<PAGE>
As filed with the Securities and Exchange Commission
on April 15, 1996
Registration Nos. 33-61997, 811-7343
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 2 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 [X]
(Check appropriate box or boxes)
PRUDENTIAL JENNISON FUND, INC.
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as practicable
after the effective date of the Registration Statement.
It is proposed that this filing will become effective
(check appropriate box):
[X] Immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has previously registered an indefinite number of shares of its
Common Stock, par value $.001 per share. The Registrant will file a notice under
such Rule for its fiscal year ending September 30, 1996 within 60 days of such
date.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
- ------------- --------
Part A
Item 1. Cover Page...............................Cover Page
Item 2. Synopsis.................................Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information..........Fund Expenses; How the Fund
Calculates Performance
Item 4. General Description of Registrant........Cover Page; Fund Highlights;
How the Fund Invests; General
Information
Item 5. Management of the Fund...................How the Fund is Managed
Item 5A. Management's Discussion of Fund
Performance..............................Not Applicable
Item 6. Capital Stock and Other Securities.......Taxes, Dividends and
Distributions; General
Information
Item 7. Purchase of Securities Being Offered.....Shareholder Guide; How the
Fund Values its Shares
Item 8. Redemption or Repurchase.................Shareholder Guide; How the
Fund Values its Shares
Item 9. Pending Legal Proceedings................Not Applicable
Part B
Item 10. Cover Page...............................Cover Page
Item 11. Table of Contents........................Table of Contents
Item 12. General Information and History..........General Information
Item 13. Investment Objectives and Policies.......Investment Objective and
Policies; Investment
Restrictions
Item 14. Managment of the Fund....................Directors and Officers;
Manager; Distributor
Item 15. Control Persons and Principal Holders
of Securities............................Not Applicable
Item 16. Investment Advisory and Other Services...Manager; Distributor;
Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other
Practices................................Portfolio Transactions
Item 18. Capital Stock and Other Securities.......Not Applicable
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.................Purchase and Redemption of
Fund Shares; Shareholder
Investment Account; Net Asset
Value
Item 20. Tax Status...............................Taxes
Item 21. Underwriters.............................Distributor
Item 22. Calculation of Performance Data..........Performance Information
Item 23. Financial Statements.....................Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
Prudential Jennison Fund, Inc.
(Class Z Shares)
- -------------------------------------------------------------------------------
PROSPECTUS DATED APRIL 15, 1996
- -------------------------------------------------------------------------------
Prudential Jennison Fund, Inc. (the Fund) is an open-end, diversified manage-
ment investment company whose objective is long-term growth of capital. The
Fund seeks to achieve this objective by investing primarily in equity securi-
ties (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, the Fund in-
tends to invest at least 65% of its total assets in equity securities of com-
panies that exceed $1 billion in market capitalization. The Fund may also in-
vest 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, includ-
ing mortgage-backed securities. The Fund may engage in various derivative se-
curities 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. There can be no assurance that the Fund's
investment objective will be achieved. See "How the Fund Invests--Investment
Objective and Policies." The Fund's address is One Seaport Plaza, New York,
New York 10292, and its telephone number is (800) 225-1852.
The Fund is not intended to constitute a complete investment program. Because
of its objectives and policies and its emphasis on growth stocks, the Fund may
be considered subject to greater investment risks than are assumed by certain
other investment companies.
Class Z shares are offered exclusively for sale to participants in the PSI
401(k) Plan, an employee benefit plan sponsored by Prudential Securities In-
corporated (the PSI 401(k) Plan or the Plan). Only Class Z shares are offered
through this Prospectus. The Fund also offers Class A, Class B and Class C
shares through the attached Prospectus dated October 27, 1995 (as supplemented
April 15, 1996) (the Retail Class Prospectus), which is a part hereof.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated October 27, 1995 (as supplemented
April 15, 1996), which information is incorporated herein by reference (is le-
gally considered a part of this Prospectus) and is available without charge
upon request to the Fund, at the address or telephone number noted above.
- -------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS Z SHARES
--------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)............................................... None
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested
Dividends..................................................... None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, whichever is lower)................... None
Redemption Fees................................................ None
Exchange Fee................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS Z SHARES
(as a percentage of average net assets) --------------
<S> <C>
Management Fees................................................ .60%
12b-1 Fees..................................................... None
Other Expenses................................................. .52%
---
Total Fund Operating Expenses.................................. 1.12%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming
(1) 5% annual return and (2) redemption at the end of each
time period:
Class Z.................................................. $11 $36
</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 investors in understanding the
various types of costs and expenses that an investor in Class Z shares of
the Fund will bear, whether directly or indirectly. For more complete
descriptions of the various costs and expenses, see "How the Fund is
Managed." "Other Expenses" include estimated operating expenses of the
Fund, for the fiscal year ending September 30, 1996, such as Directors'
and professional fees, registration fees, reports to shareholders,
transfer agency and custodian (domestic and foreign) fees (but excludes
foreign withholding taxes).
2
<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR"
IN THE RETAIL CLASS PROSPECTUS:
Prudential Securities serves as the Distributor of Class Z shares and incurs
the expenses of distributing the Fund's Class Z shares under a Distribution
Agreement with the Fund, none of which are reimbursed by or paid for by the
Fund.
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND VALUES ITS SHARES" IN
THE RETAIL CLASS PROSPECTUS:
The NAV of Class Z shares will generally be higher than the NAV of Class A,
B or C shares because Class Z shares are not subject to any distribution
and/or service fee. It is expected, however, that the NAV of the four classes
will tend to converge immediately after the recording of dividends, which will
differ by approximately the amount of the distribution-related expense accrual
differential among the classes.
THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND DISTRIBUTIONS--
TAXATION OF SHAREHOLDERS" IN THE RETAIL CLASS PROSPECTUS:
As a qualified plan, the PSI 401(k) Plan generally pays no federal income
tax. Individual participants in the Plan should consult Plan documents and
their own tax advisers for information on the tax consequences associated with
participating in the PSI 401(k) Plan.
The per share dividends on Class Z shares will generally be higher than the
per share dividends on Class A, B or C shares because Class Z shares are not
subject to any distribution or service fee.
THE FOLLOWING INFORMATION REPLACES THE INFORMATION UNDER "SHAREHOLDER
GUIDE--HOW TO BUY SHARES OF THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR
SHARES" IN THE RETAIL CLASS PROSPECTUS:
Class Z shares of the Fund are offered exclusively for sale to participants
in the PSI 401(k) Plan. Such shares may be purchased or redeemed only by the
Plan on behalf of individual Plan participants at NAV without any sales or
redemption charge. Class Z shares are not subject to any minimum investment
requirements. The Plan purchases and redeems shares to implement the
investment choices of individual Plan participants with respect to
contributions in the Plan. All purchases through the Plan will be for Class Z
shares. Individual Plan participants should contact the Prudential Securities
Benefits Department for information on making or changing investment choices.
The Prudential Securities Benefits Department is located at One Seaport Plaza,
33rd Floor, New York, New York 10292 and may be reached by calling (212) 214-
7194.
The average net asset value per share at which shares of the Fund are
purchased or redeemed by the Plan for the accounts of individual Plan
participants might be more or less than the net asset value per share
prevailing at the time that such participants made their investment choices or
made their contributions to the Plan.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE
YOUR SHARES" IN THE RETAIL CLASS PROSPECTUS:
Class Z shareholders of the Fund may exchange their Class Z shares for Class
Z shares of certain other Prudential Mutual Funds on the basis of relative net
asset value. You should contact the Prudential Securities Benefits Department
about how to exchange your Class Z shares. See "How to Buy Shares of the Fund"
above. Participants who wish to transfer their Class Z shares out of the PSI
401(k) Plan following separation from service (i.e., voluntary or involuntary
termination of employment or retirement) will have their Class Z shares
exchanged for Class A shares at net asset value.
THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND
HIGHLIGHTS" IN THE RETAIL CLASS PROSPECTUS AS APPROPRIATE.
3
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
- -------------------------------------------------------------------------------
SUPPLEMENT DATED APRIL 15, 1996 TO
PROSPECTUS DATED OCTOBER 27, 1995
- -------------------------------------------------------------------------------
THE PROSPECTUS IS HEREBY SUPPLEMENTED BY INSERTING THE FOLLOWING INFORMATION
PRIOR TO PAGE 5, "HOW THE FUND INVESTS":
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED) (CLASS A, CLASS B
AND CLASS C SHARES)
The following financial highlights for Class A, Class B and Class C shares
are unaudited. This information should be read in conjunction with the
financial statements and the notes thereto, which appear in the Statement of
Additional Information. The financial highlights contain selected data for a
Class A, Class B and Class C share of common stock, respectively, outstanding,
total return, ratios to average net assets and other supplemental data for the
period indicated. The information has been determined based on data contained
in the financial statements.
<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 income.............. (.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.
1
<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS THE "SHAREHOLDER GUIDE--HOW TO BUY
SHARES OF THE FUND" IN THE PROSPECTUS:
The minimum initial investment requirement is waived for purchases of shares
of the Fund made through Pruco Securities Corporation (Prusec) which are in
conjunction with purchases made through the "Best Minds" program sponsored by
the Distributor. For more information about this program, you should contact
your Prusec representative.
The following information supplements "How to Sell Your Shares" in the
Prospectus.
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 Portfolio at the NAV
next determined after the order is received, which must be within 90 days
after the date of the redemption. Any contingent deferred sales charge or CDSC
paid in connection with such redemption will be credited (in shares) to your
account. (If less than a full repurchase is made, the credit will be on a pro
rata basis.) You must notify the Fund's Transfer Agent, either directly or
through Prudential Securities, at the time the repurchase privilege is
exercised to adjust your account for the CDSC you previously paid. Thereafter,
any redemptions will be subject to the CDSC applicable at the time of the
redemption. See "Contingent Deferred Sales Charge" below. Exercise of the
repurchase privilege will generally not affect federal tax treatment of any
gain realized upon redemption. However, if the redemption was made within a 30
day period of the repurchase and if the redemption resulted in a loss, some or
all of the loss, depending on the amount reinvested, may not be allowed for
federal income tax purposes.
THE FOLLOWING INFORMATION SUPPLEMENTS "GENERAL INFORMATION--DESCRIPTION OF
COMMON STOCK" IN THE PROSPECTUS:
The Fund is authorized to offer 2.5 billion shares of common stock, $.001
par value per share, divided into four classes of shares, designated Class A,
Class B, Class C and Class Z shares. Of the authorized shares of common stock,
1 billion shares consist of Class A common stock, 500 million shares consist
of Class B common stock, 500 million shares consist of Class C common stock
and 500 million shares consist of Class Z common stock. Each class represents
an interest in the same assets of the Fund and is identical in all respects
except that (i) each class is subject to different sales charges and
distribution and/or service fees, which may affect performance, (ii) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to participants in the PSI 401(k)
Plan, an employee benefit plan sponsored by Prudential Securities. Since Class
B and Class C shares generally bear higher distribution expenses than Class A
shares, the liquidation proceeds to shareholders of those classes are likely
to be lower than to Class A shareholders and to Class Z shareholders, whose
shares are not subject to any distribution and/or service fee. In accordance
with the Fund's Articles of Incorporation, the Board of Directors may
authorize the creation of additional series and classes within such series,
with such preferences, privileges, limitations and voting and dividend rights
as the Directors may determine. Currently, the Fund is offering four classes,
designated Class A, Class B, Class C and Class Z shares.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO BUY SHARES
OF THE FUND--REDUCTION AND WAIVER OF INITIAL SALES CHARGES" IN THE PROSPECTUS:
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
2
<PAGE>
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
acquired upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
THE FOLLOWING INFORMATION FOR THE CLASS Z SHARES SUPPLEMENTS "HOW THE FUND
CALCULATES PERFORMANCE" IN THE PROSPECTUS:
The Fund will include performance data for each class of shares offered
through the Prospectus in any advertisement or information including
performance data of the Fund.
3
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
- -------------------------------------------------------------------------------
PROSPECTUS DATED OCTOBER 27, 1995
- -------------------------------------------------------------------------------
Prudential Jennison Fund, Inc. (the Fund) is an open-end, diversified
management investment company whose investment objective is long-term growth
of capital. The Fund seeks to achieve this objective by investing primarily in
equity securities (common stock, 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, the Fund intends to invest at least 65% of its total assets in
equity securities of companies that exceed $1 billion in market
capitalization. The 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. The
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. There
can be no assurance that the Fund's investment objective will be achieved. See
"How the Fund Invests--Investment Objective and Policies." The Fund's address
is One Seaport Plaza, New York, New York 10292, and its telephone number is
(800) 225-1852.
The Fund is not intended to constitute a complete investment program. Because
of its objectives and policies and its emphasis on growth stocks, the Fund may
be considered subject to greater investment risks than are assumed by certain
other investment companies.
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 October 27, 1995, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- -------------------------------------------------------------------------------
Investors are advised to read the Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
FUND 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 FUND, INC.?
Prudential Jennison Fund, Inc. is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity securities (common
stock, securities convertible into common stock and preferred stock) of
established companies with above-average growth prospects. Current income, if
any, is incidental. See "How the Fund Invests--Investment Objective and
Policies" at page 5.
RISK FACTORS AND SPECIAL CHARACTERISTICS
Securities of the kinds of companies in which the Fund invests may be subject
to significant price fluctuation and above-average risk. In addition, companies
achieving an earnings growth rate higher than that of S&P 500 companies tend to
reinvest their earnings rather than distribute them. As a result, the Fund is
not likely to receive significant dividend income on its portfolio securities.
Accordingly, an investment in the Fund should not be considered as a complete
investment program and may not be appropriate for all investors.
Under normal market conditions, the Fund intends to invest at least 65% of
its total assets in equity securities of companies that exceed $1 billion in
market capitalization. See "How the Fund Invests--Investment Objective and
Policies" at page 5. The Fund may also invest in (i) other equity securities
including up to 20% of its total assets in securities of 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. 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 9. The Fund may also engage in various hedging and return enhancement
strategies and invest in derivative securities. See "How the Fund Invests--
Hedging and Return Enhancement Strategies--Risks of Hedging and Return
Enhancement Strategies" at page 12.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager), is the manager
of the Fund and is compensated for its services at an annual rate of .60 of 1%
of the Fund's average daily net assets. As of September 30, 1995, PMF served as
manager or administrator to 64 investment companies, including 37 mutual funds,
with aggregate assets of approximately $51 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 13 and "How the Fund is Managed--Subadviser" at page 14.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class A, Class B and Class C shares and is paid a
distribution and
2
<PAGE>
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. See "How the Fund is Managed--Distributor"
at page 14.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide--How
to Buy Shares of the Fund" at page 20 and "Shareholder Guide--Shareholder
Services" at page 29.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "How The Fund
Values its Shares" at page 16 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 20.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers three 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.
. Class C Shares: Sold without an initial sales charge but, for one year
after purchase, are subject to a CDSC of 1% on
redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related expenses
than Class A shares but do not convert to another class.
See "Shareholder Guide--Alternative Purchase Plan" at page 21.
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 24.
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 17.
3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)....... 5% None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends............. None None None
Deferred Sales Load (as
a percentage of origi-
nal purchase price or
redemption proceeds,
whichever is lower)... None 5% during the first year, 1% on redemptions
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
Exchange Fees.......... None None None
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of av-
erage net assets)
Management Fees........ .60% .60% .60%
12b-1 Fees (After Re-
duction)............. .25%++ 1.00% 1.00%
Other Expenses......... .52% .52% .52%
---- ---- ----
Total Fund Operating
Expenses (After Re-
duction)............. 1.37% 2.12% 2.12%
==== ==== ====
</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........................................................ $72 $96
Class C........................................................ $32 $66
You would pay the following expenses on the same investment, as-
suming no redemption:
Class A........................................................ $63 $91
Class B........................................................ $22 $66
Class C........................................................ $22 $66
</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, 1996,
such as Directors' and professional fees, registration fees, reports to
shareholders, transfer agency and custodian (domestic and foreign) fees (but
excludes foreign withholding taxes).
- ------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges (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, 1996. See "How the Fund is Managed--Distributor." Total
Fund Operating Expenses would be 1.42% absent this limitation with respect
to Class A shares.
4
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND
SEEKS TO ACHIEVE THIS OBJECTIVE BY INVESTING PRIMARILY IN EQUITY SECURITIES
(COMMON STOCK, PREFERRED STOCK AND SECURITIES CONVERTIBLE INTO COMMON STOCK)
OF ESTABLISHED COMPANIES WITH ABOVE-AVERAGE GROWTH PROSPECTS. CURRENT INCOME,
IF ANY, IS INCIDENTAL. THERE CAN BE NO ASSURANCE THAT THE FUND'S OBJECTIVE
WILL BE ACHIEVED. See "Investment Objective and Policies" in the Statement of
Additional Information.
UNDER NORMAL MARKET CONDITIONS, THE FUND INTENDS TO INVEST AT LEAST 65% OF
ITS TOTAL ASSETS IN EQUITY SECURITIES OF COMPANIES THAT EXCEED $1 BILLION IN
MARKET CAPITALIZATION. COMPANIES WITH MARKET CAPITALIZATIONS IN EXCESS OF
$1 BILLION ARE GENERALLY CONSIDERED MEDIUM TO LARGE CAPITALIZATION COMPANIES.
Stocks will be selected on a company-by-company basis primarily through the
use of fundamental analysis. The Fund's Subadviser looks for companies that
have demonstrated growth in earnings and sales, high returns on equity and
assets, or other strong financial characteristics, and, in the judgment of the
Subadviser, are attractively valued. These companies tend to have a unique
market niche, a strong new product profile or superior management.
