<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
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. 5 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 6 [X]
(CHECK APPROPRIATE BOX OR BOXES)
PRUDENTIAL JENNISON SERIES FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
GATEWAY CENTER THREE (GC3)
100 MULBERRY STREET, 9TH FLOOR
NEWARK, NEW JERSEY 07102-4077
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 367-7530
S. JANE ROSE, ESQ.
GATEWAY CENTER THREE (GC3)
100 MULBERRY STREET, 9TH FLOOR
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the Registration Statement.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
[_] Immediately upon filing pursuant to paragraph (b)
[X] on May 15, 1997 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 FILED A NOTICE UNDER SUCH RULE FOR
ITS FISCAL YEAR ENDED SEPTEMBER 30, 1996 ON NOVEMBER 26, 1996.
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- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
Part A
<C> <S> <C>
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Fund Expenses-Growth Fund; Fund
Expenses-Growth & Income Fund;
Fund Highlights
Item 3. Condensed Financial Information... Fund Expenses-Growth Fund; Fund
Expenses-Growth & Income Fund;
Financial Highlights; How the
Funds Calculate Performance
Item 4. General Description of Registrant. Cover Page; Fund Highlights; How
the Funds Invest; General
Information
Item 5. Management of the Fund............ How the Funds are Managed
Item 5A. Management's Discussion of Fund Financial Highlights
Performance.......................
Item 6. Capital Stock and Other Taxes, Dividends and
Securities........................ Distributions; General
Information; Shareholder Guide
Item 7. Purchase of Securities Being Shareholder Guide; How Each Fund
Offered........................... Values its Shares; How the Funds
are Managed
Item 8. Redemption or Repurchase.......... Shareholder Guide; How Each 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 Investment Objectives and
Policies.......................... Policies; Investment Restrictions
Item 14. Management of the Fund............ Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Not Applicable
Holders of Securities.............
Item 16. Investment Advisory and Other Manager; Distributor; Custodian,
Services.......................... Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Portfolio Transactions
Practices.........................
Item 18. Capital Stock and Other Not Applicable
Securities........................
Item 19. Purchase, Redemption and Pricing
of Securities Purchase and Redemption of Fund
Being Offered.................... 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
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment.
<PAGE>
The Prospectus of Prudential Jennison Series Fund, Inc. (Prudential Jennison
Growth Fund and Prudential Jennison Growth & Income Fund) dated January 13,
1997, is incorporated herein by reference in its entirety from the Rule 497
filing made on January 17, 1997 (File No. 33-61997). This Post-Effective
Amendment to the Registration Statement is not intended
to amend the Prospectus of Prudential Jennison Series Fund, Inc. (Prudential
Jennison Growth Fund and Prudential Jennison Growth & Income Fund) dated
January 13, 1997, except as indicated by the enclosed supplement.
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
- -------------------------------------------------------------------------------
SUPPLEMENT DATED MAY 15, 1997 TO
PROSPECTUS DATED JANUARY 13, 1997
- -------------------------------------------------------------------------------
THE PROSPECTUS IS HEREBY SUPPLEMENTED BY ADDING THE FOLLOWING THE INFORMATION
TO "FINANCIAL HIGHLIGHTS--GROWTH FUND" ON PAGE 7:
FINANCIAL HIGHLIGHTS--GROWTH FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS A, CLASS B, CLASS C AND CLASS Z SHARES)
The following financial highlights for Class A, Class B, Class C and Class Z
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, Class C and Class Z share of common stock of the Growth
Fund, 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 CLASS Z
---------- ---------- ---------- ----------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997(C) 1997(C) 1997(C) 1997(C)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period........................ $ 10.97 $ 10.89 $ 10.89 $ 10.98
------- -------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment loss............ (.01) (.06) (.06) --
Net realized and unrealized
gain on investment
transactions.................. .20 .21 .21 .21
------- -------- ------- --------
Total from investment
operations................... .19 .15 .15 .21
------- -------- ------- --------
Net asset value, end of period. $ 11.16 $ 11.04 $ 11.04 $ 11.19
======= ======== ======= ========
TOTAL RETURN(A):............... 1.73 % 1.38 % 1.38 % 1.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)......................... $90,708 $261,734 $15,875 $406,770
Average net assets (000)....... $93,656 $260,302 $16,300 $402,262
Ratios to average net
assets:(b)
Expenses, including
distribution fees............ 1.09 % 1.84 % 1.84 % .84%
Expenses, excluding
distribution fees............ .84 % .84 % .84 % .84%
Net investment income (loss).. (.24)% (.99)% (.99)% .01%
Portfolio turnover rate........ 34 % 34 % 34 % 34%
Average commission rate paid
per share..................... $ .0598 $ .0598 $ .0598 $ .0598
</TABLE>
- -----------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
(b) Annualized.
(c) Calculated based upon weighted average shares outstanding during the
period.
1
<PAGE>
The Prospectus is further supplemented by adding the following information
prior to page 8:
FINANCIAL HIGHLIGHTS--GROWTH & INCOME FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS A, CLASS B, CLASS C AND CLASS Z SHARES)
The following financial highlights for Class A, Class B, Class C and Class Z
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, Class C and Class Z share of common stock of the Growth &
Income Fund, 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 CLASS Z
NOVEMBER 7, 1996(A) NOVEMBER 7, 1996(A) NOVEMBER 7, 1996(A) NOVEMBER 7, 1996(A)
THROUGH THROUGH THROUGH THROUGH
MARCH 31, 1997 MARCH 31, 1997 MARCH 31, 1997 MARCH 31, 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income .. .04 .01 .01 .05
Net realized and
unrealized gain on
investment
transactions........... .43 .44 .44 .46
------- ------- ------- -------
Total from investment
operations............. .47 .45 .45 .51
------- ------- ------- -------
Less distributions
Dividends from net
investment income...... (.03) (.02) (.02) (.03)
------- ------- ------- -------
Net asset value, end of
period................. $ 10.44 $ 10.43 $ 10.43 $ 10.48
======= ======= ======= =======
TOTAL RETURN(B): ....... 4.47% 4.16% 4.16% 4.81%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)........... $23,820 $58,722 $ 5,445 $ 163
Average net assets
(000).................. $23,085 $48,739 $ 5,060 $ 51
Ratios to average net
assets(c):
Expenses, including
distribution fees..... 1.70% 2.45% 2.45% 1.45%
Expenses, excluding
distribution fees..... 1.45% 1.45% 1.45% 1.45%
Net investment income . .99% .24% .24% 1.24%
Portfolio turnover rate
....................... 23% 23% 23% 23%
Average commission rate
paid per share......... $0.0553 $0.0553 $0.0553 $0.0553
</TABLE>
- -----------
(a) Commencement of investment operations.
(b) 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.
(c) Annualized.
The following information further supplements the Prospectus of the Funds.
HOW THE FUNDS INVEST
INVESTMENT OBJECTIVES AND POLICIES
ILLIQUID SECURITIES
Either Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreement which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and
2
<PAGE>
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 investment adviser will monitor the liquidity of such restricted
securities under the supervision of the Board of Directors. The Fund's
investment in Rule 144A securities could have the effect of increasing
illiquidity to the extent that qualified institutional buyers become, for a
limited time, uninterested in purchasing Rule 144A securities. Repurchase
agreements subject to demand are deemed to have a maturity equal to the
applicable notice period.
SHAREHOLDER GUIDE
ALTERNATIVE PURCHASE PLAN
CLASS A SHARES
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Effective April 1, 1997, Class
A shares may be purchased at NAV, through Prudential Securities or the
Transfer Agent, by investors in Individual Retirement Accounts, provided the
purchase is made with the proceeds from a tax-free rollover of assets from a
Benefit Plan for which Prudential Investments serves as the recordkeeper or
administrator.
You must notify the Transfer Agent either directly or through your dealer
that you are entitled to the waiver of the sales charge. The reduction or
waiver will be granted subject to confirmation of your entitlement.
CLASS Z SHARES
Class Z shares are currently available for purchase by the following
categories of investors: (i) pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation plans and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code, and non-qualified plans for which the Fund is an
available option (collectively, Benefit Plans), provided that such Benefit
Plans (in combination with other plans sponsored by the same employer or group
of related employers) have at least $50 million in defined contribution
assets; (ii) participants in any fee-based program or trust program sponsored
by Prudential Securities Incorporated (Prudential Securities), The Prudential
Savings Bank, F.S.B. (or any affiliate) which includes mutual funds as
investment options and for which the Fund is an available option; (iii)
certain participants in the MEDLEY Program (group variable annuity contracts)
sponsored by The Prudential Insurance Company of America (Prudential) for whom
Class Z shares of the Prudential Mutual Funds are an available investment
option; (iv) Benefit Plans for which Prudential Retirement Services serves as
record keeper and as of September 20, 1996, (a) were Class Z shareholders of
the Prudential Mutual Funds, or (b) executed a letter of intent to purchase
Class Z shares of the Prudential Mutual Funds; (v) current and former
Directors/Trustees of the Prudential Mutual Funds (including the Fund); and
(vi) employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee savings plan.
HOW TO SELL YOUR SHARES
CONTINGENT DEFERRED SALES CHARGES
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES
SYSTEMATIC WITHDRAWAL PLAN. The contingent deferred sales charge (CDSC) will
be waived (or reduced) on certain redemptions from a Systematic Withdrawal
Plan. On an annual basis, up to 12% of the total dollar amount subject to the
CDSC may be redeemed without charge. The Transfer Agent will calculate the
total amount available for this waiver annually,
3
<PAGE>
on the earlier of March 1, 1997 or the anniversary date of your purchase. The
CDSC will be waived (or reduced) on redemptions until this threshold 12%
amount is reached.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
PRUARRAY OR SMARTPATH PLANS. The CDSC will be waived on the following
redemptions from qualified and non-qualified retirement and deferred
compensation plans that participate in the Transfer Agent's PruArray and
SmartPath Programs: (i) redemptions from a 403(b) or 457 plan; and (ii)
redemptions from a qualified or non-qualified plan, provided that the
investment options of the plan include shares of Prudential Mutual Funds and
shares of non-affiliated mutual funds.
4
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Statement of Additional Information dated January 13, 1997
(as supplemented May 15, 1997)
Prudential Jennison Series Fund, Inc. (the Company) is an open-end,
diversified, management investment company consisting of two series:
Prudential Jennison Growth Fund (Growth Fund) and Prudential Jennison Growth &
Income Fund (Growth & Income Fund) (each a Fund and collectively the Funds).
The investment objective of Growth Fund is long-term growth of capital. The
Growth Fund seeks to achieve this objective by investing primarily in equity
securities (common stock, preferred stock and securities convertible into
common stock) of established companies with above-average growth prospects.
Current income, if any, is incidental. Under normal market conditions, the
Growth Fund intends to invest at least 65% of its total assets in equity
securities of companies that exceed $1 billion in market capitalization. The
Growth Fund may also invest in (i) equity securities of other companies
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. The Growth Fund may engage in various
derivative transactions, such as using options on stocks, stock indices and
foreign currencies, entering into foreign currency exchange contracts and the
purchase and sale of futures contracts on stock indices and options thereon to
hedge its portfolio and to attempt to enhance return.
The primary investment objective of Growth & Income Fund is long-term growth
of capital and income, with current income as a secondary objective. The
Growth & Income Fund seeks to achieve this objective by investing primarily in
common stocks of established companies with growth prospects believed to be
underappreciated by the market. The Growth & Income Fund may also invest in
(i) other common stocks, preferred stock and securities convertible into
common stock, (ii) equity and debt securities of foreign issuers (with respect
to 20% of its total assets), including ADRs, and (iii) fixed-income
securities, including corporate and other debt obligations and obligations
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. The Growth & Income Fund may also engage in short sales and
in various derivative transactions, such as using options on stocks, stock
indices and foreign currencies, entering into foreign currency exchange
contracts and the purchase and sale of futures contracts on stock indices and
debt securities and options thereon to hedge its portfolio and to attempt to
enhance return.
There can be no assurance that the Funds' investment objectives will be
achieved. See "Investment Objectives and Policies."
The Company's address is Gateway Center Three, Newark, New Jersey 07102-4077,
and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Funds' Prospectus, dated January 13, 1997 (as
supplemented May 15, 1997), copies of which may be obtained from the Company
upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
----- ---------------
<S> <C> <C>
General Information...................................... B-2 25
Investment Objectives and Policies....................... B-2 8
Investment Restrictions.................................. B-14 18
Directors and Officers................................... B-15 18
Manager.................................................. B-20 19
Distributor.............................................. B-22 20
Portfolio Transactions and Brokerage..................... B-25 22
Purchase and Redemption of Fund Shares................... B-26 26
Shareholder Investment Account........................... B-29 37
Net Asset Value.......................................... B-34 22
Taxes.................................................... B-34 23
Performance Information.................................. B-37 23
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants................................. B-39 22
Financial Statements..................................... B-40 --
Independent Auditors' Report............................. B-49 --
Description of Security Ratings.......................... A-1 --
Appendix I--Historical Performance Data.................. I-1 --
Appendix II--General Investment Information.............. II-1 --
Appendix III--Information Relating to The Prudential..... III-1 --
</TABLE>
<PAGE>
GENERAL INFORMATION
The Company changed its name from Prudential Jennison Fund, Inc. to
Prudential Jennison Series Fund, Inc., effective on September 10, 1996, in
connection with the offering of a second series, Prudential Jennison Growth &
Income Fund. The existing series of the Company was redesignated Prudential
Jennison Growth Fund.
INVESTMENT OBJECTIVES AND POLICIES
The Company is an open-end, diversified, management investment company
consisting of two series. Each series operates as a separate fund with its own
investment objectives and policies. The investment objective of the Growth
Fund is long-term growth of capital. The Growth Fund seeks to achieve this
objective by investing primarily in equity securities (common stock, preferred
stock and securities convertible into common stock) of established companies
with above-average growth prospects. Current income, if any, is incidental.
Under normal market conditions, the Growth Fund intends to invest at least 65%
of its total assets in equity securities of companies that exceed $1 billion
in market capitalization. The primary investment objective of the Growth &
Income Fund is long-term growth of capital and income, with current income as
a secondary objective. The Growth & Income Fund seeks to achieve its
objectives by investing primarily in common stocks of established companies
with growth prospects believed to be underappreciated by the market. See "How
the Funds Invest--Investment Objectives and Policies" in the Prospectus. There
can be no assurance that the Funds' investment objectives will be achieved.
The term "investment adviser" as used herein refers to Jennison Associates
Capital Corp., the Subadviser. See "Manager" below.
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. Each Fund is permitted to invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. Each Fund may invest in securities issued by agencies of
the U.S. Government or instrumentalities of the U.S. Government except that
the Growth & Income Fund does not intend to invest in mortgage-related
securities. These obligations, including those which are guaranteed by Federal
agencies or instrumentalities, may or may not be backed by the full faith and
credit of the United States. Obligations of the Government National Mortgage
Association (GNMA), the Farmers Home Administration and the Small Business
Administration are backed by the full faith and credit of the United States.
In the case of securities not backed by the full faith and credit of the
United States, a Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to
assert a claim against the United States if the agency or instrumentality does
not meet its commitments. Securities in which a Fund may invest which are not
backed by the full faith and credit of the United States include obligations
such as those issued by the Federal Home Loan Bank, the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association, the
Student Loan Marketing Association, Resolution Funding Corporation and the
Tennessee Valley Authority, each of which has the right to borrow from the
U.S. Treasury to meet its obligations, and obligations of the Farm Credit
System, the obligations of which may be satisfied only by the individual
credit of the issuing agency. FHLMC investments may include collateralized
mortgage obligations.
Obligations issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by a Fund in the form of custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain U.S. 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.
B-2
<PAGE>
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Growth Fund may invest in mortgage-backed securities,
including those which represent undivided ownership interests in pools of
mortgages. The U.S. Government or the issuing agency or instrumentality
guarantees the payment of interest on and principal of these securities.
However, the guarantees do not extend to the yield or value of the securities
nor do the guarantees extend to the yield or value of the Fund's shares. These
securities are in most cases "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees. Because the
prepayment characteristics of the underlying mortgages vary, it is not
possible to predict accurately the average life of a particular issue of pass-
through certificates. Mortgage-backed securities are often subject to more
rapid repayment than their maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying mortgage
obligations. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
The Growth Fund's ability to invest in high-yielding mortgage-backed
securities will be adversely affected to the extent that prepayments of
mortgages must be reinvested in securities which have lower yields than the
prepaid mortgages. Moreover, prepayments of mortgages which underlie
securities purchased at a premium could result in capital losses. During
periods of rising interest rates, the rate of prepayment of mortgages
underlying mortgage-backed securities can be expected to decline, extending
the projected average maturity of the mortgage-backed securities. This
maturity extension risk may effectively change a security which was considered
short- or intermediate-term at the time of purchase into a long-term security.
Long-term securities generally fluctuate more widely in response to changes in
interest rates than short- or intermediate-term securities.
Growth Fund may invest in both adjustable rate mortgage securities (ARMs),
which are pass-through mortgage securities collateralized by adjustable rate
mortgages, and fixed-rate mortgage securities (FRMs), which are collateralized
by fixed-rate mortgages.
The values of U.S. Government securities (like those of other fixed-income
securities generally) will change as interest rates fluctuate. During periods
of falling U.S. interest rates, the values of U.S. Government securities
generally rise and, conversely, during periods of rising interest rates, the
values of such securities generally decline. The magnitude of these
fluctuations will generally be greater for securities with longer-term
maturities.
FOREIGN DEBT SECURITIES
Each Fund is permitted to invest in foreign corporate and government
securities. "Foreign government securities" include debt securities issued or
guaranteed, as to payment of principal and interest, by governments, quasi-
governmental entities, governmental agencies, supranational entities and other
governmental entities (collectively, Government Entities) of foreign countries
denominated in the currencies of such countries or in U.S. dollars (including
debt securities of a Government Entity in any such country denominated in the
currency of another such country).
A "supranational entity" is an entity constituted by the national governments
of several countries to promote economic development. Examples of such
supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of "quasi-governmental entities" are
issued by entities owned by a national, state, or equivalent government or are
obligations of a political unit that are not backed by the national
government's "full faith and credit" and general taxing powers. Examples of
quasi-government issuers include, among others, the Province of Ontario and
the City of Stockholm. "Foreign government securities" also include debt
securities of Government Entities denominated in European Currency Units. A
European Currency Unit represents specified amounts of the currencies of
certain of the member states of the European Community.
OPTIONS ON SECURITIES
Each Fund may purchase and write (i.e., sell) put and call options on
securities that are traded on U.S. or foreign securities exchanges or that are
traded in the over-the-counter markets. A call option is a short-term contract
pursuant to which the purchaser, in return for a premium paid, has the right
to buy the security underlying the option at a specified exercise price
B-3
<PAGE>
at any time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract which gives the purchaser, in return for a
premium, the right to sell the underlying security at a specified price during
the term of the option. The writer of the put, who receives the premium, has
the obligation to buy the underlying security upon exercise at the exercise
price. A Fund will generally write put options when its investment adviser
desires to invest in the underlying security. The premium paid by the
purchaser of an option will reflect, among other things, the relationship of
the exercise price to the market price and volatility of the underlying
security, the remaining term of the option, supply and demand and interest
rates.
A call option written by a Fund is "covered" if the Fund owns the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written. A Fund may also
write a call option or write a put option if it maintains cash or liquid
assets with a value equal to the exercise price in a segregated account with
its Custodian. A Fund may also write a put option if it 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.
A Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; a Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option may be
offset in whole or in part if the Fund holds the underlying security by
appreciation of the underlying security owned by the Fund.
A Fund may also purchase a "protective put," i.e., a put option acquired for
the purpose of protecting a portfolio security from a decline in market value.
In exchange for the premium paid for the put option, the Fund acquires the
right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and transaction costs
in connection with, the put plus the initial excess, if any, of the market
price of the underlying security over the exercise price. However, if the
market price of the security underlying the put rises, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for
the put option less any amount (net of transaction costs) for which the put
may be sold. Similar principles apply to the purchase of puts on stock
indices, as described below.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, each
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
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a security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the securities index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple (the multiplier). The writer
of the option is obligated, in return for the premium received, to make
delivery of this amount. All settlements on options on indices are in cash,
and gain or loss depends on price movements in the securities market generally
(or in a particular industry or segment of the market) rather than price
movements in individual securities.
The multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and
the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers. Because exercises of index options are settled in cash,
a call writer cannot determine the amount of its settlement obligations in
advance and, unlike call writing on specific stocks, cannot provide in advance
for, or cover, its potential settlement obligations by acquiring and holding
the underlying securities. In addition, unless a Fund has other liquid assets
which are sufficient to satisfy the exercise of a call, the Fund would be
required to liquidate portfolio securities or borrow in order to satisfy the
exercise.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether a Fund will
realize a gain or loss on the purchase or sale of an option on an index
depends upon movements in the level of security prices in the market generally
or in an industry or market segment rather than movements in the price of a
particular security. Accordingly, successful use by a Fund of options on
indices would be subject to the investment adviser's ability to predict
correctly movements in the direction of the securities market generally or of
a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
RISKS OF TRANSACTIONS IN OPTIONS
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although a Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no
secondary market on an exchange or otherwise may exist. In such event it might
not be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the exercise of call
options and upon the subsequent disposition of underlying securities acquired
through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If a Fund as a covered call option
writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or 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
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institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders. Each Fund intends to purchase and sell
only those options which are cleared by clearinghouses whose facilities are
considered to be adequate to handle the volume of options transactions.
RISKS OF OPTIONS ON INDICES
A Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that
are not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, a Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the policy of each Fund
to purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. A
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities
in the index.
SPECIAL RISKS OF WRITING CALLS ON INDICES
Because exercises of index options are settled in cash, a call writer such as
a Fund cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, a Fund will write call options on indices only
under the circumstances described below under "Limitations on Purchase and
Sale of Stock Options, Options on Stock Indices and Foreign Currencies and
Futures Contracts and Related Options."
Price movements in a Fund's portfolio probably will not correlate precisely
with movements in the level of the index and, therefore, a Fund bears the risk
that the price of the securities held by the Fund may not increase as much as
the index. In such event, the Fund would bear a loss on the call which is not
completely offset by movements in the price of the Fund's portfolio. It is
also possible that the index may rise when a Fund's portfolio of stocks does
not rise. If this occurred, the Fund would experience a loss on the call which
is not offset by an increase in the value of its portfolio and might also
experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as
the market, movements in the value of a Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.
Unless a Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be
settled within hours after receiving the notice of exercise, if a Fund fails
to anticipate an exercise, it may have to borrow from a bank (in amounts not
exceeding 20% of such Fund's total assets) pending settlement of the sale of
securities in its portfolio and would incur interest charges thereon.
When a Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise,
and the time the Fund is able to sell stocks in its portfolio. As with stock
options, a Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where a Fund
would be able to deliver the underlying securities in settlement, a Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the
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price of such investments might decline before they can be sold. This timing
risk makes certain strategies involving more than one option substantially
more risky with index options than with stock options. For example, even if an
index call which a Fund has written is "covered" by an index call held by the
Fund with the same strike price, the Fund will bear the risk that the level of
the index may decline between the close of trading on the date the exercise
notice is filed with the clearing corporation and the close of trading on the
date the Fund exercises the call it holds or the time the Fund sells the call
which, in either case, would occur no earlier than the day following the day
the exercise notice was filed.
