<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1998
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. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 7
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
[X]
AMENDMENT NO. 8
(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: (973) 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 January 23, 1998 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.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED. . . SHARES OF COMMON STOCK, PAR VALUE
$.001 PER SHARE.
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- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION IN PROSPECTUS
-------- ----------------------
PART A
<C> <S> <C>
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information... Fund Expenses; 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;
General Information; Shareholder
Guide
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; General
Information
Item 9. Pending Legal Proceedings......... Not Applicable
PART B
<CAPTION>
Item 10. Cover Page......................... Cover Page
<C> <S> <C>
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
and Subadvisers; Distributor
Item 15. Control Persons and Principal Not Applicable
Holders of Securities.............
Item 16. Investment Advisory and Other Manager and Subadvisers;
Services.......................... Distributor; Custodian, 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, Dividends and
Distributions
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>
PRUDENTIAL JENNISON GROWTH FUND
- -------------------------------------------------------------------------------
PROSPECTUS DATED JANUARY 23, 1998
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Prudential Jennison Growth Fund (the Fund) is a series of Prudential Jennison
Series Fund, Inc. (the Company), a diversified, open-end, management
investment company.
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. The Fund seeks
to achieve its objective by investing primarily in equity securities (common
stock, preferred stock and securities convertible into common stock) of
established companies with above-average growth prospects. Current income, if
any, is incidental. Under normal market conditions, the Fund intends to invest
at least 65% of its total assets in equity securities of companies that exceed
$1 billion in market capitalization.
The Fund may 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 foreign currencies and options thereon to hedge its
portfolio and to attempt to enhance return. There can be no assurance that the
Fund's investment objective will be achieved. See "How the Fund Invests--
Investment Objective and Policies." The Company's address is Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, and its telephone
number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Fund has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated January 23, 1998, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.
- -------------------------------------------------------------------------------
Investors are advised to read the Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL JENNISON GROWTH FUND?
The Fund is a mutual fund. A mutual fund pools the resources of investors by
selling its shares to the public and investing the proceeds of such sale in a
portfolio of securities designed to achieve its investment objectives.
Technically, the Fund is a series of Prudential Jennison Series Fund, Inc., an
open-end, diversified, management investment company.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity securities (common
stock, securities convertible into common stock and preferred stock) of
established companies with above-average growth prospects. Current income, if
any, is incidental. There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies" at page 7.
WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
Securities of the kinds of companies in which the Fund invests may be subject
to significant price fluctuation and above-average risk. Thus, the Fund may be
considered subject to greater investment risks than are assumed by certain
other investment companies. In addition, companies achieving an earnings growth
rate higher than that of S&P 500 companies tend to reinvest their earnings
rather than distribute them. As a result, the Fund is not likely to receive
significant dividend income on its portfolio securities. Accordingly, an
investment in the Fund should not be considered as a complete investment
program and may not be appropriate for all investors.
Under normal market conditions, the Fund intends to invest at least 65% of
its total assets in equity securities of companies that exceed $1 billion in
market capitalization. See "How the Fund Invests--Investment Objective and
Policies" at page 7. The Fund may also invest in (i) other equity securities
including up to 20% of its total assets in securities of foreign issuers, (ii)
investment grade fixed-income securities and (iii) obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities,
including mortgage-backed securities. Investing in securities of foreign
companies and countries involves certain risks and considerations not typically
associated with investments in domestic companies. See "How the Fund Invests--
Risk Factors and Special Considerations of Investing in Foreign Securities" at
page 12. The Fund may also engage in various hedging and return enhancement
strategies including using derivatives. See "How the Fund Invests--Hedging and
Return Enhancement Strategies--Risks of Hedging and Return Enhancement
Strategies" at page 15. As with an investment in any mutual fund, an investment
in the Fund can decrease in value and you can lose money.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
manager of the Fund and is compensated for its services at an annual rate of
.60 of 1% of the Fund's average daily net assets. As of December 31, 1997, PIFM
served as manager or administrator to 64 investment companies, including 42
mutual funds, with aggregate assets of approximately $62 billion. Jennison
Associates LLC (Jennison, the Subadviser or the investment adviser) furnishes
investment advisory services in connection with the management of the Fund
under a Subadvisory Agreement with PIFM. See "How the Fund is Managed--Manager"
at page 16 and "How the Fund is Managed--Subadviser" at page 16.
2
<PAGE>
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Fund's Class A, Class B, Class C and
Class Z shares and is paid a distribution and service fee with respect to Class
A shares which is currently being charged at the annual rate of .25 of 1% of
the average daily net assets of the Class A shares and is paid a distribution
and service fee with respect to Class B and Class C shares at an annual rate of
1% of the average daily net assets of each of the Class B and Class C shares.
The Distributor incurs the expense of distributing the Fund's Class Z shares
under a Distribution Agreement with the Company, none of which is reimbursed or
paid for by the Fund. See "How the Fund is Managed--Distributor" at page 17.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 for Class A and Class B shares and
$5,000 for Class C shares. The minimum subsequent investment is $100 for Class
A, Class B and Class C shares. Class Z shares are not subject to any minimum
investment requirements. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide--How
to Buy Shares of the Fund" at page 23 and "Shareholder Guide--Shareholder
Services" at page 34.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at NAV without any sales charge. Participants in
programs sponsored by Prudential Retirement Services should contact their
client representative for more information about Class Z shares. See "How the
Fund Values its Shares" at page 19 and "Shareholder Guide--How to Buy Shares of
the Fund" at page 23.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers four classes of shares:
. Class A
Shares: Sold with an initial sales charge of up to 5% of the offering
price.
.Class B
Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 5%
to zero of the lower of the amount invested or the redemption
proceeds) which will be imposed on certain redemptions made
within six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically convert to
Class A shares (which are subject to lower ongoing
distribution-related expenses) approximately seven years
after purchase.
.Class C
Shares: Sold without an initial sales charge but, for one year after
purchase, are subject to a CDSC of 1% on redemptions. Like
Class B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but do not
convert to another class.
.Class Z
Shares: Sold without an initial sales charge or CDSC to a limited group of
investors. Class Z shares are not subject to any ongoing
service or distribution expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 24.
3
<PAGE>
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. Participants in programs sponsored by Prudential Retirement Services
should contact their client representative for more information about selling
their Class Z shares. See "Shareholder Guide--How to Sell Your Shares" at page
27.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, semi-
annually and make distributions of any net capital gains at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that they
be paid to you in cash. See "Taxes, Dividends and Distributions" at page 19.
4
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)....... 5% None None None
Maximum Sales Load
Imposed on Reinvested
Dividends............. None None None None
Maximum Deferred Sales
Load (as a percentage
of original purchase None 5% during the first year, 1% on redemptions None
price or redemption decreasing by 1% annually to 1% made within one
proceeds, whichever is in the fifth and the sixth years year of purchase
lower)................ and 0% in the seventh year*
Redemption Fees........ None None None None
Exchange Fee........... None None None None
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of av-
erage net assets)
Management Fees........ .60% .60% .60% .60%
12b-1 Fees (After Re-
duction)............. .25%++ 1.00% 1.00% None
Other Expenses......... .24% .24% .24% .24%
--- --- --- ---
Total Fund Operating
Expenses (After
Reduction)........... 1.09% 1.84% 1.84% .84%
==== ==== ==== ===
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual re-
turn and (2) redemption at the end of each time
period:
Class A....................................... $61 $83 $107 $176
Class B....................................... $69 $88 $110 $187
Class C....................................... $29 $58 $100 $216
Class Z....................................... $ 9 $27 $ 47 $104
You would pay the following expenses on the
same investment, assuming no redemption:
Class A....................................... $61 $83 $107 $176
Class B....................................... $19 $58 $100 $187
Class C....................................... $19 $58 $100 $216
Class Z....................................... $ 9 $27 $ 47 $104
</TABLE>
The above example is based on data for the Fund's fiscal year ended September
30, 1997. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist an investor in understanding the various
types of costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed." "Other Expenses" include estimated
operating expenses of the Fund, such as Directors' and professional fees,
registration fees, reports to shareholders and transfer agency and custodian
(domestic and foreign) fees (but excludes foreign withholding taxes).
- ------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges (12b-1 fees) on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on the Fund rather than on a per shareholder basis. Therefore, long-
term Class B and Class C shareholders of the Fund may pay more in total
sales charges than the economic equivalent of 6.25% of such shareholders'
investment in such shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay up to an annual rate of .30 of 1% of the average daily net assets of
the Class A shares, the Distributor has agreed to limit its distribution
fees with respect to Class A shares of the Fund to .25 of 1% of the average
daily net assets of the Class A shares for the fiscal year ending September
30, 1998. See "How the Fund is Managed--Distributor." Total Fund Operating
Expenses would be 1.14% absent this limitation with respect to Class A
shares.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the periods indicated)
(CLASS A, CLASS B, CLASS C AND CLASS Z SHARES)
The following financial highlights for the year ended September 30, 1997 have
been audited by Price Waterhouse LLP, independent accountants, and for the
periods through September 30, 1996 have been audited by Deloitte & Touche LLP,
independent auditors, whose reports thereon were unqualified. This information
should be read in conjunction with the financial statements and notes thereto,
which appear in the Statement of Additional Information. The financial
highlights contain selected data for a Class A, Class B, Class C and Class Z
share of common stock of the Fund outstanding, total return, ratios to average
net assets and other supplemental data for the periods indicated. Further
performance information is contained in the annual report, which may be
obtained without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------- --------------------- --------------------
NOV. 2, NOV. 2, NOV. 2,
YEAR 1995(A) YEAR 1995(A) YEAR 1995(A)
ENDED THROUGH ENDED THROUGH ENDED THROUGH
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<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 income
(loss)(d)............... (.03) (.03) (.12) (.10) (.12) (.10)
Net realized and
unrealized gain on
investment transactions. 4.45 1.00 4.41 .99 4.41 .99
-------- ------- -------- -------- ------- -------
Total from investment
operations............. 4.42 .97 4.29 .89 4.29 .89
-------- ------- -------- -------- ------- -------
Net asset value, end of
period.................. $ 15.39 $ 10.97 $ 15.18 $ 10.89 $ 15.18 $ 10.89
======== ======= ======== ======== ======= =======
TOTAL RETURN(C): ........ 40.29 % 9.70 % 39.39 % 8.90 % 39.39 % 8.90 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $145,022 $85,440 $419,405 $231,541 $25,134 $15,281
Average net assets (000). $105,982 $70,667 $299,476 $162,412 $18,248 $12,550
Ratios to average net
assets:
Expenses, including
distribution fees...... 1.09 % 1.23 %(b) 1.84 % 1.98 %(b) 1.84 % 1.98 %(b)
Expenses, excluding
distribution fees...... .84 % .98 %(b) .84 % .98 %(b) .84 % .98 %(b)
Net investment income
(loss)................. (.25)% (.37)%(b) (1.00)% (1.12)%(b) (1.00)% (1.12)%(b)
Portfolio turnover rate.. 63 % 42 % 63 % 42 % 63 % 42 %
Average commission rate
paid per share.......... $ .0596 $ .0611 $ .0596 $ .0611 $ .0596 $ .0611
<CAPTION>
CLASS Z
--------------------------
APRIL 15,
YEAR 1996(A)
ENDED THROUGH
SEPT. 30, SEPT. 30,
1997 1996
----------- ---------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 10.98 $ 10.32
----------- --------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)(d)............... -- (.02)
Net realized and
unrealized gain on
investment transactions. 4.47 .68
----------- --------------
Total from investment
operations............. 4.47 .66
----------- --------------
Net asset value, end of
period.................. $ 15.45 $ 10.98
=========== ==============
TOTAL RETURN(C): ........ 40.71 % 6.40 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $609,869 $362,416
Average net assets (000). $455,684 $ 26,829
Ratios to average net
assets:
Expenses, including
distribution fees...... .84 % .98 %(b)
Expenses, excluding
distribution fees...... .84 % .98 %(b)
Net investment income
(loss)................. -- (.12)%(b)
Portfolio turnover rate.. 63 % 42 %
Average commission rate
paid per share.......... $ .0596 $ .0611
</TABLE>
- ------------
(a) Commencement of investment operations and offering of Class Z shares.
(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.
6
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND
SEEKS TO ACHIEVE THIS OBJECTIVE BY INVESTING PRIMARILY IN EQUITY SECURITIES
(COMMON STOCK, PREFERRED STOCK AND SECURITIES CONVERTIBLE INTO COMMON STOCK)
OF ESTABLISHED COMPANIES WITH ABOVE-AVERAGE GROWTH PROSPECTS. CURRENT INCOME,
IF ANY, IS INCIDENTAL. THERE CAN BE NO ASSURANCE THAT THE FUND'S OBJECTIVE
WILL BE ACHIEVED. See "Investment Objectives and Policies" in the Statement of
Additional Information.
UNDER NORMAL MARKET CONDITIONS, THE FUND INTENDS TO INVEST AT LEAST 65% OF
ITS TOTAL ASSETS IN EQUITY SECURITIES OF COMPANIES THAT EXCEED $1 BILLION IN
MARKET CAPITALIZATION. COMPANIES WITH MARKET CAPITALIZATIONS IN EXCESS OF
$1 BILLION ARE GENERALLY CONSIDERED MEDIUM TO LARGE CAPITALIZATION COMPANIES.
Stocks will be selected on a company-by-company basis primarily through the
use of fundamental analysis. The Fund's investment adviser looks for companies
that have demonstrated growth in earnings and sales, high returns on equity
and assets, or other strong financial characteristics and, in the judgment of
the investment adviser, are attractively valued. These companies tend to have
a unique market niche, a strong new product profile or superior management.
The Fund may also invest up to 35% of its total assets in (i) equity
securities of other companies that are undergoing changes in management or
product and marketing dynamics that have not yet been reflected in reported
earnings but that are expected to impact earnings in the intermediate-term--
these securities often lack investor recognition and are often favorably
valued, (ii) other equity-related securities, (iii) equity securities of
foreign issuers (with respect to 20% of its total assets), (iv) obligations
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, including mortgage-backed securities and (v) investment
grade fixed-income securities.
The effort to achieve superior investment return necessarily involves a risk
of exposure to declining values. Securities in which the Fund may primarily
invest have historically been more volatile than the S&P 500 Index.
Accordingly, during periods when stock prices decline generally, it can be
expected that the value of the Fund will decline more than market indices.
Securities of the kinds of companies in which the Fund invests may be
subject to significant price fluctuation and above-average risk. In addition,
companies achieving an earnings growth rate higher than that of S&P 500
companies tend to reinvest their earnings rather than distribute them. As a
result, the Fund is not likely to receive significant dividend income on its
portfolio securities. Accordingly, an investment in the Fund should not be
considered as a complete investment program and may not be appropriate for all
investors.
The Fund may purchase and sell put and call options on equity securities,
stock indices and foreign currencies, purchase and sell futures contracts on
stock indices and foreign currencies and options thereon and enter into
forward foreign currency exchange contracts to hedge its portfolio and to
attempt to enhance return. The Fund may also lend its portfolio securities,
enter into repurchase agreements and purchase securities on a when-issued and
delayed delivery basis.
The Fund reserves the right as a defensive measure to hold temporarily other
types of securities without limit, including high quality commercial paper,
bankers' acceptances, non-convertible debt securities (corporate and
government) or government and high quality money market securities of U.S. and
non-U.S. issuers, or cash (foreign currencies or U.S. dollars), in such
proportions as, in the opinion of its investment adviser, prevailing market,
economic or political conditions warrant. The Fund also may temporarily hold
cash and invest in high quality foreign or domestic money market instruments
pending investment of proceeds from new sales of Fund shares or to meet
ordinary daily cash needs. See "Other Investments and Policies" below.
7
<PAGE>
As with an investment in any mutual fund, an investment in the Fund can
decrease in value and you can lose money.
THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND MAY NOT BE
CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT OF
1940 (INVESTMENT COMPANY ACT). INVESTMENT POLICIES THAT ARE NOT FUNDAMENTAL
MAY BE MODIFIED BY THE BOARD OF DIRECTORS.
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. Treasury
or by an agency or instrumentality of the U.S. Government. Not all U.S.
Government securities are backed by the full faith and credit of the United
States. Some are supported only by the credit of the issuing agency. See
"Investment Objectives and Policies--U.S. Government Securities" in the
Statement of Additional Information.
MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed
securities and other derivative mortgage products, including those
representing an undivided ownership interest in a pool of mortgages, e.g.,
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)
certificates where the U.S. Government or its agencies or instrumentalities
guarantees the payment of interest and principal of these securities. These
guarantees do not extend to the securities' yield or value, which are likely
to vary inversely with fluctuations in interest rates, nor do these guarantees
extend to the yield or value of the Fund's shares. See "Investment Objectives
and Policies--U.S. Government Securities" in the Statement of Additional
Information. These certificates are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate, net of certain fees.
Mortgage-backed securities are subject to the risk that the principal on the
underlying mortgage loans may be prepaid at any time. Although the extent of
prepayments on a pool of mortgage loans depends on various economic and other
factors, as a general rule prepayments on fixed rate mortgage loans will
increase during a period of falling interest rates and decrease during a
period of rising interest rates. Accordingly, amounts available for
reinvestment by the Fund are likely to be greater during a period of declining
interest rates and, as a result, likely to be reinvested at lower interest
rates than during a period of rising interest rates. Mortgage-backed
securities may decrease in value as a result of increases in interest rates
and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may purchase collateralized
mortgage obligations (CMOs) issued by agencies or instrumentalities of the
U.S. Government. A CMO is backed by a portfolio of mortgages or mortgage-
backed securities. The issuer's obligation to make interest and principal
payments is secured by the underlying portfolio of mortgages or mortgage-
backed securities. The issuer of a series of CMOs may elect to be treated as a
Real Estate Mortgage Investment Conduit (REMIC). All future references to CMOs
include REMICs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the underlying mortgage assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. The principal of and interest on
the underlying mortgage assets may be allocated among the several classes of a
CMO series in a number of different ways. Generally, the purpose of the
allocation of the cash flow of a CMO to the various classes is to obtain a
more predictable cash flow to the individual tranches than exists with the
underlying collateral of the CMO. As a general rule, the more predictable the
cash flow is on a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on
mortgage-backed securities.
The Fund also may invest in mortgage-backed security strips (MBS strips)
issued by the U.S. Government or its agencies or instrumentalities. MBS strips
are usually structured with two classes that receive different proportions of
the interest and
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principal distributions on a pool of mortgage assets. A common type of stripped
mortgage security will have one class receiving some of the interest and most of
the principal from the mortgage assets, while the other class will receive most
of the interest and the remainder of the principal. In the most extreme case,
one class will receive all of the interest (the interest-only or "IO" class),
while the other class will receive all of the principal (the principal-only or
"PO" class). The yields to maturity on IOs and POs are sensitive to the expected
or anticipated rate of principal payments (including prepayments) on the related
underlying mortgage assets, and principal payments may have a material effect on
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may not fully recoup its initial
investment in IOs. Conversely, if the underlying mortgage assets experience less
than anticipated prepayments of principal, the yield on POs could be materially
adversely affected.
In reliance on rules and interpretations of the Securities and Exchange
Commission (SEC), the Fund's investments in certain qualifying CMOs and REMICs
are not subject to the Investment Company Act's limitation on acquiring
interests in other investment companies. See "Investment Objectives and
Policies--Mortgage-Related Securities" in the Statement of Additional
Information.
CORPORATE AND OTHER DEBT OBLIGATIONS
The Fund may invest in investment grade corporate and other debt obligations
of domestic and foreign issuers, including convertible securities and money
market instruments. Bonds and other debt securities are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and must repay the amount borrowed at maturity. Investment
grade debt securities are rated within the four highest quality grades as
determined by Moody's Investors Service (Moody's) (currently Aaa, Aa, A and
Baa for bonds), or Standard & Poor's Ratings Group (S&P) (currently AAA, AA, A
and BBB for bonds), or comparably rated by another nationally recognized
statistical rating organization (NRSRO) or in unrated securities which are of
equivalent quality in the opinion of Jennison. If a security (or issuer) held
by the Fund is assigned a rating below investment grade (or, in the view of
Jennison, if a security has declined in credit quality so that it is
comparable to a security rated below investment grade), Jennison will seek to
dispose of the security as soon as reasonably practicable. Securities rated
Baa by Moody's, although considered to be investment grade, lack outstanding
investment characteristics and, in fact, have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make interest and principal payments than is the
case with higher grade bonds. Such lower rated securities are subject to a
greater risk of loss of principal and interest.
EQUITY-RELATED SECURITIES. The Fund may invest in equity-related securities.
Equity-related securities include common stocks, preferred stocks, securities
convertible or exchangeable for common stocks or preferred stocks, equity
investments in partnerships, joint ventures and other forms of non-corporate
investments, American Depositary Receipts, and warrants and rights exercisable
for equity securities. See "Convertible Securities, Warrants and Rights"
below.
American Depositary Receipts (ADRs) are U.S. dollar-denominated certificates
issued by a U.S. bank or trust company and represent the right to receive
securities of a foreign issuer deposited in a domestic bank or foreign branch
of a U.S. bank and traded on a U.S. exchange or in an over-the-counter market.
Generally, ADRs are in registered form. There are no fees imposed on the
purchase or sale of ADRs when purchased from the issuing bank or trust company
in the initial underwriting, although the issuing bank or trust company may
impose charges for the collection of dividends and the conversion of ADRs into
the underlying securities. Investment in ADRs has certain advantages over
direct investment in the underlying foreign securities since: (i) ADRs are
U.S. dollar-denominated investments that are registered domestically, easily
transferable, and for which market quotations are readily available; and (ii)
issuers whose securities are represented by ADRs are usually subject to
comparable auditing, accounting and financial reporting standards as domestic
issuers.
CONVERTIBLE SECURITIES, WARRANTS AND RIGHTS
A CONVERTIBLE SECURITY IS A BOND, DEBENTURE, CORPORATE NOTE, PREFERRED STOCK
OR OTHER SIMILAR SECURITY WHICH MAY BE CONVERTED AT A STATED PRICE WITHIN A
SPECIFIED PERIOD OF TIME INTO A CERTAIN QUANTITY OF THE COMMON STOCK OR OTHER
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EQUITY SECURITIES OF THE SAME OR A DIFFERENT ISSUER. A warrant or right
entitles the holder to purchase equity securities at a specific price for a
specific period of time. Convertible securities are senior to common stocks in
a corporation's capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation dependent upon a market price advance
in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
is also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of
the underlying stock declines. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
In recent years, convertible securities have been developed which combine
higher or lower current income with options and other features. The Fund may
invest in these types of convertible securities.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest a portion of its assets in equity securities and fixed-
income securities of foreign issuers (denominated in either U.S. or foreign
currency). ADRs and American Depositary Shares (both of which are U.S. dollar-
denominated certificates issued by a U.S. bank or trust company that represent
the right to receive securities of a foreign issuer deposited in a domestic
bank or foreign branch of a U.S. bank) are not deemed to be foreign
securities.
MONEY MARKET INSTRUMENTS
The Fund may invest in high quality money market instruments, including
commercial paper of a U.S. or non-U.S. company, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic
and foreign banks, and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. These obligations will be U.S.
dollar denominated or denominated in a foreign currency. Money market
instruments typically have a maturity of one year or less as measured from the
date of purchase. The Fund may invest in money market instruments without
limit for temporary defensive and cash management purposes. To the extent the
Fund otherwise invests in money market instruments, it is subject to the
limitations described above.
OTHER INVESTMENTS AND POLICIES
BORROWING
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of its total assets to secure these borrowings. If
the Fund's asset coverage for borrowings falls below 300%, the Fund will take
prompt action to reduce its borrowings. The Fund will not purchase portfolio
securities when borrowings exceed 5% of the value of its total assets. See
"Investment Objectives and Policies--Borrowing" in the Statement of Additional
Information.
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REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss. See "Investment Objectives and Policies--
Repurchase Agreements" in the Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities
markets either within or outside of the United States. Restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended (the Securities Act) and privately placed commercial paper that have a
readily available market are not considered illiquid for purposes of this
limitation. 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.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is not expected to exceed 100%. High
portfolio turnover (over 100%) may involve correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. See "Portfolio Transactions and Brokerage" in the Statement of
Additional Information. In addition, high portfolio turnover may result in
increased short-term capital gains which, when distributed to shareholders,
are treated as ordinary income. See "Taxes, Dividends and Distributions."
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities (including equity securities) on a
when-issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and/or yield to the Fund at the time of
entering into the transaction. While the Fund will only purchase securities on
a when-issued or delayed delivery basis with the intention of acquiring the
securities, the Fund may sell the securities before the settlement date, if it
is deemed advisable. At the time the Fund makes the commitment to purchase
securities on a when-issued or delayed delivery basis, the Fund will record
the transaction and thereafter reflect the value, each day, of such security
in determining the net asset value of the Fund. At the time of delivery of the
securities, the value may be more or less than the purchase price. The Fund's
Custodian will segregate for the Fund cash or other liquid assets having a
value equal to or greater than the Fund's purchase commitments. Subject to
this requirement, the Fund may purchase securities on such basis without
limit. See "Investment Objectives and Policies--When-Issued and Delayed
Delivery Securities" in the Statement of Additional Information.
SECURITIES LENDING
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral (which may
include a secured letter
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of credit) in an amount equal to at least 100%, determined daily, of the
market value of the securities loaned which is maintained in a segregated
account pursuant to applicable regulations. During the time portfolio
securities are on loan, the borrower will pay the Fund an amount equivalent to
any dividend or interest paid on such securities and the Fund may invest the
cash collateral and earn additional income, or it may receive an agreed-upon
amount of interest income from the borrower. As with any extensions of credit,
there are risks of delay in recovery and in some cases loss of rights in the
collateral should the borrower of the securities fail financially. As a matter
of fundamental policy, the Fund may not lend more than 30% of the value of its
total assets. See "Investment Objectives and Policies--Lending of Securities"
in the Statement of Additional Information. The Fund may pay reasonable
administration and custodial fees in connection with a loan.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales "against-the-box." A short sale is against-
the-box when the Fund enters into a short sale of a security which the Fund
owns or has the right to obtain at no added cost. No more than 25% of the
Fund's net assets (determined at the time of the short sale against-the-box)
may be subject to such sales.
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES
FOREIGN SECURITIES INVOLVE CERTAIN RISKS, WHICH SHOULD BE CONSIDERED
CAREFULLY BY AN INVESTOR IN THE FUND. THESE RISKS INCLUDE POLITICAL OR
ECONOMIC INSTABILITY IN THE COUNTRY OF THE ISSUER, THE DIFFICULTY OF
PREDICTING INTERNATIONAL TRADE PATTERNS, THE POSSIBLE IMPOSITION OF EXCHANGE
CONTROLS AND THE RISK OF CURRENCY FLUCTUATIONS. Such securities may be subject
to greater fluctuations in price than securities issued by U.S. corporations
or issued or guaranteed by the U.S. Government, its instrumentalities or
agencies. In addition, there may be less publicly available information about
a foreign company than about a domestic company. Foreign companies generally
are not subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to domestic companies. There is
generally less government regulation of securities exchanges, brokers and
listed companies abroad than in the United States and there is a possibility
of expropriation, confiscatory taxation or diplomatic developments which could
affect investment.
ADDITIONAL COSTS COULD BE INCURRED IN CONNECTION WITH THE FUND'S
INTERNATIONAL INVESTMENT ACTIVITIES. Foreign brokerage commissions are
generally higher than U.S. brokerage commissions. Increased custodian costs as
well as administrative difficulties (such as the applicability of foreign laws
to foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.
If the security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result
in a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of
income the Fund is required to distribute is not immediately reduced by the
decline in such currency. Similarly, if an exchange rate declines between the
time the Fund incurs expenses in U.S. dollars and the time such expenses are
paid, the amount of such currency required to be converted into U.S. dollars
in order to pay such expenses in U.S. dollars will be greater than the
equivalent amount in any such currency of such expenses at the time they were
incurred. The Fund may, but need not, enter into forward foreign currency
exchange contracts, options on foreign currencies and futures contracts on
foreign currencies and related options, for hedging purposes, including:
locking-in the U.S. dollar price of the purchase or sale of securities
denominated in a foreign currency; locking-in the U.S. dollar equivalent of
dividends to be paid on such securities which are held by the Fund; and
protecting the U.S. dollar value of such securities which are held by the
Fund.
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SHAREHOLDERS SHOULD BE AWARE THAT INVESTING IN THE EQUITY MARKETS OF
DEVELOPING COUNTRIES INVOLVES EXPOSURE TO ECONOMIES THAT ARE GENERALLY LESS
DIVERSE AND MATURE, AND TO POLITICAL SYSTEMS WHICH CAN BE EXPECTED TO HAVE
LESS STABILITY, THAN THOSE OF DEVELOPED COUNTRIES. HISTORICAL EXPERIENCE
INDICATES THAT THE MARKETS OF DEVELOPING COUNTRIES HAVE BEEN MORE VOLATILE
THAN THE MARKETS OF DEVELOPED COUNTRIES. THE RISKS ASSOCIATED WITH INVESTMENTS
IN FOREIGN SECURITIES, DESCRIBED ABOVE, MAY BE GREATER WITH RESPECT TO
INVESTMENTS IN DEVELOPING COUNTRIES.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN. THE FUND, AND THUS
ITS INVESTORS, MAY LOSE MONEY IF THE FUND IS UNSUCCESSFUL IN ITS USE OF THESE
STRATEGIES. These strategies currently include the use of derivatives, such as
options, forward currency exchange contracts and futures contracts and options
thereon. The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. See "Investment
Objectives and Policies" and "Taxes, Dividends and Distributions" in the
Statement of Additional Information. Jennison does not intend to buy all of
these instruments or use all of these strategies to the full extent permitted
unless it believes that doing so will help the Fund achieve its objectives.
New financial products and risk management techniques continue to be developed
and the Fund may use these new investments and techniques to the extent
consistent with its investment objective and policies.
OPTIONS TRANSACTIONS
THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES, STOCK INDICES AND CURRENCIES THAT ARE TRADED ON U.S. OR FOREIGN
SECURITIES EXCHANGES OR IN THE OVER-THE-COUNTER (OTC) MARKET TO ENHANCE RETURN
OR TO HEDGE ITS PORTFOLIO. These options will be on equity securities, stock
indices (e.g., S&P 500) and foreign currencies. The Fund may write put and
call options to generate additional income through the receipt of premiums,
purchase put options in an effort to protect the value of securities (or
currencies) that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
(or currencies) it intends to purchase. The Fund may also purchase put and
call options to offset previously written put and call options of the same
series. See "Investment Objectives and Policies--Options on Securities" in the
Statement of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE RIGHT
FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY SUBJECT
TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE). The
writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities
or currency in excess of the exercise price of the option during the period
that the option is open. The Fund will write only "covered" call options for
which it (i) owns an offsetting position in the underlying security or
currency or (ii) maintains in a segregated account cash or other liquid assets
with a value sufficient at all times to cover its obligations.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
The Fund will write only put options for which it (i) owns an offsetting
position in the underlying security or currency or (ii) maintains in a
segregated account cash or other liquid assets with a value sufficient at all
times to cover its obligations.
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FORWARD CURRENCY EXCHANGE CONTRACTS
THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS ASSETS AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. The Fund may enter into such contracts on a spot,
i.e., cash, basis at the rate then prevailing in the currency exchange market
or on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days agreed upon by the parties from the date of the contract at a price set
on the date of the contract.
THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different currency (cross hedge). Although
there are no limits on the number of forward contracts which the Fund may
enter into, the Fund may not position hedge (including cross hedges) with
respect to a particular currency for an amount greater than the aggregate
market value (determined at the time of making any sale of foreign currency)
of the securities being hedged. See "Investment Objectives and Policies--Risks
Related to Forward Foreign Currency Exchange Contracts" in the Statement of
Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE
CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN
ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION
(CFTC). THE FUND, AND THUS ITS INVESTORS, MAY LOSE MONEY THROUGH ANY
UNSUCCESSFUL USE OF THESE STRATEGIES. These futures contracts and related
options will be on stock indices and foreign currencies. A futures contract is
an agreement to purchase or sell an agreed amount of securities or currencies
at a set price for delivery in the future. A stock index futures contract is
an agreement to purchase or sell cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made. The Fund
may purchase and sell stock index futures contracts or related options as a
hedge against changes in market conditions.
The Fund may not purchase or sell futures contracts and related options to
attempt to enhance return if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. The Fund may purchase and sell futures
contracts and related options, without limitation, for bona fide hedging
purposes in accordance with regulations of the CFTC (i.e., to reduce certain
risks of its investments). The value of all futures contracts sold will not
exceed the total market value of the Fund's portfolio.
Futures contracts and related options are generally subject to segregation
requirements of the SEC and coverage requirements of the CFTC. If the Fund
does not hold the security or currency underlying the futures contract, it
will be required to segregate on an ongoing basis with its Custodian cash or
other liquid assets having an amount at least equal to its obligations with
respect to such futures contracts.
THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET
AND IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements
in the price of a futures contract and the movements in the index or price of
the currencies underlying the futures contract is
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imperfect and there is a risk that the value of the securities or currencies
underlying the futures contract may increase or decrease at a greater rate
than the related futures contracts resulting in losses to the Fund. Certain
futures exchanges or boards of trade have established daily limits on the
amount that the price of futures contracts or related options may vary, either
up or down, from the previous day's settlement price. These daily limits may
restrict the Fund's ability to purchase or sell certain futures contracts or
related options on any particular day.
The Fund's ability to enter into or close out futures contracts and options
thereon is limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. THE FUND, AND THUS
ITS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE
STRATEGIES. If the investment adviser's predictions of movements in the
direction of the securities, foreign currency and interest rate markets are
inaccurate, the adverse consequences to the Fund may leave the Fund in a worse
position than if such strategies were not used. Risks inherent in the use of
options, foreign currency and futures contracts and options on futures
contracts include (1) dependence on the investment adviser's ability to
predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices
of the securities or currencies being hedged; (3) the fact that skills needed
to use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the
possible inability of the Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need
for the Fund to sell a portfolio security at a disadvantageous time, due to
the need for the Fund to maintain "cover" or to segregate securities in
connection with hedging transactions. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.
The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase OTC options only if management believes that the
other party to the options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will
continue to exist or that the other party will continue to make a market.
Thus, it may not be possible to close out an option or futures transaction.
The inability to close out options and futures positions also could have an
adverse impact on the Fund's ability to effectively hedge its portfolio. There
is also the risk of loss by the Fund of margin deposits or collateral in the
event of bankruptcy of a broker with whom the Fund has an open position in an
option, a futures contract or related option.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
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HOW THE FUND IS MANAGED
THE COMPANY HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, DECIDES UPON
MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.
For the fiscal year ended September 30, 1997, the Fund's total expenses as a
percentage of average net assets for Class A, Class B, Class C and Class Z
shares were 1.09%, 1.84%, 1.84% and .84%, respectively. See "Financial
Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF
.60 OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS. PIFM is organized in New
York as a limited liability company. For the fiscal year ended September 30,
1997, the Fund paid management fees to PIFM of .60% of the Fund's average net
assets. See "Manager and Subadvisers" in the Statement of Additional
Information.
As of December 31, 1997, PIFM served as the manager to 42 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to 22 closed-end investment companies, with aggregate
assets of approximately $62 billion.
Under a Management Agreement with the Company, PIFM manages the investment
operations of the Fund and also administers the Fund's corporate affairs. See
"Manager and Subadvisers" in the Statement of Additional Information.
SUBADVISER
JENNISON ASSOCIATES LLC (JENNISON, THE SUBADVISER OR THE INVESTMENT
ADVISER), 466 LEXINGTON AVENUE, NEW YORK, NEW YORK 10017, IS THE SUBADVISER TO
THE FUND. As of December 31, 1997, Jennison had over $37 billion in assets
under management for institutional and mutual fund clients, including over $19
billion in "growth stock" assets.
PURSUANT TO A SUBADVISORY AGREEMENT WITH PIFM, JENNISON FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS
COMPENSATED BY PIFM FOR ITS SERVICES AT AN ANNUAL RATE OF .30 OF 1% OF THE
FUND'S AVERAGE DAILY NET ASSETS UP TO AND INCLUDING $300 MILLION AND .25 OF 1%
OF THE FUND'S AVERAGE DAILY NET ASSETS IN EXCESS OF $300 MILLION.
Under the Subadvisory Agreement, Jennison, subject to the supervision of
PIFM, is responsible for managing the assets of the Fund in accordance with
the Fund's investment objective, investment program and policies. Jennison
determines what securities and other instruments are purchased and sold for
the Fund and is responsible for obtaining and evaluating financial data
relevant to the Fund.
DAVID POIESZ IS THE PORTFOLIO MANAGER OF THE FUND AND PETER REINEMANN IS THE
ASSOCIATE PORTFOLIO MANAGER OF THE FUND. Mr. Poiesz is responsible for the
day-to-day management of the Fund. They are both Senior Vice Presidents of
Jennison and have been involved with the Fund since its inception in 1995. Mr.
Poiesz, also a Director of Jennison, joined Jennison in 1983 as an equity
research analyst and has been an equity portfolio manager since 1991. Mr.
Poiesz also serves as the Portfolio Manager of the Prudential Jennison
Portfolio of the Prudential Series Fund, Inc., a registered investment
company. Mr. Reinemann has been with Jennison since 1992 as an associate
portfolio manager. Prior to that time, he served as a Vice President at
Paribas Asset Management, Inc.
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PIFM and Jennison are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE
DISTRIBUTOR OF THE CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF THE FUND.
IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING
THE FUND'S CLASS A, CLASS B AND CLASS C SHARES. The Distributor also incurs
the expenses of distributing the Fund's Class Z shares under the Distribution
Agreement, none of which is reimbursed by or paid for by the Fund. These
expenses include commissions and account servicing fees paid to, or on account
of, financial advisers of Prudential Securities and Pruco Securities
Corporation (Prusec), an affiliated broker-dealer, commissions and account
servicing fees paid to, or on account of, other broker-dealers or financial
institutions (other than national banks) which have entered into agreements
with the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of the Fund's
shares, including lease, utility, communications and sales promotion expenses.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. Prudential Securities has
agreed to limit its distribution-related fees payable under the Class A Plan
to .25 of 1% of the average daily net assets of the Class A shares for the
fiscal year ending September 30, 1998.
UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES AT AN
ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B AND
CLASS C SHARES. The Class B and Class C Plans provide for the payment to the
Distributor of (i) an asset-based sales charge of .75 of 1% of the average
daily net assets of the Class B and Class C shares, respectively, and (ii) a
service fee of .25 of 1% of the average daily net assets of each of the Class
B and Class C shares. The service fee is used to pay for personal service
and/or the maintenance of shareholder accounts. Prudential Securities also
receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
For the fiscal year ended September 30, 1997, the Fund paid distribution
expenses of .25%, 1.00% and 1.00% of the average daily net assets of the Class
A, Class B and Class C shares, respectively. The Fund records all payments
made under the Plans as expenses in the calculation of net investment income.
See "Distributor" in the Statement of Additional Information.
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<PAGE>
Distribution expenses attributable to the sale of Class A, Class B or Class
C shares of the Fund will be allocated to each such class of the Fund based
upon the ratio of sales of each such class to the sales of Class A, Class B
and Class C shares of the Fund other than expenses allocable to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Company, including a
majority of the Directors who are not "interested persons" of the Company (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each
Plan may be terminated at any time by vote of a majority of the Rule 12b-1
Directors or of a majority of the outstanding shares of the applicable class
of the Fund. The Fund will not be obligated to pay expenses incurred under any
Plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers (including Prudential Securities) and other persons
which distribute shares of the Fund (including Class Z shares). Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
FEE WAIVERS
The Distributor has agreed to limit its distribution fee for the Class A
shares as described above under "Distributor." Fee waivers will increase the
Fund's total return. See "Performance Information" in the Statement of
Additional Information and "Fund Expenses" above.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant for
the Fund provided that the commissions, fees or other remuneration it receives
are fair and reasonable. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Company. Its mailing
address is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent for the
Fund and in those capacities maintains certain books and records for the
Company. PMFS is a wholly-owned subsidiary of PIFM. Its mailing address is
P.O. Box 15005, New Brunswick, New Jersey 08906-5005.
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<PAGE>
HOW THE FUND VALUES ITS SHARES
THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NAV TO BE AS OF 4:15
P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Company's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of the Fund's portfolio securities do not materially affect its
NAV.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject. The NAV of Class
Z shares will generally be higher than the NAV of the other three classes
because Class Z shares are not subject to any distribution and/or service
fees. It is expected, however, that the NAV of the four classes will tend to
converge immediately after the recording of dividends, which will differ by
approximately the amount of distribution and/or service fee expense accrual
differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL RETURN,
AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL
RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. These figures are based on historical earnings and are not
intended to indicate future performance. The total return shows how much an
investment in the Fund would have increased (decreased) over a specified
period of time (i.e., one, five, or ten years or since inception of the Fund)
assuming that all distributions and dividends by the Fund were reinvested on
the reinvestment dates during the period and less all recurring fees. The
aggregate total return reflects actual performance over a stated period of
time. Average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. Average annual total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average
annual total return nor aggregate total return takes into account any federal
or state income taxes which may be payable upon redemption. The yield refers
to the income generated by an investment in the Fund over a one-month or 30-
day period. This income is then "annualized;" that is, the amount of income
generated by the investment during that 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage
of the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period. The Fund also may include
comparative performance information in advertising or marketing the Fund's
shares. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., and other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information will be contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."
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<PAGE>
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUND WILL NOT BE SUBJECT
TO FEDERAL INCOME TAXES ON NET INVESTMENT INCOME AND NET CAPITAL GAINS, IF
ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Fund. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.
In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts).
At the end of each year, such investments held by the Fund will be required to
be "marked-to-market" for federal income tax purposes; that is, treated as
having been sold at market value. Sixty percent of any gain or loss recognized
on these "deemed sales" and on actual dispositions may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition are
treated as ordinary gain or loss. These gains or losses increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency fluctuation
losses exceed other investment company taxable income during a taxable year,
distributions made by the Fund during the year would be characterized as a
return of capital to shareholders, reducing the shareholder's basis in his or
her Fund shares.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. See "Taxes, Dividends and Distributions" in the Statement
of Additional Information.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net long-term capital gains
distributed to shareholders will be taxable as such to the shareholder,
whether or not reinvested and regardless of the length of time a shareholder
has owned his or her shares. The maximum long-term capital gains rate for
corporate shareholders is currently the same as the maximum tax rate for
ordinary income. The maximum long-term capital gains rate for individual
shareholders for securities held between 12 and 18 months currently is 28% and
for securities held more than 18 months is 20%. The maximum tax rate for
individual shareholders for ordinary income is 39.6%.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, on
shares that are held for six months or less, will be treated as a long-term
capital loss to the extent of any capital gain distributions received by the
shareholder.
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<PAGE>
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes
of calculating gain or loss realized upon a sale or exchange of shares of the
Fund.
Distributions by the Fund to a shareholder that is a qualified retirement
plan would generally not be taxable to participants of the plan. Distributions
from a qualified retirement plan (or non-qualified arrangement) to a
participant or beneficiary are subject to special rules. These rules vary
greatly with individual situations, therefore potential investors are urged to
consult with their own tax advisers.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, SEMI-
ANNUALLY AND TO MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-
TERM CAPITAL LOSSES AT LEAST ANNUALLY. Dividends paid by the Fund with respect
to each class of shares, to the extent any dividends are paid, will be
calculated in the same manner, at the same time, on the same day and will be
in the same amount except that each class other than Class Z will bear its own
distribution and/or service fee charges, generally resulting in lower
dividends for Class B and Class C shares in relation to Class A and Class Z
shares and lower dividends for Class A shares in relation to Class Z shares.
Distribution of net capital gains, if any, will be paid in the same amount per
share for each class of shares. See "How the Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL SHARES OF THE FUND,
BASED ON THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER DATE AS THE
BOARD OF DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT
LESS THAN FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH
DIVIDENDS AND DISTRIBUTIONS IN CASH. Such election should be submitted to
Prudential Mutual Fund Services LLC, Attn: Account Maintenance, P.O. Box
15015, New Brunswick, New Jersey 08906-5015. The Fund will notify its
shareholders after the close of the Fund's taxable year both of the dollar
amount and the taxable status of that year's dividends and distributions on a
per share basis. If you hold shares through Prudential Securities, you should
contact your financial adviser to elect to receive dividends and distributions
in cash.
IF YOU BUY SHARES ON OR IMMEDIATELY PRIOR TO THE RECORD DATE (THE DATE THAT
DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING
OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.