The Fund may also invest up to 35% of its total assets in (i) equity
securities of other 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 are often favorably
valued, (ii) other equity-related securities, (iii) with respect to 20% of its
total assets, equity securities of foreign issuers, (iv) obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities,
including mortgage-backed securities and (v) investment grade fixed-income
securities.
The effort to achieve superior investment return necessarily involves a risk
of exposure to declining values. Securities in which the Fund may primarily
invest have historically been more volatile than the S & P 500 Index.
Accordingly, during periods when stock prices decline generally, it can be
expected that the value of the Fund will decline more than market indices.
Securities of the kinds of companies in which the Fund invests may be
subject to significant price fluctuation and above-average risk. In addition,
companies achieving an earnings growth rate higher than that of S&P 500
companies tend to reinvest their earnings rather than distribute them. As a
result, the Fund is not likely to receive significant dividend income on its
portfolio securities. Accordingly, an investment in the Fund should not be
considered as a complete investment program and may not be appropriate for all
investors.
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 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 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 OBJECTIVE IS A FUNDAMENTAL POLICY AND MAY NOT BE
CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT.
INVESTMENT POLICIES THAT ARE NOT FUNDAMENTAL MAY BE MODIFIED BY THE BOARD OF
DIRECTORS.
5
<PAGE>
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 supported only by the credit of the issuing agency. See
"Investment Objective and Policies--U.S. Government Securities" in the
Statement of Additional Information.
The Fund may invest in mortgage-backed securities and other derivative
mortgage products, including those representing an undivided ownership
interest in a pool of mortgages, e.g., Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA) and Federal
Home Loan Mortgage Corporation (FHLMC) certificates where the U.S. Government
or its agencies or instrumentalities guarantees the payment of interest and
principal of these securities. These guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with
fluctuations in interest rates, nor do these guarantees extend to the yield or
value of the Fund's shares. See "Investment Objective and Policies--U.S.
Government Securities" in the Statement of Additional Information. These
certificates are in most cases "pass-through" instruments, through which the
holder receives a share of all interest and principal payments from the
mortgages underlying the certificate, net of certain fees.
Mortgage-backed securities are subject to the risk that the principal on the
underlying mortgage loans may be prepaid at any time. Although the extent of
prepayments on a pool of mortgage loans depends on various economic and other
factors, as a general rule prepayments on fixed rate mortgage loans will
increase during a period of falling interest rates and decrease during a
period of rising interest rates. Accordingly, amounts available for
reinvestment by the Fund are likely to be greater during a period of declining
interest rates and, as a result, likely to be reinvested at lower interest
rates than during a period of rising interest rates. Mortgage-backed
securities may decrease in value as a result of increases in interest rates
and may benefit less than other fixed income securities from declining
interest rates because of the risk of prepayment.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may purchase collateralized
mortgage obligations (CMO) issued by agencies or instrumentalities of the U.S.
Government. A CMO is backed by a portfolio of mortgages or mortgage-backed
securities. The issuer's obligation to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage-backed
securities. The issuer of a series of CMOs may elect to be treated as a Real
Estate Mortgage Investment Conduit (REMIC). All future references to CMOs
shall also be deemed to include REMICs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the underlying mortgage assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. The principal of and interest on
the underlying mortgage assets may be allocated among the several classes of a
CMO series in a number of different ways. Generally, the purpose of the
allocation of the cash flow of a CMO to the various classes is to obtain a
more predictable cash flow to the individual tranches than exists with the
underlying collateral of the CMO. As a general rule, the more predictable the
cash flow is on a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on
mortgage-backed securities.
The Fund may also invest in mortgage-backed security strips (MBS strips)
issued by the U.S. Government or its agencies or instrumentalities. MBS strips
are usually structured with two classes that receive different proportions of
the interest and principal distributions on a pool of mortgage assets. A
common type of stripped mortgage security will have one class receiving some
of the interest and most of the principal from the mortgage assets, while the
other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the
interest (the interest-only or "IO" class), while the other class will receive
all of the principal (the principal-only or "PO" class). The yields to
maturity on IOs and POs are sensitive to the expected or anticipated rate of
principal payments (including prepayments) on the related underlying mortgage
assets, and principal payments may have a material effect on yield to
maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may not fully recoup its
6
<PAGE>
initial investment in IOs. Conversely, if the underlying mortgage assets
experience less than anticipated prepayments of principal, the yield on POs
could be materially adversely affected.
In reliance on rules and interpretations of the Securities and Exchange
Commission (SEC), the Fund's investments in certain qualifying CMOs and REMICs
are not subject to the Investment Company Act's limitation on acquiring
interests in other investment companies. See "Investment Objective and
Policies--U.S. Government Securities--Mortgage-Related Securities issued by
U.S. Government Agencies and Instrumentalities" 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. In the
event a security (or issuer) held by the Fund is assigned a rating below
investment grade (or, in the view of Jennison, has declined in credit quality
so that it is comparable to a security rated below investment grade), Jennison
will seek to dispose of the security as soon as reasonably practicable.
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.
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 stock rises, whereas it tends to decrease as the market value of
the underlying stock declines. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
REPURCHASE AGREEMENTS
The Fund 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
7
<PAGE>
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 Objective 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.
The staff of the 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 Objective and Policies--Illiquid Securities" in the
Statement of Additional Information.
PORTFOLIO TURNOVER
As a result of the Fund's investment policies, its portfolio turnover rate
may exceed 75%, although the rate is 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."
8
<PAGE>
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, U.S. Government securities or other liquid high-grade debt
obligations 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 Objective and
Policies--When-Issued and Delayed Delivery Securities" in the Statement of
Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Fund in an amount equal to at least 100%,
determined daily, of the market value of the securities loaned which are
maintained in a segregate account pursuant to applicable regulations. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As with
any extensions of credit, there are risks of delay in recovery and in some
cases loss of rights in the collateral should the borrower of the securities
fail financially. As a matter of fundamental policy, the Fund cannot lend more
than 30% of the value of its total assets. See "Investment Objective and
Policies--Lending of Securities" in the Statement of Additional Information.
The Fund may pay reasonable administration and custodial fees in connection
with a loan.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales against-the-box for the purpose of deferring
realization of gain or loss for federal income tax purposes. A short sale
"against-the-box" is a short sale in which the Fund owns an equal amount of
the securities sold short or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same issue as,
and equal in amount to, the securities sold short.
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.
9
<PAGE>
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 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.
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 Objective 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 objective. New financial products and risk management techniques
continue to be developed and the Fund may use these new investments and
techniques to the extent consistent with its investment objective and
policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES, 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 THE FUND'S 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
10
<PAGE>
purchase. The Fund may also purchase put and call options to offset previously
written put and call options of the same series. See "Investment Objective and
Policies--Options on Securities" in the Statement of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE RIGHT
FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY SUBJECT
TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE). The
writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities
or currency in excess of the exercise price of the option during the period
that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so long
as the Fund is obligated under the option, it owns an offsetting position in
the underlying security or currency or maintains cash, U.S. Government
securities or other liquid high-grade debt obligations with a value sufficient
at all times to cover its obligations in a segregated account. See "Investment
Objective and Policies--Options on Securities" in the Statement of Additional
Information. There is no limitation on the amount of call options the Fund may
write. The Fund has undertaken with certain state securities commissions that,
so long as shares of the Fund are registered in those states, it will not (a)
write puts having aggregate exercise prices greater than 25% of total net
assets, or (b) purchase (i) put options on stocks not held in the Fund's
portfolio, (ii) put options on stock indices or foreign currencies or (iii)
call options on stock, stock indices or foreign currencies if, after any such
purchase, the aggregate premiums paid for such options would exceed 10% of the
Fund's total assets; provided, however, that the Fund may purchase put options
on stocks held by the Fund if after such purchase the aggregate premiums paid
for such options do not exceed 20% of the Fund's 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.
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 held in its portfolio denominated or quoted in, or currently
convertible into, such currency. See "Investment Objective and Policies--Risks
Related to Forward Foreign Currency Exchange Contracts" in the Statement of
Additional Information.
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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 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 stock
index 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, U.S.
Government securities or other liquid, high grade debt obligations 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 boards
of trade have established daily limits on the amount that the price of futures
contracts or related options may vary, either up or down, from the previous
day's settlement price. These daily limits may restrict the Fund's ability to
purchase or sell certain futures contracts or related options on any
particular day.
The Fund's ability to enter into futures contracts and options thereon is
limited by the requirements of the Internal Revenue Code for qualification as
a regulated investment company. See "Taxes" in the Statement of Additional
Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the 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.
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The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if management believes that the
other party to options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will
continue to exist or that the other party will continue to make a market.
Thus, it may not be possible to close an options or futures transaction. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio. There is also
the risk of loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON
MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.
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 FUND 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 September 30, 1995, PMF served as the manager to 36 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to 27 closed-end investment companies with aggregate
assets of approximately $51 billion.
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Fund and also administers the Fund's corporate affairs. See
"Manager" in the Statement of Additional Information.
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SUBADVISER
JENNISON ASSOCIATES CAPITAL CORP. (JENNISON OR THE SUBADVISER), 466
LEXINGTON AVENUE, NEW YORK, NEW YORK, 10017, IS THE SUBADVISER TO THE FUND. It
was incorporated in 1969 under the laws of the State of New York. As of
September 30, 1995, Jennison has over $27.8 billion in assets under management
for institutional and mutual fund clients, including over $15.3 billion in
"growth stock" assets.
PURSUANT TO A SUBADVISORY AGREEMENT WITH PMF, JENNISON FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND 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 objective, 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.
David Poiesz is the portfolio manager of the Fund and Peter Reinemann is the
associate portfolio manager of the Fund. Mr. Poiesz is responsible for the
day-to-day management of the Fund. They are both Senior Vice Presidents of
Jennison and have been involved with the Fund since its inception in 1995. Mr.
Poiesz, also a Director of Jennison, joined Jennison in 1983 as an equity
research analyst and has been an equity portfolio manager since 1991. Mr.
Reinemann has been with Jennison since 1992 as an associate portfolio manager.
Prior to that time, he served as a Vice President at Paribas Asset Management,
Inc.
PMF and Jennison are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A,
CLASS B AND CLASS C SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED
SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND 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.
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.
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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, 1996.
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 Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each
Plan may be terminated at any time by vote of a majority of the Rule 12b-1
Directors or of a majority of the outstanding shares of the applicable class
of the Fund. The Fund will not be obligated to pay expenses incurred under any
Plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers and other persons which distribute shares of the
Fund. Such payments may be calculated by reference to the net asset value of
shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (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.
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<PAGE>
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 Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by 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."
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 Fund.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15
P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
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The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect the
NAV. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. See "Net Asset Value" in the
Statement of Additional Information.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject. It is expected,
however, that the NAV of the three classes will tend to converge immediately
after the recording of dividends, which will differ by approximately the
amount of distribution-related expense accrual differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. These figures are based on
historical earnings and are not intended to indicate future performance. The
"total return" shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (i.e., one, five, or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The "aggregate" total return reflects actual performance
over a stated period of time. "Average annual" total return is a hypothetical
rate of return that, if achieved annually, would have produced 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. The Fund will include
performance data for each class of shares of the Fund in any advertisement or
information including performance data of the Fund. 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.
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The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Fund. See "Taxes" in the Statement of Additional
Information.
In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts).
At the end of each year, such investments held by the Fund will be required to
be "marked to market" for federal income tax purposes; that is, treated as
having been sold at market value. Sixty percent of any gain or loss recognized
on these "deemed sales" and on actual dispositions may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes" in the Statement of Additional Information.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition are
treated as ordinary gain or loss. These gains or losses increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency fluctuation
losses exceed other investment company taxable income during a taxable year,
distributions made by the Fund during the year would be characterized as a
return of capital to shareholders, reducing the shareholder's basis in his or
her Fund shares.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net long-term capital gains
distributed to shareholders will be taxable as such to the shareholder,
whether or not reinvested and regardless of the length of time a shareholder
has owned his or her shares. The maximum long-term capital gains rate for
corporate 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%.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. See "Taxes" in the Statement of Additional Information.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, on
shares that are held for six months or less, will be treated as a long-term
capital loss to the extent of any capital gain distributions received by the
shareholder.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds, payable on the accounts of those shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case
of certain foreign shareholders) with the required certifications regarding
the shareholder's status under the federal income tax law.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes" in the Statement of
Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, 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
18
<PAGE>
to each class of shares, to the extent any dividends are paid, will be
calculated in the same manner, at the same time, on the same day and will be
in the same amount except that each class will bear its own distribution
charges, generally resulting in lower dividends for Class B and Class C
shares. Distribution of net capital gains, if any, will be paid in the same
amount for each class of shares. See "How The Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES, BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS
THAN FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attn: Account Maintenance Unit, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
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.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE FUND WAS INCORPORATED IN MARYLAND ON AUGUST 10, 1995. THE FUND IS
AUTHORIZED TO ISSUE 2.5 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER
SHARE, DIVIDED INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS B, CLASS C AND
CLASS Z COMMON STOCK. OF THE AUTHORIZED SHARES OF COMMON STOCK, 1 BILLION
SHARES CONSIST OF CLASS A COMMON STOCK, 500 MILLION SHARES CONSIST OF CLASS B
COMMON STOCK, 500 MILLION SHARES CONSIST OF CLASS C COMMON STOCK AND 500
MILLION SHARES CONSIST OF CLASS Z COMMON STOCK. Each class of common stock
represents an interest in the same assets of the Fund and is identical in all
respects except that (i) each class bears its respective distribution
expenses, (ii) each class has exclusive voting rights with respect to its
distribution and service plan (except that the Fund has agreed with the SEC in
connection with the offering of a conversion feature on Class B shares to
submit any amendment of the Class A distribution and service plan to both
Class A and Class B shareholders), (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." Pursuant to an order of the SEC, the Fund is
permitted to issue and sell multiple classes of common stock. Currently, the
Fund is offering three classes, designated Class A, Class B and Class C
shares. Class Z shares are not being offered at the present time. In
accordance with the Fund's Articles of Incorporation, the Board of Directors
may authorize the creation of additional series of common stock and classes
within such series, with such preferences, privileges, limitations and voting
and dividend rights as the Board may determine.
The Board of Directors may increase or decrease the number of authorized
shares. Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class
of common stock is equal as to earnings, assets and voting privileges, except
as noted above, and each class bears the expenses related to the distribution
of its shares. Except for the conversion feature applicable to the Class B
shares, there are no conversion, preemptive or other subscription rights. In
the event of liquidation, each share of common stock of the Fund is entitled
to its portion of all of the Fund's assets after all debts and expenses of the
Fund have been paid. Since Class B and Class C shares generally bear higher
distribution expenses than Class A shares, the liquidation proceeds
19
<PAGE>
to shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Directors.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OR
MORE OF THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL
OF ONE OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under
the Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities, Prusec or
directly from the Fund, through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The offering price is
the NAV next determined following receipt of an order by the Transfer Agent or
Prudential Securities plus a sales charge which, at your option, may be
imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). See "Alternative Purchase Plan"
below. See also "How the Fund Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive stock
certificates.
The minimum initial investment is $1,000 per class for Class A and Class B
shares and $5,000 for Class C shares. The minimum subsequent investment is
$100 for all classes. All minimum investment requirements are waived for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases through the Automatic Savings Accumulation
Plan the minimum initial and subsequent investment is $50. See "Shareholder
Services."
The Fund reserves the right to reject any purchase order (including an
exchange) 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,
20
<PAGE>
Massachusetts, Custody and Shareholder Services Division, Attention:
Prudential Jennison Fund, Inc., specifying on the wire the account number
assigned by PMFS and your name and identifying the sales charge alternative
(Class A, Class B or Class C 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 Fund,
Inc., Class A, Class B or Class C shares and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing federal funds. The minimum amount which may be invested by wire is
$1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C
SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH
OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE 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.
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except
as noted under the heading "General Information--Description of Common Stock")
and (iii) only Class B shares have a conversion feature. The three classes
also have separate exchange privileges. See "How to Exchange Your Shares"
below. The income attributable to each class and the dividends payable on the
shares of each class will be reduced by the amount of the distribution fee of
each class. Class B and Class C shares bear the expenses of a higher
distribution fee which will generally cause them to have higher expense ratios
and to pay lower dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares"
21
<PAGE>
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. SEE "REDUCTION AND WAIVER OF INITIAL SALES CHARGES" BELOW.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
OFFERING PRICE 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>
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
22
<PAGE>
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 1,000 eligible employees or participants. In the case of Benefit
Plans whose accounts are held directly with the Transfer Agent or Prudential
Securities and for which the Transfer Agent or Prudential Securities does
individual account 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 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 Transfer Agent's PruArray Program (a
benefit plan recordkeeping service) (hereafter referred to as a PruArray
Plan); provided (i) that the plan has at least $1 million in existing assets
or 1,000 eligible employees or participants, and (ii) that Prudential Mutual
Funds constitute at least one-half of the plan's investment options. The term
"existing assets" for this purpose includes stock issued by a PruArray 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 Program (Participating Funds). "Existing assets" also include shares
of money market funds acquired by exchange from a Participating Fund.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
Directors and officers of the Fund and other Prudential Mutual Funds, (b)
employees of Prudential Securities and PMF and their subsidiaries and members
of the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees and special agents
of Prudential and its subsidiaries and all persons who have retired directly
from active service with Prudential or one of its subsidiaries, (d) registered
representatives and employees of dealers who have entered into a selected
dealer agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares
of any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a 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.
23
<PAGE>
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, Prudential Securities or Prusec.