If a Fund holds an index option and exercises it before final determination
of the closing index value for that day, it runs the risk that the level of
the underlying index may change before closing. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although a
Fund may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising
an option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.
RISKS RELATED TO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Each Fund may enter into forward foreign currency exchange contracts in
several circumstances. When a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Fund may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for a fixed amount of dollars, for the purchase or sale of the amount
of foreign currency involved in the underlying transactions, a Fund may be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the foreign currency
during the period between the date on which the security is purchased or sold,
or on which the dividend or interest payment is declared, and the date on
which such payments are made or received.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, a Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible since the future
value of securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date on which
the forward contract is entered into and the date it matures. The projection
of short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain. If
a Fund enters into a hedging transaction as described above, the transaction
will be "covered" by the position being hedged, or the Fund's Custodian will
place cash, U.S. Government securities, equity securities or other liquid,
unencumbered assets into a segregated account of the Fund in an amount equal
to the value of the Fund's total assets committed to the consummation of
forward foreign currency exchange contracts (less the value of the covering
positions, if any). If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account
so that the value of the account will, at all times, equal the amount of the
Fund's net commitments with respect to such contracts.
A Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, if a decision is made to sell the security and make delivery of
the foreign currency and if
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the market value of the security is less than the amount of foreign currency
that a Fund is obligated to deliver, then it would be necessary for the Fund
to purchase additional foreign currency on the spot market (and bear the
expense of such purchase).
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices
decline during the period between a Fund's entering into a forward contract
for the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Fund will realize a
gain to the extent that the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
contract prices increase, the Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
Each Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. Of course, a Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities. It also should be recognized that this method
of protecting the value of a Fund's portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying
prices of the securities which are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.
Although a Fund values its assets daily in terms of U.S. dollars, it does not
intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
FUTURES CONTRACTS
As a purchaser of a futures contract, a Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the futures
contract at a specified time in the future for a specified price. As a seller
of a futures contract, a Fund incurs an obligation to deliver the specified
amount of the underlying obligation at a specified time in return for an
agreed upon price. The Growth & Income Fund may purchase futures contracts on
debt securities, including U.S. Government securities, aggregates of debt
securities, stock indices and foreign currencies. The Growth Fund may purchase
futures contracts on stock indices and foreign currencies.
A Fund will purchase or sell futures contracts for the purpose of hedging its
portfolio (or anticipated portfolio) securities against changes in prevailing
interest rates. If the investment adviser anticipates that interest rates may
rise and, concomitantly, the price of the Fund's portfolio securities may
fall, a Fund may sell a futures contract. If declining interest rates are
anticipated, a Fund may purchase a futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by a Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts. In addition, futures contracts
will be bought or sold in order to close out a short or long position in a
corresponding futures contract.
Although most futures contracts call for actual delivery or acceptance of
securities or cash, the contracts usually are closed out before the settlement
date without the making or taking of delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security and the same delivery date. If the
sale price exceeds the offsetting purchase price, the seller would be paid the
difference and would realize a gain. If the offsetting purchase price exceeds
the sale price, the seller would pay the difference and would realize a loss.
Similarly,
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a futures contract purchase is closed out by effecting a futures contract sale
for the same aggregate amount of the specific type of security (or currency)
and the same delivery date. If the offsetting sale price exceeds the purchase
price, the purchaser would realize a gain, whereas if the purchase price
exceeds the offsetting sale price, the purchaser would realize a loss. There
is no assurance that a Fund will be able to enter into a closing transaction.
When a Fund enters into a futures contract it is initially required to
deposit with its Custodian, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash, U.S. Government
securities, equity securities or other liquid, unencumbered assets equal to
approximately 2-3% of the contract amount. Initial margin requirements are
established by the exchanges on which futures contracts trade and may, from
time to time, change. In addition, brokers may establish margin deposit
requirements in excess of those required by the exchanges.
Initial margin in futures transactions is different from margin in securities
transactions in that initial margin does not involve the borrowing of funds by
a brokers' client but is, rather, a good faith deposit on a futures contract
which will be returned to a Fund upon the proper termination of the futures
contract. The margin deposits made are marked-to-market daily and a Fund may
be required to make subsequent deposits into the segregated account,
maintained at its Custodian for that purpose, of cash or liquid assets, called
"variation margin," in the name of the broker, which are reflective of price
fluctuations in the futures contract.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures contracts as a
hedging device. In the case of futures contracts on securities indices, the
correlation between the price of the futures contract and the movements in the
index may not be perfect. Therefore, a correct forecast of market trends by
the investment adviser may still not result in a successful hedging
transaction.
Although a Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance
that it will be possible, at any particular time, to close a futures position.
In the event a Fund could not close a futures position and the value of such
position declined, the Fund would be required to continue to make daily cash
payments of variation margin. Currently, index futures contracts are available
on various U.S. and foreign securities indices.
Successful use of futures contracts by a Fund is also subject to the ability
of the Fund's investment adviser to predict correctly movements in the
direction of markets and other factors affecting the securities market
generally. If a Fund has insufficient cash to meet daily variation margin
requirements, it may need to sell securities to meet such requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. A Fund may have to sell securities at a time
when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours during
which a Fund may trade the underlying securities. To the extent that the
futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be
reflected in the futures markets.
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
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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
Each Fund may write put and call options on stocks only if they are covered
as described above, and such options must remain covered so long as the Fund
is obligated as a writer. A Fund will write put options on stock indices and
foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or liquid assets equal to the aggregate exercise
price of the puts. A Fund will not enter into futures contracts or related
options if the aggregate initial margin and premiums exceed 5% of the
liquidation value of such Fund's total assets, taking into account unrealized
profits and losses on such contracts, provided, however, that in the case of
an option that is in-the-money, the in-the-money amount may be excluded in
computing such 5%. The above restriction does not apply to the purchase or
sale of futures contracts and related options for bona fide hedging purposes,
within the meaning of regulations of the Commodity Futures Trading Commission.
Neither Fund intends to purchase options on equity securities or securities
indices if the aggregate premiums paid for such outstanding options would
exceed 10% of the Fund's total assets. See "How the Funds Invest--Hedging and
Return Enhancement Strategies--Options Transactions" in the Prospectus.
Except as described below, a Fund will write call options on indices only if
on such date it holds a portfolio of stocks at least equal to the value of the
index times the multiplier times the number of contracts. When a Fund writes a
call option on a broadly-based stock market index, the Fund will segregate or
put into escrow with its Custodian, or pledge to a broker as collateral for
the option, cash, U.S. Government securities, equity securities or other
liquid, unencumbered assets or a portfolio of stocks substantially replicating
the movement of the index, in the judgment of the Fund's investment adviser,
with a market value at the time the option is written of not less than 100% of
the current index value times the multiplier times the number of contracts.
If a Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," all of which
are stocks of issuers in such industry or market segment, and that, in the
judgment of the investment adviser, substantially replicate the movement of
the index with a market value at the time the option is written of not less
than 100% of the current index value times the multiplier times the number of
contracts. Such stocks will include stocks which represent at least 50% of the
weighting of the industry or market segment index and will represent at least
50% of the Fund's holdings in that industry or market segment. No individual
security will represent more than 15% of the amount so segregated, pledged or
escrowed in the case of broadly-based stock market index options or 25% of
such amount in the case of industry or market segment index options. If at the
close of business on any day the market value of such qualified securities so
segregated, escrowed or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, the Fund will so
segregate, escrow or pledge an amount in cash, U.S. Government securities,
equity securities or other liquid, unencumbered assets equal in value to the
difference. In addition, when a Fund writes a call on an index which is in-
the-money at the time the call is written, the Fund will segregate with its
Custodian or pledge to the broker as collateral cash or liquid assets equal in
value to the amount by which the call is in-the-money times the multiplier
times the number of contracts. Any amount segregated pursuant to the foregoing
sentence may be applied to the Fund's obligation to segregate additional
amounts in the event that the market value of the qualified securities falls
below 100% of the current index value times the multiplier times the number of
contracts. A "qualified security" is an equity security which is listed on a
national securities exchange or listed on NASDAQ against which the Fund has
not written a stock call option and which has not been hedged by the Fund by
the sale of stock index futures. However, if a Fund holds a call on the same
index as the call written where the exercise price
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of the call held is equal to or less than the exercise price of the call
written or greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or liquid assets in a segregated
account with its Custodian, it will not be subject to the requirements
described in this paragraph.
POSITION LIMITS. Transactions by a Fund in futures contracts and options will
be subject to limitations, if any, established by each of the exchanges,
boards of trade or other trading facilities (including NASDAQ) governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of futures contracts and options
which a Fund may write or purchase may be affected by the futures contracts
and options written or purchased by other investment advisory clients of the
investment adviser. An exchange, board of trade or other trading facility may
order the liquidations of positions found to be in excess of these limits, and
it may impose certain other sanctions.
DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, a Fund may temporarily invest
in money market instruments, including commercial paper of corporations,
certificates of deposit, bankers' acceptances and other obligations of
domestic and foreign banks, obligations issued or guaranteed by the U.S.
Government, its agencies or its instrumentalities and repurchase agreements
(described more fully below). Such foreign investments may be subject to
certain risks, including future political and economic developments, the
possible imposition of withholding taxes on interest income, the seizure or
nationalization of foreign deposits and foreign exchange controls or other
restrictions.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, a Fund may purchase or
sell securities on a when-issued or delayed delivery basis, that is, delivery
and payment can take place a month or more after the date of the transaction.
A Fund will make commitments for such when-issued transactions only with the
intention of actually acquiring the securities. The Fund's Custodian will
maintain, in a separate account of the Fund, cash or liquid assets having a
value equal to or greater than such commitments. If a Fund chooses to dispose
of the right to acquire a when-issued security prior to its acquisition, it
could, as with the disposition of any other portfolio security, incur a gain
or loss due to market fluctuations.
SHORT SALES
Each Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for an equal
amount of the securities of the same issuer as the securities sold short (a
short sale against-the-box), and that not more than 25% of the Fund's net
assets (determined at the time of the short sale) may be subject to such
sales. Short sales will be made primarily to defer realization of gain or loss
for federal tax purposes. As a matter of current operating policy, the Growth
Fund will not engage in short sales other than short sales against-the-box.
The Growth & Income Fund will engage in short sales, including short sales
against-the-box. See "How the Funds Invest--Other Investments and Policies--
Short Sales" in the Prospectus and "Investment Restrictions" below.
REPURCHASE AGREEMENTS
Each Fund's repurchase agreements will be collateralized by U.S. Government
obligations. A Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Company's Board of
Directors. The investment adviser will monitor the creditworthiness of such
parties, under the general supervision of the Board of Directors of the
Company. In the event of a default or bankruptcy by a seller, a Fund will
promptly seek to liquidate the collateral. To the extent that the proceeds
from any sale of such collateral upon a default in the obligation to
repurchase are less than the repurchase price, the Fund will suffer a loss.
B-11
<PAGE>
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, a Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 30% of the value of the
Fund's total assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral
(including a letter of credit) that is equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is
that the Fund continues to receive payments in lieu of the interest and
dividends of the loaned securities, while at the same time earning interest
either directly from the borrower or on the collateral which will be invested
in short-term obligations.
A loan may be terminated by a Fund at any time. If the borrower fails to
maintain the requisite amount of collateral, the loan automatically
terminates, and the Fund could use the collateral to replace the securities
while holding the borrower liable for any excess of replacement cost over
collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases loss of rights in 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. On termination of the loan,
the borrower is required to return the securities to the Fund, and any gain or
loss in the market price during the loan would inure to the Fund.
Since voting or consent rights which accompany loaned securities pass to the
borrower, a Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan. A Fund will pay reasonable
finders', administrative and custodial fees in connection with a loan of its
securities or may share the interest earned on collateral with the borrower.
BORROWING
A Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated at the time of the borrowing) from banks for
temporary, extraordinary or emergency purposes or for the clearance of
transactions. A Fund may pledge up to 20% of its total assets to secure these
borrowings. If a Fund's asset coverage for borrowings falls below 300%, the
Fund will take prompt action to reduce its borrowings. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons,
the Fund may be required to sell portfolio securities to reduce the debt and
restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. Such liquidations could
cause the Fund to realize gains on securities held for less than three months.
Because no more than 30% of a Fund's gross income may be derived from the sale
or disposition of securities held for less than three months to maintain the
Fund's status as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the Internal Revenue Code), such gains would limit
the ability of the Fund to sell other securities held for less than three
months that the Fund might wish to sell. See "Taxes." A Fund will not purchase
portfolio securities when borrowings exceed 5% of the value of its total
assets.
Borrowing for investment purposes is generally known as "leveraging."
Leveraging exaggerates the effect on net asset value of any increase or
decrease in the market value of a Fund's portfolio. Money borrowed for
leveraging will be subject to interest costs which may or may not be recovered
by appreciation of the securities purchased and may exceed the income from the
securities purchased. In addition, a Fund may be required to maintain minimum
average balances in connection with such borrowing or pay a commitment fee to
maintain a line of credit which would increase the cost of borrowing over the
stated interest rate.
ILLIQUID SECURITIES
Neither Fund may hold more than 15% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market (either within or outside of the United
States) or legal or contractual restrictions on resale. Historically, illiquid
B-12
<PAGE>
securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having a maturity
of longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.
Rule 144A under the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial
paper and foreign securities will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers,
such as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser
will consider, inter alia, the following factors: (1) the frequency of trades
and quotes for the security; (2) the number of dealers wishing to purchase or
sell the security 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.
The staff of the SEC has taken the position, which the Funds will follow,
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.
SECURITIES OF OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in securities of other
investment companies. Generally, a Fund does not intend to invest more than 5%
of its total assets in such securities. If a Fund does invest in securities of
other investment
B-13
<PAGE>
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, each Fund may engage
in a substantial number of portfolio transactions, but neither Fund's
portfolio turnover rate is expected to exceed 100%. The portfolio turnover
rate is generally the percentage computed by dividing the lesser of portfolio
purchases or sales (excluding all securities, including options, whose
maturities or expiration date at acquisition were one year or less) by the
monthly average value of the portfolio. High portfolio turnover (over 100%)
involves correspondingly greater brokerage commissions and other transaction
costs, which are borne directly by a Fund. In addition, high portfolio
turnover may also mean that a proportionately greater amount of distributions
to shareholders will be taxed as ordinary income rather than long-term capital
gains compared to investment companies with lower portfolio turnover. See
"Portfolio Transactions and Brokerage" and "Taxes."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies are
those which cannot be changed without the approval of the holders of a
majority of a Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means with respect to each Fund, the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
voting shares are present in person or represented by proxy or (ii) more than
50% of the outstanding voting shares.
Each Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a
security on margin.
2. Make short sales of securities or maintain a short position if, when added
together, more than 25% of the value of the Fund's net assets would be (i)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales and (ii) allocated to segregated accounts in connection
with short sales. Short sales "against-the-box" are not subject to this
limitation.
3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks up to 20% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to 20%
of the value of its total assets to secure such borrowings. For purposes of
this restriction, the purchase or sale of securities on a when-issued or
delayed delivery basis, forward foreign currency exchange contracts and
collateral arrangements relating thereto, and collateral arrangements with
respect to futures contracts and options thereon and with respect to the
writing of options and obligations of the Fund to Directors pursuant to
deferred compensation arrangements are not deemed to be a pledge of assets or
the issuance of a senior security.
4. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if as a result: (i) with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (determined at
the time of investment) would then be invested in securities of a single
issuer, or (ii) 25% or more of the Fund's total assets (determined at the time
of the investment) would be invested in a single industry.
5. Buy or sell real estate or interests in real estate, except that the Fund
may purchase and sell securities which are secured by real estate, securities
of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Fund may not purchase
interests in real estate limited partnerships which are not readily
marketable.
6. Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell financial futures contracts and options thereon. (For
purposes of this restriction, futures contracts on currencies and on
securities indices and, with respect to Growth & Income Fund, futures
contracts on debt securities, and forward foreign currency exchange contracts
are not deemed to be commodities or commodity contracts.)
B-14
<PAGE>
7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws. Neither Fund has adopted a fundamental
investment policy with respect to investments in restricted securities. See
"Illiquid Securities."
8. Make investments for the purpose of exercising control or management.
9. Invest in securities of other investment companies, except by purchases in
the open market involving only customary brokerage commissions and as a result
of which the Fund will not hold more than 3% of the outstanding voting
securities of any one investment company, will not have invested more than 5%
of its total assets in any one investment company and will not have invested
more than 10% of its total assets (determined at the time of investment) in
such securities of one or more investment companies, or except as part of a
merger, consolidation or other acquisition.
10. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
11. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 30% of the Fund's total assets.
12. Purchase more than 10% of all outstanding voting securities of any one
issuer.
Whenever any fundamental investment policy or investment restriction states a
maximum percentage of a Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt
action to reduce its borrowings, as required by applicable law.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION WITH
AND AGE (1) COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
------------- ------------- -----------------------------------------
<S> <C> <C>
Edward D. Beach (72) Director President and Director of BMC Fund, Inc., a
closed-end investment company; prior thereto,
Vice Chairman of Broyhill Furniture Industries,
Inc.; Certified Public Accountant; Secretary
and Treasurer of Broyhill Family Foundation,
Inc.; Member of the Board of Trustees of Mars
Hill College; President, Treasurer and Director
of First Financial Fund, Inc. and The High
Yield Plus Fund, Inc.; President and Director
of Global Utility Fund, Inc.; Director of The
High Yield Income Fund, Inc.
Delayne Dedrick Gold Director Marketing and Management Consultant; Director of
(58) The High Yield Income Fund, Inc.
*Robert F. Gunia (50) Director Comptroller, Prudential Investments (since May
1996); Executive Vice President and Treasurer
(since December 1996), Prudential Mutual Fund
Management LLC (PMF); Senior Vice President
(since March 1987) of Prudential Securities
Incorporated (Prudential Securities); formerly
Chief Administrative Officer (July 1990-
September 1996), Director (January 1989-
September 1996), and Executive Vice President,
Treasurer and Chief Financial Officer (June
1987-September 1996) of Prudential Mutual Fund
Management, Inc.; Vice President and Director
of The Asia Pacific Fund, Inc. (since May
1989); Director of The High Yield Income Fund,
Inc.
</TABLE>
B-15
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS
AND AGE (1) POSITION WITH COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
------------- --------------------- -----------------------------------------
<S> <C> <C>
Donald D. Lennox (78) Director Chairman (since February 1990) and Director
(since April 1989) of International Imaging
Materials, Inc. (thermal transfer ribbon
manufacturer); Retired Chairman, Chief
Executive Officer and Director of Schlegel
Corporation (industrial manufacturing) (March
1987-February 1989); Director of Gleason
Corporation, Personal Sound Technologies, Inc.
and The High Yield Income Fund, Inc.
Douglas H. McCorkindale Director Vice Chairman, Gannett Co. Inc. (publishing and
(57) media) (since March 1984); Director of Gannett
Co. Inc., Frontier Corporation and Continental
Airlines, Inc.
*Mendel A. Melzer, CFA Director Chief Investment Officer (since October 1996) of
(35) Prudential Mutual Funds; formerly Chief
751 Broad St. Financial Officer (November 1995-September
Newark, NJ 07102 1996) of Prudential Investments, Senior Vice
President and Chief Financial Officer of
Prudential Preferred Financial Services (April
1993-November 1995), Managing Director of
Prudential Investment Advisors (April 1991-
April 1993), and Senior Vice President of
Prudential Capital Corporation (July 1989-
April 1991); Chairman and Director of
Prudential Series Fund, Inc.; Director of The
High Yield Income Fund, Inc.
Thomas T. Mooney (55) Director President of the Greater Rochester Metro Chamber
of Commerce; former Rochester City Manager;
Trustee of Center for Governmental Research,
Inc.; Director of Blue Cross of Rochester,
Monroe County Water Authority, Rochester Jobs,
Inc., Executive Service Corps of Rochester,
Monroe County Industrial Development
Corporation, Northeast Midwest Institute, The
Business Council of New York State, First
Financial Fund, Inc., The High Yield Income
Fund, Inc. and The High Yield Plus Fund, Inc.
Stephen P. Munn (54) Director Chairman (since January 1994), Director and
President (since 1988) and Chief Executive
Officer (1988-December 1993) of Carlisle
Companies Incorporated (manufacturer of
industrial products).
*Richard A. Redeker (53) President and Director Employee of Prudential Investments; formerly
751 Broad St. President, Chief Executive Officer and
Newark, NJ 07102 Director (October 1993-September 1996) of
Prudential Mutual Fund Management, Inc.,
Executive Vice President, Director and Member
of the Operating Committee (1993-September
1996), Prudential Securities, Director
(October 1993-September 1996) of Prudential
Securities Group, Inc., Executive Vice
President, The Prudential Investment
Corporation (January 1994-September 1996),
Director (January 1994-September 1996),
Prudential Mutual Fund Distributors, Inc. and
Prudential Mutual Fund Services, Inc., and
Senior Executive Vice President and Director
of Kemper Financial Services, Inc. (September
1978-September 1993); President and Director
of The High Yield Income Fund, Inc.
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION WITH
AND AGE (1) COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
------------- ------------- -----------------------------------------
<S> <C> <C>
Robin B. Smith (57) Director Chairman and Chief Executive Officer (since
August 1996) of Publishers Clearing House;
formerly President and Chief Executive Officer
(January 1988-August 1996) and President and
Chief Operating Officer (September 1981-
December 1988) of Publishers Clearing House;
Director of BellSouth Corporation, The Omnicom
Group, Inc., Texaco Inc., Spring Industries
Inc. and Kmart Corporation.
Louis A. Weil, III (55) Director Publisher and Chief Executive Officer (since
January 1996) and Director (since September
1991) of Central Newspapers, Inc.; Chairman of
the Board (since January 1996), Publisher and
Chief Executive Officer (August 1991-December
1995) of Phoenix Newspapers, Inc.; formerly
Publisher of Time Magazine (May 1989-March
1991); formerly President, Publisher & CEO of
The Detroit News (February 1986-August 1989);
formerly member of the Advisory Board, Chase
Manhattan Bank-Westchester; Director of The
High Yield Income Fund, Inc.
Clay T. Whitehead (58) Director President of National Exchange Inc. (new
business development firm) (since May 1983).
Susan C. Cote (42) Vice President Executive Vice President (since February 1997)
and Chief Financial Officer (since May 1996),
PMF; formerly Managing Director, Prudential
Investments and Vice President, The Prudential
Investment Corporation (February 1995-May
1996), Senior Vice President (January 1989-
January 1995) of Prudential Mutual Fund
Management, Inc. and Senior Vice President
(January 1992-January 1995) of Prudential
Securities.
Thomas A. Early (42) Vice President Executive Vice President, Secretary and General
Counsel (since December 1996), PMF; Vice
President and General Counsel, Prudential
Retirement Services (March 1994-March 1997);
formerly Associate General Counsel and Chief
Financial Services Officer, Frank Russell
Company (1988-1994).