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<PAGE>
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE COMPANY WAS INCORPORATED IN MARYLAND ON AUGUST 10, 1995. THE COMPANY IS
AUTHORIZED TO ISSUE 3 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER
SHARE, DIVIDED INTO THREE SERIES OR PORTFOLIOS, PRUDENTIAL JENNISON ACTIVE
BALANCED FUND, PRUDENTIAL JENNISON GROWTH FUND AND PRUDENTIAL JENNISON GROWTH
& INCOME FUND. EACH SERIES IS FURTHER DIVIDED INTO FOUR CLASSES OF SHARES,
DESIGNATED CLASS A, CLASS B, CLASS C AND CLASS Z. THERE ARE 250 MILLION
AUTHORIZED SHARES ALLOCATED TO EACH OF THE FOUR CLASSES OF SHARES IN EACH
SERIES OF THE COMPANY. EACH CLASS OF COMMON STOCK OF EACH FUND REPRESENTS AN
INTEREST IN THE SAME ASSETS OF SUCH FUND AND IS IDENTICAL IN ALL RESPECTS
EXCEPT THAT (I) EACH CLASS IS SUBJECT TO DIFFERENT SALES CHARGES AND
DISTRIBUTION AND/OR SERVICE FEES (EXCEPT FOR CLASS Z SHARES, WHICH ARE NOT
SUBJECT TO ANY SALES CHARGES AND DISTRIBUTION AND/OR SERVICE FEES), WHICH MAY
AFFECT PERFORMANCE, (II) EACH CLASS HAS EXCLUSIVE VOTING RIGHTS ON ANY MATTER
SUBMITTED TO SHAREHOLDERS THAT RELATES SOLELY TO ITS 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. IN ACCORDANCE WITH THE COMPANY'S ARTICLES OF
INCORPORATION, THE BOARD OF DIRECTORS MAY AUTHORIZE THE CREATION OF ADDITIONAL
SERIES OF COMMON STOCK AND CLASSES WITHIN SUCH SERIES, WITH SUCH PREFERENCES,
PRIVILEGES, LIMITATIONS AND VOTING AND DIVIDEND RIGHTS AS THE BOARD MAY
DETERMINE.
The Company's expenses generally are allocated among the series on the basis
of relative net assets at the time of allocation, except that expenses
directly attributable to a series are charged to such series.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares (with the exception of
Class Z shares, which are not subject to any distribution or service fees).
Except for the conversion feature applicable to the Class B shares, there are
no conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses of the Fund have been
paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of
those classes are likely to be lower than to Class A shareholders and to Class
Z shareholders, whose shares are not subject to any distribution and/or
service fees. The Company's shares do not have cumulative voting rights for
the election of Directors.
THE COMPANY DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE COMPANY WILL NOT BE REQUIRED TO HOLD MEETINGS
OF SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO
BE ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS
HAVE CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10%
OR MORE OF THE COMPANY'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE
REMOVAL OF ONE OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Company with the SEC
under the Securities Act of 1933, as amended. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the office of the SEC in Washington, D.C.
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SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC OR
DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about Class Z shares. The offering price
is the NAV next determined following receipt of an order by the Transfer Agent
or Prudential Securities plus a sales charge which, at your option, may be
imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at net asset value without any sales charge.
Payment may be made by cash, wire, check or through your brokerage account.
See "Alternative Purchase Plan" below. See also "How the Fund Values its
Shares."
The minimum initial investment for the Fund is $1,000 for Class A and Class
B shares and $5,000 for Class C shares, except that the minimum initial
investment for Class C shares may be waived from time to time. There is no
minimum initial investment requirement for Class Z shares. The minimum
subsequent investment is $100 for all classes, except for Class Z shares, for
which there is no such minimum. All minimum investment requirements are waived
for certain retirement and employee savings plans or custodial accounts for
the benefit of minors. For purchases through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Services" below.
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive stock
certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in shares of the Fund may be subject to postage and handling
charges imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you
to your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Jennison Series Fund, Inc., Prudential
Jennison Growth Fund, specifying on the wire the account number assigned by
PMFS and your name and identifying the class in which you are eligible to
invest (Class A, Class B, Class C or Class Z shares).
If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.
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<PAGE>
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Jennison Series
Fund, Inc., Prudential Jennison Growth Fund, Class A, Class B, Class C or
Class Z shares and your name and individual account number. It is not
necessary to call PMFS to make subsequent purchase orders utilizing federal
funds. The minimum amount which may be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS FOUR CLASSES OF SHARES (CLASS A, CLASS B, CLASS C AND CLASS
Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE
STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE,
THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT
CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge .30 of 1% Initial sales charge waived
of 5% of the public offering (currently being or reduced for certain
price charged at a rate purchases
of .25 of 1%)
CLASS B Maximum contingent deferred 1% Shares convert to Class A
sales charge or CDSC of 5% shares approximately seven
of the lesser of the amount years after purchase
invested or the redemption
proceeds; declines to zero
after six years
CLASS C Maximum CDSC of 1% of the 1% Shares do not convert to
lesser of the amount another class
invested or the redemption
proceeds on redemptions made
within one year of purchase.
CLASS Z None Sold to a limited group of
None investors
</TABLE>
Each class of shares of the Fund represents an interest in the same
portfolio of investments of the Fund and has the same rights, 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 fee), which may affect performance, (ii)
each class has exclusive voting rights on any matter submitted to shareholders
that relates solely to its arrangement and has separate voting rights on any
matter submitted to shareholders in which the interests of one class differ
from the interests of any other class, (iii) each class has a different
exchange privilege, (iv) only Class B shares have a conversion feature and (v)
Class Z shares are offered exclusively for sale to a limited group of
investors. See "How to Exchange Your Shares" below. The income attributable to
each class and the dividends payable on the shares of each class will be
reduced by the amount of the distribution fee (if any) of each class. Class B
and Class C shares bear the expenses of a higher distribution fee which will
generally cause them to have higher expense ratios and to pay lower dividends
than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
24
<PAGE>
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund.
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6-year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class A or Class B shares over Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money
invested initially because the sales charge on Class A shares is deducted at
the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in net asset value, the effect of
the return on the investment over this period of time or redemptions during
which the CDSC is applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES, UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See
"Reduction and Waiver of Initial Sales Charges" and "Class Z Shares" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
--------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
The Distributor may reallow the entire initial sales charge to dealers.
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
25
<PAGE>
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares
a finders' fee from its own resources based on a percentage of the net asset
value of shares sold by such persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "Purchase and Redemption
of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares"
in the Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 or 403(b)(7) of the Internal
Revenue Code (collectively, Benefit Plans), provided that the plan has
existing assets of at least $1 million invested in shares of Prudential Mutual
Funds (excluding money market funds other than those acquired pursuant to the
exchange privilege) or 250 eligible employees or participants. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by Prudential Securities or its
subsidiaries (Prudential Securities or Subsidiary Prototype Benefit Plans),
Class A shares may be purchased at NAV by participants who are repaying loans
made from such plans to the participant.
Prudential Retirement Programs. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or non-
qualified under the Internal Revenue Code, for which Prudential serves as the
plan administrator or recordkeeper, provided that (i) the plan has at least $1
million in existing assets or 250 eligible employees and (ii) the Fund is an
available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code and deferred compensation and annuity plans under Sections 457 or
403(b)(7) of the Internal Revenue Code and plans that participate in the
Transfer Agent's PruArray and SmartPath Programs (benefit plan recordkeeping
services) (hereafter referred to as a PruArray or SmartPath Plan). All plans
of a company for which Prudential serves as plan administrator or recordkeeper
are aggregated in meeting the $1 million threshold. The term "existing assets"
as used herein includes stock issued by a plan sponsor, shares of Prudential
Mutual Funds and shares of certain unaffiliated mutual funds that participate
in the PruArray or SmartPath Program (Participating Funds). "Existing assets"
also include monies invested in The Guaranteed Interest Account (GIA), a group
annuity insurance product issued by Prudential, and units of The Stable Value
Fund (SVF), an unaffiliated bank collective fund. Class A shares may also be
purchased at NAV by plans that have monies invested in GIA and SVF, provided
(i) the purchase is made with the proceeds of a redemption from either GIA or
SVF and (ii) Class A shares are an investment option of the plan.
PruArray Association Benefit Plans. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are
members of a common trade, professional or membership association
(Association) that participate in the PruArray Program provided that the
Association enters into a written agreement with Prudential. Such Benefit
Plans or non-qualified plans may purchase Class A shares at NAV without regard
to the assets or number of participants in the individual employer's qualified
plan(s) or non-qualified plans so long as the employers in the Association (i)
have retirement plan assets in the aggregate of at least $1 million or 250
participants in the aggregate and (ii) maintain their accounts with the
Transfer Agent.
PruArray Savings Program. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for
purchase at NAV by Individual Retirement Accounts and Savings Accumulation
Plans of the company's employees. The Program is available only to (i)
employees who open an IRA or Savings
26
<PAGE>
Accumulation Plan account with the Transfer Agent and (ii) spouses of
employees who open an IRA account with the Transfer Agent. The program is
offered to companies that have at least 250 eligible employees.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers of the Prudential Mutual Funds (including the Fund), (b) employees of
Prudential Securities and PIFM and their subsidiaries and members of the
families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees of subadvisers of
the Prudential Mutual Funds provided that purchases at NAV are permitted by
such person's employer, (d) Prudential, employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of its subsidiaries, (e) registered
representatives and employees of dealers who have entered into a selected
dealer agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer, (f) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 180
days of the commencement of the financial adviser's employment at Prudential
Securities, or within one year in the case of Benefit Plans, (ii) the purchase
is made with proceeds of a redemption of shares of any open-end non-money
market fund sponsored by the financial adviser's previous employer (other than
a fund which imposes a distribution or service fee of .25 of 1% or less) and
(iii) the financial adviser served as the client's broker on the previous
purchase and (g) investors in Individual Retirement Accounts, provided the
purchase is made with proceeds of 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 Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation
of your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, Prudential Securities or Prusec.
Although there is no sales charge imposed at the time of purchase, redemptions
of Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." The Distributor will pay, from its
own resources, sales commissions of up to 4% of the purchase price of Class B
shares to dealers, financial advisers and other persons who sell Class B
shares at the time of sale. This facilitates the ability of the Fund to sell
the Class B shares without an initial sales charge being deducted at the time
of purchase. The Distributor anticipates that it will recoup its advancement
of sales commissions from the combination of the CDSC and the distribution
fee. See "How the Fund is Managed--Distributor." In connection with the sale
of Class C shares, the Distributor will pay, from its own resources, dealers,
financial advisers and other persons which distribute Class C shares a sales
commission of up to 1% of the purchase price at the time of the sale.
CLASS Z SHARES
Class Z shares currently are 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 and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code and non-qualified plans for which the Fund is an
available option (collectively, Benefit Plans), provided such Benefit Plans
(in combination with other plans sponsored by the same employer or group of
related employers) have at least $50 million in defined contribution assets;
(ii) participants in
27
<PAGE>
any fee-based program sponsored by 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 Prudential for whom Class Z shares of the Prudential Mutual Funds
are an available option; (iv) Benefit Plans for which Prudential Retirement
Services serves as recordkeeper 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. After a Benefit Plan
qualifies to purchase Class Z shares, all subsequent purchases will be for
Class Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other
persons which distribute shares a finders' fee from its own resources based on
a percentage of the net asset value of shares sold by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF THE FUND AT ANY TIME FOR CASH AT THE NAV PER SHARE
NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How the Fund Values its Shares."
In certain cases, however, redemption proceeds will be reduced by the amount
of any applicable CDSC, as described below. See "Contingent Deferred Sales
Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be
sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Prudential
Preferred Financial Services offices. In the case of redemptions from a
PruArray or SmartPath Plan, if the proceeds of the redemption are invested in
another investment option of the plan, in the name of the record holder and at
the same address as reflected in the Transfer Agent's records, a signature
guarantee is not required.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on
28
<PAGE>
such Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable
or it is not reasonably practicable for the Fund fairly to determine the value
of its net assets, or (d) during any other period when the SEC, by order, so
permits; provided that applicable rules and regulations of the SEC shall
govern as to whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY
WIRE OR BY CERTIFIED OR CASHIER'S CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole or in part by a distribution in kind of securities from the
investment portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the SEC. Securities will be readily marketable and will be
valued in the same manner as a regular redemption. See "How the Fund Values
its Shares." If your shares are redeemed in kind, you would incur transaction
costs in converting the assets into cash. The Company has, however, elected to
be governed by Rule 18f-1 under the Investment Company Act, under which the
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund during the 90-day period for any one
shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net asset value of less than $500 due to a redemption. The Fund
will give any such shareholder 60 days' prior written notice in which to
purchase sufficient additional shares to avoid such redemption. No CDSC will
be imposed on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of redemption. Any CDSC paid in connection with such redemption will be
credited (in shares) to your account. If less than a full repurchase is made,
the credit will be on a pro rata basis. You must notify the Fund's Transfer
Agent, either directly or through Prudential Securities, at the time the
repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege will generally not affect
the federal tax treatment of any gain realized upon redemption. However, if
the redemption was made within a 30 day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, may not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares to an amount which is lower
than the amount of all payments by you for shares during the preceding six
years, in the case of Class B shares, and one year, in the case of Class C
shares. A CDSC will be applied on the lesser of the original purchase price or
the current value of the shares being redeemed. Increases in the value of your
shares or shares purchased through reinvestment of dividends or distributions
are not subject to a CDSC. The amount of any contingent deferred sales charge
will be paid to and retained by the Distributor. See "How the Fund is
Managed--Distributor" and "Waiver of the Contingent Deferred Sales Charges--
Class B Shares" below.
29
<PAGE>
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month
after the initial purchase, excluding the time shares were held in a money
market fund. See "How to Exchange Your Shares" below.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- -------------------------
<S> <C>
First......................................... 5.0%
Second........................................ 4.0%
Third......................................... 3.0%
Fourth........................................ 2.0%
Fifth......................................... 1.0%
Sixth......................................... 1.0%
Seventh....................................... None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results generally in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of the Fund's shares made during the
preceding six years; then of amounts representing the cost of shares held
beyond the applicable CDSC period; and finally, of amounts representing the
cost of shares held for the longest period of time within the applicable CDSC
period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
NAV had appreciated to $12 per share, the value of your Class B shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), or a trust, at the time of death or
initial determination or disability, provided that the shares were purchased
prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a tax-
deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the
30
<PAGE>
shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service, i.e.,
following voluntary or involuntary termination of employment or following
retirement. Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan unless such
redemptions otherwise qualify as a waiver as described above. In the case of
Direct Account and Prudential Securities or Subsidiary Prototype Benefit
Plans, the CDSC will be waived on redemptions which represent borrowings from
such plans. Shares purchased with amounts used to repay a loan from such plans
on which a CDSC was not previously deducted will thereafter be subject to a
CDSC without regard to the time such amounts were previously invested. In the
case of a 401(k) plan, the CDSC will also be waived upon the redemption of
shares purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.
Systematic Withdrawal Plan. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12%
of the total dollar amount subject to the CDSC may be redeemed without charge.
The Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Company.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to
waiver of the CDSC and provide the Transfer Agent with such supporting
documentation as it may deem appropriate. The waiver will be granted subject
to confirmation of your entitlement. See "Purchase and Redemption of Fund
Shares--Waiver of the Contingent Deferred Sales Charge--Class B Shares" in the
Statement of Additional Information.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
PruArray or SmartPath Plan. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the Transfer Agent's PruArray and SmartPath Programs.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected
at relative net asset value without the imposition of any additional sales
charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (i) the ratio of (a) the amounts paid for Class B shares purchased at
least seven years prior to the conversion date to (b) the total amount paid
for all Class B shares purchased and then held in your account (ii) multiplied
by the total number of Class B shares then in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or
amounts representing Class B shares then in your account that were acquired
through the automatic reinvestment of dividends and other distributions will
convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described above will generally be either more or less
than the number of shares actually purchased approximately seven years before
such conversion date. For example, if 100 shares were initially purchased at
$10 per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 or 47.62% multiplied by 200
31
<PAGE>
shares or 95.24 shares). The Manager reserves the right to modify the formula
for determining the number of Eligible Shares in the future as it deems
appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How the Fund Values its
Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase
of such shares.
The conversion feature is subject to the continuing availability of opinions
of counsel or rulings of the Internal Revenue Service (i) that the dividends
and other distributions paid on Class A, Class B, Class C and Class Z shares
will not constitute "preferential dividends" under the Internal Revenue Code
and (ii) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B,
CLASS C AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER SERIES OF THE COMPANY OR
ANOTHER FUND ON THE BASIS OF THE RELATIVE NAV. No sales charge will be imposed
at the time of exchange. Any applicable CDSC payable upon the redemption of
shares exchanged will be that imposed by the fund in which shares are
initially purchased and will be calculated from the first day of the month
after the initial purchase, excluding the time shares were held in a money
market fund. Class B and Class C shares may not be exchanged into money market
funds other than Prudential Special Money Market Fund, Inc. For purposes of
calculating the holding period applicable to the Class B conversion feature,
the time period during which Class B shares were held in a money market fund
will be excluded. See "Conversion Feature--Class B Shares" above. An exchange
will be treated as a redemption and purchase for tax purposes. See
"Shareholder Investment Account--Exchange Privilege" in the Statement of
Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may
call the Fund at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS,
LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order. The exchange privilege is available
only in states where the exchange may legally be made.
32
<PAGE>
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares, will have
their Class B and Class C shares which are not subject to a CDSC and their
Class A shares exchanged for Class Z shares on a quarterly basis. Eligibility
for this exchange privilege will be calculated on the business day prior to
the date of the exchange. Amounts representing Class B or Class C shares which
are not subject to a CDSC include the following: (1) amounts representing
Class B or Class C shares acquired pursuant to the automatic reinvestment of
dividends and distributions, (2) amounts representing the increase in the net
asset value above the total amount of payments for the purchase of Class B or
Class C shares and (3) amounts representing Class B or Class C shares held
beyond the applicable CDSC period. Class B and Class C shareholders must
notify the Transfer Agent either directly or through Prudential Securities or
Prusec that they are eligible for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares
when they join the program. Upon leaving the program (whether voluntarily or
not), such Class Z shares (and, to the extent provided for in the program,
Class Z shares acquired through participation in the program) will be
exchanged for Class A shares at net asset value. Similarly, participants in
Prudential Securities' 401(k) Plan for which the Fund's Class Z shares is an
available option and who wish to transfer their Class Z shares out of the
Prudential Securities 401(k) Plan following separation from service (i.e.,
voluntary or involuntary termination of employment or retirement) will have
their Class Z shares exchanged for Class A shares at net asset value.
The exchange privilege is not a right and may be suspended, terminated or
modified upon 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, the Fund reserves the right to refuse purchase orders and
exchanges by any person, group or commonly controlled accounts, if, in the
Manager's sole judgment, such person, group or accounts were following a
market timing strategy or were otherwise engaging in excessive trading (Market
Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading.
The Fund may notify the Market Timer of rejection of an exchange or purchase
order subsequent to the day on which the order was placed.
33
<PAGE>
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions of the Fund are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than 5 full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your financial
adviser.
. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of the Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec registered
representative or the Transfer Agent directly.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." See also "Shareholder Investment
Account--Systematic Withdrawal Plan" in the Statement of Additional
Information.
. REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 (toll-free) or by writing to the Fund at
Gateway Center Three, 100 Mulberry Street, 9th Floor, Newark, New Jersey
07102-4077. In addition, monthly unaudited financial data are available upon
request from the Fund.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Company at
Gateway Center Three, 100 Mulberry Street, 9th Floor, Newark, New Jersey
07102-4077, or by telephone, at (800) 225-1852 (toll-free) or, from outside
the U.S.A. at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
34
<PAGE>
APPENDIX A--INFORMATION ABOUT JENNISON ASSOCIATES LLC
Jennison has been engaged in the equity investment management business since
1969. As of December 31, 1997, Jennison managed $37.8 billion in assets for
182 clients, including approximately $6.6 billion (17%) in mutual funds. Of
the $37.8 billion in assets, $20.9 billion in assets were in equity portfolios
for 96 clients, with an average account size of $174.1 million. Approximately
30% of Jennison's equity clients are "Fortune 500" companies (as defined by
Fortune Magazine in the issue dated April 28, 1997). As of December 31, 1997,
Jennison also managed $394 billion in growth and income portfolios, $1.8
billion in balanced portfolios, $4.0 billion in international equity
portfolios, and $10.7 billion in fixed-income portfolios.
Jennison has an experienced team of investment professionals. The following
chart shows the total number of equity professionals employed by Jennison, as
of December 31, 1997, including the total number of portfolio managers and the
total number of equity research analysts.
<TABLE>
<CAPTION>
AVERAGE YEARS
AVERAGE YEARS OF EXPERIENCE
NUMBER OF EXPERIENCE WITH JENNISON
------ ------------- -------------
<C> <S> <C> <C>
15 Total Equity Professionals 20 15
5 Equity Portfolio Managers 26 21
7 Equity Research Analysts 13 7
</TABLE>
JENNISON'S GROWTH STRATEGY:
Growth stocks are stocks of companies that have long-term growth rates in
sales and earnings that are higher than those of the overall economy. Growth
stocks are generally more expensive than the average stock (sell at a higher
price/earnings ratio) because investors are often willing to pay a premium in
order to participate in the superior growth they expect from these companies.
Consequently, these stocks also entail somewhat higher risk if expectations
are not met.
Growth stock investing is subject to market risk. The returns from the S&P
500 Index for the past fifteen years have been particularly favorable from a
historical standpoint and there can be no assurance that this growth in the
overall stock market will continue. Securities in which the Fund may primarily
invest have historically been more volatile than the S&P 500 Index.
Accordingly, during periods when stock prices are declining generally, it can
be expected that the value of the Fund will decline more than market indices.
Jennison seeks to select attractive growth companies. The Jennison portfolio
managers' challenge is to select about 60 stocks that are believed to have the
potential to be the best performers among the larger universe of growth
stocks. Consequently, a growth stock portfolio managed by Jennison normally
consists of companies that the firm believes will experience superior earnings
growth over the next 12 to 18 months, on both an absolute and relative basis,
and which appear reasonably valued relative to growth expectations. Of course,
there can be no assurance that these stocks will achieve their growth
potential.
A-1
<PAGE>
APPENDIX B--HISTORICAL PERFORMANCE INFORMATION OF JENNISON ASSOCIATES LLC
GROWTH EQUITY CHARTS
The chart below demonstrates the total return of $10,000 invested separately
from July 1969 through December 31, 1997 in the Jennison Growth Equity
Composite and the S&P 500 Index. Total return reflects actual performance over
a stated period. Total return shows how much an investment has increased
(decreased) over a specified period of time assuming the reinvestment of
dividends and interest, as appropriate.
TOTAL RETURN OF $10,000 INVESTED FROM JULY 1969*-DECEMBER 1997
<TABLE>
<CAPTION>
GEMN S-P
<S> <C> <C>
7/31/69 10000 10000
8/29/69 10277.63 10400.74
9/30/69 10405.64 10224.33
10/31/69 10965.2 10663.51
11/28/69 11001.13 10300.09
12/31/69 11004.66 10199.07
1/30/70 10582.16 9420.16
2/27/70 10840.85 9916.54
3/31/70 10696.85 10017.36
4/30/70 9458.13 9110.95
5/29/70 8751.79 8562.21
6/30/70 8620.27 8215.74
7/31/70 9037.51 8817.9
8/31/70 9416.71 9209.94
9/30/70 10293.4 9601.97
10/30/70 10092.85 9491.37
11/30/70 10483.21 9942.9
12/31/70 10920.67 10597.41
1/29/71 11383.35 11026.37
2/26/71 11785.45 11126.41
3/31/71 12841.51 11622.07
4/30/71 13341.85 12043.81
5/28/71 13075.55 11543.28
6/30/71 13039.65 11638.29
7/30/71 12129.08 11157.34
8/31/71 12593.07 11560.08
9/30/71 12476.06 11569.41
10/29/71 11792.95 11085.88
11/30/71 11946.87 11057.65
12/31/71 13111.08 12101.18
1/31/72 13649.86 12320.47
2/29/72 14374.32 12632.21
3/31/72 14528.9 12795.79
4/28/72 14759.44 12851.9
5/31/72 15176.37 13171.78
6/30/72 14435.8 12881.74
7/31/72 14306.24 12911.8
8/31/72 14828.4 13356.66
9/29/72 14731.58 13385.51
10/31/72 14654.36 13510.22
11/30/72 15181.66 14126.53
12/29/72 15899.01 14395.33
1/31/73 15389.75 14149
2/28/73 14857.37 13618.55
3/30/73 14633.2 13692.94
4/30/73 13387.49 13166.19
5/31/73 13351.56 12949.57
6/29/73 13474.91 12902.68
7/31/73 14516.01 13426.17
8/31/73 14124.67 12967.13
9/28/73 14430.34 13523.13
10/31/73 14454.82 13539.35
11/30/73 12649.4 12031.5
12/31/73 12628.24 12282.26
1/31/74 12085.24 12192.87
2/28/74 12247.61 12184.03
3/29/74 11677.56 11935.84
4/30/74 11391.77 11506.57
5/31/74 11108.81 11158.74
6/28/74 10492.07 11033.45
7/31/74 9453.49 10213.64
8/30/74 8830.14 9331.48
9/30/74 7744.9 8258.01
10/31/74 9060.33 9646.04
11/29/74 8815.14 9174.83
12/31/74 8595.11 9031.91
1/31/75 9324.17 10180.65
2/28/75 10126.73 10830
3/31/75 10430.57 11104.77
4/30/75 10993.82 11670.93
5/30/75 11532.82 12227.07
6/30/75 11957.03 12810.6
7/31/75 11179.67 11984.28
8/29/75 10723.88 11773.62
9/30/75 10278.77 11407.73
10/31/75 10868.91 12153.1
11/28/75 11236.7 12495.68
12/31/75 11037.68 12394.34
1/30/76 12269.69 13901.88
2/27/76 12053.48 13786.1
3/31/76 12490.52 14252.05
4/30/76 12187.57 14138.34
5/28/76 12055.61 13978.37
6/30/76 12650.33 14593.71
7/30/76 12537.22 14522.33
8/31/76 12393.14 14495.65
9/30/76 12673.76 14871.74
10/29/76 12281.41 14593.35
11/30/76 12269.14 14533.78
12/31/76 12704.01 15350.86
1/31/77 11838.66 14625.18
2/28/77 11561.22 14309.82
3/31/77 11543.91 14207.69
4/29/77 11547.98 14266.88
5/31/77 11462.35 13987.16
6/30/77 12306.2 14678.38
7/29/77 12138.26 14497.23
8/31/77 12158.37 14249.38
9/30/77 12076.81 14271.47
10/31/77 11695.31 13708.18
11/30/77 12289.27 14130.13
12/30/77 12337.5 14233.7
1/31/78 11561.44 13417.56
2/28/78 11421.71 13132.83
3/31/78 11812.17 13533.18
4/28/78 12933.01 14756.62
5/31/78 13322.3 14884.81
6/30/78 13486.72 14687.97
7/31/78 14432.09 15547.89
8/31/78 15017.53 16016.98
9/29/78 14698.94 15966.97
10/31/78 13144.54 14570.77
11/30/78 13850.17 14883.7
12/29/78 14278.68 15179.37
1/31/79 14826.95 15857.21
2/28/79 14323.74 15335.96
3/30/79 15260.92 16255.65
4/30/79 15417.02 16357.9
5/31/79 15063.55 15999.01
6/29/79 15663.31 16690.65
7/31/79 15874.76 16912.15
8/31/79 17342.68 17886.53
9/28/79 17666.9 17960.54
10/31/79 16843.98 16816.98
11/30/79 18362.01 17608.29
12/31/79 18889.21 17994.92
1/31/80 20461.31 19126.67
2/29/80 20456.67 19115.78
3/31/80 18429.98 17247.88
4/30/80 19092.48 18052.94
5/30/80 20092.32 18974.13
6/30/80 20768.26 19579.47
7/31/80 23184.78 20935.95
8/29/80 24222.88 21139.76
9/30/80 25824.58 21774.54
10/31/80 26482.68 22208.82
11/28/80 30515.99 24568.69
12/31/80 29603.47 23843.2
1/30/81 27581.8 22835.45
2/27/81 28343.71 23225.21
3/31/81 30094.61 24161.21
4/30/81 31005.28 23686.25
5/29/81 32738.35 23740.29
6/30/81 30535.77 23605.23
7/31/81 29701.36 23647.96
8/31/81 27910.38 22281.02
9/30/81 26856.11 21185.88
10/30/81 28951.82 22323.47
11/30/81 29097.06 23245.74
12/31/81 28477.44 22658.11
1/29/82 28394.78 22359.49
2/26/82 26718.01 21101.26
3/31/82 26291.07 21009.36
4/30/82 27628.59 21951.77
5/28/82 26194.37 21207.49
6/30/82 25663.83 20888.83
7/30/82 25333.88 20509.69
8/31/82 28400.8 23023.78
9/30/82 28706 23301.55
10/29/82 32795.87 25976.39
11/30/82 36455.38 27037.06
12/31/82 35971.85 27555.38
1/31/83 37212.2 28584.12
2/28/83 38615.06 29227.7
3/31/83 39993.84 30316.29
4/29/83 42174.97 32699.31
5/31/83 42918.46 32416.01
6/30/83 45132.86 33670.41
7/29/83 42656.59 32668.34
8/31/83 42003.61 33170.63
9/30/83 42855.67 33623.95
10/31/83 40787.88 33234.35
11/30/83 42534.93 33940.17
12/30/83 42159.82 33757.59
1/31/84 39977.12 33579.34
2/29/84 37825.13 32398.62
3/30/84 38529.81 32948.96
4/30/84 38356.46 33269.75
5/31/84 36024.29 31430.16
6/29/84 38054.79 32104.74
7/31/84 37205.25 31721.34
8/31/84 41507.77 35226.32
9/28/84 40832.43 35221.6
10/31/84 41175.14 35364.71
11/30/84 39761.94 34954.52
12/31/84 40968.88 35884.56
1/31/85 45522.14 38692.74
2/28/85 45677.3 39164.51
3/29/85 44618.66 39187.53
4/30/85 44313.1 39147.85
5/31/85 47656.35 41429.33
6/28/85 48560.3 42078.92
7/31/85 48321.51 42042.84
8/30/85 47910.32 41671.19
9/30/85 46061.31 40357.81
10/31/85 49334.58 42242.76
11/29/85 53687.07 45127.15
12/31/85 56130.12 47310.87
1/31/86 57996.73 47562.55
2/28/86 62925.1 51111.3
3/31/86 66066.28 53994.06
4/30/86 65284.97 53409.46
5/30/86 69299.47 56242.03
6/30/86 70364.22 57184.75
7/31/86 66136.93 54007.9
8/29/86 69404.87 58003.34
9/30/86 61880.19 53192.73
10/31/86 66118.29 56290.62
11/28/86 67630.86 57647.69
12/31/86 66586.39 56161.26
1/30/87 77549.31 63715.97
2/27/87 84437.05 66221.37
3/31/87 84927.69 68156.64
4/30/87 84331.46 67535.43
5/29/87 86286.96 68111.88
6/30/87 89626.87 71578.3
7/31/87 92921.68 75203.84
8/31/87 98572.56 77993.08
9/30/87 96791.14 76306.73
10/30/87 74358.5 59848.91
11/30/87 68079.55 54891.39
12/31/87 75309.84 59099.61
1/29/88 75229 61665.71
2/29/88 80130.8 64438.7
3/31/88 77265.75 62466.88
4/29/88 77459.84 63239.3
5/31/88 77099.73 63661.04
6/30/88 82868.61 66632.65
7/29/88 80591.94 66467.11
8/31/88 76405.13 64118.02
9/30/88 79586.14 66859.09
10/31/88 79325.32 68810.63
11/30/88 77789.05 67727.01
12/30/88 80238.1 68905.67
1/31/89 86192.81 74029.52
2/28/89 84865.2 72073.33
3/31/89 87108.14 73790.91
4/28/89 92956.38 77742.9
5/31/89 99240 80723.36
6/30/89 97781.66 80304.4
7/31/89 106358.6 87638.34
8/31/89 108066.49 89263.18
9/29/89 109330.9 88909.07
10/31/89 107410.6 86920.81
11/30/89 110083.32 88605.69
12/29/89 109926.78 90739.94
1/31/90 100916.55 84737.23
2/28/90 103079.82 85675.74
3/30/90 106991.89 88005.64
4/30/90 104654.31 85900.74
5/31/90 118661.79 94095.13
6/29/90 120047.74 93536.35
7/31/90 115459.63 93208.2
8/31/90 103443.08 84793.54
9/28/90 96784.58 80666.97
10/31/90 95752.4 80324.46
11/30/90 104571.13 85539.22
12/31/90 108216.94 87901.54
1/31/91 117562.34 91725.41
2/28/91 127390.27 98289.21
3/28/91 132288.64 100671.11
4/30/91 130363.31 100889.99
5/31/91 136064.92 105267.59
6/28/91 126645.3 100438.74
7/31/91 135408.42 105115.82
8/30/91 140400.16 107597.81
9/30/91 139263.41 105805.17
10/31/91 144240.43 107223.93
11/29/91 139865.04 102900.35
12/31/91 161352.43 114673.43
1/31/92 158595.28 112537.43
2/28/92 162051.37 113991.45
3/31/92 155326.42 111776.54
4/30/92 152572.39 115058.08
5/29/92 155248.34 115622
6/30/92 148699.41 113901.35
7/31/92 155119.09 118559.92
8/31/92 151890.13 116132.55
9/30/92 155836.88 117493.08
10/30/92 161989.51 117900.61
11/30/92 171533.35 121907.49
12/31/92 174201.92 123406.71
1/29/93 175368.52 124437.97
2/26/93 168141.38 126154.52
3/31/93 173639.08 128796.97
4/30/93 166432.35 125682.36
5/28/93 175797.76 129028.93
6/30/93 174832.24 129422.78
7/30/93 173146.31 128903.26
8/31/93 181003.26 133783.59
9/30/93 184102.14 132765.45
10/29/93 187557.91 135510
11/30/93 182244.36 134216
12/31/93 190295.02 135838.33
1/31/94 196996.28 140471.15
2/28/94 194854.71 136655.82
3/31/94 181885.46 130699.68
4/29/94 181953.91 132376.56
5/31/94 183772.33 134534.38
6/30/94 172696.76 131249.78
7/29/94 179683.13 135560.81
8/31/94 191999.54 141106.29
9/30/94 188421.8 137643.94
10/31/94 194758.14 140739.73
11/30/94 190633.5 135610.14
12/30/94 189197.74 137623.23
1/31/95 187905.26 141191.96
2/28/95 196286.18 146691.95
3/31/95 205076.59 151024.45
4/28/95 211381.78 155450.53
5/31/95 218357.41 161671.62
6/30/95 235852.96 165439.17
7/31/95 249290.24 170929.88
8/31/95 248105.14 171358.06
9/29/95 255428.58 178587.32
10/31/95 256037.98 177949.92
11/30/95 261129.2 185760.54
12/29/95 253842.67 189338.54
1/31/96 256097.52 195782.87
2/29/96 266107.69 197598.18
3/29/96 265045.57 199500.47
4/30/96 277576.3 202441.78
5/31/96 284884.44 207661.74
6/28/96 279159.1 208454.36
7/31/96 257796.32 199246.45
8/30/96 270001.48 203449.31
9/30/96 289712 214900.36
10/31/96 292089.41 220827.64
11/29/96 315709.53 237519.26
12/31/96 307096.63 232813.3
1/31/97 328413.93 247358.57
2/28/97 317950.38 249297.23
3/31/97 301069.86 239054.32
4/30/97 320301.18 253321.6
5/30/97 347483.39 268728.96
6/30/97 358974.28 280768.26
7/31/97 402829.15 303106.3
8/29/97 387930.1 286127.91
9/30/97 413554.07 301798.24
10/31/97 394092.7 291719.27
11/28/97 400384.6 305223.86
12/31/97 403418.84 310465.65
</TABLE>
LOGO
- -------
*Inception Date: 7/31/69 = $10,000.
Source: Jennison Associates LLC.
All Jennison composite information, index information, and asset class
performance information rely on data provided by Jennison or from statistical
services, reports, or other sources believed by Jennison to be reliable,
including data from Standard & Poor's and The Wall Street Journal. Such
information, however, has not been verified and is unaudited. Of course, past
performance should not be interpreted as indicative of future performance.
The Jennison composite historical rates of return are time-weighted rates of
total return calculated in accordance with Performance Presentation Standards
of the Association for Investment Management and Research (AIMR). They are
calculated by dividing the period of time under study into subperiods whose
boundaries are the dates of cash and other asset flows into and from the
accounts constituting a given composite and by computing the internal rate of
return for each subperiod. The time-weighted rate of return is the average of
the rates for these subperiods with each rate being given a weight
proportionate to the length of time of its subperiod.
Jennison's results are based on the time-weighted rate of return achieved
for "Growth Equity" accounts managed by Jennison. As of December 31, 1997,
Jennison managed 107 accounts representing approximately $19.9 billion in
assets using a "Growth Equity" strategy. These accounts include the Prudential
Jennison Growth Fund and institutional and other mutual fund accounts whose
investment objectives and techniques are similar to the Prudential Jennison
Growth Fund. The institutional accounts are not registered investment
companies and are not subject to the investment limitations, diversification
requirements, and other restrictions that are imposed on mutual funds by the
Investment Company Act and Subchapter M of the Internal Revenue Code, which,
if applicable, may have adversely affected the performance results of the
Jennison Growth Equity Composite. Performance results are net of Jennison
advisory fees and assume the reinvestment of dividends and distributions. The
figures do not reflect the deduction of operating expenses of mutual funds,
such as distribution (Rule 12b-1) fees, or any applicable sales charges. The
net effect of the operating expenses of the funds on annualized performance,
including the compounded effect over time, will vary by the size of the fee
and the accounts investment performance, and may be substantial. The accounts
reflected in the "Growth Equity" performance data have been determined by
Jennison based on the manner in which it prepares performance data generally.
(footnotes continued on next page)
B-1
<PAGE>
As of December 31, 1997, the "Growth Equity" accounts represented 95% of all
equity assets (approximately $20.9 billion) managed by Jennison, and 53% of
the aggregate assets (approximately $37.8 billion) managed by Jennison. The
only accounts using the "Growth Equity" investment strategy not included in
the composite are not fully discretionary (for example, do not permit certain
types of investments in the account), and individual taxable accounts which
represented approximately 0.1% of Jennison's equity assets under management,
as of December 31, 1997. The performance shown above for the "Growth Equity"
composite is not the performance of the Fund and should not be considered
indicative of the past or future performance of the Fund. The "Growth Equity"
composite is not a substitute for the Fund's own past performance.
The performance of an investment in the S&P 500 Index was measured on a
calendar monthly basis. The S&P 500 Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the NYSE. These 500 stocks are composed of 400 industrial,
40 utility, 40 financial, and 20 transportation companies. The weight of each
stock in the index is proportional to its price times the number of shares
outstanding. The S&P 500 Index is an unmanaged index and includes the
reinvestment of all dividends. Investors cannot invest directly in an index.
Common stocks represent the ownership of a corporation, which can fluctuate in
value.
ANNUALIZED TOTAL RETURN DATA
The chart below demonstrates annualized total returns as of the fiscal year
ended December 31, 1997 of the Jennison Growth Equity Composite and the S&P
500 Index. Annualized total return is a hypothetical rate of return that if
achieved annually would have produced the same aggregate total return if
performance had been consistent over the period.
ANNUALIZED TOTAL RETURNS AS OF DECEMBER 31, 1997*
<TABLE>
<CAPTION>
JENNISON GROWTH
EQUITY S&P 500
PERIOD COMPOSITE (/1/)** INDEX (/2/)
------ ----------------- -----------
<S> <C> <C>
Since July 31, 1969 (inception)-1997........ 13.88% 12.84%
25 Years (1972-1997)........................ 13.80 13.06
20 Years (1977-1997)........................ 19.03 16.65
15 Years (1982-1997)........................ 17.47 17.51
10 Years (1987-1997)........................ 18.26 18.03
7 Years (1990-1997)........................ 20.66 19.74
5 Years (1992-1997)........................ 18.28 20.25
3 Years (1994-1997)........................ 28.68 31.12
1 Year (1996-1997)......................... 31.37 33.35
</TABLE>
Sources: Jennison Associates LLC for Jennison Growth Equity Composite and S&P
500 Index.
(/1/) Jennison's results are based on the time-weighted rate of return
achieved for "Growth Equity" accounts managed by Jennison. As of
December 31, 1997, Jennison managed 107 accounts representing
approximately $19.9 billion in assets using a "Growth Equity" strategy.
These accounts include Prudential Jennison Growth Fund and institutional
and other mutual fund accounts whose investment objectives and
techniques are similar to the Prudential Jennison Growth Fund. The
institutional accounts are not registered investment companies and are
not subject to the investment limitations, diversification requirements,
and other restrictions that are imposed on mutual funds by the
Investment Company Act and Subchapter M of the Internal Revenue Code,
which, if applicable, may have adversely affected the performance
results of the Jennison Growth Equity Composite. Performance results are
net of Jennison advisory fees only and assume the reinvestment of
dividends and distributions. The Composite performance figures do not
reflect the deduction of operating expenses of mutual funds, such as
distribution (Rule 12b-1) fees, or any applicable sales charges. The net
effect of the operating expenses of the funds on annualized performance,
including the compounded effect over time, will vary by the size of the
fee and the accounts investment performance, and may be substantial. As
of December 31, 1997, the "Growth Equity" accounts represented 95% of
equity assets (approximately $20.9 billion) managed by Jennison and 53%
of the aggregate assets (approximately $37.8 billion) managed by
Jennison. The only accounts using the "Growth Equity" investment
strategy not included in the composite are not fully discretionary (for
example, do not permit certain types of investments in the account), and
individual taxable accounts which represented approximately 0.1% of
Jennison's equity assets under management, as of December 31, 1997. The
accounts reflected in the "Growth Equity" performance data have been
determined by Jennison based on the manner in which it prepares
performance data generally. Of course, past performance should not be
interpreted as indicative of future results. The performance shown above
for the "Growth Equity" composite is not the performance of the Fund and
should not be considered indicative of the past or future performance of
the Fund. The "Growth Equity" composite is not a substitute for the
Fund's own past performance.
(/2/) The S&P 500 is a capital-weighted index representing the aggregate
market value of the common equity of 500 stocks primarily traded on the
NYSE. These 500 stocks are composed of 400 industrial, 40 utility, 40
financial, and 20 transportation companies. The weight of each stock in
the index is proportional to its price times the number of shares
outstanding. The S&P 500 Index is an unmanaged index and includes the
reinvestment of all dividends. Investors cannot invest directly in an
index. Common stocks represent the ownership of a corporation, which can
fluctuate in value.
* These results are unaudited. Past performance should not be interpreted as
indicative of future performance.
** Preliminary data.
B-2
<PAGE>
Class A, B and C shares of the Fund commenced investment operations on
November 2, 1995; Class Z shares of the Fund commenced investment operations
on April 15, 1996. Aggregate total returns for the one year and from inception
periods ended September 30, 1997 were 40.29%, 39.39%, 39.39% and 40.71%, and
53.9%, 51.8%, 51.8% and 49.71% for Class A, B, C and Z shares, respectively,
and average annual total returns for the one year and since inception periods
ended September 30, 1997 were 33.28%, 34.39%, 38.39% and 40.71% and 21.99%,
22.68%, 24.41% and 31.85% for Class A, B, C and Z shares, respectively.
On September 20, 1996, the assets and liabilities of Growth Stock Fund (a
series of Prudential Index Series Fund, formerly Prudential Dryden Fund, and
formerly The Prudential Institutional Fund) were transferred to the Fund in
exchange solely for Class Z shares of the Fund (the Reorganization). The
investment objectives and policies of the Growth Stock Fund were substantially
similar to those of the 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, 1997, your average annual
total returns (after fees and expenses) for the one, three and since inception
(November 5, 1992) periods ended September 30, 1997 would have been 40.71%,
28.90% and 21.37%, respectively. In addition, the aggregate total returns for
such periods would have been 40.71%, 114.22% and 158.39%, respectively.
ANNUAL TOTAL RETURN DATA
The chart below demonstrates annual total returns as of December 31, 1997 of
the Jennison Growth Equity Composite and the S&P 500 Index for the listed
calendar year. Total return reflects actual performance over a stated period.
Annual total return shows how much an investment has increased (or decreased)
over a one year period assuming the reinvestment of dividends and interest, as
appropriate.
ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997*
<TABLE>
<CAPTION>
JENNISON
GROWTH EQUITY S&P 500
YEAR COMPOSITE(/1/) INDEX(/2/)
---- -------------- ----------
<S> <C> <C>
1969 (7/31/69 through 12/31/69)....................... 10.05% 1.99%
1970.................................................. (.76) 3.91
1971.................................................. 20.06 14.19
1972.................................................. 21.26 18.96
1973.................................................. (20.57) (14.68)
1974.................................................. (31.94) (26.46)
1975.................................................. 28.42 37.23
1976.................................................. 15.10 23.85
1977.................................................. (2.88) (7.28)
1978.................................................. 15.73 6.64
1979.................................................. 32.29 18.55
1980.................................................. 56.72 32.50
1981.................................................. (3.80) (4.97)
1982.................................................. 26.32 21.61
1983.................................................. 17.20 22.51
1984.................................................. (2.82) 6.30
1985.................................................. 37.01 31.84
1986.................................................. 18.63 18.71
1987.................................................. 13.10 5.23
1988.................................................. 6.54 16.59
1989.................................................. 37.00 31.69
1990.................................................. (1.56) (3.13)
1991.................................................. 49.10 30.46
1992.................................................. 7.96 7.62
1993.................................................. 9.24 10.07
1994.................................................. (.58) 1.31
1995.................................................. 34.17 37.58
1996.................................................. 20.98 22.96
1997.................................................. 31.37** 33.35
</TABLE>
- -------
Sources: Jennison Associates LLC for Jennison Growth Equity Composite and S&P
500 Index.
(footnotes continued on next page)
B-3
<PAGE>
(/1/) Jennison's results are based on the time-weighted rate of return
achieved for "Growth Equity" accounts managed by Jennison. As of December 31,
1997, Jennison managed 107 accounts representing approximately $19.9 billion
in assets using a "Growth Equity" strategy. These accounts include the Fund,
and institutional and other mutual fund accounts whose investment objectives
and techniques are similar to the Fund. The institutional accounts are not
registered investment companies and are not subject to the investment
limitations, diversification requirements, and other restrictions that are
imposed on mutual funds by the Investment Company Act and Subchapter M of the
Internal Revenue Code, which, if applicable, may have adversely affected the
performance results of the Jennison Growth Equity Composite. Performance
results are net of Jennison advisory fees only and assume the reinvestment of
dividends and distributions. The Composite performance figures do not reflect
the deduction of operating expenses of mutual funds, such as distribution
(Rule 12b-1) fees, or any applicable sales charges. The net effect of the
operating expenses of the funds on annualized performance, including the
compounded effect over time, will vary by the size of the fee and the
accounts' investment performance, and may be substantial. As of September 30,
1997, the "Growth Equity" accounts represented 95% of equity assets
(approximately $20.9 billion) managed by Jennison and 53% of the aggregate
assets (approximately $37.8 billion) managed by Jennison. The only accounts
using the "Growth Equity" investment strategy not included in the composite
are not fully discretionary (for example, do not permit certain types of
investments in the account), and individual taxable accounts which
represented approximately 0.1% of Jennison's equity assets under management,
as of September 30, 1997. The accounts reflected in the "Growth Equity"
performance data have been determined by Jennison based on the manner in
which it prepares performance data generally. Of course, past performance
should not be interpreted as indicative of future results. The performance
shown above for the "Growth Equity" composite is not the performance of the
Fund and should not be considered indicative of the past or future
performance of the Fund. The "Growth Equity" composite is not a substitute
for the Fund's own past performance.
(/2/) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the NYSE.
These 500 stocks are composed of 400 industrial, 40 utility, 40 financial,
and 20 transportation companies. The weight of each stock in the index is
proportional to its price times the number of shares outstanding. The S&P
500 index is an unmanaged index and includes the reinvestment of all
dividends. Investors cannot invest directly in an index. Common stocks
represent the ownership of a corporation, which can fluctuate in value.
* These results are unaudited. Past performance should not be interpreted as
indicative of future performance.
** Preliminary data.
On September 20, 1996, the assets and liabilities of Growth Stock Fund (a
series of Prudential Index Series Fund, formerly Prudential Dryden Fund, and
formerly The Prudential Institutional Fund) were transferred to the Fund in
exchange solely for Class Z shares of the Fund. The investment objectives and
policies of the Growth Stock Fund were substantially similar to those of the
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 such Class Z shares received in the
Reorganization through September 30, 1997, your annual total returns (after
fees and expenses) would have been:
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
<S> <C>
11/5/92-9/30/93.................................................. 21.22 %
9/30/94.......................................................... (0.50)%
9/30/95.......................................................... 35.14 %
9/30/96.......................................................... 12.65 %
9/30/97.......................................................... 40.71 %
</TABLE>
B-4
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone either Fund at (800)
225-1852 for a free prospectus. Read the prospectus carefully before you invest
or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
TAX-EXEMPT BOND
FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
. Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
. Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
. Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
. Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
C-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS.......... 2
What are the Fund's Risk
Factors and Special
Characteristics?....... 2
FUND EXPENSES............ 5
FINANCIAL HIGHLIGHTS..... 6
HOW THE FUND INVESTS..... 7
Investment Objective and 7
Policies...............
Other Investments and 10
Policies...............
Risk Factors and Special
Considerations of
Investing in Foreign
Securities............. 12
Hedging and Return En- 13
hancement Strategies...
Investment Restrictions. 15
HOW THE FUND IS MANAGED.. 16
Manager................. 16
Subadviser.............. 16
Distributor............. 17
Fee Waivers............. 18
Portfolio Transactions.. 18
Custodian and Transfer
and Dividend Disbursing
Agent.................. 18
HOW THE FUND VALUES ITS 19
SHARES..................
HOW THE FUND CALCULATES 19
PERFORMANCE.............
TAXES, DIVIDENDS AND DIS- 20
TRIBUTIONS..............
GENERAL INFORMATION...... 22
Description of Common 22
Stock..................
Additional Information.. 22
SHAREHOLDER GUIDE........ 23
How to Buy Shares of the 23
Fund...................
Alternative Purchase 24
Plan...................
How to Sell Your Shares. 28
Conversion Feature-- 31
Class B Shares.........
How to Exchange Your 32
Shares.................
Shareholder Services.... 34
APPENDIX A--INFORMATION
ABOUT JENNISON ASSOCI-
ATES LLC................ A-1
APPENDIX B--HISTORICAL
PERFORMANCE INFORMATION
OF JENNISON ASSOCIATES
LLC..................... B-1
THE PRUDENTIAL MUTUAL C-1
FUND FAMILY.............
</TABLE>
- --------------------------------------------------------------------------------
MF 172A
<TABLE>
<S> <C>
CUSIP Nos.:
Class A: 74437E 10 7
Class B: 74437E 20 6
Class C: 74437E 30 5
Class Z: 74437E 40 4
</TABLE>
PRUDENTIAL JENNISON GROWTH FUND
PROSPECTUS
JANUARY 23, 1998
www.prudential.com
[LOGO] PRUDENTIAL INVESTMENTS
<PAGE>
PRUDENTIAL JENNISON ACTIVE BALANCED FUND
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
PROSPECTUS DATED JANUARY 23, 1998
- -------------------------------------------------------------------------------
Prudential Jennison Active Balanced Fund (Active Balanced Fund), Prudential
Jennison Growth Fund (Growth Fund) and Prudential Jennison Growth & Income
Fund (Growth & Income Fund) (each a Fund and collectively, the Funds) are each
a series of Prudential Jennison Series Fund, Inc. (the Company), a
diversified, open-end, management investment company.
ACTIVE BALANCED FUND'S INVESTMENT OBJECTIVE IS TO SEEK TO ACHIEVE TOTAL
RETURNS APPROACHING EQUITY RETURNS, WHILE ACCEPTING LESS RISK THAN AN ALL-
EQUITY PORTFOLIO, THROUGH AN ACTIVELY-MANAGED PORTFOLIO OF EQUITY SECURITIES,
FIXED-INCOME SECURITIES AND MONEY MARKET INSTRUMENTS. The Active Balanced
Fund's investments will be actively shifted among these asset classes in order
to capitalize on intermediate term (i.e., 12 to 18 months) valuation
opportunities and to maximize the Fund's total investment return.
GROWTH FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. The Growth
Fund seeks to achieve its 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.
GROWTH & INCOME FUND'S INVESTMENT OBJECTIVE 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.
Each 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 foreign currencies and options thereon to hedge its
portfolio and to attempt to enhance return. The Growth & Income Fund may
engage in short sales. There can be no assurance that any Fund's investment
objective will be achieved. See "How the Funds Invest--Investment Objectives
and Policies." The Company's address is Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077, and its telephone number is (800) 225-
1852.
This Prospectus sets forth concisely the information about each Fund that a
prospective investor should know before investing and is available at the Web
site of The Prudential Insurance Company of America
(http://www.prudential.com). Additional information about the Funds has been
filed with the Securities and Exchange Commission (the Commission) in a
Statement of Additional Information, dated January 23, 1998, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Company at the
address or telephone number noted above. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Funds.
- -------------------------------------------------------------------------------
Investors are advised to read the Prospectus and retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT ARE THE FUNDS?
Each Fund is a mutual fund. A mutual fund pools the resources of investors by
selling its shares to the public and investing the proceeds of such sale in a
portfolio of securities designed to achieve its investment objectives.
Technically, each Fund is a series of Prudential Jennison Series Fund, Inc., an
open-end, diversified, management investment company.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
ACTIVE BALANCED FUND: Active Balanced Fund's investment objective is to seek
to achieve total returns approaching equity returns, while accepting less risk
than an all-equity portfolio, through an actively-managed portfolio of equity
securities, fixed-income securities and money market instruments. See "How the
Funds Invest--Investment Objectives and Policies" at page 18.
GROWTH FUND: Growth Fund's investment objective is long-term growth of
capital. It seeks to achieve this objective by investing primarily in equity
securities (common stock, securities convertible into common stock and
preferred stock) of established companies with above-average growth prospects.
Current income, if any, is incidental. See "How the Funds Invest--Investment
Objectives and Policies" at page 18.
GROWTH & INCOME FUND: Growth & Income Fund's primary investment objective is
long-term growth of capital and income, with current income as a secondary
objective. It seeks to achieve its objectives by investing primarily in common
stocks of established companies with growth prospects believed to be
underappreciated by the market. See "How the Funds Invest--Investment
Objectives and Policies" at page 18.
There can be no assurance that any Fund's investment objective will be
achieved.
WHAT ARE EACH FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
ACTIVE BALANCED FUND: With respect to the equity portion of the Active
Balanced Fund, the Fund invests primarily in common stocks of established
companies with growth prospects which are, in the opinion of the Fund's
investment adviser, Jennison Associates LLC (Jennison, the Subadviser or the
investment adviser), underappreciated by the market. These may include
companies that are experiencing important changes in their business structure
and management philosophy. The ability of the investment adviser to
successfully identify these changes will be an important factor in the Active
Balanced Fund's performance record. See "How the Funds Invest--Investment
Objectives and Policies" at page 18.
The Active Balanced Fund may invest up to 15% of its total assets in equity
securities of foreign issuers and up to 20% of its total assets in debt
securities of foreign issuers. Investing in securities of foreign companies and
countries involves certain risks and considerations not typically associated
with investments in domestic companies. See "How the Funds Invest--Risk Factors
and Special Considerations of Investing in Foreign Securities" at page 27. The
Active Balanced Fund may commit up to 20% of the value of its total assets to
investment techniques such as dollar rolls, forward rolls and reverse
repurchase agreements. See "How the Funds Invest--Investment Objectives and
Policies--Forward Rolls, Dollar Rolls and
2
<PAGE>
Reverse Repurchase Agreements--Active Balanced Fund Only" at page 24. The Fund
may invest up to 5% of its total assets in non-investment grade debt securities
or in unrated securities of comparable quality. Non-investment grade securities
are securities rated lower than Baa by Moody's Investors Service (Moody's) or
BBB by Standard & Poor's Ratings Group (S&P) and are commonly known as "junk
bonds." These securities are considered speculative and are subject to a
greater risk of loss of principal and interest than higher rated securities as
well as greater price volatility. See "How the Funds Invest--Risk Factors
Relating to Investing in Debt Securities Rated Below Investment Grade (Junk
Bonds)--Active Balanced Fund and Growth & Income Fund Only" at page 28. The
Fund may engage in various hedging and return enhancement strategies including
using derivatives. See "How the Funds Invest--Hedging and Return Enhancement
Strategies--Risks of Hedging and Return Enhancement Strategies" at page 31. As
with an investment in any mutual fund, an investment in this Fund can decrease
in value and you can lose money.
GROWTH FUND: Securities of the kinds of companies in which the Growth Fund
invests may be subject to significant price fluctuation and above-average risk.
Thus, the Growth Fund may be considered subject to greater investment risks
than are assumed by certain other investment companies. In addition, companies
achieving an earnings growth rate higher than that of S&P 500 companies tend to
reinvest their earnings rather than distribute them. As a result, the Growth
Fund is not likely to receive significant dividend income on its portfolio
securities. Accordingly, an investment in the Growth Fund should not be
considered as a complete investment program and may not be appropriate for all
investors.
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. See "How the Funds Invest--Investment
Objectives and Policies" at page 18. The Growth Fund may also invest in (i)
other equity securities including up to 20% of its total assets in securities
of foreign issuers, (ii) investment grade fixed-income securities and (iii)
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, including mortgage-backed securities. Investing in
securities of foreign companies and countries involves certain risks and
considerations not typically associated with investments in domestic companies.
See "How the Funds Invest--Risk Factors and Special Considerations of Investing
in Foreign Securities" at page 27. The Growth Fund may also engage in various
hedging and return enhancement strategies including using derivatives. See "How
the Funds Invest--Hedging and Return Enhancement Strategies--Risks of Hedging
and Return Enhancement Strategies" at page 31. As with an investment in any
mutual fund, an investment in this Fund can decrease in value and you can lose
money.
GROWTH & INCOME FUND: Growth & Income Fund invests primarily in common stocks
of established companies with growth prospects which are, in the opinion of the
investment adviser, underappreciated by the market. These may include companies
that are experiencing important changes in their business structure and
management philosophy. The ability of the investment adviser to successfully
identify these changes will be an important factor in the Growth & Income
Fund's performance record. Also, the Growth & Income Fund's portfolio holdings
may be characterized by volatility somewhat greater than the overall market.
Additionally, although current income is a secondary objective, some of the
Growth & Income Fund's holdings may pay little or no dividend income. See "How
the Funds Invest--Investment Objectives and Policies" at page 18.
The Growth & Income Fund may invest up to 20% of its total assets in equity
and debt securities of foreign issuers. Investing in securities of foreign
companies and countries involves certain risks and considerations not typically
associated with investments in domestic companies. See "How the Funds Invest--
Risk Factors and Special Considerations of Investing in Foreign Securities" at
page 27. The Growth & Income Fund may invest up to 10% of its total assets in
non-investment grade debt securities or in unrated securities of comparable
quality. Securities rated lower than Baa by Moody's or BBB by S&P, commonly
known as "junk bonds," are considered speculative and are subject to a greater
risk of loss of principal and interest than higher rated securities as well as
greater price volatility. See "How the Funds Invest--Risk Factors
3
<PAGE>
Relating to Investing in Debt Securities Rated Below Investment Grade (Junk
Bonds)--Active Balanced Fund and Growth & Income Fund Only" at page 28. The
Growth & Income Fund also may engage in short sales which subject the Fund to
additional risks. See "How the Funds Invest--Other Investments and Policies--
Short Sales" at page 27. The Growth & Income Fund also may engage in various
hedging and return enhancement strategies including using derivatives. See "How
the Funds Invest--Hedging and Return Enhancement Strategies--Risks of Hedging
and Return Enhancement Strategies" at page 31. As with an investment in any
mutual fund, an investment in this Fund can decrease in value and you can lose
money.
WHO MANAGES THE FUNDS?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
manager of each Fund and is compensated for its services at an annual rate of
.60 of 1% of the average daily net assets of each of Growth Fund and Growth &
Income Fund and is compensated for its services to Active Balanced Fund at an
annual rate of .65 of 1% of its average daily net assets. As of December 31,
1997, PIFM served as manager or administrator to 64 investment companies,
including 42 mutual funds, with aggregate assets of approximately $62 billion.
Jennison furnishes investment advisory services in connection with the
management of each Fund under Subadvisory Agreements with PIFM. The Prudential
Investment Corporation, which does business under the name Prudential
Investments (PI), invests available cash balances for the Active Balanced Fund
through a joint repurchase agreement account. See "How the Funds are Managed--
Manager" at page 32 and "How the Funds are Managed--Subadvisers" at page 33.
WHO DISTRIBUTES EACH FUND'S SHARES?
Prudential Securities Incorporated (Prudential Securities or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Company's Class A, Class B, Class C and
Class Z shares and is paid a distribution and service fee with respect to Class
A shares which is currently being charged at the annual rate of .25 of 1% of
the average daily net assets of the Class A shares and is paid a distribution
and service fee with respect to Class B and Class C shares at an annual rate of
1% of the average daily net assets of each of the Class B and Class C shares.
The Distributor incurs the expense of distributing each Fund's Class Z shares
under a Distribution Agreement with the Company, none of which is reimbursed or
paid for by the Funds. See "How the Funds are Managed--Distributor" at page 33.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000 for Class A and Class B shares and
$5,000 for Class C shares. The minimum subsequent investment is $100 for Class
A, Class B and Class C shares. Class Z shares are not subject to any minimum
investment requirements. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide--How
to Buy Shares of the Funds" at page 39 and "Shareholder Guide--Shareholder
Services" at page 50.
HOW DO I PURCHASE SHARES?
You may purchase shares of any Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at NAV without any sales charge.
4
<PAGE>
Participants in programs sponsored by Prudential Retirement Services should
contact their client representative for more information about Class Z shares.
See "How Each Fund Values its Shares" at page 35 and "Shareholder Guide--How to
Buy Shares of the Funds" at page 39.
WHAT ARE MY PURCHASE ALTERNATIVES?
Each Fund offers four classes of shares:
. Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
.Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or CDSC (declining from 5%
to zero of the lower of the amount invested or the redemption
proceeds) which will be imposed on certain redemptions made
within six years of purchase. Although Class B shares are
subject to higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically convert to
Class A shares (which are subject to lower ongoing distribution-
related expenses) approximately seven years after purchase.
.Class C Shares: Sold without an initial sales charge but, for one year
after purchase, are subject to a CDSC of 1% on redemptions.
Like Class B shares, Class C shares are subject to higher
ongoing distribution-related expenses than Class A shares but
do not convert to another class.
.Class Z Shares: Sold without an initial sales charge or CDSC to a
limited group of investors. Class Z shares are not subject to
any ongoing service or distribution expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 41.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. Participants in programs sponsored by Prudential Retirement Services
should contact their client representative for more information about selling
their Class Z shares. See "Shareholder Guide--How to Sell Your Shares" at page
45.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
Active Balanced Fund expects to pay dividends of net investment income, if
any, annually, and Growth Fund and Growth & Income Fund expect to pay dividends
of net investment income, if any, semi-annually. Each Fund expects to make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the
respective Fund at NAV without a sales charge unless you request that they be
paid to you in cash. See "Taxes, Dividends and Distributions" at page 36.
5
<PAGE>
FUND EXPENSES--ACTIVE BALANCED FUND
<TABLE>
<S> <C> <C> <C> <C>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTION EX-
PENSES+
Maximum Sales Load Im-
posed on Purchases (as a
percentage of offering
price).................. 5% None None None
Maximum Sales Load Im-
posed on Reinvested Div-
idends.................. None None None None
Maximum Deferred Sales
Load (as a percentage of
original purchase price
or redemption proceeds,
whichever is lower)..... None 5% during the first year, 1% on redemptions None
decreasing by 1% annually made within one
to 1% in the fifth and sixth year of purchase
years and 0% the seventh year*
Redemption Fees.......... None None None None
Exchange Fee............. None None None None
<CAPTION>
ANNUAL FUND OPERATING CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
EXPENSES -------------- -------------- -------------- --------------
(as a percentage of average
net assets)
<S> <C> <C> <C> <C>
Management Fees.......... .65% .65% .65% .65%
12b-1 Fees (After Reduc-
tion) .25%++ 1.00% 1.00% None
Other Expenses........... .41% .41% .41% .41%
--- --- --- ---
Total Fund Operating Ex-
penses (After Reduc-
tion)................... 1.31% 2.06% 2.06% 1.06%
==== ==== ==== ====
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
EXAMPLE ---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 in-
vestment, assuming (1) 5%
annual return and (2) re-
demption at the end of
each time period:
Class A................. $63 $89 $118 $200
Class B................. $71 $95 $121 $211
Class C................. $31 $65 $111 $239
Class Z................. $11 $34 $ 58 $129
You would pay the following
expenses on the same in-
vestment, assuming no re-
demption:
Class A................. $63 $89 $118 $200
Class B................. $21 $65 $111 $211
Class C................. $21 $65 $111 $239
Class Z................. $11 $34 $ 58 $129
</TABLE>
The above example is based on expenses incurred during the fiscal year ended
September 30, 1997 by Prudential Active Balanced Fund, whose assets were
acquired by Active Balanced Fund at the commencement of its investment
operations on January 23, 1998. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various
types of costs and expenses that an investor in the Active Balanced Fund will
bear, whether directly or indirectly. For more complete descriptions of the
various costs and expenses, see "How the Funds are Managed." "Other Expenses"
includes estimated operating expenses of the Fund, such as Directors' and
professional fees, registration fees, reports to shareholders and transfer
agency and custodian (domestic and foreign) fees (but excludes foreign
withholding taxes).
- --------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-
based sales charges (12b-1 fees) on shares of the Fund may not exceed
6.25% of total gross sales, subject to certain exclusions. This 6.25%
limitation is imposed on each class of the Fund rather than on a per
shareholder basis. Therefore, long-term Class B and Class C shareholders
of the Fund may pay more in total sales charges than the economic
equivalent of 6.25% of such shareholders' investment in such shares. See
"How the Funds are Managed--Distributor."
++Although the Class A Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average
daily net assets of the Class A shares, the Distributor has agreed to
limit its distribution fees with respect to Class A shares of the Fund to
.25 of 1% of the average daily net assets of the Class A shares for the
fiscal year ending September 30, 1998. See "How the Funds are Managed--
Distributor." Total Fund Operating Expenses would be 1.36% absent this
limitation with respect to Class A shares.
6
<PAGE>
FUND EXPENSES--GROWTH FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)....... 5% None None None
Maximum Sales Load
Imposed on Reinvested
Dividends............. None None None None
Maximum Deferred Sales
Load (as a percentage
of original purchase
price or redemption
proceeds, whichever is
lower)................ None 5% during the first year, 1% on redemptions None
decreasing by 1% annually to 1% made within one
in the fifth and the sixth years year of purchase
and 0% in the seventh year*
Redemption Fees........ None None None None
Exchange Fee........... None None None None
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of av-
erage net assets)
Management Fees........ .60% .60% .60% .60%
12b-1 Fees (After Re-
duction)............. .25%++ 1.00% 1.00% None
Other Expenses......... .24% .24% .24% .24%
--- --- --- ---
Total Fund Operating
Expenses (After
Reduction)........... 1.09% 1.84% 1.84% .84%
==== ==== ==== ===
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual re-
turn and (2) redemption at the end of each time
period:
Class A....................................... $61 $83 $107 $176
Class B....................................... $69 $88 $110 $187
Class C....................................... $29 $58 $100 $216
Class Z....................................... $ 9 $27 $ 47 $104
You would pay the following expenses on the
same investment, assuming no redemption:
Class A....................................... $61 $83 $107 $176
Class B....................................... $19 $58 $100 $187
Class C....................................... $19 $58 $100 $216
Class Z....................................... $ 9 $27 $ 47 $104
</TABLE>
The above example is based on data for the Growth Fund's fiscal year ended
September 30, 1997. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The purpose of this table is to assist an investor in understanding the various
types of costs and expenses that an investor in the Growth Fund will bear,
whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Funds are Managed." "Other Expenses" includes
operating expenses of the Growth Fund, such as Directors' and professional
fees, registration fees, reports to shareholders and transfer agency and
custodian (domestic and foreign) fees (but excludes foreign withholding taxes).
- ------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges (12b-1 fees) on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on the Fund rather than on a per shareholder basis. Therefore, long-
term Class B and Class C shareholders of the Fund may pay more in total
sales charges than the economic equivalent of 6.25% of such shareholders'
investment in such shares. See "How the Funds are Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Growth
Fund may pay up to an annual rate of .30 of 1% of the average daily net
assets of the Class A shares, the Distributor has agreed to limit its
distribution fees with respect to Class A shares of the Growth Fund to .25
of 1% of the average daily net assets of the Class A shares for the fiscal
year ending September 30, 1998. See "How the Funds are Managed--
Distributor." Total Fund Operating Expenses would be 1.14% absent this
limitation with respect to Class A shares.
7
<PAGE>
FUND EXPENSES--GROWTH & INCOME FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)....... 5% None None None
Maximum Sales Load Im-
posed on Reinvested
Dividends............. None None None None
Maximum Deferred Sales
Load (as a percentage
of original purchase
price or redemption
proceeds, whichever is
lower)................ None 5% during the first year, 1% on redemptions None
decreasing by 1% annually made within one
to 1% in the fifth and year of purchase
the sixth years and
0% in the seventh year*
Redemption Fees........ None None None None
Exchange Fee........... None None None None
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of av-
erage net assets)
Management Fees........ .60% .60% .60% .60%
12b-1 Fees (After Re-
duction)............. .25%++ 1.00% 1.00% None
Other Expenses......... .73% .73% .73% .73%
---- ---- ---- ---
Total Fund Operating
Expenses
(After Reduction).... 1.58% 2.33% 2.33% 1.33%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual re-
turn and (2) redemption at the end of each time
period:
Class A....................................... $65 $ 97 $132 $228
Class B....................................... $74 $103 $135 $239
Class C....................................... $34 $ 73 $125 $267
Class Z....................................... $14 $ 42 $ 73 $160
You would pay the following expenses on the
same investment, assuming no redemption:
Class A....................................... $65 $ 97 $132 $228
Class B....................................... $24 $ 73 $125 $239
Class C....................................... $24 $ 73 $125 $267
Class Z....................................... $14 $ 42 $ 73 $160
</TABLE>
The above example is based on data for the Growth & Income Fund's fiscal period
ended September 30, 1997. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The purpose of this table is to assist an investor in understanding the various
types of costs and expenses that an investor in the Growth & Income Fund will
bear, whether directly or indirectly. For more complete descriptions of the
various costs and expenses, see "How the Funds are Managed." "Other Expenses"
includes operating expenses of the Growth & Income Fund, such as Directors' and
professional fees, registration fees, reports to shareholders and transfer
agency and custodian (domestic and foreign) fees (but excludes foreign
withholding taxes).
- ------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges (12b-1 fees) on shares of the Fund may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on the Fund rather than on a per shareholder basis. Therefore, long-
term Class B and Class C shareholders of the Fund may pay more in total
sales charges than the economic equivalent of 6.25% of such shareholders'
investment in such shares. See "How the Funds are Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Growth
& Income Fund may pay up to an annual rate of .30 of 1% of the average daily
net assets of the Class A shares, the Distributor has agreed to limit its
distribution fees with respect to Class A shares of the Growth & Income Fund
to .25 of 1% of the average daily net assets of the Class A shares for the
fiscal year ending September 30, 1998. See "How the Funds are Managed--
Distributor." Total Fund Operating Expenses would be 1.63% absent this
limitation with respect to Class A shares.
8
<PAGE>
FINANCIAL HIGHLIGHTS--ACTIVE BALANCED FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS A SHARES)
The following financial highlights for the period ended September 30, 1997
have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. 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 share outstanding, total return, ratios to average net
assets and other supplemental data for the period indicated. Further
performance information is contained in the annual report, which may be
obtained without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
<TABLE>
<CAPTION>
CLASS A
-------------
NOVEMBER 7,
1996(A)
THROUGH
SEPTEMBER 30,
1997
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $13.40
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................... .21(d)
Net realized and unrealized gain on investment transactions..... 1.97
------
Total from investment operations.............................. 2.18
------
LESS DISTRIBUTIONS:
Dividends from net investment income............................ (.39)
Dividends from net realized gains............................... (.78)
------
Total distributions........................................... (1.17)
------
Net asset value, end of period.................................. $14.41
======
TOTAL RETURN(C):................................................ 17.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................................. $ 990
Average net assets (000)........................................ $ 100
Ratios to average net assets(b):
Expenses, including distribution fees.......................... 1.31(b)
Expenses, excluding distribution fees.......................... 1.06(b)
Net investment income.......................................... 2.69(b)
Portfolio turnover rate......................................... 50%
Average commission rate paid per share.......................... $.0625
</TABLE>
-----------
(a) Commencement of offering of Class A shares of Prudential Active
Balanced Fund, a series of Prudential Index Series Fund (formerly
Prudential Dryden Fund), whose assets and liabilities were acquired
by the Active Balanced Fund, Class A shares for Class A shares, on
January 23, 1998. Immediately prior to this transfer, the Active
Balanced Fund had no assets. The Active Balanced Fund is the
accounting survivor to Prudential Active Balanced Fund and, as such,
financial data is shown from November 7, 1996.
(b) Annualized.
(c) 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 return
for periods of less than a full year are not annualized.
(d) Calculated based upon weighted average shares outstanding during the
year.
9
<PAGE>
FINANCIAL HIGHLIGHTS--ACTIVE BALANCED FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS B SHARES)
The following financial highlights for the period ended September 30, 1997
have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. 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 B share outstanding, total return, ratios to average net
assets and other supplemental data for the period indicated. Further
performance information is contained in the annual report, which may be
obtained without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
<TABLE>
<CAPTION>
CLASS B
-------------
NOVEMBER 7,
1996(A)
THROUGH
SEPTEMBER 30,
1997
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................... $13.40
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................................... .19 (d)
Net realized and unrealized gain on investment transactions.... 1.92
------
Total from investment operations.............................. 2.11
------
LESS DISTRIBUTIONS:
Dividends from net investment income........................... (.39)
Distributions from net realized gains.......................... (.78)
------
Total distributions........................................... (1.17)
------
Net asset value, end of period................................. $14.34
======
TOTAL RETURN(C): .............................................. 16.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................................ $ 213
Average net assets (000)....................................... $ 71
Ratios to average net assets(b):
Expenses, including distribution fees......................... 2.06%(b)
Expenses, excluding distribution fees......................... 1.06%(b)
Net investment income......................................... 1.94%(b)
Portfolio turnover rate........................................ 50%
Average commission rate paid per share......................... $.0625
</TABLE>
- -----------
(a) Commencement of offering of Class B shares of Prudential Active Balanced
Fund, a series of Prudential Index Series Fund (formerly Prudential Dryden
Fund), whose assets and liabilities were acquired by the Active Balanced
Fund, Class B shares for Class B shares, on January 23, 1998. Immediately
prior to this transfer, the Active Balanced Fund had no assets. The Active
Balanced Fund is the accounting survivor to Prudential Active Balanced
Fund and, as such, financial data is shown from November 7, 1996.
(b) Annualized.
(c) 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 return for periods of
less than a full year are not annualized.
(d) Calculated based upon weighted average shares outstanding during the year.
10
<PAGE>
FINANCIAL HIGHLIGHTS--ACTIVE BALANCED FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS C SHARES)
The following financial highlights for the period ended September 30, 1997
have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. 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 C share outstanding, total return, ratios to average net
assets and other supplemental data for the period indicated. Further
performance information is contained in the annual report, which may be
obtained without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
<TABLE>
<CAPTION>
CLASS C
------------------
NOVEMBER 7,
1996(A)
THROUGH
SEPTEMBER 30, 1997
------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $13.40
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... .13(d)
Net realized and unrealized gain on investment
transactions............................................. 1.98
------
Total from investment operations......................... 2.11
------
LESS DISTRIBUTIONS:
Dividends from net investment income...................... (.39)
Distributions from net realized gains..................... (.78)
------
Total distributions...................................... (1.17)
------
Net asset value, end of period............................ $14.34
======
TOTAL RETURN(C): ......................................... 16.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................... $ 5
Average net assets (000).................................. $ 1
Ratios to average net assets(b):
Expenses, including distribution fees.................... 2.06%(b)
Expenses, excluding distribution fees.................... 1.06%(b)
Net investment income.................................... 1.94%(b)
Portfolio turnover rate................................... 50%
Average commission rate paid per share.................... $.0625
</TABLE>
- -----------
(a) Commencement of offering of Class C shares of Prudential Active Balanced
Fund, a series of Prudential Index Series Fund (formerly Prudential Dryden
Fund), whose assets and liabilities were acquired by the Active Balanced
Fund, Class C shares for Class C shares, on January 23, 1998. Immediately
prior to this transfer, the Active Balanced Fund had no assets. The Active
Balanced Fund is the accounting survivor to Prudential Active Balanced
Fund and, as such, financial data is shown from November 7, 1996.
(b) Annualized.
(c) 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 return for periods of
less than a full year are not annualized.
(d) Calculated based upon weighted average shares outstanding during the year.
11
<PAGE>
FINANCIAL HIGHLIGHTS--ACTIVE BALANCED FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE PERIODS INDICATED)
(CLASS Z SHARES)
The following financial highlights for the year ended September 30, 1997 have
been audited by Price Waterhouse LLP, independent accountants, and for the
years ended September 30, 1996 and for the period from January 4, 1993 through
September 30, 1993 have been audited by Deloitte & Touche LLP, independent
auditors, whose reports thereon were unqualified. 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 Z share outstanding, total return, ratios to
average net assets and other supplemental data for the periods indicated.
Further performance information is contained in the annual report, which may
be obtained without charge. See "Shareholder Guide--Shareholder Services--
Reports to Shareholders."
<TABLE>
<CAPTION>
CLASS Z
---------------------------------------------------------------
JANUARY 4,
1993(A)
YEAR ENDED SEPTEMBER 30, THROUGH
--------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 13.01 $ 12.46 $ 10.92 $ 11.05 $10.00
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... .39(e) .29(b) .33(b) .24(b) .21(b)
Net realized and
unrealized gain (loss)
on investment
transactions............ 2.22 .81 1.54 (.12) .84
-------- -------- -------- ------- -------
Total from investment
operations............. 2.61 1.10 1.87 .12 1.05
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment income....... (.39) (.37) (.29) (.14) --
Dividends from net
realized income......... (.78) (.18) (.04) (.11) --
-------- -------- -------- ------- -------
Total distributions..... (1.17) (.55) (.33) (.25) --
-------- -------- -------- ------- -------
Net asset value, end of
period.................. $ 14.45% $ 13.01 $ 12.46 $ 10.92 $ 11.05
======== ======== ======== ======= =======
TOTAL RETURN(D): ........ 21.34% 9.11% 17.66% 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $158,672 $153,588 $133,352 $81,176 $38,786
Average net assets (000). $154,199 $142,026 $104,821 $58,992 $12,815
Ratios to average net
assets:
Expenses................ 1.06% 1.00%(b) 1.00%(b) 1.00%(b) 1.00%(b)(c)
Net investment income... 2.94% 3.09%(b) 3.53%(b) 3.06%(b) 2.68%(b)(c)
Portfolio turnover rate.. 50% 51% 30% 40% 47%
Average commission rate
paid per share.......... $ .0625 $ .0654 N/A N/A N/A
</TABLE>
- -----------
(a) Commencement of investment operations of Prudential Active Balanced Fund,
a series of Prudential Index Series Fund (formerly Prudential Dryden
Fund), whose assets and liabilities were acquired by the Active Balanced
Fund, Class Z shares for Class Z shares, on January 23, 1998. Immediately
prior to this transfer, the Active Balanced Fund had no assets. The Active
Balanced Fund is the accounting survivor to Prudential Active Balanced
Fund and, as such, financial data is shown from January 4, 1993.
(b) Net of expense subsidy.
(c) Annualized.
(d) 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 other distributions. Total return for
periods of less than a full year are not annualized. Total return includes
the effect of expense subsidies where applicable.
(e) Calculated based upon weighted average shares outstanding during the year.
12
<PAGE>
FINANCIAL HIGHLIGHTS--GROWTH FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE PERIODS INDICATED)
(CLASS A SHARES)
The following financial highlights for the year ended September 30, 1997 have
been audited by Price Waterhouse LLP, independent accountants, and for the
period from November 2, 1995 through September 30, 1996 have been audited by
Deloitte & Touche LLP, independent auditors, whose reports thereon were
unqualified. This information should be read in conjunction with the financial
statements and notes thereto, which appear in the Statement of Additional
Information. The financial highlights contain selected data for a Class A share
of common stock of the Growth Fund outstanding, total return, ratios to average
net assets and other supplemental data for the periods indicated. Further
performance information is contained in the annual report, which may be
obtained without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
<TABLE>
<CAPTION>
CLASS A
---------------------------------
NOVEMBER 2, 1995(A)
YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 10.97 $ 10.00
-------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(d).............. (.03) (.03)
Net realized and unrealized gain on
investment transactions..................... 4.45 1.00
-------- -------
Total from investment operations........... 4.42 .97
-------- -------
Net asset value, end of period............... $ 15.39 $ 10.97
======== =======
TOTAL RETURN(C): ............................ 40.29% 9.70 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $145,022 $85,440
Average net assets (000)..................... $105,982 $70,667
Ratios to average net assets:
Expenses, including distribution fees....... 1.09% 1.23 %(b)
Expenses, excluding distribution fees....... .84% .98 %(b)
Net investment income (loss)................ (.25)% (.37)%(b)
Portfolio turnover rate...................... 63% 42 %
Average commission rate paid per share....... $ .0596 $ .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.
13
<PAGE>
FINANCIAL HIGHLIGHTS--GROWTH FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE PERIODS INDICATED)
(CLASS B SHARES)
The following financial highlights for the year ended September 30, 1997 have
been audited by Price Waterhouse LLP, independent accountants, and for the
period from November 2, 1995 through September 30, 1996 have been audited by
Deloitte & Touche LLP, independent auditors, whose reports thereon were
unqualified. This information should be read in conjunction with the financial
statements and notes thereto, which appear in the Statement of Additional
Information. The financial highlights contain selected data for a Class B share
of common stock of the Growth Fund outstanding, total return, ratios to average
net assets and other supplemental data for the periods indicated. Further
performance information is contained in the annual report, which may be
obtained without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
<TABLE>
<CAPTION>
CLASS B
---------------------------------
YEAR- NOVEMBER 2, 1995(A)
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........ $ 10.89 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(d)............. (.12) (.10)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... 4.41 .99
-------- --------
Total from investment operations........... 4.29 .89
-------- --------
Net asset value, end of period.............. $ 15.18 $ 10.89
======== ========
TOTAL RETURN(C): ........................... 39.39 % 8.90 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............. $419,405 $231,541
Average net assets (000).................... $299,476 $162,412
Ratios to average net assets:
Expenses, including distribution fees...... 1.84 % 1.98 %(b)
Expenses, excluding distribution fees...... .84 % .98 %(b)
Net investment income (loss)............... (1.00)% (1.12)%(b)
Portfolio turnover rate..................... 63 % 42 %
Average commission rate paid per share...... $ .0596 $ .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.
14
<PAGE>
FINANCIAL HIGHLIGHTS--GROWTH FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE EACH OF PERIODS INDICATED)
(CLASS C SHARES)
The following financial highlights for the year ended September 30, 1997 have
been audited by Price Waterhouse LLP, independent accountants, and for the
period from November 2, 1995 through September 30, 1996 have been audited by
Deloitte & Touche LLP, independent auditors, whose reports thereon were
unqualified. This information should be read in conjunction with the financial
statements and notes thereto, which appear in the Statement of Additional
Information. The financial highlights contain selected data for a Class C share
of common stock of the Growth Fund outstanding, total return, ratios to average
net assets and other supplemental data for the periods indicated. Further
performance information is contained in the annual report, which may be
obtained without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
<TABLE>
<CAPTION>
CLASS C
---------------------------------
YEAR NOVEMBER 2, 1995(A)
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........ $ 10.89 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(d)............. (.12) (.10)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... 4.41 .99
------- -------
Total from investment operations........... 4.29 .89
------- -------
Net asset value, end of period.............. $ 15.18 $ 10.89
======= =======
TOTAL RETURN(C): ........................... 39.39% 8.90 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............. $25,134 $15,281
Average net assets (000).................... $18,248 $12,550
Ratios to average net assets:
Expenses, including distribution fees...... 1.84 % 1.98 %(b)
Expenses, excluding distribution fees...... .84 % .98 %(b)
Net investment income (loss)............... (1.00)% (1.12)%(b)
Portfolio turnover rate..................... 63 % 42 %
Average commission rate paid per share...... $ .0596 $ .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.
15
<PAGE>
FINANCIAL HIGHLIGHTS--GROWTH FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE PERIODS INDICATED)
(CLASS Z SHARES)
The following financial highlights for the year ended September 30, 1997 have
been audited by Price Waterhouse LLP, independent accountants, and for the
period from April 15, 1996 through September 30, 1996 have been audited by
Deloitte & Touche LLP, independent auditors, whose reports thereon were
unqualified. This information should be read in conjunction with the financial
statements and notes thereto, which appear in the Statement of Additional
Information. The financial highlights contain selected data for a Class Z share
of common stock of the Growth Fund outstanding, total return, ratios to average
net assets and other supplemental data for the periods indicated. Further
performance information is contained in the annual report, which may be
obtained without charge. See "Shareholder Guide--Shareholder Services--Reports
to Shareholders."
<TABLE>
<CAPTION>
CLASS Z
-------------------------------
YEAR APRIL 15, 1996(A)
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 10.98 $ 10.32
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(d)............... -- (.02)
Net realized and unrealized gain (loss) on
investment and foreign currency transactions. 4.47 .68
-------- --------
Total from investment operations............. 4.47 .66
-------- --------
Net asset value, end of period................ $ 15.45 $ 10.98
======== ========
TOTAL RETURN(C): ............................. 40.71 % 6.40 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $609,869 $362,416
Average net assets (000)...................... $455,684 $ 26,829
Ratios to average net assets(b):
Expenses, including distribution fees........ .84 % .98 %(b)
Expenses, excluding distribution fees........ .84 % .98 %(b)
Net investment income (loss)................. -- (.12)%(b)
Portfolio turnover rate....................... 63 % 42 %
Average commission rate paid per share........ $ .0596 $ .0611
</TABLE>
- ------------
(a) Commencement of offering of Class Z shares.
(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.
16
<PAGE>
FINANCIAL HIGHLIGHTS--GROWTH & INCOME FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
(CLASS A, CLASS B, CLASS C AND CLASS Z SHARES)
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto,
which appear in the Statement of Additional Information. The 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. Further performance information is contained in
the annual report, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
<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
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
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... .09 .02 .02 .10
Net realized and
unrealized gain on
investment
transactions........... 2.87 2.86 2.86 2.92
------- ------- ------ ------
Total from investment
operations............ 2.96 2.88 2.88 3.02
------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (.07) (.02) (.02) (.09)
------- ------- ------ ------
Net asset value, end of
period................. $ 12.89 $ 12.86 $12.86 $12.93
======= ======= ====== ======
TOTAL RETURN(B): ....... 29.72 % 28.83 % 28.83 % 30.30 %
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)........... $34,846 $87,558 $7,111 $ 609
Average net assets
(000).................. $27,008 $62,575 $5,631 $ 227
Ratios to average net
assets(c):
Expenses, including
distribution fees..... 1.58 % 2.33 % 2.33 % 1.33 %
Expenses, excluding
distribution fees..... 1.33 % 1.33 % 1.33 % 1.33 %
Net investment income.. .90 % .15 % .15 % 1.15 %
Portfolio turnover rate. 55 % 55 % 55 % 55 %
Average commission rate
paid per share......... $ .0588 $ .0588 $.0588 $.0588
</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.
17
<PAGE>
HOW THE FUNDS INVEST
INVESTMENT OBJECTIVES AND POLICIES
ACTIVE BALANCED FUND
THE ACTIVE BALANCED FUND'S INVESTMENT OBJECTIVE IS TO SEEK TO ACHIEVE TOTAL
RETURNS APPROACHING EQUITY RETURNS, WHILE ACCEPTING LESS RISK THAN AN ALL-
EQUITY PORTFOLIO, THROUGH AN ACTIVELY-MANAGED PORTFOLIO OF EQUITY SECURITIES,
FIXED-INCOME SECURITIES AND MONEY MARKET INSTRUMENTS. THERE CAN BE NO ASSURANCE
THAT THE ACTIVE BALANCED FUND'S OBJECTIVE WILL BE ACHIEVED. See "Investment
Objectives and Policies" in the Statement of Additional Information.
Jennison, the investment adviser to the Active Balanced Fund, uses the
following ranges as the normal operating parameters for the securities to be
purchased by the Fund: (i) 40-75% of the total assets of the Fund will be
invested in common stocks, preferred stocks and other equity-related
securities; (ii) 25-60% of the total assets of the Fund will be invested in
investment grade fixed-income securities; and (iii) 0-35% of the total assets
of the Fund will be invested in money market instruments. Within these
parameters, at least 25% of the Active Balanced Fund's total assets will be
invested in fixed-income senior securities.