Although there is no sales charge imposed at the time of purchase, redemption
of Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV 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
24
<PAGE>
in converting the assets into cash. The Fund has, however, elected to be
governed by Rule 18f-1 under the Investment Company Act, under which the Fund
is obligated to redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during the 90-day period for any one
shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net asset value of less than $500 due to a redemption. The Fund
will give any such shareholder 60 days' prior written notice in which to
purchase sufficient additional shares to avoid such redemption. No contingent
deferred sales charge will be imposed on any 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>
25
<PAGE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results generally in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of Fund shares made during the preceding
six years; then of amounts representing the cost of shares held beyond the
applicable CDSC period; and finally, of amounts representing the cost of
shares held for the longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
NAV had appreciated to $12 per share, the value of your Class B shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), or a trust, at the time of death or
initial determination or disability, provided that the shares were purchased
prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with 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.
26
<PAGE>
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (i) the ratio of (a) the amounts paid for Class B shares purchased at
least seven years prior to the conversion date to (b) the total amount paid
for all Class B shares purchased and then held in your account (ii) multiplied
by the total number of Class B shares then in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or
amounts representing Class B shares then in your account that were acquired
through the automatic reinvestment of dividends and other distributions will
convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described above will generally be either more or less
than the number of shares actually purchased approximately seven years before
such conversion date. For example, if 100 shares were initially purchased at
$10 per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 or 47.62% multiplied by 200 shares or 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have 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, and Class C shares will not
constitute "preferential dividends" under the Internal Revenue Code and (ii)
that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A,
CLASS B AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B AND CLASS C
SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. No
sales charge will be imposed at the time of 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
27
<PAGE>
fund. Class B and Class C shares may not be exchanged into money market funds
other than Prudential Special Money Market Fund. For purposes of calculating
the holding period applicable to the Class B conversion feature, the time
period during which Class B shares were held in a money market fund will be
excluded. See "Conversion Feature--Class B Shares" above. An exchange will be
treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account--Exchange Privilege" in the Statement of Additional
Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may
call the Fund at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order. The exchange privilege is available
only in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above. Under this exchange privilege, amounts representing any Class B and
Class C shares (which are not subject to a CDSC) held in such a shareholder's
account will be automatically exchanged for Class A shares on a quarterly
basis, unless the shareholder elects otherwise. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C
shares and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities or Prusec that
they are eligible for this special exchange privilege.
The exchange privilege may be modified or terminated at any time on sixty
days' notice.
28
<PAGE>
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.
29
<PAGE>
APPENDIX A
INFORMATION ABOUT JENNISON ASSOCIATES CAPITAL CORP.
Jennison has been engaged in the equity investment management business since
1969 and is committed to managing growth stock portfolios for its clients. As
of June 30, 1995, Jennison managed $26.1 billion in assets for 150 clients,
including approximately $1.5 billion (5.7%) in mutual funds. Of the $26.1
billion in assets, $14.1 billion in assets were in growth stock portfolios for
76 clients, with an average account size of $140 million. 37, or approximately
50% of Jennison's growth equity clients are "Fortune 500" companies (as
defined by Fortune Magazine in the issue dated May 15, 1995).
The following chart shows that, as of June 30, 1995, Jennison had $26.1
billion of assets under management, with $14.1 billion managed using a "growth
equity" strategy; $1.5 billion invested in balanced portfolios; $1.7 billion
in international equity portfolios; and $8.8 billion in fixed income
portfolios.
[GRAPH APPEARS HERE]
Source: Jennison Associates Capital Corp.
Jennison generally seeks long-term client relationships. Approximately 40%
of its clients (including growth equity, international equity, balanced and
fixed income) have been with them for more than ten years. Those clients
represent over three quarters of assets under management as of June 30, 1995.
Jennison's business focus has been on managing the assets of retirement
plans. Such plans represented approximately $22.4 billion of Jennison's total
managed assets as of June 30, 1995. In addition, Jennison managed $2.0 billion
in mutual fund and insurance commingled fund assets, $1.6 billion for
endowments and foundations and $0.1 billion in other assets.
Jennison has an experienced team of investment professionals. Jennison
attributes its success over time to the knowledge and experience of its
portfolio managers and research analysts. Jennison's investment professionals
average over eleven years with Jennison and over eighteen years of investment
experience.
A-1
<PAGE>
The following charts show the total number of equity professionals employed
by Jennison, as of June 30, 1995, including the total number of portfolio
managers and the total number of equity research analysts. The charts reflect
the average number of years of investment experience as well as the number of
years of experience at Jennison.
<TABLE>
<CAPTION>
AVERAGE YEARS AVERAGE YEARS
OF OF EXPERIENCE
EXPERIENCE WITH JENNISON
------------- -------------
<S> <C> <C>
Total Equity Professionals.................. 18 11
Equity Portfolio Managers................... 21 14
Equity Research Analysts.................... 14 6
</TABLE>
David Poiesz is the Portfolio Manager and Peter Reinemann is the Associate
Portfolio Manager of the Fund. Mr. Poiesz, a Director and Senior Vice
President of Jennison, has over fifteen years of experience in the investment
business, including twelve years at Jennison. As of June 30, 1995, he managed
approximately $2.5 billion in growth stock assets for Jennison clients. Prior
to Jennison, he was a Vice President and Research Analyst at Dean Witter
Reynolds. Mr. Reinemann has been with Jennison since 1992 as an associate
portfolio manager. He previously served as a Vice President at Paribas Asset
Management, Inc.
Mr. Poiesz also serves as the portfolio manager of the Growth Stock
Portfolio of The Prudential Series Fund, Inc. and the Growth Stock Fund, a
portfolio of The Prudential Institutional Fund, which are registered
investment companies.
GROWTH STOCK INVESTING
Growth stocks are stocks of companies that have long-term growth rates in
sales and earnings that are higher than those of the overall economy. Growth
stocks are, in general, companies which have been able to capitalize on
changes in trends, new product developments or the capability to provide
unique services. Growth stocks are generally more expensive than the average
stock (sell at a higher price/earnings ratio) because investors are often
willing to pay a premium in order to participate in the superior growth they
may expect from these companies. Consequently, they also entail somewhat
higher risk if expectations are not met.
During periods of falling stock prices, the prices of growth stocks are
generally expected to decline more than the overall stock market. During
periods of stable to rising stock prices, growth stocks hold the potential for
outperforming the broad stock market.
Growth stock investing is subject to market risk. 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.
Growth stocks may be appropriate investments for investors who can commit
some of their assets over an intermediate- to long-term period to
fundamentally attractive and growing companies. It should be understood,
however, that seeking above average rewards normally entails taking above
average risk.
True growth companies have been attractive investments over the long-term
because stock prices tend to reflect actual, as well as expected, earnings and
dividend growth of a company.
Investors with a long-term time horizon should plan to ride through the
normal cycles that occur in the stock market in order to benefit from what has
historically proven to be the longer-term success of growth companies.
Investors can either select individual companies on their own or invest in a
mutual fund such as the Fund, with an experienced professional investment
management team. It is likely that an individual's investment dollars can be
spread over more companies in a mutual fund, which can add the benefits of
diversification to one's stock holdings.
A-2
<PAGE>
Investing successfully in growth stocks normally requires a thorough
understanding of the factors that drive growth in individual companies. It
requires the resources to visit with companies and competitors, have access to
analysts and other industry and company experts and the ability carefully to
monitor the business and financial results of companies to ensure expected
growth rates are being achieved or exceeded. This process must be carried out
for a large universe of companies in order to select an appropriate portfolio
of growth stocks. Of course, the hardest part of investing in growth stocks is
owning today's and tomorrow's growth stocks, not yesterday's.
Jennison specializes in growth stock investing. Jennison's investment
professionals, including Messrs. Poiesz and Reinemann, focus their time on
looking for companies that have the potential to grow their sales and earnings
faster than the average large company (i.e., the sales and operating earnings
of the S&P 500).
Jennison's investment professionals have found that producers of important
new products and services frequently emerge as growth companies. Growth
companies often exhibit fundamental characteristics including attractive
growth in revenue and earnings per share, improving profitability, and
financial strength, resulting from one or more of the following
characteristics: superior management, strong market position, unique marketing
ability, outstanding research and development and global leadership. As you
would expect, such stocks are often expensive relative to other stocks, making
them potentially more vulnerable to disappointing news. Jennison believes,
however, that companies that can sustain their earnings growth have the
potential for superior, long-term capital appreciation.
Jennison's investment philosophy has remained consistent for more than a
quarter of a century. Since inception in 1969, Jennison has invested with the
belief that carefully selected growth stocks can generate investment results
superior to the stock market over an intermediate to long term.
Jennison's analysts follow approximately 400 medium to large capitalization
companies. 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 managements to
develop their own earnings estimates, and maintaining contact with a broad
array of experts on Wall Street and in an industry. At Jennison, portfolio
managers, equity research analysts and the head trader attend an investment
meeting each morning to share current information and evaluations and discuss
prospective securities purchases and sales to ensure that the collective
thinking of the entire group is captured in the decision-making process.
Jennison seeks to select attractive growth companies. The Jennison
investment manager's challenge is to select about 60 stocks that they believe
have the potential to be the best performers among the larger universe of
growth stocks. Consequently, a growth stock portfolio managed by Jennison
normally consists of companies that the firm believes have the potential to
experience superior earnings growth over the next 12 to 18 months, on both an
absolute and relative basis, and which appear reasonably valued relative to
growth expectations.
On a daily basis, all of the investment decisions are made by the portfolio
manager responsible for an account, after thorough consultation with the
analyst representing the security and other Jennison portfolio managers. 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.
Jennison portfolio managers express their views and conclusions on
securities at these meetings. Typically, they do not take a formal vote.
Often, they agree on an equity holding although the group welcomes any
dissenting views. After this type of discussion, any portfolio manager is free
to buy the stock in question. If only one manager buys the stock and it is not
performing within a fairly short time, there is enormous pressure to sell.
Conversely, as the stock does well, pressure builds on the other portfolio
managers to buy the security.
A-3
<PAGE>
Over the years, Jennison has come to understand that successful growth stock
investing is a dynamic process. It requires, on the one hand, that the firm's
investment professionals capitalize on a company's improving growth prospects
and, on the other hand, that they respond to the "early warning signs' that
growth is slowing.
In managing portfolios, Jennison tends to increase positions within
investment guidelines as fundamentals and market action confirm its analysis.
Conversely, Jennison scales back positions in the face of mildly disappointing
results or price action that does not confirm its expectations. In the face of
substantial change of circumstances in earnings expectations, Jennison will
often sell an entire position.
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
Two well-known approaches to investing in stocks are value investing and
growth investing. Many funds represent one or the other investment style. The
Fund follows a growth investing style.
VALUE INVESTING
Value investors look for bargains: fundamentally sound companies that are
temporarily cheap relative to their long-term potential. These may be
companies in an industry that is currently out of favor in the economy.
Industrial companies, for example, suffer when the economy enters a recession
because orders tend to fall off. Other companies may become undervalued
because they are having temporary problems with a new product or business
strategy. Although currently cheap, such a company may have significant
potential over the long term.
GROWTH INVESTING
Growth investors look for companies that will be able to grow their sales
and earnings and hopefully, their stock price faster than the overall market.
Producers of important new products and services frequently emerge as growth
companies. These companies are often found in the technology, specialty
retailing, health care and consumer products industries. Such stocks are often
expensive relative to other stocks, making them potentially more vulnerable to
disappointing news. Companies that can sustain their earnings growth, however
have the potential for superior, long-term capital appreciation.
While value stocks have tended to do better as the economy is entering a
period of strong growth, growth stocks have tended to outperform when the
economic outlook is stable. Accordingly, an investment in the Fund, which
follows a growth investing style, may not be appropriate for certain
investors. Rather than trying to "time" these events, investors are generally
better off with a balance between these two time-honored investment
strategies.
A-4
<PAGE>
APPENDIX B--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. Securities in which the Fund
may primarily invest have historically been more volatile than the S&P 500
Index. Accordingly, during periods when stock prices decline generally, it can
be expected that the value of the Fund will decline more than market indices.
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 both institutional and mutual fund accounts managed under the
growth equity strategy. The only accounts using the "Growth Equity" investment
strategy which are not included in the composite are not fully discretionary
(for example, do not permit certain types of investment in the account), and
individual taxable accounts, which represent approximately .1% of Jennison's
equity account assets, as of June 30, 1995.
- ---------
/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 B-2, B-4 and B-5 show annualized total returns. The charts on
pages B-3 and B-6 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.
B-1
<PAGE>
ANNUALIZED TOTAL RETURNS AS OF JUNE 30, 1995 (AFTER FEES)
<TABLE>
<CAPTION>
PERIOD JENNISON/1/ S&P 500 INDEX/2/
------ ----------- ----------------
<S> <C> <C>
Since July 31, 1969
(inception)-1995 12.97 11.43
25 Years (1970-1995) 14.15 12.75
20 Years (1975-1995) 16.08 13.64
15 Years (1980-1995) 17.59 15.28
10 Years (1985-1995) 17.13 14.66
5 Years (1990-1995) 14.49 12.07
3 Years (1992-1995) 16.66 13.25
1 Year (1994-1995) 36.37 26.05
</TABLE>
- ---------
Source: Jennison Associates Capital Corp.
/1/Jennison's results are based on the time-weighted rate of return achieved
for "Growth Equity" accounts managed by Jennison. As of June 30, 1995,
Jennison managed 85 accounts representing approximately $12.5 billion in
assets using a "Growth Equity" strategy. These accounts consist of
institutional and mutual fund accounts whose investment objectives and
techniques are similar to those of the Fund. Performance results have been
adjusted by the deduction of Jennison's advisory fees and assume the
reinvestment of dividends and distributions. As of June 30, 1995, the
"Growth Equity" accounts in the composite represented 89% of all growth
equity assets (approximately $14.1 billion) managed by Jennison, and 48% of
the aggregate assets (approximately $26.1 billion) managed by Jennison. The
only accounts using the "Growth Equity" investment strategy which are not
included in the composite are not fully discretionary (for example, do not
permit certain types of investments in the account), and individual taxable
accounts which represented approximately .1% of Jennison's equity assets
under management, as of June 30, 1995.
Securities in which Jennison may primarily invest have historically been
more volatile than the S&P 500 Index. Accordingly, during periods when
stock prices decline generally, it can be expected that the value of the
Jennison Growth Equity Composite will decline more than the market indices.
/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. Of course, past performance should not be
interpreted as indicative of future performance.
B-2
<PAGE>
Dollar Value of an Initial $10,000 Investment
Jennison Growth Equity Composite
July 1969 - June 1995
[GRAPH APPEARS HERE]
* Inception Date: 7/31/69=$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 Equity" strategy with a similar investment in the S&P
500 Index as measured on a calendar quarterly basis from July 31, 1969 through
June 30, 1995. Jennison's results are based on the time-weighted rate of return
achieved for "Growth Equity" accounts managed by Jennison. As of June 30, 1995,
Jennison managed 85 accounts representing approximately $12.5 billion in assets
using a "Growth Equity" strategy. These accounts consist of institutional and
mutual fund 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, 1995, the "Growth
Equity" accounts represented 89% of all equity assets (approximately $14.1
billion) managed by Jennison, and 48% of the aggregate assets (approximately
$26.1 billion) managed by Jennison. The only accounts using the "Growth Equity"
investment strategy which are not included in the composite are not fully
discretionary (for example, do not permit certain types of investment in the
account), and individual taxable accounts which represented approximately 0.1%
of Jennison's equity assets under management, as of June 30, 1995.
Securities in which Jennison may primarily invest have historically been more
volatile than the S&P 500 Index. Accordingly, during periods when stock prices
decline generally, it can be expected that the value of the Jennison Growth
Equity Composite will decline more than the market indices.
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.
B-3
<PAGE>
TEN-YEAR ANNUALIZED
TOTAL RETURNS
PERIODS ENDED DECEMBER 31
[GRAPH APPEARS HERE]
* Inception Date: 7/31/69
Source: Jennison Associates Capital Corp.
These results are unaudited. Of course, past performance should not be
interpreted as indicative of future performance.
This chart shows the ten-year annualized returns of Jennison accounts using the
"Growth Equity" strategy with a similar investment in the S&P 500 Index.
Jennison's results are based on the time-weighted rate of return achieved for
"Growth Equity" accounts managed by Jennison. As of December 31, 1995, Jennison
managed 81 accounts representing approximately $9.7 billion in assets using a
"Growth Equity" strategy. These accounts consist of institutional and mutual
fund 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 December 31, 1994, the
"Growth Equity" accounts represented 88% of all equity assets (approximately
$11.0 billion) managed by Jennison, and 45% of the aggregate assets
(approximately $21.4 billion) managed by Jennison. The only accounts using the
"Growth Equity" investment strategy which are not included in the composite are
not fully discretionary (for example, do not permit certain types of investments
in the account), and individual taxable accounts which represented approximately
0.1% of Jennison's equity assets under management, as of December 31, 1994.
Securities in which Jennison may primarily invest have historically been more
volatile than the S&P 500 Index. Accordingly, during periods when stock prices
decline generally, it can be expected that the value of the Jennison Growth
Equity Composite will decline more than the market indices.
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.
B-4
<PAGE>
Decade-By-Decade Comparative Performance
[GRAPH APPEARS HERE]
Source: Ibbotson Associates, Chicago. Stocks, Bonds, Bills & Inflation - 1995
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, 1994 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 Prudential Jennison 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.
B-5
<PAGE>
The Value of $10,000 Invested 25 Years Ago in:
[GRAPH APPEARS HERE]
Source: Jennison Associates Capital Corp. and Ibbotson Associates, Chicago.
Stocks, Bonds, Bills & Inflation - 1995 Yearbook. Used with Permission. All
rights reserved.
This chart shows the total return of the Jennison Growth Equity Composite, U.S.