S. Jane Rose (51) Secretary Senior Vice President (since December 1996),
PMF; formerly Senior Vice President (January
1991-September 1996) and Senior Counsel (June
1987-September 1996) of Prudential Mutual Fund
Management, Inc.; 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 (39) Treasurer and First Vice President (since December 1996) of
Principal Financial PMF; formerly First Vice President (January
and Accounting 1990-September 1996) of Prudential Mutual Fund
Officer Management, Inc.
</TABLE>
B-17
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION WITH
AND AGE (1) COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
------------- ------------- -----------------------------------------
<S> <C> <C>
Marguerite E.H. Morrison Assistant Secretary Vice President (since December 1996) of PMF;
(41) formerly Vice President and Associate General
Counsel (June 1991-September 1996) of
Prudential Mutual Fund Management, Inc.; Vice
President and Associate General Counsel of
Prudential Securities.
Stephen M. Ungerman (44) Assistant Treasurer Tax Director of Prudential Investments and the
Private Asset Group of The Prudential Insurance
Company of America (Prudential) (since March
1996); formerly First Vice President of
Prudential Mutual Fund Management, Inc.
(February 1993-September 1996); prior thereto,
Senior Tax Manager of Price Waterhouse (1981-
January 1993).
</TABLE>
- -------
(1) Unless otherwise stated, the address is c/o Prudential Mutual Fund
Management LLC, Gateway Center Three, Newark, New Jersey 07102-4077.
* "Interested" director, as defined in the Investment Company Act, by reason
of his affiliation with Prudential, Prudential Securities or PMF.
Directors and officers of the Company are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities.
The officers conduct and supervise the daily business operations of the
Company, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," oversee such actions and decide on general
policy.
Pursuant to the Management Agreement with the Company, the Manager pays all
compensation of officers and employees of the Company as well as the fees and
expenses of all Directors of the Company who are affiliated persons of the
Manager.
The Company pays each of its Directors who is not an affiliated person of PMF
or Jennison Associates Capital Corp. (Jennison or the Subadviser) annual
compensation of $2,500, in addition to certain out-of-pocket expenses.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Company. Under the terms of the agreement, the Company
accrues daily the amount of Directors' fees in installments which accrue
interest at a rate equivalent to the prevailing rate applicable to 90-day U.S.
Treasury bills at the beginning of each calendar quarter (the T-bill rate) or,
pursuant to a Securities and Exchange Commission (SEC) exemptive order, at the
daily rate of return of a Fund (the Fund rate). Payment of the interest so
accrued is also deferred and accruals become payable at the option of the
Director. The Company's obligation to make payments of deferred Directors'
fees, together with interest thereon, is a general obligation of the Company.
Currently, Ms. Smith has agreed to defer her fees at the Fund rate.
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, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Messrs. Beach
and Lennox are scheduled to retire on December 31, 1999 and December 31, 1997,
respectively.
B-18
<PAGE>
The following table sets forth aggregate compensation paid by the Company to
the Directors for the fiscal year ended 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 LLC (Fund
Complex) for the calendar year ended December 31, 1996. In October 1996,
shareholders elected a new Board of Directors of the Company. Below are listed
all Directors who have served the Company during its most recent fiscal year
as well as the new Directors who took office after the shareholders' meeting
in October.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL 1996
COMPENSATION
PAID TO BOARD
PENSION OR RETIREMENT MEMBERS
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM COMPANY
COMPENSATION AS PART OF COMPANY BENEFITS UPON AND FUND
NAME AND POSITION FROM COMPANY EXPENSES RETIREMENT COMPLEX
- ----------------- ------------ --------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Beach, Edward D.--Direc-
tor -- None N/A $166,000(21/39)*
Dorsey, Eugene C.**--
Former
Director $7,500 None N/A $ 98,583(12/36)*
Gold, Delayne D.--Direc-
tor -- None N/A $175,308(21/42)*
Gunia, Robert F.(/1/)--
Director -- None N/A --
Lennox, Donald D.--Di-
rector -- None N/A $ 90,000(10/22)*
McCorkindale, Douglas
H.**
--Director -- None N/A $ 71,208(10/13)*
Melzer, Mendel A.(/1/)--
Director -- None N/A --
Mooney, Thomas T.**--Di-
rector -- None N/A $135,375(18/36)*
Munn, Stephen P.--Direc-
tor -- None N/A $ 49,125(6/8)*
Redeker, Richard
A.(/1/)--President and
Director -- None N/A --
Smith, Robin B.**--Di-
rector $7,500 None N/A $ 89,957(11/20)*
Weil, III, Louis A.--Di-
rector -- None N/A $ 91,250(13/18)*
Whitehead, Clay T.--Di-
rector -- None N/A $ 38,292(5/7)*
</TABLE>
- -------
* Indicates number of funds/portfolios in Fund Complex (including the Company)
to which aggregate compensation relates.
(1) Directors who are "interested" do not receive compensation from the Fund
Complex (including the Company).
** Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1996 includes amounts deferred at the election of
Directors under the funds' deferred compensation plan. Including accrued
interest, total compensation amounted to approximately $111,535, $71,034,
$139,869 and $109,294 for Mr. Dorsey, Mr. McCorkindale, Mr. Mooney and Ms.
Smith, respectively.
As of April 18, 1997, the Directors and officers of the Company, as a group,
owned less than 1% of the outstanding common stock of each Fund.
As of April 18, 1997, beneficial owners, directly or indirectly, of more than
5% of any class of shares of Prudential Jennison Growth Fund were: 401K
Holding Account, FBO ACEC Retirement Trust, PO Box 15040, New Brunswick, NJ
08906, owned approximately 580,628 Class A shares (or approximately 6.9% of
the outstanding Class A shares) and Pru Defined Contribution SVCS, FBO Non-
Trust Accounts, Attn: John Surdy, 30 Scranton Office Park, Moosic,
Pennsylvania owned approximately 22,022,734 Class Z shares (or approximately
60.7% of the outstanding Class Z shares). As of April 18, 1997, beneficial
owners, directly or indirectly, of more than 5% of any class of shares of
Prudential Jennison Growth & Income Fund were: Jennison Associates Capital
Co., Saving Plan TTEE: J. Kanary, M. Baiso & B. Goldberg, c/o Corporate
Services, 466 Lexington Ave. 18th Floor, New York, NY 10017 owned
approximately 156,061 Class A shares (or approximately 6.3% of the outstanding
Class A shares); Bradley L. Goldberg, 502 Orienta Avenue, Mamaroneck, New York
owned approximately 138,741 Class A shares (or approximately 5.6% of the
outstanding Class A shares); James M. Rodney TTEE, James M.
B-19
<PAGE>
Rodney Trust, UA DTD 06/07/79, 725 Hanna, Birmingham, Michigan owned
approximately 32,550 Class C shares (or approximately 6.1% of the outstanding
Class C shares); Prudential Trust Company, FBO Pru-DC Trust Accounts, ATTN:
John Surdy, 30 Scranton Office Park, Moosic, PA 18507-1774 owned approximately
7,689 Class Z shares (or approximately 40.7% of the outstanding Class Z
shares); Mr. John A. Hart TTEE, John A. & Eleanor E. Hart Family Trust UA DTD
08/25/95, 2113 Evergreen Ridge Dr., Cincinnati OH 45215-5713 owned 4,802 Class
Z shares (or approximately 25.4% of the outstanding Class Z shares);
Prudential Securities C/F, Harold Quebedeaux, IRA DTD 12/17/91, PO Box 366,
Mansura, LA 71350-0366 owned 1,067 Class Z shares (or approximately 5.6% of
the outstanding Class Z shares).
As of April 18 1997, Prudential Securities was the record holder for other
beneficial owners of 5,811,292 Class A shares (approximately 69.2% of such
shares outstanding), 16,880,324 Class B shares (approximately 70.4% of such
shares outstanding), 1,230,178 Class C shares (approximately 86.1% of such
shares outstanding) and 93,211 Class Z shares (approximately 0.25% of such
shares outstanding) of Growth Fund; and 2,135,272 Class A shares
(approximately 87.1% of such shares outstanding), 5,253,271 Class B shares
(approximately 89.8% of such shares outstanding), 518,475 Class C shares
(approximately 98.0% of such shares outstanding) and 11,145 Class Z shares
(approximately 59.0% of such shares outstanding) of Growth & Income Fund. In
the event of any meetings of shareholders, Prudential Securities will forward,
or cause the forwarding of, proxy materials to beneficial owners for which it
is the record holder.
MANAGER
The manager of the Company is Prudential Mutual Fund Management LLC (PMF or
the Manager), Gateway Center Three, Newark, New Jersey 07102-4077. PMF serves
as manager to all of the other investment companies that, together with the
Funds, comprise the Prudential Mutual Funds. See "How the Funds are Managed--
Manager" in the Prospectus. As of December 31, 1996, PMF managed and/or
administered open-end and closed-end management investment companies with
assets of approximately $55.2 billion. According to the Investment Company
Institute, as of December 31, 1996, the Prudential Mutual Funds were the 15th
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). Prudential Mutual Fund Services LLC
(PMFS or the Transfer Agent), a wholly-owned subsidiary of PMF, 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 Company (the Management
Agreement), PMF, subject to the supervision of the Company's Board of
Directors and in conformity with the stated policies of each Fund, manages
both the investment operations of each Fund and the composition of each Fund's
portfolio, including the purchase, retention, disposition and loan of
securities and other assets. In connection therewith, PMF is obligated to keep
certain books and records of the Company. PMF also administers the Company's
corporate affairs and, in connection therewith, furnishes the Company with
office facilities, together with those ordinary clerical and bookkeeping
services which are not being furnished by State Street Bank and Trust Company,
the Funds' custodian (the Custodian), and PMFS, the Funds' transfer and
dividend disbursing agent. The management services of PMF for the Funds are
not exclusive under the terms of the Management Agreement and PMF is free to,
and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .60 of 1% of each Fund's average daily net assets. The
fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of a Fund (including the fees of PMF,
but excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and
B-20
<PAGE>
enforced pursuant to the statutes or regulations of any jurisdiction in which
the Fund's shares are qualified for offer and sale, the compensation due to
PMF will be reduced by the amount of such excess. Reductions in excess of the
total compensation payable to PMF will be paid by PMF to the Company.
Currently, the Company believes that there are no such expense limitations.
In connection with its management of the corporate affairs of the Company,
PMF bears the following expenses:
(a) the salaries and expenses of all personnel of the Company and the
Manager, except the fees and expenses of Directors who are not affiliated
persons of PMF or the Company's investment adviser;
(b) all expenses incurred by PMF or by the Company in connection with
managing the ordinary course of a Fund's business, other than those assumed by
a Fund as described below; and
(c) the fees payable to the Subadviser pursuant to the Subadvisory Agreement
between PMF and Jennison (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Company is responsible for
the payment of the following expenses: (a) the fees payable to the Manager,
(b) the fees and expenses of Directors who are not affiliated persons of the
Manager or the Company's investment adviser, (c) the fees and certain expenses
of the Custodian and Transfer and Dividend Disbursing Agent, including the
cost of providing records to the Manager in connection with its obligation of
maintaining required records of each Fund and of pricing each Fund's shares,
(d) the charges and expenses of legal counsel and independent accountants for
the Company, (e) brokerage commissions and any issue or transfer taxes
chargeable to the Company in connection with its securities transactions, (f)
all taxes and corporate fees payable by the Company to governmental agencies,
(g) the fees of any trade associations of which the Company may be a member,
(h) the cost of stock certificates representing shares of the Company, (i) the
cost of fidelity and liability insurance, (j) certain organization expenses of
the Company and the fees and expenses involved in registering and maintaining
registration of the Company and of its shares with the SEC, registering the
Company as a broker or dealer and qualifying its shares under state securities
laws, including the preparation and printing of each Fund's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders in the amount necessary for
distribution to the shareholders, (l) litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of the
Company's business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by a Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically
if assigned, and that it may be terminated without penalty by either party
upon not more than 60 days' nor less than 30 days' written notice. The
Management Agreement will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act. The Management Agreement was last approved by the Board of
Directors, including a majority of the Directors who are not parties to the
contract or interested persons of any such parties as defined in the
Investment Company Act, on April 9, 1996.
PMF has entered into the Subadvisory Agreement with Jennison, a wholly-owned
subsidiary of Prudential. The Subadvisory Agreement provides that Jennison
will furnish investment advisory services in connection with the management of
the Company. In connection therewith, Jennison is obligated to keep certain
books and records of each Fund. Under the Subadvisory Agreement, Jennison,
subject to the supervision of PMF, is responsible for managing the assets of
each Fund in accordance with its investment objectives, investment program and
policies. Jennison determines what securities and
B-21
<PAGE>
other instruments are purchased and sold for each Fund and is responsible for
obtaining and evaluating financial data relevant to each Fund. PMF continues
to have responsibility for all investment advisory services pursuant to the
Management Agreement. Under the Subadvisory Agreement, PMF compensates
Jennison for its services at an annual rate of .30 of 1% of each Fund's
average daily net assets up to and including $300 million and .25 of 1% of the
Fund's average daily net assets in excess of $300 million.
For the fiscal period from November 2, 1995 (commencement of investment
operations) through September 30, 1996, PMF received from Growth Fund
management fees of $1,418,805, of which $709,402 was paid to Jennison
Associates. The Growth & Income Fund was not offered during the fiscal year
ended September 30, 1996.
The Subadvisory Agreement provides that it will terminate in the event of its
assignment (as defined in the Investment Company Act) or upon the termination
of the Management Agreement. The Subadvisory Agreement may be terminated by
the Company, PMF or Jennison upon not more than 60 days', nor less than 30
days', written notice. The Subadvisory Agreement provides that it will
continue in effect for a period of more than two years from its execution only
so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act. The Subsidiary
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 parties as defined in the Investment Company Act, on April 9, 1996.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, acts as the distributor of the Class
A, Class B, Class C and Class Z shares of the Company.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the
Company under Rule 12b-1 under the Investment Company Act and a distribution
agreement (the Distribution Agreement), Prudential Securities (also the
Distributor) incurs the expenses of distributing the Company's Class A, Class
B and Class C shares. See "How the Funds are Managed--Distributor" in the
Prospectus. Prudential Securities serves as the Distributor of Class Z shares
and incurs the expenses of distributing the Class Z shares under a
Distribution Agreement with the Company, none of which are reimbursed by or
paid for by the Fund.
The Class A Plan provides that (i) .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1%. The
Class B and Class C Plans provide that (i) .25 of 1% of the average daily net
assets of the Class B and Class C shares, respectively, may be paid as a
service fee and (ii) .75 of 1% (not including the service fee) may be paid for
distribution-related expenses with respect to the Class B and Class C shares,
respectively (asset-based sales charge). On April 9 and July 9, 1996, the
Board of Directors of the Company, including a majority of the Directors who
are not interested persons of the Company and who have no direct or indirect
financial interest in the operation of the Plans or any agreement related
thereto (Rule 12b-1 Directors), at a meeting called for the purpose of voting
on each Plan, approved the Class A, Class B and Class C Plan and the
Distribution Agreement with respect to Growth Fund and Growth & Income Fund,
respectively. No shares of the Growth & Income Fund were outstanding during
the fiscal period ended September 30, 1996.
Class A Plan. For the fiscal period from November 2, 1995 (commencement of
investment operations of the Growth Fund) through September 30, 1996, Growth
Fund paid distribution fees of $161,221 to Prudential Securities under the
Class A Plan. This amount was primarily expended for payment of account
servicing fees to financial advisers and other persons who sell Class A shares
of the Growth Fund. In addition, for the same period, Prudential Securities
received approximately $909,000 in initial sales charges with respect to the
sale of Class A shares.
B-22
<PAGE>
Class B Plan. For the fiscal period from November 2, 1995 (commencement of
investment operations of the Growth Fund) through September 30, 1996,
Prudential Securities received $1,482,118 from the Growth Fund under the Class
B Plan and spent approximately $3,614,000 in distributing Class B shares of
the Growth Fund. It is estimated that of the latter amount, approximately
$118,000 (3.3%) was spent on printing and mailing of prospectuses to other
than current shareholders; $1,429,000 (39.5%) on compensation to Pruco
Securities Corporation, an affiliated broker-dealer (Prusec), for commissions
to its representatives and other expenses, including an allocation on account
of overhead and other branch office distribution-related expenses, incurred by
it for distribution of shares; and $2,067,000 (57.2%) on the aggregate of (i)
payments of commissions and account servicing fees to financial advisers
($673,700 or 18.6%) and (ii) an allocation on account of overhead and other
branch office distribution-related expenses ($1,393,300 or 38.6%). The term
"overhead and other branch office distribution-related expenses" represents
(a) the expenses of operating Prudential Securities branch offices in
connection with the sale of Growth Fund shares, including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(b) the costs of client sales seminars, (c) expenses of mutual fund sales
coordinators to promote the sale of Growth Fund shares; and (d) other
incidental expenses relating to branch promotion of Growth Fund shares.
Prudential Securities also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class B shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus. For the same period, Prudential Securities
received approximately $350,000 in contingent deferred sales charges
attributable to Class B shares.
Class C Plan. For the fiscal period from November 2, 1995 (commencement of
investment operations of the Growth Fund) through September 30, 1996,
Prudential Securities received $114,523 from Growth Fund under the Class C
Plan and spent approximately $78,000 in distributing Class C shares of Growth
Fund. It is estimated that of the latter amount approximately 10.9% ($8,500)
was spent on printing and mailing of prospectuses to other than current
shareholders; 11.0% ($8,600) on compensation to Prusec for commissions to its
representative and other expenses, including an allocation of overhead and
other branch office distribution-related expenses, incurred by it for
distribution of shares of the Growth Fund; 78.1% ($60,900) on the aggregate of
(i) payments of commission and account servicing fees to financial advisors
39.6% ($30,900) and (ii) an allocation of overhead and other branch office
distribution-related expenses 38.5% ($30,000).
Prudential Securities also receives the proceeds of contingent deferred sales
charges paid by holders of Class C shares upon certain redemptions of Class C
shares. See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred
Sales Charges" in the Prospectus. For the same period, Prudential Securities
received approximately $10,000 in contingent deferred sales charges
attributable to Class C shares.
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 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. A Fund will
not be obligated to pay expenses incurred under any Plan if it is terminated
or not continued.
Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of a Fund by the Distributor. The report will include an itemization
of the distribution expenses and the purposes of such expenditures. In
addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.
B-23
<PAGE>
Pursuant to the Distribution Agreement, the Company has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and
a limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition
or investment objectives. It was also alleged that the safety, potential
returns and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing
properties and aircraft leasing ventures. The SEC Order (i) included findings
that PSI's conduct violated the federal securities laws and that an order
issued by the SEC in 1986 requiring PSI to adopt, implement and maintain
certain supervisory procedures had not been complied with; (ii) directed PSI
to cease and desist from violating the federal securities laws and imposed a
$10 million civil penalty; and (iii) required PSI to adopt certain remedial
measures including the establishment of a Compliance Committee of its Board of
Directors. Pursuant to the terms of the SEC settlement, PSI established a
settlement fund in the amount of $330,000,000 and procedures, overseen by a
court approved Claims Administrator, to resolve legitimate claims for
compensatory damages by purchasers of the partnership interests. PSI has
agreed to provide additional funds, if necessary, for that purpose. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action. In settling the
above referenced matters, PSI neither admitted nor denied the allegations
asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and
other improper conduct resulting in pecuniary losses and other harm to
investors residing in Texas with respect to purchases and sales of limited
partnership interests during the period of January 1, 1980 through December
31, 1990. Without admitting or denying the allegations, PSI consented to a
reprimand, agreed to cease and desist from future violations, and to provide
voluntary donations to the State of Texas in the aggregate amount of
$1,500,000. The firm agreed to suspend solicitation of new customer accounts,
the general solicitation of new accounts, and the offer for sale of securities
in or from PSI's North Texas office to new customers during a period of twenty
consecutive business days, and agreed that its other Texas offices would be
subject to the same restrictions for a period of five consecutive business
days. PSI also agreed to institute training programs for its securities
salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States
Postal Inspection Service. PSI further agreed to obtain a mutually acceptable
outside director to sit on the Board of Directors of PSG and the Compliance
Committee of PSI. The new director serves as an independent "ombudsman" whom
PSI employees can call anonymously with complaints about ethics and
compliance. Prudential Securities reports any allegations or instances of
criminal conduct and material improprieties to the new director. The new
director submits compliance reports which identify any such allegations or
instances of criminal conduct and material improprieties every three months
and shall continue to do so 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
B-24
<PAGE>
reinvestment of dividends and distributions are not required to be included in
the calculation of the 6.25% limitation. The annual asset-based sales charge
with respect to Class B and Class C shares of the Fund may not exceed .75 of
1%. The 6.25% limitation applies to a Fund rather than on a per shareholder
basis. If aggregate sales charges were to exceed 6.25% of total gross sales of
any class, all sales charges on shares of that class would be suspended.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Company, the selection of
brokers, dealers and futures commission merchants to effect the transactions
and the negotiation of brokerage commissions, if any. The term "Manager" as
used in this section includes the Subadviser. Broker-dealers may receive
negotiated brokerage commissions on Fund portfolio transactions, including
options and the purchase and sale of underlying securities upon the exercise
of options. On foreign securities exchanges, commissions may be fixed. Orders
may be directed to any broker or futures commission merchant including, to the
extent and in the manner permitted by applicable law, Prudential Securities
and its affiliates.
Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting
as principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount
of compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in
which case no commissions or discounts are paid. A Fund will not deal with
Prudential Securities or any affiliate in any transaction in which Prudential
Securities or any affiliate acts as principal, except in accordance with rules
of the SEC. Thus, it will not deal with Prudential Securities acting as market
maker, and it will not execute a negotiated trade with Prudential Securities
if execution involves Prudential Securities' acting as principal with respect
to any part of a Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities, or an affiliate, during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Company, will not significantly affect a
Fund's ability to pursue its present investment objective. However, in the
future in other circumstances, a Fund may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not
subject to such limitations.
In placing orders for portfolio securities of a Fund, the Manager is required
to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio
transactions of a Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data
and research reports on particular companies and industries. Such services are
used by the Manager in connection with all of its investment activities, and
some of such services obtained in connection with the execution of
transactions for a Fund may be used in managing other investment accounts.
Conversely, brokers, dealers or futures commission merchants furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than a Fund's, and the
services furnished by such brokers, dealers or futures commission merchants
may be used by the Manager in providing investment management for a Fund.
Commission rates are established pursuant to negotiations with the broker,
dealer or futures commission merchant based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. The Manager's policy is to pay higher commissions to brokers, other
than Prudential Securities, for particular transactions than might be charged
if a different broker had been selected, on occasions when, in the Manager's
opinion, this policy furthers the objective of obtaining best price and
execution. In addition,
B-25
<PAGE>
the Manager is authorized to pay higher commissions on brokerage transactions
for a Fund to brokers other than Prudential Securities (or any affiliate) in
order to secure research and investment services described above, subject to
review by the Company's Board of Directors from time to time as to the extent
and continuation of this practice. The allocation or orders among brokers and
the commission rates paid are reviewed periodically by the Company's Board of
Directors. The Company will not pay up for research in principal transactions.