The Active Balanced Fund's investments will be actively shifted among these
asset classes in order to capitalize on intermediate term (i.e., 12 to 18
months) valuation opportunities and to maximize the Fund's total investment
return. The equity component of the Fund will be invested in the common stocks,
preferred stocks and other equity-related securities of companies that are
expected to generate superior earnings growth or are attractively valued. The
fixed-income component of the Fund will be invested primarily in fixed-income
securities rated A or better by Moody's Investors Service (Moody's) or Standard
& Poor's Ratings Group (S&P) (or the equivalent rating of another nationally
recognized statistical rating organization (NRSRO)) or, if not rated,
determined by Jennison to be of comparable quality to securities so rated.
However, the Fund also may invest up to 20% of the fixed-income portion of its
portfolio in securities rated Baa/BBB (or the equivalent rating of another
NRSRO) or, if not rated, determined by Jennison to be of comparable quality to
securities so rated. The weighted average maturity of the fixed-income
component of the Active Balanced Fund will normally be between 5 and 25 years.
Under normal market conditions, at least 65% of the value of the Active
Balanced Fund's total assets will be invested according to the above
allocations. Within these allocations, the Fund's assets may be invested as
follows: (i) up to 15% of the Fund's total assets, in common stocks, preferred
stocks and other equity-related securities of foreign issuers; (ii) up to 20%
of the Fund's total assets, in investment grade fixed-income securities of
foreign issuers; (iii) in mortgage-backed securities; (iv) in custodial
receipts and asset-backed securities; and (v) in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
In order to invest uncommitted cash balances, to maintain liquidity to meet
redemptions, or for hedging or incidental return enhancement, the Active
Balanced Fund may: (i) enter into repurchase agreements, when-issued, delayed
delivery and forward commitment transactions; (ii) lend its portfolio
securities; (iii) purchase and sell put and call options on securities, stock
indices and interest rate indices; (iv) purchase and sell futures contracts on
stock indices and interest rate indices and options thereon; and (v) purchase
and sell futures contracts on securities.
The Active Balanced Fund also may: (i) purchase and sell currency spot
contracts; (ii) purchase and sell currency futures contracts and currency
forward contracts; and (iii) purchase and sell put and call options on
currencies and on foreign currency futures contracts, in each case to attempt
to reduce risks associated with currency fluctuations.
* * * *
18
<PAGE>
GROWTH FUND
THE GROWTH FUND'S INVESTMENT OBJECTIVE 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. THERE CAN BE NO ASSURANCE THAT THE
GROWTH FUND'S OBJECTIVE WILL BE ACHIEVED. See "Investment Objectives and
Policies" in the Statement of Additional Information.
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. COMPANIES WITH MARKET CAPITALIZATIONS IN
EXCESS OF $1 BILLION ARE GENERALLY CONSIDERED MEDIUM TO LARGE CAPITALIZATION
COMPANIES. Stocks will be selected on a company-by-company basis primarily
through the use of fundamental analysis. The Growth Fund's investment adviser
looks for companies that have demonstrated growth in earnings and sales, high
returns on equity and assets, or other strong financial characteristics and,
in the judgment of the investment adviser, are attractively valued. These
companies tend to have a unique market niche, a strong new product profile or
superior management.
The Growth Fund may also invest up to 35% of its total assets in (i) equity
securities of other companies that are undergoing changes in management or
product and marketing dynamics that have not yet been reflected in reported
earnings but that are expected to impact earnings in the intermediate-term--
these securities often lack investor recognition and are often favorably
valued, (ii) other equity-related securities, (iii) equity securities of
foreign issuers (with respect to 20% of its total assets), (iv) obligations
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, including mortgage-backed securities and (v) investment
grade fixed-income securities.
The effort to achieve superior investment return necessarily involves a risk
of exposure to declining values. Securities in which the Growth Fund may
primarily invest have historically been more volatile than the S&P 500 Index.
Accordingly, during periods when stock prices decline generally, it can be
expected that the value of the Growth Fund will decline more than market
indices.
Securities of the kinds of companies in which the Growth Fund invests may be
subject to significant price fluctuation and above-average risk. In addition,
companies achieving an earnings growth rate higher than that of S&P 500
companies tend to reinvest their earnings rather than distribute them. As a
result, the Growth Fund is not likely to receive significant dividend income
on its portfolio securities. Accordingly, an investment in the Growth Fund
should not be considered as a complete investment program and may not be
appropriate for all investors.
* * * *
GROWTH & INCOME FUND
THE GROWTH & INCOME FUND'S PRIMARY INVESTMENT OBJECTIVE 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. THERE CAN BE NO ASSURANCE THAT THE GROWTH &
INCOME FUND'S OBJECTIVES WILL BE ACHIEVED. See "Investment Objectives and
Policies" in the Statement of Additional Information.
UNDER NORMAL MARKET CONDITIONS, THE GROWTH & INCOME FUND WILL BE PRIMARILY
INVESTED IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS. THE GROWTH & INCOME FUND
MAY ALSO INVEST IN PREFERRED STOCKS AND SECURITIES CONVERTIBLE INTO COMMON
STOCK. Stocks will be selected on a company-by-company basis generally through
the use of fundamental analysis. The Growth & Income Fund's investment adviser
looks for companies that have the potential for growth in earnings and
dividends and, in the judgment of the investment adviser, are attractively
valued.
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The Growth & Income Fund invests primarily in common stocks of established
companies with growth prospects which are, in the opinion of the investment
adviser, underappreciated by the market. These may include companies that are
experiencing important changes in their business structure and management
philosophy. The ability of the investment adviser to successfully identify
these changes will be an important factor in the Growth & Income Fund's
performance record. Also, the Growth & Income Fund's portfolio holdings may be
characterized by volatility somewhat greater than the overall market.
Additionally, although current income is a secondary objective, some of the
Growth & Income Fund's holdings may pay little or no dividend income.
The Growth & Income Fund also may invest in (i) other equity-related
securities, (ii) equity and debt securities of foreign issuers (limited to 20%
of total assets), including ADRs, (iii) investment grade fixed-income
securities, (iv) obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities and (v) fixed-income securities rated below
investment grade (limited to 10% of total assets). Under normal market
conditions, the Growth & Income Fund will not invest more than 30% of its
total assets in fixed-income securities, including corporate and other debt
obligations and U.S. Government securities. The Growth & Income Fund also may
engage in short selling.
* * * *
Each Fund may purchase and sell put and call options on equity securities,
stock indices and foreign currencies, purchase and sell futures contracts on
stock indices and foreign currencies and options thereon and enter into
forward foreign currency exchange contracts to hedge its portfolio and to
attempt to enhance return. Each Fund may also lend its portfolio securities,
enter into repurchase agreements and purchase securities on a when-issued and
delayed delivery basis.
Each Fund reserves the right as a defensive measure to hold temporarily
other types of securities without limit, including high quality commercial
paper, bankers' acceptances, non-convertible debt securities (corporate and
government) or government and high quality money market securities of U.S. and
non-U.S. issuers, or cash (foreign currencies or U.S. dollars), in such
proportions as, in the opinion of Jennison, prevailing market, economic or
political conditions warrant. Each Fund also may temporarily hold cash and
invest in high quality foreign or domestic money market instruments pending
investment of proceeds from new sales of Fund shares or to meet ordinary daily
cash needs. See "Other Investments and Policies" below.
As with an investment in any mutual fund, an investment in any Fund can
decrease in value and you can lose money.
EACH FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND MAY NOT BE
CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE RESPECTIVE
FUND'S OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT
OF 1940 (INVESTMENT COMPANY ACT). INVESTMENT POLICIES THAT ARE NOT FUNDAMENTAL
MAY BE MODIFIED BY THE BOARD OF DIRECTORS.
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THE FOLLOWING POLICIES APPLY TO EACH FUND UNLESS OTHERWISE NOTED.
U.S. GOVERNMENT SECURITIES
Each Fund may invest in securities issued or guaranteed by the U.S. Treasury
or by an agency or instrumentality of the U.S. Government. Not all U.S.
Government securities are backed by the full faith and credit of the United
States. Some are supported only by the credit of the issuing agency. See
"Investment Objectives and Policies--U.S. Government Securities" in the
Statement of Additional Information.
MORTGAGE-BACKED SECURITIES--ACTIVE BALANCED FUND AND GROWTH FUND
ONLY. Active Balanced Fund and Growth Fund may invest in mortgage-backed
securities and other derivative mortgage products, including those
representing an undivided ownership interest in a pool of mortgages, e.g.,
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)
certificates where the U.S. Government or its agencies or instrumentalities
guarantees the payment of interest and principal of these securities. These
guarantees do not extend to the securities' yield or value, which are likely
to vary inversely with fluctuations in interest rates, nor do these guarantees
extend to the yield or value of the Fund's shares. See "Investment Objectives
and Policies--U.S. Government Securities" in the Statement of Additional
Information. These certificates are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate, net of certain fees.
Mortgage-backed securities are subject to the risk that the principal on the
underlying mortgage loans may be prepaid at any time. Although the extent of
prepayments on a pool of mortgage loans depends on various economic and other
factors, as a general rule prepayments on fixed rate mortgage loans will
increase during a period of falling interest rates and decrease during a
period of rising interest rates. Accordingly, amounts available for
reinvestment by either Fund are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Mortgage-backed
securities may decrease in value as a result of increases in interest rates
and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.
COLLATERALIZED MORTGAGE OBLIGATIONS--ACTIVE BALANCED FUND AND GROWTH FUND
ONLY. Active Balanced Fund and Growth Fund may purchase collateralized
mortgage obligations (CMOs) issued by agencies or instrumentalities of the
U.S. Government. Active Balanced Fund also may purchase CMOs issued by private
originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special-purpose
subsidiaries of the foregoing. A CMO is backed by a portfolio of mortgages or
mortgage-backed securities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. The issuer of a series of CMOs may elect to be
treated as a Real Estate Mortgage Investment Conduit (REMIC). All future
references to CMOs include REMICs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the underlying mortgage assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. The principal of and interest on
the underlying mortgage assets may be allocated among the several classes of a
CMO series in a number of different ways. Generally, the purpose of the
allocation of the cash flow of a CMO to the various classes is to obtain a
more predictable cash flow to the individual tranches than exists with the
underlying collateral of the CMO. As a general rule, the more predictable the
cash flow is on a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on
mortgage-backed securities.
Active Balanced Fund and Growth Fund also may invest in mortgage-backed
security strips (MBS strips) issued by the U.S. Government or its agencies or
instrumentalities. MBS strips are usually structured with two classes that
receive different
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proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of stripped mortgage security will have one class
receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive
all of the interest (the interest-only or "IO" class), while the other class
will receive all of the principal (the principal-only or "PO" class). The
yields to maturity on IOs and POs are sensitive to the expected or anticipated
rate of principal payments (including prepayments) on the related underlying
mortgage assets, and principal payments may have a material effect on yield to
maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may not fully recoup its
initial investment in IOs. Conversely, if the underlying mortgage assets
experience less than anticipated prepayments of principal, the yield on POs
could be materially adversely affected.
In reliance on rules and interpretations of the Securities and Exchange
Commission (SEC), the Active Balanced Fund's and the Growth Fund's investments
in certain qualifying CMOs and REMICs are not subject to the Investment
Company Act's limitation on acquiring interests in other investment companies.
See "Investment Objectives and Policies--Mortgage-Related Securities" in the
Statement of Additional Information.
ASSET-BACKED SECURITIES--ACTIVE BALANCED FUND ONLY
The Active Balanced Fund may purchase asset-backed securities that represent
either fractional interests or participations in pools of leases, retail
installment loans, or revolving credit receivables held by a trust or limited
purpose finance subsidiary. Such asset-backed securities may be secured by the
underlying assets (such as certificates for automobile receivables) or may be
unsecured (such as credit card receivable securities). Depending on the
structure of the asset-backed security, monthly or quarterly payments of
principal and interest or interest only are passed-through or paid through to
certificate holders. Asset-backed securities may be guaranteed up to certain
amounts by guarantees, insurance, or letters of credit issued by a financial
institution affiliated or unaffiliated with the originator of the pool.
Underlying automobile sales contracts and credit card receivables are, of
course, subject to prepayment (although to a lesser degree than mortgage pass-
through securities), which may shorten the securities' weighted average life
and reduce their overall return to certificate holders. On the other hand,
asset-backed securities may present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities often do not have the
benefit of a security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of
which may reduce the ability to obtain full payment. In the case of automobile
receivables, the security interests in the underlying automobiles are often
not transferred when the pool is created, with the resulting possibility that
the collateral could be resold.
Unlike traditional fixed-income securities, interest and principal payments
on asset-backed securities are made more frequently, usually monthly, and
principal may be prepaid at any time. As a result, if the Fund purchases such
a security at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Alternatively,
if the Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce
yield to maturity. Certificate holders may also experience delays in payment
if the full amounts due on underlying loans, leases or receivables are not
realized because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If consistent with
its investment objective and policies, the Active Balanced Fund may invest in
other asset-backed securities that may be developed in the future.
TYPES OF CREDIT ENHANCEMENT. Mortgage-backed securities and asset-backed
securities are often backed by a pool of assets representing the obligations
of a number of different parties. To lessen the effect of failures by obligors
on underlying assets to make payments, those securities may contain elements
of credit support, which fall into two categories: (i) liquidity
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protection and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting from default ensures
ultimate payment of the obligations on at least a portion of the assets in the
pool. This protection may be provided through guarantees, insurance policies
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination
of such approaches. The Active Balanced Fund will not pay any fees for credit
support, although the existence of credit support may increase the price of a
security.
LIQUIDITY PUTS--ACTIVE BALANCED FUND ONLY
The Active Balanced Fund may purchase instruments together with the right to
resell the instruments at an agreed-upon price or yield, within a specified
period prior to the maturity date of the instruments. This instrument is
commonly known as a "liquidity put" or a "tender option bond."
CORPORATE AND OTHER DEBT OBLIGATIONS
Each Fund may invest in investment grade corporate and other debt
obligations of domestic and foreign issuers, including convertible securities
and money market instruments. Bonds and other debt securities are used by
issuers to borrow money from investors. The issuer pays the investor a fixed
or variable rate of interest and must repay the amount borrowed at maturity.
Investment grade debt securities are rated within the four highest quality
grades as determined by Moody's (currently Aaa, Aa, A and Baa for bonds) or
S&P (currently AAA, AA, A and BBB for bonds), or comparably rated by another
NRSRO or in unrated securities which are of equivalent quality in the opinion
of Jennison. If a security (or issuer) held by the Growth Fund is assigned a
rating below investment grade (or, in the view of Jennison, if a security has
declined in credit quality so that it is comparable to a security rated below
investment grade), Jennison will seek to dispose of the security as soon as
reasonably practicable. Securities rated Baa by Moody's, although considered
to be investment grade, lack outstanding investment characteristics and, in
fact, have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
interest and principal payments than is the case with higher grade bonds. Such
lower rated securities are subject to a greater risk of loss of principal and
interest.
NON-INVESTMENT GRADE FIXED-INCOME SECURITIES--ACTIVE BALANCED FUND AND
GROWTH & INCOME FUND ONLY. Up to 5% of the total assets of the Active Balanced
Fund and up to 10% of the total assets of the Growth & Income Fund may be
invested in non-investment grade fixed-income securities. Non-investment grade
fixed-income securities (those rated below Baa by Moody's or BBB by S&P or
comparably rated by another NRSRO or unrated securities determined by Jennison
to be of comparable quality) have speculative characteristics (including the
possibility of default or bankruptcy of the issuers of such securities, market
price volatility based upon interest rate sensitivity, questionable
creditworthiness and relative liquidity of the secondary trading market).
Because these securities have been found to be more sensitive to adverse
economic changes or individual corporate developments and less sensitive to
interest rate changes than higher-rated investments, an economic downturn
could disrupt the market for these securities and adversely affect the value
of these securities and the ability of issuers to repay principal and
interest. See "Risk Factors Relating to Investing in Debt Securities Rated
Below Investment Grade (Junk Bonds)--Active Balanced Fund and Growth & Income
Fund Only" below.
EQUITY-RELATED SECURITIES. Each Fund may invest in equity-related
securities. Equity-related securities include common stocks, preferred stocks,
securities convertible or exchangeable for common stocks or preferred stocks,
equity investments in partnerships, joint ventures and other forms of non-
corporate investments, American Depositary Receipts, and warrants and rights
exercisable for equity securities. See "Convertible Securities, Warrants and
Rights" below.
American Depositary Receipts (ADRs) are U.S. dollar-denominated certificates
issued by a U.S. bank or trust company and represent the right to receive
securities of a foreign issuer deposited in a domestic bank or foreign branch
of a U.S. bank and traded on a U.S. exchange or in an over-the-counter market.
Generally, ADRs are in registered form. There are
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no fees imposed on the purchase or sale of ADRs when purchased from the
issuing bank or trust company in the initial underwriting, although the
issuing bank or trust company may impose charges for the collection of
dividends and the conversion of ADRs into the underlying securities.
Investment in ADRs has certain advantages over direct investment in the
underlying foreign securities since: (i) ADRs are U.S. dollar-denominated
investments that are registered domestically, easily transferable, and for
which market quotations are readily available; and (i) issuers whose
securities are represented by ADRs are usually subject to comparable auditing,
accounting and financial reporting standards as domestic issuers.
CONVERTIBLE SECURITIES, WARRANTS AND RIGHTS
A CONVERTIBLE SECURITY IS A BOND, DEBENTURE, CORPORATE NOTE, PREFERRED STOCK
OR OTHER SIMILAR SECURITY THAT MAY BE CONVERTED AT A STATED PRICE WITHIN A
SPECIFIED PERIOD OF TIME INTO A CERTAIN QUANTITY OF THE COMMON STOCK OR OTHER
EQUITY SECURITIES OF THE SAME OR A DIFFERENT ISSUER. A warrant or right
entitles the holder to purchase equity securities at a specific price for a
specific period of time. Convertible securities are senior to common stocks in
a corporation's capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation dependent upon a market price advance
in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
is also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of
the underlying stock declines. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
In recent years, convertible securities have been developed which combine
higher or lower current income with options and other features. Each Fund may
invest in these types of convertible securities.
The Active Balanced Fund and Growth & Income Fund may invest in convertible
securities which are rated below investment grade or in unrated securities of
comparable quality. See "Risk Factors Relating to Investing in Debt Securities
Rated Below Investment Grade (Junk Bonds)--Active Balanced Fund and Growth &
Income Fund Only" below.
FORWARD ROLLS, DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS--ACTIVE
BALANCED FUND ONLY
The Active Balanced Fund may commit up to 20% of the value of its total
assets to investment techniques such as dollar rolls, forward rolls and
reverse repurchase agreements. A forward roll is a transaction in which the
Fund sells a security to a financial institution, such as a bank or broker-
dealer, and simultaneously agrees to repurchase the same or similar security
from the institution at a later date at an agreed upon price. With respect to
mortgage-related securities, such transactions are often called "dollar
rolls." In dollar roll transactions, the mortgage-related securities that are
repurchased will bear the same coupon rate as those sold, but generally will
be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the roll period, the Fund forgoes principal
and interest paid on the securities and is compensated by the difference
between the current sales price and the forward price for the future purchase
as well as by interest earned on the cash proceeds of the initial sale. A
"covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures
on or before the forward settlement date of the dollar roll transaction.
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Reverse repurchase agreements involve sales by the Active Balanced Fund of
portfolio securities to a financial institution concurrently with an agreement
by the Fund to repurchase the same securities at a later date at a fixed
price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities.
Reverse repurchase agreements, forward rolls and dollar rolls involve the
risk that the market value of the securities purchased by the Active Balanced
Fund with the proceeds of the initial sale may decline below the price of the
securities the Fund has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement, forward roll or dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver,
whether to enforce the Fund's obligations to repurchase the securities. The
staff of the SEC has taken the position that reverse repurchase agreements,
forward rolls and dollar rolls are to be treated as borrowings. The Company
expects that under normal conditions most of the borrowings of the Fund will
consist of such investment techniques rather than bank borrowings. See "Other
Investments and Policies--Borrowing" below.
CUSTODIAL RECEIPTS--ACTIVE BALANCED FUND ONLY
The Active Balanced Fund may acquire custodial receipts or certificates,
such as CATS, TIGRs and FICO Strips, underwritten by securities dealers or
banks, that evidence ownership of future interest payments, principal payments
or both on certain notes or bonds issued by the U.S. Government, its agencies
or instrumentalities. The underwriters of these certificates or receipts
generally purchase a U.S. Government security and deposit the security in an
irrevocable trust or custodial account with a custodian bank, which then
issues receipts or certificates that evidence ownership of the periodic
unmatured coupon payments and the final principal payment on the U.S.
Government security. Custodial receipts evidencing specific coupon or
principal payments have the same general attributes as zero coupon U.S.
Government securities but are not U.S. Government securities and are neither
insured nor guaranteed by the U.S. Government.
SECURITIES OF FOREIGN ISSUERS
Each Fund may invest a portion of its assets in equity securities and fixed-
income securities of foreign issuers (denominated in either U.S. or foreign
currency). ADRs and American Depositary Shares (both of which are U.S. dollar-
denominated certificates issued by a U.S. bank or trust company that represent
the right to receive securities of a foreign issuer deposited in a domestic
bank or foreign branch of a U.S. bank) are not deemed to be foreign
securities.
MONEY MARKET INSTRUMENTS
Each Fund may invest in high quality money market instruments, including
commercial paper of a U.S. or non-U.S. company, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic
and foreign banks, and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. These obligations will be U.S.
dollar denominated or denominated in a foreign currency. Money market
instruments typically have a maturity of one year or less as measured from the
date of purchase. Each Fund may invest in money market instruments without
limit for temporary defensive and cash management purposes. To the extent a
Fund otherwise invests in money market instruments, it is subject to the
limitations described above.
OTHER INVESTMENTS AND POLICIES
BORROWING
Each Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Active
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Balanced Fund also may borrow through forward rolls, dollar rolls or reverse
repurchase agreements and to take advantage of investment opportunities. Each
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. No Fund will purchase portfolio
securities when borrowings exceed 5% of the value of its total assets. See
"Investment Objectives and Policies--Borrowing" in the Statement of Additional
Information.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. A
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss. The Active Balanced Fund may participate
in a joint repurchase account managed by PI. See "Investment Objectives and
Policies--Repurchase Agreements" in the Statement of Additional Information.
ILLIQUID SECURITIES
Each Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities
markets either within or outside of the United States. Restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended (the Securities Act) and privately placed commercial paper that have a
readily available market are not considered illiquid for purposes of this
limitation. 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.
PORTFOLIO TURNOVER
Each Fund's portfolio turnover rate is not expected to exceed 100%. High
portfolio turnover (over 100%) may involve correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
respective Fund. See "Portfolio Transactions and Brokerage" in the Statement
of Additional Information. In addition, high portfolio turnover may result in
increased short-term capital gains which, when distributed to shareholders,
are treated as ordinary income. See "Taxes, Dividends and Distributions."
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase or sell securities (including equity securities) on a
when-issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities are purchased or sold by a Fund with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and/or yield to the Fund at the time of
entering into the transaction. While the Funds will only purchase securities
on a when-issued or delayed delivery basis with the intention of acquiring the
securities, the Funds may sell the securities before the settlement date, if
it is deemed advisable. At the time a Fund makes the commitment to purchase
securities on a when-issued or delayed delivery basis, the Fund will record
the transaction and thereafter reflect the value, each day, of such security
in determining the net asset value of the Fund. At the time of delivery of the
securities, the value may be more or less than the purchase price. The Funds'
Custodian will segregate for the relevant Fund cash or other liquid assets
having a value equal to or greater than such Fund's
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purchase commitments. Subject to this requirement, the Funds may purchase
securities on such basis without limit. See "Investment Objectives and
Policies--When-Issued and Delayed Delivery Securities" in the Statement of
Additional Information.
SECURITIES LENDING
Each Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral (which may
include a secured letter of credit) in an amount equal to at least 100%,
determined daily, of the market value of the securities loaned which is
maintained in a segregated account pursuant to applicable regulations. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any dividend or interest paid on such securities and the
Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower. As with
any extensions of credit, there are risks of delay in recovery and in some
cases loss of rights in the collateral should the borrower of the securities
fail financially. As a matter of fundamental policy, no Fund may lend more
than 30% of the value of its total assets. See "Investment Objectives and
Policies--Lending of Securities" in the Statement of Additional Information.
The Funds may pay reasonable administration and custodial fees in connection
with a loan.
SHORT SALES
Each Fund may make short sales "against-the-box." A short sale is against-
the-box when a Fund enters into a short sale of a security which the Fund owns
or has the right to obtain at no added cost. No more than 25% of the Fund's
net assets (determined at the time of the short sale against-the-box) may be
subject to such sales.
The Growth Fund and the Growth & Income Fund each may sell a security it
does not own in anticipation of a decline in the market value of that security
(short sales), except that the Growth Fund has no current intention of doing
so. To complete such a transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing it at market price at the time of replacement. The
price at such time may be more or less than the price at which the security
was sold by the Fund. Until the security is replaced, the Fund is required to
pay to the lender any dividends or interest which accrue during the period of
the loan. To borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold. The proceeds of
the short sale will be retained by the broker, to the extent necessary to meet
margin requirements, until the short position is closed out. Until the Fund
replaces a borrowed security, the Fund will maintain daily a segregated
account, containing cash or other liquid assets at such a level that (i) the
amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii)
the amount deposited in the segregated account plus the amount deposited with
the broker as collateral will not be less than the market value of the
security at the time it was sold short. The Fund will incur a loss as a result
of the short sale if the price of the security increases between the date of
the short sale and the date on which the Fund replaces the borrowed security.
The Fund will realize a gain if the security declines in price between those
dates. This result is the opposite of what one would expect from a cash
purchase of a long position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium,
dividends or interest the Fund may be required to pay in connection with a
short sale. No more than 25% of the Fund's net assets will be, when added
together: (i) deposited as collateral for the obligation to replace securities
borrowed to effect short sales; and (ii) allocated to segregated accounts in
connection with short sales. See "Investment Objectives and Policies--Short
Sales" in the Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES
FOREIGN SECURITIES INVOLVE CERTAIN RISKS, WHICH SHOULD BE CONSIDERED
CAREFULLY BY AN INVESTOR IN ANY FUND. THESE RISKS INCLUDE POLITICAL OR
ECONOMIC INSTABILITY IN THE COUNTRY OF THE ISSUER, THE DIFFICULTY OF
PREDICTING INTERNATIONAL
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TRADE PATTERNS, THE POSSIBLE IMPOSITION OF EXCHANGE CONTROLS AND THE RISK OF
CURRENCY FLUCTUATIONS. Such securities may be subject to greater fluctuations
in price than securities issued by U.S. corporations or issued or guaranteed
by the U.S. Government, its instrumentalities or agencies. In addition, there
may be less publicly available information about a foreign company than about
a domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than
in the United States and there is a possibility of expropriation, confiscatory
taxation or diplomatic developments which could affect investment.
ADDITIONAL COSTS COULD BE INCURRED IN CONNECTION WITH THE FUNDS'
INTERNATIONAL INVESTMENT ACTIVITIES. Foreign brokerage commissions are
generally higher than U.S. brokerage commissions. Increased custodian costs as
well as administrative difficulties (such as the applicability of foreign laws
to foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.
If the security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result
in a corresponding change in the U.S. dollar value of the Funds' securities
denominated in that currency. Such changes also will affect the Funds' income
and distributions to shareholders. In addition, although a Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after a Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of
income the Fund is required to distribute is not immediately reduced by the
decline in such currency. Similarly, if an exchange rate declines between the
time a Fund incurs expenses in U.S. dollars and the time such expenses are
paid, the amount of such currency required to be converted into U.S. dollars
in order to pay such expenses in U.S. dollars will be greater than the
equivalent amount in any such currency of such expenses at the time they were
incurred. A Fund may, but need not, enter into forward foreign currency
exchange contracts, options on foreign currencies and futures contracts on
foreign currencies and related options, for hedging purposes, including:
locking-in the U.S. dollar price of the purchase or sale of securities
denominated in a foreign currency; locking-in the U.S. dollar equivalent of
dividends to be paid on such securities which are held by the Fund; and
protecting the U.S. dollar value of such securities which are held by the
Fund.
SHAREHOLDERS SHOULD BE AWARE THAT INVESTING IN THE EQUITY MARKETS OF
DEVELOPING COUNTRIES INVOLVES EXPOSURE TO ECONOMIES THAT ARE GENERALLY LESS
DIVERSE AND MATURE, AND TO POLITICAL SYSTEMS WHICH CAN BE EXPECTED TO HAVE
LESS STABILITY, THAN THOSE OF DEVELOPED COUNTRIES. HISTORICAL EXPERIENCE
INDICATES THAT THE MARKETS OF DEVELOPING COUNTRIES HAVE BEEN MORE VOLATILE
THAN THE MARKETS OF DEVELOPED COUNTRIES. THE RISKS ASSOCIATED WITH INVESTMENTS
IN FOREIGN SECURITIES, DESCRIBED ABOVE, MAY BE GREATER WITH RESPECT TO
INVESTMENTS IN DEVELOPING COUNTRIES.
RISK FACTORS RELATING TO INVESTING IN DEBT SECURITIES RATED BELOW INVESTMENT
GRADE (JUNK BONDS)--ACTIVE BALANCED FUND AND GROWTH & INCOME FUND ONLY
The Active Balanced Fund may invest up to 5% and the Growth & Income Fund
may invest up to 10% of its total assets in non-investment grade debt
securities or in unrated securities of comparable quality. Fixed-income
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk) and may also be subject
to price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated (i.e., high yield or high risk)
securities (commonly referred to as junk bonds) are more likely to react to
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of
interest rates. The investment adviser considers both credit risk and market
risk in making investment decisions for these Funds.
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Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be
as liquid as the secondary market for more highly rated securities and, from
time to time, it may be more difficult to value high yield securities than
more highly rated securities. Under adverse market or economic conditions, the
secondary market for high yield securities could contract further, independent
of any specific adverse changes in the condition of a particular issuer. As a
result, the investment adviser could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating a Fund's net asset value.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting
in a decline in the overall credit quality of the debt portion of its
portfolio and increasing the exposure of a Fund to the risks of high yield
securities.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
EACH FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN. A FUND, AND THUS
ITS INVESTORS, MAY LOSE MONEY IF THE FUND IS UNSUCCESSFUL IN ITS USE OF THESE
STRATEGIES. These strategies currently include the use of derivatives, such as
options, forward currency exchange contracts and futures contracts and options
thereon. A Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. See "Investment
Objectives and Policies" and "Taxes, Dividends and Distributions" in the
Statement of Additional Information. Jennison does not intend to buy all of
these instruments or use all of these strategies to the full extent permitted
unless it believes that doing so will help a Fund achieve its objectives. New
financial products and risk management techniques continue to be developed and
a Fund may use these new investments and techniques to the extent consistent
with its investment objectives and policies.
OPTIONS TRANSACTIONS
EACH FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES, STOCK INDICES AND CURRENCIES THAT ARE TRADED ON U.S. OR FOREIGN
SECURITIES EXCHANGES OR IN THE OVER-THE-COUNTER (OTC) MARKET TO ENHANCE RETURN
OR TO HEDGE ITS PORTFOLIO. These options will be on equity securities, stock
indices (e.g., S&P 500) and foreign currencies. A Fund may write put and call
options to generate additional income through the receipt of premiums,
purchase put options in an effort to protect the value of securities (or
currencies) that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
(or currencies) it intends to purchase. The Funds may also purchase put and
call options to offset previously written put and call options of the same
series. See "Investment Objectives and Policies--Options on Securities" in the
Statement of Additional Information.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE RIGHT
FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES OR CURRENCY SUBJECT
TO THE OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE). The
writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When a Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities
or currency in excess of the exercise price of the option during the period
that the option is open. The Funds will write only "covered" call options for
which they (i) own an offsetting position in the underlying security or
currency or (ii) maintain in a segregated account cash or other liquid assets
with a value sufficient at all times to cover their respective obligations.
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A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR A
SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES OR CURRENCY SUBJECT TO THE
OPTION TO THE WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of
the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price. A Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
The Funds will write only put options for which they (i) own an offsetting
position in the underlying security or currency or (ii) maintain in a
segregated account cash or other liquid assets with a value sufficient at all
times to cover their respective obligations.
FORWARD CURRENCY EXCHANGE CONTRACTS
EACH FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS ASSETS AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. The Active Balanced Fund also may purchase and sell
foreign currency forward contracts, futures contracts on foreign currency, and
options on futures contracts on foreign currency to protect against the effect
of adverse changes in foreign currencies. The Funds may enter into such
contracts on a spot, i.e., cash, basis at the rate then prevailing in the
currency exchange market or on a forward basis, by entering into a forward
contract to purchase or sell currency. A forward contract on foreign currency
is an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days agreed upon by the parties from the date
of the contract at a price set on the date of the contract.
THE FUNDS' DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. THE ACTIVE
BALANCED FUND MAY NOT USE FORWARD CONTRACTS, OPTIONS ON FOREIGN CURRENCIES,
FUTURES CONTRACTS ON FOREIGN CURRENCIES AND OPTIONS ON SUCH CONTRACTS IN ORDER
TO GENERATE INCOME, ALTHOUGH THE USE OF SUCH CONTRACTS MAY INCIDENTALLY
GENERATE INCOME. Transaction hedging is the purchase or sale of a forward
contract with respect to specific receivables or payables of a Fund generally
arising in connection with the purchase or sale of its portfolio securities
and accruals of interest or dividends receivable and Fund expenses. Position
hedging is the sale of a foreign currency with respect to portfolio security
positions denominated or quoted in that currency or in a different currency
(cross hedge). Although there are no limits on the number of forward contracts
which the Funds may enter into, the Funds may not position hedge (including
cross hedges) with respect to a particular currency for an amount greater than
the aggregate market value (determined at the time of making any sale of
foreign currency) of the securities being hedged. See "Investment Objectives
and Policies--Risks Related to Forward Foreign Currency Exchange Contracts" in
the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
EACH FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE TO REDUCE
CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN IN
ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION
(CFTC). A FUND, AND THUS ITS INVESTORS, MAY LOSE MONEY THROUGH ANY
UNSUCCESSFUL USE OF THESE STRATEGIES. The Active Balanced Fund may purchase
and sell futures contracts on securities, securities indices, interest rate
indices and foreign currencies. The Growth Fund may purchase and sell futures
contracts on stock indices and foreign currencies. The Growth & Income Fund
may purchase and sell futures contracts on debt securities, including U.S.
Government securities, aggregates of debt securities, stock indices and
foreign currencies. A futures contract is an agreement to purchase or sell an
agreed amount of securities or currencies at a set price for delivery in the
future. A stock index futures contract is an agreement to purchase or sell
cash equal to a specific dollar amount times the difference between the value
of a specific stock index at the close of the last trading day of the contract
and the price at which the agreement is made. No physical delivery of the
underlying stocks in the index is made. The Funds may purchase and sell
futures contracts or related options as a hedge against changes in market
conditions.
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No Fund may purchase or sell futures contracts and related options to
attempt to enhance return if immediately thereafter the sum of the amount of
initial margin deposits on a Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the liquidation
value of the Fund's total assets. Each Fund may purchase and sell futures
contracts and related options, without limitation, for bona fide hedging
purposes in accordance with regulations of the CFTC (i.e., to reduce certain
risks of its investments). The value of all futures contracts sold will not
exceed the total market value of a Fund's portfolio.
Futures contracts and related options are generally subject to segregation
requirements of the SEC and coverage requirements of the CFTC. If a Fund does
not hold the security or currency underlying the futures contract, it will be
required to segregate on an ongoing basis with its Custodian cash or other
liquid assets having an amount at least equal to its obligations with respect
to such futures contracts.
THE FUNDS' SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET
AND IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements
in the price of a futures contract and the movements in the index or price of
the currencies underlying the futures contract is imperfect and there is a
risk that the value of the securities or currencies underlying the futures
contract may increase or decrease at a greater rate than the related futures
contracts resulting in losses to the Funds. Certain futures exchanges or
boards of trade have established daily limits on the amount that the price of
futures contracts or related options may vary, either up or down, from the
previous day's settlement price. These daily limits may restrict the Funds'
ability to purchase or sell certain futures contracts or related options on
any particular day.
The Funds' ability to enter into or close out futures contracts and options
thereon is limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE
FUNDS WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. A FUND, AND
THUS ITS INVESTORS, MAY LOSE MONEY THROUGH ANY UNSUCCESSFUL USE OF THESE
STRATEGIES. If the investment adviser's predictions of movements in the
direction of the securities, foreign currency and interest rate markets are
inaccurate, the adverse consequences to a Fund may leave the Fund in a worse
position than if such strategies were not used. Risks inherent in the use of
options, foreign currency and futures contracts and options on futures
contracts include (1) dependence on the investment adviser's ability to
predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices
of the securities or currencies being hedged; (3) the fact that skills needed
to use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the
possible inability of a Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need
for a Fund to sell a portfolio security at a disadvantageous time, due to the
need for the Fund to maintain "cover" or to segregate securities in connection
with hedging transactions. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information.
The Funds will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Funds will generally purchase OTC options only if management believes that the
other party to the options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will
continue to exist or that the other party will continue to make a market.
Thus, it may not be possible to close out an option or futures transaction.
The inability to close out options and futures positions also could have an
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adverse impact on a Fund's ability to effectively hedge its portfolio. There
is also the risk of loss by a Fund of margin deposits or collateral in the
event of bankruptcy of a broker with whom the Fund has an open position in an
option, a futures contract or related option.
INVESTMENT RESTRICTIONS
The Funds are subject to certain investment restrictions which, like their
investment objectives, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
relevant Fund's outstanding voting securities as defined in the Investment
Company Act. See "Investment Restrictions" in the Statement of Additional
Information.
HOW THE FUNDS ARE MANAGED
THE COMPANY HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUNDS' MANAGER, SUBADVISERS AND DISTRIBUTOR, DECIDES UPON
MATTERS OF GENERAL POLICY. THE FUNDS' MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE FUNDS. EACH FUND'S SUBADVISER(S) FURNISH(ES)
DAILY INVESTMENT ADVISORY SERVICES.
Each Fund is responsible for the payment of certain fees and expenses
including, among others, the following: (i) management and distribution fees;
(ii) the fees of unaffiliated Directors; (iii) the fees of the Custodian and
Transfer and Dividend Disbursing Agent; (iv) the fees of the legal counsel and
independent accountants; (v) brokerage commissions incurred in connection with
portfolio transactions; (vi) all taxes and charges of governmental agencies;
(vii) the reimbursement of organization expenses; and (viii) expenses related
to shareholder communications including all expenses of shareholders' and
Board of Directors' meetings and of preparing, printing and mailing reports,
proxy statements and prospectuses to shareholders.
For the fiscal year ended September 30, 1997, the Growth Fund's total
expenses as a percentage of average net assets for Class A, Class B, Class C
and Class Z shares were 1.09%, 1.84%, 1.84% and .84%, respectively. For the
fiscal period ended September 30, 1997, the Growth & Income Fund's total
expenses as an annualized percentage of average net assets for Class A, Class
B, Class C and Class Z shares were 1.58%, 2.33%, 2.33% and 1.33%,
respectively. See "Financial Highlights." No shares of the Active Balanced
Fund were outstanding during this period.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE FUNDS AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF
.60 OF 1% OF EACH OF THE GROWTH FUND'S AND GROWTH & INCOME FUND'S AVERAGE
DAILY NET ASSETS AND AT AN ANNUAL RATE OF .65 OF 1% OF THE ACTIVE BALANCED
FUND'S AVERAGE NET ASSETS. PIFM is organized in New York as a limited
liability company. For the fiscal year ended September 30, 1997, the Growth
Fund and Growth & Income Fund each paid management fees to PIFM of .60% of the
Fund's average net assets. See "Manager and Subadvisers" in the Statement of
Additional Information.
As of December 31, 1997, PIFM served as the manager to 42 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to 22 closed-end investment companies, with aggregate
assets of approximately $62 billion.
Under the Management Agreements with the Company, PIFM manages the
investment operations of the Funds and also administers the Funds' corporate
affairs. See "Manager and Subadvisers" in the Statement of Additional
Information.
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SUBADVISERS
JENNISON ASSOCIATES LLC (JENNISON, THE SUBADVISER OR THE INVESTMENT
ADVISER), 466 LEXINGTON AVENUE, NEW YORK, NEW YORK 10017, IS THE SUBADVISER TO
THE FUNDS. As of December 31, 1997, Jennison had over $37 billion in assets
under management for institutional and mutual fund clients.
PURSUANT TO SUBADVISORY AGREEMENTS WITH PIFM, JENNISON FURNISHES INVESTMENT
ADVISORY SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUNDS AND IS
COMPENSATED BY PIFM 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 EACH FUND'S AVERAGE DAILY NET ASSETS IN EXCESS OF $300 MILLION.
Under each Subadvisory Agreement, Jennison, subject to the supervision of
PIFM, is responsible for managing the assets of the Funds in accordance with
each Fund's respective investment objective, investment program and policies.
Jennison determines what securities and other instruments are purchased and
sold for the Funds and is responsible for obtaining and evaluating financial
data relevant to the Funds.
BRADLEY GOLDBERG IS THE PORTFOLIO MANAGER AND PETER REINEMANN AND G. TODD
SILVA ARE ASSOCIATE PORTFOLIO MANAGERS OF THE ACTIVE BALANCED FUND. Mr.
Goldberg is an Executive Vice President of Jennison, and is responsible for
the day-to-day management of the Active Balanced Fund. Mr. Goldberg managed
Prudential Active Balanced Fund, whose assets were acquired by the Fund on
January 23, 1998, since its inception in January 1993 and has been employed as
a portfolio manager at Jennison since 1974. Mr. Goldberg also serves as the
portfolio manager of the Growth & Income Fund. Mr. Reinemann, a Senior Vice
President and Director, joined Jennison in 1992 as an associate portfolio
manager. Prior to that time, he served as a Vice President at Paribas Asset
Management, Inc. Mr. Reinemann also serves as an Associate Portfolio Manager
for the Growth Fund. Mr. Silva, a Senior Vice President of Jennison, joined
Jennison in June 1996. He was previously a Vice President and assistant
portfolio manager in the Growth & Income Group at Scudder, Stevens & Clark
Inc. and an equity analyst at Putnam Investments. Mr. Reinemann and Mr. Silva
are also Associate Portfolio Managers of the Growth & Income Fund.
DAVID POIESZ IS THE PORTFOLIO MANAGER OF THE GROWTH FUND AND PETER REINEMANN
IS THE ASSOCIATE PORTFOLIO MANAGER OF THE GROWTH FUND. Mr. Poiesz is
responsible for the day-to-day management of the Growth Fund. They are both
Senior Vice Presidents of Jennison and have been involved with the Growth Fund
since its inception in 1995. Mr. Poiesz, also a Director of Jennison, joined
Jennison in 1983 as an equity research analyst and has been an equity
portfolio manager since 1991. Mr. Poiesz also serves as the Portfolio Manager
of the Prudential Jennison Portfolio of the Prudential Series Fund, Inc., a
registered investment company. Mr. Reinemann's biography appears above.
BRADLEY GOLDBERG IS THE PORTFOLIO MANAGER AND PETER REINEMANN AND G. TODD
SILVA ARE ASSOCIATE PORTFOLIO MANAGERS OF THE GROWTH & INCOME FUND. Mr.
Goldberg, whose biography appears above, is responsible for the day-to-day
management of the Growth & Income Fund. The biographies of Messrs. Reinemann
and Silva also appear above.
THE PRUDENTIAL INVESTMENT CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL
INVESTMENTS (PI), 751 BROAD STREET, NEWARK, NEW JERSEY 07102, INVESTS
AVAILABLE CASH BALANCES FOR THE ACTIVE BALANCED FUND THROUGH A JOINT
REPURCHASE AGREEMENT ACCOUNT. The Manager reimburses PI for the reasonable
costs and expenses it incurs in providing such services.
PIFM, PIC and Jennison are wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE
DISTRIBUTOR OF THE CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF THE
COMPANY. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
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UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUNDS UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE EXPENSES OF DISTRIBUTING
EACH FUND'S CLASS A, CLASS B AND CLASS C SHARES. The Distributor also incurs
the expenses of distributing the Funds' Class Z shares under the Distribution
Agreement, none of which is reimbursed by or paid for by the Funds. These
expenses include commissions and account servicing fees paid to, or on account
of, financial advisers of Prudential Securities and Pruco Securities
Corporation (Prusec), an affiliated broker-dealer, commissions and account
servicing fees paid to, or on account of, other broker-dealers or financial
institutions (other than national banks) which have entered into agreements
with the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of each Fund's
shares, including lease, utility, communications and sales promotion expenses.
Under the Plans, the Funds are obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Funds will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, EACH FUND MAY PAY THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. Prudential Securities has
agreed to limit its distribution-related fees payable under the Class A Plan to
.25 of 1% of the average daily net assets of the Class A shares for the fiscal
year ending September 30, 1998.