Treasury Bills, long-term U.S. Government bonds and common stocks for the period
from December 31, 1969 through December 31, 1994 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 Prudential Jennison 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 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 Equity composite commenced on 7/31/69. Jennison's results
are based on the time-weighted rate of return achieved for "Growth Equity"
accounts managed by Jennison. As of June 30, 1995, Jennison managed 85 accounts
representing approximately $12.5 billion in assets using a "Growth Equity"
strategy. These accounts consist of institutional and mutual fund 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, 1995, the "Growth Equity" accounts
represented 89% of all equity assets (approximately $14.1 billion) managed by
Jennison, and 48% of the aggregate assets (approximately $26.1 billion) managed
by Jennison. The only accounts using the "Growth Equity" investment strategy
which are not included in the composite are not fully discretionary (for
example, do not permit certain types of investments in the account), and
individual taxable accounts which represented approximately 0.1% of Jennison's
equity assets under management, as of June 30, 1995.
Securities in which Jennison may primarily invest have historically been more
volatile than the S&P 500 Index. Accordingly, during periods when stock prices
decline generally, it can be expected that the value of the Jennison Growth
Equity Composite will decline more than the market indices.
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.
B-6
<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 Adjustable Rate Securities Fund, Inc.
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
Prudential U.S. Government Fund
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 Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Global Assets Portfolio
Limited Maturity Portfolio
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential Jennison Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
. Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
. 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
C-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................ 2
Risk Factors and Special Characteristics.................................. 2
FUND EXPENSES.............................................................. 4
HOW THE FUND INVESTS....................................................... 5
Investment Objective and Policies......................................... 5
Other Investments and Policies............................................ 8
Risk Factors and Special Considerations of
Investing in Foreign Securities.......................................... 9
Hedging and Return Enhancement Strategies................................. 10
Investment Restrictions................................................... 13
HOW THE FUND IS MANAGED.................................................... 13
Manager................................................................... 13
Subadviser................................................................ 14
Distributor............................................................... 14
Fee Waivers and Subsidy................................................... 16
Portfolio Transactions.................................................... 16
Custodian and Transfer and Dividend Disbursing Agent...................... 16
HOW THE FUND VALUES ITS SHARES............................................. 16
HOW THE FUND CALCULATES PERFORMANCE........................................ 17
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 17
GENERAL INFORMATION........................................................ 19
Description of Common Stock............................................... 19
Additional Information.................................................... 20
SHAREHOLDER GUIDE.......................................................... 20
How to Buy Shares of the Fund............................................. 20
Alternative Purchase Plan................................................. 21
How to Sell Your Shares................................................... 24
Conversion Feature--Class B Shares........................................ 26
How to Exchange Your Shares............................................... 27
Shareholder Services...................................................... 29
APPENDIX A................................................................. A-1
APPENDIX B................................................................. B-1
THE PRUDENTIAL MUTUAL FUND FAMILY.......................................... C-1
</TABLE>
- --------------------------------------------------------------------------------
MF168A
Class A: 74437E107
CUSIP No.: Class B: 74437E206
Class C: 74437E305
PRUDENTIAL
[LOGO] JENNISON
FUND, INC.
- --------------------------------------------------------------------------------
P R O S P E C T U S
OCTOBER 27, 1995
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
Statement of Additional Information
dated October 27, 1995
(as supplemented April 15, 1996)
Prudential Jennison Fund, Inc. (the Fund) is an open-end, diversified
management investment company whose investment objective is long-term growth
of capital. The Fund seeks to achieve this objective by investing primarily in
equity securities (common stock, 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, the Fund intends to invest at least 65% of its total assets in
equity securities of companies that exceed $1 billion in market
capitalization. The 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. The
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. There
can be no assurance that the Fund's investment objective will be achieved. See
"Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated October 27, 1995, (as
supplemented April 15, 1996) a copy of which may be obtained from the Fund
upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ---------------
<S> <C> <C>
Investment Objective and Policies......................... B-2 5
Investment Restrictions................................... B-10 13
Directors and Officers.................................... B-12 13
Manager................................................... B-14 13
Distributor............................................... B-16 14
Portfolio Transactions and Brokerage...................... B-18 16
Purchase and Redemption of Fund Shares.................... B-19 20
Shareholder Investment Account............................ B-21 20
Net Asset Value........................................... B-25 16
Taxes..................................................... B-26 17
Performance Information................................... B-28 17
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants................................... B-29 16
Independent Auditors' Report.............................. B-30 --
Financial Statements...................................... B-31 --
Appendix-Historical Performance Data...................... A-1 --
Appendix-General Investment Information................... A-5 --
Appendix-Information Relating to The Prudential........... A-6 --
</TABLE>
- -------------------------------------------------------------------------------
MF168B
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital. The Fund
seeks to achieve this objective by investing primarily in equity securities
(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, the Fund intends to
invest at least 65% of its total assets in equity securities of companies that
exceed $1 billion in market capitalization. See "How the Fund Invests--
Investment Objective and Policies" in the Prospectus. There can be no
assurance that the Fund's investment objective will be achieved.
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. The Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in securities issued by agencies of the
U.S. Government or instrumentalities of the U.S. Government. These
obligations, including those which are guaranteed by Federal agencies or
instrumentalities, may or may not be backed by the full faith and credit of
the United States. Obligations of the Government National Mortgage Association
(GNMA), the Farmers Home Administration and the Small Business Administration
are backed by the full faith and credit of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
Fund must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim
against the United States if the agency or instrumentality does not meet its
commitments. Securities in which the Fund may invest which are not backed by
the full faith and credit of the United States include obligations such as
those issued by the Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation (FHLMC), the Federal National Mortgage Association, the Student
Loan Marketing Association, Resolution Funding Corporation and the Tennessee
Valley Authority, each of which has the right to borrow from the U.S. Treasury
to meet its obligations, and obligations of the Farm Credit System, the
obligations of which may be satisfied only by the individual credit of the
issuing agency. FHLMC investments may include collateralized mortgage
obligations. See "Other Investments and Investment Techniques" below.
Obligations issued or guaranteed as to principal and interest by the United
States Government may be acquired by the Fund in the form of custodial
receipts that evidence ownership of future interest payments, principal
payments or both on certain United States Treasury notes or bonds. Such notes
and bonds are held in custody by a bank on behalf of the owners. These
custodial receipts are commonly referred to as Treasury strips.
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in mortgage-backed securities,
including those which represent undivided ownership interests in pools of
mortgages. The U.S. Government or the issuing agency or instrumentality
guarantees the payment of interest on and principal of these securities.
However, the guarantees do not extend to the yield or value of the securities
nor do the guarantees extend to the yield or value of the Fund's shares. These
securities are in most cases "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees. Because the
prepayment characteristics of the underlying mortgages vary, it is not
possible to predict accurately the average life of a particular issue of pass-
through certificates. Mortgage-backed securities are often subject to more
rapid repayment than their maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying mortgage
obligations. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
The Fund's ability to invest in high-yielding mortgage-backed securities will
be adversely affected to the extent that prepayments of mortgages must be
reinvested in securities which have lower yields than the prepaid mortgages.
Moreover, prepayments of mortgages which underlie securities purchased at a
premium could result in capital losses.
The Fund may invest in both Adjustable Rate Mortgage Securities (ARMs),
which are pass-through mortgage securities collateralized by adjustable rate
mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are collateralized
by fixed-rate mortgages.
The values of U.S. Government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods
of falling U.S. interest rates, the values of U.S. Government securities
generally rise and, conversely, during periods of rising interest rates, the
values of such securities generally decline. The magnitude of these
fluctuations will generally be greater for securities with longer-term
maturities.
B-2
<PAGE>
FOREIGN DEBT SECURITIES
The Fund is permitted to invest in foreign corporate and government
securities. "Foreign Government securities" include debt securities issued or
securities. "Foreign Government securities" include debt securities issued or
guaranteed, as to payment of principal and interest, by governments, quasi-
governmental entities, governmental agencies, supranational entities and other
governmental entities (collectively, Government Entities) of foreign countries
denominated in the currencies of such countries or in U.S. dollars (including
debt securities of a Government Entity in any such country denominated in the
currency of another such country).
A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank
(International Bank for Reconstruction and Development), the European
Investment Bank and the Asian Development Bank. Debt securities of "quasi-
governmental entities" are issued by entities owned by a national, state, or
equivalent government or are obligations of a political unit that are not
backed by the national government's "full faith and credit" and general taxing
powers. Examples of quasi-government issuers include, among others, the
Province of Ontario and the City of Stockholm. "Foreign government securities"
shall also include debt securities of Government Entities denominated in
European Currency Units. A European Currency Unit represents specified amounts
of the currencies of certain of the member states of the European Community.
OPTIONS ON SECURITIES
The Fund may purchase and write (i.e., sell) put and call options on
securities that are traded on U.S. or foreign securities exchanges or that are
traded in the over-the-counter markets. A call option is a short-term contract
pursuant to which the purchaser, in return for a premium paid, has the right
to buy the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract which gives the purchaser, in return for a
premium, the right to sell the underlying security at a specified price during
the term of the option. The writer of the put, who receives the premium, has
the obligation to buy the underlying security upon exercise at the exercise
price. The Fund will generally write put options when its investment adviser
desires to invest in the underlying security. The premium paid by the
purchaser of an option will reflect, among other things, the relationship of
the exercise price to the market price and volatility of the underlying
security, the remaining term of the option, supply and demand and interest
rates.
A call option written by the Fund is "covered" if the Fund owns the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash, U.S. Government securities or other liquid high-grade debt
obligations in a segregated account with its Custodian. A put option written
by the Fund is "covered" if the Fund maintains cash, U.S. Government
securities or other liquid high-grade debt obligations with a value equal to
the exercise price in a segregated account with its Custodian, or else holds
on a share-for-share basis a put on the same security as the put written where
the exercise price of the put held is equal to or greater than the exercise
price of the put written.
If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she had been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is generally required to
pledge for the benefit of the broker the underlying security or other assets
in accordance with the rules of the relevant exchange or clearinghouse, such
as The Options Clearing Corporation (OCC), an institution created to interpose
itself between buyers and sellers of options in the United States.
Technically, the clearinghouse assumes the other side of every purchase and
sale transaction on an exchange and, by doing so, guarantees the transaction.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option or is less than the premium paid
to purchase the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option may be
offset in whole or in part if the Fund holds the underlying security by
appreciation of the underlying security owned by the Fund.
B-3
<PAGE>
The Fund may also purchase a "protective put," i.e., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and transaction costs
in connection with, the put plus the initial excess, if any, of the market
price of the underlying security over the exercise price. However, if the
market price of the security underlying the put rises, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for
the put option less any amount (net of transaction costs) for which the put
may be sold. Similar principles apply to the purchase of puts on stock
indices, as described below.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
Fund may also purchase and sell put and call options on securities indices
traded on U.S. or foreign securities exchanges or traded in the over-the-
counter markets. Options on securities indices are similar to options on
securities except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the securities index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the multiplier). The writer
of the option is obligated, in return for the premium received, to make
delivery of this amount. All settlements on options on indices are in cash,
and gain or loss depends on price movements in the securities market generally
(or in a particular industry or segment of the market) rather than price
movements in individual securities.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an
option and the current level of the underlying index. A multiplier of 100
means that a one-point difference will yield $100. Options on different
indices may have different multipliers. Because exercises of index options are
settled in cash, a call writer cannot determine the amount of its settlement
obligations in advance and, unlike call writing on specific stocks, cannot
provide in advance for, or cover, its potential settlement obligations by
acquiring and holding the underlying securities. In addition, unless the Fund
has other liquid assets which are sufficient to satisfy the exercise of a
call, the Fund would be required to liquidate portfolio securities or borrow
in order to satisfy the exercise.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Fund
will realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of security prices in the market generally
or in an industry or market segment rather than movements in the price of a
particular security. Accordingly, successful use by the Fund of options on
indices would be subject to the investment adviser's ability to predict
correctly movements in the direction of the securities market generally or of
a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
RISKS OF TRANSACTIONS IN OPTIONS
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no
secondary market on an exchange or otherwise may exist. In such event it might
not be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the exercise of call
options and upon the subsequent disposition of underlying securities acquired
through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If the Fund as a covered call
option writer is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in the
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by a clearing corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby result
in the institution by an exchange of special procedures which may interfere
with the timely execution of customers' orders. The Fund intends to purchase
and sell only those options which are cleared by clearinghouses whose
facilities are considered to be adequate to handle the volume of options
transactions.
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<PAGE>
RISKS OF OPTIONS ON INDICES
The Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that
are not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, the Fund would not be able
to close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the Fund's policy to
purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities
in the index.
SPECIAL RISKS OF WRITING CALLS ON INDICES
Because exercises of index options are settled in cash, a call writer such
as the Fund cannot determine the amount of its settlement obligations in
advance and, unlike call writing on specific stocks, cannot provide in advance
for, or cover, its potential settlement obligations by acquiring and holding
the underlying securities. However, the Fund will write call options on
indices only under the circumstances described below under "Limitations on
Purchase and Sale of Stock Options, Options on Stock Indices and Foreign
Currencies and Futures Contracts and Related Options."
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on
the call which is not completely offset by movements in the price of the
Fund's portfolio. It is also possible that the index may rise when the Fund's
portfolio of stocks does not rise. If this occurred, the Fund would experience
a loss on the call which is not offset by an increase in the value of its
portfolio and might also experience a loss in its portfolio. However, because
the value of a diversified portfolio will, over time, tend to move in the same
direction as the market, movements in the value of the Fund in the opposite
direction as the market would be likely to occur for only a short period or to
a small degree.
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be
settled within hours after receiving the notice of exercise, if the Fund fails
to anticipate an exercise, it may have to borrow from a bank (in amounts not
exceeding 20% of the Fund's total assets) pending settlement of the sale of
securities in its portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise,
and the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the price of such investments might decline before they can be sold.
This timing risk makes certain strategies involving more than one option
substantially more risky with index options than with stock options. For
example, even if an index call which the Fund has written is "covered" by an
index call held by the Fund with the same strike price, the Fund will bear the
risk that the level of the index may decline between the close of trading on
the date the exercise notice is filed with the clearing corporation and the
close of trading on the date the Fund exercises the call it holds or the time
the Fund sells the call which, in either case, would occur no earlier than the
day following the day the exercise notice was filed.
If the Fund holds an index option and exercises it before final
determination of the closing index value for that day, it runs the risk that
the level of the underlying index may change before closing. If such a change
causes the exercised option to fall out-of-the-money, the Fund will be
required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer. Although the Fund may be able to minimize this risk by withholding
exercise instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the
cutoff times for index options may be earlier than those fixed for other types
of options and may occur before definitive closing index values are announced.
RISKS RELATED TO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Fund may desire to "lock-in" the
U.S. dollar
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<PAGE>
price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. By entering into a forward contract for
a fixed amount of dollars, for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the Fund may be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the foreign currency during the
period between the date on which the security is purchased or sold, or on
which the dividend or interest payment declared, and the date on which such
payments are made or received.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible since the future
value of securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date on which
the forward contract is entered into and the date it matures. The projection
of short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain. If
the 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, U.S. government securities, or other liquid high-grade debt
obligations 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.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, if a decision is made to sell the security and make delivery of
the foreign currency and if the market value of the security is less than the
amount of foreign currency that the Fund is obligated to deliver, then it
would be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase).
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices
decline during the period between the Fund's entering into a forward contract
for the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Fund will realize a
gain to the extent that the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
contract prices increase, the Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. Of course, the Fund
is not required to enter into such transactions with regard to its foreign
currency-denominated securities. It also should be recognized that this method
of protecting the value of the Fund's portfolio securities against a decline
in the value of a currency does not eliminate fluctuations in the underlying
prices of the securities which are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures contracts as a
hedging device. 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 the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance
that it will be possible, at any particular time, to close a futures position.
In the event the Fund could not close a futures position and the value of such
position declined, the Fund would be required to continue to make daily cash
payments of variation margin. Currently, index futures contracts are available
on various U.S. and foreign securities indices.
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<PAGE>
Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of markets and other factors affecting the securities market
generally. If the Fund has insufficient cash to meet daily variation margin
requirements, it may need to sell securities to meet such requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a
time when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be
reflected in the futures markets.
OPTIONS ON FUTURES CONTRACTS
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of
the option is required upon exercise to assume an offsetting futures position
(a short position if the option is a call and a long position if the option is
a put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin
account which represents the amount by which the market price of the futures
contract, at exercise, exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract. 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
The 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. The 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, U.S. Government securities, or other high grade,
liquid debt obligations equal to the aggregate exercise price of the puts. The
Fund has undertaken with certain state securities commissions that, so long as
shares of the Fund are registered in those states, it will not (a) write puts
having aggregate exercise prices greater than 25% of total net assets; or (b)
purchase (i) put options on stocks not held in the Fund's portfolio, (ii) put
options on stock indices 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 the Fund's total
net assets; provided, however, that the Fund may purchase put options on
stocks held by the Fund if after such purchase the aggregate premiums paid for
such options do not exceed 20% of the Fund's net assets. In addition, the Fund
will not enter into futures contracts or related options if the aggregate
initial margin and premiums exceed 5% of the liquidation value of the Fund's
total assets, taking into account unrealized profits and losses on such
contracts, provided, however, that in the case of an option that is in-the-
money, the in-the-money amount may be excluded in computing such 5%. The above
restriction does not apply to the purchase or sale of futures contracts and
related options for bona fide hedging purposes, within the meaning of
regulations of the Commodity Futures Trading Commission. The Fund does not
intend to purchase options on equity securities or securities indices if the
aggregate premiums paid for such outstanding options would exceed 10% of the
Fund's total assets.
Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, cash, U.S. Government securities, liquid high-grade
debt securities or 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 the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," all of which
are stocks of issuers in such industry or market segment, 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
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<PAGE>
than 15% of the amount so segregated, pledged or escrowed in the case of
broadly-based stock market index options or 25% of such amount in the case of
industry or market segment index options. If at the close of business on any
day the market value of such qualified securities so segregated, escrowed or
pledged falls below 100% of the current index value times the multiplier times
the number of contracts, the Fund will so segregate, escrow or pledge an
amount in cash, U.S. Government securities or other high-grade short-term debt
obligations equal in value to the difference. In addition, when the Fund
writes a call on an index which is in-the-money at the time the call is
written, the Fund will segregate with its Custodian or pledge to the broker as
collateral cash, U.S. Government securities or other high-grade short-term
debt obligations equal in value to the amount by which the call is in-the-
money times the multiplier times the number of contracts. Any amount
segregated pursuant to the foregoing sentence may be applied to the Fund's
obligation to segregate additional amounts in the event that the market value
of the qualified securities falls below 100% of the current index value times
the multiplier times the number of contracts. A "qualified security" is an
equity security which is listed on a national securities exchange or listed on
NASDAQ against which the Fund has not written a stock call option and which
has not been hedged by the Fund by the sale of stock index futures. However,
if the Fund holds a call on the same index as the call written where the
exercise price of the call held is equal to or less than the exercise price of
the call written or greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, Treasury bills or other high-
grade short-term obligations in a segregated account with its Custodian, it
will not be subject to the requirements described in this paragraph.
POSITION LIMITS. Transactions by the Fund in futures contracts and options
will be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which the Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.
DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may temporarily
invest in money market instruments, including commercial paper of
corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, obligations issued or guaranteed by
the U.S. Government, its agencies or its instrumentalities and repurchase
agreements (described more fully below). Such investments may be subject to
certain risks, including future political and economic developments, the
possible imposition of withholding taxes on interest income, the seizure or
nationalization of foreign deposits and foreign exchange controls or other
restrictions.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Fund may purchase
or sell securities on a when-issued or delayed delivery basis, that is,
delivery and payment can take place a month or more after the date of the
transaction. The Fund will make commitments for such when-issued transactions
only with the intention of actually acquiring the securities. The Fund's
Custodian will maintain, in a separate account of the Fund, cash, U.S.
Government securities or other liquid high-grade debt obligations having a
value equal to or greater than such commitments. If the Fund chooses to
dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
security, incur a gain or loss due to market fluctuations.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box), and that not more than 25% of the Fund's net
assets (determined at the time of the short sale) may be subject to such
sales. Short sales will be made primarily to defer realization of gain or loss
for federal tax purposes. As a matter of current operating policy, the Fund
will not engage in short sales other than short sales against-the-box.
REPURCHASE AGREEMENTS
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with
parties meeting creditworthiness standards approved by the Fund's Board of
Directors. The Fund's investment adviser will monitor the creditworthiness of
such parties, under the general supervision of the Board of Directors. In the
event of a default or bankruptcy by a seller, the Fund will promptly seek to
liquidate the collateral. To the extent that the proceeds from any sale of
such collateral upon a default in the obligation to repurchase are less than
the repurchase price, the Fund will suffer a loss.
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<PAGE>
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 30% of the value of the
Fund's total assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral
(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 the Fund at any time. If the borrower fails to
maintain the requisite amount of collateral, the loan automatically
terminates, and the Fund could use the collateral to replace the securities
while holding the borrower liable for any excess of replacement cost over
collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms determined to be creditworthy pursuant
to procedures approved by the Board of Directors of the Fund. On termination
of the loan, the borrower is required to return the securities to the Fund,
and any gain or loss in the market price during the loan would inure to the
Fund.
Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan. The Fund will pay reasonable
finders', administrative and custodial fees in connection with a loan of its
securities or may share the interest earned on collateral with the borrower.
BORROWING
The 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. 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. 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 the 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." The 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 the 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, the 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
The Fund may not hold more than 10% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market (either within or outside of the United
States) or legal or contractual restrictions on resale. Historically, illiquid
securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having a maturity
of longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations 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.
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In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. The investment adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper and foreign securities will expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser
will consider, inter alia, the following factors: (1) the frequency of trades
and quotes for the security; (2) the number of dealers wishing to purchase or
sell the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (i.e., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, the Fund does not intend to invest in such
securities. If the Fund does invest in securities of other investment
companies, shareholders of the Fund may be subject to duplicate management and
advisory fees. See "Investment Restrictions."
PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions, but the Fund's portfolio
turnover rate is not expected to exceed 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 the Fund. In addition, high portfolio
turnover may also mean that a proportionately greater amount of distributions
to shareholders will be taxed as ordinary income rather than long-term capital
gains compared to investment companies with lower portfolio turnover. See
"Portfolio Transactions and Brokerage" and "Taxes."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the
Fund's outstanding voting securities," when used in this Statement of
Additional Information, means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding voting shares are
present in person or represented by proxy or (ii) more than 50% of the
outstanding voting shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a
security on margin.
B-10
<PAGE>
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. Purchase any security if as a result the Fund would then have more than
5% of its total assets (determined at the time of investment) invested in
securities of companies (including predecessors) less than three years old,
except that the Fund may invest in the securities of any U.S. Government
agency or instrumentality, and in any security guaranteed by such an agency or
instrumentality.
6. Buy or sell real estate or interests in real estate, except that the Fund
may purchase and sell securities which are secured by real estate, securities
of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Fund may not purchase
interests in real estate limited partnerships which are not readily
marketable.
7. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon. (For
purposes of this restriction, futures contracts on currencies and on
securities indices and forward foreign currency exchange contracts are not
deemed to be commodities or commodity contracts.)
8. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws. The Fund has not adopted a fundamental
investment policy with respect to investments in restricted securities. See
"Illiquid Securities."
9. Make investments for the purpose of exercising control or management.
10. Invest in securities of other investment companies, except by purchases
in the open market involving only customary brokerage commissions and as a
result of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5%
of its total assets in any one investment company and will not have invested
more than 10% of its total assets (determined at the time of investment) in
such securities of one or more investment companies, or except as part of a
merger, consolidation or other acquisition.
11. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
12. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 30% of the Fund's total assets.
13. Purchase more than 10% of all outstanding voting securities of any one
issuer.
In order to comply with certain "blue sky" restrictions, the Fund will not
as a matter of operating policy:
1. Invest in oil, gas and mineral leases.
2. Invest in securities of any issuer if any officer or Director of the Fund
or the Fund's Manager or Subadviser (as defined below) owns more than 1/2 of
1% of the outstanding securities of such issuer, and such officers and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
B-11
<PAGE>
3. Purchase warrants if as a result the Fund would then have more than 5% of
its assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange or a major foreign exchange will be limited to 2% of the Fund's net
assets (determined at the time of investment). For purposes of this
limitation, warrants acquired in units or attached to securities are deemed to
be without value.
4. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities
of issuers which are restricted as to disposition, if more than 15% of its
total assets would be invested in such securities. This restriction shall not
apply to 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.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later
change in percentage resulting from changing total or net asset values will
not be considered a violation of such policy. However, in the event that the
Fund's asset coverage for borrowings falls below 300%, the Fund will take
prompt action to reduce its borrowings, as required by applicable law.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION WITH PRINCIPAL OCCUPATIONS
AGE FUND DURING PAST 5 YEARS
- ----------------- -------------- ---------------------
<S> <C> <C>
Thomas R. Director Retired. Until July 1991, Chairman, President and Chief
Anderson (58) c/o Executive Officer of Kemper Financial Companies, Inc.;
Prudential Mutual Executive Vice President and Director of Kemper
Fund Management, Corporation; Chairman and Chief Executive Officer of
Inc. One Seaport Kemper Financial Services, Inc.; and Kemper Investors
Plaza Life Insurance Company. Until 1994, Trustee/Director of
New York, NY Kemper Mutual Funds and Kemper Closed-End Funds. Director
of Hinsdale Financial Corporation, Hinsdale Federal Bank
for Savings, The Real Exchange Corporation and Specialty
Equipment Companies, Inc.
Eugene C. Dorsey Director Retired President, Chief Executive Officer and Trustee of
(69) the Gannett Foundation (now Freedom Forum); former
c/o Prudential Publisher of four Gannett newspapers and Vice President
Mutual Fund of the Gannett Company; past Chairman, Independent
Management, Inc. Sector, Washington D.C. (national coalition of
One Seaport Plaza philanthropic organizations); former Chairman of the
New York, NY 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
(52) One Seaport Director October 1993), PMF; Executive Vice President, Director
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 Global Yield Fund, Inc. and
The High Yield Income Fund, Inc.
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION WITH PRINCIPAL OCCUPATIONS
AGE FUND DURING PAST 5 YEARS
- ----------------- -------------- ---------------------
<S> <C> <C>
Robin B. Smith (56) Director President (since September 1981) and Chief Executive
382 Channel Drive Officer (since January 1988), Publishers Clearing House;
Port Washington, NY 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 Vice President Director (since January 1989), Chief Administrative
(49) Officer (since July 1990) and Executive Vice President,
Treasurer and Chief Financial Officer (since June 1987)
of PMF; Senior Vice President (since March 1987) of
Prudential Securities; Executive Vice President,
Treasurer and Comptroller (since March 1991) of PMFD;
Director (since June 1987) of PMFS; Vice President and
Director of The Asia Pacific Fund, Inc. (since May 1989).
S. Jane Rose (50) Secretary Senior Vice President (since January 1991), Senior Counsel
One Seaport Plaza (since June 1987) and First Vice President (June 1987-
New York, NY December 1990) of PMF; Senior Vice President and Senior
Counsel of Prudential Securities (since July 1992);
formerly Vice President and Associate General Counsel of
Prudential Securities.
Eugene S. Stark Treasurer and First Vice President (since January 1990) of PMF.
(38) Principal
One Seaport Plaza Financial and
New York, NY Accounting
Officer
Ellyn C. Acker (35) Assistant Vice President and Associate General Counsel (since March
One Seaport Plaza Secretary 1995) of PMF; Vice President and Associate General
New York, NY Counsel of Prudential Securities (since March 1995);
prior thereto, associated with the law firm of Fulbright
& Jaworski L.L.P.
Stephen M. Ungerman (42) Assistant First Vice President of PMF (since February 1993); Tax
One Seaport Plaza Treasurer Director of the Money Management Group and the Private
New York, NY Asset Group of The Prudential Insurance Company of
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.
Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," oversee such actions and decide on general
policy.
Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the
Manager.
The Fund pays each of its Directors who is not an affiliated person of PMF
or 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 Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees in installments which accrue interest at a
rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
bills at the beginning of each calendar quarter (the T-bill rate) or, pursuant
to an SEC (Securities and Exchange Commission) exemptive order, at the daily
rate of return of the Fund (the Fund rate). Payment of the interest so accrued
is also deferred and accruals become payable at the option of the Director.
The Fund's obligation to make payments of deferred Directors' fees, together
with interest thereon, is a general obligation of the Fund. Currently, Mr.
Dorsey and Ms. Smith have agreed to defer their fees at the T-bill rate and at
the Fund rate, respectively.
B-13
<PAGE>
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 1996.
The following table sets forth estimated aggregate compensation to be paid
by the Fund 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.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
ESTIMATED RETIREMENT ESTIMATED FROM FUND AND
AGGREGATE BENEFITS ACCRUED ANNUAL FUND COMPLEX
COMPENSATION AS PART OF FUND BENEFITS UPON PAID TO
NAME AND POSITION FROM FUND EXPENSES RETIREMENT DIRECTORS
----------------- ------------ ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Thomas R. Anderson--
Director $7,500 None N/A $ 41,375(6/6)*
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 Fund)
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 Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund and there were
no beneficial owners of more than 5% of any class of shares of the outstanding
common stock of the Fund.
As of March 22, 1996, Prudential Securities was the record holder for other
beneficial owners of 6,248,910 Class A shares (approximately 94% of such
shares outstanding), 13,526,855 Class B shares (approximately 93% of such
shares outstanding) and 1,184,403 Class C shares (approximately 98% of such
shares outstanding). In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy materials to
beneficial owners for which it is the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager to all of the other investment companies that, together with the Fund,
comprise the Prudential Mutual Funds. See "How the Fund is Managed--Manager"
in the Prospectus. As of September 30, 1995, PMF managed and/or administered
open-end and closed-end management investment companies with assets of
approximately $51 billion. According to the Investment Company Institute, as
of September 30, 1995, the Prudential Mutual Funds were the 13th largest
family of mutual funds in the United States.
PMF is a subsidiary of Prudential Securities Incorporated and The Prudential
Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual
Fund Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the
Prudential Mutual Funds and, in addition, provides customer service,
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 Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities and
other assets. In connection therewith, PMF is obligated to keep certain books
and records of the Fund. PMF also administers the Fund's corporate affairs
and, in connection therewith, furnishes the Fund with office facilities,
together with those ordinary clerical and
B-14
<PAGE>
bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian (the Custodian), and Prudential Mutual
Fund Services, Inc. (PMFS or the Transfer Agent), the Fund's transfer and
dividend disbursing agent. The management services of PMF for the Fund 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 the Fund's average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that, in the event the expenses of the Fund (including the fees of PMF, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statutes or regulations of any jurisdiction in which
the Fund's shares are qualified for offer and sale, the compensation due to
PMF will be reduced by the amount of such excess. Reductions in excess of the
total compensation payable to PMF will be paid by PMF to the Fund. Currently,
the Fund believes that the most restrictive expense limitation of state
securities commissions is 2 1/2% of the Fund's average daily net assets up to
$30 million, 2% of the next $70 million of such assets and 1 1/2% of such
assets in excess of $100 million.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Directors who are not affiliated persons of PMF or
the Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund as described below; and
(c) the 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 Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the
Manager or the Fund's investment adviser, (c) the fees and certain expenses of
the Custodian and Transfer and Dividend Disbursing Agent, including the cost
of providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of
any trade associations of which the Fund may be a member, (h) the cost of
stock certificates representing shares of the Fund, (i) the cost of fidelity
and liability insurance, (j) certain organization expenses of the Fund and the
fees and expenses involved in registering and maintaining registration of the
Fund and of its shares with the SEC, registering the Fund as a broker or
dealer and qualifying its shares under state securities laws, including the
preparation and printing of the Fund's registration statements and
prospectuses for such purposes, (k) allocable communications expenses with
respect to investor services and all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders in the amount necessary for distribution to the
shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically
if assigned, and that it may be terminated without penalty by either party
upon not more than 60 days' nor less than 30 days' written notice. The
Management Agreement will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act. The Management Agreement was last approved by the Board of
Directors of the Fund, including all of the Directors who are not parties to
the contract or interested persons of any such party, as defined in the
Investment Company Act, on April 9, 1996, and by the initial shareholder of
the Fund on September 14, 1995.
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 Fund. In connection therewith, Jennison is obligated to keep certain books
and records 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
B-15
<PAGE>
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 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 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.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party, as defined in the Investment Company
Act, on April 9, 1996, and by the initial shareholder of the Fund on September
14, 1995.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or 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.
The Manager and the Subadviser are subsidiaries of Prudential, which is one
of the largest diversified financial services institutions in the world and,
based on total assets, the largest insurance company in North America as of
December 31, 1994. Its primary business is to offer a full range of products
and services in three areas: insurance, investments and home ownership for
individuals and families; health-care management and other benefit programs
for employees of companies and members of groups; and asset management for
institutional clients and their associates. Prudential (together with its
subsidiaries) employs nearly 100,000 persons worldwide, and maintains a sales
force of approximately 19,000 agents, 3,400 insurance brokers and 6,000
financial advisors. It insures or provides other financial services to more
than 50 million worldwide--to more than one of every five people in the United
States. 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 has been engaged
in the insurance business since 1875. In July 1995, Institutional Investor
ranked Prudential the third largest institutional money manager of the 300
largest money management organizations in the United States as of December 31,
1994. As of December 31, 1994, Prudential through its subsidiaries provided
automobile insurance for more than 1.8 million cars and insured more than 1.5
million homes. For the year ended December 31, 1994, The Prudential Bank, a
subsidiary of Prudential, served 940,000 customers in 50 states providing
credit card services and loans totaling more than $1.2 billion. Assets held by
PSI for its clients totaled approximately $150 billion at December 31, 1994.
During 1994, over 28,000 new customer accounts were opened each month at PSI.
The Prudential Real 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.
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 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.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the Class
A, Class B and Class C shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Fund under Rule 12b-1 under the Investment Company Act and 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. See "How the Fund Managed--Distributor" in the Prospectus.
On April 9, 1996, the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Class A, Class B or Class
C Plan or in any agreement related to the Plans (the Rule 12b-1 Directors), at
a meeting called for the purpose of voting on each Plan, approved the
continuance of the Plans and Distribution Agreement. 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
B-16
<PAGE>
the service fee) may be paid for distribution-related expenses with respect to
the Class B and Class C shares, respectively (asset-based sales charge). The
Plans were each approved by the sole shareholder of the Class A, Class B and
Class C shares on September 14, 1995.
The Class A, Class B and Class C Plans will continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on
such continuance. The Plans may each be terminated at any time, without
penalty, by the vote of a majority of the Rule 12b-1 Directors or by the vote
of the holders of a majority of the outstanding shares of the applicable class
on not more than 60 days', nor less than 30 days' written notice to any other
party to the Plans. The Plans may not be amended to increase materially the
amounts to be spent for the services described therein without approval by the
shareholders of the applicable class, and all material amendments are required
to be approved by the Board of Directors in the manner described above. Each
Plan will automatically terminate in the event of its assignment. The Fund
will not be obligated to pay expenses incurred under any Plan if it is
terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report will include an
itemization of the distribution expenses and the purposes of such
expenditures. In addition, as long as the Plans remain in effect, the
selection and nomination of Rule 12b-1 Directors shall be committed to the
Rule 12b-1 Directors.
Prudential Securities serves as the Distributor of Class Z shares and incurs
the expenses of distributing the Fund's Class Z shares under a Distribution
Agreement with the Fund, none of which are reimbursed by or paid for by the
Fund.