Subject to the above considerations, Prudential Securities (or any affiliate)
may act as a securities broker or futures commission merchant for the Company.
In order for Prudential Securities (or any affiliate) to effect any portfolio
transactions for a Fund, the commissions, fees or other remuneration received
by Prudential Securities (or any affiliate) must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers
or futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
during a comparable period of time. This standard would allow Prudential
Securities (or any affiliate) to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker or futures
commission merchant in a commensurate arm's-length transaction. Furthermore,
the Board of Directors of the Company, including a majority of the Directors
who are not "interested" persons, has adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Prudential Securities (or any affiliate) are consistent with the foregoing
standard. In accordance with Section 11(a) of the Securities Exchange Act of
1934, as amended, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for a Fund unless the
Fund has expressly authorized the retention of such compensation. Prudential
Securities must furnish to a Fund at least annually a statement setting forth
the total amount of all compensation retained by Prudential Securities from
transactions effected for the Fund during the applicable period. Brokerage and
futures transactions with Prudential Securities are also subject to such
fiduciary standards as may be imposed by applicable law. The Growth Fund paid
commissions of $436,218 for the fiscal period ended September 30, 1996, none
of which was paid to Prudential Securities or any of its affiliates.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of each 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
each Fund are offered to a limited group of investors at net asset value
without any sales charges. See "Shareholder Guide--How to Buy Shares of the
Funds" in the Prospectus.
Each class represents an interest in the same assets of a Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service fees (except for Class Z shares,
which are not subject to any sales charge or distribution and/or service
fees), which may affect performance, (ii) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv)
only Class B shares have a conversion feature and (v) Class Z shares are
offered exclusively for sale to a limited group of investors. See
"Distributor" and "Shareholder Investment Account--Exchange Privilege."
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<PAGE>
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Company and the
Distributor, Class A shares are sold with a maximum sales charge of 5% and
Class B*, Class C* and Class Z shares are sold at net asset value. Using the
net asset values of Growth Fund and Growth & Income Fund at March 31, 1997,
the maximum offering price of Growth Fund's and Growth & Income Fund's shares
is as follows:
<TABLE>
<CAPTION>
PRUDENTIAL
PRUDENTIAL JENNISON
JENNISON GROWTH &
GROWTH INCOME
FUND FUND
---------- ----------
<S> <C> <C>
CLASS A
Net asset value and redemption price per Class A share... $11.16 $10.44
Maximum sales charge (5% of offering price).............. .59 .55
------ ------
Offering price to public................................. $11.75 $10.99
====== ======
CLASS B
Net asset value, redemption price and offering price per
Class B share*.......................................... $11.04 $10.43
====== ======
CLASS C
Net asset value, redemption price and offering price per
Class C share*.......................................... $11.04 $10.43
====== ======
CLASS Z
Net asset value, offering price and redemption price per
Class Z share........................................... $11.19 $10.48
====== ======
</TABLE>
- -------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of a Fund
concurrently with Class A shares of other Prudential Mutual Funds, the
purchases may be combined to take advantage of the reduced sales charges
applicable to larger purchases. See the table of breakpoints under
"Shareholder Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
B-27
<PAGE>
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more retirement or group
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 any
retirement or group plans.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of
related investors, as described above under "Combined Purchase and Cumulative
Purchase Privilege," may aggregate the value of their existing holdings of
shares of a Fund and shares of other Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege) to
determine the reduced sales charge. The value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly
with the Transfer Agent or through Prudential Securities. The value of
existing holdings for purposes of determining the reduced sales charge is
calculated using the maximum offering or price (net asset value plus maximum
sales charge) as of the previous business day. See "How Each 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 a Fund and shares of other Prudential
Mutual Funds (Investment Letter of Intent). Retirement and group plans may
also qualify to purchase Class A shares at net asset value by entering into a
Letter of Intent whereby they agree to enroll, within a thirteen month period,
a specified number of eligible employees or participants (Participant Letter
of Intent).
For purposes of the Investment Letter of Intent, all shares of a Fund and
shares of other Prudential Mutual Funds (excluding money market funds other
than those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the
Transfer Agent or through Prudential Securities.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number
of investments over a thirteen-month period, and in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the
reduced sales charge applicable to the amount represented by the goal, as if
it were a single investment. In the case of a Participant Letter of Intent,
each investment made during the period will be made at net asset value.
Escrowed Class A shares totaling 5% of the dollar amount of the Letter of
Intent will be held by the Transfer Agent in the name of the purchaser, except
in the case of retirement and group plans where the employer or plan sponsor
will be responsible for paying any applicable sales charge. The effective date
of an Investment Letter of Intent (except in the case of retirement and group
plans) may be back-dated up to 90 days, in order that any investments made
during this 90-day period, valued at the purchaser's cost, can be applied to
the fulfillment of the Letter of Intent goal.
The Investment Letter of Intent does not obligate the investor to purchase,
nor the Company to sell, the indicated amount. Similarly, the Participant
Letter of Intent does not obligate the retirement or group plan to enroll the
indicated number of eligible employees or participants. In the event the
Letter of Intent goal is not achieved within the thirteen-month period, the
purchaser (or the employer or plan sponsor in the case of any retirement or
group plan) is required to pay the difference
B-28
<PAGE>
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 a Fund pursuant to a Letter of Intent should carefully read
such Letter of Intent.
The Distributor must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales charges will, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or, in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. Letters of Intent are not available to
individual participants in any retirement or group plans.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
The contingent deferred sales charge is waived under circumstances described
in the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit
the supporting documentation set forth below.
<TABLE>
<C> <S>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
Death A copy of the shareholder's death
certificate or, in the case of a trust, a
copy of the grantor's death certificate,
plus a copy of the trust agreement
identifying the grantor.
Disability--An individual will be A copy of the Social Security
considered disabled if he or she Administration award letter or a letter
is unable to engage in any sub- from a physician on the physician's
stantial gainful activity by letterhead stating that the shareholder
reason of any medically deter- (or, in the case of a trust, the grantor)
minable physical or mental im- is permanently disabled. The letter must
pairment which can be expected also indicate the date of disability.
to result in death or to be of
long-continued and indefinite
duration.
Distribution from an IRA or A copy of the distribution form from the
403(b) Custodial Account custodial firm indicating (i) the date of
birth of the shareholder and (ii) that the
shareholder is over age 59 1/2 and is
taking a normal distribution--signed by the
shareholder.
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating the reason
for the distribution.
Excess Contributions A letter from the shareholder (for an IRA)
or the plan administrator/trustee on
company letterhead indicating the amount of
the excess and whether or not taxes have
been paid.
</TABLE>
The Transfer Agent reserves the right to request such additional documents as
it may deem appropriate.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account is
established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. Each Fund makes
available to its shareholders the following privileges and plans.
B-29
<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. For the convenience of
investors, all dividends and distributions are automatically reinvested in
full and fractional shares of the applicable Fund. An investor may direct the
Transfer Agent in writing not less than five full business days prior to the
record date to have subsequent dividends or distributions sent in cash rather
than reinvested. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payment will be made directly to the dealer. Any shareholder who receives a
cash payment representing a dividend or distribution may reinvest such
dividend or distribution at net asset value by returning the check or the
proceeds to the Transfer Agent within 30 days after the payment date. Such
investment will be made at the net asset value per share next determined after
receipt of the check or proceeds by the Transfer Agent.
EXCHANGE PRIVILEGE. The Company makes available to its shareholders the
Exchange Privilege. The Company makes available to its shareholders the
privilege of exchanging their shares of a Fund for shares of certain other
Prudential Mutual Funds, including one or more specified money market funds,
subject in each case to the minimum investment requirements of such funds.
Shares of such other Prudential Mutual Funds may also be exchanged for shares
of a Fund. All exchanges are made on the basis of relative net asset value
next determined after receipt of an order in proper form. An exchange will be
treated as a redemption and purchase for tax purposes. Shares may be exchanged
for shares of another fund only if shares of such fund may legally be sold
under applicable state laws. For retirement and group plans having a limited
menu of Prudential Mutual Funds, the Exchange Privilege is available for those
funds eligible for investment in the particular program.
It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of a Fund may exchange their Class A shares for shares
of certain other Prudential Mutual Funds, shares of Prudential Government
Securities Trust (Short-Intermediate Term Series) and shares of the money
market funds specified below. No fee or sales load will be imposed upon the
exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire
Class A shares of the Prudential Mutual Funds participating in the Exchange
Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of a Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund,
Inc., a money market fund. No CDSC will be payable upon such exchange, but a
CDSC may be payable upon the redemption of the Class B and Class C shares
acquired as a result of the exchange. The applicable sales charge will be that
imposed by the fund in which shares were initially purchased and the purchase
date will be deemed to be the date of the initial purchase, rather than the
date of the exchange.
B-30
<PAGE>
Class B and Class C shares of a Fund may also be exchanged for shares of
Prudential Special Money Market Fund, Inc. without imposition of any CDSC at
the time of exchange. Upon subsequent redemption from such money market fund
or after re-exchange into a Fund, such shares will be subject to the CDSC
calculated without regard to the time such shares were held in the money
market fund. In order to minimize the period of time in which shares are
subject to a CDSC, shares exchanged out of the money market fund will be
exchanged on the basis of their remaining holding periods, with the longest
remaining holding periods being transferred first. In measuring the time
period shares are held in a money market fund and "tolled" for purposes of
calculating the CDSC holding period, exchanges are deemed to have been made on
the last day of the month. Thus, if shares are exchanged into a Fund from a
money market fund during the month (and are held in the Fund at the end of the
month), the entire month will be included in the CDSC holding period.
Conversely, if shares are exchanged into a money market fund prior to the last
day of the month (and are held in the money market fund on the last day of the
month), the entire month will be excluded from the CDSC holding period. For
purposes of calculating the seven year holding period applicable to the Class
B conversion feature, the time period during which Class B shares were held in
a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, respectively, without subjecting such shares to any CDSC. Shares
of any fund participating in the Class B or Class C exchange privilege that
were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.
CLASS Z. Class Z Shares May Be Exchanged for Class Z Shares of Other
Prudential Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Funds' Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on 60 days' notice, and any fund, including a Fund, or
the Distributor, has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a fixed
amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average
cost per share is lower than it would be if a constant number of shares were
bought at set intervals.
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/)
B-31
<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>
- -------
(/1/) Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition,
fees, room and board for the 1993-1994 academic year.
(/2/) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of a Fund.
The investment return and principal value of an investment will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
See "Automatic Savings Accumulation Plan."
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, an investor may
arrange to have a fixed amount automatically invested in shares of a Fund
monthly by authorizing his or her bank account or Prudential Securities
Account (including a Command Account) to be debited to invest specified dollar
amounts in shares of a Fund. The investor's bank must be a member of the
Automatic Clearing House System. Stock certificates are not issued to ASAP
participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
Withdrawals of Class B or Class C shares may be subject to a CDSC. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and
(iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment Account--
Automatic Reinvestment of Dividends and Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate
a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any gain
or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares
are inadvisable
B-32
<PAGE>
because of the sales charges applicable to (i) the purchase of Class A shares
and (ii) the withdrawal of Class B and Class C shares. Each shareholder should
consult his or her own tax adviser with regard to the tax consequences of the
plan, particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS. Various qualified retirement plans, including
a 401(k) plan, self-directed individual retirement accounts and "tax-deferred
accounts" under Section 403(b)(7) of the Internal Revenue Code are available
through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-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.
Investors who are considering the adoption of such a plan should consult with
their own legal counsel or tax adviser with respect to the establishment and
maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account
until the earnings are withdrawn. The following chart represents a comparison
of the earnings in a personal savings account with those in an IRA, assuming a
$2,000 annual contribution, an 8% rate of return and a 39.6% federal income
tax bracket and shows how much more retirement income can accumulate within an
IRA as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(/1/)
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- -------- --------
<S> <C> <C>
10 years.......................... $ 26,165 $ 31,291
15 years.......................... 44,676 58,649
20 years.......................... 68,109 98,846
25 years.......................... 97,780 157,909
30 years.......................... 135,346 244,692
</TABLE>
- -------
(/1/) The chart is for illustrative purposes only and does not represent the
performance of a Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.
MUTUAL FUND PROGRAMS
From time to time, a Fund or the Company may be included in a mutual fund
program with other Prudential Mutual Funds. Under such a program, a group of
portfolios will be selected and thereafter marketed collectively. Typically,
these programs are created with an investment theme, e.g., to seek greater
diversification, protection from interest rate movements or access to
different management styles. In the event such a program is instituted, there
may be a minimum investment requirement for the program as a whole. A Fund may
waive or reduce the minimum initial investment requirements in connection with
such a program.
The mutual funds in the program may be purchased individually or as a part of
a 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.
B-33
<PAGE>
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Company. In
accordance with procedures adopted by the Company's Board of Directors, the
value of investments listed on a securities exchange and NASDAQ National
Market System securities (other than options on stock and stock indices) are
valued at the last sales price on the day of valuation, or, if there was no
sale on such day, the mean between the last bid and asked prices on such day,
as provided by a pricing service. Corporate bonds (other than convertible debt
securities) and U.S. Government securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued on the basis of
valuations provided by a pricing service which uses information with respect
to transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which
the primary market is believed to be over-the-counter, are valued at the mean
between the last reported bid and asked prices provided by principal market
makers or independent pricing agents. Options on stock and stock indices
traded on an exchange are valued at the mean between the most recently quoted
bid and asked prices on the respective exchange and futures contracts and
options thereon are valued at their last sales prices as of the close of the
commodities exchange or board of trade. Should an extraordinary event, which
is likely to affect the value of the security, occur after the close of an
exchange on which a portfolio security is traded, such security will be valued
at fair value considering factors determined in good faith by the investment
adviser under procedures established by and under the general supervision of
the 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. Each Fund will compute
its net asset value at 4:15 P.M., New York time, on each day the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem Fund shares have been received or days on which
changes in the value of a Fund's portfolio securities do not affect net asset
value. In the event the New York Stock Exchange closes early on any business
day, the net asset value of a Fund's shares shall be determined at a time
between such closing and 4:15 P.M., New York time.
Net asset value is calculated separately for each class. The net asset value
of Class B and Class C shares will generally be lower than the net asset value
of Class A or Class Z shares as a result of the larger distribution-related
fee to which Class B and Class C shares are subject and the net asset value of
Class A shares will generally be lower than that of Class Z shares because
Class Z shares are not subject to any distribution or service fee. It is
expected, however, that the net asset value per share of each class will tend
to converge immediately after the recording of dividends, if any, which will
differ by approximately the amount of the distribution and/or service fee
expense accrual differential among the classes.
TAXES
Each Fund has elected to qualify 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 and gains which are distributed to shareholders, and permits net
long-term capital gains of the Fund (i.e., the excess of net long-term capital
gains over net short-term capital losses) to be treated as long-term capital
gains of the shareholders, regardless of how long shareholders have held their
shares in the Fund.
Qualification as a regulated investment company requires, among other things,
that (a) at least 90% of a Fund's annual gross income (without reduction for
losses from the sale or other disposition of securities) be derived from
interest,
B-34
<PAGE>
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 value of the Fund's assets is represented by cash,
U.S. Government securities and other securities limited in respect of any one
issuer to an amount not greater than 5% of the market value of the Fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than U.S. Government securities); and (d) the Fund
distribute to its shareholders at least 90% of its net investment income
(including short-term capital gains) other than long-term capital gains in
each year.
Gains or losses on sales of securities by a Fund will be treated as long-term
capital gains or losses if the securities have been held by it for more than
one year except in certain cases where the Fund acquires a put or writes a
call thereon or makes a short sale against-the-box. Other gains or losses on
the sale of securities will be short-term capital gains or losses. Gains and
losses on the sale, lapse or other termination of options on securities will
generally be treated as gains and losses from the sale of securities (assuming
they do not qualify as Section 1256 contracts). If an option written by a Fund
on securities lapses or is terminated through a closing transaction, such as a
repurchase by the Fund of the option from its holder, the Fund will generally
realize short-term capital gain or loss. If securities are sold by a Fund
pursuant to the exercise of a call option written by it, the Fund will include
the premium received in the sale proceeds of the securities delivered in
determining the amount of gain or loss on the sale. Certain of a Fund's
transactions may be subject to wash sale, short sale, conversion transaction
and straddle provisions of the Internal Revenue Code. In addition, debt
securities acquired by a Fund may be subject to original issue discount and
market discount rules.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which a
Fund may invest. See "Investment Objectives and Policies." These investments
will generally constitute Section 1256 contracts and will be required to be
"marked to market" for federal income tax purposes at the end of a Fund's
taxable year; that is, treated as having been sold at market value. Except
with respect to forward foreign currency exchange contracts, 60% of any gain
or loss recognized on such deemed sales and on actual dispositions will be
treated as long-term capital gain or loss, and the remainder will be treated
as short-term capital gain or loss.
Gain or loss on the sale, lapse or other termination of options on stock and
on narrowly-based stock indices will be capital gain or loss and will be long-
term or short-term depending upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain
wash sale and short sale provisions of the Internal Revenue Code. In the case
of a straddle, a Fund may be required to defer the recognition of losses on
positions it holds to the extent of any unrecognized gain on offsetting
positions held by the Fund. The conversion transaction rules may apply to
certain transactions to treat all or a portion of the gain thereon as ordinary
income rather than as capital gain.
A Fund's ability to hold foreign currencies or engage in hedging activities
may be limited by the 30% short-short rule discussed above.
A "passive foreign investment company" (PFIC) is a foreign corporation that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If a Fund acquires and holds
stock in a PFIC beyond the end of the year of its acquisition, the Fund will
be subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain from disposition of the stock
(collectively, PFIC income), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
B-35
<PAGE>
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders. Proposed Treasury regulations
provide that a Fund may make a "mark-to-market" election with respect to any
stock it holds of a PFIC. If the election is in effect, at the end of the
Fund's taxable year, the Fund will recognize the amount of gains, if any, with
respect to PFIC stock. No loss will be recognized on PFIC stock.
Alternatively, a Fund may elect to treat any PFIC in which it invests as a
"qualified electing fund," in which case, in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each year
its pro rata share of the qualified electing fund's annual ordinary earnings
and net capital gain, even if they are not distributed to the Fund; those
amounts would be subject to the distribution requirements applicable to the
Fund described above. It may be very difficult, if not impossible, to make
this election because of certain requirements thereof.
Under the Internal Revenue Code, gains or losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities are treated as ordinary income or ordinary loss.
Similarly, gains or losses on forward foreign currency exchange contracts or
dispositions of debt securities denominated in a foreign currency attributable
to fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition also are treated as
ordinary gain or loss. These gains, referred to under the Internal Revenue
Code as "Section 988" gains or losses, increase or decrease the amount of a
Fund's investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the
amount of the Fund's net capital gain. If Section 988 losses exceed other
investment company taxable income during a taxable year, a Fund would not be
able to make any ordinary dividend distributions, or distributions made before
the losses were realized would be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
basis in his or her Fund shares.
The Fund may purchase debt securities that contain original issue discount.
Original issue discount that accrues in a taxable year is treated as income
earned by the Fund and therefore is subject to the distribution requirements
of the Internal Revenue Code.
Because the original issue discount income earned by the Fund in a taxable
year may not be represented by cash income, the Fund may have to dispose of
other securities and use the proceeds to make distributions to satisfy the
Internal Revenue Code's distribution requirements.
Each Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. Each Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during
the 12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from
the prior year or the twelve-month period ending on October 31 of such prior
year, respectively. To the extent it does not meet these distribution
requirements, a Fund will be subject to a nondeductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which a Fund
pays income tax is treated as distributed.
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by
the per share amount of the dividends. Furthermore, such dividends, although
in effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of a Fund, the investor should carefully consider
the impact of dividends, including capital gains distributions, which are
expected to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of a Fund by a
shareholder will be disallowed to the extent the shares are replaced within
the 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.
B-36
<PAGE>
A shareholder who acquires shares of a Fund and sells or otherwise disposes
of such shares within 90 days of acquisition may not be allowed to include
certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of such
Fund.
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a
nominee or fiduciary) who is a nonresident alien individual or a foreign
entity (foreign shareholder) are subject to a 30% (or lower treaty rate)
withholding tax upon the gross amount of the dividends unless the dividends
are effectively connected with a U.S. trade or business conducted by the
foreign shareholder. Capital gain dividends paid to a foreign shareholder are
generally not subject to withholding tax. A foreign shareholder will, however,
be required to pay U.S. income tax on any dividends and capital gain
distributions which are effectively connected with a U.S. trade or business of
the foreign shareholder.
Dividends received by corporate shareholders are eligible for a dividends-
received deduction of 70% to the extent a Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Interest
income, capital gain net income, gain or loss from Section 1256 contracts
(described above), dividend income from foreign corporations and income from
other sources will not constitute qualified dividends. Individual shareholders
are not eligible for the dividends-received deduction.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the effective
rate of foreign tax to which a Fund will be subject, since the amount of the
Fund's assets to be invested in various countries will vary. A Fund does not
expect to meet the requirements of the Internal Revenue Code for "passing-
through" to its shareholders any foreign income taxes paid.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. A Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "How the
Funds Calculate 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.
B-37
<PAGE>
The average annual total returns for the period from November 2, 1995
(commencement of investment operations) through September 30, 1996 for the
Class A, Class B and Class C shares of Growth Fund were 4.2%, 3.9% and 7.9%,
respectively, and for the period from November 2, 1995 through March 31, 1997
for the Class A, Class B and Class C shares were 4.2%, 4.5% and 7.3%,
respectively. The average annual total return for Class Z shares of Growth
Fund from April 15, 1996 (commencement of investment operations) through March
31, 1997 was 8.8%. Shares of Growth & Income Fund were not offered during the
fiscal period ended September 30, 1996.
On September 20, 1996, the assets and liabilities of Growth Stock Fund (a
series of Prudential Dryden Fund, formerly The Prudential Institutional Fund)
were transferred to the Growth Fund in exchange solely for Class Z shares of
the Growth Fund (the Reorganization). The investment objectives and policies
of the Growth Stock Fund were substantially similar to those of Growth Fund
and both funds had the same investment adviser. Accordingly, if you purchased
shares of Growth Stock Fund at its inception on November 5, 1992, owned such
shares through September 20, 1996 (thereby participating in the
Reorganization), and continued to own Class Z shares received in the
Reorganization through September 30, 1996, your average annual total returns
(after fees and expenses) for the one, three and since inception (November 5,
1992) periods ended September 30, 1996 would have been 12.7%, 14.8% and 16.9%,
respectively, and for the one, three and since inception periods ended March
31, 1997 would have been 8.9%, 16.5% and 15.3%, respectively. In addition, the
aggregate total returns for such periods would have been 12.7%, 51.5% and
83.6%, respectively, and for the one, three and since inception periods ended
March 31, 1997 would have been 8.9%, 58.2% and 87.1%, respectively.
AGGREGATE TOTAL RETURN. A Fund may also advertise its aggregate total return.
Aggregate total return is determined separately for Class A, Class B, Class C
and Class Z shares. See "How the Funds Calculate Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in a Fund and is computed according to the following formula:
ERV - P
-----
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).