UNDER THE CLASS B AND CLASS C PLANS, EACH FUND PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES AT AN
ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B AND
CLASS C SHARES. The Class B and Class C Plans provide for the payment to the
Distributor of (i) an asset-based sales charge of .75 of 1% of the average
daily net assets of the Class B and Class C shares, respectively, and (ii) a
service fee of .25 of 1% of the average daily net assets of each of the Class B
and Class C shares. The service fee is used to pay for personal service and/or
the maintenance of shareholder accounts. Prudential Securities also receives
contingent deferred sales charges from certain redeeming shareholders. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges."
For the fiscal year ended September 30, 1997, the Growth Fund and the Growth
& Income Fund each paid distribution expenses of .25%, 1.00% and 1.00% of the
average daily net assets of their Class A, Class B and Class C shares,
respectively. Each Fund records all payments made under the Plans as expenses
in the calculation of net investment income. See "Distributor" in the Statement
of Additional Information.
Distribution expenses attributable to the sale of Class A, Class B or Class C
shares of the Funds will be allocated to each such class of the respective Fund
based upon the ratio of sales of each such class to the sales of Class A, Class
B and Class C shares of such Fund other than expenses allocable to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Company, including a
majority of the Directors who are not "interested persons" of the Company (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement
34
<PAGE>
related to the Plan (the Rule 12b-1 Directors), vote annually to continue the
Plan. Each Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors or of a majority of the outstanding shares of the
applicable class of a Fund. The Fund will not be obligated to pay expenses
incurred under any Plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Funds under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers (including Prudential Securities) and other persons
which distribute shares of the Funds (including Class Z shares). Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
FEE WAIVERS AND SUBSIDY
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of any Fund. In addition,
the Distributor has agreed to limit its distribution fee for the Class A
shares as described above under "Distributor." Fee waivers and expense
subsidies will increase a Fund's total return. See "Performance Information"
in the Statement of Additional Information and "Fund Expenses" above.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant for
the Funds provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage"
in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Funds' portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Company. Its mailing
address is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent for the
Funds and in those capacities maintains certain books and records for the
Company. PMFS is a wholly-owned subsidiary of PIFM. Its mailing address is
P.O. Box 15005, New Brunswick, New Jersey 08906-5005.
HOW EACH FUND VALUES ITS SHARES
EACH FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF EACH FUND'S NAV TO BE AS OF 4:15
P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Company's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
35
<PAGE>
Each Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem shares have been received by the Fund or days on which changes
in the value of a Fund's portfolio securities do not materially affect its
NAV.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger distribution-
related fee to which Class B and Class C shares are subject. The NAV of Class
Z shares will generally be higher than the NAV of the other three classes
because Class Z shares are not subject to any distribution and/or service
fees. It is expected, however, that the NAV of the four classes will tend to
converge immediately after the recording of dividends, which will differ by
approximately the amount of distribution and/or service fee expense accrual
differential among the classes.
HOW THE FUNDS CALCULATE PERFORMANCE
FROM TIME TO TIME A FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL RETURN,
AGGREGATE TOTAL RETURN AND YIELD IN ADVERTISEMENTS OR SALES LITERATURE. TOTAL
RETURN AND YIELD ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES. These figures are based on historical earnings and are not
intended to indicate future performance. The total return shows how much an
investment in a Fund would have increased (decreased) over a specified period
of time (i.e., one, five, or ten years or since inception of the Fund)
assuming that all distributions and dividends by the Fund were reinvested on
the reinvestment dates during the period and less all recurring fees. The
aggregate total return reflects actual performance over a stated period of
time. Average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. Average annual total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither average
annual total return nor aggregate total return takes into account any federal
or state income taxes which may be payable upon redemption. The yield refers
to the income generated by an investment in a Fund over a one-month or 30-day
period. This income is then "annualized;" that is, the amount of income
generated by the investment during that 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage
of the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period. A Fund also may include
comparative performance information in advertising or marketing the Fund's
shares. Such performance information may include data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., and other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. Further performance
information will be contained in each Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUNDS
EACH FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE INTERNAL REVENUE CODE). ACCORDINGLY, THE FUNDS WILL NOT BE
SUBJECT TO FEDERAL INCOME TAXES ON NET INVESTMENT INCOME AND NET CAPITAL
GAINS, IF ANY, THAT THEY DISTRIBUTE TO THEIR RESPECTIVE SHAREHOLDERS.
36
<PAGE>
The Funds may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Funds' investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Funds. See "Taxes, Dividends and Distributions"
in the Statement of Additional Information.
In addition, under the Internal Revenue Code, special rules apply to the
treatment of certain options and futures contracts (Section 1256 contracts).
At the end of each year, such investments held by the Funds will be required
to be "marked-to-market" for federal income tax purposes; that is, treated as
having been sold at market value. Sixty percent of any gain or loss recognized
on these "deemed sales" and on actual dispositions may be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss. See "Taxes, Dividends and Distributions" in the Statement of
Additional Information.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition are
treated as ordinary gain or loss. These gains or losses increase or decrease
the amount of a Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency fluctuation
losses exceed other investment company taxable income during a taxable year,
distributions made by a Fund during the year would be characterized as a
return of capital to shareholders, reducing the shareholder's basis in his or
her Fund shares.
The Funds may incur foreign income taxes in connection with some of their
foreign investments. See "Taxes, Dividends and Distributions" in the Statement
of Additional Information.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net long-term capital gains
distributed to shareholders will be taxable as such to the shareholder,
whether or not reinvested and regardless of the length of time a shareholder
has owned his or her shares. The maximum long-term capital gains rate for
corporate shareholders is currently the same as the maximum tax rate for
ordinary income. The maximum long-term capital gains rate for individual
shareholders for securities held between 12 and 18 months currently is 28% and
for securities held more than 18 months is 20%. The maximum tax rate for
individual shareholders for ordinary income is 39.6%.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, on
shares that are held for six months or less, will be treated as a long-term
capital loss to the extent of any capital gain distributions received by the
shareholder.
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.
Distributions by the Funds to a shareholder that is a qualified retirement
plan would generally not be taxable to participants of the plan. Distributions
from a qualified retirement plan (or non-qualified arrangement) to a
participant or beneficiary are subject to special rules. These rules vary
greatly with individual situations, therefore potential investors are urged to
consult with their own tax advisers.
The Funds have obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
any class of a Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
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<PAGE>
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Funds are required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
THE ACTIVE BALANCED FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME,
IF ANY, ANNUALLY, AND THE GROWTH FUND AND GROWTH & INCOME FUND EXPECT TO PAY
DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, SEMI-ANNUALLY, AND EACH FUND
EXPECTS TO MAKE DISTRIBUTIONS OF ANY CAPITAL GAINS IN EXCESS OF NET LONG-TERM
CAPITAL LOSSES AT LEAST ANNUALLY. Dividends paid by the Funds with respect to
each class of shares, to the extent any dividends are paid, will be calculated
in the same manner, at the same time, on the same day and will be in the same
amount except that each class other than Class Z will bear its own
distribution and/or service fee charges, generally resulting in lower
dividends for Class B and Class C shares in relation to Class A and Class Z
shares and lower dividends for Class A shares in relation to Class Z shares.
Distribution of net capital gains, if any, will be paid in the same amount per
share for each class of shares. See "How Each Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL SHARES OF THE
RELEVANT FUND, BASED ON THE NAV OF EACH CLASS ON THE RECORD DATE OR SUCH OTHER
DATE AS THE BOARD OF DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN
WRITING NOT LESS THAN FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE
SUCH DIVIDENDS AND DISTRIBUTIONS IN CASH. Such election should be submitted to
Prudential Mutual Fund Services LLC, Attn: Account Maintenance, P.O. Box
15015, New Brunswick, New Jersey 08906-5015. The Funds will notify their
respective shareholders after the close of the Funds' taxable year both of the
dollar amount and the taxable status of that year's dividends and
distributions on a per share basis. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash.
IF YOU BUY SHARES ON OR IMMEDIATELY PRIOR TO THE RECORD DATE (THE DATE THAT
DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY
YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING
OF DIVIDENDS WHEN BUYING SHARES OF A FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
THE COMPANY WAS INCORPORATED IN MARYLAND ON AUGUST 10, 1995. THE COMPANY IS
AUTHORIZED TO ISSUE 3 BILLION SHARES OF COMMON STOCK, $.001 PAR VALUE PER
SHARE, DIVIDED INTO THREE SERIES OR PORTFOLIOS, PRUDENTIAL JENNISON ACTIVE
BALANCED FUND, PRUDENTIAL JENNISON GROWTH FUND AND PRUDENTIAL JENNISON GROWTH
& INCOME FUND. EACH SERIES IS FURTHER DIVIDED INTO FOUR CLASSES OF SHARES,
DESIGNATED CLASS A, CLASS B, CLASS C AND CLASS Z. THERE ARE 250 MILLION
AUTHORIZED SHARES ALLOCATED TO EACH OF THE FOUR CLASSES OF SHARES IN EACH
SERIES OF THE COMPANY. Each class of Common stock of each Fund represents an
interest in the same assets of such Fund and is identical in all respects
Except that (i) each class is subject to different sales charges and
distribution and/or service fees (except for Class Z shares, which are not
subject to any sales charges and distribution and/or service fees), which may
affect performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
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<PAGE>
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. In accordance with the Company's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series of common stock and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board may
determine.
The Company's expenses generally are allocated among the Funds on the basis
of relative net assets at the time of allocation, except that expenses
directly attributable to a Fund are charged to such Fund.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of each Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Funds under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares (with the exception of
Class Z shares, which are not subject to any distribution or service fees).
Except for the conversion feature applicable to the Class B shares, there are
no conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of a Fund is entitled to its portion
of all of such Fund's assets after all debts and expenses of such Fund have
been paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of
those classes are likely to be lower than to Class A shareholders and to Class
Z shareholders, whose shares are not subject to any distribution and/or
service fees. The Company's shares do not have cumulative voting rights for
the election of Directors.
THE COMPANY DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE COMPANY WILL NOT BE REQUIRED TO HOLD MEETINGS
OF SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO
BE ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS
HAVE CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10%
OR MORE OF THE COMPANY'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE
REMOVAL OF ONE OR MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Company with the SEC
under the Securities Act of 1933, as amended. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUNDS
YOU MAY PURCHASE SHARES OF THE FUNDS THROUGH PRUDENTIAL SECURITIES, PRUSEC
OR DIRECTLY FROM EACH FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about Class Z shares. The offering price
is the NAV next determined following receipt of an order by the Transfer Agent
or Prudential Securities plus a sales charge which, at your option, may be
imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at net asset value without any sales charge.
Payment may be made by cash, wire, check or through your brokerage account.
See "Alternative Purchase Plan" below. See also "How Each Fund Values its
Shares."
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<PAGE>
The minimum initial investment for each Fund is $1,000 for Class A and Class
B shares and $5,000 for Class C shares, except that the minimum initial
investment for Class C shares may be waived from time to time. There is no
minimum initial investment requirement for Class Z shares. The minimum
subsequent investment is $100 for all classes, except for Class Z shares, for
which there is no such minimum. All minimum investment requirements are waived
for certain retirement and employee savings plans or custodial accounts for
the benefit of minors. For purchases through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Services" below.
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive stock
certificates.
Each Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Funds. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in shares of the Funds may be subject to postage and handling
charges imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of a Fund by wire, you
must first telephone PMFS to receive an account number at (800) 225-1852
(toll-free). The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you
to your bank to transfer funds by wire to State Street Bank and Trust Company
(State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Jennison Series Fund, Inc., Prudential
Jennison Active Balanced Fund, Prudential Jennison Growth Fund or Prudential
Jennison Growth & Income Fund, as the case may be, specifying on the wire the
account number assigned by PMFS and your name and identifying the class in
which you are eligible to invest (Class A, Class B, Class C or Class Z
shares).
If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Funds as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Jennison Series
Fund, Inc., Prudential Jennison Active Balanced Fund, Prudential Jennison
Growth Fund or Prudential Jennison Growth & Income Fund, as the case may be,
Class A, Class B, Class C or Class Z shares and your name and individual
account number. It is not necessary to call PMFS to make subsequent purchase
orders utilizing federal funds. The minimum amount which may be invested by
wire is $1,000.
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<PAGE>
ALTERNATIVE PURCHASE PLAN
EACH FUND OFFERS FOUR CLASSES OF SHARES (CLASS A, CLASS B, CLASS C AND CLASS
Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE
STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE,
THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT
CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge .30 of 1% Initial sales charge waived
of 5% of the public offering (currently being or reduced for certain
price charged at a rate purchases
of .25 of 1%)
CLASS B Maximum contingent deferred 1% Shares convert to Class A
sales charge or CDSC of 5% shares approximately seven
of the lesser of the amount years after purchase
invested or the redemption
proceeds; declines to zero
after six years
CLASS C Maximum CDSC of 1% of the 1% Shares do not convert to
lesser of the amount another class
invested or the redemption
proceeds on redemptions made
within one year of purchase.
CLASS Z None Sold to a limited group of
None investors
</TABLE>
Each class of shares of a Fund represents an interest in the same portfolio
of investments of such Fund and has the same rights, 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 fee), which may affect performance, (ii) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class, (iii) each class has a different exchange
privilege, (iv) only Class B shares have a conversion feature and (v) Class Z
shares are offered exclusively for sale to a limited group of investors. See
"How to Exchange Your Shares" below. The income attributable to each class and
the dividends payable on the shares of each class will be reduced by the
amount of the distribution fee (if any) of each class. Class B and Class C
shares bear the expenses of a higher distribution fee which will generally
cause them to have higher expense ratios and to pay lower dividends than the
Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Funds will
receive different compensation for selling Class A, Class B, Class C and Class
Z shares and will generally receive more compensation initially for selling
Class A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Funds.
If you intend to hold your investment in a Fund for less than 7 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to an initial sales charge of 5% and Class B shares are subject to
a CDSC of 5% which declines to zero over a 6-year period, you should consider
purchasing Class C shares over either Class A or Class B shares.
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<PAGE>
If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class A or Class B shares over Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money
invested initially because the sales charge on Class A shares is deducted at
the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in net asset value, the effect of
the return on the investment over this period of time or redemptions during
which the CDSC is applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES, UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See
"Reduction and Waiver of Initial Sales Charges" and "Class Z Shares" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested)
as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
--------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
The Distributor may reallow the entire initial sales charge to dealers.
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares
a finders' fee from its own resources based on a percentage of the net asset
value of shares sold by such persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of a
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "Purchase and Redemption
of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares"
in the Statement of Additional Information.
42
<PAGE>
BENEFIT PLANS. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 or 403(b)(7) of the Internal
Revenue Code (collectively, Benefit Plans), provided that the plan has
existing assets of at least $1 million invested in shares of Prudential Mutual
Funds (excluding money market funds other than those acquired pursuant to the
exchange privilege) or 250 eligible employees or participants. In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by Prudential Securities or its
subsidiaries (Prudential Securities or Subsidiary Prototype Benefit Plans),
Class A shares may be purchased at NAV by participants who are repaying loans
made from such plans to the participant.
PRUDENTIAL RETIREMENT PROGRAMS. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or non-
qualified under the Internal Revenue Code, for which Prudential serves as the
plan administrator or recordkeeper, provided that (i) the plan has at least $1
million in existing assets or 250 eligible employees and (ii) the applicable
Fund is an available investment option. These plans include pension, profit-
sharing, stock-bonus or other employee benefit plans under Section 401 of the
Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 or 403(b)(7) of the Internal Revenue Code and plans that
participate in the Transfer Agent's PruArray and SmartPath Programs (benefit
plan recordkeeping services) (hereafter referred to as a PruArray or SmartPath
Plan). All plans of a company for which Prudential serves as plan
administrator or recordkeeper are aggregated in meeting the $1 million
threshold. The term "existing assets" as used herein includes stock issued by
a plan sponsor, shares of Prudential Mutual Funds and shares of certain
unaffiliated mutual funds that participate in the PruArray or SmartPath
Program (Participating Funds). "Existing assets" also include monies invested
in The Guaranteed Interest Account (GIA), a group annuity insurance product
issued by Prudential, and units of The Stable Value Fund (SVF), an
unaffiliated bank collective fund. Class A shares may also be purchased at NAV
by plans that have monies invested in GIA and SVF, provided (i) the purchase
is made with the proceeds of a redemption from either GIA or SVF and (ii)
Class A shares are an investment option of the plan.
PRUARRAY ASSOCIATION BENEFIT PLANS. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are
members of a common trade, professional or membership association
(Association) that participate in the PruArray Program provided that the
Association enters into a written agreement with Prudential. Such Benefit
Plans or non-qualified plans may purchase Class A shares at NAV without regard
to the assets or number of participants in the individual employer's qualified
plan(s) or non-qualified plans so long as the employers in the Association (i)
have retirement plan assets in the aggregate of at least $1 million or 250
participants in the aggregate and (ii) maintain their accounts with the
Transfer Agent.
PRUARRAY SAVINGS PROGRAM. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for
purchase at NAV by Individual Retirement Accounts and Savings Accumulation
Plans of the company's employees. The Program is available only to (i)
employees who open an IRA or Savings Accumulation Plan account with the
Transfer Agent and (ii) spouses of employees who open an IRA account with the
Transfer Agent. The program is offered to companies that have at least 250
eligible employees.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray or SmartPath Plan qualifies to purchase Class A shares at NAV, all
subsequent purchases will be made at NAV.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
officers of the Prudential Mutual Funds (including the Funds), (b) employees
of Prudential Securities and PIFM and their subsidiaries and members of the
families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees of subadvisers of
the Prudential
43
<PAGE>
Mutual Funds provided that purchases at NAV are permitted by such person's
employer, (d) Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active service
with Prudential or one of its subsidiaries, (e) registered representatives and
employees of dealers who have entered into a selected dealer agreement with
Prudential Securities provided that purchases at NAV are permitted by such
person's employer, (f) investors who have a business relationship with a
financial adviser who joined Prudential Securities from another investment
firm, provided that (i) the purchase is made within 180 days of the
commencement of the financial adviser's employment at Prudential Securities,
or within one year in the case of Benefit Plans, (ii) the purchase is made
with proceeds of a redemption of shares of any open-end non-money market fund
sponsored by the financial adviser's previous employer (other than a fund
which imposes a distribution or service fee of .25 of 1% or less) and (iii)
the financial adviser served as the client's broker on the previous purchase
and (g) investors in Individual Retirement Accounts, provided the purchase is
made with the proceeds of a tax-free rollover of assets from a Benefit Plan
for which Prudential Investments serves as the recordkeeper or administrator.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation
of your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--
Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent, Prudential Securities or Prusec.
Although there is no sales charge imposed at the time of purchase, redemptions
of Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." The Distributor will pay, from its
own resources, sales commissions of up to 4% of the purchase price of Class B
shares to dealers, financial advisers and other persons who sell Class B
shares at the time of sale. This facilitates the ability of the Funds to sell
the Class B shares without an initial sales charge being deducted at the time
of purchase. The Distributor anticipates that it will recoup its advancement
of sales commissions from the combination of the CDSC and the distribution
fee. See "How the Funds are Managed--Distributor." In connection with the sale
of Class C shares, the Distributor will pay, from its own resources, dealers,
financial advisers and other persons which distribute Class C shares a sales
commission of up to 1% of the purchase price at the time of the sale.
CLASS Z SHARES
Class Z shares are currently available for purchase by 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 and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code and non-qualified plans for which the relevant Fund is
an available option (collectively, Benefit Plans), provided such Benefit Plans
(in combination with other plans sponsored by the same employer or group of
related employers) have at least $50 million in defined contribution assets;
(ii) participants in any fee-based program sponsored by Prudential Securities,
The Prudential Savings Bank, F.S.B. or any affiliate which includes mutual
funds as investment options and for which the relevant Fund is an available
option; (iii) certain participants in the Medley Program (group variable
annuity contracts) sponsored by Prudential for whom Class Z shares of the
Prudential Mutual Funds are an available option; (iv) Benefit Plans for which
Prudential Retirement Services serves as recordkeeper 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 Funds); and (vi) employees of Prudential and/or
Prudential Securities who participate in a Prudential-sponsored employee
savings plan. After a Benefit Plan qualifies to purchase Class Z shares, all
subsequent purchases will be for Class Z shares.
44
<PAGE>
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other
persons which distribute shares a finders' fee from its own resources based on
a percentage of the net asset value of shares sold by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM SHARES OF A FUND AT ANY TIME FOR CASH AT THE NAV PER SHARE
NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. See "How Each Fund Values its
Shares." In certain cases, however, redemption proceeds will be reduced by the
amount of any applicable CDSC, as described below. See "Contingent Deferred
Sales Charges" below.
IF YOU HOLD SHARES OF A FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR PRUDENTIAL
SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES SIGNED IN THE NAMES(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be
sent to the respective Fund in care of its Transfer Agent, Prudential Mutual
Fund Services LLC, Attention: Redemption Services, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office
manager of most Prudential Insurance and Financial Services or Prudential
Preferred Financial Services offices. In the case of redemptions from a
PruArray or SmartPath Plan, if the proceeds of the redemption are invested in
another investment option of the plan, in the name of the record holder and at
the same address as reflected in the Transfer Agent's records, a signature
guarantee is not required.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on such Exchange is restricted, (c)
when an emergency exists as a result of which disposal by a Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) during
any other period when the SEC, by order, so permits; provided that applicable
rules and regulations of the SEC shall govern as to whether the conditions
prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL A
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE
OR BY CERTIFIED OR CASHIER'S CHECK.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price
in whole
45
<PAGE>
or in part by a distribution in kind of securities from the investment
portfolio of such Fund, in lieu of cash, in conformity with applicable rules
of the SEC. Securities will be readily marketable and will be valued in the
same manner as a regular redemption. See "How Each Fund Values its Shares." If
your shares are redeemed in kind, you would incur transaction costs in
converting the assets into cash. The Company has, however, elected to be
governed by Rule 18f-1 under the Investment Company Act, under which each Fund
is obligated to redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during the 90-day period for any one
shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Funds, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose
account has a net asset value of less than $500 due to a redemption. The Funds
will give any such shareholder 60 days' prior written notice in which to
purchase sufficient additional shares to avoid such redemption. No CDSC will
be imposed on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of such Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of redemption. Any CDSC paid in connection with such redemption will be
credited (in shares) to your account. If less than a full repurchase is made,
the credit will be on a pro rata basis. You must notify the Fund's Transfer
Agent, either directly or through Prudential Securities, at the time the
repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales
Charges" below. Exercise of the repurchase privilege will generally not affect
the federal tax treatment of any gain realized upon redemption. However, if
the redemption was made within a 30 day period of the repurchase and if the
redemption resulted in a loss, some or all of the loss, depending on the
amount reinvested, may not be allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares to an amount which is lower
than the amount of all payments by you for shares during the preceding six
years, in the case of Class B shares, and one year, in the case of Class C
shares. A CDSC will be applied on the lesser of the original purchase price or
the current value of the shares being redeemed. Increases in the value of your
shares or shares purchased through reinvestment of dividends or distributions
are not subject to a CDSC. The amount of any contingent deferred sales charge
will be paid to and retained by the Distributor. See "How the Funds are
Managed--Distributor" and "Waiver of the Contingent Deferred Sales Charges--
Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month
after the initial purchase, excluding the time shares were held in a money
market fund. See "How to Exchange Your Shares" below.
46
<PAGE>
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- -------------------------
<S> <C>
First......................................... 5.0%
Second........................................ 4.0%
Third......................................... 3.0%
Fourth........................................ 2.0%
Fifth......................................... 1.0%
Sixth......................................... 1.0%
Seventh....................................... None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results generally in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of a Fund's shares made during the
preceding six years; then of amounts representing the cost of shares held
beyond the applicable CDSC period; and finally, of amounts representing the
cost of shares held for the longest period of time within the applicable CDSC
period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase, you decided
to redeem $500 of your investment. Assuming at the time of the redemption the
NAV had appreciated to $12 per share, the value of your Class B shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to the
value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), or a trust, at the time of death or
initial determination or disability, provided that the shares were purchased
prior to death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a tax-
deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service, i.e.,
following voluntary or involuntary termination of employment or following
retirement. Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan unless such
redemptions otherwise qualify as a waiver as described above. In the case of
Direct Account and Prudential Securities or Subsidiary Prototype Benefit
Plans, the CDSC will be waived on redemptions which represent borrowings from
such plans. Shares purchased with amounts used to repay a loan from such plans
on which a CDSC was not previously deducted will thereafter be subject to a
CDSC without
47
<PAGE>
regard to the time such amounts were previously invested. In the case of a
401(k) plan, the CDSC will also be waived upon the redemption of shares
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.
Systematic Withdrawal Plan. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. In an annual basis, up to 12%
of the total dollar amount, subject to the CDSC may be redeemed without
charge. The Transfer Agent will calculate the total amount available for this
waiver annually on the anniversary date of your purchase. The CDSC will be
waived (or reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Company.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to
waiver of the CDSC and provide the Transfer Agent with such supporting
documentation as it may deem appropriate. The waiver will be granted subject
to confirmation of your entitlement. See "Purchase and Redemption of Fund
Shares--Waiver of the Contingent Deferred Sales Charge--Class B Shares" in the
Statement of Additional Information.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES
PruArray or SmartPath Plan. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the Transfer Agent's PruArray and SmartPath Programs.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected
at relative net asset value without the imposition of any additional sales
charge.
Since each Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will
be determined on each conversion date in accordance with the following
formula: (i) the ratio of (a) the amounts paid for Class B shares purchased at
least seven years prior to the conversion date to (b) the total amount paid
for all Class B shares purchased and then held in your account (ii) multiplied
by the total number of Class B shares then in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or
amounts representing Class B shares then in your account that were acquired
through the automatic reinvestment of dividends and other distributions will
convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible
Shares calculated as described above will generally be either more or less
than the number of shares actually purchased approximately seven years before
such conversion date. For example, if 100 shares were initially purchased at
$10 per share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 or 47.62% multiplied by 200 shares or 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to
shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus,
although the aggregate dollar value will be the same, you may receive fewer
Class A shares than Class B shares converted. See "How Each Fund Values its
Shares."
48
<PAGE>
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase
of such shares.
The conversion feature is subject to the continuing availability of opinions
of counsel or rulings of the Internal Revenue Service (i) that the dividends
and other distributions paid on Class A, Class B, Class C and Class Z shares
will not constitute "preferential dividends" under the Internal Revenue Code
and (ii) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Funds will continue to be subject, possibly
indefinitely, to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF A FUND YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN OTHER
PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET FUNDS,
SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A, CLASS
B, CLASS C AND CLASS Z SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B, CLASS C
AND CLASS Z SHARES, RESPECTIVELY, OF ANOTHER FUND OF THE COMPANY OR ANOTHER
FUND ON THE BASIS OF THE RELATIVE NAV. No sales charge will be imposed at the
time of exchange. Any applicable CDSC payable upon the redemption of shares
exchanged will be that imposed by the fund in which shares are initially
purchased and will be calculated from the first day of the month after the
initial purchase, excluding the time shares were held in a money market fund.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. For purposes of calculating
the holding period applicable to the Class B conversion feature, the time
period during which Class B shares were held in a money market fund will be
excluded. See "Conversion Feature--Class B Shares" above. An exchange will be
treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account--Exchange Privilege" in the Statement of Additional
Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may
call either Fund at (800) 225-1852 to execute a telephone exchange of shares,
on weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M.,
New York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. NEITHER THE FUNDS NOR THEIR AGENTS WILL BE LIABLE FOR ANY
LOSS, LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after
the request is received in good order. The exchange privilege is available
only in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON
THE FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
49
<PAGE>
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares, will have
their Class B and Class C shares which are not subject to a CDSC and their
Class A shares exchanged for Class Z shares on a quarterly basis. Eligibility
for this exchange privilege will be calculated on the business day prior to
the date of the exchange. Amounts representing Class B or Class C shares which
are not subject to a CDSC include the following: (1) amounts representing
Class B or Class C shares acquired pursuant to the automatic reinvestment of
dividends and distributions, (2) amounts representing the increase in the net
asset value above the total amount of payments for the purchase of Class B or
Class C shares and (3) amounts representing Class B or Class C shares held
beyond the applicable CDSC period. Class B and Class C shareholders must
notify the Transfer Agent either directly or through Prudential Securities or
Prusec that they are eligible for this special exchange privilege.
Participants in any fee-based program for which either Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares
when they join the program. Upon leaving the program (whether voluntarily or
not), such Class Z shares (and, to the extent provided for in the program,
Class Z shares acquired through participation in the program) will be
exchanged for Class A shares at net asset value. Similarly, participants in
Prudential Securities' 401(k) Plan for which a Fund's Class Z shares is an
available option and who wish to transfer their Class Z shares out of the
Prudential Securities 401(k) Plan following separation from service (i.e.,
voluntary or involuntary termination of employment or retirement) will have
their Class Z shares exchanged for Class A shares at net asset value.
The exchange privilege is not a right and may be suspended, terminated or
modified on 60 days' notice to shareholders.
FREQUENT TRADING. The Funds and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, the Funds reserve the right to refuse purchase orders and
exchanges by any person, group or commonly controlled accounts, if, in the
Manager's sole judgment, such person, group or accounts were following a
market timing strategy or were otherwise engaging in excessive trading (Market
Timers).
To implement this authority to protect each Fund and its shareholders from
excessive trading, a Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading.
The Fund may notify the Market Timer of rejection of an exchange or purchase
order subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in a Fund, you can
take advantage of the following additional services and privileges:
. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions of a Fund are
automatically reinvested in full and fractional shares of such Fund at NAV
without a
50
<PAGE>
sales charge. You may direct the Transfer Agent in writing not less than 5
full business days prior to the record date to have subsequent dividends
and/or distributions sent in cash rather than reinvested. If you hold shares
through Prudential Securities, you should contact your financial adviser.
. AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of a Fund's shares in amounts as little as $50 via an
automatic debit to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec registered
representative or the Transfer Agent directly.
. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.
. SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders, which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." See also "Shareholder Investment
Account--Systematic Withdrawal Plan" in the Statement of Additional
Information.
. REPORTS TO SHAREHOLDERS. The Funds will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Funds will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 (toll-free) or by writing to a Fund at
Gateway Center Three, 100 Mulberry Street, 9th Floor, Newark, New Jersey
07102-4077. In addition, monthly unaudited financial data are available upon
request from the Funds.
. SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Company at
Gateway Center Three, 100 Mulberry Street, 9th Floor, Newark, New Jersey
07102-4077, or by telephone, at (800) 225-1852 (toll-free) or, from outside
the U.S.A. at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
51
<PAGE>
APPENDIX A--INFORMATION ABOUT JENNISON ASSOCIATES LLC
Jennison has been engaged in the equity investment management business since
1969. As of December 31, 1997, Jennison managed $37.8 billion in assets for
182 clients, including approximately $6.6 billion (17%) in mutual funds. Of
the $37.8 billion in assets, $20.9 billion in assets were in equity portfolios
for 96 clients, with an average account size of $174.1 million. Approximately
30% of Jennison's equity clients are "Fortune 500" companies (as defined by
Fortune Magazine in the issue dated April 28, 1997). As of December 31, 1997,
Jennison also managed $394 billion in growth and income portfolios, $1.8
billion in balanced portfolios, $4.0 billion in international equity
portfolios, and $10.7 billion in fixed- income portfolios.
Jennison has an experienced team of investment professionals. The following
chart shows the total number of equity professionals employed by Jennison, as
of December 31, 1997, including the total number of portfolio managers and the
total number of equity research analysts.
<TABLE>
<CAPTION>
AVERAGE YEARS
AVERAGE YEARS OF EXPERIENCE
NUMBER OF EXPERIENCE WITH JENNISON
------ ------------- -------------
<C> <S> <C> <C>
15 Total Equity Professionals 20 15
5 Equity Portfolio Managers 26 21
7 Equity Research Analysts 13 7
</TABLE>
JENNISON'S ACTIVE BALANCED STRATEGY:
Jennison's balanced account strategy uses an active approach to asset
allocation which involves strategically shifting among stocks, bonds and cash
in order to attempt to approach long-term equity returns with significantly
less risk than an all equity portfolio. Jennison believes that each asset
class--stocks, bonds and cash--must earn its respective role in the portfolio
on a 12-18 month time frame. Jennison's general asset allocation ranges are
broad enough to enable the portfolio managers to respond to changes in the
capital markets while assuring adequate diversification. In determining the
exposure to stocks, bonds and cash, Jennison focuses on relative valuation,
integrating a wide range of macroeconomic, fundamental, quantitative and
technical factors.
For the equity portion of Jennison's balanced portfolios, Jennison seeks to
select attractively valued stocks with superior relative earnings momentum.
Jennison believes that this approach will generate investment results superior
to the stock market over long time periods. While current earnings momentum is
important, a portion of the portfolio will also be invested in stocks which
may be out of favor, but in the opinion of the portfolio manager, are likely
to experience a positive earnings cycle within an intermediate time frame.
This style has traditionally allowed the equity portion of the portfolios to
exhibit superior, absolute and relative earnings growth at a reasonable
valuation level.
As for fixed-income, Jennison maintains commitments to high quality bonds,
typically U.S. Treasuries, when returns appear to be competitive with stocks.
In addition to adjusting the duration of the bond position in response to the
changing outlook for fixed-income returns, Jennison actively increases or
decreases the percentage of the portfolio invested in bonds in an attempt to
maximize return. Of course, there can be no assurance that the asset
allocations will achieve the objective of the Active Balanced Fund.
JENNISON'S GROWTH STRATEGY:
Growth stocks are stocks of companies that have long-term growth rates in
sales and earnings that are higher than those of the overall economy. Growth
stocks are generally more expensive than the average stock (sell at a higher
A-1
<PAGE>
price/earnings ratio) because investors are often willing to pay a premium in
order to participate in the superior growth they expect from these companies.
Consequently, these stocks also entail somewhat higher risk if expectations
are not met.
Growth stock investing is subject to market risk. The returns from the S&P
500 Index for the past fifteen years have been particularly favorable from a
historical standpoint and there can be no assurance that this growth in the
overall stock market will continue. Securities in which the Growth Fund may
primarily invest have historically been more volatile than the S&P 500 Index.
Accordingly, during periods when stock prices are declining generally, it can
be expected that the value of the Growth Fund will decline more than market
indices.
Jennison seeks to select attractive growth companies. The Jennison portfolio
managers' challenge is to select about 60 stocks that are believed to have the
potential to be the best performers among the larger universe of growth
stocks. Consequently, a growth stock portfolio managed by Jennison normally
consists of companies that the firm believes will experience superior earnings
growth over the next 12 to 18 months, on both an absolute and relative basis,
and which appear reasonably valued relative to growth expectations. Of course,
there can be no assurance that these stocks will achieve their growth
potential.
JENNISON'S GROWTH AND INCOME STRATEGY:
Jennison uses a bottom-up approach to research and select attractively
priced growth and income stocks. The Growth & Income Fund's stock holdings are
selected primarily on the basis of fundamental analysis. In considering a
stock for ownership, a company's underlying intermediate-term potential growth
in sales and earnings is a critical determining factor. Jennison's growth and
income investment team, in conjunction with Jennison's equity research
analysts, focuses on companies that combine superior current or perceived
future earnings dynamics with attractive valuation characteristics. The common
investment discipline that is required for all holdings is an attractive risk
versus reward relationship. Jennison believes that dividend growth will
develop as a result of improving fundamental characteristics. Of course, there
can be no assurance that the holdings in the portfolio will achieve the
investment objective of the Growth & Income Fund.
A-2
<PAGE>
APPENDIX B--HISTORICAL PERFORMANCE INFORMATION OF JENNISON ASSOCIATES LLC
GROWTH EQUITY CHARTS
The chart below demonstrates the total return of $10,000 invested separately
from July 1969 through December 31, 1997 in the Jennison Growth Equity
Composite and the S&P 500 Index. Total return reflects actual performance over
a stated period. Total return shows how much an investment has increased
(decreased) over a specified period of time assuming the reinvestment of
dividends and interest, as appropriate.
TOTAL RETURN OF $10,000 INVESTED FROM JULY 1969*-DECEMBER 1997
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
GEMN S-P
<S> <C> <C>
7/31/69 10000 10000
8/29/69 10277.63 10400.74
9/30/69 10405.64 10224.33
10/31/69 10965.2 10663.51
11/28/69 11001.13 10300.09
12/31/69 11004.66 10199.07
1/30/70 10582.16 9420.16
2/27/70 10840.85 9916.54
3/31/70 10696.85 10017.36
4/30/70 9458.13 9110.95
5/29/70 8751.79 8562.21
6/30/70 8620.27 8215.74
7/31/70 9037.51 8817.9
8/31/70 9416.71 9209.94
9/30/70 10293.4 9601.97
10/30/70 10092.85 9491.37
11/30/70 10483.21 9942.9
12/31/70 10920.67 10597.41
1/29/71 11383.35 11026.37
2/26/71 11785.45 11126.41
3/31/71 12841.51 11622.07
4/30/71 13341.85 12043.81
5/28/71 13075.55 11543.28
6/30/71 13039.65 11638.29
7/30/71 12129.08 11157.34
8/31/71 12593.07 11560.08
9/30/71 12476.06 11569.41
10/29/71 11792.95 11085.88
11/30/71 11946.87 11057.65
12/31/71 13111.08 12101.18
1/31/72 13649.86 12320.47
2/29/72 14374.32 12632.21
3/31/72 14528.9 12795.79
4/28/72 14759.44 12851.9
5/31/72 15176.37 13171.78
6/30/72 14435.8 12881.74
7/31/72 14306.24 12911.8
8/31/72 14828.4 13356.66
9/29/72 14731.58 13385.51
10/31/72 14654.36 13510.22
11/30/72 15181.66 14126.53
12/29/72 15899.01 14395.33
1/31/73 15389.75 14149
2/28/73 14857.37 13618.55
3/30/73 14633.2 13692.94
4/30/73 13387.49 13166.19
5/31/73 13351.56 12949.57
6/29/73 13474.91 12902.68
7/31/73 14516.01 13426.17
8/31/73 14124.67 12967.13
9/28/73 14430.34 13523.13
10/31/73 14454.82 13539.35
11/30/73 12649.4 12031.5
12/31/73 12628.24 12282.26
1/31/74 12085.24 12192.87
2/28/74 12247.61 12184.03
3/29/74 11677.56 11935.84
4/30/74 11391.77 11506.57
5/31/74 11108.81 11158.74
6/28/74 10492.07 11033.45
7/31/74 9453.49 10213.64
8/30/74 8830.14 9331.48
9/30/74 7744.9 8258.01
10/31/74 9060.33 9646.04
11/29/74 8815.14 9174.83
12/31/74 8595.11 9031.91
1/31/75 9324.17 10180.65
2/28/75 10126.73 10830
3/31/75 10430.57 11104.77
4/30/75 10993.82 11670.93
5/30/75 11532.82 12227.07
6/30/75 11957.03 12810.6
7/31/75 11179.67 11984.28
8/29/75 10723.88 11773.62
9/30/75 10278.77 11407.73
10/31/75 10868.91 12153.1
11/28/75 11236.7 12495.68
12/31/75 11037.68 12394.34
1/30/76 12269.69 13901.88
2/27/76 12053.48 13786.1
3/31/76 12490.52 14252.05
4/30/76 12187.57 14138.34
5/28/76 12055.61 13978.37
6/30/76 12650.33 14593.71
7/30/76 12537.22 14522.33
8/31/76 12393.14 14495.65
9/30/76 12673.76 14871.74
10/29/76 12281.41 14593.35
11/30/76 12269.14 14533.78
12/31/76 12704.01 15350.86
1/31/77 11838.66 14625.18
2/28/77 11561.22 14309.82
3/31/77 11543.91 14207.69
4/29/77 11547.98 14266.88
5/31/77 11462.35 13987.16
6/30/77 12306.2 14678.38
7/29/77 12138.26 14497.23
8/31/77 12158.37 14249.38
9/30/77 12076.81 14271.47
10/31/77 11695.31 13708.18
11/30/77 12289.27 14130.13
12/30/77 12337.5 14233.7
1/31/78 11561.44 13417.56
2/28/78 11421.71 13132.83
3/31/78 11812.17 13533.18
4/28/78 12933.01 14756.62
5/31/78 13322.3 14884.81
6/30/78 13486.72 14687.97
7/31/78 14432.09 15547.89
8/31/78 15017.53 16016.98
9/29/78 14698.94 15966.97
10/31/78 13144.54 14570.77
11/30/78 13850.17 14883.7
12/29/78 14278.68 15179.37
1/31/79 14826.95 15857.21
2/28/79 14323.74 15335.96
3/30/79 15260.92 16255.65
4/30/79 15417.02 16357.9
5/31/79 15063.55 15999.01
6/29/79 15663.31 16690.65
7/31/79 15874.76 16912.15
8/31/79 17342.68 17886.53
9/28/79 17666.9 17960.54
10/31/79 16843.98 16816.98
11/30/79 18362.01 17608.29
12/31/79 18889.21 17994.92
1/31/80 20461.31 19126.67
2/29/80 20456.67 19115.78
3/31/80 18429.98 17247.88
4/30/80 19092.48 18052.94
5/30/80 20092.32 18974.13
6/30/80 20768.26 19579.47
7/31/80 23184.78 20935.95
8/29/80 24222.88 21139.76
9/30/80 25824.58 21774.54
10/31/80 26482.68 22208.82
11/28/80 30515.99 24568.69
12/31/80 29603.47 23843.2
1/30/81 27581.8 22835.45
2/27/81 28343.71 23225.21
3/31/81 30094.61 24161.21
4/30/81 31005.28 23686.25
5/29/81 32738.35 23740.29
6/30/81 30535.77 23605.23
7/31/81 29701.36 23647.96
8/31/81 27910.38 22281.02
9/30/81 26856.11 21185.88
10/30/81 28951.82 22323.47
11/30/81 29097.06 23245.74
12/31/81 28477.44 22658.11
1/29/82 28394.78 22359.49
2/26/82 26718.01 21101.26
3/31/82 26291.07 21009.36
4/30/82 27628.59 21951.77
5/28/82 26194.37 21207.49
6/30/82 25663.83 20888.83
7/30/82 25333.88 20509.69
8/31/82 28400.8 23023.78
9/30/82 28706 23301.55
10/29/82 32795.87 25976.39
11/30/82 36455.38 27037.06
12/31/82 35971.85 27555.38
1/31/83 37212.2 28584.12
2/28/83 38615.06 29227.7
3/31/83 39993.84 30316.29
4/29/83 42174.97 32699.31
5/31/83 42918.46 32416.01
6/30/83 45132.86 33670.41
7/29/83 42656.59 32668.34
8/31/83 42003.61 33170.63
9/30/83 42855.67 33623.95
10/31/83 40787.88 33234.35
11/30/83 42534.93 33940.17
12/30/83 42159.82 33757.59
1/31/84 39977.12 33579.34
2/29/84 37825.13 32398.62
3/30/84 38529.81 32948.96
4/30/84 38356.46 33269.75
5/31/84 36024.29 31430.16
6/29/84 38054.79 32104.74
7/31/84 37205.25 31721.34
8/31/84 41507.77 35226.32
9/28/84 40832.43 35221.6
10/31/84 41175.14 35364.71
11/30/84 39761.94 34954.52
12/31/84 40968.88 35884.56
1/31/85 45522.14 38692.74
2/28/85 45677.3 39164.51
3/29/85 44618.66 39187.53
4/30/85 44313.1 39147.85
5/31/85 47656.35 41429.33
6/28/85 48560.3 42078.92
7/31/85 48321.51 42042.84
8/30/85 47910.32 41671.19
9/30/85 46061.31 40357.81
10/31/85 49334.58 42242.76
11/29/85 53687.07 45127.15
12/31/85 56130.12 47310.87
1/31/86 57996.73 47562.55
2/28/86 62925.1 51111.3
3/31/86 66066.28 53994.06
4/30/86 65284.97 53409.46
5/30/86 69299.47 56242.03
6/30/86 70364.22 57184.75
7/31/86 66136.93 54007.9
8/29/86 69404.87 58003.34
9/30/86 61880.19 53192.73
10/31/86 66118.29 56290.62
11/28/86 67630.86 57647.69
12/31/86 66586.39 56161.26
1/30/87 77549.31 63715.97
2/27/87 84437.05 66221.37
3/31/87 84927.69 68156.64
4/30/87 84331.46 67535.43
5/29/87 86286.96 68111.88
6/30/87 89626.87 71578.3
7/31/87 92921.68 75203.84
8/31/87 98572.56 77993.08
9/30/87 96791.14 76306.73
10/30/87 74358.5 59848.91
11/30/87 68079.55 54891.39
12/31/87 75309.84 59099.61
1/29/88 75229 61665.71
2/29/88 80130.8 64438.7
3/31/88 77265.75 62466.88
4/29/88 77459.84 63239.3
5/31/88 77099.73 63661.04
6/30/88 82868.61 66632.65
7/29/88 80591.94 66467.11
8/31/88 76405.13 64118.02
9/30/88 79586.14 66859.09
10/31/88 79325.32 68810.63
11/30/88 77789.05 67727.01
12/30/88 80238.1 68905.67
1/31/89 86192.81 74029.52
2/28/89 84865.2 72073.33
3/31/89 87108.14 73790.91
4/28/89 92956.38 77742.9
5/31/89 99240 80723.36
6/30/89 97781.66 80304.4
7/31/89 106358.6 87638.34
8/31/89 108066.49 89263.18
9/29/89 109330.9 88909.07
10/31/89 107410.6 86920.81
11/30/89 110083.32 88605.69
12/29/89 109926.78 90739.94
1/31/90 100916.55 84737.23
2/28/90 103079.82 85675.74
3/30/90 106991.89 88005.64
4/30/90 104654.31 85900.74
5/31/90 118661.79 94095.13
6/29/90 120047.74 93536.35
7/31/90 115459.63 93208.2
8/31/90 103443.08 84793.54
9/28/90 96784.58 80666.97
10/31/90 95752.4 80324.46
11/30/90 104571.13 85539.22
12/31/90 108216.94 87901.54
1/31/91 117562.34 91725.41
2/28/91 127390.27 98289.21
3/28/91 132288.64 100671.11
4/30/91 130363.31 100889.99
5/31/91 136064.92 105267.59
6/28/91 126645.3 100438.74
7/31/91 135408.42 105115.82
8/30/91 140400.16 107597.81
9/30/91 139263.41 105805.17
10/31/91 144240.43 107223.93
11/29/91 139865.04 102900.35
12/31/91 161352.43 114673.43
1/31/92 158595.28 112537.43
2/28/92 162051.37 113991.45
3/31/92 155326.42 111776.54
4/30/92 152572.39 115058.08
5/29/92 155248.34 115622
6/30/92 148699.41 113901.35
7/31/92 155119.09 118559.92
8/31/92 151890.13 116132.55
9/30/92 155836.88 117493.08
10/30/92 161989.51 117900.61
11/30/92 171533.35 121907.49
12/31/92 174201.92 123406.71
1/29/93 175368.52 124437.97
2/26/93 168141.38 126154.52
3/31/93 173639.08 128796.97
4/30/93 166432.35 125682.36
5/28/93 175797.76 129028.93
6/30/93 174832.24 129422.78
7/30/93 173146.31 128903.26
8/31/93 181003.26 133783.59
9/30/93 184102.14 132765.45
10/29/93 187557.91 135510
11/30/93 182244.36 134216
12/31/93 190295.02 135838.33
1/31/94 196996.28 140471.15
2/28/94 194854.71 136655.82
3/31/94 181885.46 130699.68
4/29/94 181953.91 132376.56
5/31/94 183772.33 134534.38
6/30/94 172696.76 131249.78
7/29/94 179683.13 135560.81
8/31/94 191999.54 141106.29
9/30/94 188421.8 137643.94
10/31/94 194758.14 140739.73
11/30/94 190633.5 135610.14
12/30/94 189197.74 137623.23
1/31/95 187905.26 141191.96
2/28/95 196286.18 146691.95
3/31/95 205076.59 151024.45
4/28/95 211381.78 155450.53
5/31/95 218357.41 161671.62
6/30/95 235852.96 165439.17
7/31/95 249290.24 170929.88
8/31/95 248105.14 171358.06
9/29/95 255428.58 178587.32
10/31/95 256037.98 177949.92
11/30/95 261129.2 185760.54
12/29/95 253842.67 189338.54
1/31/96 256097.52 195782.87
2/29/96 266107.69 197598.18
3/29/96 265045.57 199500.47
4/30/96 277576.3 202441.78
5/31/96 284884.44 207661.74
6/28/96 279159.1 208454.36
7/31/96 257796.32 199246.45
8/30/96 270001.48 203449.31
9/30/96 289712 214900.36
10/31/96 292089.41 220827.64
11/29/96 315709.53 237519.26
12/31/96 307096.63 232813.3
1/31/97 328413.93 247358.57
2/28/97 317950.38 249297.23
3/31/97 301069.86 239054.32
4/30/97 320301.18 253321.6
5/30/97 347483.39 268728.96
6/30/97 358974.28 280768.26
7/31/97 402829.15 303106.3
8/29/97 387930.1 286127.91
9/30/97 413554.07 301798.24
10/31/97 394092.7 291719.27
11/28/97 400384.6 305223.86
12/31/97 403418.84 310465.65
</TABLE>
- -------
*Inception Date: 7/31/69 = $10,000.