Pursuant to the Distribution Agreements, the Fund 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
B-17
<PAGE>
Directors of PSG and the Compliance Committee of PSI. The new director will
also serve as an independent "ombudsman" whom PSI employees can call
anonymously with complaints about ethics and compliance. Prudential Securities
shall report any allegations or instances of criminal conduct and material
improprieties to the new director. The new director will submit compliance
reports which shall identify all such allegations or instances of criminal
conduct and material improprieties every three months for a three-year period.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. In the case of
Class B shares, interest charges equal to the prime rate plus one percent per
annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not required to be included in the calculation
of the 6.25% limitation. The annual asset-based sales charge with respect to
Class B and Class C shares of the Fund may not exceed .75 of 1%. The 6.25%
limitation applies to the Fund rather than on a per shareholder basis. If
aggregate sales charges were to exceed 6.25% of total gross sales of any
class, all sales charges on shares of that class would be suspended.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. The term "Manager" as used in
this section includes the Subadviser. Broker-dealers may receive negotiated
brokerage commissions on Fund portfolio transactions, including options and
the purchase and sale of underlying securities upon the exercise of options.
On foreign securities exchanges, commissions may be fixed. Orders may be
directed to any broker or futures commission merchant including, to the extent
and in the manner permitted by applicable law, Prudential Securities and its
affiliates.
Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting
as principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount
of compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in
which case no commissions or discounts are paid. The Fund will not deal with
Prudential Securities or any affiliate in any transaction in which Prudential
Securities or any affiliate acts as principal, 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 the Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities, or an affiliate, during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Fund, will not significantly affect the
Fund's ability to pursue its present investment objective. However, in the
future in other circumstances, the Fund may be at a disadvantage because of
this limitation in comparison to other funds with similar objectives but not
subject to such limitations.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price
and efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio
transactions of the Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data
and research reports on particular companies and industries. Such services are
used by the Manager in connection with all of its investment activities, and
some of such services obtained in connection with the execution of
transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers, dealers or futures commission merchants furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than the Fund's, and the
services furnished by such brokers, dealers or futures commission merchants
may be used by the Manager in providing investment management for the Fund.
Commission rates are established pursuant to negotiations with the broker,
dealer or futures commission merchant based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. The Manager's policy is to pay higher commissions to brokers, other
than Prudential Securities, for particular transactions than might be charged
if a different broker had been selected, on occasions when, in the Manager's
opinion, this policy furthers the objective of obtaining best price and
execution. In addition, the Manager is authorized to pay higher commissions on
brokerage transactions for the Fund to brokers other
B-18
<PAGE>
than Prudential Securities (or any affiliate) in order to secure research and
investment services described above, subject to review by the Fund's Board of
Directors from time to time as to the extent and continuation of this
practice. The allocation or orders among brokers and the commission rates paid
are reviewed periodically by the Fund's Board of Directors. The Fund will not
pay up for research in principal transactions.
Subject to the above considerations, Prudential Securities (or any
affiliate) may act as a securities broker or futures commission merchant for
the Fund. In order for Prudential Securities (or any affiliate) to effect any
portfolio transactions for the Fund, the commissions, fees or other
remuneration received by Prudential Securities (or any affiliate) must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers or futures commission merchants in connection with
comparable transactions involving similar securities or futures being
purchased or sold on an exchange during a comparable period of time. This
standard would allow Prudential Securities (or any affiliate) to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker or futures commission merchant in a commensurate arm's-
length transaction. Furthermore, the Board of Directors of the Fund, including
a majority of the Directors who are not "interested" persons, has adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to Prudential Securities (or any affiliate) are
consistent with the foregoing standard. In accordance with Section 11(a) of
the Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually
a statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential
Securities are also subject to such fiduciary standards as may be imposed by
applicable law.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). Class Z shares of the
Fund are not subject to any sales or redemption charge and are offered
exclusively for sale to participants in the Prudential Securities 401(k) Plan,
an employee benefit plan sponsored by Prudential Securities (the PSI 401(k)
Plan). See "Shareholder Guide--How to Buy Shares of the Fund" in the
Prospectus.
Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service expenses, which may affect
performance, (ii) each class has exclusive voting rights on any other matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class,
(iii) each class has a different exchange privilege, (iv) only Class B shares
have a conversion feature and (v) Class Z shares are offered exclusively for
sale to participants in the PSI 401(k) Plan. See "Distributor." Each class
also has separate exchange privileges. See "Shareholder Investment Account--
Exchange Privilege."
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold with a maximum sales charge of 5%, Class
B*, Class C* and Class Z** shares are sold at net asset value. Using the
Fund's net asset value at March 31, 1996, the maximum offering price of the
Fund's shares is as follows:
<TABLE>
<CAPTION>
CLASS A
<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.
** Class Z shares were not offered prior to April 15, 1996.
B-19
<PAGE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See the table of breakpoints under "Shareholder
Guide-- Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will
be deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more 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 the Fund and shares of other Prudential Mutual Funds (excluding
money market funds other than those acquired pursuant to the exchange
privilege) to determine the reduced sales charge. The value of shares held
directly with the Transfer Agent and through Prudential Securities will not be
aggregated to determine the reduced sales charge. All shares must be held
either directly with the Transfer Agent or through Prudential Securities. The
value of existing holdings for purposes of determining the reduced sales
charge is calculated using the maximum offering or price (net asset value plus
maximum sales charge) as of the previous business day. See "How the Fund
Values Its Shares" in the Prospectus. The Distributor must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charges will be granted subject to confirmation of the
investor's holdings. Rights of Accumulation are not available to individual
participants in any retirement or group plans.
LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors), including retirement and group plans,
who enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds. All shares of the Fund and shares of other Prudential Mutual
Funds (excluding money market funds other than those acquired pursuant to the
exchange privilege) which were previously purchased and are still owned are
also included in determining the applicable reduction. However, the value of
shares held directly with the Transfer Agent and through Prudential Securities
will not be aggregated to determine the reduced sales charge. All shares must
be held either directly with the Transfer Agent or through Prudential
Securities. 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
B-20
<PAGE>
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
Fund 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. 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.
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
Disability--An individual will be A copy of the Social Security
considered disabled if he or she is unable Administration award letter or a letter
to engage in any substantial gainful from a physician on the physician's
activity by reason of any medically letterhead stating that the shareholder
determinable physical or mental impairment (or, in the case of a trust, the grantor)
which can be expected to result in death or is permanently disabled. The letter must
to be of long-continued and indefinite also indicate the date of disability.
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
Upon the initial purchase of Fund shares, a Shareholder Investment Account is
established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. The Fund makes available
to its shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. For the convenience
of investors, all dividends and distributions are automatically reinvested in
full and fractional shares of the Fund. An investor may direct the Transfer
Agent in writing not less than five full business days prior to the record
date to have subsequent dividends or distributions sent in cash rather than
reinvested.
B-21
<PAGE>
In the case of recently purchased shares for which registration instructions
have not been received on the record date, cash payment will be made directly
to the dealer. Any shareholder who receives a cash payment representing a
dividend or distribution may reinvest such dividend or distribution at net
asset value by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Such investment will be made at the net
asset value per share next determined after receipt of the check or proceeds
by the Transfer Agent. Such shareholder will receive credit for any contingent
deferred sales charge paid in connection with the amount of proceeds being
reinvested.
EXCHANGE PRIVILEGE. The Fund makes available to its shareholders the
Exchange Privilege. The Fund makes available to its shareholders the privilege
of exchanging their shares of the Fund for shares of certain other Prudential
Mutual Funds, including one or more specified money market funds, subject in
each case to the minimum investment requirements of such funds. Shares of such
other Prudential Mutual Funds may also be exchanged for shares of the Fund.
All exchanges are made on the basis of relative net asset value next
determined after receipt of an order in proper form. An exchange will be
treated as a redemption and purchase for tax purposes. Shares may be exchanged
for shares of another fund only if shares of such fund may legally be sold
under applicable state laws. For retirement and group plans having a limited
menu of Prudential Mutual Funds, the Exchange Privilege is available for those
funds eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Short-Intermediate Term Series) and shares of the
money market funds specified below. No fee or sales load will be imposed upon
the exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire
Class A shares of the Prudential Mutual Funds participating in the Exchange
Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may
be payable upon the redemption of the Class B and Class C shares acquired as a
result of the exchange. The applicable sales charge will be that imposed by
the fund in which shares were initially purchased and the purchase date will
be deemed to be the date of the initial purchase, rather than the date of the
exchange.
Class B and Class C shares of the Fund may also be exchanged for Class B and
Class C shares, respectively, of an eligible money market fund without
imposition of any CDSC at the time of exchange. Upon subsequent redemption
from such money market fund or after re-exchange into the Fund, such shares
will be subject to the CDSC calculated without regard to the time such shares
were held in the money market fund. In order to minimize the period of time in
which shares are subject to a CDSC, shares exchanged out of the money market
fund will be exchanged on the basis of their remaining holding periods, with
the longest remaining holding periods being transferred first. In measuring
the time period shares are held in a money market fund and "tolled" for
purposes of calculating the CDSC holding period, exchanges are deemed to have
been made on the last day of the month. Thus, if shares are
B-22
<PAGE>
exchanged into the Fund from a money market fund during the month (and are held
in the Fund at the end of the month), the entire month will be included in
the CDSC holding period. Conversely, if shares are exchanged into a money
market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period.
At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.
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.
CLASS Z. Class Z shares may be exchanged for Class Z shares of the funds
listed below which participate in the PSI 401(k) Plan. No fee or sales load
will be imposed upon the exchange.
Prudential Allocation Fund (Balanced Portfolio)
Prudential Equity Income Fund
Prudential Equity Fund, Inc.
Prudential Global Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust (Money Market Series)
Prudential High Yield Fund, Inc.
Prudential MoneyMart Assets, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Utility Fund, Inc.
For additional details about the Exchange Privilege Class Z shareholders
should contact the Prudential Securities Benefit Department at One Seaport
Plaza, 33rd Floor, New York, New York 10292.
The Exchange Privilege may be modified, terminated or suspended on 60 days'
notice, and any fund, including the Fund, or the Distributor, has the right to
reject any exchange application relating to such fund's shares.
Dollar Cost Averaging
Dollar cost averaging is a method of accumulating shares by investing a fixed
amount of dollars in shares at set intervals. An investor buys more shares when
the price is low and fewer shares when the price is high. The average cost per
share is lower than it would be if a constant number of shares were bought at
set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university./1/
/1/ Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for the 1993-1994 academic year.
B-23
<PAGE>
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals./2/
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY
INVESTMENTS: $100,000 $150,000 $200,000 $250,000
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years.............. $ 110 $ 165 $ 220 $ 275
20 Years.............. 176 264 352 440
15 Years.............. 296 444 592 740
10 Years.............. 555 833 1,110 1,388
5 Years............... 1,371 2,057 2,742 3,428
</TABLE>
- ---------
/2/The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund.
The investment return and principal value of an investment will fluctuate so
that an investor's shares when redeemed may be worth more or less than their
original cost.
See "Automatic Savings Accumulation Plan."
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, an investor may
arrange to have a fixed amount automatically invested in shares of the Fund
monthly by authorizing his or her bank account or Prudential Securities
Account (including a Command Account) to be debited to invest specified dollar
amounts in shares of the Fund. The investor's bank must be a member of the
Automatic Clearing House System. Stock certificates are not issued to ASAP
participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Withdrawals of Class B or Class C shares may be subject to a CDSC. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and
(iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment Account--
Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate
a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares
are inadvisable because of the sales charges applicable to (i) the purchase of
Class A shares and (ii) the withdrawal of Class B and Class C shares. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly if used in connection with a retirement
plan.
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-24
<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 the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings
in the IRA account will be subject to tax when withdrawn from the account.
MUTUAL FUND PROGRAMS
From time to time, the Fund (or a portfolio of the Fund, 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. The Fund may waive or reduce the minimum initial investment
requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as 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 Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sales price on the day of valuation, or, if there was no sale on such
day, the mean between the last bid and asked prices on such day, as provided
by a pricing service. Corporate bonds (other than convertible debt securities)
and U.S. Government securities that are actively traded in the over-the-
counter market, including listed securities for which the primary market is
believed to be over-the-counter, are valued on the basis of valuations
provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which
the primary market is believed to be over-the-counter, are valued at the mean
between the last reported bid and asked prices provided by principal market
makers or independent pricing agents. Options on stock and stock indices
traded on an exchange are valued at the mean between the most recently quoted
bid and asked prices on the respective exchange and futures contracts and
options thereon are valued at their last sales prices as of the close of the
commodities exchange or board of trade. Should an extraordinary event, which
is likely to affect the value of the security, occur after the close of an
exchange
B-25
<PAGE>
on which a portfolio security is traded, such security will be valued at fair
value considering factors determined in good faith by the investment adviser
under procedures established by and under the general supervision of the
Fund's Board of Directors.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with
interest accrued or discount amortized to the date of maturity, if their
original maturity was 60 days or less, unless this is determined by the Board
of Directors not to represent fair value. Short-term securities with remaining
maturities of 60 days or more, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
net asset value at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem Fund shares have been received or days on which changes in the
value of the Fund's portfolio securities do not affect net asset value. In the
event the New York Stock Exchange closes early on any business day, the net
asset value of the Fund's shares shall be determined at a time between such
closing and 4:15 P.M., New York time.
Net asset value is calculated separately for each class. The net asset value
of Class B and Class C shares will generally be lower than the net asset value
of Class A shares as a result of the larger distribution-related fee to which
Class B and Class C shares are subject. It is expected, however, that the net
asset value per share of each class will tend to converge immediately after
the recording of dividends which will differ by approximately the amount of
the distribution expense accrual differential among the classes.
TAXES
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves the Fund (but not its shareholders) from paying federal income
tax on income which is distributed to shareholders and permits net long-term
capital gains of the Fund (i.e., the excess of net long-term capital gains
over net short-term capital losses) to be treated as long-term capital gains
of the shareholders, regardless of how long shareholders have held their
shares in the Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans,
and gains from the sale or other disposition of securities or options thereon
or foreign currencies, or other income (including but not limited to gains
from options, futures or forward contracts) derived with respect to its
business of investing in such securities or currencies; (b) the Fund derive
less than 30% of its gross income from gains (without reduction for losses)
from the sale or other disposition of securities, options thereon, futures
contracts, options thereon, forward contracts and foreign currencies held for
less than three months (except for foreign currencies directly related to the
Fund's business of investing in foreign securities) (the short-short rule);
(c) the Fund diversify its holdings so that, at the end of each quarter of the
taxable year (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities and other securities limited
in respect of any one issuer to an amount not greater than 5% of the market
value of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government securities);
and (d) the Fund distribute to its shareholders at least 90% of its net
investment income (including short-term capital gains) other than long-term
capital gains in each year.
Gains or losses on sales of securities by the Fund will be treated as long-
term capital gains or losses if the securities have been held by it for more
than one year except in certain cases where the Fund acquires a put or writes
a call thereon or makes a short sale against-the-box. Other gains or losses on
the sale of securities will be short-term capital gains or losses. Gains and
losses on the sale, lapse or other termination of options on securities will
generally be treated as gains and losses from the sale of securities (assuming
they do not qualify as Section 1256 contracts). If an option written by the
Fund on securities lapses or is terminated through a closing transaction, such
as a repurchase by the Fund of the option from its holder, the Fund will
generally realize short-term capital gain or loss. If securities are sold by
the Fund pursuant to the exercise of a call option written by it, the Fund
will include the premium received in the sale proceeds of the securities
delivered in determining the amount of gain or loss on the sale. Certain of
the Fund's transactions may be subject to wash sale, short sale, conversion
transaction and straddle provisions of the Internal Revenue Code. In addition,
debt securities acquired by the Fund may be subject to original issue discount
and market discount rules.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. See "Investment Objective and Policies." These investments
will generally constitute Section 1256 contracts and will be required to be
"marked to market" for federal income tax purposes at the end of the Fund's
taxable year; that is, treated as having been sold at market value. Except
with respect to forward foreign currency exchange contracts, 60% of any gain
or loss recognized on such deemed sales and on actual dispositions will be
treated as long-term capital gain or loss, and the remainder will be treated
as short-term capital gain or loss.
B-26
<PAGE>
Gain or loss on the sale, lapse or other termination of options on stock and
on narrowly-based stock indices will be capital gain or loss and will be long-
term or short-term depending upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain
wash sale and short sale provisions of the Internal Revenue Code. In the case
of a straddle, the Fund may be required to defer the recognition of losses on
positions it holds to the extent of any unrecognized gain on offsetting
positions held by the Fund. The conversion transaction rules may apply to
certain transactions to treat all or a portion of the gain thereon as ordinary
income rather than as capital gain.
The Fund's ability to hold foreign currencies or engage in hedging
activities may be limited by the 30% short-short rule discussed above.
A "passive foreign investment company" (PFIC) is a foreign corporation that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If the Fund acquires and holds
stock in a PFIC beyond the end of the year of its acquisition, the Fund will
be subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain from disposition of the stock
(collectively, PFIC income), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders. Proposed Treasury regulations
provide that the Fund may make a "mark-to-market" election with respect to any
stock it holds of a PFIC. If the election is in effect, at the end of the
Fund's taxable year, the Fund will recognize the amount of gains, if any, with
respect to PFIC stock. No loss will be recognized on PFIC stock.
