income portfolios. (Source: Jennison Associates Capital Corp.)
Jennison generally seeks long-term client relationships. Approximately 38% of
its clients (including growth equity, growth & income, balanced, international
equity, and fixed income) have been with Jennison for more than ten years.
Jennison's business focus has been on managing the assets of retirement
plans. Such plans represented approximately $24.1 billion of Jennison's total
managed assets as of June 30, 1996. In addition, Jennison managed $4.4 billion
in mutual fund and insurance commingled fund assets, $2.1 billion for endowments
and foundations and $0.2 billion in other assets.
Jennison has an experienced team of investment professionals, including
portfolio managers and research analysts. Jennison's investment professionals
average over eleven years with Jennison and over twenty years of investment
experience.
The following charts shows reflects the average number of years of investment
experience for the equity professionals as well as the number of years of
experience at Jennison.
<TABLE>
<CAPTION>
AVERAGE YEARS
AVERAGE YEARS OF EXPERIENCE
OF EXPERIENCE WITH JENNISON
------------- -------------
<S> <C> <C>
Total Investment Professionals....... 21 11
Total Equity Professionals........... 20 14
Growth & Income Portfolio
Managers............................. 15 9
Equity Research Analysts.......... 13 6
</TABLE>
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PORTFOLIO MANAGEMENT
Bradley Goldberg is the Portfolio Manager and Peter H. Reinemann and G. Todd
Silva are the Associate Portfolio Managers of the Prudential Jennison Growth &
Income Fund. Mr. Goldberg, a Director and Executive Vice President of Jennison,
has over twenty eight years of experience in the investment business, including
twenty two years at Jennison. As of June 30, 1996, he managed approximately $2.2
billion in assets for Jennison clients. Prior to Jennison, he served as Vice
President and Group Head in the Investment Research Division of Bankers Trust
Company. Mr. Reinemann, Director and Senior Vice President of Jennison, has been
with Jennison since 1992 as an Associate Balanced Portfolio Manager and has over
eleven years of experience in the investment business. He previously served as a
Vice President at Paribas Asset Management, Inc. Mr. Silva, a Senior Vice
President of Jennison, joined Jennison in June of 1996. He has over seven years
of investment experience, including positions in equity research at Putnam
Investments and Scudder, Stevens & Clark Inc. Most recently, Mr. Silva served as
Vice President and Assistant Portfolio Manager in the Growth and Income Group at
Scudder, which managed over $11 billion in both mutual fund and institutional
assets.
Mr. Goldberg also serves as the portfolio manager of the Active Balanced
Fund, a portfolio of The Prudential Institutional Fund, which is a registered
investment company.
GROWTH AND INCOME INVESTING
Prudential Jennison Growth & Income Fund seeks to invest in companies that
combine good relative earnings momentum and attractive valuation
characteristics. The Fund, at any given time, will invest in companies that
Jennison considers to be in one of several different phases of the earnings
growth cycle. Many holdings will be stocks that are currently generating
superior relative earnings momentum. Such holdings may be growth stocks as well
as economically sensitive companies that may be experiencing a positive earnings
growth cycle. In addition, the Fund may be invested in companies that are
undergoing changes in management or product and marketing dynamics that have not
yet been reflected in reported earnings but that are expected to impact earnings
in the intermediate-term. These securities often lack investor recognition and
as such may often be favorably valued. The Fund will normally have a mixture of
stocks in various stages of their earnings momentum cycle.
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<PAGE>
Jennison uses a bottom-up approach to research and select attractively priced
growth and income stocks. The Fund's stock holdings are selected primarily on
the basis of fundamental analysis. In considering a stock for ownership, a
company's underlying intermediate-term potential growth in sales and earnings
are critical determining factors. Jennison's growth and income investment team
in conjunction with Jennison's equity research analysts focus on companies that
combine superior current or perceived future earnings dynamics with attractive
valuation characteristics. In this approach Jennison believes that dividend
growth will develop as a result of improving fundamental characteristics.
Accordingly, dividend income, while important, is not the primary focus in stock
selection.
The basis of the growth and income portfolio management group's investment
decisions is the independent research provided by Jennison's equity research
analysts. Jennison's analysts follow approximately 400 medium to large
capitalization companies. In addition members of the growth and income group may
act as analyst in the case of some holdings. Each company is assigned to an
analyst and reviewed periodically with Jennison's portfolio managers. Jennison
devotes substantial resources to understanding and monitoring the fundamentals
of these companies. The analysts concentrate their time on research and meetings
with company management to develop their own earnings estimates, and maintaining
contact with a broad array of experts on Wall Street and the industry. At
Jennison, portfolio managers, equity research analysts and the head equity
trader attend an investment meeting each morning to evaluate the current
information and discuss prospective securities purchases and sales to ensure
that the collective thinking of the entire group is captured in the
decision-making process.
It is the challenge of the growth and income portfolio group to select those
stocks from the broader universe of researched names that combine the most
attractive qualities of earnings growth and valuation characteristics. Normally
the Fund's portfolio will have 50 to 60 individual holdings.
On a daily basis, all of the investment decisions are made by the growth and
income portfolio manager and the associate portfolio managers, after thorough
consultation with the analyst representing the security. Any analyst or
portfolio manager can discuss a stock for ownership at the morning investment
meetings. At the meeting, a "give-and-take" discussion occurs, exploring
current company developments and intermediate-term expectations. The overriding
focus is on why a stock has the potential to be a productive holding.
Although Prudential Jennison Growth & Income Fund will own stocks at various
stages of the earnings momentum cycle, the common investment discipline that is
required for all holdings is an attractive risk versus reward relationship. It
is the challenge of the growth and income portfolio group to successfully
determine this risk/reward tradeoff.
Jennison has a disciplined approach to both buying and selling stocks:
BUY/SELL SUMMARY
Jennison will normally buy or increase positions in a stock when:
- Valuation is favorable relative to expected growth
- Market/industry "sells off" and company fundamentals remain intact
- Earnings expectations are substantially increased
Jennison will normally reduce stock positions when:
- A near-term price target is reached
- There are early indications of a slowdown in growth
Jennison will normally sell stock positions when:
- There is a substantial disappointment in earnings
- A long-term price objective is reached and future potential doesn't
justify a continued position in the portfolio
- A more attractive stock is identified
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