Aggregate total return does not take into account any federal or state income
taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges. The aggregate total returns for the period
from November 2, 1995 (commencement of investment operations) through
September 30, 1996 for the Class A, Class B and Class C shares of Growth Fund
were 9.7%, 8.9% and 8.9%, respectively. The aggregate total returns for the
one year period ended March 31, 1997 and for the period from November 2, 1995
through March 31, 1997 for the Class A, Class B and Class C shares of Growth
Fund were 7.4%, 6.6% and 6.6%, respectively, and 11.6%, 10.4% and 10.4%,
respectively. The aggregate total returns for Class Z shares of Growth Fund
from April 15, 1996 (commencement of investment operations) through September
30, 1996 and from April 15, 1996 through March 31, 1997 were 6.4% and 8.4%,
respectively. The aggregate total returns for the period from November 7, 1996
(commencement of investment operations) through March 31, 1997 for the Class
A, Class B, Class C and Class Z shares of the Growth & Income Fund were 4.5%,
4.2%, 4.2% and 4.8%, respectively.
B- 38
<PAGE>
From time to time, the performance of a Fund may be measured against various
indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of
inflation./1/
[CHART]
PERFORMANCE COMPARISON OF DIFFERENT TYPES OF INVESTMENTS OVER THE LONG TERM
(1/1926 - 12/1994)
COMMON STOCKS - 10.2%
LONG-TERM GOVT. BONDS - 4.8%
INFLATION - 3.1%
- -------
/1/Source: Ibbotson Associates Stocks, Bonds, Bills and Inflation--1995
Yearbook (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Common stock
returns are based on the Standard and Poor's 500 Stock Index, a market-
weighted, unmanaged index of 500 common stocks in a variety of industry
sectors. It is a commonly used indicator of broad stock price movements.
This chart is for illustrative purposes only and is not intended to
represent the performance of any particular investment or fund. Investors
cannot invest directly in an index. Past performance is not a guarantee of
future results.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the portfolio securities of each
Fund and cash and in that capacity maintains certain financial and accounting
books and records pursuant to an agreement with the Company. Subcustodians
provide custodial services for a Fund's foreign assets held outside the United
States. See "How the Funds are Managed--Custodian and Transfer and Dividend
Disbursing Agent" in the Prospectus.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of each
Fund. PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary
transfer agency services to each Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee per
shareholder account of $9.50, a new account set-up fee for each manually
established account of $2.00 and a monthly inactive zero balance account fee
per shareholder account of $.20. For the fiscal period ended September 30,
1996, Growth Fund incurred fees of approximately $312,000 for the services of
PMFS. PMFS is also reimbursed for its out-of-pocket expenses, including, but
not limited to, postage, stationery, printing, allocable communication
expenses and other costs. Growth & Income Fund did not commence investment
operations until November 1996.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281,
served as the Company's independent accountants for the fiscal year ended
September 30, 1996, and in that capacity audited the annual financial
statements of the Growth Fund. Price Waterhouse LLP, 1177 Avenue of the
Americas, New York, New York 10036, currently serves as the Company's
independent accountants and in that capacity will audit the Funds' annual
financial statements.
B-39
<PAGE>
Portfolio of Investments
as of September 30, 1996 PRUDENTIAL JENNISON GROWTH FUND
===============================================================
Shares Description Value (Note 1)
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--99.1%
COMMON STOCKS--99.1%
- ---------------------------------------------------------------
Aerospace/Defense--2.9%
215,900 Boeing CO. $ 20,402,550
- ---------------------------------------------------------------
Airlines--1.5%
144,300 Delta Airlines, Inc. 10,389,600
- ---------------------------------------------------------------
Apparel--1.4%
78,700 NIKE, Inc., Class B 9,562,050
- ---------------------------------------------------------------
Banks & Financial Services--1.6%
135,200 Chase Manhattan Corp. 10,832,900
- ---------------------------------------------------------------
Beverages--1.2%
285,300 PepsiCo, Inc. 8,059,725
- ---------------------------------------------------------------
Biotechnology--0.6%
219,232 Chiron Corp. (a) 4,165,408
- ---------------------------------------------------------------
Business Services--8.8%
323,250 CUC International, Inc. (a) 12,889,594
377,600 Eagle River Interactive, Inc. (a) 3,870,400
127,033 First Data Corp. 10,369,068
235,000 Manpower, Inc. 7,813,750
263,600 Omnicom Group 12,323,300
199,000 Reuters Holdings PLC (ADR) (United
Kingdom) 13,780,750
------------
61,046,862
- ---------------------------------------------------------------
Cellular Communications--0.9%
186,800 Vodafone Group PLC (ADR) (United
Kingdom) 6,374,550
- ---------------------------------------------------------------
Computer Systems/Peripherals--4.8%
119,300 Dell Computer Corp. (a) 9,275,575
311,000 Hewlett-Packard Co. 15,161,250
160,000 Seagate Technology, Inc. (a) 8,940,000
------------
33,376,825
- ---------------------------------------------------------------
EDP Software & Services--11.0%
245,600 America Online, Inc. (a) 8,749,500
315,325 Computer Associates International, Inc. 18,840,669
162,200 Electronic Data Systems Corp., (New) 9,955,025
199,700 Intuit, Inc. (a) 6,290,550
290,400 Macromedia, Inc. (a) 6,025,800
127,800 Microsoft Corp. (a) 16,853,625
174,400 SAP AG (ADR) (Germany) 9,897,200
------------
76,612,369
- ---------------------------------------------------------------
Electrical Equipment--1.3%
256,700 Picturetel Corp. (a) 9,048,675
- ---------------------------------------------------------------
Financial Companies--0.5%
96,500 Federal National Mortgage Assn. 3,365,438
- ---------------------------------------------------------------
Health Care Services--3.4%
267,900 Healthsouth Corp. (a) 10,280,663
345,200 PhyCor, Inc. (a) 13,139,175
------------
23,419,838
- ---------------------------------------------------------------
Household & Personal Care Products--4.2%
245,400 Gillette Co. 17,699,475
126,100 Kimherly-Clark Corp. 11,112,563
------------
28,812,038
- ---------------------------------------------------------------
Hotels--2.0%
497,200 Hilton Hotels Corp. 14,108,050
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-40
<PAGE>
Portfolio Of Investments as
of September 30, 1996 PRUDENTIAL JENNISON GROWTH FUND
===============================================================
Shares Description Value (Note 1)
- ---------------------------------------------------------------
Industrial Technology/Instruments--2.1%
204,100 KLA Instruments Corp. (a) $ 4,592,250
220,200 Symhol Technologies, Inc. (a) 10,129,200
------------
14,721,450
- ---------------------------------------------------------------
Insurance--5.0%
80,600 CIGNA Corp. 9,661,925
181,900 MGIC Investment Corp. 12,255,512
260,432 Mutual Risk Management, Ltd. 7,552,528
84,500 UNUM Corp. 5,418,563
------------
34,888,528
- ---------------------------------------------------------------
Machinery--1.0%
187,000 Harnischfeger Industries, Inc. 7,059,250
- ---------------------------------------------------------------
Media--4.8%
118,000 Clear Channel
Communications, Inc. (a) 10,443,000
252,200 Disney (Walt) Co. 15,983,175
219,350 Infinity Broadcasting
Corp., Class A (a) 6,909,525
------------
33,335,700
- ---------------------------------------------------------------
Networking--6.8%
301,800 3Com Corp. (a) 18,126,862
130,300 Ascend Communications, Inc. (a) 8,616,088
327,600 Cisco Systems, Inc. (a) 20,331,675
------------
47,074,625
- ---------------------------------------------------------------
Oil Services--1.3%
111,700 Schlumberger, Ltd. 9,438,650
- ---------------------------------------------------------------
Pharmaceuticals--10.0%
101,400 Astra AB (Sweden) 4,285,261
82,600 Astra AB Class A (ADR) (Sweden) 3,484,688
80,800 Ciba-Geigy AG (ADR) (Switzerland) 5,140,900
4,190 Ciba-Geigy AG (Switzerland) 5,358,176
252,100 Johnson & Johnson Co. 12,920,125
162,900 Lilly (Eli) & Co. 10,507,050
181,200 Pfizer, Inc. 14,337,450
220,500 SmithKline Beecham PLC (ADR)
(United Kingdom) 13,422,937
------------
69,456,587
- ---------------------------------------------------------------
Publishing--1.5%
144,000 Scholastic Corp. (a) 10,440,000
- ---------------------------------------------------------------
Restaurants--1.1%
249,000 Lone Star Steakhouse
& Saloon, Inc. (a) 7,578,938
- ---------------------------------------------------------------
Retail--9.2%
373,700 AutoZone, Inc. (a) 10,837,300
267,200 Corporate Express, Inc. 10,387,400
182,500 Gap, Inc. 5,269,687
245,633 Home Depot, Inc. 13,970,377
278,400 Kohl's Corp. 10,022,400
163,400 Saks Holdings, Inc. 5,719,000
482,400 Sunglass Hut Int'l., Inc. (a) 7,688,250
------------
63,894,414
- ---------------------------------------------------------------
Electronic Components--5.4%
279,800 Intel Corp. 26,703,412
223,700 International Rectifier Corp. (a) 3,103,838
341,600 LSI Logic Corp.(a) 7,942,200
------------
37,749,450
- ---------------------------------------------------------------
Telecommunications Equipment--4.5%
355,900 Ericsson (L.M.) Telephone Co., Inc.
(ADR) (Sweden) 9,030,962
216,800 Nokia Corp. (ADR) (Finland) 9,593,400
178,400 Tellabs, Inc.(a) 12,599,500
------------
31,223,862
- ---------------------------------------------------------------
Telephones-0.3%
76,800 MCI Communications Corp. 1,968,000
------------
Total long-term investments
(cost $579,362,421) 688,406,332
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-41
<PAGE>
PRUDENTIAL JENNISON GROWTH FUND
Portfolio of Investments as of September 30, 1996
===================================================================
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
- -------------------------------------------------------------------
SHORT-TERM INVESTMENTS--1.0%
COMMERCIAL PAPER--1.0%
P1 $ 6,602 Ford Motor Credit Co.,
5.36%, 10/1/96
(cost $6,602,000) $ 6,602,000
U.S. GOVERNMENT SECURITY
United States Treasury Bill
135 5.14%, 12/26/96
(cost $133,342) 133,342
-------------
Total short-term investments
(cost $6,735,342) 6,735,342
-------------
- -------------------------------------------------------------------
Total Investments--100.1%
(cost $586,097,763; Note 4) 695,141,674
Liabilities in excess
of other assets--(0.l%) (464,318)
-------------
Net Asset--100% $ 694,677,356
-------------
- ----------
(a) Non-income producing security.
ADR--American Depository Receipt.
- -------------------------------------------------------------------
See Notes to Financial Statements.
B-42
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL JENNISON GROWTH FUND
================================================================================
<TABLE>
<CAPTION>
Assets September 30, 1997
------------------
<S> <C>
Investments, at value (cost $586,097,763)................................................................... $695,141,674
Cash........................................................................................................ 453,117
Receivable for investments sold............................................................................. 5,671,677
Receivable for Fund shares sold............................................................................. 3,372,066
Dividends and interest receivable........................................................................... 370,243
Deferred expenses and other assets.......................................................................... 187,623
------------
Total assets............................................................................................. 705,196,400
------------
Liabilities
Payable for investments purchased........................................................................... 6,147,013
Payable for Fund shares reacquired.......................................................................... 3,222,198
Accrued expenses and other liabilities...................................................................... 592,921
Management fee payable...................................................................................... 346,672
Distribution fees payable................................................................................... 210,240
------------
Total liabilities........................................................................................ 10,519,044
------------
Net Assets.................................................................................................. 694,677,356
============
Net assets were comprised of:
Common stock, at par..................................................................................... $ 63,469
Paid-in capital in excess of par......................................................................... 594,746,508
------------
594,809,977
Accumulated net realized loss on investments............................................................. (9,176,492)
Net unrealized appreciation on investments............................................................... 109,043,871
------------
Net assets, September 30, 1996.............................................................................. $694,677,356
============
Class A:
Net asset value and redemption price per share
($85,439,568 / 7,790,185 shares of common stock issued and outstanding)............................... $10.97
Maximum sales charge (5.0% of offering price)............................................................ .58
------
Maximum offering price to public......................................................................... $11.55
======
Class B:
Net asset value, offering price and redemption price per share
($231,541,269 / 21,258A23 shares of common stock issued and outstanding).............................. $10.89
======
Class C:
Net asset value, offering price and redemption price per share
($15,280,552 / 1,402,944 shares of common stock issued and outstanding................................ $10.89
======
Class Z:
Net asset value, offering price and redemption price per share
($362,415,967 / 33,017,749 shares of common stock issued and outstanding............................... $10.98
======
</TABLE>
B-43
<PAGE>
PRUDENTIAL JENNISON GROWTH FUND
Statement of Operations
====================================================================
November 2, 1995(a)
Through
NET INVESTMENT INCOME September 30, 1996
--------------------
Income
Dividends (net of foreign withholding
taxes of $54,311).............................. $ 1,662,651
Interest....................................... 480,129
-----------
Total income................................... 2,142,780
-----------
Expenses
Distribution fee--Class A......................... 161,221
Distribution fee--Class B......................... 1,482,118
Distribution fee--Class C......................... 114,523
Management fee.................................... 1,418,805
Transfer agent's fees and expenses................ 377,000
Registration fees................................. 245,000
Reports to shareholders........................... 140,000
Custodian's fees and expenses..................... 112,000
Amortization of deferred organization
expense........................................ 44,589
Legal fees and expenses........................... 42,000
Audit fees and expenses........................... 25,000
Directors' fees................................... 22,500
Miscellaneous..................................... 4,861
-----------
Total expenses................................. 4,189,617
-----------
Net investment loss................................. (2,046,837)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized loss on investment transactions........ (9,176,492)
Net unrealized appreciation of investments.......... 36,196,257
-----------
Net gain on investments............................. 27,019,765
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS..................................... $24,972,928
===========
- ----------
(a) Commencement of investment operations.
PRUDENTIAL JENNISON GROWTH FUND
Statement of Changes in Net Assets
=====================================================================
November 2, 1995(a)
INCREASE (DECREASE) Through
IN NET ASSETS September 30, 1996
--------------------
Operations
Net investment loss............................. $(2,046,837)
Net realized loss on investment
transactions.................................. (9,176,492)
Net unrealized appreciation on
investments................................... 36,196,257
------------
Net increase in net assets resulting from
operations.................................... 24,972,928
------------
Fund share transactions (net of share
conversion) (Note 5)
Net proceeds from shares sold................... 819,026,956
Cost of shares reacquired........................ (149,422,528)
------------
Net increase in net assets from Fund
share transactions............................ 669,604,428
------------
Total increase................................... 694,577,356
NET ASSETS
Beginning of period.............................. 100,000
------------
End of period.................................... $694,677,356
============
- ----------
(a) Commencement of investment operations.
- ---------------------------------------------------------------------
See Notes to Financial Statements.
B-44
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL JENNISON GROWTH FUND
================================================================================
Prudential Jennison Growth Fund (the "Series") is a separately managed series of
Prudential Jennison Series Fund, Inc., formerly Prudential Jennison Fund, Inc.
(the "Fund"). The Fund was incorporated in Maryland on August 10, 1995 and is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Series 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 LLC. ("PMF"). Investment operations commenced on November
2, 1995.
The Series' 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
Series in the preparation of its financial statements.
Security Valuation: Securities listed on a securities exchange (other than
options on securities and indices) are valued at the last sales price on the day
of valuation, or, if there was no sale on such day, at the average of readily
available closing bid and asked prices on such day as provided by a pricing
service. Securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be over-
the-counter, are valued by an independent pricing service. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be over-the-
counter, are valued at the average of the most recently quoted bid and asked
prices provided by a principle market maker or dealer. Options on securities and
indices traded on an exchange are valued at the average of the most recently
quoted bid and asked prices provided by the respective exchange. Futures
contracts and options thereon are valued at the last sales price as of the close
of business of the exchange. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 p.m., New York time:
Securities Transactions and Net Investment Income: Securities transactions
are recorded on the trade date. Realized gains or losses on sales of securities
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income (loss), other than distribution fees, and realized and
unrealized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of the
day.
Dividends and Distributions: The Series 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.
Reclassification of Capital Accounts: The Series accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. During the period ended
September 30, 1996, the Series reclassified current net operating losses by
decreasing accumulated net investment loss and decreasing paid-in capital by
$2,046,837. Net investment income, net realized gains, and net assets were not
affected by this change.
Taxes: It is the Series' 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.
Withholding taxes on foreign dividends have been provided for in accordance with
the Series' understanding of the applicable country's tax rules and rates.
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 Series commenced investment operations.
- --------------------------------------------------------------------------------
B-45
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL JENNISON GROWTH FUND
================================================================================
NOTE 2. AGREEMENTS
The Fund has a management agreement with PMF. Pursuant to a subadvisory
agreement between PMF and Jennison Associates Capital Corp. ("Jennison"),
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 Series in
accordance with its investment objectives, and policies.
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 Series. PMF pays
Jennison a subadvisory fee at an annual rate of .30 of 1% of the average daily
net assets of the Series 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
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The Fund has a distribution agreement with Prudential Securities Incorporated
("PSI"), which acts as the distributor of the Class A, Class B and Class C
shares, pursuant to plans of distribution, (the "Class A, B and C Plans")
regardless of expenses actually incurred by them. The distribution fees are
accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
With respect to the Class A Plan, PSI has agreed to limit its distribution-
related costs to .25 of 1% of average daily net assets for the fiscal year ended
September 30, 1996. With respect to the Class B and Class C Plans, the Fund
compensates PSI for its distribution-related costs at an annual rate of 1% of
the average daily net assets.
PSI has advised the Series that it has received approximately $909,000 in front-
end sales charges resulting from sales of Class A shares during the period ended
September 30, 1996. From these fees, PSI paid such sales charges to affiliated
broker-dealers, which in turn paid commissions to salespersons and incurred
other distribution costs.
PSI has advised the Series that for the period ended September 30, 1996, it
received approximately $350,000 and $10,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
PMF, Jennison and PSI are wholly-owned subsidiaries of The Prudential Insurance
Company of America.
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 September
30, 1996, the Fund incurred fees of approximately $312,000 for the services of
PMFS. As of September 30, 1996, approximately $41,000 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 September 30, 1996 were $441,740,023 and $121,903,591,
respectively.
The federal income tax cost basis of the Fund's investments at September
30, 1996, was $589,584,288 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $105,557,386 (gross unrealized
appreciation-$127,649,114; gross unrealized depreciation-$22,091,728).
The Fund will elect to treat net capital losses of approximately $6,706,000
incurred in the eleven month period ended September 30, 1996 as having been
incurred in the following year.
- --------------------------------------------------------------------------------
NOTE 5. CAPITAL
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. 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. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Effective April
15, 1996 the Fund commenced offering Class Z shares. Class Z shares are not
subject to any sales or redemption charge and are offered for sale to specific
categories of investors.
There are 2.5 billion shares of $.001 par value common stock authorized which
are divided into four classes, designated Class A, Class B, Class C and Class 1,
each of which consists of 1 billion, 500 million, 500 million and 500 million
authorized shares, respectively.
B-46
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL JENNISON GROWTH FUND
================================================================================
Transactions in shares of common stock for the period November 2,1995
(commencement of investment operations) through September 30, 1996 were as
follows:
Class A Shares Amount
- ------- ----------- -------------
Shares sold...................................... 18,039,463 $ 185,913,237
Shares reacquired................................ (10,367,758) (108,741,785)
----------- -------------
Net increase in shares outstanding before
conversion..................................... 7,671,705 77,171,452
Shares issued upon conversion from Class B....... 115,146 1,214,220
----------- -------------
Net increase in shares outstanding............... 7,786,851 $ 78,385,672
=========== =============
Class B
- -------
Shares sold...................................... 23,516,319 $ 240,060,319
Shares reacquired................................ (2,146,698) (22,165,141)
----------- -------------
Net increase in shares outstanding before
conversion...................................... 21,369,621 217,895,178
Shares reacquired upon conversion into
Class A.......................................... (114,531) (1,214,220)
----------- -------------
Net increase in shares outstanding............... 21,255,090 $ 216,680,958
=========== =============
Class C
- -------
Shares sold...................................... 1,610,012 $ 16,355,793
Shares reacquired................................ (210,401) (2,163,259)
----------- -------------
Net increase in shares outstanding............... 1,399,611 $ 14,192,534
=========== =============
Class Z
- -------
April 15,1996(a) through
September 30, 1996
Shares sold...................................... 2,971,624 $ 32,570,435
Shares issued due to merger (Note 6)............. 31,510,396 344,127,172
Shares reacquired................................ (1,464,271) (16,352,343)
----------- -------------
Net increase in shares outstanding............... 33,017,749 $ 360,345,264
=========== =============
(a) Commencement of offering of Class Z shares.
Of the shares outstanding at September 30, 1996, PMF and affiliates owned
5,633,139 shares of the Fund.
- --------------------------------------------------------------------------------
NOTE 6. ACQUISITION OF THE PRUDENTIAL INSTITUTIONAL FUND-GROWTH STOCK FUND
On September 20,1996, the Fund acquired all of the net assets of The Prudential
Institutional Fund-Growth Stock Fund ("Growth Stock Fund") in exchange for Class
Z shares of the Fund pursuant to a plan of reorganization approved by Growth
Stock Fund shareholders on September 6,1996. The acquisition was accomplished by
a tax-free exchange of 31,510,396 Class Z shares of the Fund (valued at
$344,127,172 in the aggregate) for 19,673,729 shares of Growth Stock Fund
outstanding on September 20, 1996. The aggregate net assets of the Fund and
Growth Stock immediately before the acquisition were $347,516,537 and
$344,127,172 (including $72,847,614 of net unrealized appreciation for the
Growth Stock Fund), respectively, thereby resulting in combined net assets of
$691,643,709 immediately after the reorganization.
B-47
<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL JENNISON GROWTH FUND
================================================================================
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
------------ ------------ ------------ ------------
November 2, November 2, November 2, April 15,
1995(a) 1995(a) 1995(a) 1996(a)
Through Through Through Through
September 30, September 30, September 30, September 30,
1996(d) 1996(d) 1996(d) 1996(d)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................... $ 10.00 $ 10.00 $ 10.00 $ 10.32
------- -------- ------- -------
Income from investment operations
Net investment loss..................................... (.03) (.10) (.10) (.02)
Net realized and unrealized gain on investment
transactions......................................... 1.00 .99 .99 .68
------- -------- ------- -------
Total from investment operations..................... .97 .89 .89 .66
------- -------- ------- -------
Net asset value, end of period.......................... $ 10.97 $ 10.89 $ 10.89 $ 10.98
======= ======== ======= =======
TOTAL RETURN(c)......................................... 9.70% 8.90% 8.90% 6.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)......................... $85,440 $231,541 $15,281 $362,416
Average net assets (000)................................ $70,667 $162,412 $12,550 $ 26,829
Ratios to average net assets(b):
Expenses, including distribution fees................ 1.23% 1.98% 1.98% .98%
Expenses, excluding distribution fees................ .98% .98% .98% .98%
Net investment loss.................................. (.37)% (1.12)% (1.12)% (.12)%
Portfolio turnover rate................................. 42% 42% 42% 42%
Average commission rate paid per share.................. $ .0611 $ .0611 $ .0611 $ .0611
</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.