Alternatively, the Fund may elect to treat any PFIC in which it invests as a
"qualified electing fund," in which case, in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each year
its pro rata share of the qualified electing fund's annual ordinary earnings
and net capital gain, even if they are not distributed to the Fund; those
amounts would be subject to the distribution requirements applicable to the
Fund described above. It may be very difficult, if not impossible, to make
this election because of certain requirements thereof.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or
ordinary loss. Similarly, gains or losses on forward foreign currency exchange
contracts or dispositions of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition also are
treated as ordinary gain or loss. These gains, referred to under the Internal
Revenue Code as "Section 988" gains or losses, increase or decrease the amount
of the Fund's investment company taxable income available to be distributed to
its shareholders as ordinary income, rather than increasing or decreasing the
amount of the Fund's net capital gain. If Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary dividend distributions, or distributions made before
the losses were realized would be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
basis in his or her Fund shares.
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during
the 12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from
the prior year or the twelve-month period ending on October 31 of such prior
year, respectively. To the extent it does not meet these distribution
requirements, the Fund will be subject to a nondeductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which the
Fund pays income tax is treated as distributed.
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by
the per share amount of the dividends. Furthermore, such dividends, although
in effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of the Fund, the investor should carefully consider
the impact of dividends, including capital gains distributions, which are
expected to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes
of calculating gain or loss realized upon a sale or exchange of shares of the
Fund.
B-27
<PAGE>
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 the Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Interest
income, capital gain net income, gain or loss from Section 1256 contracts
(described above), dividend income from foreign corporations and income from
other sources will not constitute qualified dividends. Individual shareholders
are not eligible for the dividends-received deduction.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the effective
rate of foreign tax to which the Fund will be subject, since the amount of the
Fund's assets to be invested in various countries will vary. The 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. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P (1+T) n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the 1,
5 or 10 year periods (or fractional portion thereof).
Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.
The average annual total return for the period from November 2, 1995
(commencement of investment operations) to March 31, 1996 for the Fund's Class
A, Class B and Class C shares was (1.29)%, (1.40)% and 2.60%, respectively.
Class Z shares were not offered prior to April 15, 1996.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV-P
P
B-28
<PAGE>
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 Fund's Class A, Class B and Class C shares was 3.90%, 3.60% and
3.60%, respectively. Class Z shares were not offered prior to April 15, 1996.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of
inflation./1/
[CHART APPEARS HERE]
- ---------
/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 Fund's portfolio securities
and cash and in that capacity maintains certain financial and accounting books
and records pursuant to an agreement with the Fund. Subcustodians provide
custodial services for the Fund's foreign assets held outside the United
States. See "How the Fund is Managed--Custodian and Transfer and Dividend
Disbursing Agent" in the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Fund. PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee per
shareholder account 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 Fund's independent accountants, and in that capacity audits the
Fund's annual reports.
B-29
<PAGE>
I N D E P E N D E N T A U D I T O R S ' R E P O R T
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-30
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
September 13,
Assets 1995
-------------
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
======
See Notes to Financial Statement.
B-31
<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 secunties 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-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>
- ----------------------------------------------------------------
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 Chiren 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--1.8%
85,300 Vodatone Group PLC (ADR)
(United Kingdom) 3,198,750
- ---------------------------------------------------------------
Computer Systems/Peripherals--4.9%
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--1.9%
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
- ---------------------------------------------------------------
Pharmaceuticals--11.5%
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
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-33
<PAGE>
Portfolio of Investments as of March 31, 1996
(Unaudited) PRUDENTIAL JENNISON FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ---------------------------------------------------------------
Hotels--2.3%
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
- ---------------------------------------------------------------
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 3 Com Corp. (a) 3,449,187
------------
9,426,924
- ---------------------------------------------------------------
Office Equipment & Supplies--1.2%
90,000 Corporate Express, Inc.(a) 2,970,000
- ---------------------------------------------------------------
Oil Services--1.0%
31,500 Schlumberger, Ltd. 2,492,438
- ---------------------------------------------------------------
Publishing--1.3%
44,700 Scholastic Corp. (a) 3,073,125
- ---------------------------------------------------------------
Retail--9.1%
139,900 AutoZone, Inc. (a) 4,739,112
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
------------
21,882,925
- ---------------------------------------------------------------
Semiconductors & Related Devices--5.4%
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
- ---------------------------------------------------------------
Telephone--1.8%
141,900 MCI Communications Corp. 4,292,475
- ---------------------------------------------------------------
Total long-term investments
(cost $220,038,850) 233,580,387
------------
<CAPTION>
Principal
Moody's Amount
Rating (000)
- -------- ---------
<C> <C> <S> <C>
SHORT-TERM INVESTMENT--2.8%
- ----------------------------------------------------------------
Corporate Notes--2.8%
A1 $ 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.
- --------------------------------------------------------------------------------
B-34 See Notes to Financial Statements.
<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-35
<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
===============
</TABLE>
- ---------------
(a) Commencement of investment operations.
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
================
</TABLE>
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
B-36 See Notes to Financial Statements.
<PAGE>
Notes to 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 and futures contracts and options thereon are valued
at the last sales price as of 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-37
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL JENNISON FUND, INC.
- --------------------------------------------------------------------------------
certain clerical and accounting 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 $20,000 and $1,000 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-38
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL JENNISON FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
----------- ----------- -----------
<S> <C> <C> <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
----------- ----------- -----------
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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-39
<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 Iffotson
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 Total Returns of Different Bond Market Sectors
[CHART APPEARS HERE]
/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 shows the growth of a
This chart illustrates the hypothetical $10,000 investment made
performance of major world stock in the stocks representing the S&P
markets for the period from 1986 500 stock index with and without
through 1995. It does not represent reinvested dividends.
the performance of any Prudential
Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS OF
MAJOR WORLD STOCK MARKETS (1986-
1995) (IN U.S. DOLLARS)
[CHART]
[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 in 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.
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.
--------------------------------------
[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 APPEARS HERE]
- ---------
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.
[CHART APPEARS HERE]
- ---------
* 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.
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<PAGE>
APPENDIX--INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating
to the Prudential Mutual Funds . See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1995 and is subject to change thereafter. All information relies
on data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC/1/ are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December
31, 1995. Its primary business is to offer a full range of products and
services in three areas: insurance, investments and home ownership for
individuals and families; health-care management and other benefit programs
for employees of companies and members of groups; and asset management for
institutional clients and their associates. Prudential (together with its
subsidiaries) employs more than 92,000 persons worldwide, and maintains a
sales force of approximately 13,000 agents and 5,600 financial advisors.
Prudential is a major issuer of annuities, including variable annuities.
Prudential seeks to develop innovative products and services to meet consumer
needs in each of its business areas. Prudential uses the rock of Gibraltar as
its symbol. The Prudential rock is a recognized brand name throughout the
world.
Insurance. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million
life insurance policies in force today with a face value of $1 trillion.
Prudential has the largest capital base ($11.4 billion) of any life insurance
company in the United States. The Prudential provides auto insurance for more
than 1.7 million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k)
plans. In July 1995, Institutional Investor ranked Prudential the third
largest institutional money manager of the 300 largest money management
organizations in the United States as of December 31, 1994. As of December 31,
1995, Prudential had more than $314 billion in assets under management.
Prudential's Money Management Group (of which Prudential Mutual Funds is a key
part) manages over $190 billion in assets of institutions and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers
and agents and more than 1,100 offices in the United States./2/
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
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.
- ---------
/1/ Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to
Prudential Jennison Fund, Inc. and BlackRock Financial Management, Inc. as
subadviser to The BlackRock Government Income Trust. There are multiple
subadvisers for The Target Portfolio Trust.
/2/ As of December 31, 1994.
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<PAGE>
- ---------
/3As/of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
/4Trading/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.
/5Based/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.
/6As/of December 31, 1994.
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual
fund in both bull and bear markets as well as a fund's risk profile.
Prudential Equity Fund is managed with a "value" investment style by PIC. In
1995, Prudential Securities introduced Prudential Jennison Fund, a growth-
style equity fund managed by Jennison Associates Capital Corp., a premier
institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of
its kind in the country) along with 100 or so 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.
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.
- ------------------
/7/ As of December 31, 1994.
/8/ On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.
A-8
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS:
(1) Financial Statements included in the Prospectus constituting
Part A of this Registration Statement:
Financial Highlights (unaudited).
(2) Financial Statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Independent Auditor's Report.
Statement of Assets and Liabilities as of September 13, 1995
(audited).
Notes to Financial Statements (audited).
Portfolio of Investments as of March 31, 1996 (unaudited).
Statement of Assets and Liabilities at March 31, 1996
(unaudited).
Statement of Operations for the period ended March 31, 1996
(unaudited)
Statement of Changes in Net Assets (unaudited).
Notes to Financial Statements (unaudited).
Financial Highlights (unaudited).
(b) EXHIBITS:
1. (a) Articles of Incorporation, incorporated by reference to
Exhibit 1(a) to the Registration Statement on Form N-1A (File
No. 33-61997) filed on August 22, 1995.
(b) Articles of Amendment incorporated by reference to Exhibit
1(b) to the Registration Statement on Form N-1A (File No.
33-61997) filed on August 22, 1995.
(c) Amended and Restated Articles of Incorporation incorporated
by reference to Exhibit No. 1(c) to the Registration
Statement on Form N-1A (File No. 33-61997) filed via
EDGAR on February 14, 1996.
2. By-Laws incorporated by reference to Exhibit 2 to the
Registration Statement on Form N-1A (File No. 33-61997) filed on
August 22, 1995.
3. Not Applicable.
4. Instruments defining rights of shareholders incorporated by
reference to Exhibit 4 to the Registration Statement on Form
N-1A (File No. 33-61997) filed on August 22, 1995.
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. incorporated by reference to
Exhibit No. 5(a) to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on February 14, 1996.
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<PAGE>
(b) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and Jennison Associates Capital Corp. incorporated by
reference to Exhibit No. 5(b) to the Registration Statement on Form
N-1A (File No. 33-61997) filed via EDGAR on February 14, 1996.
6. (a) Distribution Agreement between the Registrant and Prudential
Securities Incorporated incorporated by reference to Exhibit No. 6(a)
to the Registration Statement on Form N-1A (File No. 33-61997) filed
via EDGAR on February 14, 1996.
(b) Form of Selected Dealer Agreement incorporated by reference to Exhibit
No. 6(b) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on
September 19, 1995.
7. Not Applicable.
8. Form of Custodian Contract between the Registrant and State Street Bank and
Trust Company incorporated by reference to Exhibit No. 8 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-
61997) filed via EDGAR on September 19, 1995.
9. Form of Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. incorporated by reference to Exhibit
No. 9 to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A (File No. 33-61997) filed via EDGAR on September 19, 1995.
10. Opinion of Shereff, Friedman, Hoffman & Goodman, LLP. incorporated by
reference to Exhibit No. 10 to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 33-61997) filed via EDGAR on
September 19, 1995.
11. Consent of Independent Accountants. *
12. Not Applicable.
13. Purchase Agreement incorporated by reference to Exhibit No. 13 to the
Registration Statement on Form N-1A (File No. 33-61997) filed via EDGAR
on February 14, 1996.
14. Not Applicable.
15. (a) Distribution and Service Plan for Class A Shares incorporated by
reference to Exhibit No. 15(a) to the Registration Statement on Form
N-1A (File No. 33-61997) filed via EDGAR on February 14, 1996.
(b) Distribution and Service Plan for Class B Shares incorporated by
reference to Exhibit 15(b) to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on February 14, 1996.
(c) Distribution and Service Plan for Class C Shares incorporated by
reference to Exhibit No. 15(c) to the Registration Statement on Form
N-1A (File No. 33-61997) filed via EDGAR on February 14, 1996.
16. Schedule of Computation of Performance Quotations. *
17. Financial Data Schedules filed as Exhibit 27 for electronic purposes.*
18. Rule 18F-3 Plan. *
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* Filed herewith.
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ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 22, 1996 there were 6,699, 17,129, 1,076, and
0 record holders of Class A, Class B, Class C, and Class Z common stock,
$.001 par value per share, of the Registrant, respectively.
ITEM 27. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment
Company Act of 1940 (the 1940 Act) and pursuant to Article VI of
the Fund's By-Laws (Exhibit 2 to the Registration Statement),
officers, directors, employees and agents of the Registrant will
not be liable to the Registrant, any shareholder, officer,
director, employee, agent or other person for any action or failure
to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be
indemnified against liabilities in connection with the Registrant,
subject to the same exceptions. Section 2-418 of the Maryland
General Corporation Law permits indemnification of directors who
acted in good faith and reasonably believed that the conduct was in
the best interests of the Registrant. As permitted by Section
17(i) of the 1940 Act, pursuant to Section 10 of each Distribution
Agreement (Exhibit 6 to the Registration Statement), each
Distributor of the Registrant may be indemnified against
liabilities which it may incur, except liabilities arising from bad
faith, gross negligence, willful misfeasance or reckless disregard
of duties.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (Securities Act) may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the
Registrant in connection with the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its
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<PAGE>
officers and directors against liabilities, and certain costs of
defending claims against such officers and directors, to the extent
such officers and directors are not found to have committed conduct
constituting willful misfeasance, bad faith, gross negligence or
reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the
Registration Statement) and Section 4 of the Subadvisory Agreement
(Exhibit 5(b) to the Registration Statement) limit the liability of
Prudential Mutual Fund Management, Inc. (PMF) and Jennison
Associates Capital Corp. (Jennison), respectively, to liabilities
arising from willful misfeasance, bad faith or gross negligence in
the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under
the agreements.
The Registrant hereby undertakes that it will apply the
indemnification provisions of its By-Laws and the Distribution
Agreement in a manner consistent with Release No. 11330 of the
Securities and Exchange Commission under the 1940 Act so long as
the interpretation of Section 17(h) and 17(i) of such Act remain in
effect and are consistently applied.
Under Section 17(h) of the 1940 Act, it is the position of the
staff of the Securities and Exchange Commission that if there is
neither a court determination on the merits that the defendant is
not liable nor a court determination that the defendant was not
guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of one's
office, no indemnification will be permitted unless an independent
legal counsel (not including a counsel who does work for either the
Registrant, its investment adviser, its principal underwriter or
persons affiliated with these persons) determines, based upon a
review of the facts, that the person in question was not guilty of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Under its Articles of Incorporation, the Registrant may
advance funds to provide for indemnification. Pursuant to the
Securities and Exchange Commission staff's position on Section
17(h) advances will be limited in the following respect:
(1) Any advances must be limited to amounts used, or to be
used, for the preparation and/or presentation of a defense to the
action (including cost connected with preparation of a settlement);
(2) Any advances must be accompanied by a written promise by,
or on behalf of, the recipient to repay that amount of the advance
which exceeds the amount to which it is ultimately determined that
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<PAGE>
he is entitled to receive from the Registrant by reason of
indemnification;
(3) Such promise must be secured by a surety bond or other
suitable insurance and;
(4) Such surety bond or other insurance must be paid for by
the recipient of such advance.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Mutual Fund Management, Inc.
See "Management of the Fund-Manager" in the Prospectus
constituting Part A of this Registration Statement and "Manager" in
the Statement of Additional Information constituting Part B of this
Registration Statement.
The business and other connections of the officers of PMF are
listed in Schedules A and D of Form ADV of PMF as currently on file
with the Securities and Exchange Commission, the text of which is
hereby incorporated by reference (File No. 801-31104, filed
March 1995).
The business and other connections of PMF's directors and
principal executive officers are set forth below. Except as
otherwise indicated, the address of each person is One Seaport
Plaza, New York, NY 10292.
Name and Address Position with PMF Principal Occupation
- ---------------- ----------------- --------------------
Stephen P. Fisher Senior Vice President Senior Vice President
President, PMF;
Senior Vice
President, Prudential
Securities; Vice
President, PMFD
Frank W. Giordano Executive Vice Executive Vice
President, General General Counsel,
Counsel, Secretary Secretary and
and Director Director, PMF and
PFMD; Senior Vice
President, Prudential
Securities; Director,
Prudential Mutual
Fund Services, Inc.
(PMFS)
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<PAGE>
<TABLE>
<S> <C> <C>
Robert F. Gunia Executive Vice Executive Vice President,
President, Chief Chief Financial and
Financial and Administrative Officer,
Administrative Officer, Treasurer and Director,
Treasurer and Director PMF; Senior Vice President,
Prudential Securities; Executive
Vice President, Chief Financial
Officer, Treasurer and Director,
PMFD; Director PMFS
Theresa A. Hamacher Director Director, PMF; Vice President,
Prudential Plaza Prudential; Vice President, Prudential
Newark, NJ 07102 Investment Corporation (PIC)
Timothy J. O'Brien Director President, Chief Executive Officer,
Rariton Plaza One Chief Operating Officer and Director, PMFD;
Edison, NJ 08837 Chief Executive Officer and Director, PMFS;
Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer
Executive Officer and Director, PMF; Executive Vice President,
and Director Director and Member of the Operating Committee,
Prudential Securities; Director, Prudential
Securities Group, Inc. (PSG); Executive Vice
President, PIC; Director, PMFD; Director, PMFS
S. Jane Rose Senior Vice President, Senior Vice President,
Senior Counsel and Senior Counsel, and Assistant
Assistant Secretary Secretary, PMF; Senior Vice President
and Senior Counsel, Prudential Securities
</TABLE>
(b) Jennison Associates Capital Corp.
See "Management of the Fund-Subadviser" in the Prospectus constituting
Part A of this Registration Statement and "Subadviser" in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of Jennison directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is 466 Lexington Avenue, New York, NY 10017.
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Name and Address Position with Jennison Principal Occupations
- ---------------- ---------------------- ---------------------
Blair A. Boyer Senior Vice President Senior Vice President
and Director and Director, Jennison
Robert B. Corman Senior Vice President Senior Vice President
and Director and Director, Jennison
Michael A. Del Balso Senior Vice President, Senior Vice President,
Director of Internal Director of Internal
Research and Director Research, and Director,
Jennison
Thomas F. Doyle Executive Vice President Executive Vice
and Director President and Director,
Jennison
John H. Feingold Senior Vice President Senior Vice President
and Director and Director, Jennison;
Senior Vice President,
JACC Services Corp.