Source: Jennison Associates LLC
All Jennison composite information, index information, and asset class
performance information rely on data provided by Jennison or from statistical
services, reports, or other sources believed by Jennison to be reliable,
including data from Standard & Poor's and The Wall Street Journal. Such
information, however, has not been verified and is unaudited. Of course, past
performance should not be interpreted as indicative of future performance.
The Jennison composite historical rates of return are time-weighted rates of
total return calculated in accordance with Performance Presentation Standards
of the Association for Investment Management and Research (AIMR). They are
calculated by dividing the period of time under study into subperiods whose
boundaries are the dates of cash and other asset flows into and from the
accounts constituting a given composite and by computing the internal rate of
return for each subperiod. The time-weighted rate of return is the average of
the rates for these subperiods with each rate being given a weight
proportionate to the length of time of its subperiod.
Jennison's results are based on the time-weighted rate of return achieved for
"Growth Equity" accounts managed by Jennison. As of December 31, 1997, Jennison
managed 107 accounts representing approximately $19.9 billion in assets using a
"Growth Equity" strategy. These accounts include the Prudential Jennison Growth
Fund and institutional and other mutual fund accounts whose investment
objectives and techniques are similar to the Prudential Jennison Growth Fund.
The institutional accounts are not registered investment companies and are not
subject to the investment limitations, diversification requirements, and other
restrictions that are imposed on mutual funds by the Investment Company Act and
Subchapter M of the Internal Revenue Code which, if applicable, may have
adversely affected the performance results of the Jennison Growth Equity
Composite. Performance results are net of Jennison advisory fees and assume the
reinvestment of dividends and distributions. The figures do not reflect the
deduction of operating expenses of mutual funds, such as distribution (Rule
12b-1) fees, or any applicable sales charges. The net effect of the operating
expenses of the funds on annualized performance, including the compounded
effect over time, will vary by the size of the fee and the accounts investment
performance, and may be substantial. The accounts reflected in the "Growth
Equity" performance data have been determined by Jennison based on the manner
in which it prepares performance data generally.
(footnotes continued on next page)
B-1
<PAGE>
As of December 31, 1997, the "Growth Equity" accounts represented 95% of all
equity assets (approximately $20.9 billion) managed by Jennison, and 53% of
the aggregate assets (approximately $37.8 billion) managed by Jennison. The
only accounts using the "Growth Equity" investment strategy not included in
the composite are not fully discretionary (for example, do not permit certain
types of investments in the account), and individual taxable accounts which
represented approximately 0.1% of Jennison's equity assets under management,
as of December 31, 1997. The performance shown above for the "Growth Equity"
composite is not the performance of the Growth Fund and should not be
considered indicative of the past or future performance of the Growth Fund.
The "Growth Equity" composite is not a substitute for the Growth Fund's own
past performance.
The performance of an investment in the S&P 500 Index was measured on a
calendar monthly basis. The S&P 500 Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the NYSE. These 500 stocks are composed of 400 industrial,
40 utility, 40 financial, and 20 transportation companies. The weight of each
stock in the index is proportional to its price times the number of shares
outstanding. The S&P 500 Index is an unmanaged index and includes the
reinvestment of all dividends. Investors cannot invest directly in an index.
Common stocks represent the ownership of a corporation, which can fluctuate in
value.
ANNUALIZED TOTAL RETURN DATA
The chart below demonstrates annualized total returns as of the fiscal year
ended December 31, 1997 of the Jennison Growth Equity Composite and the S&P
500 Index. Annualized total return is a hypothetical rate of return that if
achieved annually would have produced the same aggregate total return if
performance had been consistent over the period.
ANNUALIZED TOTAL RETURNS AS OF DECEMBER 31, 1997*
<TABLE>
<CAPTION>
JENNISON GROWTH
EQUITY S&P 500
PERIOD COMPOSITE (/1/)** INDEX (/2/)
------ ----------------- -----------
<S> <C> <C>
Since July 31, 1969 (inception)-1997........ 13.88% 12.84%
25 Years (1972-1997)........................ 13.80 13.06
20 Years (1977-1997)........................ 19.03 16.65
15 Years (1982-1997)........................ 17.47 17.51
10 Years (1987-1997)........................ 18.26 18.03
7 Years (1990-1997)........................ 20.66 19.74
5 Years (1992-1997)........................ 18.28 20.25
3 Years (1994-1997)........................ 28.68 31.12
1 Year (1996-1997)......................... 31.37 33.35
</TABLE>
Sources: Jennison Associates LLC for Jennison Growth Equity Composite and S&P
500 Index.
(/1/) Jennison's results are based on the time-weighted rate of return achieved
for "Growth Equity" accounts managed by Jennison. As of December 31, 1997,
Jennison managed 107 accounts representing approximately $19.9 billion in
assets using a "Growth Equity" strategy. These accounts include Prudential
Jennison Growth Fund and institutional and other mutual fund accounts
whose investment objectives and techniques are similar to the Prudential
Jennison Growth Fund. The institutional accounts are not registered
investment companies and are not subject to the investment limitations,
diversification requirements, and other restrictions that are imposed on
mutual funds by the Investment Company Act and Subchapter M of the
Internal Revenue Code, which, if applicable, may have adversely affected
the performance results of the Jennison Growth Equity Composite.
Performance results are net of Jennison advisory fees only and assume the
reinvestment of dividends and distributions. The Composite performance
figures do not reflect the deduction of operating expenses of mutual
funds, such as distribution (Rule 12b-1) fees, or any applicable sales
charges. The net effect of the operating expenses of the funds on
annualized performance, including the compounded effect over time, will
vary by the size of the fee and the accounts investment performance, and
may be substantial. As of December 31, 1997, the "Growth Equity" accounts
represented 95% of equity assets (approximately $20.9 billion) managed by
Jennison and 53% of the aggregate assets (approximately $37.8 billion)
managed by Jennison. The only accounts using the "Growth Equity"
investment strategy not included in the composite are not fully
discretionary (for example, do not permit certain types of investments in
the account), and individual taxable accounts which represented
approximately 0.1% of Jennison's equity assets under management, as of
December 31, 1997. The accounts reflected in the "Growth Equity"
performance data have been determined by Jennison based on the manner in
which it prepares performance data generally. Of course, past performance
should not be interpreted as indicative of future results. The performance
shown above for the "Growth Equity" composite is not the performance of
the Growth Fund and should not be considered indicative of the past or
future performance of the Growth Fund. The "Growth Equity" composite is
not a substitute for the Growth Fund's own past performance.
(/2/) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the NYSE.
These 500 stocks are composed of 400 industrial, 40 utility, 40 financial,
and 20 transportation companies. The weight of each stock in the index is
proportional to its price times the number of shares outstanding. The S&P
500 Index is an unmanaged index and includes the reinvestment of all
dividends. Investors cannot invest directly in an index. Common stocks
represent the ownership of a corporation, which can fluctuate in value.
* These results are unaudited. Past performance should not be interpreted as
indicative of future performance.
** Preliminary data.
B-2
<PAGE>
Class A, B and C shares of the Growth Fund commenced investment operations
on November 2, 1995; Class Z shares of the Growth Fund commenced investment
operations on April 15, 1996. Aggregate total returns (after fees and
expenses) for the one year and from inception periods ended September 30, 1997
were 40.29%, 39.39%, 39.39% and 40.71%, and 53.9%, 51.8%, 51.8% and 49.71% for
Class A, B, C and Z shares, respectively, and average annual total returns for
the one year and since inception periods ended September 30, 1997 were 33.28%,
34.39%, 38.39% and 40.71% and 21.99%, 22.68%, 24.41% and 31.85% for Class A,
B, C and Z shares, respectively.
On September 20, 1996, the assets and liabilities of Growth Stock Fund (a
series of Prudential Index Series Fund, formerly Prudential Dryden Fund, and
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, 1997, your
average annual total returns (after fees and expenses) for the one, three and
since inception (November 5, 1992) periods ended September 30, 1997 would have
been 40.71%, 28.90% and 21.37%, respectively. In addition, the aggregate total
returns for such periods would have been 40.71%, 114.22% and 158.39%,
respectively.
ANNUAL TOTAL RETURN DATA
The chart below demonstrates annual total returns as of December 31, 1997 of
the Jennison Growth Equity Composite and the S&P 500 Index for the listed
calendar year. Total return reflects actual performance over a stated period.
Annual total return shows how much an investment has increased (or decreased)
over a one year period assuming the reinvestment of dividends and interest, as
appropriate.
ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997*
<TABLE>
<CAPTION>
JENNISON
GROWTH EQUITY S&P 500
YEAR COMPOSITE(/1/) INDEX(/2/)
---- -------------- ----------
<S> <C> <C>
1969 (7/31/69 through 12/31/69)....................... 10.05% 1.99%
1970.................................................. (.76) 3.91
1971.................................................. 20.06 14.19
1972.................................................. 21.26 18.96
1973.................................................. (20.57) (14.68)
1974.................................................. (31.94) (26.46)
1975.................................................. 28.42 37.23
1976.................................................. 15.10 23.85
1977.................................................. (2.88) (7.28)
1978.................................................. 15.73 6.64
1979.................................................. 32.29 18.55
1980.................................................. 56.72 32.50
1981.................................................. (3.80) (4.97)
1982.................................................. 26.32 21.61
1983.................................................. 17.20 22.51
1984.................................................. (2.82) 6.30
1985.................................................. 37.01 31.84
1986.................................................. 18.63 18.71
1987.................................................. 13.10 5.23
1988.................................................. 6.54 16.59
1989.................................................. 37.00 31.69
1990.................................................. (1.56) (3.13)
1991.................................................. 49.10 30.46
1992.................................................. 7.96 7.62
1993.................................................. 9.24 10.07
1994.................................................. (.58) 1.31
1995.................................................. 34.17 37.58
1996.................................................. 20.98 22.96
1997.................................................. 31.37** 33.35
</TABLE>
- -------
Sources: Jennison Associates LLC for Jennison Growth Equity Composite and S&P
500 Index.
(footnotes continued on next page)
B-3
<PAGE>
(/1/) Jennison's results are based on the time-weighted rate of return
achieved for "Growth Equity" accounts managed by Jennison. As of December 31,
1997, Jennison managed 107 accounts representing approximately $19.9 billion
in assets using a "Growth Equity" strategy. These accounts include the Growth
Fund, and institutional and other mutual fund accounts whose investment
objectives and techniques are similar to the Growth Fund. The institutional
accounts are not registered investment companies and are not subject to the
investment limitations, diversification requirements, and other restrictions
that are imposed on mutual funds by the Investment Company Act and Subchapter
M of the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the Jennison Growth Equity Composite.
Performance results are net of Jennison advisory fees only and assume the
reinvestment of dividends and distributions. The Composite performance
figures do not reflect the deduction of operating expenses of mutual funds,
such as distribution (Rule 12b-1) fees, or any applicable sales charges. The
net effect of the operating expenses of the funds on annualized performance,
including the compounded effect over time, will vary by the size of the fee
and the accounts' investment performance, and may be substantial. As of
December 31, 1997, the "Growth Equity" accounts represented 95% of equity
assets (approximately $20.9 billion) managed by Jennison and 53% of the
aggregate assets (approximately $37.8 billion) managed by Jennison. The only
accounts using the "Growth Equity" investment strategy not included in the
composite are not fully discretionary (for example, do not permit certain
types of investments in the account), and individual taxable accounts which
represented approximately 0.1% of Jennison's equity assets under management,
as of December 31, 1997. The accounts reflected in the "Growth Equity"
performance data have been determined by Jennison based on the manner in
which it prepares performance data generally. Of course, past performance
should not be interpreted as indicative of future results. The performance
shown above for the "Growth Equity" composite is not the performance of the
Growth Fund and should not be considered indicative of the past or future
performance of the Growth Fund. The "Growth Equity" composite is not a
substitute for the Growth Fund's own past performance.
(/2/The)S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the NYSE.
These 500 stocks are composed of 400 industrial, 40 utility, 40 financial,
and 20 transportation companies. The weight of each stock in the index is
proportional to its price times the number of shares outstanding. The S&P
500 Index is an unmanaged index and includes the reinvestment of all
dividends. Investors cannot invest directly in an index. Common stocks
represent the ownership of a corporation, which can fluctuate in value.
* These results are unaudited. Past performance should not be interpreted as
indicative of future performance.
** Preliminary data.
On September 20, 1996, the assets and liabilities of Growth Stock Fund (a
series of Prudential Index Series Fund, formerly Prudential Dryden Fund, and
formerly The Prudential Institutional Fund) were transferred to the Growth
Fund in exchange solely for Class Z shares of the Growth Fund. 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 such Class Z shares
received in the Reorganization through September 30, 1997, your annual total
returns (after fees and expenses) would have been:
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
<S> <C>
11/5/92-9/30/93.................................................. 21.22 %
9/30/94.......................................................... (0.50)%
9/30/95.......................................................... 35.14 %
9/30/96.......................................................... 12.65 %
9/30/97.......................................................... 40.71 %
</TABLE>
B-4
<PAGE>
GROWTH AND INCOME CHARTS
The chart below demonstrates the total return of $10,000 invested separately
from August 1980 through December 31, 1997 in the Jennison Growth & Income
Composite and the S&P 500 Index. Total return reflects actual performance over
a stated period. Total return shows how much an investment has increased
(decreased) over a specified period of time assuming the reinvestment of
dividends and interest, as appropriate.
TOTAL RETURN OF $10,000 INVESTED FROM AUGUST 1980*-DECEMBER 1997
<TABLE>
<CAPTION>
FEMN S-P
<S> <C> <C>
8/29/80 10000 10000
9/30/80 10492.8 10300.28
10/31/80 10622.35 10505.71
11/28/80 11768.05 11622.03
12/31/80 11604.65 11278.84
1/30/81 11024.91 10802.13
2/27/81 11423.85 10986.51
3/31/81 12187.37 11429.27
4/30/81 12560.41 11204.6
5/29/81 13149.06 11230.16
6/30/81 12380.12 11166.27
7/31/81 11970.09 11186.48
8/31/81 11321.6 10539.86
9/30/81 10950.78 10021.82
10/30/81 11617.11 10559.95
11/30/81 11751.74 10996.22
12/31/81 11604.63 10718.24
1/29/82 11612.65 10576.98
2/26/82 11215.7 9981.79
3/31/82 11143.21 9938.32
4/30/82 11612.3 10384.12
5/28/82 11116.1 10032.04
6/30/82 10977.79 9881.3
7/30/82 10846.68 9701.95
8/31/82 12068.79 10891.22
9/30/82 12183.69 11022.62
10/29/82 13706.97 12287.93
11/30/82 15172.8 12789.67
12/31/82 15185.99 13034.86
1/31/83 15577.34 13521.5
2/28/83 16211.71 13825.94
3/31/83 16830.44 14340.89
4/29/83 17732.01 15468.16
5/31/83 17898.2 15334.14
6/30/83 18767.43 15927.53
7/29/83 17868.1 15453.5
8/31/83 17664.65 15691.11
9/30/83 18075.33 15905.55
10/31/83 17500.1 15721.25
11/30/83 18185.29 16055.14
12/30/83 18150.42 15968.77
1/31/84 17599.64 15884.45
2/29/84 16613.22 15325.92
3/30/84 16963.1 15586.25
4/30/84 16891.99 15738
5/31/84 15904.25 14867.79
6/29/84 16712.19 15186.9
7/31/84 16300.07 15005.53
8/31/84 18226.4 16663.54
9/28/84 18024.95 16661.3
10/31/84 18292.3 16729
11/30/84 17835.42 16534.96
12/31/84 18494.88 16974.92
1/31/85 20374.38 18303.3
2/28/85 20568.32 18526.47
3/29/85 20200.54 18537.36
4/30/85 20019.42 18518.59
5/31/85 21520.68 19597.83
6/28/85 22036.57 19905.11
7/31/85 21989.4 19888.04
8/30/85 21847.75 19712.24
9/30/85 21213.3 19090.95
10/31/85 22604.17 19982.61
11/29/85 24323.41 21347.05
12/31/85 25505.3 22380.04
1/31/86 26490.25 22499.1
2/28/86 28565.89 24177.8
3/31/86 30029.76 25541.47
4/30/86 29422.28 25264.93
5/30/86 31042.42 26604.86
6/30/86 31078.96 27050.8
7/31/86 29442.74 25548.02
8/29/86 31213.79 27438.03
9/30/86 28315.16 25162.41
10/31/86 30324.84 26627.84
11/28/86 31103.27 27269.79
12/31/86 30498.54 26566.65
1/30/87 34941.84 30140.35
2/27/87 37185.29 31325.51
3/31/87 37491.78 32240.97
4/30/87 37425.89 31947.11
5/29/87 38077.5 32219.8
6/30/87 39346.86 33859.56
7/31/87 40881.32 35574.6
8/31/87 42968.35 36894.02
9/30/87 42826.2 36096.31
10/30/87 34221.99 28311.07
11/30/87 32000.42 25965.95
12/31/87 35059.78 27956.61
1/29/88 35673.78 29170.49
2/29/88 37973.21 30482.23
3/31/88 37135.74 29549.47
4/29/88 36906.62 29914.86
5/31/88 36977.49 30114.36
6/30/88 39637.39 31520.06
7/29/88 39132.88 31441.75
8/31/88 37694.61 30330.54
9/30/88 39181.54 31627.17
10/31/88 39343.96 32550.34
11/30/88 38597.24 32037.74
12/30/88 39177.67 32595.29
1/31/89 41936.45 35019.09
2/28/89 41507.68 34093.73
3/31/89 42718.94 34906.22
4/28/89 45647.53 36775.68
5/31/89 48438.7 38185.56
6/30/89 47954.44 37987.38
7/31/89 51925.08 41456.64
8/31/89 52785.97 42225.26
9/29/89 52915.67 42057.75
10/31/89 51548.56 41117.22
11/30/89 52911.58 41914.24
12/29/89 53001.19 42923.83
1/31/90 49612.63 40084.29
2/28/90 50296.03 40528.25
3/30/90 51342.44 41630.39
4/30/90 50623.13 40634.68
5/31/90 56354.96 44510.98
6/29/90 56727.42 44246.65
7/31/90 56278.92 44091.42
8/31/90 51196.53 40110.93
9/28/90 48613.48 38158.89
10/31/90 48548.77 37996.86
11/30/90 52666.59 40463.67
12/31/90 54961.04 41581.14
1/31/91 58430.76 43390
2/28/91 62547.41 46494.95
3/28/91 65059.57 47621.69
4/30/91 64611.51 47725.23
5/31/91 67111.71 49796.02
6/28/91 62865.32 47511.77
7/31/91 65730.71 49724.23
8/30/91 67009.59 50898.31
9/30/91 66307.1 50050.32
10/31/91 70003.5 50721.45
11/29/91 66984.23 48676.22
12/31/91 75052.68 54245.38
1/31/92 74198.16 53234.96
2/28/92 76672.02 53922.78
3/31/92 73285.62 52875.03
4/30/92 73332.17 54427.34
5/29/92 73596.21 54694.09
6/30/92 71557.29 53880.15
7/31/92 74726.11 56083.85
8/31/92 72266.93 54935.61
9/30/92 73825.99 55579.2
10/30/92 76237.07 55771.97
11/30/92 79957.09 57667.39
12/31/92 81454.73 58376.59
1/29/93 82555.27 58864.42
2/26/93 82131.62 59676.42
3/31/93 85043.5 60926.41
4/30/93 84194.01 59453.07
5/28/93 87155.83 61036.14
6/30/93 87235.82 61222.44
7/30/93 88125.59 60976.69
8/31/93 92298.25 63285.29
9/30/93 92354.52 62803.67
10/29/93 94190.88 64101.96
11/30/93 92742.42 63489.84
12/31/93 95386.84 64257.27
1/31/94 99693.7 66448.79
2/28/94 98282.04 64643.98
3/31/94 93451.18 61826.47
4/29/94 93801.91 62619.71
5/31/94 95321.11 63640.45
6/30/94 92048.78 62086.7
7/29/94 95295.4 64126
8/31/94 98725.84 66749.24
9/30/94 96168.71 65111.4
10/31/94 96206.56 66575.84
11/30/94 93191.58 64149.33
12/30/94 93394.07 65101.6
1/31/95 94559.74 66789.76
2/28/95 100478.7 69391.49
3/31/95 105078.3 71440.95
4/28/95 108487.18 73534.67
5/31/95 110684.28 76477.51
6/30/95 116982.1 78259.72
7/31/95 121941.61 80857.06
8/31/95 123289.81 81059.61
9/29/95 124432.35 84479.35
10/31/95 123137.29 84177.83
11/30/95 128002.58 87872.59
12/29/95 127366.4 89565.13
1/31/96 130026.54 92613.58
2/29/96 133506.27 93472.29
3/29/96 135568.23 94372.15
4/30/96 138923.27 95763.52
5/31/96 141468.07 98232.78
6/28/96 139344.91 98607.73
7/31/96 132739.42 94251.99
8/30/96 140048.98 96240.13
9/30/96 143769.4 101656.96
10/31/96 147285.5 104460.81
11/29/96 158263.18 112356.65
12/31/96 156359.82 110130.53
1/31/97 160362.77 117011.06
2/28/97 162158.56 117928.13
3/31/97 158100.65 113082.8
4/30/97 160280.65 119831.83
5/30/97 170781.95 127120.16
6/30/97 176969.58 132815.26
7/31/97 189389.87 143382.09
8/29/97 187208.75 135350.6
9/30/97 198043.5 142763.33
10/31/97 188839.34 137995.55
11/28/97 191674.62 144383.79
12/31/97 192847.7 146863.38
</TABLE>
* Inception Date: 8/31/80 = $10,000
Source: Jennison Associates LLC
All Jennison composite information, index information, and asset class
performance information rely on data provided by Jennison or from statistical
services, reports, or other sources believed by Jennison to be reliable,
including data from Standard & Poor's and The Wall Street Journal. However,
such information has not been verified and is unaudited. Of course, past
performance should not be interpreted as indicative of future performance.
(footnotes continued on next page)
B-5
<PAGE>
The Jennison composite historical rates of return are time-weighted rates of
total return calculated in accordance with Performance Presentation Standards
of the Association for Investment Management and Research (AIMR). They are
calculated by dividing the period of time under study into subperiods whose
boundaries are the dates of cash and other asset flows into and from the
accounts constituting a given composite and by computing the internal rate of
return for each subperiod. The time-weighted rate of return is the average of
the rates for these subperiods with each rate being given a weight
proportionate to the length of time of its subperiod.
Jennison's results are based on the time-weighted rate of return achieved
for "Growth and Income" accounts managed by Jennison. As of December 31, 1997,
Jennison managed 3 accounts representing approximately $394 million in assets
using a "Growth & Income" strategy. These accounts consist of institutional
accounts whose investment objectives and techniques are similar to those of
the Prudential Jennison Growth & Income Fund. Performance results are net of
Jennison advisory fees only and assume the reinvestment of dividends and
distributions. As of December 31, 1997, the "Growth and Income" accounts
represented 100% of all equity assets managed by Jennison, and 1% of the
aggregate assets (approximately $37.8 billion) managed by Jennison. None of
the accounts included in the Jennison Growth & Income Composite is a
registered investment company, nor do these accounts have the ability to
engage in short sales. Additionally, the institutional accounts are not
subject to the investment limitations, diversification requirements, and
restrictions that are imposed on mutual funds by the Investment Company Act
and Subchapter M of the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results of the Jennison Growth & Income
Composite. The accounts reflected in the "Growth and Income" performance data
have been determined by Jennison based on the manner in which it prepares
performance data generally. Of course, past performance should not be
interpreted as indicative of future performance. The performance shown above
for the "Growth & Income" composite is not the performance of the Growth &
Income Fund and should not be considered indicative of the past or future
performance of the Growth & Income Fund. The "Growth & Income" composite is
not a substitute for the Growth & Income Fund's own past performance.
The performance of an investment in the S&P 500 was measured on a calendar
monthly basis. The S&P 500 is a capital-weighted index representing the
aggregate market value of the common equity of 500 stocks primarily traded on
the NYSE. These 500 stocks are composed of 400 industrial, 40 utility, 40
financial and 20 transportation companies. The weight of each stock in the
index is proportional to its price times the number of shares outstanding. The
S&P 500 Index is an unmanaged index and includes the reinvestment of all
dividends. Investors cannot invest directly in an index. Common stocks
represent the ownership of a corporation, which can fluctuate in value.
ANNUALIZED TOTAL RETURNS
The chart below demonstrates annualized total returns as of the fiscal year
ended December 31, 1997 of the Jennison Growth and Income Composite and the
S&P 500 Index. Annualized total return is a hypothetical rate of return that
if achieved annually would have produced the same aggregate total return if
performance had been consistent over the period.
ANNUALIZED TOTAL RETURNS AS OF DECEMBER 31, 1997*
<TABLE>
<CAPTION>
JENNISON GROWTH &
PERIOD INCOME COMPOSITE(/1/)** S&P 500 INDEX(/2/)
------ ----------------------- ------------------
<S> <C> <C>
Since August 31, 1980 (incep-
tion)-1997................... 18.60% 16.76%
15 Years (1982-1997).......... 18.45 17.51
10 Years (1987-1997).......... 18.57 18.03
7 Years (1990-1997).......... 19.62 19.74
5 Years (1992-1997).......... 18.80 20.25
3 Years (1994-1997).......... 27.31 31.12
1 Year(1996-1997)............ 23.34 33.35
</TABLE>
- -------
Source: Jennison Associates LLC
(/1/) Jennison's results are based on the time-weighted rate of return achieved
for "Growth and Income" accounts managed by Jennison. As of December 31,
1997, Jennison managed 3 accounts representing approximately $394 million
in assets using a "Growth & Income" strategy. These accounts consist of
institutional accounts whose investment objectives and techniques are
similar to those of Prudential Jennison Growth & Income Fund. Performance
results are net of Jennison advisory fees only and assume the reinvestment
of dividends and distributions. As of December 31, 1997, the "Growth &
Income" accounts represented 100% of all Growth & Income equity assets
managed by Jennison and 1% of the aggregate assets (approximately $37.8
billion) managed by Jennison. None of the accounts included in the
Jennison Growth & Income Composite is a registered investment company, nor
do these accounts have the ability to engage in short sales. Additionally,
the institutional accounts are not subject to the investment limitations,
diversification requirements, and restrictions that are imposed on mutual
funds by the Investment Company Act and Subchapter M of the Internal
Revenue Code, which, if applicable, may have adversely affected the
performance results of the Jennison Growth & Income Composite. The
accounts reflected in the "Growth & Income" performance data have been
determined by Jennison based on the manner in which it prepares
performance data generally. The performance shown above for the "Growth &
Income" composite is not the performance of the Growth & Income Fund and
should not be considered indicative of the past or future performance of
the Growth & Income Fund. The "Growth & Income" composite is not a
substitute for the Growth & Income Fund's own past performance.
(/2/) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the NYSE.
These 500 stocks are composed of 400 industrial, 40 utility, 40 financial
and 20 transportation companies. The weight of each stock in the index is
proportional to its price times the number of shares outstanding. The S&P
500 Index is an unmanaged index and includes the reinvestment of all
dividends. Investors cannot invest directly in an index. Common stocks
represent the ownership of a corporation, which can fluctuate in value.
* These results are unaudited. Past performance should not be interpreted as
indicative of future performance.
** Preliminary data.
B-6
<PAGE>
ANNUAL TOTAL RETURN DATA
The chart below demonstrates annual total returns, net of fees, for the
Jennison Growth and Income Composite and the S&P 500 Index for the listed
calendar year. Total return reflects actual performance over a stated period.
Annual total return shows how much an investment has increased (decreased)
over a one year period of time assuming the reinvestment of dividends and
interest, as appropriate.
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
JENNISON
GROWTH &
INCOME
YEAR COMPOSITE/1/ S&P 500 INDEX/2/
---- ------------ ----------------
<S> <C> <C>
1980 (8/31/80 through 12/31/80)............. 16.05% 12.79%
1981........................................ 0.00 (4.97)
1982........................................ 30.86 21.61
1983........................................ 19.52 22.51
1984........................................ 1.90 6.30
1985........................................ 37.90 31.84
1986........................................ 19.58 18.71
1987........................................ 14.96 5.23
1988........................................ 11.75 16.59
1989........................................ 35.28 31.69
1990........................................ 3.70 (3.13)
1991........................................ 36.56 30.46
1992........................................ 8.53 7.62
1993........................................ 17.10 10.07
1994........................................ (2.09) 1.31
1995........................................ 36.38 37.58
1996........................................ 22.76 22.96
1997........................................ 23.34** 33.35
</TABLE>
- -------
Source: Jennison Associates LLC
/1/ Jennison's results are based on the time-weighted rate of return achieved
for "Growth & Income" accounts managed by Jennison. As of December 31,
1997, Jennison managed 3 accounts representing approximately $394 million
in assets using a "Growth & Income" strategy. These accounts consist of
institutional accounts whose investment objectives and techniques are
substantially similar to those of Prudential Jennison Growth & Income
Fund. Performance results are net of Jennison advisory fees only and
assume the reinvestment of dividends and distributions. As of December 31,
1997, the "Growth & Income" accounts represented 100% of all Growth &
Income equity assets managed by Jennison, and 1% of the aggregate assets
(approximately $37.8 billion) managed by Jennison. None of the accounts
included in the Jennison Growth & Income Composite is a registered
investment company, nor do these accounts have the ability to engage in
short sales. Additionally, the institutional accounts are not subject to
the investment limitations, diversification requirements, and restrictions
that are imposed on mutual funds by the Investment Company Act and
Subchapter M of the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results of the Jennison Growth & Income
Composite. The accounts reflected in the "Growth & Income" performance
data have been determined by Jennison based upon the manner in which it
prepares performance data generally. The performance shown above for the
"Growth & Income" composite is not the performance of the Growth & Income
Fund and should not be considered indicative of the past or future
performance of the Growth & Income Fund. The "Growth & Income" composite
is not a substitute for the Growth & Income Fund's own past performance.
/2/ The S&P 500 Index is a capital-weighted index representing the aggregate
market value of the common equity of 500 stocks primarily traded on the
NYSE. These 500 stocks are composed of 400 industrial, 40 utility, 20
financial and 40 transportation companies. The weight of each stock in the
index is proportional to its price times the number of shares outstanding.
The S&P 500 Index is an unmanaged index and includes the reinvestment of
all dividends. Investors cannot invest directly in an index.
*These results are unaudited. Past performance should not be interpreted as
indicative of future performance.
**Preliminary data.
B-7
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential offers a broad range of mutual funds designed to meet your
individual needs. We welcome you to review the investment options available
through our family of funds. For more information on the Prudential Mutual
Funds, including charges and expenses, contact your Prudential Securities
financial adviser or Prusec representative or telephone either Fund at (800)
225-1852 for a free prospectus. Read the prospectus carefully before you invest
or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
TAX-EXEMPT BOND
FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Active Balanced Fund
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
. Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
. Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
. Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
. Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
C-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by any Fund or the Distributor. This Prospectus does not
constitute an offer by any Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS.......... 2
What are Each Fund's
Risk Factors and
Special
Characteristics?....... 2
FUND EXPENSES............ 6
FINANCIAL HIGHLIGHTS..... 9
HOW THE FUNDS INVEST..... 18
Investment Objectives 18
and Policies...........
Other Investments and 25
Policies...............
Risk Factors and Special
Considerations of
Investing in Foreign
Securities............. 27
Risk Factors Relating to
Investing in Debt
Securities Rated Below
Investment Grade (Junk
Bonds)................. 28
Hedging and Return En- 29
hancement Strategies...
Investment Restrictions. 32
HOW THE FUNDS ARE MAN- 32
AGED....................
Manager................. 32
Subadvisers............. 33
Distributor............. 33
Fee Waivers and Subsidy. 35
Portfolio Transactions.. 35
Custodian and Transfer
and Dividend Disbursing
Agent.................. 35
HOW EACH FUND VALUES ITS 35
SHARES..................
HOW THE FUNDS CALCULATE 36
PERFORMANCE.............
TAXES, DIVIDENDS AND DIS- 36
TRIBUTIONS..............
GENERAL INFORMATION...... 38
Description of Common 38
Stock..................
Additional Information.. 39
SHAREHOLDER GUIDE........ 39
How to Buy Shares of the 39
Funds..................
Alternative Purchase 41
Plan...................
How to Sell Your Shares. 45
Conversion Feature-- 48
Class B Shares.........
How to Exchange Your 49
Shares.................
Shareholder Services.... 50
APPENDIX A--INFORMATION
ABOUT JENNISON ASSOCI-
ATES LLC................ A-1
APPENDIX B--HISTORICAL
PERFORMANCE INFORMATION
OF JENNISON ASSOCIATES
LLC..................... B-1
THE PRUDENTIAL MUTUAL C-1
FUND FAMILY.............
</TABLE>
- --------------------------------------------------------------------------------
MF 172A
<TABLE>
<S> <C> <C>
Active Balanced Fund Growth Fund Growth & Income Fund
CUSIP Nos.: CUSIP Nos.: CUSIP Nos.:
Class A: 74435A 10 7 Class A: 74437E 10 7 Class A: 74437E 50 3
Class B: 74435A 20 6 Class B: 74437E 20 6 Class B: 74437E 60 2
Class C: 74435A 30 5 Class C: 74437E 30 5 Class C: 74437E 70 1
Class Z: 74435A 40 4 Class Z: 74437E 40 4 Class Z: 74437E 80 0
</TABLE>
PRUDENTIAL
JENNISON
ACTIVE
BALANCED FUND
- -------------
PRUDENTIAL
JENNISON
GROWTH FUND
- -------------
PRUDENTIAL
JENNISON
GROWTH &
INCOME FUND
Prospectus
January 23, 1998
www.prudential.com
[LOGO] PRUDENTIAL INVESTMENTS
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Statement of Additional Information dated January 23, 1998
Prudential Jennison Series Fund, Inc. (the Company) is an open-end,
diversified, management investment company consisting of three series:
Prudential Jennison Active Balanced Fund (Active Balanced Fund), 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 Active Balanced Fund is to seek to achieve total
returns approaching equity returns, while accepting less risk than an all-
equity portfolio, through an actively-managed portfolio of equity securities,
fixed-income securities and money market instruments. The investment adviser
uses the following ranges as the normal operating parameters for the
securities to be purchased by the Fund: (i) 40-75% of the total assets of the
Fund will be invested in common stocks, preferred stocks and other equity-
related securities; (ii) 25-60% of the total assets of the Fund will be
invested in investment grade fixed-income securities; and (iii) 0-35% of the
total assets of the Fund will be invested in money market instruments. Within
these parameters, at least 25% of the Fund's total assets will be invested in
fixed-income senior securities.
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 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.
Each Fund may also 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.
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, 100 Mulberry Street, 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 23, 1998, copies
of which may be obtained from the Company upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE TO PAGE
PAGE IN PROSPECTUS
---------------- -----------------------
<S> <C> <C>
General Information................... B-2 38
Investment Objectives and Policies.... B-2 18
Investment Restrictions............... B-18 32
Directors and Officers................ B-21 32
Manager and Subadvisers............... B-25 32
Distributor........................... B-27 33
Portfolio Transactions and Brokerage.. B-29 35
Purchase and Redemption of Fund
Shares............................... B-31 39
Shareholder Investment Account........ B-34 50
Net Asset Value....................... B-38 35
Taxes, Dividends and Distributions.... B-39 36
Performance Information............... B-42 36
Custodian, Transfer and Dividend
Disbursing Agent and Independent
Accountants.......................... B-45 35
Financial Statements.................. B-46 --
Report of Independent Accountants..... B-56, B-66, B-77 --
Independent Auditors' Report.......... B-57, B-67
Description of Security Ratings....... A-1 --
Appendix I--General Investment
Information.......................... I-1 --
Appendix II--Historical Performance
Data................................. II-1 --
Appendix III--Information Relating to
Prudential........................... III-1 --
</TABLE>
MF172B
<PAGE>
GENERAL INFORMATION
The Company changed its name from Prudential Jennison Fund, Inc. to
Prudential Jennison Series Fund, Inc., effective on September 10, 1996, in
connection with the offering of a second series, Prudential Jennison Growth &
Income Fund (Growth & Income Fund). The existing series of the Company was
redesignated Prudential Jennison Growth Fund (Growth Fund). On August 27,
1997, the Company added a third series, Prudential Jennison Active Balanced
Fund (Active Balanced Fund). Active Balanced Fund did not commence operations
until January 23, 1998, when it acquired the assets of Prudential Active
Balanced Fund, a series of Prudential Index Series Fund (formerly Prudential
Dryden Fund).
INVESTMENT OBJECTIVES AND POLICIES
The Company is an open-end, diversified, management investment company
consisting of three series. Each series operates as a separate fund with its
own investment objectives and policies. The investment objective of the Active
Balanced Fund is to seek to achieve total returns approaching equity returns,
while accepting less risk than an all-equity portfolio, through an actively
managed portfolio of equity securities, fixed-income securities and money
market instruments. 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" refers to Jennison Associates LLC, the
Subadviser. See "Manager and Subadvisers" 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.
B-2
<PAGE>
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.
MORTGAGE-RELATED SECURITIES
The Active Balanced Fund and the Growth Fund may invest in mortgage-backed
securities, including those which represent undivided ownership interests in
pools of mortgages, issued by the U.S. Government or an issuing agency or
instrumentality which 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 a
Fund's shares. The Active Balanced Fund also may invest in mortgage-backed
securities issued by private entities. Mortgage-backed 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. A 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.
The Active Balanced Fund and the 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.
Private mortgage-backed securities in which the Active Balanced Fund may
invest represent pass-through pools consisting principally of conventional
residential mortgage loans created by non-governmental issuers, such as
commercial banks, savings and loan associations and private mortgage insurance
companies.
The Active Balanced Fund expects that private and governmental entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may be
shorter than previously was customary. As new types of mortgage-backed
securities are developed and offered to investors, the Active Balanced Fund,
consistent with its investment objective and policies, will consider making
investments in those new types of securities.
The average maturity of pass-through pools of mortgage-related securities
varies with the maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by unscheduled payments on
the underlying mortgages. Factors affecting mortgage prepayments include the
level of interest rates, general economic and social conditions, the location
of the mortgaged property and age of the mortgage. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. Common practice is to assume that
prepayments will result in an average life ranging from two to ten years for
pools of fixed rate 30-year mortgages. Pools of mortgages with other
maturities or different characteristics will have varying average life
assumptions.
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Because prepayments of principal generally occur when interest rates are
declining, it is likely that a Fund will have to reinvest the proceeds of
prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, the Fund's yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed income
securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest
rates. To the extent that a Fund purchases mortgage-related securities at a
premium, unscheduled prepayments, which are made at par, will result in a loss
equal to any unamortized premium.
Government stripped mortgage-related interest only (IOs) and principal only
(POs) securities in which the Growth Fund and Active Balanced Fund may invest
are currently traded in an over-the-counter market maintained by several large
investment banking firms. There can be no assurance that a Fund will be able
to effect a trade of IOs or POs at a time when it wishes to do so. A Fund will
acquire IOs and POs only if, in the opinion of the Fund's Subadviser, a
secondary market for the securities exists at the time of acquisition, or is
subsequently expected. Each Fund will treat IOs and POs that are not U.S.
Government securities as illiquid and will limit its investments in these
securities, together with other illiquid investments, in order not to hold
more than 15% of its net assets in illiquid securities. With respect to IOs
and POs that are issued by the U.S. Government, the Subadviser, subject to the
supervision of the Board of Directors, may determine that such securities are
liquid, if it determines the securities can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
Investment in IOs and POs involves the risks normally associated with
investing in government and government agency mortgage-related securities. In
addition, the yields on IOs and POs are extremely sensitive to the prepayment
experience on the mortgage loans underlying the certificates collateralizing
the securities. If a decline in the level of prevailing interest rates results
in a rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on IOs
and increasing the yield to maturity on POs. Sufficiently high prepayment
rates could result in the Fund not fully recovering its initial investment in
an IO.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Growth Fund and Active Balanced Fund also may invest in, among other
things, parallel pay Collateralized Mortgage Obligations (CMOs), and Planned
Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other
CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds generally require
payments of a specified amount of principal on each payment date. PAC Bonds
always are parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.
In reliance on Securities and Exchange Commission (SEC) rules and orders, a
Fund's investments in certain qualifying CMOs, including CMOs that have
elected to be treated as Real Estate Mortgage Investment Conduits (REMICs ),
are not subject to the limitations of the Investment Company Act of 1940
(Investment Company Act) on acquiring interests in other investment companies.