(d) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-48
<PAGE>
INDEPENDENT AUDITORS' REPORT PRUDENTIAL JENNISON GROWTH FUND
================================================================================
The Shareholders and Board of Directors
Prudential Jennison Growth Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prudential Jennison Growth Fund as of
September 30, 1996, the related statements of operations and of changes in net
assets, and the financial highlights for the period November 2, 1995
(commencement of investment operations) to September 30, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights 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 statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at September 30, 1996 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles wed 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential Jennison
Growth Fund as of September 30, 1996, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated period,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
November 4,1996
B-49
<PAGE>
Portfolio of Investments as of PRUDENTIAL JENNISON
March 31, 1997 (Unaudited) GROWTH FUND
===============================================================
Shares Description Value (Note 1)
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--96.2%
COMMON STOCKS--96.2%
- ---------------------------------------------------------------
Aerospace/Defense--2.7%
213,800 Boeing Co. $ 21,086,025
- ---------------------------------------------------------------
Apparel--0.9%
116,100 NIKE, Inc., Class B 7,198,200
- ---------------------------------------------------------------
Banks--2.2%
180,800 Chase Manhattan Corp. 16,927,400
- ---------------------------------------------------------------
Beverages--1.6%
375,200 PepsiCo, Inc. 12,240,900
- ---------------------------------------------------------------
Brokerage Services--1.5%
192,600 Morgan Stanley Group, Inc. 11,315,250
- ---------------------------------------------------------------
Business Services--9.1%
602,425 CUC International, Inc. (a) 13,554,562
377,600 Eagle River Interactive, Inc. (a) 4,059,200
122,100 Federal Express Corp., Class A (a) 6,364,463
363,166 First Data Corp. 12,302,248
161,000 Manpower, Inc. 5,796,000
262,100 Omnicom Group, Inc. 13,072,237
264,500 Reuters Holdings PLC (ADR)
(United Kingdom) 15,390,594
------------
70,539,304
- ---------------------------------------------------------------
Cellular Communications--1.2%
208,900 Vodafone Group PLC (ADR) (United
Kingdom) 9,217,713
- ---------------------------------------------------------------
Computer Systems/Peripherals--9.5%
187,800 Compaq Computer Corp. (a) 14,390,175
196,100 Dell Computer Corp. (a) 13,261,263
362,300 Hewlett-Packard Co. 19,292,475
81,800 International Business Machines
Corp. $ 11,237,275
336,900 Seagate Technology, Inc. (a) 15,118,387
------------
73,299,575
- ---------------------------------------------------------------
EDP Software & Services--6.0%
27,725 Computer Associates International,
Inc. 1,077,809
287,500 Electronic Data Systems Corp. 11,607,813
339,400 Intuit, Inc. (a) 7,891,050
174,700 Microsoft Corp. (a) 16,017,806
181,800 SAP AG (ADR)(Germany) 10,377,817
------------
46,972,295
- ---------------------------------------------------------------
Electronic Components--7.3%
177,500 Intel Corp. 24,694,687
610,400 International Rectifier Corp. (a) 7,248,500
412,500 LSI Logic Corp. (a) 14,334,375
139,900 Texas Instruments, Inc. 10,475,013
------------
56,752,575
- ---------------------------------------------------------------
Financial Companies--1.7%
193,400 MBNA Corp. 5,391,025
240,300 Schwab (Charles) Corp. 7,659,562
------------
13,050,587
- ---------------------------------------------------------------
Health Care Services--2.9%
595,400 Healthsouth Corp. (a) 11,387,025
403,500 PhyCor, Inc. (a) 10,995,375
------------
22,382,400
- ---------------------------------------------------------------
Household & Personal Care Products--4.2%
257,000 Gillette Co. 18,664,625
143,000 Kimberly-Clark Corp. 14,210,625
------------
32,875,250
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-50
<PAGE>
Portfolio of Investments as of PRUDENTIAL JENNISON
March 31, 1997 (Unaudited) GROWTH FUND
===============================================================
Shares Description Value (Note 1)
- ---------------------------------------------------------------
Hotels--1.5%
490,600 Hilton Hotels Corp. $ 11,897,050
- ---------------------------------------------------------------
Industrial Technology/Instruments--4.0%
175,600 Applied Materials, Inc. (a) 8,143,450
302,300 KLA Instruments Corp. (a) 11,033,950
246,600 Symbol Technologies, Inc. (a) 11,898,450
------------
31,075,850
- ---------------------------------------------------------------
Insurance--6.7%
88,100 CIGNA Corp. 12,873,613
217,700 MGIC Investment Corp. 15,402,275
274,433 Mutual Risk Management, Ltd. 9,948,196
183,200 UNUM Corp. 13,373,600
------------
51,597,684
- ---------------------------------------------------------------
Machinery--1.3%
197,100 Case Corp. 10,002,825
- ---------------------------------------------------------------
Media--4.1%
269,700 Clear Channel Communications, Inc.
(a) 11,563,387
275,300 The Walt Disney Co. 20,096,900
------------
31,660,287
- ---------------------------------------------------------------
Networking--3.6%
180,900 Ascend Communications, Inc. (a) 7,371,675
297,500 Cisco Systems, Inc. (a) 14,317,188
187,500 3Com Corp. (a) 6,140,625
------------
27,829,488
- ---------------------------------------------------------------
Oil/Petroleum Services--4.2%
161,900 Schlumberger, Ltd. 17,363,775
574,100 Union Pacific Resources Group, Inc. 15,357,175
------------
32,720,950
- ---------------------------------------------------------------
Pharmaceuticals--11.6%
186,200 Astra AB Class A (ADR)(Sweden) 8,658,300
236,400 Bristol-Myers Squibb Co. 13,947,600
183,100 Eli Lilly & Co. $ 15,059,975
224,100 Merck & Co., Inc. 18,880,425
201,600 Pfizer, Inc. 16,959,600
236,300 SmithKline Beecham PLC (ADR)
(United Kingdom) 16,541,000
------------
90,046,900
- ---------------------------------------------------------------
Retail--3.4%
334,100 Corporate Express, Inc. (a) 3,424,525
356,700 Gap, Inc. 11,949,450
263,000 Kohl's Corp. (a) 11,144,625
------------
26,518,600
- ---------------------------------------------------------------
Telecommunications Equipment--5.0%
383,800 Ericsson (L.M.) Telephone Co.,
Inc., Class B (ADR)(Sweden) 12,977,237
258,200 Nokia Corp. (ADR)(Finland) 15,040,150
297,300 Tellabs, Inc. (a) 10,739,963
------------
38,757,350
------------
Total long-term investments
(cost $652,324,301) 745,964,458
------------
Principal
Moody's Amount
Rating (000)
- ---------------------------------------------------------------
SHORT-TERM INVESTMENT--3.0%
Commercial Paper--3.0%
P1 $ 23,102 Chevron Oil Finance Co.,
6.00%, 4/1/97
(cost $23,102,000) 23,102,000
- ---------------------------------------------------------------
Total Investments--99.2%
(cost $675,426,301;
Note 4) 769,066,458
Other assets in excess of
liabilities--0.8% 6,022,219
------------
Net Assets--100% $775,088,677
============
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-51
<PAGE>
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL JENNISON GROWTH FUND
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Assets March 31, 1997
--------------
Investments, at value (cost $675,426,301).................................................................. $769,066,458
Cash....................................................................................................... 534,960
Receivable for investments sold............................................................................ 8,950,514
Receivable for Fund shares sold............................................................................ 5,051,093
Dividends and interest receivable.......................................................................... 1,039,458
Deferred expenses and other assets......................................................................... 148,765
-------------
Total assets............................................................................................ 784,791,248
-------------
Liabilities
Payable for Fund shares reacquired......................................................................... 5,213,573
Payable for investments purchased.......................................................................... 3,555,554
Management fee payable..................................................................................... 416,198
Distribution fees payable.................................................................................. 268,678
Accrued expenses and other liabilities..................................................................... 248,568
-------------
Total liabilities....................................................................................... 9,702,571
-------------
Net Assets................................................................................................. $775,088,677
=============
Net assets were comprised of:
Common stock, at par.................................................................................... $ 69,630
Paid-in capital in excess of par........................................................................ 666,189,317
-------------
666,258,947
Accumulated net investment loss......................................................................... (1,465,766)
Accumulated net realized gain on investments............................................................ 16,656,828
Net unrealized appreciation on investments.............................................................. 93,638,668
-------------
Net assets, March 31, 1997................................................................................. $775,088,677
=============
Class A:
Net asset value and redemption price per share
($90,708,484 / 8,126,760 shares of common stock issued and outstanding).............................. $11.16
Maximum sales charge (5% of offering price)............................................................. .59
-------------
Maximum offering price to public........................................................................ $11.75
=============
Class B:
Net asset value, offering price and redemption price per share
($261,734,453 / 23,698,391 shares of common stock issued and outstanding)............................ $11.04
=============
Class C:
Net asset value, offering price and redemption price per share
($15,875,241 / 1,437,412 shares of common stock issued and outstanding).............................. $11.04
=============
Class Z:
Net asset value, offering price and redemption price per share
($406,770,499 / 36,367,014 shares of common stock issued and outstanding)............................ $11.19
=============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-52
<PAGE>
Statement of Operations
(Unaudited) PRUDENTIAL JENNISON GROWTH FUND
==================================================================
Six Months
Ended
Net Investment Income March 31, 1997
--------------
Income
Dividends (net of foreign witholding
taxes of $91,824)..................... $ 2,882,371
Interest................................. 391,840
------------
Total income.......................... 3,274,211
------------
Expenses
Distribution fee--Class A................ 116,749
Distribution fee--Class B................ 1,297,945
Distribution fee--Class C................ 81,275
Management fee........................... 2,311,209
Transfer agent's fees and expenses....... 612,000
Custodian's fees and expenses............ 74,000
Reports to shareholders.................. 73,000
Legal fees and expenses.................. 65,000
Registration fees........................ 54,000
Amortization of deferred organization
expense............................... 18,932
Audit fees and expenses.................. 17,500
Directors' fees.......................... 5,600
Miscellaneous............................ 12,767
------------
Total expenses........................ 4,739,977
------------
Net investment loss......................... (1,465,766)
------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on investment
transactions............................. 25,833,320
Net change in unrealized appreciation on
investments.............................. (15,405,203)
------------
Net gain on investments..................... 10,428,117
------------
Net Increase in Net Assets
Resulting from Operations................... $ 8,962,351
============
Statement of Changes in
Net Assets (Unaudited) PRUDENTIAL JENNISON GROWTH FUND
==================================================================
Six Months November 2, 1995(a)
Ended Through
Increase (Decrease) March 31, September 30,
in Net Assets 1997 1996
------------ --------------------
Operations
Net investment loss...... $ (1,465,766) $ (2,046,837)
Net realized gain (loss)
on investments........ 25,833,320 (9,176,492)
Net change in unrealized
appreciation on
investments........... (15,405,203) 36,196,257
------------ ------------
Net increase in net
assets resulting from
operations............ 8,962,351 24,972,928
------------ ------------
Fund share transactions
(net of share
conversion) (Note 5)
Net proceeds from shares
sold.................. 377,247,065 819,026,956
Cost of shares
reacquired............ (305,798,095) (149,422,528)
------------ ------------
Net increase in net
assets from Fund share
transactions.......... 71,448,970 669,604,428
------------ ------------
Total increase.............. 80,411,321 694,577,356
Net Assets
Beginning of period......... 694,677,356 100,000
------------ ------------
End of period............... $775,088,677 $694,677,356
============ ============
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-53
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL JENNISON GROWTH FUND
================================================================================
Prudential Jennison Growth Fund (the "Series") is a separately managed series of
Prudential Jennison Series Fund, Inc., formerly Prudential Jennison Fund, Inc.
(the 'Fund'). The Fund was incorporated in Maryland on August 10, 1995 and is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Series 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 LLC ("PMF"). Investment operations commenced on November 2,
1995.
The Series' 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
Series in the preparation of its financial statements.
Security Valuation: Securities listed on a securities exchange (other than
options on securities and indices) are valued at the last sales price on the day
of valuation, or, if there was no sale on such day, at the average of readily
available closing bid and asked prices on such day as provided by a pricing
service. Securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued by an independent pricing service. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be
over-the-counter, are valued at the average of the most recently quoted bid and
asked prices provided by a principle market maker or dealer. Options on
securities and indices traded on an exchange are valued at the average of the
most recently quoted bid and asked prices provided by the respective exchange.
Futures contracts and options thereon are valued at the last sales price as of
the close of business of the exchange. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains or losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income (loss), other than distribution fees, and realized and
unrealized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of the
day.
Dividends and Distributions: The Series 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 Series' 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.
Withholding taxes on foreign dividends have been provided for in accordance with
the Series' understanding of the applicable country's tax rules and rates.
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
Series commenced investment operations.
- --------------------------------------------------------------------------------
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential Mutual Fund Management LLC
("PMF"). Pursuant to a subadvisory agreement between PMF and Jennison Associates
Capital Corp. ("Jennison"), 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 Series in accordance with its investment objectives, and policies.
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 Series. PMF pays
Jennison a subadvisory fee at an annual rate of .30 of 1% of the average daily
net assets of the Series up to and including $300
- --------------------------------------------------------------------------------
B-54
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL JENNISON GROWTH FUND
================================================================================
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 bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The Fund has a distribution agreement with Prudential Securities Incorporated
("PSI"), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares. The Fund compensates PSI for distributing and servicing the
Fund's Class A, Class B and Class C shares, pursuant to plans of distribution,
(the "Class A, B and C Plans"), regardless of expenses actually incurred by PSI.
The distribution fees are accrued daily and payable monthly. No distribution or
service fees are paid to PSI as distributor of the Class Z shares of the Fund.
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 six months ended
March 31, 1997. With respect to the Class B and Class C Plans, the Fund
compensates PSI for its distribution-related costs at an annual rate of 1% of
the average daily net assets.
PSI has advised the Series that it has received approximately $220,000 in
front-end sales charges resulting from sales of Class A shares during the six
months ended March 31, 1997. From these fees, PSI paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI has advised the Series that for the six months ended March 31, 1997, it
received approximately $340,000 and $4,300 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
PMF, Jennison and PSI are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ("PMFS"), a wholly-owned subsidiary of PMF,
serves as the Fund's transfer agent. During the six months ended March 31, 1997,
the Fund incurred fees of approximately $561,000 for the services of PMFS. As of
March 31, 1997, approximately $102,000 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 six months ended March 31, 1997 were $299,397,926 and $252,265,431,
respectively.
The cost of investments for federal income tax purposes at March 31, 1997, was
$676,579,610 and, accordingly, net unrealized appreciation of investments for
federal income tax purposes was $92,486,848 (gross unrealized
appreciation--$120,278,587; gross unrealized depreciation--$27,791,739).
The Fund will elect to treat net capital losses of approximately $6,706,000
incurred in the eleven month period ended September 30, 1996 as having been
incurred in the current year.
- --------------------------------------------------------------------------------
NOTE 5. CAPITAL
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. 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. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Effective April
15, 1996 the Fund commenced offering Class Z shares. Class Z shares are not
subject to any sales or redemption charge and are offered for sale to specific
categories of investors.
There are 2.5 billion shares of $.001 par value common stock authorized which
are 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. Of the 69,629,577 shares of common stock issued
and outstanding at March 31, 1997, PMF owned 10,000 Class A shares, 10,000 Class
B shares, 10,000 Class C shares and 10,000 Class Z shares.
Of the shares outstanding at March 31, 1997, PMF and affiliates owned 5,633,139
shares of the Fund.
- --------------------------------------------------------------------------------
B-55
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL JENNISON GROWTH FUND
================================================================
Transactions in shares of common stock were as follows:
Class A Shares Amount
- ------- ----------- -------------
Six months ended March 31, 1997
Shares sold........................ 11,071,709 $ 128,555,705
Shares reacquired.................. (10,883,765) (125,746,338)
----------- -------------
Net increase in shares outstanding
before conversion................ 187,944 2,809,367
Shares issued upon conversion from
Class B.......................... 148,631 1,709,025
----------- -------------
Net increase in shares
outstanding...................... 336,575 $ 4,518,392
=========== =============
November 2, 1995(a) through
September 30, 1996
Shares sold........................ 18,039,463 $ 185,913,237
Shares reacquired.................. (10,367,758) (108,741,785)
----------- -------------
Net increase in shares outstanding
before conversion................ 7,671,705 77,171,452
Shares issued upon conversion from
Class B.......................... 115,146 1,214,220
----------- -------------
Net increase in shares
outstanding...................... 7,786,851 $ 78,385,672
=========== =============
Class B
- -------
Six months ended March 31, 1997
Shares sold........................ 4,731,001 $ 54,455,762
Shares reacquired.................. (2,143,822) (24,662,538)
----------- -------------
Net increase in shares outstanding
before conversion................ 2,587,179 29,793,224
Shares reacquired upon conversion
into Class A..................... (147,211) (1,709,025)
----------- -------------
Net increase in shares
outstanding...................... 2,439,968 $ 28,084,199
=========== =============
November 2, 1995(a) through
September 30, 1996
Shares sold........................ 23,516,319 $ 240,060,319
Shares reacquired.................. (2,146,698) (22,165,141)
----------- -------------
Net increase in shares outstanding
before conversion................ 21,369,621 217,895,178
Shares reacquired upon conversion
into Class A..................... (114,531) (1,214,220)
----------- -------------
Net increase in shares
outstanding...................... 21,255,090 $ 216,680,958
=========== =============
Class C Shares Amount
- ------- ----------- -------------
Six months ended March 31, 1997
Shares sold........................ 188,332 $ 2,168,599
Shares reacquired.................. (153,864) (1,764,916)
----------- -------------
Net increase in shares
outstanding...................... 34,468 $ 403,683
=========== =============
November 2, 1995(a) through
September 30, 1996
Shares sold........................ 1,610,012 $ 16,355,793
Shares reacquired.................. (210,401) (2,163,259)
----------- -------------
Net increase in shares
outstanding...................... 1,399,611 $ 14,192,534
=========== =============
Class Z
- -------
Six months ended March 31, 1997
Shares sold........................ 16,557,646 $ 192,066,999
Shares reacquired.................. (13,208,381) (153,624,303)
----------- -------------
Net increase in shares
outstanding...................... 3,349,265 $ 38,442,696
=========== =============
April 15, 1996(a) through
September 30, 1996
Shares sold........................ 2,971,624 $ 32,570,435
Shares issued due to acquisition of
fund............................. 31,510,396 344,127,172
Shares reacquired.................. (1,464,271) (16,352,343)
----------- -------------
Net increase in shares
outstanding...................... 33,017,749 $ 360,345,264
=========== =============
- ----------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
B-56
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------------- --------------------------- --------------------------
Six November 2, Six November 2, Six November 2,
Months 1995(a) Months 1995(a) Months 1995(a)
Ended Through Ended Through Ended Through
March 31, September 30, March 31, September 30, March 31, September 30,
1997(d) 1996(d) 1997(d) 1996(d) 1997(d) 1996(d)
-------- ------------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................... $ 10.97 $ 10.00 $ 10.89 $ 10.00 $ 10.89 $ 10.00
------- ------- -------- --------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss................. (.01) (.03) (.06) (.10) (.06) (.10)
Net realized and unrealized gain on
investment transactions.......... .20 1.00 .21 .99 .21 .99
------- ------- -------- --------- ------- -------
Total from investment
operations.................... .19 .97 .15 .89 .15 .89
------- ------- -------- --------- ------- -------
Net asset value, end of period...... $ 11.16 10.97 $ 11.04 $ 10.89 $ 11.04 $ 10.89
======= ======= ======== ========= ======= =======
TOTAL RETURN(c)..................... 1.73% 9.70% 1.38% 8.90% 1.38% 8.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)..... $90,708 85,440 $261,734 $ 231,541 $15,875 $15,281
Average net assets (000)............ $93,656 $70,667 $260,302 $ 162,412 $16,300 $12,550
Ratios to average net assets(b):
Expenses, including distribution
fees.......................... 1.09% 1.23% 1.84% 1.98% 1.84% 1.98%
Expenses, excluding distribution
fees.......................... .84% .98% .84% .98% .84% .98%
Net investment loss.............. (.24)% (.37)% (.99)% (1.12)% (.99)% (1.12)%
Portfolio turnover rate............. 34% 42% 34% 42% 34% 42%
Average commission rate paid per
share............................ $ .0598 $ .0611 $ .0598 $ .0611 $ .0598 $ .0611
<CAPTION>
Class Z
---------------------------
Six April 15,
Months 1996(a)
Ended Through
March 31, September 30,
1997(d) 1996(d)
--------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................... $ 10.98 $ 10.32
-------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss................. -- (.02)
Net realized and unrealized gain on
investment transactions.......... .21 .68
-------- ----------
Total from investment
operations.................... .21 .66
-------- ----------
Net asset value, end of period...... $ 11.19 $ 10.98
-------- ----------
-------- ----------
TOTAL RETURN(c)..................... 1.91% 6.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)..... $406,770 $ 362,416
Average net assets (000)............ $402,262 $ 26,829
Ratios to average net assets(b):
Expenses, including distribution
fees.......................... .84% .98%
Expenses, excluding distribution
fees.......................... .84% .98%
Net investment loss.............. .01% (.12)%
Portfolio turnover rate............. 34% 42%
Average commission rate paid per
share............................ $ .0598 $ .0611
</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.