Joseph P. Ferrugio Senior Vice President Senior Vice President
and Director and Director,
Jennison; Senior Vice
President, JACC
Services Corp.
Bradley L. Goldberg Executive Vice President Executive Vice
and Director President and Director,
Jennison; Director,
JACC Services Corp.
John H. Hobbs Chairman and Chief Chairman and Chief
Executive Officer and Executive Officer and
Director Director, Jennison;
President, JACC
Services Corp.
James N. Kannry Senior Vice President, Senior Vice President,
Treasurer and Director Treasurer and Director,
Jennison; Senior Vice
President, Treasurer
and Director, JACC
Services Corp.
Karen E. Kohler Senior Vice President, Senior Vice President,
Chief Compliance Officer Chief Compliance
Assistant Treasurer and Officer, Assistant
Secretary Treasurer and
Secretary, Jennison;
Senior Vice President,
Assistant Treasurer and
Secretary, JACC
Services Corp.
C-7
<PAGE>
Jonathan R. Longley Executive Vice President Executive Vice President
and Director and Director, Jennison
Philip H.B. Moss Executive Vice President Executive Vice President
and Director and Director, Jennison
David T. Poiesz Senior Vice President Senior Vice President
and Director and Director, Jennison
Michael H. Porreca Senior Vice President Senior Vice President
and Director and Director, Jennison
Spiros Segalas President, Chief Investment President, Chief Investment
Officer and Director Officer and Director, Jennison;
Director, JACC Services Corp.
Lulu C. Wang Executive Vice President Executive Vice President
and Director and Director, Jennison
Catherine D. Wood Senior Vice President Senior Vice President and
and Director Director, Jennison
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated
Prudential Securities is distributor for Command Government Fund, Command
Money Fund, Command Tax-Free Fund, Prudential Government Securities Trust
(Intermediate Term Series, Money Market Series and U.S. Treasury Money Market
Series), Prudential MoneyMart Assets, Inc., Prudential Institutional Liquidity
Portfolio, Inc., Prudential Special Money Market Fund, Inc., Prudential Tax-Free
Money Fund, Inc., Prudential Jennison Fund, Inc., The Target Portfolio Trust
Prudential Allocation Fund, Prudential California Municipal Fund, Prudential
Diversified Bond Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential Europe Growth Fund Inc., Prudential Global Fund, Inc.,
Prudential Global Genesis Fund, Inc., Prudential Global Limited Maturity Fund,
Inc., Prudential Global Natural Resources Fund, Inc., Prudential Government
Income Fund, Inc., Prudential Growth Opportunity Fund, Inc., Prudential High
Yield Fund, Prudential Intermediate Global Income Fund, Inc., Prudential
Mortgage Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund, Prudential National
Municipals Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential
Structured Maturity Fund, Inc., Prudential Utility Fund, Inc., The Global
Government Plus Fund, Inc., The Global Total Return Fund, Inc., Global Utility
Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity
Fund) and The BlackRock Government Income Trust. Prudential Securities is also a
depositor for the following unit investment trust:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
C-8
<PAGE>
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below:
POSITION AND POSITION AND
OFFICES WITH OFFICES WITH
NAME (1) UNDERWRITER REGISTRANT
- -------- ------------ ------------
Robert Golden ............... Executive Vice President None
One New York Plaza and Director
New York, NY 10292
Alan D. Hogan................ Executive Vice President None
and Director
George A. Murray............. Executive Vice President None
and Director
C-9
<PAGE>
Leland B. Paton Executive Vice President None
One New York Plaza and Director
New York, NY 10292
Martin Pfinsgraff Executive Vice President, None
Chief Financial Officer
and Director
Vincent T. Pica, II Executive Vice President None
One New York Plaza and Director
New York, NY 10292
Richard A. Redeker Executive Vice President President and
and Director Director
Hardwick Simmons Chief Executive Officer, None
President and Director
Lee B. Spencer Executive Vice President, None
Secretary, General Counsel
and Director
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
- ---------------
(1) The address of each person named is One Seaport Plaza, New York, New
York 10292 unless otherwise indicated.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, 02171, Jennison Associates Capital Corp., 466 Lexington Avenue,
New York, N.Y. 10017, the Registrant, One Seaport Plaza, New York, New York, and
Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New Jersey.
Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10) and (11) and
31a-1(f) will be kept at 466 Lexington Avenue, documents required by Rules
31a-1(b)(4) and (11) and 31a-1(d) at One Seaport Plaza and the remaining
accounts, books and other documents required by such other pertinent provisions
of Section 31(a) and the Rules promulgated thereunder will be kept by State
Street Bank and Trust Company and Prudential Mutual Fund Services, Inc.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under captions "Management of the Fund-Manager"
and "Management of the Fund-Distributor" in the Prospectus and the captions
"Manager" and "Distributor" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Registration Statement,
Registrant is not a party to any management-related service contract.
C-10
<PAGE>
ITEM 32. UNDERTAKINGS
Registrant makes the following undertaking:
To furnish each person to whom a Prospectus is delivered with a copy of
Registrant's latest annual report to shareholders upon request and without
charge.
C-11
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 15th day of April, 1996.
PRUDENTIAL JENNISON FUND, INC.
By /s/ Richard A. Redeker
----------------------
Richard A. Redeker
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
-------------- ----- ----
/s/ Richard A. Redeker President and April 15, 1996
- ---------------------- Director
Richard A. Redeker
/s/ Thomas R. Anderson Director April 15, 1996
- ----------------------
Thomas R. Anderson
/s/ Eugene C. Dorsey Director April 15, 1996
- ----------------------
Eugene C. Dorsey
/s/ Robin B. Smith Director April 15, 1996
- ----------------------
Robin B. Smith
/s/ Eugene S. Stark Treasurer and April 15, 1996
- ---------------------- Principal
Eugene S. Stark Financial and
Accounting Officer
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
EXHIBIT INDEX
-------------
1(a) Articles of Incorporation incorporated by reference
to Exhibit 1(a) to the Registration Statement on
Form N-1A (File No. 33-61997) filed on August 22,
1995.
1(b) Articles of Amendment incorporated by reference to
Exhibit 1(b) to the Registration Statement on Form
N-1A (File No. 33-61997) filed on August 22, 1995.
1(c) Amended and Restated Articles of Incorporation incorporated
by reference to Exhibit No. 1(c) to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR
on February 14, 1996.
2 By-Laws incorporated by reference to Exhibit 2 to the
Registration Statement on Form N-1A (File No.
33-61997) filed on August 22, 1995.
4 Instrument Defining Rights of Shareholders
incorporated by reference to Exhibit 2 to the
Registration Statement on Form N-1A (File No. 33-
61997) filed on August 22, 1995.
5(a) Management Agreement between the Registrant
and Prudential Mutual Fund Management, Inc. incorporated
by reference to Exhibit No. 5(a) to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR
on February 14, 1996.
5(b) Subadvisory Agreement between Prudential Mutual
Fund Management, Inc. and Jennison Associates Capital Corp.
incorporated by reference to Exhibit No. 5(b) to the
Registration Statement on Form N-1A (File No. 33-61997)
filed via EDGAR on February 14, 1996.
6(a) Distribution Agreement between the Registrant
and Prudential Securities, Incorporated incorporated
by reference to Exhibit No. 6(a) to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR
on February 14, 1996.
6(b) Form of Selected Dealer Agreement incorporated by
reference to Exhibit No. 6(b) to Pre-Effective Amend-
ment No. 1 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on September 19, 1995.
7 Not Applicable
8 Form of Custodian Contract between the Registrant
and State Street Bank and Trust Company incorporated
by reference to Exhibit No. 8 to Pre-Effective Amend-
ment No. 1 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on September 19, 1995.
9 Form of Transfer Agency and Service Agreement
between Registrant and Prudential Mutual Fund
Services, Inc. incorporated by reference to Exhibit
No. 9 to Pre-Effective Amendment No.1 to the
Registration Statement on Form N-1A (File No. 33-
61997) filed via EDGAR on September 19, 1995.
10 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP
incorporated by reference to Exhibit No. 10 to
Pre-Effective Amendment No.1 to the
Registration Statement on Form N-1A (File No. 33-
61997) filed via EDGAR on September 19, 1995.
11 Consent of Deloitte & Touche LLP.*
12 Not Applicable
13 Purchase Agreement incorporated by reference to Exhibit No.
13 to the Registration Statement on Form N-1A (File No.
33-61997) filed via EDGAR on February 14, 1996.
14 Not Applicable
15(a) Plan of Distribution pursuant to Rule 12b-1 (Class A Shares)
incorporated by reference to Exhibit No. 15(a) to the
Registration Statement on Form N-1A (File No. 33-61997)
filed via EDGAR on February 14, 1996.
15(b) Plan of Distribution pursuant to Rule 12b-1 (Class B Shares)
incorporated by reference to Exhibit No. 15(b) to the
Registration Statement on Form N-1A (File No. 33-61997)
filed via EDGAR on February 14, 1996.
15(c) Plan of Distribution pursuant to Rule 12b-1 (Class C Shares)
incorporated by reference to Exhibit No. 15(c) to the
Registration Statement on Form N-1A (File No. 33-61997)
filed via EDGAR on February 14, 1996.
16 Schedule of Computation of Performance Quotations.*
17 Financial Data Schedules, filed as Exhibit 27 for
electronic purposes.*
18 Rule 18f-3 Plan.*
- ----------------
* Filed herewith.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> PRUDENTIAL JENNISON FUND, INC. (CLASS A)
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 226,722,850
<INVESTMENTS-AT-VALUE> 240,264,387
<RECEIVABLES> 5,183,013
<ASSETS-OTHER> 274,423
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 245,721,823
<PAYABLE-FOR-SECURITIES> 4,331,372
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 481,128
<TOTAL-LIABILITIES> 4,812,500
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,425,828
<SHARES-COMMON-STOCK> 23,242,580
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,588,381)
<OVERDISTRIBUTION-GAINS> (469,661)
<ACCUM-APPREC-OR-DEPREC> 13,541,537
<NET-ASSETS> 240,909,323
<DIVIDEND-INCOME> 578,402
<INTEREST-INCOME> 283,597
<OTHER-INCOME> 0
<EXPENSES-NET> 1,331,660
<NET-INVESTMENT-INCOME> (469,661)
<REALIZED-GAINS-CURRENT> (5,588,381)
<APPREC-INCREASE-CURRENT> 13,541,537
<NET-CHANGE-FROM-OPS> 7,483,495
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 270,604,646
<NUMBER-OF-SHARES-REDEEMED> (37,278,818)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 240,809,323
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 472,159
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,331,660
<AVERAGE-NET-ASSETS> 60,165,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> PRUDENTIAL JENNISON FUND, INC. (CLASS B)
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 226,722,850
<INVESTMENTS-AT-VALUE> 240,264,387
<RECEIVABLES> 5,183,013
<ASSETS-OTHER> 274,423
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 245,721,823
<PAYABLE-FOR-SECURITIES> 4,331,372
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 481,128
<TOTAL-LIABILITIES> 4,812,500
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,425,828
<SHARES-COMMON-STOCK> 23,242,580
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,588,381)
<OVERDISTRIBUTION-GAINS> (469,661)
<ACCUM-APPREC-OR-DEPREC> 13,541,537
<NET-ASSETS> 240,909,323
<DIVIDEND-INCOME> 578,402
<INTEREST-INCOME> 283,597
<OTHER-INCOME> 0
<EXPENSES-NET> 1,331,660
<NET-INVESTMENT-INCOME> (469,661)
<REALIZED-GAINS-CURRENT> (5,588,381)
<APPREC-INCREASE-CURRENT> 13,541,537
<NET-CHANGE-FROM-OPS> 7,483,495
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 270,604,646
<NUMBER-OF-SHARES-REDEEMED> (37,278,818)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 240,809,323
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 472,159
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,331,660
<AVERAGE-NET-ASSETS> 120,106,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.36
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> PRUDENTIAL JENNISON FUND, INC. (CLASS C)
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 226,722,850
<INVESTMENTS-AT-VALUE> 240,264,387
<RECEIVABLES> 5,183,013
<ASSETS-OTHER> 274,423
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 245,721,823
<PAYABLE-FOR-SECURITIES> 4,331,372
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 481,128
<TOTAL-LIABILITIES> 4,812,500
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,425,828
<SHARES-COMMON-STOCK> 23,242,580
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,588,381)
<OVERDISTRIBUTION-GAINS> (469,661)
<ACCUM-APPREC-OR-DEPREC> 13,541,537
<NET-ASSETS> 240,909,323
<DIVIDEND-INCOME> 578,402
<INTEREST-INCOME> 283,597
<OTHER-INCOME> 0
<EXPENSES-NET> 1,331,660
<NET-INVESTMENT-INCOME> (469,661)
<REALIZED-GAINS-CURRENT> (5,588,381)
<APPREC-INCREASE-CURRENT> 13,541,537
<NET-CHANGE-FROM-OPS> 7,483,495
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 270,604,646
<NUMBER-OF-SHARES-REDEEMED> (37,278,818)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 240,809,323
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 472,159
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,331,660
<AVERAGE-NET-ASSETS> 10,468,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.36
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 2 to Registration
Statement No. 33-61997 of Prudential Jennison Fund, Inc. of our report dated
September 14, 1995, appearing in the Statement of Additional Information, which
is a part of such Registration Statement, and to the reference to us under the
heading "Custodian, Transfer and Dividend Disbursing Agent and Independent
Accountants" in the Statement of Additional Information.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
April 15, 1996
<PAGE>
PRUDENTIAL JENNISON FUND, INC. EXHIBIT 16
CLASS "A"
EXHIBIT
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
P (1+T)n = ERV
P = hypothetical initial payment of $1,000 less front end load of 5%
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).
==============================================================================
Inception
through
March 31, 1996
P = $950
T = (1.29)%
n = 1
ERV = $937.75
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
CLASS "B"
EXHIBIT
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
P (1+T)n = ERV
P = 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) less CDSC of 5%.
===============================================================================
Inception
through
March 31, 1996
P = $1000
T = (1.40)%
n = 1
ERV =$986.00
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
CLASS "C"
EXHIBIT
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
P (1+T)n = ERV
P = 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) less CDSC of 1%.
==============================================================================
Inception
through
March 31, 1996
P = $1,000
T = 2.60%
n = 1
ERV =$1,026.00
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
CLASS "A"
EXHIBIT
AGGREGATE TOTAL RETURN
CALCULATION
ERV - P
T = -------
P
P = 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).
T = aggregate total return
===============================================================================
Inception
through
March 31, 1996
P = $1,000
ERV =$1,039.00
T = 3.90%
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
CLASS "B"
EXHIBIT
AGGREGATE TOTAL RETURN
CALCULATION
ERV - P
T = -------
P
P = 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).
T = aggregate annual total return
================================================================================
Inception
through
March 31, 1996
P = $1,000
ERV = $1,036.00
T = 3.60%
<PAGE>
PRUDENTIAL JENNISON FUND, INC.
CLASS "C"
EXHIBIT
AGGREGATE TOTAL RETURN
CALCULATION
ERV - P
T = -------
P
P = 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).
T = aggregate total return
===============================================================================
Inception
through
April 30, 1995
P = $1,000
ERV = $1,036.00
T = 3.60%
<PAGE>
EXHIBIT 18
PRUDENTIAL JENNISON FUND,INC.
(the Fund)
PLAN PURSUANT TO RULE 18F-3
The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares. Any material
amendment to this plan is subject to prior approval of the Board of Directors,
including a majority of the independent Directors.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to a high initial sales charge
- -------------- and a distribution and/or service fee pursuant to Rule 12b-1
under the 1940 Act (Rule 12b-1 fee) not to exceed .30 of 1%
per annum of the average daily net assets of the class. The
initial sales charge is waived or reduced for certain
eligible investors.
CLASS B SHARES: Class B shares are not subject to an initial sales charge
- -------------- but are subject to a high contingent deferred sales charge
(declining by 1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee of not to exceed 1% per
annum of the average daily net assets of the class. The
contingent deferred sales charge is waived for certain
eligible investors. Class B shares automatically convert to
Class A shares approximately seven years after purchase.
CLASS C SHARES: Class C shares are not subject to an initial sales charge
- -------------- but are subject to a low contingent deferred sales charge
(declining by 1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee not to exceed 1% per annum
of the average daily net assets of the class.
Class Z SHARES: Class Z shares are not subject to either an initial or
- -------------- contingent deferred sales charge nor are they subject to any
Rule 12b-1 fee.
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class, will be allocated to each class on the
basis of the net asset value of that class in relation to the net asset
value of the Fund.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by the Fund to each class of shares,
to the extent paid, will be paid on the same day and at the same time, and
will be determined in the same manner and will be in the same amount,
except that the amount of the dividends and other distributions declared
and paid by a particular class may be different from that paid by another
class because of Rule 12b-1 fees and other expenses borne exclusively by
that class.
EXCHANGE PRIVILEGE
Each class of shares is generally exchangeable for the same class of shares
(or the class of shares with similar characteristics), if any, of the other
Prudential Mutual Funds (subject to certain minimum investment
requirements) at relative net asset value without the imposition of any
sales charge.
Class B and Class C shares (which are not subject to a contingent deferred
sales charge) of shareholders who qualify to purchase Class A shares at net
asset value will be automatically exchanged for Class A shares on a
quarterly basis, unless the shareholder elects otherwise.
CONVERSION FEATURES
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.
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.
B. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Directors, including a majority of the independent
Directors, shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop. Prudential Mutual Fund Management,
Inc., the Fund's Manager, will be responsible for reporting any potential
or existing conflicts to the Directors.
<PAGE>
C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant auditing
standards adopted, from time to time, by the American Institute of
Certified Public Accountants.
Dated: October 27, 1995