In order to be able to rely on the SEC's interpretation, the CMOs and REMICs
must be unmanaged, fixed-asset issuers that (i) invest primarily in mortgage-
backed securities, (ii) do not issue redeemable securities, (iii) operate
under general exemptive orders exempting them from all provisions of the
Investment Company Act, and (iv) are not registered or regulated under the
Investment Company Act as investment companies. To the extent that a Fund
selects CMOs or REMICs that do not meet the above requirements, the Fund may
not invest more than 10% of its assets in all such entities and may not
acquire more than 3% of the voting securities of any single such entity.
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<PAGE>
ASSET-BACKED SECURITIES
The Active Balanced Fund may invest in asset-backed securities. The value of
these securities may change because of changes in the market's perception of
the creditworthiness of the servicing agent for the pool, the originator of
the pool, or the financial institution providing credit enhancement for the
pool.
CUSTODIAL RECEIPTS
The Active Balanced Fund may acquire custodial receipts or certificates, such
as CATS, TIGRs and FICO Strips, underwritten by securities dealers or banks,
that evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies or
instrumentalities. The underwriters of these certificates or receipts purchase
a U.S. Government security and deposit the security in an irrevocable trust or
custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the U.S. Government security. Custodial
receipts evidencing specific coupon or principal payments have the same
general attributes as zero coupon U.S. Government securities.
There are a number of risks associated with investments in custodial
receipts. Although typically under the terms of a custodial receipt, the Fund
is authorized to assert its rights directly against the issuer of the
underlying obligation, the Fund may be required to assert through the
custodian bank such rights as may exist against the underlying issuer. Thus,
if the underlying issuer fails to pay principal and/or interest when due, the
Fund may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation of
the issuer. In addition, if the trust or custodial account in which the
underlying security has been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in respect of any taxes paid.
LIQUIDITY PUTS
The Active Balanced Fund may purchase instruments together with the right to
resell the instruments at an agreed-upon price or yield, within a specified
period prior to the maturity date of the instruments. This instrument is
commonly known as a "put bond" or a "tender option bond."
Consistent with its investment objective, the Active Balanced Fund may
purchase a put so that it will be fully invested in securities while
preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the put. The Fund will generally
exercise the puts or tender options on their expiration date when the exercise
price is higher than the current market price for the related fixed income
security. Puts or tender options may be exercised prior to the expiration date
in order to fund obligations to purchase other securities or to meet
redemption requests. These obligations may arise during periods in which
proceeds from sales of Fund shares and from recent sales of portfolio
securities are insufficient to meet such obligations or when the funds
available are otherwise allocated for investment. In addition, puts may be
exercised prior to the expiration date in the event the Subadviser for the
Fund revises its evaluation of the creditworthiness of the issuer of the
underlying security. In determining whether to exercise puts or tender options
prior to their expiration date and in selecting which puts or tender options
to exercise in such circumstances, the Fund's Subadviser considers, among
other things, the amount of cash available to the Fund, the expiration dates
of the available puts or tender options, any future commitments for securities
purchases, the yield, quality and maturity dates of the underlying securities,
alternative investment opportunities and the desirability of retaining the
underlying securities in the Fund.
These instruments are not deemed to be "put options" for purposes of the
Active Balanced Fund's investment restriction.
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<PAGE>
LOWER-RATED AND UNRATED DEBT SECURITIES
The Active Balanced Fund and the Growth Fund may invest, to a limited extent,
in lower-rated and unrated debt securities. Non-investment grade fixed-income
securities are rated lower than Baa (or the equivalent rating or, if not
rated, determined by the Subadviser to be of comparable quality to securities
so rated) and are commonly referred to as high risk or high yield securities
or "junk" bonds. High yield securities are generally riskier than higher
quality securities and are subject to more credit risk, including risk of
default, and the prices of such securities are more volatile than higher
quality securities. Such securities may also have less liquidity than higher
quality securities. The Active Balanced Fund is not authorized to invest in
excess of 5% of its net assets in non-investment grade fixed-income
securities. The Growth Fund may not invest more than 10% of its net assets in
non-investment grade fixed-income securities.
The markets in which lower-rated securities (or unrated securities that are
equivalent to lower-rated securities) are traded are generally more limited
than those in which higher-rated securities are traded. The existence of
limited markets may make it more difficult for a Fund to obtain accurate
market quotations for purposes of valuing its portfolio and calculating its
net asset value. Moreover, the lack of a liquid trading market may restrict
the availability of debt securities for a Fund to purchase and may also have
the effect of limiting the ability of the Fund to sell debt securities at
their fair value either to meet redemption requests or to respond to changes
in the economy or the financial markets.
Lower-rated fixed-income securities present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower-yielding security, resulting in a
decreased return for investors. Also, as the principal value of fixed-income
securities moves inversely with movements in interest rates, in the event of
rising interest rates, the value of the securities held by the Fund may
decline proportionately more than a fund consisting of higher-rated
securities. Investments in zero coupon bonds may be more speculative and
subject to greater fluctuations in value due to changes in interest rates than
bonds that pay interest currently. If a Fund experiences unexpected net
redemptions, it may be forced to sell its higher-rated bonds, resulting in a
decline in the overall credit quality of the securities held by the Fund and
increasing the exposure of the Fund to the risks of lower-rated securities.
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
B-6
<PAGE>
purchaser, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the
term of the option. The writer of the call option, who receives the premium,
has the obligation, upon exercise of the option, to deliver the underlying
security against payment of the exercise price. A put option is a similar
contract which gives the purchaser, in return for a premium, the right to sell
the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security upon exercise at the exercise price. A Fund will generally
write put options when its investment adviser desires to invest in the
underlying security. The premium paid by the purchaser of an option will
reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the remaining term of
the option, supply and demand and interest rates.
A call option written by a Fund is "covered" if the Fund owns the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written. A Fund may also
write a call option or write a put option if it maintains cash or other 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.
B-7
<PAGE>
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 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
B-8
<PAGE>
had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of any
of the clearing corporations inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders. Each Fund intends to purchase and sell only
those options which are cleared by clearinghouses whose facilities are
considered to be adequate to handle the volume of options transactions.
RISKS OF OPTIONS ON INDICES
A Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Options." In addition, the
distinctive characteristics of options on indices create certain risks that
are not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, a Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the policy of each Fund
to purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. A
Fund will not purchase or sell any index option contract unless and until, in
the investment adviser's opinion, the market for such options has developed
sufficiently that the risk in connection with such transactions is not
substantially greater than the risk in connection with options on securities
in the index.
SPECIAL RISKS OF WRITING CALLS ON INDICES
Because exercises of index options are settled in cash, a call writer such as
a Fund cannot determine the amount of its settlement obligations in advance
and, unlike call writing on specific stocks, cannot provide in advance for, or
cover, its potential settlement obligations by acquiring and holding the
underlying securities. However, a Fund will write call options on indices only
under the circumstances described below under "Limitations on Purchase and
Sale of Stock Options, Options on Stock Indices and Foreign Currencies and
Futures Contracts and Related Options."
Price movements in a Fund's portfolio probably will not correlate precisely
with movements in the level of the index and, therefore, a Fund bears the risk
that the price of the securities held by the Fund may not increase as much as
the index. In such event, the Fund would bear a loss on the call which is not
completely offset by movements in the price of the Fund's portfolio. It is
also possible that the index may rise when a Fund's portfolio of stocks does
not rise. If this occurred, the Fund would experience a loss on the call which
is not offset by an increase in the value of its portfolio and might also
experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as
the market, movements in the value of a Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.
Unless a Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be
settled within hours after receiving the notice of exercise, if a Fund fails
to anticipate an exercise, it may have to borrow from a bank (in amounts not
exceeding 20% of such Fund's total assets) pending settlement of the sale of
securities in its portfolio and would incur interest charges thereon.
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<PAGE>
When a Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise,
and the time the Fund is able to sell stocks in its portfolio. As with stock
options, a Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where a Fund
would be able to deliver the underlying securities in settlement, a Fund may
have to sell part of its investment portfolio in order to make settlement in
cash, and the
price of such investments might decline before they can be sold. This timing
risk makes certain strategies involving more than one option substantially
more risky with index options than with stock options. For example, even if an
index call which a Fund has written is "covered" by an index call held by the
Fund with the same strike price, the Fund will bear the risk that the level of
the index may decline between the close of trading on the date the exercise
notice is filed with the clearing corporation and the close of trading on the
date the Fund exercises the call it holds or the time the Fund sells the call
which, in either case, would occur no earlier than the day following the day
the exercise notice was filed.
If a Fund holds an index option and exercises it before final determination
of the closing index value for that day, it runs the risk that the level of
the underlying index may change before closing. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable 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 or other liquid 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.
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<PAGE>
A Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the forward contract.
Accordingly, if a decision is made to sell the security and make delivery of
the foreign currency and if the market value of the security is less than the
amount of foreign currency that a Fund is obligated to deliver, then it would
be necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase).
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices
decline during the period between a Fund's entering into a forward contract
for the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Fund will realize a
gain to the extent that the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
contract prices increase, the Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
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.
FOREIGN CURRENCY STRATEGIES--SPECIAL CONSIDERATIONS
The Active Balanced Fund may use options on foreign currencies, futures on
foreign currencies, options on futures contracts on foreign currencies and
forward currency contracts, to hedge against movements in the values of the
foreign currencies in which the Fund's securities are denominated. Such
currency hedges can protect against price movements in a security that the
Fund owns or intends to acquire that are attributable to changes in the value
of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to
other causes.
The Fund might seek to hedge against changes in the value of a particular
currency when no futures contract, forward contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which the Fund's Subadviser believes will have a
positive correlation to the value of the currency being hedged. The risk that
movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
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The value of futures contracts, options on futures contracts, forward
contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts, forward
contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions
in the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain
open, significant price and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the futures contracts or
options until they reopen.
Settlement of futures contracts, forward contracts and options involving
foreign currencies might be required to take place with in the country issuing
the underlying currency. Thus, the Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements
by U.S. residents and might by required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
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. The Active Balanced
Fund may purchase futures contracts on securities, foreign currencies, stock
indices and interest rate indices and options thereon.
A Fund will purchase or sell futures contracts for the purpose of hedging its
portfolio (or anticipated portfolio) securities against changes in prevailing
interest rates. If the investment adviser anticipates that interest rates may
rise and, concomitantly, the price of the Fund's portfolio securities may
fall, a Fund may sell a futures contract. If declining interest rates are
anticipated, a Fund may purchase a futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by a Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts. In addition, futures contracts
will be bought or sold in order to close out a short or long position in a
corresponding futures contract.
Although most futures contracts call for actual delivery or acceptance of
securities or cash, the contracts usually are closed out before the settlement
date without the making or taking of delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security and the same delivery date. If the
sale price exceeds the offsetting purchase price, the seller would be paid the
difference and would realize a gain. If the offsetting purchase price exceeds
the sale price, the seller would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same aggregate amount of the specific type of security
(or currency) and the same delivery date. If the offsetting sale price exceeds
the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize
a loss. There is no assurance that a Fund will be able to enter into a closing
transaction.
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When a Fund enters into a futures contract it is initially required to
deposit with its Custodian, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash or other liquid 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 other 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 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.
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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 other 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 Growth Fund nor Growth & Income 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 or other liquid 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 or other liquid 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 other 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 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 other liquid assets in a segregated account
with its Custodian, it will not be subject to the requirements described in
this paragraph.
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<PAGE>
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 other 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
The Growth Fund and Growth & Income 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. 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
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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.
REVERSE REPURCHASE AGREEMENTS
The Active Balanced Fund may enter into reverse repurchase agreements with
banks and securities dealers which meet the creditworthiness standards
established by the Company's Board of Directors. The investment adviser will
monitor the continued creditworthiness of these parties, subject to the
oversight of the Company's Board of Directors. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale by the Active Balanced Fund may decline below the price of the securities
the Fund has sold but is obligated to repurchase.
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. The Active Balanced Fund also may borrow through forward rolls,
dollar rolls or through reverse repurchase agreements, and also to take
advantage of investment opportunities. 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. 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
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<PAGE>
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
No 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 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.
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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 companies, shareholders of the Fund may be subject to
duplicate management and advisory fees. See "Investment Restrictions."
FORWARD ROLLS AND DOLLAR ROLLS
The Active Balanced Fund may enter into forward roll and dollar roll
transactions which involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
At the time the Fund enters into a forward roll transaction, it will place in
a segregated account with its Custodian cash or other liquid assets, having a
value equal to the repurchase price (including accrued interest). See
"Segregated Accounts" below.
SEGREGATED ACCOUNTS
When a Fund is required to segregate assets in connection with the purchase
of securities on a when-issued or delayed delivery basis, securities lending
and certain hedging transactions, it will maintain cash or other liquid assets
in a segregated account with the Fund's Custodian. "Liquid assets" mean cash,
U.S. Government securities, equity securities (including foreign securities),
debt obligations or other liquid, unencumbered assets, marked-to-market daily.
PORTFOLIO TURNOVER
As a result of the investment policies described above, each Fund may engage
in a substantial number of portfolio transactions, but no 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, Dividends and
Distributions."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies are
those which cannot be changed without the approval of the holders of a
majority of 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.
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GROWTH FUND AND GROWTH & INCOME 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.)
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
"Investment Objectives and Policies--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.
B-19
<PAGE>
12. Purchase more than 10% of all outstanding voting securities of any one
issuer.
ACTIVE BALANCED 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. 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 or through forward rolls, dollar rolls or
reverse repurchase agreements in an amount up to 20% of the value of its total
assets (calculated when the loan is made) to take advantage of investment
opportunities 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. 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 subject to this restriction.
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 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, and forward
foreign currency exchange contracts.
7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, if may be deemed to be an underwriter
under certain federal securities laws.
8. Make investments for the purpose of exercising control or management.
9. Invest in securities of other non-affiliated 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. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities limited to 33 1/3% of the Fund's total assets.
11. 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
B-20
<PAGE>
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 AND ADDRESS ** POSITION WITH
(AGE) COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
------------------- ------------- -----------------------------------------
<S> <C> <C>
Edward D. Beach (73) Director President and Director of BMC Fund, Inc., a
closed-end investment company; previously, Vice
Chairman of Broyhill Furniture Industries,
Inc.; Certified Public Accountant; Secretary
and Treasurer of Broyhill Family Foundation,
Inc.; Member of the Board of Trustees of Mars
Hill College; 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 (51) Director Vice President, Prudential Investments (since
May 1996); Executive Vice President and
Treasurer, Prudential Investments Fund
Management LLC (PIFM); Senior Vice President
(since March 1987) of Prudential Securities
Incorporated (Prudential Securities); formerly
Chief Administrative Officer (July 1990-
September 1996), Director (January 1989-
September 1996) and Executive Vice President,
Treasurer and Chief Financial Officer (June
1987-September 1996) of Prudential Mutual Fund
Management, Inc.; Vice President and Director
of The Asia Pacific Fund, Inc. (since May
1989); Director of The High Yield Income Fund,
Inc.
Douglas H. McCorkindale Director Vice Chairman (since March 1984) and President
(58) (since September 1997) of Gannett Co. Inc.
(publishing and media); Director of Gannett Co.
Inc., Frontier Corporation and Continental
Airlines, Inc.
*Mendel A. Melzer, CFA Director Chief Investment Officer (since October 1996) of
(38) Prudential Mutual Funds & Annuities; formerly
751 Broad St. Chief Financial Officer (November 1995-
Newark, NJ 07102 September 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.
</TABLE>
B-21
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS **
(AGE) POSITION WITH COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
------------------- --------------------- -----------------------------------------
<S> <C> <C>
Thomas T. Mooney (56) 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 (55) 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 (54) 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.
Robin B. Smith (58) Director Chairman (since August 1996) and Chief Executive
Officer (since January 1988), formerly
President (September 1981-August 1996) and
Chief Operating Officer (September 1981-
December 1988) of Publishers Clearing House;
Director of BellSouth Corporation, Texaco
Inc., Springs Industries Inc. and Kmart
Corporation.
Louis A. Weil, III (56) 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), President, Publisher & CEO of The
Detroit News (February 1986-August 1989) and
member of the Advisory Board, Chase Manhattan
Bank-Westchester; Director of The High Yield
Income Fund, Inc.
Clay T. Whitehead (58) Director President (since May 1983) of National Exchange
Inc. (new business development firm).
</TABLE>
B-22
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS ** POSITION WITH
(AGE) COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
------------------- ------------- -----------------------------------------
<S> <C> <C>
S. Jane Rose (51) Secretary Senior Vice President (since December 1996) of
PIFM; Senior Vice President and Senior Counsel
of Prudential Securities (since July 1992);
formerly Senior Vice President (January 1991-
September 1996) and Senior Counsel (June 1987-
September 1996) of Prudential Mutual Fund
Management, Inc.
Grace C. Torres (38) Treasurer and First Vice President (since December 1996) of
Principal Financial PIFM; First Vice President (since March 1994)
and Accounting of Prudential Securities; formerly First Vice
Officer President (March 1994-September 1996) of
Prudential Mutual Fund Management, Inc. and
Vice President (July 1989-March 1994) of
Bankers Trust Corporation.
Marguerite E.H. Morrison Assistant Secretary Vice President (since December 1996) of PIFM;
(41) Vice President and Associate General Counsel of
Prudential Securities (since March 1995);
formerly Vice President and Associate General
Counsel (June 1991-September 1996) of
Prudential Mutual Fund Management, Inc.
Stephen M. Ungerman (43) 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) and Senior Tax
Manager of Price Waterhouse (1981-January
1993).
</TABLE>
- -------
* "Interested" Director, as defined in the Investment Company Act, by reason of
his affiliation with Prudential, Prudential Securities or PIFM.
** Unless otherwise stated, the address is c/o Prudential Investments Fund
Management LLC, Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077.
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 Subadvisers" and "Distributor," oversee such actions and decide on
general policy.
Pursuant to each 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 PIFM or Jennison Associates LLC (Jennison or the Subadviser) annual
compensation of $1,875, in addition to certain out-of-pocket expenses. The
amount of annual compensation paid to each Director may change as a result of
the introduction of additional funds on the Boards of which the Director will
be asked to serve.
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
B-23
<PAGE>
rate) or, pursuant to an 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.
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, Mr. Beach is
scheduled to retire on December 31, 1999.
The following table sets forth aggregate compensation paid by the Company to
the Directors for the fiscal year ended September 30, 1997 and the aggregate
compensation paid to such Directors for service on the boards of other
investment companies managed by PIFM (Fund Complex) for the calendar year
ended December 31, 1997. 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 shareholder meeting in October 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL 1997
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(/2/)
- ----------------- ------------ --------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Beach, Edward D.--Direc-
tor $1,875 None N/A $135,000(38/63)*
Gold, Delayne D.--Direc-
tor $1,875 None N/A $135,000(38/63)*
Gunia, Robert F.(/1/)--
Director $ 0 None N/A $ 0
Lennox, Donald D.--For-
mer Director $1,875 None N/A $ 90,000(26/50)*
McCorkindale, Douglas
H.(/2/)--Director $1,875 None N/A $ 70,000(20/35)*
Melzer, Mendel A.(/1/)--
Director $ 0 None N/A $ 0
Mooney, Thomas T.(/2/)--
Director $1,875 None N/A $115,000(31/64)*
Munn, Stephen P.--Direc-
tor $1,875 None N/A $ 45,000(15/21)*
Redeker, Richard
A.(/1/)--President and
Director $ 0 None N/A $ 0
Smith, Robin B.(/2/)--
Director $3,750 None N/A $ 90,000(27/34)*
Weil, III, Louis A.--Di-
rector $1,875 None N/A $ 90,000(26/50)*
Whitehead, Clay T.--Di-
rector $1,875 None N/A $ 45,000(15/21)*
</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).
(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1997, including amounts deferred at the election
of Directors under the funds' deferred compensation plans. Including
accrued interest, total deferred compensation amounted to $71,640,
$143,909 and $139,097 for Messrs. McCorkindale and Mooney and Ms. Smith,
respectively. Currently, Ms. Smith has agreed to defer her fees at the
Fund rate.
As of January 9, 1998, the Directors and officers of the Company, as a group,
owned less than 1% of the outstanding common stock of each Fund.
As of January 9, 1998, Jennison Associates LLC Savings Plan, TTEE J. Kannry,
M. Del Balso & B. Goldberg, C/O Corporate Services, 466 Lexington Ave., 18th
Fl., New York, NY 10017-3140 and Bradley L. Goldberg, 502 Orienta Ave.,
Mamaroneck, NY 10543-4317 were the beneficial owners of 160,307 and 147,215
Class A shares of the Growth & Income Fund (5.6% and 5.2%, respectively);
Prudential Trust Company, FBO PRUD-DC Trust Accounts, Attn John Surdy, 30
Scranton Office Park, Moosic, PA 18507-1791, Mr. John A. Hart, TTEE for John
A. & Eleanor E. Hart Family Trust UA DTD
B-24
<PAGE>
08/25/95, 500 Laramie Trl., Cincinnati, OH 45215-2504, Mr. Neil L. Cushman &
Mrs. Katy L. Cushman, JT TEN, 5248 Calle Barquero, Santa Barbara, CA 93111-1743
and Mr. Albert R. Graves & Mrs. R. Graves, JT TEN, 790 Cool Glace Ct.,
Millersville, MD 21108-1700 were the beneficial owners of 11,006, 5,106, 5,940
and 4,164 Class Z shares of the Growth & Income Fund (14%, 6.5%, 7.5% and 5.3%,
respectively); and Prudential Trust Company, FBO PRU-DC Trust Accounts, ATTN:
John Surdy, 30 Scranton Office Park, Moosic, PA 18507-1791 and Pru Defined
Contribution Svcs, FBO Pru-Non-Trust Accounts, ATTN: John Surdy, 30 Scranton
Office Park, Moosic, PA 18507-1789, were the beneficial owners of 14,582,896
and 29,673,849 Class Z shares of the Growth Fund (29% and 60.1%, respectively).
As of January 9, 1998, Prudential Securities was the record holder for other
beneficial owners of 6,977,021 Class A shares (approximately 63.6% of such
shares outstanding), 21,841,735 Class B shares (approximately 67.1% of such
shares outstanding), 1,612,029 Class C shares (approximately 78.9% of such
shares outstanding) and 389,471 Class Z shares (approximately 0.7% of such
shares outstanding) of Growth Fund; and 2,178,948 Class A shares (approximately
76% of such shares outstanding), 6,214,520 Class B shares (approximately 82.8%
of such shares outstanding), 564,829 Class C shares (approximately 89.8% of
such shares outstanding) and 67,276 Class Z shares (approximately 85.8% 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 AND SUBADVISERS
The manager of the Company is Prudential Investments Fund Management LLC
(PIFM or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077. PIFM serves as manager to all of the other investment
companies that, together with the Funds, comprise the Prudential Mutual Funds.
See "How the Funds are Managed--Manager" in the Prospectus. As of December 31,
1997, PIFM managed and/or administered open-end and closed-end management
investment companies with assets of approximately $62 billion. According to the
Investment Company Institute, as of October 31, 1997, the Prudential Mutual
Funds were the 17th largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities. Prudential Mutual Fund
Services LLC (PMFS or the Transfer Agent), a wholly-owned subsidiary of PIFM,
serves as the transfer agent for the Prudential Mutual Funds and, in addition,
provides customer service, recordkeeping and management and administration
services to qualified plans.
Pursuant to each Management Agreement with the Company (the Management
Agreements), PIFM, 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, PIFM is obligated to keep
certain books and records of the Company. PIFM 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 PIFM for the Funds are
not exclusive under the terms of the Management Agreements and PIFM is free to,
and does, render management services to others.
For its services, PIFM receives, pursuant to the Management Agreements, a fee
at an annual rate of .60 of 1% of each of Growth Fund's and Growth & Income
Fund's average daily net assets and a fee at an annual rate of .65 of 1% of the
Active Balanced Fund's average daily net assets. Each fee is computed daily and
payable monthly. The Management Agreements also provide that, in the event the
expenses of a Fund (including the fees of PIFM, but excluding interest, taxes,
brokerage commissions, distribution fees and litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course
of the Fund's business) for any fiscal year exceed the lowest applicable annual
expense limitation established and enforced pursuant to the statutes or
regulations of any jurisdiction in which the Fund's shares are qualified
B-25
<PAGE>
for offer and sale, the compensation due to PIFM will be reduced by the amount
of such excess. Reductions in excess of the total compensation payable to PIFM
will be paid by PIFM to the Company. No such reductions were required during
the fiscal year ended September 30, 1997. No jurisdiction currently limits a
Fund's expenses.
In connection with its management of the corporate affairs of the Company,
PIFM 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 PIFM or the Company's investment advisers;
(b) all expenses incurred by PIFM 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 separate Subadvisory
Agreements between PIFM and Jennison (the Subadvisory Agreements) and, with
respect to Active Balanced Fund, the fees payable to The Prudential Investment
Corporation, doing business as Prudential Investments (PI), pursuant to a
Subadvisory Agreement between PIFM and PI (the Cash Management Subadvisory
Agreement).
Under the terms of each 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, including the
preparation and printing of each Fund's registration statements and
prospectuses for such purposes and paying the fees and expenses of notice
filings made in accordance with state securities laws, (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.
Each Management Agreement provides that PIFM 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. Each 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. Each
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 for the Growth Fund and Growth & Income
Fund 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 May 21, 1997. The
Management Agreement for the Active Balanced Fund was approved by the Board of
Directors, including a majority of the Directors who are not parties to the
contract or interested persons of any such parties as defined in the
Investment Company Act, on August 26, 1997.
PIFM has entered into two Subadvisory Agreements with Jennison, a wholly-
owned subsidiary of Prudential. The Subadvisory Agreements provide that
Jennison will furnish investment advisory services in connection with the
management
B-26
<PAGE>
of the Growth Fund and Growth & Income Fund and the Active Balanced Fund,
respectively. In connection therewith, Jennison is obligated to keep certain
books and records of each Fund. Under each Subadvisory Agreement, Jennison,
subject to the supervision of PIFM, is responsible for managing the assets of
each Fund in accordance with its investment objectives, investment program and
policies. Jennison determines what securities and other instruments are
purchased and sold for each Fund and is responsible for obtaining and
evaluating financial data relevant to each Fund. PIFM continues to have
responsibility for all investment advisory services pursuant to each
Management Agreement. Under each Subadvisory Agreement, PIFM 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, PIFM received from Growth Fund
management fees of $1,418,805, of which $709,402 was paid to Jennison. The
Growth & Income Fund was not offered during the fiscal year ended September
30, 1996. For the fiscal year ended September 30, 1997, PIFM received from
Growth Fund management fees of $5,276,337, of which $2,348,474 was paid to
Jennison, and PIFM received from Growth & Income Fund management fees of
$513,032, of which $256,516 was paid to Jennison. The Active Balanced Fund was
not offered during the fiscal year ended September 30, 1997.
Each 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 applicable Management Agreement. Each Subadvisory Agreement
may be terminated by the Company, PIFM or Jennison upon not more than 60
days', nor less than 30 days', written notice. Each 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 Subadvisory Agreement for the Growth Fund and Growth & Income
Fund 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 May 21, 1997. The
Subadvisory Agreement with Jennison for the Active Balanced Fund was approved
by the Board of Directors, including a majority of the Directors who are not
parties to the contract or interested persons of any such parties as defined
in the Investment Company Act, on August 26, 1997.
The Cash Management Subadvisory Agreement provides that PI manage short-term
assets and cash for the Active Balanced Fund and invest available cash
balances for the Fund through a joint repurchase agreement account. PI is
reimbursed by PIFM for reasonable costs and expenses incurred by it in
furnishing such services. This Agreement was approved by the Board of
Directors, including a majority of the Directors who are not parties to the
contract or interested persons of any such parties as defined in the
Investment Company Act, on August 26, 1997.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or the
Distributor), 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 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 also incurs the expenses of distributing the Class Z shares under
the Distribution Agreement with the Company, none of which are reimbursed by
or paid for by any 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
B-27
<PAGE>
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. The Plans were last
approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on August 26, 1997. No shares of the Active Balanced Fund were
outstanding during the fiscal year ended September 30, 1997.
Class A Plan. For the fiscal year ended September 30, 1997, the Growth Fund
paid distribution fees of $264,954 to Prudential Securities under the Class A
Plan. For the fiscal period from November 7, 1996 (commencement of investment
operations of the Growth & Income Fund) through September 30, 1997, the Growth
& Income Fund paid distribution fees of $60,491 to Prudential Securities under
the Class A Plan. These amounts were primarily expended for payment of account
servicing fees to financial advisers and other persons who sell Class A shares
of the applicable Fund. In addition, for the same periods, Prudential
Securities received approximately $608,000 and $182,700 in initial sales
charges with respect to the sale of Class A shares of Growth Fund and Growth &
Income Fund, respectively.
Class B Plan. For the fiscal period ended September 30, 1997, the Distributor
received $2,994,762 and $560,606 on behalf of the Growth Fund and Growth &
Income Fund, respectively, under the Class B Plan. For the fiscal period ended
September 30, 1997, the Distributor spent approximately the following amounts
on behalf of each such Fund.
<TABLE>
<CAPTION>
APPROXIMATE
COMMISSION COMPENSATION TO TOTAL
PAYMENTS TO PRUSEC FOR AMOUNT
FINANCIAL COMMISSION SPENT BY
ADVISERS OF OVERHEAD COSTS PAYMENTS TO DISTRIBUTOR
PRUDENTIAL OF PRUDENTIAL REPRESENTATIVES AND ON BEHALF OF
FUND PRINTING SECURITIES SECURITIES* OTHER EXPENSES* FUND
- -------- -------- ----------- -------------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Growth $335,000 $1,611,600 $1,197,200 $1,448,300 $4,592,100
Growth &
Income $ 0 $ 357,900 $ 787,400 $ 281,500 $1,426,800
</TABLE>
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 periods, Prudential Securities received
approximately $727,100 and $124,500 in contingent deferred sales charges
attributable to Class B shares of Growth Fund and Growth & Income Fund,
respectively.
Class C Plan. For the fiscal period ended September 30, 1997, the Distributor
received $182,481 and $50,452 on behalf of the Growth Fund and Growth & Income
Fund, respectively, under the Class C Plan. For the fiscal period ended
September 30, 1997, the Distributor spent approximately the following amounts
on behalf of each such Fund.
<TABLE>
<CAPTION>
APPROXIMATE
COMMISSION COMPENSATION TO TOTAL
PAYMENTS TO PRUSEC FOR AMOUNT
FINANCIAL COMMISSION SPENT BY
ADVISERS OF OVERHEAD COSTS PAYMENTS TO DISTRIBUTOR
PRUDENTIAL OF PRUDENTIAL REPRESENTATIVES AND ON BEHALF OF
FUND PRINTING SECURITIES SECURITIES* OTHER EXPENSES* FUND
- -------- -------- ----------- -------------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Growth $19,700 $135,100 $30,800 $14,300 $199,900
Growth &
Income $ 0 $ 17,800 $24,400 $ 1,800 $ 44,000
</TABLE>
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
B-28
<PAGE>
Charges" in the Prospectus. For the same periods, Prudential Securities
received approximately $5,600 and $1,100 in contingent deferred sales charges
attributable to Class C shares of Growth Fund and Growth & Income Fund,
respectively.
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.
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 federal securities laws.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit aggregate
initial sales charges, deferred sales charges and asset-based sales charges to
6.25% of total gross sales of each class of shares. In the case of Class B
shares, interest charges equal to the prime rate plus one percent per annum
may be added to the 6.25% limitation. Sales from the reinvestment of dividends
and distributions are not required to be included in the calculation of the
6.25% limitation. The annual asset-based sales charge with respect to Class B
and Class C shares of the Fund may not exceed .75 of 1%. The 6.25% limitation
applies to a Fund rather than on a per shareholder basis. If aggregate sales
charges were to exceed 6.25% of total gross sales of any class, all sales
charges on shares of that class would be suspended.
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
B-29
<PAGE>
any transaction in which Prudential Securities or any affiliate acts as
principal, except in accordance with rules of the SEC. Thus, it will not deal
with Prudential Securities acting as market maker, and it will not execute a
negotiated trade with Prudential Securities if execution involves Prudential
Securities' acting as principal with respect to any part of a Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities, or an affiliate, during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Company, will not significantly affect a
Fund's ability to pursue its present investment objective. However, in the
future in other circumstances, a Fund may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not
subject to such limitations.
In placing orders for portfolio securities of a Fund, the Manager is required
to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio
transactions of a Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data
and research reports on particular companies and industries. Such services are
used by the Manager in connection with all of its investment activities, and
some of such services obtained in connection with the execution of
transactions for a Fund may be used in managing other investment accounts.
Conversely, brokers, dealers or futures commission merchants furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than a Fund's, and the
services furnished by such brokers, dealers or futures commission merchants
may be used by the Manager in providing investment management for a Fund.
Commission rates are established pursuant to negotiations with the broker,
dealer or futures commission merchant based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. The Manager's policy is to pay higher commissions to brokers, other
than Prudential Securities, for particular transactions than might be charged
if a different broker had been selected, on occasions when, in the Manager's
opinion, this policy furthers the objective of obtaining best price and
execution. In addition, the Manager is authorized to pay higher commissions on
brokerage transactions for a Fund to brokers other than Prudential Securities
(or any affiliate) in order to secure research and investment services
described above, subject to review by the Company's Board of Directors from
time to time as to the extent and continuation of this practice. The
allocation or orders among brokers and the commission rates paid are reviewed
periodically by the Company's Board of Directors. The Company will not pay up
for research in principal transactions.
Subject to the above considerations, Prudential Securities (or any affiliate)
may act as a securities broker or futures commission merchant for the Company.
In order for Prudential Securities (or any affiliate) to effect any portfolio
transactions for a Fund, the commissions, fees or other remuneration received
by Prudential Securities (or any affiliate) must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers
or futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
during a comparable period of time. This standard would allow Prudential
Securities (or any affiliate) to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker or futures
commission merchant in a commensurate arm's-length transaction. Furthermore,
the Board of Directors of the Company, including a majority of the Directors
who are not "interested" persons, has adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Prudential Securities (or any affiliate) are consistent with the foregoing
standard. In accordance with Section 11(a) of the Securities Exchange Act of
1934, 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
B-30
<PAGE>
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 and paid commissions of $1,135,470 for the fiscal year ended
September 30, 1997, of which $50,605 was paid to Prudential Securities or its
affiliates. The Growth & Income Fund paid commissions of $298,280 for the
fiscal period ended September 30, 1997, of which $13,935 was paid to
Prudential Securities or 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 charges 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."
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the applicable Fund, (b) are liquid and not subject
to restrictions on resale, and (c) have a value that is readily ascertainable
via listing on or trading in a recognized United States or international
exchange or market.
B-31
<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 value at September 30, 1997, the maximum offering price of the
Funds' shares is as follows:
<TABLE>
<CAPTION>
ACTIVE GROWTH
BALANCED & INCOME
FUND** GROWTH FUND FUND
-------- ----------- --------
<S> <C> <C> <C>
CLASS A
Net asset value and redemption price per Class A
share........................................... $14.41 $15.39 $12.89
Maximum sales charge (5% of offering price)...... .76 .81 .68
------ ------ ------
Offering price to public......................... $15.17 $16.20 $13.57
====== ====== ======
CLASS B
Net asset value, redemption price and offering
price per Class B share*........................ $14.34 $15.18 $12.86
====== ====== ======
CLASS C
Net asset value, redemption price and offering
price per Class C share*........................ $14.34 $15.18 $12.86
====== ====== ======
CLASS Z
Net asset value, offering price and redemption
price per Class Z share......................... $14.45 $15.45 $12.93
====== ====== ======
</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.
**Active Balanced Fund shares did not exist at September 30, 1997.
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.
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).
B-32
<PAGE>
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 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 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.
B-33
<PAGE>
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.
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
B-34
<PAGE>
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.
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
B-35
<PAGE>
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/)
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.
B-36
<PAGE>
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 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
B-37
<PAGE>
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 a traditional IRA account will be subject to tax when
withdrawn from the account. Distributions from a Roth IRA which meet the
conditions required under the Internal Revenue Code will not be subject to
tax upon withdrawal from the account.
MUTUAL FUND PROGRAMS
From time to time, 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 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.
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
trading on the applicable commodities exchange. Should an extraordinary event,
B-38
<PAGE>
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 reliable market quotations are not
readily available, or for which the pricing agent or principal market maker
does not provide a valuation or methodology or provides a valuation or
methodology that, in the judgment of the Manager or Subadviser (or Valuation
Committee or Board of Directors), does not represent fair value, are valued by
the Valuation Committee or Board of Directors in consultation with the Manager
and Subadviser. 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. The New York Stock Exchange
is closed on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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, DIVIDENDS AND DISTRIBUTIONS
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, 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 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 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 (c) 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.
B-39
<PAGE>
Gains or losses on sales of securities by a Fund will generally be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where the Fund acquires a put or
writes a call thereon or 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, constructive sale, conversion transaction and straddle provisions of the
Internal Revenue Code which may, among other things, require the Fund to defer
recognition of losses. In addition, debt securities acquired by a Fund may be
subject to original issue discount and market discount rules which,
respectively, may cause the Fund to accrue income in advance of the receipt of
cash with respect to interest or cause gains to be treated as ordinary income.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which 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, short sale and constructive 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 "passive foreign investment company" (PFIC) is a foreign corporation that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If a Fund acquires and holds
stock in a PFIC beyond the end of the year of its acquisition, the Fund will
be subject to federal income tax on a portion of any "excess distribution"
received on the stock or of any gain from disposition of the stock
(collectively, PFIC income), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders. A Fund may make a "mark-to-market"
election with respect to any marketable 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, except to the extent of gains recognized in
prior years. 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
B-40
<PAGE>
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.
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.
B-41
<PAGE>
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the effective
rate of foreign tax to which a Fund will be subject, since the amount of the
Fund's assets to be invested in various countries will vary. A Fund does not
expect to meet the requirements of the Internal Revenue Code for "passing-
through" to its shareholders any foreign income taxes paid.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in 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.
The average annual total returns for the period from November 2, 1995
(commencement of investment operations) to September 30, 1997 and for the one
year period ended September 30, 1997 for the Class A, Class B and Class C
shares of Growth Fund were 21.99% and 33.28%, 22.68% and 34.39%, 24.41% and
38.39%, respectively. The average annual total returns for Class Z shares of
Growth Fund from April 15, 1996 (commencement of investment operations) to
September 30, 1997 and for the one year period ended September 30, 1997 were
31.85% and 40.71%, respectively.
On September 20, 1996, the assets and liabilities of Growth Stock Fund (a
series of Prudential Index Series Fund, formerly Prudential Dryden Fund, and
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, 1997, your
average annual total returns (after fees and expenses) for the one, three and
since inception (November 5, 1992) periods ended September 30, 1997 would have
been 40.71%, 28.90% and 21.37%, respectively. In addition, the aggregate total
returns for such periods would have been 40.71%, 114.22% and 158.39%,
respectively.
B-42
<PAGE>
On or about January 23, 1998, the assets and liabilities of Prudential
Active Balanced Fund were transferred to the Active Balanced Fund, in exchange
solely for shares of Active Balanced Fund (the Conversion). The investment
objectives and policies of Prudential Active Balanced Fund and Active Balanced
Fund are virtually identical and each fund has the same investment adviser.
Accordingly, if you purchased Class A shares of Prudential Active Balanced
Fund at their inception on October 31, 1996, your average annual total return
(as well as your aggregate total return) for the period ended September 30,
1997 would have been 17.48%. If you had purchased Class B shares of Prudential
Active Balanced Fund at their inception on October 31, 1996, your average
annual total return (as well as your aggregate total return) for the period
ended September 30, 1997 would have been 16.91%. If you had purchased Class C
shares of Prudential Active Balanced Fund at their inception on October 31,
1996, your average annual total return (as well as your aggregate total
return) for the period ended September 30, 1997 would have been 16.91%. If you
had purchased Class Z shares of Prudential Active Balanced Fund at their
inception on January 4, 1993, your average annual total returns for the one
year and since inception periods ended September 30, 1997 would have been
21.34% and 73.98%, respectively. Your aggregate total returns for such periods
would have been 21.34% and 12.40%, 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) to September 30,
1997 and for the one year period ended September 30, 1997 for the Class A,
Class B and Class C shares of Growth Fund were 53.90% and 40.29%, 51.80% and
39.39% and 51.80% and 39.39%, respectively. The aggregate total returns for
Class Z shares of Growth Fund from April 15, 1996 (commencement of investment
operations) to September 30, 1997 and for the one year period ended September
30, 1997 were 49.71% and 40.71%, respectively. Aggregate total returns for the
Class A, Class B, Class C and Class Z shares of Growth & Income Fund for the
period from November 7, 1996 (commencement of investment operations) to
September 30, 1997 were 29.72%, 28.83%, 28.83% and 30.30%, respectively.
B-43
<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
(1/1926-9/1997)
- ---------------------------------------------------------------------------
Common Stocks - 11.0%
Long-Term Govt. Bonds - 5.1%
Inflation - 3.1%
- -----------
(1) Source: Ibbotson Associates Stocks, Bonds, Bills and Inflation--1997
Yearbook (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). 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.
B-44
<PAGE>
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 PIFM. 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 year ended September 30, 1997,
Growth Fund incurred fees of approximately $1,236,000 for the services of
PMFS. For the fiscal period ended September 30, 1997, Growth & Income Fund
incurred fees of approximately $88,800 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.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Company's independent accountants, and in that capacity audits
the annual financial statements of each Fund.
B-45
<PAGE>
Portfolio of Investments as PRUDENTIAL DRYDEN FUND
of September 30, 1997 PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
Shares Description Value (Note 1)
- ----------------------------------------------------------------
LONG-TERM INVESTMENTS--90.7%
COMMON STOCKS--50.8%
- ----------------------------------------------------------------
Airlines--0.6%
10,600 Delta Air Lines, Inc. $ 998,388
- ----------------------------------------------------------------
Automobiles & Trucks--2.7%
61,800 General Motors Corp. 4,136,737
4,700 Meritor Automotive Inc.(a) 112,495
-------------
4,249,232
- ----------------------------------------------------------------
Banking--3.2%
14,400 Chase Manhattan Corp. 1,699,200
14,500 Fleet Financial Group, Inc. 950,656
142,200 Hibernia Corp. U.A. 2,417,400
-------------
5,067,256
- ----------------------------------------------------------------
Business Services--4.3%
40,975 CUC International Inc.(a) 1,270,225
25,000 Hertz Corp 942,187
20,300 Manpower, Inc. 801,850
50,200 Ogden Corp. 1,185,975
8,600 Omnicom Group 625,650
58,800 Ryder System, Inc. 2,113,125
-------------
6,939,012
- ----------------------------------------------------------------
Computer Systems/Peripherals--4.1%
18,400 Digital Equipment Corp.(a) 796,950
20,000 Hewlett-Packard Co. 1,391,250
25,700 International Business Machines
Corp. 2,722,594
21,550 Symbol Technologies, Inc. 946,853
48,100 Unisys Corp.(a) 736,531
-------------
6,594,178
- ----------------------------------------------------------------
Food--1.2%
42,900 Dole Food Company, Inc. 1,938,544
- ----------------------------------------------------------------
Hotels--0.9%
41,000 Hilton Hotels Corp. $ 1,381,188
- ----------------------------------------------------------------
Household & Personal Care Products--0.5%
44,300 The Dial Corp. 772,481
- ----------------------------------------------------------------
Insurance--2.8%
16,800 CIGNA Corp. 3,129,000
27,600 NAC Re Corp. 1,417,950
-------------
4,546,950
- ----------------------------------------------------------------
Machinery--1.0%
16,800 Case Corp. 1,119,300
9,400 Caterpillar Inc. 507,012
-------------
1,626,312
- ----------------------------------------------------------------
Media--0.7%
43,200 Westinghouse Electric Corp. 1,169,100
- ----------------------------------------------------------------
Metals--2.2%
47,700 Alumax, Inc.(a) 1,949,738
22,900 Reynolds Metals Co. 1,621,606
-------------
3,571,344
- ----------------------------------------------------------------
Oil Services--2.0%
25,300 Baker Hughes, Inc. 1,106,875
25,600 Dresser Industries, Inc. 1,100,800
21,800 Unocal Corp. 942,850
-------------
3,150,525
- ----------------------------------------------------------------
Paper--2.3%
35,500 Boise Cascade Corp. 1,493,219
22,300 Champion International Corp. 1,358,906
49,600 Stone Container Corp. 771,900
-------------
3,624,025
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-46
<PAGE>
Portfolio of Investments as PRUDENTIAL DRYDEN FUND
of September 30, 1997 PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
Shares Description Value (Note 1)
- ----------------------------------------------------------------
Petroleum (Domestic)--2.3%
18,600 Amerada Hess Corp. $ 1,147,387
17,900 Anadarko Petroleum Corp. 1,285,444
49,023 Union Pacific Resources Group, Inc. 1,283,790
-------------
3,716,621
- ----------------------------------------------------------------
Pharmaceuticals--0.1%
4,300 Vertex Pharmaceuticals, Inc.(a) 162,325
- ----------------------------------------------------------------
Photography/Imaging Technology--1.0%
19,200 Xerox Corp. 1,616,400
- ----------------------------------------------------------------
Publishing--5.7%
43,700 American Greetings Corp. 1,611,438
30,600 McGraw-Hill Companies, Inc. 2,071,237
61,000 New York Times Co. 3,202,500
39,900 Tribune Co. 2,127,169
-------------
9,012,344
- ----------------------------------------------------------------
Railroads--0.9%
21,561 Union Pacific Corp. 1,350,258
- ----------------------------------------------------------------
Realty Investment Trust--0.7%
39,450 Avalon Properties, Inc. 1,173,638
- ----------------------------------------------------------------
Retail--3.0%
24,100 AutoZone, Inc.(a) 723,000
108,979 The Limited, Inc. 2,663,174
24,600 Sears, Roebuck & Co. 1,400,663
-------------
4,786,837
- ----------------------------------------------------------------
Savings & Loan--0.9%
20,200 Washington Mutual, Inc. 1,408,950
- ----------------------------------------------------------------
Semiconductor Devices & Equipment--0.5%
35,600 International Rectifier Corp.(a) $ 832,150
- ----------------------------------------------------------------
Specialty Chemicals--2.5%
24,200 Betz Dearborn Inc. 1,654,675
32,200 Dexter Corp. 1,290,012
31,000 Morton International, Inc. 1,100,500
-------------
4,045,187
- ----------------------------------------------------------------
Steel & Metal--2.0%
24,300 Kennametal, Inc. 1,178,550
30,800 Steel Dynamics, Inc.(a) 723,800
37,800 USX Corp.-U.S. Steel Group 1,313,550
-------------
3,215,900
- ----------------------------------------------------------------
Telecommunications Equipment--1.4%
33,900 General Motors Corp., Series H 2,241,636
- ----------------------------------------------------------------
Trucking & Shipping--0.5%
25,300 Knightsbridge Tankers Ltd. 716,306
- ----------------------------------------------------------------
Waste Management--0.8%
36,800 Waste Management Inc. 1,285,701
-------------
Total common stocks
(cost $58,321,045) 81,192,788
-------------
PREFERRED STOCKS--0.5%
- ----------------------------------------------------------------
15,400 USX Capital Trust Conv. Pfd. 6.75%
(cost $736,572) 736,313
-------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-47
<PAGE>
PRUDENTIAL DRYDEN FUND
PRUDENTIAL ACTIVE BALANCED FUND
Portfolio of Investments as of September 30, 1997
- --------------------------------------------------------------------------------
Principal
Amount
(000) Description Value (Note 1)
- ----------------------------------------------------------------
DEBT OBLIGATIONS--39.4%
- ----------------------------------------------------------------
Corporate Bonds--1.0%
$1,570 General Motors Acceptance Corp.