(d) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-57
<PAGE>
Portfolio of Investments PRUDENTIAL JENNISON SERIES FUND, INC.
as of March 31, 1997 PRUDENTIAL JENNISON GROWTH &
(Unaudited) INCOME FUND
===============================================================
Shares Description Value (Note 1)
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--81.0%
COMMON STOCKS--81.0%
- ---------------------------------------------------------------
Aerospace/Defense--2.6%
4,400 Boeing Co. $ 433,950
34,600 General Motors Corp., Class H 1,877,050
------------
2,311,000
- ---------------------------------------------------------------
Airlines--2.5%
26,300 Delta Airlines, Inc. 2,212,487
- ---------------------------------------------------------------
Aluminum--2.4%
34,300 Reynolds Metals Co. 2,126,600
- ---------------------------------------------------------------
Automobiles & Trucks--3.2%
50,200 General Motors Corp. 2,779,825
- ---------------------------------------------------------------
Banking--4.5%
11,700 Chase Manhattan Corp. 1,095,412
19,100 Fleet Financial Group, Inc. 1,093,475
136,600 Hibernia Corp., Class A 1,792,875
------------
3,981,762
- ---------------------------------------------------------------
Building & Related Industries--0.8%
15,800 York International Corp. 661,625
- ---------------------------------------------------------------
Business Services--4.0%
38,500 CUC International, Inc. (a) 866,250
21,800 Manpower, Inc. 784,800
63,000 Ryder System, Inc. 1,842,750
------------
3,493,800
- ---------------------------------------------------------------
Cellular Communications--0.7%
13,300 Vodafone Group PLC (ADR) (United
Kingdom) 586,863
Commercial Services--1.5%
64,300 Ogden Corp. 1,358,338
- ---------------------------------------------------------------
Computer Systems/Peripherals--5.5%
22,300 Hewlett-Packard Co. 1,187,475
92,400 Intergraph Corp. (a) 716,100
16,400 International Business Machines
Corp. 2,252,950
107,400 Unisys Corp. (a) 684,675
------------
4,841,200
- ---------------------------------------------------------------
Electrical Equipment--2.5%
124,700 Westinghouse Electric Corp. 2,213,425
- ---------------------------------------------------------------
Hotels--1.2%
42,300 Hilton Hotels Corp. 1,025,775
- ---------------------------------------------------------------
Industrial Tech/Instruments--2.8%
38,600 Millipore Corp. 1,635,675
17,100 Symbol Technologies, Inc. (a) 825,075
------------
2,460,750
- ---------------------------------------------------------------
Insurance--4.0%
24,200 CIGNA Corp. 3,536,225
- ---------------------------------------------------------------
Machinery--1.9%
17,200 Case Corp. 872,900
10,000 Caterpillar, Inc. 802,500
------------
1,675,400
- ---------------------------------------------------------------
Manufacturing--0.8%
19,200 Kennametal, Inc. 696,000
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-58
<PAGE>
Portfolio of Investments PRUDENTIAL JENNISON SERIES FUND, INC.
as of March 31, 1997 PRUDENTIAL JENNISON GROWTH &
(Unaudited) INCOME FUND
===============================================================
Shares Description Value (Note 1)
- ---------------------------------------------------------------
Mining--3.4%
33,300 Asarco, Inc. $ 936,562
54,300 Newmont Mining Corp. 2,104,125
------------
3,040,687
- ---------------------------------------------------------------
Office Equipment & Supplies--1.3%
20,900 Xerox Corp. 1,188,688
- ---------------------------------------------------------------
Oil Services--2.5%
72,600 Dresser Industries, Inc. 2,196,150
- ---------------------------------------------------------------
Petroleum--6.6%
29,200 Amerada Hess Corp. 1,547,600
30,700 Anadarko Petroleum Corp. 1,723,037
67,400 Union Pacific Resources Group, Inc. 1,802,950
28,500 YPF Sociedad Anonima (ADR)
(Argentina) 755,250
------------
5,828,837
- ---------------------------------------------------------------
Paper & Forest Products--2.7%
42,100 Boise Cascade Corp. 1,284,050
24,100 Champion International Corp. 1,096,550
------------
2,380,600
- ---------------------------------------------------------------
Pharmaceuticals--2.7%
37,600 Pharmacia & Upjohn, Inc. 1,377,100
5,300 Smithkline Beecham PLC (ADR)
(United Kingdom) 371,000
15,100 Vertex Pharmaceuticals, Inc. (a) 611,550
------------
2,359,650
- ---------------------------------------------------------------
Publishing--7.5%
40,800 American Greetings Corp., Class A 1,303,050
36,500 McGraw-Hill Companies, Inc. 1,866,062
37,100 New York Times Co., Class A $ 1,637,038
43,700 Tribune Co. 1,769,850
------------
6,576,000
- ---------------------------------------------------------------
Railroads--0.6%
9,700 Union Pacific Corp. 550,475
- ---------------------------------------------------------------
Retail--2.3%
112,500 The Limited, Inc. 2,067,188
- ---------------------------------------------------------------
Specialty Chemicals--7.2%
21,800 Betzdearborn, Inc. 1,376,125
49,500 Dexter Corp. 1,491,187
89,800 Engelhard Corp. 1,885,800
20,200 Minerals Technologies, Inc. 671,650
20,900 Morton International, Inc. 883,025
------------
6,307,787
- ---------------------------------------------------------------
Steel & Metals--2.3%
76,600 J & L Specialty Steel, Inc. 919,200
42,100 USX-U.S. Steel Group, Inc. 1,120,913
------------
2,040,113
- ---------------------------------------------------------------
Telecommunications--1.0%
24,600 MCI Communications Corp. 876,375
------------
Total long-term investments
(cost $70,500,723) 71,373,625
------------
- ---------------------------------------------------------------
See Notes to Financial Statements.
B-59
<PAGE>
Portfolio of Investments
as of March 31, 1997
(Unaudited)
=================================================================
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
- -----------------------------------------------------------------
SHORT-TERM INVESTMENTS--19.1%
COMMERCIAL PAPER--8.9%
P-1 $ 2,279 Chevron Oil Finance Co.
6.00%, 4/1/97 $ 2,279,000
A1 4,094 Ford Motor Credit Co.
5.50%, 4/11/97 4,094,000
Aaa 1,500 General Electric Capital
Corp.
5.53%, 4/18/97 1,500,000
-----------
Total commercial paper
(cost $7,873,000) 7,873,000
-----------
U.S. GOVERNMENT SECURITIES--10.2%
United States Treasury
Bills
8,000(b) 4.94%, 4/3/97 7,997,805
1,000 5.20%, 4/3/97 999,711
-----------
Total U.S. government
securities
(cost $8,997,516) 8,997,516
-----------
Total short-term
investments
(cost $16,870,516) 16,870,516
-----------
- -----------------------------------------------------------------
Total investments before short sales--100.1%
(cost $87,371,239; Note 4) 88,244,141
-----------
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
INCOME FUND
=================================================================
Shares Description Value (Note 1)
- -----------------------------------------------------------------
COMMON STOCKS SOLD SHORT(a)--(3.7%)
- -----------------------------------------------------------------
Beverages--(1.1%)
(18,400) Coca-Cola Co. $(1,025,800)
- -----------------------------------------------------------------
Electrical Equipment--(1.2%)
(10,400) General Electric Co. (1,032,200)
- -----------------------------------------------------------------
Household & Personal Care Products--(1.4%)
(10,700) Procter & Gamble Co. (1,227,825)
-----------
Total common stocks sold
short (proceeds at cost
$3,503,413) (3,285,825)
-----------
- -----------------------------------------------------------------
Total investments, net of short sales--96.4% 84,958,316
Other assets in excess of
liabilities--3.6% 3,192,442
-----------
Net Assets--100% $88,150,758
===========
- ---------------
(a) Non-income producing security.
(b) $3,500,000 of principal amount pledged as collateral for short sales.
ADR--American Depository Receipt.
- ------------------------------------------------------------------
See Notes to Financial Statements.
B-60
<PAGE>
PRUDENTIAL JENNNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Statement of Assets and Liabilities (Unaudited) INCOME FUND
================================================================================
<TABLE>
<CAPTION>
Assets March 31, 1997
<S> <C>
Investments, at value (cost $87,371,239)................................................................... $ 88,244,141
Deposits with broker for securities sold short............................................................. 3,503,413
Receivable for Fund shares sold............................................................................ 793,178
Receivable for investments sold............................................................................ 792,275
Dividends and interest receivable.......................................................................... 106,324
Deferred expenses and other assets......................................................................... 75,690
------------
Total assets............................................................................................ 93,515,021
------------
Liabilities
Investments sold short, at value (proceeds $3,503,413)..................................................... 3,285,825
Payable for investments purchased.......................................................................... 1,396,025
Payable for Fund shares reacquired......................................................................... 448,482
Accrued expenses and other liabilities..................................................................... 129,319
Distribution fees payable.................................................................................. 59,440
Management fee payable..................................................................................... 45,172
------------
Total liabilities....................................................................................... 5,364,263
------------
Net Assets................................................................................................. $ 88,150,758
============
Net assets were comprised of:
Common stock, at par.................................................................................... $ 8,451
Paid-in capital in excess of par........................................................................ 85,846,137
------------
85,854,588
Undistributed net investment income..................................................................... 6,251
Accumulated net realized gain on investments............................................................ 1,199,429
Net unrealized appreciation on investments and short sales.............................................. 1,090,490
------------
Net assets, March 31, 1997................................................................................. $ 88,150,758
============
Class A:
Net asset value and redemption price per share
($23,820,383 / 2,280,786 shares of common stock issued and outstanding).............................. $10.44
Maximum sales charge (5.0% of offering price)........................................................... .55
------------
Maximum offering price to public........................................................................ $10.99
============
Class B:
Net asset value, offering price and redemption price per share
($58,722,132 / 5,632,560 shares of common stock issued and outstanding).............................. $10.43
============
Class C:
Net asset value, offering price and redemption price per share
($5,445,098 / 522,306 shares of common stock issued and outstanding.................................. $10.43
============
Class Z:
Net asset value, offering price and redemption price per share
($163,145 / 15,573 shares of common stock issued and outstanding..................................... $10.48
============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-61
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH & INCOME FUND
Statement of Operations (Unaudited)
=============================================================
November 7, 1996(a)
Through
Net Investment Income March 31, 1997
-------------------
Income
Dividends (net of foreign
withholding taxes of $1,026)..... $ 435,538
Interest and discount earned........ 381,888
----------
Total income..................... 817,426
----------
Expenses
Distribution fee--Class A........... 22,769
Distribution fee--Class B........... 192,287
Distribution fee--Class C........... 19,963
Management fee...................... 182,116
Registration fees................... 68,000
Transfer agent's fees and
expenses......................... 47,000
Legal fees and expenses............. 47,000
Reports to shareholders............. 44,000
Custodian's fees and expenses....... 35,000
Audit fees and expenses............. 11,000
Directors' fees..................... 5,000
Miscellaneous....................... 1,603
----------
Total expenses................... 675,738
----------
Net investment income.................. 141,688
----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investment
transactions........................ 1,199,429
----------
Net unrealized appreciation on:
Investments......................... 872,902
Short sales......................... 217,588
----------
1,090,490
----------
Net gain on investments................ 2,289,919
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $2,431,607
==========
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH & INCOME FUND
Statement of Changes in Net Assets (Unaudited)
=============================================================
November 7, 1996(a)
Increase (Decrease) Through
in Net Assets March 31, 1997
Operations
Net investment income............... $ 141,688
Net realized gain on investments.... 1,199,429
Net unrealized appreciation of
investments...................... 1,090,490
------------
Net increase in net assets resulting
from operations.................. 2,431,607
------------
Dividends from net investment income
Class A............................. (59,278)
Class B............................. (68,648)
Class C............................. (7,510)
Class Z............................. (1)
------------
(135,437)
------------
Fund share transactions (net of share
conversion) (Note 5)
Net proceeds from shares sold....... 93,572,144
Net asset value of shares issued in
reinvestment of dividends and
distributions.................... 124,907
Cost of shares reacquired........... (7,842,563)
------------
Net increase in net assets from Fund
share transactions............... 85,854,488
------------
Total increase......................... 88,150,658
Net Assets
Beginning of period.................... 100
------------
End of period.......................... $ 88,150,758
============
- ---------------
(a) Commencement of investment operations.
- ----------------------------------------------------------
See Notes to Financial Statements.
B-62
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements (Unaudited) INCOME FUND
================================================================================
Prudential Jennison Growth & Income Fund (the "Series") is a separately managed
series of Prudential Jennison Series Fund, Inc., formerly Prudential Jennison
Fund, Inc. (the "Fund"). The Fund was incorporated in Maryland on August 10,
1995 and is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. Investment operations
commenced on November 7, 1996.
The Series' investment objective is to achieve long-term growth of capital and
income, with current income as a secondary objective. The Series seeks to
achieve its objectives by investing primarily in common stocks of established
companies with growth prospects believed to be underappreciated by the market.
- ------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Series in the preparation of its financial statements.
Securities Valuation: Securities listed on a securities exchange (other than
options on securities and indices) are valued at the last sales price on the day
of valuation, or, if there was no sale on such day, at the average of readily
available closing bid and asked prices on such day as provided by a pricing
service. Securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued by an independent pricing service. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be
over-the-counter, are valued at the average of the most recently quoted bid and
asked prices provided by a principle market maker or dealer. Options on
securities and indices traded on an exchange are valued at the average of the
most recently quoted bid and asked prices provided by the respective exchange.
Futures contracts and options thereon are valued at the last sales price as of
the close of business of the exchange. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains or losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income, 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.
Short Sales: The Series may sell a security it does not own in anticipation of a
decline in the market value of that security (short sale). When the Fund makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow the particular security and may be obligated to pay
over any payments received on such borrowed securities. A gain, limited to the
price at which the Fund sold the security short, or a loss, unlimited in
magnitude, will be recognized upon the termination of a short sale if the market
price at termination is less than or greater than, respectively, the proceeds
originally received.
Dividends and Distributions: The Series 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 Series' 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.
Withholding taxes on foreign dividends have been provided for in accordance with
the Series' understanding of the applicable country's tax rules and rates.
- --------------------------------------------------------------------------------
NOTE 2. AGREEMENTS
The Fund has a management agreement with PMF. Pursuant to a subadvisory
agreement between PMF and Jennison Associates Capital Corp. ("Jennison"),
Jennison furnishes investment advisory services in
- --------------------------------------------------------------------------------
B-63
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements (Unaudited) INCOME FUND
================================================================================
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 Series in accordance with its investment objectives, and policies.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .60 of 1% of the average daily net assets of the Series. PMF pays
Jennison a subadvisory fee at an annual rate of .30 of 1% of the average daily
net assets of the Series 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
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the 'Class A, B and C Plans') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
No distribution or service fees are paid to PSI as distributor of the Class Z
shares of the Fund.
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
period ended March 31, 1997. With respect to the Class B and Class C Plans, the
Fund compensates PSI for its distribution-related costs at an annual rate of 1%
of the average daily net assets.
PSI has advised the Series that it has received approximately $80,000 in
front-end sales charges resulting from sales of Class A shares during the period
ended March 31, 1997. From these fees, PSI paid such sales charges to affiliated
broker-dealers, which in turn paid commissions to salespersons and incurred
other distribution costs.
PSI has advised the Series that for the period ended March 31, 1997, it received
approximately $35,000 and $400 in contingent deferred sales charges imposed upon
certain redemptions by Class B and C shareholders, respectively.
PMF, Jennison and PSI are wholly-owned subsidiaries of The Prudential Insurance
Company of America.
The Fund, along with other affiliated registered investment companies (the
"Funds"), entered into a credit agreement (the "Agreement") on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of March 31,
1997. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ("PMFS"), a wholly-owned subsidiary of PMF,
serves as the Fund's transfer agent. During the period ended March 31, 1997, the
Fund incurred fees of approximately $25,000 for the services of PMFS. As of
March 31, 1997, approximately $8,000 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, 1997 were $83,126,562 and $13,825,267,
respectively.
The cost basis of the investments for federal income tax purposes at March 31
1997, was $87,381,146 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $862,995 (gross unrealized
appreciation-$3,448,098; gross unrealized depreciation--$2,585,103).
- --------------------------------------------------------------------------------
NOTE 5. CAPITAL
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class B shares will automatically convert to
Class A shares on a quarterly basis approximately seven years after purchase. A
special exchange privilege is also available for shareholders who qualified to
purchase Class A shares at net
- --------------------------------------------------------------------------------
B-64
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements (Unaudited) INCOME FUND
================================================================================
asset value. Class C shares are sold with a contingent deferred sales charge of
1% during the first year. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors.
There are 1.25 billion shares of $.001 par value common stock authorized which
are divided into four classes, designated Class A, Class B, Class C and Class Z,
each of which consists of 500 million, 250 million, 250 million and 250 million
authorized shares, respectively.
Transactions in shares of common stock for the period November 7, 1996
(commencement of investment operations) through March 31, 1997 were as follows:
Class A Shares Amount
- ------- ---------- -----------
Shares sold........................... 2,706,866 $27,486,098
Shares issued in reinvestment of
dividends........................... 5,230 54,030
Shares reacquired..................... (431,435) (4,592,257)
---------- -----------
Net increase in shares outstanding
before conversion................... 2,280,661 22,947,871
Shares issued upon conversion from
Class B............................. 125 1,354
---------- -----------
Net increase in shares outstanding.... 2,280,786 $22,949,225
========== ===========
Class B Shares Amount
- ------- ---------- -----------
Shares sold........................... 5,918,529 $60,487,397
Shares issued in reinvestment of
dividends........................... 6,162 63,653
Shares reacquired..................... (292,006) (3,084,972)
---------- -----------
Net increase in shares outstanding
before conversion................... 5,632,685 57,466,078
Shares reacquired upon conversion into
Class A............................. (125) (1,354)
---------- -----------
Net increase in shares outstanding.... 5,632,560 $57,464,724
========== ===========
Class C
- -------
Shares sold........................... 527,092 $ 5,317,946
Shares issued in reinvestment of
dividends........................... 699 7,224
Shares reacquired..................... (5,485) (56,689)
---------- -----------
Net increase in shares outstanding.... 522,306 $ 5,268,481
========== ===========
Class Z
- -------
Shares sold........................... 25,959 $ 280,703
Shares reacquired..................... (10,386) (108,645)
---------- -----------
Net increase in shares outstanding.... 15,573 $ 172,058
========== ===========
- --------------------------------------------------------------------------------
B-65
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Financial Highlights (Unaudited) INCOME FUND
================================================================================
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
------------ ------------ ------------ ------------
November 7, November 7, November 7, November 7,
1996(a) 1996(a) 1996(a) 1996(a)
Through Through Through Through
March 31, March 31, March 31, March 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................ $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- --------
Income from investment operations
Net investment income............................... .04 .01 .01 .05
Net realized and unrealized gain on investment
transactions..................................... .43 .44 .44 .46
-------- -------- -------- --------
Total from investment operations................. .47 .45 .45 .51
-------- -------- -------- --------
Less distributions
Dividends from net investment income................ (.03) (.02) (.02) (.03)
-------- -------- -------- --------
Net asset value, end of period...................... $ 10.44 $ 10.43 $ 10.43 $ 10.48
======== ======== ======== ========
TOTAL RETURN(c)..................................... 4.47% 4.16% 4.16% 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)..................... $ 23,820 $ 58,722 $ 5,445 $ 163
Average net assets (000)............................ $ 23,085 $ 48,739 $ 5,060 $ 51
Ratios to average net assets(b):
Expenses, including distribution fees............ 1.70% 2.45% 2.45% 1.45%
Expenses, excluding distribution fees............ 1.45% 1.45% 1.45% 1.45%
Net investment income............................ .99% .24% .24% 1.24%
Portfolio turnover rate............................. 23% 23% 23% 23%
Average commission rate paid per share.............. $ .0553 $ .0553 $ .0553 $ .0553
</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-66
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC AND CC: Debt rated BB, B, CCC and CC is regarded, on balance, as
having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. BB indicates the least degree of speculation
and CC the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
DUFF & PHELPS CREDIT RATING CO.
LONG-TERM DEBT AND PREFERRED STOCK RATINGS
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but
may vary sightly from time to time because of economic conditions.
A: Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB: Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
BB: Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
A-2
<PAGE>
B: Below investment grade and possessing risk that obligations will not be
met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
Duff & Phelps refines each generic rating classification from AA through B
with a "+" or a "-".
CCC: Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
SHORT-TERM DEBT RATINGS
DUFF 1 +: Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury short-
term obligations.
DUFF 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.
DUFF 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
A-3
<PAGE>
APPENDIX I--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.
(CHART)
Value of $1,000 invested on 1/1/26 through 6/30/96
Stocks (S&P 500) - $1,227,490
U.S. (Long-Term) Treasury Bonds - $31,622
U.S. (30 day) Treasury Bills - $13,192
U.S. Inflation - $8,741
Source: Ibbotson Associates' EnCORR Software, Chicago, Illinois. All rights
reserved. This example is for illustrative purposes only and is not intended
to represent the past, present, or future performance of the Fund. Small-sized
stock performance for the period 1926-1980 is based on a historical series
composed of stocks making up the 5th quintile of the New York Stock Exchange;
thereafter, the index reflects the total return achieved by Dimensional Fund
Advisors (DFA) Small Company Fund. Source of mid-sized stock performance:
University of Chicago's Center for Research in Security Prices (CRSP). Mid-
sized stocks are comprised of an index of medium-sized companies listed on the
New York Stock Exchange (NYSE). All eligible companies listed on the NYSE are
ranked by market capitalization and then split into ten equally populated
groups, or deciles. The 3-5 decile represents mid-sized companies in this
example. Large-sized stock total return is based on the Standard & Poor's 500
Index, a market-weighted index made up of 500 of the largest stocks in the
U.S. based upon their stock market value. Past performance is not indicative
of future results. Investors cannot buy or invest directly in market indices.
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.
I-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 Funds or of
any sector in which the Funds invest.
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.
<TABLE>
<CAPTION>
YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bonds..... 2.0% 7.0% 14.4 % 8.5 % 15.3% 7.2% 10.7% (3.4)% 18.4%
Mortgage Securities..... 4.3% 8.7% 15.4 % 10.7 % 15.7% 7.0% 6.8% (1.6)% 16.8%
U.S. Corporate Bonds.... 2.6% 9.2% 14.1 % 7.1 % 18.5% 8.7% 12.2% (3.9)% 22.3%
U.S. High Yield Corpo-
rate Bonds............. 5.0% 12.5% 0.8 % (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2%
World Government Bonds.. 35.2% 2.3% (3.4)% 15.3 % 16.2% 4.8% 15.1% 6.0 % 19.6%
Difference between
highest and lowest
return in percent...... 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5
</TABLE>
- -------
/1/Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one year.
/2/Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15-and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
/3/Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.
/4/Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one
year.
/5/Salomon Brothers World Government Index (Non U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
I-2
<PAGE>
This chart illustrates the This chart shows the growth of a
performance of major world stock hypothetical $10,000 investment
markets for the period from 1986 made in the stocks representing
through 1995. It does not the S&P 500 stock index with and
represent the performance of any without reinvested dividends.
Prudential Mutual Fund.
(CHART)
(CHART)
Hong Kong - 23.8% Capital Appreciation and Reinvesting
Belgium - 20.7% Dividends - $186,208
Sweden - 19.4% Capital Appreciation Only - $66,913
Netherlands - 19.3%
Spain - 17.9%
Switzerland - 17.1%
France - 15.3%
U.K. - 15.0%
U.S. - 14.8%
Japan - 12.8%
Austria - 10.9%
Germany - 10.7%
Source: Morgan Stanley Capital Source: Stocks, Bonds, Bills, and
International (MSCI) Used with Inflation 1996 Yearbook, Ibbotson
permission. Morgan Stanley Country Associates, Chicago (annually
indices are unmanaged indices updates work by Roger G. Ibbotson
which include those stocks making and Rex A. Sinquefield). Used with
up the largest two-thirds of each permission. All rights reserved.
country's total stock market This chart is used for
capitalization. Returns reflect illustrative purposes only and is
the reinvestment of all not intended to represent the
distributions. This chart is for past, present or future
illustrative purposes only and is performance of any Prudential
not indicative of the past, Mutual Fund. Common stock total
present or future performance of return is based on the Standard &
any specific investment. Investors Poor's 500 Stock Index, a market-
cannot invest directly in stock value-weighted index made up of
indices. 500 of the largest stocks in the
U.S. based upon their stock market
value. Investors cannot invest
directly in indices.
(CHART)
World Total: $9.2 Trillion
Canada - 2.2%
U.S. - 40.8%
Pacific Basin - 28.7%
Europe - 28.3%
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.
I-3
<PAGE>
The chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.
(CHART)
- -------
Source: Stocks, Bonds, Bills, and Inflation 1996 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 1926-1995.
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.
I-4
<PAGE>
The following chart, although not relevant to share ownership in a 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)
- -------
*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.
I-5
<PAGE>
APPENDIX II--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns,
while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable
returns. Owning a portfolio of securities mitigates the individual risks (and
returns) of any one security. Additionally, diversification among types of
securities reduces the risks (and general returns) of any one type of
security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to
changes in interest rates. When interest rates fall, bond prices generally
rise. Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of
interest rate changes on the bond's (or the bond portfolio's) price. Duration
differs from effective maturity in that duration takes into account call
provisions, coupon rates and other factors. Duration measures interest rate
risk only and not other risks, such as credit risk and, in the case of non-
U.S. dollar denominated securities, currency risk. Effective maturity measures
the final maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will
fluctuate. However, owning a security for a long period of time may help
investors offset short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth
of assets. The long-term investment results of compounding may be greater than
that of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
II-1
<PAGE>
APPENDIX III--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 "How the Funds are Managed--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 either 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. Prudential provides auto insurance for more than
1.7 million cars and insures more than 1.4 million homes.
Money Management. Prudential is one of the largest pension fund managers in
the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k)
plans. In July 1996, Institutional Investor ranked Prudential the fifth
largest institutional money manager of the 300 largest money management
organizations in the United States as of December 31, 1995. As of December 31,
1995, Prudential had more than $314 billion in assets under management.
Prudential Investments, a business group of The Prudential, (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, 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
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
- -------
/1/Prudential Investments, a business group of PIC, serves as the Subadviser
to substantially all of the Prudential Mutual Funds. Wellington Management
Company serves as the subadviser to Global Utility Fund, Inc., Nicholas-
Applegate Capital Management as the subadviser to Nicholas-Applegate Fund,
Inc., Jennison Associates Capital Corp. as the subadviser to Prudential
Jennison Series Fund, Inc. and Prudential Active Balanced Fund, a portfolio of
Prudential Dryden Fund, Mercator Asset Management LP, as the subadviser to
International Stock Series, a portfolio of Prudential World Fund, Inc., and
BlackRock Financial Management, Inc. as the subadviser to The BlackRock
Government Income Trust. There are multiple subadvisers for The Target
Portfolio Trust.
/2/As of December 31, 1994.
III-1
<PAGE>
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
Prudential Mutual Fund Management is the fifteenth largest mutual fund
company in the country, with over 2.5 million shareholders invested in more
than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser
in national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in
surveys conducted by national and regional publications and media
organizations such as The Wall Street Journal, The New York Times, Barron's
and USA Today.
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual
fund in both bull and bear markets as well as a fund's risk profile.
Prudential Equity Fund is managed with a "value" investment style by PIC. In
1995, Prudential Securities introduced Prudential Jennison Growth Fund, a
growth-style equity fund managed by Jennison Associates Capital Corp., a
premier institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of
its kind in the country) along with 100 or so other high yield bonds, which
may be considered for purchase./3/ Non-investment grade bonds, also known as
junk bonds or high yield bonds, are subject to a greater risk of loss of
principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential
mutual fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions
in foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
- -------
/3/As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
III-2
<PAGE>
Prudential Mutual 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.
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.
- -------
/4/Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios of
the Prudential Series Fund and institutional and non-US accounts managed by
Prudential Mutual Fund Investment Management, a division of PIC, for the year
ended December 31, 1995.
/5/Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate U.S.
Government, Short Investment Grade Debt, Intermediate Investment Grade Debt,
General U.S. Treasury, General U.S. Government and Mortgage funds.
/6/As of December 31, 1994.
/7/As of December 31, 1994.
/8/On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores are
produced by taking the number of votes awarded to an individual analyst and
weighting them based on the size of the voting institution. In total, the
magazine sends its survey to approximately 2,000 institutions and a group of
European and Asian institutions.
III-3
<PAGE>
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.
III-4
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
(1) Financial statements included in the Prospectus constituting Part A
of this Registration Statement:
Financial Highlights.
(2) Financial Statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments as of September 30, 1996 for Prudential
Jennison Growth Fund (audited) and as of March 31, 1997 for
Prudential Jennison Growth Fund and Prudential Jennison Growth &
Income Fund (unaudited).
Statement of Assets and Liabilities as of September 30, 1996 for
Prudential Jennison Growth Fund (audited) and as of March 31, 1997
for Prudential Jennison Growth Fund and Prudential Jennison Growth &
Income Fund (unaudited).
Statement of Operations for the period ended September 30, 1996 for
Prudential Jennison Growth Fund (audited) and for the period ended
March 31, 1997 for Prudential Jennison Growth Fund and Prudential
Jennison Growth & Income Fund (unaudited).
Statement of Changes in Net Assets for the period ended September 30,
1996 for Prudential Jennison Growth Fund (audited) and for the period
ended March 31, 1997 for Prudential Jennison Growth Fund and
Prudential Jennison Growth & Income Fund (unaudited).
Notes to Financial Statements.
Financial Highlights.
Independent Auditors' Report.
(b) Exhibits:
1. (a) Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 1(c) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 33-61997) filed via
EDGAR on February 14, 1996.
(b) Articles Supplementary, incorporated by reference to Exhibit 1(b)
to Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A (File No. 33-61997) filed via EDGAR on December 6, 1996.
(c) Amendment of Articles of Incorporation, incorporated by reference
to Exhibit 1(c) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on
December 6, 1996.
2. By-Laws, incorporated by reference to Exhibit 2 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR 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 via EDGAR on August 22, 1995.
C-1
<PAGE>
5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 1 to the Registration Statement on Form N-
1A (File No. 33-61997) filed via EDGAR on February 14, 1996.
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and Jennison Associates Capital Corp., incorporated by reference
to Exhibit 5(b) to Post-Effective Amendment No. 1 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 6(a) to
Post-Effective Amendment No. 1 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 6(b) to the 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. Custodian Contract between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit 9 to the
Registration Statement on Form N-14 (File No. 333-6755) filed via EDGAR
on June 25, 1996.
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 13(a) to the Registration Statement on Form N-14 (File No. 333-
6755) filed via EDGAR on June 25, 1996.
10. Opinion of Shereff, Friedman, Hoffman & Goodman, LLP., incorporated by
reference to Exhibit 10 to the 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 13 to the
Post-Effective No. 1 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 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 15(c) to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on February 14, 1996.
16. (a) Schedule of Computation of Performance Quotations for Prudential
Jennison Growth Fund incorporated by reference to Exhibit 16 to the
Post-Effective No. 2 to the Registration Statement on Form N-1A (File
No. 33-61997) filed via EDGAR on April 15, 1996.
(b) Schedule of Computation of Performance Quotations for Prudential
Jennison Growth & Income Fund.*
17. Financial Data Schedules filed as Exhibit 27 for electronic purposes.*
18. Rule 18f-3 Plan, incorporated by reference to Exhibit 18 to the Post-
Effective No. 2 to the Registration Statement on Form N-1A (File No.
33-61997) filed via EDGAR on April 15, 1996.
- -------
* Filed herewith
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of April 18, 1997, there were 12,152, 42,143, 1,924, and 3,174 record
holders of Class A, Class B, Class C, and Class Z common stock, $.001 par
value per share, of the Growth Fund, respectively. As of April 18, 1997, there
were 2,206, 6,619, 375 and 22 record holders of Class A, Class B, Class C and
Class Z common stock, $.001 par value per share, of Growth & Income Fund,
respectively.
ITEM 27. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended, (the 1940 Act) and pursuant to Article VI of the Company's By-Laws
(Exhibit 2 to the Registration Statement), officers, directors, employees and
agents of the Registrant will not be liable to the Registrant, any
shareholder, officer, director, employee, agent or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be indemnified
against liabilities in connection with the Registrant, subject to the same
exceptions. Section 2-418 of the Maryland General Corporation Law permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant. As permitted by
Section 17(i) of the 1940 Act, pursuant to Section 10 of each Distribution
Agreement (Exhibit 6 to the Registration Statement), each Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed
by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of
indemnification payments to officers and directors under certain
circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential 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 (i) of
such Act remain in effect and are consistently applied.
C-3
<PAGE>
Under Section 17(h) of the 1940 Act, it is the position of the staff of the
Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of one's office, no indemnification will be permitted unless an
independent legal counsel (not including a counsel who does work for either
the Registrant, its investment adviser, its principal underwriter or persons
affiliated with these persons) determines, based upon a review of the facts,
that the person in question was not guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office.
Under its Articles of Incorporation, the Registrant may advance funds to
provide for indemnification. Pursuant to the Securities and Exchange
Commission staff's position on Section 17(h) advances will be limited in the
following respect:
(1) Any advances must be limited to amounts used, or to be used, for the
preparation and/or presentation of a defense to the action (including cost
connected with preparation of a settlement);
(2) Any advances must be accompanied by a written promise by, or on behalf
of, the recipient to repay that amount of the advance which exceeds the amount
to which it is ultimately determined that he is entitled to receive from the
Registrant by reason of indemnification;
(3) Such promise must be secured by a surety bond or other suitable
insurance; and
(4) Such surety bond or other insurance must be paid for by the recipient of
such advance.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Prudential Mutual Fund Management LLC
See "How the Funds are Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of 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).
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.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<C> <C> <S>
Brian Storms Officer-In-Charge, Officer-In-Charge, President, Chief
President, Chief Executive Officer and Chief Operating
Executive Officer Officer, PMF
and Chief Operating
Officer
Robert F. Gunia Executive Vice Comptroller, Prudential Investments;
President and Executive Vice President and
Treasurer Treasurer, PMF; Senior Vice President
of Prudential Securities Incorporated
(Prudential Securities)
Thomas A. Early Executive Vice Executive Vice President, Secretary
President, and General Counsel, PMF; Vice
Secretary and President and General Counsel,
General Counsel Prudential Retirement Services
Susan C. Cote Executive Vice Executive Vice President, Chief
President, Chief Financial Officer, PMF; Managing
Financial Officer Director, Prudential Investments and
Vice President, PIC
Neil A. McGuinness Executive Vice Executive Vice President, PMF
President
Robert J. Sullivan Executive Vice Executive Vice President, PMF
President
</TABLE>
C-4
<PAGE>
(b) Jennison Associates Capital Corp.
See "How the Funds are Managed--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.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH JENNISON PRINCIPAL OCCUPATIONS
---------------- ---------------------- ---------------------
<C> <C> <S>
Blair A. Boyer Senior Vice Senior Vice President and
President and Director, Jennison
Director
Cecilia M. Brancato Senior Vice Senior Vice President and
President and Director, Jennison
Director
Robert B. Corman Senior Vice Senior Vice President and
President and Director, Jennison
Director
Michael A. Del Balso Senior Vice Senior Vice President,
President, Director of Internal Research,
Director of and Director, Jennison
Internal
Research and
Director
Thomas F. Doyle Executive Vice Executive Vice President and
One Financial Center President and Director, Jennison
Boston, MA 02111 Director
John H. Feingold Senior Vice Senior Vice President and
One Financial Center President and Director, Jennison
Boston, MA 02111 Director
Joseph P. Ferrugio Senior Vice Senior Vice President and
President and Director, Jennison; Senior
Director Vice President, JACC Services
Corp.
Bradley L. Goldberg Executive Vice Executive Vice President and
President and Director, Jennison; Director,
Director JACC Services Corp.
Jonathan M. Greene Director President--Investment
The Prudential Insurance Management of a division of
Company of America Prudential Investments, a
751 Broad Street business group of The
Newark, NJ 07102 Prudential Insurance Company
of America; Senior Vice
President and Director, PIC
John H. Hobbs Chairman and Chairman and Chief Executive
Chief Executive Officer and Director,
Officer and Jennison; President, JACC
Director Services Corp.; President--
Institutional Asset Management
of Prudential Investments
James N. Kannry Senior Vice Senior Vice President,
President, Treasurer and Director,
Treasurer and Jennison; Senior Vice
Director President, Treasurer and
Director, JACC Services Corp.
Karen E. Kohler Senior Vice Senior Vice President, Chief
President, Chief Compliance Officer, Assistant
Compliance Treasurer, Secretary and
Officer, Director, Jennison; Senior
Assistant Vice President, Assistant
Treasurer, Treasurer and Secretary, JACC
Secretary and Services Corp.
Director
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH JENNISON PRINCIPAL OCCUPATIONS
---------------- ---------------------- ---------------------
<C> <C> <S>
Jonathan R. Longley Executive Vice Executive Vice President and
One Financial Center President and Director, Jennison
Boston, MA 02111 Director
Philip H.B. Moss Executive Vice Executive Vice President and
President and Director, Jennison
Director
David T. Poiesz Senior Vice Senior Vice President and
President and Director, Jennison
Director
Michael H. Porreca Senior Vice Senior Vice President and
One Financial Center President and Director, Jennison
Boston, MA 02111 Director
Peter H. Reinemann Senior Vice Senior Vice President and
President and Director, Jennison
Director
Spiros Segalas President, Chief President, Chief Investment
Investment Officer and Director, Jennison;
Officer and Director, JACC Services Corp.
Director
Lulu C. Wang Executive Vice Executive Vice President and
President and Director, Jennison
Director
Catherine D. Wood Senior Vice Senior Vice President and
President and Director, Jennison
Director
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Prudential Securities Incorporated
Prudential Securities Incorporated is distributor for The BlackRock
Government Income Trust, The Global Government Plus Fund, Inc., The Global
Total Return Fund, Inc., Command Government Fund, Command Money Fund, Command
Tax-Free Fund, Global Utility Fund, Inc., Nicholas Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Allocation Fund,
Prudential California Municipal Fund, Prudential Diversified Bond Fund, Inc.,
Prudential Distressed Securities Fund, Inc., Prudential Dryden Fund,
Prudential Emerging Growth Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential
Global Genesis Fund, Inc., Prudential Global Limited Maturity Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Government Securities
Trust, Prudential High Yield Fund, Inc., Prudential Institutional Liquidity
Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
Jennison Series Fund, Inc., Prudential MoneyMart Assets, 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 Natural Resources Fund, Inc., Prudential
Pacific Growth Fund, Inc., Prudential Small Companies Fund, Inc., Prudential
Special Money Market Fund, Inc., Prudential Structured Maturity Fund, Inc.,
Prudential Tax-Free Money Fund, Inc., Prudential Utility Fund, Inc.,
Prudential World Fund, Inc. and The Target Portfolio Trust. Prudential
Securities is also a depositor for the following unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
C-6
<PAGE>
(b) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME /1/ UNDERWRITER REGISTRANT
- -------- ------------- -------------
<S> <C> <C>
Robert Golden........... Executive Vice President and Director None
Alan D. Hogan........... Executive Vice President and Director None
George A. Murray........ Executive Vice President and Director None
Leland B. Paton......... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Martin Pfinsgraff....... Executive Vice President, Chief Financial Officer and Director None
Vincent T. Pica, II..... Executive Vice President and Director None
One New York Plaza
New York, N.Y. 10292
Hardwick Simmons........ Chief Executive Officer, President and Director None
Lee B. Spencer.......... Executive Vice President, Secretary, General Counsel and Director None
</TABLE>
- -------
/1/The address of each person named is One Seaport Plaza, New York, NY
10292 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
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 LLC, 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
LLC.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the captions "How the Funds are Managed--
Manager" and "How the Funds are Managed --Distributor" in the Prospectus and
the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.
ITEM 32. UNDERTAKINGS.
Registrant makes the following undertaking:
To furnish each person to whom a Prospectus is delivered with a copy of
Registrant's latest annual report to shareholders upon request and without
charge.
C-7
<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 of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement under Rule 485(b) under the Securities Act of 1933 and
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 30th day of April, 1997.
PRUDENTIAL JENNISON SERIES FUND, INC.
/s/ Richard A. Redeker
By----------------------------------
RICHARD A. REDEKER PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below on the
following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Eugene S. Stark Treasurer and April 30, 1997
- ----------------------------------- Principal
Financial and
EUGENE S. STARK Accounting
Officer
/s/ Edward D. Beach Director April 30, 1997
- -----------------------------------
EDWARD D. BEACH
/s/ Delayne Dedrick Gold Director April 30, 1997
- -----------------------------------
DELAYNE DEDRICK GOLD
/s/ Robert F. Gunia Director April 30, 1997
- -----------------------------------
ROBERT F. GUNIA
/s/ Donald D. Lennox Director April 30, 1997
- -----------------------------------
DONALD D. LENNOX
/s/ Douglas McCorkindale Director April 30, 1997
- -----------------------------------
DOUGLAS MCCORKINDALE
/s/ Mendel A. Melzer Director April 30, 1997
- -----------------------------------
MENDEL A. MELZER
/s/ Thomas T. Mooney Director April 30, 1997
- -----------------------------------
THOMAS T. MOONEY
C-8
<PAGE>
/s/ Stephen P. Munn Director April 30, 1997
- -------------------------------------
STEPHEN P. MUNN
/s/ Richard A. Redeker President and April 30, 1997
- ------------------------------------- Director
RICHARD A. REDEKER
/s/ Robin B. Smith Director April 30, 1997
- -------------------------------------
ROBIN B. SMITH
/s/ Louis A. Weil, III Director April 30, 1997
- -------------------------------------
LOUIS A. WEIL, III
/s/ Clay T. Whitehead Director April 30, 1997
- -------------------------------------
CLAY T. WHITEHEAD
C-9
<PAGE>
EXHIBIT INDEX
1. (a) Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 1(c) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 33-61997) filed via EDGAR on
February 14, 1996.
(b) Articles Supplementary, incorporated by reference to Exhibit No. 1(b)
to Post-Effective Amendment No. 4 to the Registration Statement on Form N-
1A (File No. 33-61997) filed via EDGAR on December 6, 1996.
(c) Amendment of Articles of Incorporation, incorporated by reference to
Exhibit No. 1(c) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A (File No. 33-61997) filed via EDGAR on December 6,
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 5(a) to Post-
Effective Amendment No. 1 to the Registration Statement on Form N-1A (File
No. 33-61997) filed via EDGAR on February 14, 1996.
(b)Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and Jennison Associates Capital Corp., incorporated by reference to Exhibit
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 6(a) to
Post-Effective Amendment No.1 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
6(b) to the Post-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. Custodian Contract between the Registrant and State Street Bank and Trust
Company, incorporated by reference to Exhibit 9 to the Registration
Statement on Form N-14 (File No. 333-6755) filed via EDGAR on June 25,
1996.
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 13(a) to the Registration Statement on Form N-14 (File No. 333-
6755) filed via EDGAR on June 25, 1996.
10. Opinion of Shereff, Friedman, Hoffman & Goodman, LLP., incorporated by
reference to Exhibit 10 to the 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 13 to the Post-
Effective No. 1 to the Registration Statement on Form N-1A (File No. 33-
61997) filed via EDGAR on February 14, 1996.
14. Not Applicable.
<PAGE>
15. (a) Distribution and Service Plan for Class A Shares, incorporated by
reference to Exhibit 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 15(c) to the Registration Statement on Form N-1A (File
No. 33-61997) filed via EDGAR on February 14, 1996.
16. (a) Schedule of Computation of Performance Quotations for Prudential
Jennison Growth Fund, incorporated by reference to Exhibit 16 to the Post-
Effective No. 2 to the Registration Statement on Form N-1A (File No. 33-
61997) filed via EDGAR on April 15, 1996.
(b) Schedule of Computation of Performance Quotations for Prudential
Jennison Growth & Income Fund.*
17. Financial Data Schedules filed as Exhibit 27 for electronic purposes.*
18. Rule 18f-3 Plan, incorporated by reference to Exhibit 18 to the Post-
Effective No. 2 to the Registration Statement on Form N-1A (File No. 33-
61997) filed via EDGAR on April 15, 1996.
- -------------------------------------------------------------------------------
* Filed herewith
<PAGE>
EXHIBIT 99.B11
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 5 to Registration
Statement No. 33-61997 of Prudential Jennison Series Fund, Inc. of our report
dated November 4, 1996, appearing in the Statement of Additional Information,
which is a part of such Registration Statement, and to the references to us
under the headings "Financial Highlights" in the Prospectus dated January 13,
1997, which is incorporated by reference in such Registration Statement, and
"Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants"
in the Statement of Additional Information.
Deloitte & Touche LLP
New York, New York
April 29, 1997
<PAGE>
EXHIBIT 99.B16
PRUDENTIAL JENNISON SERIES FUND, INC.
JENNISON GROWTH & INCOME FUND
EXHIBIT
AGGREGATE TOTAL RETURN
CALCULATION
ERV - P
T = -------
P
Where P = hypothetical initial payment of $1,000.
ERV = ending redeemable value.
T = Aggregate total return.
- --------------------------------------------------------------------------------
INCEPTION THROUGH MARCH 31, 1997
---------------------------------------
Class A Class B Class C Class Z
------- ------- ------- -------
P = $1,000 $1,000 $1,000 $1,000
ERV = $1,045 $1,042 $1,042 $1,048
T = 4.47% 4.16% 4.16% 4.81%
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
JENNISON GROWTH & INCOME FUND
EXHIBIT
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
P(1+T) N = ERV
Where P = hypothetical initial payment of $1,000 less front
end load of 5% (a) for Class A shares only
T = averge annual total return.
n = number of years
ERV = ending redeemable value.
- --------------------------------------------------------------------------------
INCEPTION THROUGH MARCH 31, 1997
---------------------------------------
Class A Class B Class C Class Z
------- ------- ------- -------
P = $950(a) $1,000 $1,000 $1,000
ERV = $943 $992 $1,032 $1,048
n = 0.39 0.39 0.39 0.39
T = -0.75% -0.84% 3.16% 4.81%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000949512
<NAME> PRUDENTIAL JENNISON SERIES FUND, INC.
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<ASSETS-OTHER> 683,725
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<INTEREST-INCOME> 391,840
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<PAGE>
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<NAME> PRUDENTIAL JENNISON SERIES FUND, INC.
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<PAID-IN-CAPITAL-COMMON> 666,258,947
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<GROSS-EXPENSE> 4,739,977
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<NAME> PRUDENTIAL JENNISON SERIES FUND, INC.
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<NAME> JENNISON GROWTH FUND (CLASS C)
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<INVESTMENTS-AT-VALUE> 769,066,458
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<PAID-IN-CAPITAL-COMMON> 666,258,947
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<SERIES>
<NUMBER> 021
<NAME> JENNISON GROWTH & INCOME FUND (CLASS A)
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<PAID-IN-CAPITAL-COMMON> 85,854,588
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6,251
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,199,429
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,090,490
<NET-ASSETS> (8,451,225)
<DIVIDEND-INCOME> 435,538
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<OTHER-INCOME> 0
<EXPENSES-NET> 675,738
<NET-INVESTMENT-INCOME> 141,688
<REALIZED-GAINS-CURRENT> 1,199,429
<APPREC-INCREASE-CURRENT> 1,090,490
<NET-CHANGE-FROM-OPS> 2,431,607
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (135,437)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 93,572,144
<NUMBER-OF-SHARES-REDEEMED> (7,842,563)
<SHARES-REINVESTED> 124,907
<NET-CHANGE-IN-ASSETS> 88,150,658
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 182,116
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 675,738
<AVERAGE-NET-ASSETS> 23,085,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0.00
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