6.75%, 2/7/02
(cost $1,576,798) $ 1,588,840
-------------
- ----------------------------------------------------------------
U.S. Government Securities--38.4%
9,805 United States Treasury Bond,
7.875%, 2/15/21 11,422,825
United States Treasury Notes,
4,865 8.875%, 11/15/98 5,029,194
7,045 7.50%, 11/15/01 7,424,796
17,435 6.25%, 2/15/03 17,601,155
20,300 5.75%, 8/15/03 19,985,959
-------------
Total U.S. Government securities
(cost $59,559,007) 61,463,929
-------------
Total debt obligations
(cost $61,135,805) 63,052,769
-------------
Total long-term investments
(cost $120,193,422) 144,981,870
-------------
SHORT-TERM INVESTMENT--10.6%
- ----------------------------------------------------------------
Repurchase Agreement--10.6%
16,910 Joint Repurchase Agreement Account,
6.127%, 10/01/97 (Note 5)
(cost $16,910,000) 16,910,000
- ----------------------------------------------------------------
Total Investments--101.3%
(cost $137,103,422; Note 4) 161,891,870
Liabilities in excess of other
assets--(1.3%) (2,011,517)
-------------
Net Assets--100% $ 159,880,353
=============
- ---------------
(a) Non-income producing security.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-48
<PAGE>
PRUDENTIAL DRYDEN FUND
Statement of Assets and Liabilities PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1997
------------------
<S> <C>
Investments, at value (cost $137,103,422).............................................................. $161,891,870
Cash................................................................................................... 205,643
Dividends and interest receivable...................................................................... 866,767
Receivable for investments sold........................................................................ 577,190
Receivable for Fund shares sold........................................................................ 127,392
Deferred expenses and other assets..................................................................... 7,060
------------
Total assets....................................................................................... 163,675,922
------------
Liabilities
Payable for investments purchased...................................................................... 2,261,304
Payable for Fund shares reacquired..................................................................... 1,359,140
Accrued expenses....................................................................................... 89,843
Management fee payable................................................................................. 84,977
Distribution fee payable............................................................................... 305
------------
Total liabilities.................................................................................. 3,795,569
------------
Net Assets............................................................................................. $159,880,353
============
Net assets were comprised of:
Shares of beneficial interest, at par............................................................... $ 11,065
Paid-in capital in excess of par.................................................................... 120,808,732
------------
120,819,797
Undistributed net investment income................................................................. 3,191,713
Accumulated net realized gain on investments........................................................ 11,080,395
Net unrealized appreciation on investments.......................................................... 24,788,448
------------
Net assets, September 30, 1997......................................................................... $159,880,353
============
Class A:
Net asset value and redemption price per share
($990,155 / 68,713 shares of beneficial interest issued and outstanding)......................... $14.41
Maximum sales charge (5% of offering price)......................................................... .76
------
Maximum offering price to public.................................................................... $15.17
======
Class B:
Net asset value, offering price and redemption price per share
($212,588 / 14,829 shares of beneficial interest issued and outstanding)......................... $14.34
======
Class C:
Net asset value, offering price and redemption price per share
($5,252 / 366 shares of beneficial interest issued and outstanding).............................. $14.34
======
Class Z:
Net asset value, offering price and redemption price per share
($158,672,358 / 10,980,644 shares of beneficial interest issued and outstanding)................. $14.45
======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-49
<PAGE>
PRUDENTIAL DRYDEN FUND
PRUDENTIAL ACTIVE BALANCED FUND
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended
Net Investment Income September 30, 1997
------------------
Income
Interest.............................. $ 4,870,516
Dividends (net of foreign withholding
taxes of $522)..................... 1,282,755
------------
Total income......................... 6,153,271
------------
Expenses
Management fee........................ 1,009,861
Distribution fee--Class A............. 228
Distribution fee--Class B............. 650
Distribution fee--Class C............. 6
Registration fees..................... 183,000
Transfer agent's fees and expenses.... 167,000
Custodian's fees and expenses......... 92,000
Reports to shareholders............... 88,000
Legal fees............................ 33,000
Administration fee.................... 21,553
Audit fee............................. 15,000
Organization expense.................. 13,213
Trustees' fees........................ 11,250
Miscellaneous......................... 1,676
------------
Total expenses....................... 1,636,437
------------
Net investment income.................... 4,516,834
------------
Realized and Unrealized Gain
on Investments
Net realized gain on investment
transactions.......................... 11,725,117
Net change in unrealized appreciation on
investments........................... 13,786,966
------------
Net gain on investments.................. 25,512,083
------------
Net Increase in Net Assets
Resulting from Operations................ $ 30,028,917
============
PRUDENTIAL DRYDEN FUND
PRUDENTIAL ACTIVE BALANCED FUND
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Increase Year Ended September 30,
------------------------
in Net Assets 1997 1996
-------- --------
Operations
Net investment income.......... $ 4,516,834 $ 4,391,687
Net realized gain on
investment.................. 11,725,117 9,129,045
Net change in unrealized
appreciation/depreciation on
investments................. 13,786,966 (1,120,181)
------------ -------------
Net increase in net assets
resulting from operations... 30,028,917 12,400,551
------------ -------------
Dividends and distributions
Dividends to shareholders from
net investment income
Class A..................... (64) --
Class B..................... (6) --
Class C..................... (6) --
Class Z..................... (4,627,738) (3,972,955)
------------ -------------
(4,627,814) (3,972,955)
------------ -------------
Distributions to shareholders
from net realized gains
Class A..................... (128) --
Class B..................... (12) --
Class C..................... (12) --
Class Z..................... (9,255,475) (1,932,789)
------------ -------------
(9,255,627) (1,932,789)
------------ -------------
Fund share transactions (Note 6)
Net proceeds from shares
sold........................ 55,048,728 36,454,403
Net asset value of shares
issued in reinvestment of
distributions............... 13,883,406 5,905,744
Cost of shares reacquired...... (78,785,554) (28,618,544)
------------ -------------
Net increase (decrease) in net
assets from Fund share
transactions................ (9,853,420) 13,741,603
------------ -------------
Total increase.................... 6,292,056 20,236,410
Net Assets
Beginning of year................. 153,588,297 133,351,887
------------ -------------
End of year....................... $159,880,353 $ 153,588,297
============ =============
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-50
<PAGE>
PRUDENTIAL DRYDEN FUND
Notes to Financial Statements PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
The Prudential Dryden Fund (the "Company") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The Company was established as a Delaware business trust on May 11, 1992 and
currently consists of six separate funds, one of which is Active Balanced Fund
(the "Fund"). Prior to October 30, 1996 the Company was named the Prudential
Institutional Fund and prior to September 20, 1996, it consisted of seven
separate funds (the "Funds"), five of which were reorganized on September 20,
1996 and combined with existing funds in the Prudential Mutual Funds family of
funds (see Note 7).
The Company had no operations until July 7, 1992 when 10,000 shares of
beneficial interest of the Company were sold for $100,000 to Prudential
Institutional Fund Management, Inc. Investment operations of the Fund commenced
on January 4, 1993. The Fund's investment objective is to achieve total returns
approaching equity returns, while accepting less risk than an all-equity
portfolio, through an actively-managed portfolio of equity securities, fixed
income securities and money market instruments.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund.
Securities Valuation: Securities, including options, warrants, futures contracts
and options thereon, for which the primary market is a national securities
exchange, commodities exchange, board of trade or NASDAQ are valued at the last
sale price on such exchange or board of trade on the date of valuation or, if
there was no sale on such day, at the mean between the closing bid and asked
prices quoted on such day or at the bid price in the absence of an asked price.
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 a principal market maker or independent pricing
agent.
U.S. government securities for which market quotations are readily available are
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for which
the pricing agent or principal market maker does not provide a valuation or
methodology or provides a valuation or methodology that, in the judgment of the
subadviser, does not represent fair value, are valued at fair value as
determined under procedures established by the Trustees.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians, under triparty repurchase
agreements, as the case may be, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
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 and 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 unrealized and realized
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: Dividends and distributions of the Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Fund will declare and distribute its net investment income and net capital
gains, if any, at least annually. Dividends and distributions are recorded on
the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Taxes: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net investment 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 Fund's understanding of the applicable country's tax rules and rates.
- --------------------------------------------------------------------------------
B-51
<PAGE>
PRUDENTIAL DRYDEN FUND
Notes to Financial Statements PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
Deferred Organizational Expenses: Approximately $450,000 of costs were incurred
in connection with the organization and initial registration of the Company and
have been deferred and are being amortized ratably over a period of sixty months
from the date each of the Funds commenced investment operations.
Reclassification of Capital Accounts: The Fund accounts and reports
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. For the fiscal year
ended September 30, 1997, the application of this statement increased unrealized
appreciation on investments and decreased paid-in capital by $7,210. Net
investment income, net realized gains, and net assets were not affected by these
reclassifications.
- ------------------------------------------------------------
Note 2. Agreements
The Fund had a management agreement with Prudential Institutional Fund
Management, Inc. through October 30, 1996. Pursuant to this agreement,
Prudential Institutional Fund Management, Inc. had responsibility for all
investment advisory services and supervised the subadviser's performance of such
services.
Prudential Institutional Fund Management, Inc. had a subadvisory agreement with
Jennison Associates Capital Corp. ("Jennison") through October 30, 1996.
Jennison furnished investment advisory services in connection with the
management of the Fund. Prudential Institutional Fund Management, Inc. paid for
the costs and expenses attributable to the subadvisory agreements and the
salaries and expenses of all personnel of the Fund except for fees and expenses
of unaffiliated Trustees. The Fund paid for all other costs and expenses.
Through October 30, 1996 the management fee paid Prudential Institutional Fund
Management, Inc. was computed daily and payable monthly at an annual rate of .70
of 1% of the average daily net assets of the Fund. Effective October 31, 1996
the Fund entered into a management agreement with Prudential Investments Fund
Management LLC ("PIFM") under which the management fee is computed daily and
payable monthly at an annual rate of .65 of 1% of the average daily net assets
of the Fund. Pursuant to this agreement PIFM has responsibility for all
investment advisory services. PIFM has entered into a subadvisory agreement with
Jennison under which Jennison is compensated by PIFM for its services at an
annual rate of .30 of 1% of the Fund's average daily net assets up to and
including $300 million and .25 of 1% of the Fund's average daily net assets in
excess of $300 million. This is the same rate paid to Jennison under the prior
subadvisory agreement.
Jennison, subject to the supervision of PIFM, manages the assets of the Fund in
accordance with its investment objectives and policies and in a manner
consistent with the previous arrangement. PIFM pays for the compensation of
officers of the Fund, occupancy and certain clerical and bookkeeping costs of
the Fund. The Fund will bear all other costs and expenses.
The Fund had an administration agreement with PIFM through October 30, 1996. The
administration fee paid PIFM was computed daily and payable monthly, at an
annual rate of .17% of the Company's average daily net assets up to $250 million
and .15% of the Company's average daily net assets in excess of $250 million.
PIFM furnished to the Fund such services as the Fund required in connection with
the administration of the Fund's business affairs. PIFM provided certain
transfer agent services through its wholly-owned subsidiary, Prudential Mutual
Fund Services LLC ("PMFS"). For such services, PMFS was paid .03% of the
Company's average daily net assets up to $250 million and .02% of the Company's
average daily net assets in excess of $250 million from the administration fee
paid to PIFM (see note 3 below).
Effective October 31, 1996 Prudential Securities Incorporated ("PSI") became the
distributor of the Fund's Class A, Class B and Class C shares. PSI also incurs
the expenses of distributing the Fund's Class Z shares under the distribution
agreement, none of which is reimbursed by or paid for by the Fund. 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. The distribution fees are accrued
daily and payable monthly. No distribution or service fees are paid to PSI as
distributor of 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.
Such expenses under the Plans were charged at a rate of .25 of 1%, 1% and 1% of
the average daily net assets of the Class A, B and C shares, respectively, for
the period November 7, 1996 through September 30, 1997.
PSI has advised the Fund that it received approximately $12,900 in front-end
sales charges resulting from sales of Class A shares during the period ended
September 30, 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.
- --------------------------------------------------------------------------------
B-52
<PAGE>
PRUDENTIAL DRYDEN FUND
Notes to Financial Statements PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
Jennison, PIFM 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 September 30,
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
PMFS, a wholly-owned subsidiary of PIFM, serves as the Fund's transfer agent.
During the year ended September 30, 1997, the Fund incurred fees of
approximately $165,100 for the services of PMFS. As of September 30, 1997,
approximately $16,200 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations also include certain out-of-pocket
expenses paid to non-affiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the year ended September 30, 1997 aggregated $64,694,120 and $66,972,643,
respectively.
The cost basis of investments for federal income tax purposes is $137,231,525.
As of September 30, 1997, net unrealized appreciation for federal income tax
purposes was $24,660,345 (gross unrealized appreciation--$24,737,869, gross
unrealized depreciation--$77,524).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more joint repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. At September 30,
1997, the Fund had a 1.3% undivided interest in the repurchase agreements in the
joint account. The undivided interest represented $16,910,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
collateral therefor was as follows:
Credit Suisse First Boston Corp., 6.15%, in the principal amount of
$341,000,000, repurchase price $341,058,254, due 10/1/97. The value of the
collateral including accrued interest was $352,935,110.
Goldman, Sachs & Co., 6.15%, in the principal amount of $341,000,000, repurchase
price $341,058,254, due 10/1/97. The value of the collateral including accrued
interest was $347,820,010.
Morgan Stanley, Dean Witter, Discover & Co., 6.15%, in the principal amount of
$325,256,000, repurchase price $325,311,564, due 10/1/97. The value of the
collateral including accrued interest was $331,761,960.
UBS Securities LLC, 6.06%, in the principal amount of $341,000,000, repurchase
price $341,057,402, due 10/1/97. The value of the collateral including accrued
interest was $347,821,030.
- ------------------------------------------------------------
Note 6. 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 C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. Special exchange privileges are also available for
shareholders who qualify to purchase Class A shares at net asset value or Class
Z shares. Class Z shares are not subject to any sales or redemption charge and
are offered exclusively for sale to a limited group of investors. The Fund has
authorized an unlimited number of shares of beneficial interest at $.001 par
value per share. Transactions in shares of beneficial interest during the year
ended September 30, 1997 and September 30, 1996 were as follows:
Class A Shares Amount
- ----------------------------------- ---------- ------------
November 7, 1996(a)
through September 30, 1997:
Shares sold........................ 68,711 $ 971,421
Shares issued in reinvestment of
dividends and distributions...... 15 183
Shares reacquired.................. (13) (178)
---------- ------------
Net increase in shares
outstanding...................... 68,713 $ 971,426
========== ============
- --------------------------------------------------------------------------------
B-53
<PAGE>
PRUDENTIAL DRYDEN FUND
Notes to Financial Statements PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
Class B Shares Amount
- ------- ---------- ------------
November 7, 1996(a)
through September 30, 1997:
Shares sold........................ 14,903 $ 197,257
Shares issued in reinvestment of
dividends and distributions...... 1 9
Shares reacquired.................. (75) (964)
---------- ------------
Net increase in shares
outstanding...................... 14,829 $ 196,302
========== ============
Class C
- -------
November 7, 1996(a)
through September 30, 1997:
Shares sold........................ 365 $ 5,122
Shares issued in reinvestment of
dividends and distributions...... 1 9
Shares reacquired.................. -- --
---------- ------------
Net increase in shares
outstanding...................... 366 $ 5,131
========== ============
Class Z
- -------
Year ended September 30, 1997:
Shares sold........................ 4,174,112 $ 53,874,928
Shares issued in reinvestment of
dividends and distributions...... 1,097,487 13,883,205
Shares reacquired.................. (6,097,293) (78,784,412)
---------- ------------
Net decrease in shares
outstanding...................... (825,694) $(11,026,279)
========== ============
Year ended September 30, 1996:
Shares sold........................ 2,893,381 $ 36,454,403
Shares issued in reinvestment of
dividends and distributions...... 483,285 5,905,744
Shares reacquired.................. (2,273,501) (28,618,544)
---------- ------------
Net increase in shares
outstanding...................... 1,103,165 $ 13,741,603
========== ============
- ---------------
(a) Commencement of offering of Class A, B, and C shares.
Of the shares outstanding at September 30, 1997, PIFM and affiliates owned
388,158 shares of the Fund.
- ------------------------------------------------------------
Note 7. Reorganization
On May 17, 1996, the Trustees of the Company approved an Agreement and Plan of
Reorganization (the "Plan of Reorganization") for five other series of the
Company. Each Plan of Reorganization was approved by applicable shareholders on
September 7, 1996. This Fund approved new manager, distributor and transfer
agency agreements on October 30, 1996.
Under each Plan of Reorganization, all of the assets and liabilities of the
Growth Stock Fund, Balanced Fund, Income Fund and Money Market Fund ("Series")
were transferred at net asset value for equivalent value of Class Z shares of
Prudential Jennison Series Fund, Inc., Prudential Allocation Fund--Balanced
Portfolio, Prudential Government Income Fund, Inc. and Prudential MoneyMart
Assets, Inc., respectively. These Series then ceased operations.
The Company's International Stock Fund joined the Prudential Global Fund as
separate series of a newly named Prudential World Fund. Existing shareholders
became Class Z shareholders and the International Stock Fund also began offering
Classes A, B and C shares.
Prudential Stock Index Fund and the Fund remained a series of The Prudential
Institutional Fund (renamed the Prudential Dryden Fund). Existing shareholders
of the Fund became Class Z shareholders and the Fund began offering Classes A, B
and C shares. Prudential Stock Index Fund offers Class I and Class Z shares.
Effective October 30, 1996 these funds were managed by PIFM. PMFS provides
transfer agency services and PSI acts as distributor.
- ------------------------------------------------------------
Note 8. Proposed Reorganization
On August 26, 1997, the Board of Trustees of the Fund Company approved an
Agreement and Plan of Conversion and Liquidation (the "Plan") which provides for
the transfer of all of the assets of the Fund to the Prudential Jennison Series
Fund, Inc.--Prudential Jennison Active Balanced Fund (the "Portfolio") in
exchange for the respective Class A, Class B, Class C and Class Z shares of the
Portfolio and the Portfolio's assumption of the liabilities of the Fund.
The Plan is subject to approval by the shareholders of the Fund at a shareholder
meeting scheduled on January 15, 1998. If the Plan is approved, it is expected
that the reorganization will take place on or about January 23, 1998. The Fund
will bear the costs of the reorganization, including the cost of proxy
solicitation.
- --------------------------------------------------------------------------------
B-54
<PAGE>
PRUDENTIAL DRYDEN FUND
Financial Highlights PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
------------- ------------- ------------- ------------------------------------
November 7, November 7, November 7,
1996(e) 1996(e) 1996(e)
Through Through Through Year Ended September 30,
September 30, September 30, September 30, ------------------------------------
1997 1997 1997 1997 1996 1995
------------- ------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period......................... $ 13.40 $ 13.40 $ 13.40 $ 13.01 $ 12.46 $ 10.92
----- ----- ----- ---------- -------- --------
Income from investment
operations:
Net investment income............. .21(f) .19(f) .13(f) .39(f) .29(b) .33(b)
Net realized and unrealized gain
(loss) on investment
transactions................... 1.97 1.92 1.98 2.22 .81 1.54
----- ----- ----- ---------- -------- --------
Total from investment
operations.................. 2.18 2.11 2.11 2.61 1.10 1.87
----- ----- ----- ---------- -------- --------
Less distributions:
Dividends from net investment
income......................... (.39) (.39) (.39) (.39) (.37) (.29)
Distributions from net realized
gains.......................... (.78) (.78) (.78) (.78) (.18) (.04)
----- ----- ----- ---------- -------- --------
Total distributions............ (1.17) (1.17) (1.17) (1.17) (.55) (.33)
----- ----- ----- ---------- -------- --------
Net asset value, end of period.... $ 14.41 $ 14.34 $ 14.34 $ 14.45 $ 13.01 $ 12.46
===== ===== ===== ========== ======== ========
TOTAL RETURN(d)................... 17.48% 16.91% 16.91% 21.34% 9.11% 17.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $ 990 $ 213 $ 5 $158,672 $153,588 $133,352
Average net assets (000).......... $ 100 $ 71 $ 1 $154,199 $142,026 $104,821
Ratios to average net assets:
Expenses, including
distribution fees........... 1.31%(c) 2.06%(c) 2.06%(c) 1.06% 1.00%(b) 1.00%(b)
Expenses, excluding
distribution fees........... 1.06%(c) 1.06%(c) 1.06%(c) N/A N/A N/A
Net investment income.......... 2.69%(c) 1.94%(c) 1.94%(c) 2.94% 3.09%(b) 3.53%(b)
Portfolio turnover rate........... 50% 50% 50% 50% 51% 30%
Average commission rate paid per
share.......................... $ .0625 $ .0625 $ .0625 $ .0625 $ .0654 N/A
<CAPTION>
January 4,
1993(a)
Through
September 30,
1994 1993
------- -------------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period......................... $ 11.05 $ 10.00
------- ------
Income from investment
operations:
Net investment income............. .24(b) .21(b)
Net realized and unrealized gain
(loss) on investment
transactions................... (.12) .84
------- ------
Total from investment
operations.................. .12 1.05
------- ------
Less distributions:
Dividends from net investment
income......................... (.14) --
Distributions from net realized
gains.......................... (.11) --
------- ------
Total distributions............ (.25) --
------- ------
Net asset value, end of period.... $ 10.92 $ 11.05
======= ======
TOTAL RETURN(d)................... 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $81,176 $38,786
Average net assets (000).......... $58,992 $12,815
Ratios to average net assets:
Expenses, including
distribution fees........... 1.00%(b) 1.00%(b)(c)
Expenses, excluding
distribution fees........... N/A N/A
Net investment income.......... 3.06%(b) 2.68%(b)(c)
Portfolio turnover rate........... 40% 47%
Average commission rate paid per
share.......................... N/A N/A
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than a full year are not
annualized. Total return includes the effect of expense subsidies where
applicable.
(e) Commencement of offering of Class A, B and C shares.
(f) Calculated based upon weighted average shares outstanding during the year.
N/A--Data not required for these periods.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-55
<PAGE>
PRUDENTIAL DRYDEN FUND
Report of Independent Accountants PRUDENTIAL ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Dryden Fund--Prudential Active Balanced Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Dryden Fund--Prudential
Active Balanced Fund (the "Fund", one of the portfolios constituting Prudential
Dryden Fund) (formerly The Prudential Institutional Fund--Prudential Active
Balanced Fund) at September 30, 1997, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where securities purchased had not been received, provides a
reasonable basis for the opinion expressed above. The accompanying statement of
changes in net assets for the year ended September 30, 1996 and the financial
highlights for each of the four periods in the period ended September 30, 1996
were audited by other independent accountants, whose opinion dated November 13,
1996 was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 14, 1997
- --------------------------------------------------------------------------------
B-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE PRUDENTIAL INSTITUTIONAL
FUND-ACTIVE BALANCED FUND
We have audited the accompanying statements of changes in net assets of The
Prudential Institutional Fund-Active Balanced Fund for the year ended September
30, 1996, and the financial highlights contained in the prospectus for the three
years ended September 30, 1996 and for the period January 4, 1993 (commencement
of investment operations) to September 30, 1993. 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 audits.
We conducted our audits 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the changes in net assets and the financial
highlights of The Prudential Institutional Fund-Active Balanced Fund for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
November 13, 1996
B-57
<PAGE>
Portfolio of Investments as PRUDENTIAL JENNISON SERIES FUND, INC.
of September 30, 1997 PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------
Shares Description Value (Note 1)
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--98.9%
COMMON STOCKS--98.9%
- ---------------------------------------------------------------
Aerospace/Defense--2.5%
325,000 Boeing Co. $ 17,692,188
396,000 Gartner Group, Inc. 11,880,000
--------------
29,572,188
- ---------------------------------------------------------------
Banks & Financial Services--8.0%
218,900 Chase Manhattan Corp. 25,830,200
260,900 MBNA Corp. 10,566,450
421,390 Morgan Stanley, Dean Witter,
Discover & Co. 22,781,397
399,600 Schwab (Charles) Corp. 14,285,700
329,400 Washington Mutual, Inc. 22,975,650
--------------
96,439,397
- ---------------------------------------------------------------
Business Services--6.3%
627,425 CUC International, Inc.(a) 19,450,175
377,600 Eagle River Interactive, Inc.(a) 4,059,200
318,800 Manpower, Inc. 12,592,600
276,500 Omnicom Group, Inc. 20,115,375
269,800 Reuters Holdings PLC (ADR)
(United Kingdom) 19,223,250
--------------
75,440,600
- ---------------------------------------------------------------
Cellular Communications--0.9%
214,600 Vodafone Group PLC (ADR) (United
Kingdom) 11,534,750
- ---------------------------------------------------------------
Chemicals--1.5%
460,000 Monsanto Co. 17,940,000
- ---------------------------------------------------------------
Computer Systems/Peripherals--10.0%
404,800 Compaq Computer Corp.(a) 30,258,800
218,400 Dell Computer Corp.(a) 21,157,500
362,700 Diebold, Inc. 17,182,913
558,900 Hewlett-Packard Co. 38,878,481
116,400 International Business Machines
Corp. 12,331,125
--------------
119,808,819
- ---------------------------------------------------------------
Diversified Operations--1.2%
206,700 General Electric Co. $ 14,068,519
- ---------------------------------------------------------------
EDP Software & Services--3.6%
339,400 Intuit, Inc.(a) 10,860,800
130,400 Microsoft Corp. (a) 17,253,550
165,500 SAP AG (ADR)(Germany) 14,728,110
--------------
42,842,460
- ---------------------------------------------------------------
Electronic Components--6.7%
348,800 Intel Corp. 32,198,600
610,400 International Rectifier Corp.(a) 14,268,100
372,200 LSI Logic Corp. (a) 11,956,925
161,800 Texas Instruments, Inc. 21,863,225
--------------
80,286,850
- ---------------------------------------------------------------
Health Care Services--2.7%
628,700 Healthsouth Corp.(a) 16,778,431
536,000 PhyCor, Inc.(a) 15,577,500
--------------
32,355,931
- ---------------------------------------------------------------
Hotels--2.5%
237,800 Doubletree Corp.(a) 11,473,850
541,200 Hilton Hotels Corp. 18,231,675
--------------
29,705,525
- ---------------------------------------------------------------
Household & Personal Care Products--1.3%
176,700 Gillette Co. 15,251,419
- ---------------------------------------------------------------
Industrial Technology/Instruments--4.3%
173,500 Applied Materials, Inc.(a) 16,525,875
248,500 KLA Tencor Corp.(a) 16,789,281
426,700 Symbol Technologies, Inc. 18,748,131
--------------
52,063,287
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-58
<PAGE>
Portfolio of Investments as PRUDENTIAL JENNISON SERIES FUND, INC.
of September 30, 1997 PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------
Shares Description Value (Note 1)
- ---------------------------------------------------------------
Insurance--7.2%
82,900 CIGNA Corp. $ 15,440,125
316,800 MGIC Investment Corp. 18,156,600
327,533 Mutual Risk Management, Ltd. 16,642,771
218,300 Provident Companies, Inc. 15,267,356
448,700 UNUM Corp. 20,471,937
--------------
85,978,789
- ---------------------------------------------------------------
Machinery--1.1%
193,800 Case Corp. 12,911,925
- ---------------------------------------------------------------
Media--2.7%
278,300 Clear Channel Communications,
Inc.(a) 18,054,712
181,100 The Walt Disney Co. 14,601,188
--------------
32,655,900
- ---------------------------------------------------------------
Networking--5.4%
533,200 3Com Corp.(a) 27,326,500
512,000 Cisco Systems, Inc. (a) 37,408,000
--------------
64,734,500
- ---------------------------------------------------------------
Oil Services--2.6%
368,600 Schlumberger, Ltd. 31,031,512
- ---------------------------------------------------------------
Pharmaceuticals--11.2%
150,200 Boston Scientific Corp. (a) 8,289,163
246,100 Bristol-Myers Squibb Co. 20,364,775
224,400 Eli Lilly & Co. 27,026,175
689,200 Pfizer, Inc. 41,395,075
523,700 Smithkline Beecham PLC (ADR)
(United Kingdom) 25,595,837
91,100 Warner-Lambert Co. 12,292,806
--------------
134,963,831
- ---------------------------------------------------------------
Retail--8.5%
216,100 AutoZone, Inc.(a) 6,483,000
662,500 Corporate Express, Inc.(a) 13,995,313
455,925 Dollar General Corp. 15,529,945
355,600 Gap, Inc. 17,802,225
207,600 Home Depot, Inc. $ 10,821,150
249,700 Kohl's Corp.(a) 17,728,700
336,800 Sears, Roebuck & Co. 19,176,550
--------------
101,536,883
- ---------------------------------------------------------------
Telecommunication Services--1.3%
437,800 AirTouch Communications, Inc.(a) 15,514,538
15,000 RSL Communications, Ltd.(a) 330,000
--------------
15,844,538
- ---------------------------------------------------------------
Telecommunications Equipment--5.6%
190,400 Ciena Corp.(a) 9,430,750
286,600 Motorola, Inc. 20,599,375
242,500 Nokia Corp. (ADR)(Finland) 22,749,531
287,100 Tellabs, Inc.(a) 14,785,650
--------------
67,565,306
- ---------------------------------------------------------------
Trucking & Shipping--1.8%
278,100 Federal Express Corp.(a) 22,248,000
--------------
Total long-term investments
(cost $853,003,444) 1,186,780,929
--------------
Moody's Principal
Rating Amount
(Unaudited) (000)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT--0.9%
Commercial Paper--0.9%
P1 $10,159 Ford Motor Credit Co.
6.15%, 10/1/97
(cost $10,159,000) 10,159,000
- --------------------------------------------------------------------
Total Investments--99.8%
(cost $863,162,444;
Note 4) 1,196,939,929
Other assets in excess
of
liabilities--0.2% 2,489,931
---------------
Net Assets--100% $ 1,199,429,860
===============
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-59
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Statement of Assets and Liabilities PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1997
------------------
<S> <C>
Investments, at value (cost $863,162,444).............................................................. $1,196,939,929
Cash................................................................................................... 1,132,392
Receivable for investments sold........................................................................ 5,014,392
Receivable for Series shares sold...................................................................... 4,739,703
Dividends and interest receivable...................................................................... 652,640
Deferred expenses and other assets..................................................................... 135,543
----------------
Total assets........................................................................................ 1,208,614,599
----------------
Liabilities
Payable for investments purchased...................................................................... 6,036,257
Payable for Series shares reacquired................................................................... 1,919,751
Management fee payable................................................................................. 570,278
Distribution fees payable.............................................................................. 378,572
Accrued expenses and other liabilities................................................................. 262,783
Withholding taxes payable.............................................................................. 17,098
----------------
Total liabilities................................................................................... 9,184,739
----------------
Net Assets............................................................................................. $1,199,429,860
================
Net assets were comprised of:
Common stock, at par................................................................................ $ 78,191
Paid-in capital in excess of par.................................................................... 784,299,181
----------------
784,377,372
Accumulated net realized gain on investments........................................................ 81,276,520
Net unrealized appreciation on investments.......................................................... 333,775,968
----------------
Net assets, September 30, 1997......................................................................... $1,199,429,860
================
Class A:
Net asset value and redemption price per share
($145,022,025 / 9,421,277 shares of common stock issued and outstanding)......................... $15.39
Maximum sales charge (5% of offering price)......................................................... .81
------
Maximum offering price to public.................................................................... $16.20
======
Class B:
Net asset value, offering price and redemption price per share
($419,405,140 / 27,634,577 shares of common stock issued and outstanding)........................ $15.18
======
Class C:
Net asset value, offering price and redemption price per share
($25,133,800 / 1,656,067 shares of common stock issued and outstanding).......................... $15.18
======
Class Z:
Net asset value, offering price and redemption price per share
($609,868,895 / 39,477,787 shares of common stock issued and outstanding)........................ $15.45
======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-60
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH FUND
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended
September 30,
Net Investment Income (Loss) 1997
-------------
Income
Dividends (net of foreign withholding taxes
of $185,509)............................ $ 6,429,231
Interest................................... 967,368
------------
Total income............................ 7,396,599
------------
Expenses
Management fee............................. 5,276,337
Distribution fee--Class A.................. 264,954
Distribution fee--Class B.................. 2,994,762
Distribution fee--Class C.................. 182,481
Transfer agent's fees and expenses......... 1,376,000
Reports to shareholders.................... 235,000
Registration fees.......................... 233,000
Custodian's fees and expenses.............. 128,000
Legal fees and expenses.................... 65,000
Amortization of deferred organization
expense................................. 37,967
Audit fee.................................. 20,000
Insurance expense.......................... 12,000
Directors' fees and expenses............... 10,500
Miscellaneous.............................. 11,912
------------
Total expenses.......................... 10,847,913
------------
Net investment income (loss).................. (3,451,314)
------------
Realized and Unrealized Gain
on Investments
Net realized gain on investment
transactions............................... 90,453,012
Net change in unrealized appreciation on
investments................................ 224,732,097
------------
Net gain on investments....................... 315,185,109
------------
Net Increase in Net Assets
Resulting from Operations..................... $311,733,795
============
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH FUND
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
November 2, 1995(a)
Year Ended Through
Increase (Decrease) September 30, September 30,
in Net Assets 1997 1996
------------- -------------------
Operations
Net investment income
(loss)............... $ (3,451,314) $ (2,046,837)
Net realized gain (loss)
on investments....... 90,453,012 (9,176,492)
Net change in unrealized
appreciation on
investments.......... 224,732,097 36,196,257
-------------- -----------------
Net increase in net
assets resulting from
operations........... 311,733,795 24,972,928
-------------- -----------------
Series share transactions
(net of share
conversions) (Note 5)
Net proceeds from shares
sold................. 859,180,110 819,026,956
Cost of shares
reacquired........... (666,161,401) (149,422,528)
-------------- -----------------
Net increase in net
assets from Series
share transactions... 193,018,709 669,604,428
-------------- -----------------
Total increase............. 504,752,504 694,577,356
Net Assets
Beginning of period........ 694,677,356 100,000
-------------- -----------------
End of period.............. $1,199,429,860 $ 694,677,356
============== =================
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-61
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
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 Class B and
Class C common stock for $100,000 on September 13, 1995 to Prudential
Investments Fund Management LLC ("PIFM"). 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.
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 mean between the
closing bid and asked prices on such day or at the bid price in the absence of
an asked price, 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 mean between the
most recently quoted bid and asked prices provided by a principal market maker
or independent pricing agent. Options on securities and indices traded on an
exchange are valued at the mean between 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 and is net of
discount accretion and premium amortization. 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 continue 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 $200,000 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.
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. For the year ended
September 30, 1997, the Series reclassified current net operating losses by
decreasing accumulated net investment loss and decreasing paid-in capital by
$3,451,314. Net investment income, net realized gains, and net assets were not
affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PIFM. Pursuant to a subadvisory
agreement between PIFM and Jennison Associates Capital
- --------------------------------------------------------------------------------
B-62
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Notes to Financial Statements PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------
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 PIFM, is responsible for managing the
assets of the Series in accordance with its investment objectives and policies.
The management fee paid PIFM will be computed daily and payable monthly, at an
annual rate of .60 of 1% of the average daily net assets of the Series. PIFM
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. PIFM 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.
Such expenses under the plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the fiscal year ended
September 30, 1997.
PSI has advised the Series that it has received approximately $608,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended September 30, 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 year ended September 30, 1997, it
received approximately $727,100 and $5,600 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
PIFM, Jennison and PSI are indirect, 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
Series has not borrowed any amounts pursuant to the Agreement as of September
30, 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 PIFM,
serves as the Fund's transfer agent. During the year ended September 30, 1997,
the Series incurred fees of approximately $1,236,000 for the services of PMFS.
As of September 30, 1997, approximately $122,000 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.
For the year ended September 30, 1997, PSI earned approximately $50,600 in
brokerage commissions from portfolio transactions executed on behalf of the
Series.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended September 30, 1997 were $724,562,581 and $541,374,570,
respectively.
The cost of investments for federal income tax purposes at September 30, 1997,
was $864,345,826 and, accordingly, net unrealized appreciation of investments
for federal income tax purposes was $332,594,103 (gross unrealized
appreciation--$343,656,967; gross unrealized depreciation--$11,062,864).
- ------------------------------------------------------------
Note 5. Capital
The Series 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
- --------------------------------------------------------------------------------
B-63
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Notes to Financial Statements PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------
the first year. Class Z shares are not subject to any sales or redemption charge
and are offered for sale to specific categories of investors.
There are 3 billion shares of $.001 par value common stock authorized which are
divided into three series, each of which offers four classes, designated Class
A, Class B, Class C and Class Z, each of which consists of 250 million
authorized shares. Of the shares outstanding at September 30, 1997, PIFM owned
10,000 shares of the Series.
Transactions in shares of common stock were as follows:
Class A Shares Amount
- ------- ----------- -------------
Year ended September 30, 1997
Shares sold........................ 25,998,077 $ 330,048,473
Shares reacquired.................. (24,630,004) (310,892,744)
----------- -------------
Net increase in shares outstanding
before conversion................ 1,368,073 19,155,729
Shares issued upon conversion from
Class B.......................... 263,019 3,525,367
----------- -------------
Net increase in shares
outstanding...................... 1,631,092 $ 22,681,096
=========== =============
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
- -------
Year ended September 30, 1997
Shares sold........................ 11,358,438 $ 145,846,890
Shares reacquired.................. (4,716,088) (59,467,575)
----------- -------------
Net increase in shares outstanding
before conversion................ 6,642,350 86,379,315
Shares reacquired upon conversion
into Class A..................... (266,196) (3,525,367)
----------- -------------
Net increase in shares
outstanding...................... 6,376,154 $ 82,853,948
=========== =============
Class B Shares Amount
- ------- ----------- -------------
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
- -------
Year ended September 30, 1997
Shares sold........................ 560,427 $ 7,367,068
Shares reacquired.................. (307,304) (3,823,506)
----------- -------------
Net increase in shares
outstanding...................... 253,123 $ 3,543,562
=========== =============
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
- -------
Year ended September 30, 1997
Shares sold........................ 30,018,513 $ 375,917,679
Shares reacquired.................. (23,558,475) (291,977,576)
----------- -------------
Net increase in shares
outstanding...................... 6,460,038 $ 83,940,103
=========== =============
April 15, 1996(b) through
September 30, 1996
Shares sold........................ 2,971,624 $ 32,570,435
Shares issued due to acquisition of
The Prudential Institutional
Fund--Growth Stock 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) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
B-64
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Financial Highlights PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------------- ------------------------------- -------------
November 2, November 2,
Year 1995(a) Year 1995(a) Year
Ended Through Ended Through Ended
September 30, September 30, September 30, September 30, September 30,
1997 1996 1997 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <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
--------- ------ --------- --------- -------
Income from investment operations
Net investment income (loss)(d)..... (.03) (.03) (.12) (.10) (.12)
Net realized and unrealized gain on
investment transactions.......... 4.45 1.00 4.41 .99 4.41
--------- ------ --------- --------- -------
Total from investment
operations.................... 4.42 .97 4.29 .89 4.29
--------- ------ --------- --------- -------
Net asset value, end of period...... $ 15.39 $ 10.97 $ 15.18 $ 10.89 $ 15.18
========= ======= ========= ========= =======
TOTAL RETURN(c)..................... 40.29% 9.70% 39.39% 8.90% 39.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)..... $ 145,022 $85,440 $ 419,405 $ 231,541 $25,134
Average net assets (000)............ $ 105,982 $70,667 $ 299,476 $ 162,412 $18,248
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.09% 1.23%(e) 1.84% 1.98%(e) 1.84%
Expenses, excluding distribution
fees.......................... .84% .98%(e) .84% .98%(e) .84%
Net investment income (loss)..... (.25)% (.37)%(e) (1.00)% (1.12)%(e) (1.00)%
Portfolio turnover rate............. 63% 42% 63% 42% 63%
Average commission rate paid per
share............................ $ .0596 $ .0611 $ .0596 $ .0611 $ .0596
<CAPTION>
Class Z
-------------------------------
November 2, April 15,
1995(a) Year 1996(b)
Through Ended Through
September 30, September 30, September 30,
1996 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................... $ 10.00 $ 10.98 $ 10.32
------- --------- ---------
Income from investment operations
Net investment income (loss)(d)..... (.10) -- (.02)
Net realized and unrealized gain on
investment transactions.......... .99 4.47 .68
------- --------- ---------
Total from investment
operations.................... .89 4.47 .66
------- --------- ---------
Net asset value, end of period...... $ 10.89 $ 15.45 $ 10.98
======= ========= =========
TOTAL RETURN(c)..................... 8.90% 40.71% 6.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)..... $15,281 $ 609,869 $ 362,416
Average net assets (000)............ $12,550 $ 455,684 $ 26,829
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.98%(e) .84% .98%(e)
Expenses, excluding distribution
fees.......................... .98%(e) .84% .98%(e)
Net investment income (loss)..... (1.12)%(e) -- (.12)%(e)
Portfolio turnover rate............. 42% 63% 42%
Average commission rate paid per
share............................ $ .0611 $ .0596 $ .0611
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Commencement of offering of Class Z shares.
(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.
(e) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-65
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Report of Independent Accountants PRUDENTIAL JENNISON GROWTH FUND
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Jennison Series Fund, Inc., Prudential Jennison Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Jennison Series Fund,
Inc., Prudential Jennison Growth Fund (the "Fund", one of the portfolios
constituting Prudential Jennison Series Fund, Inc.) at September 30, 1997, and
the results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at September 30, 1997 by correspondence with the
custodian and the application of alternative auditing procedures where
securities purchased had not been received, provides a reasonable basis for the
opinion expressed above. The accompanying statement of changes in net assets and
the financial highlights for the period ended September 30, 1996 were audited by
other independent accountants, whose opinion dated November 4, 1996 was
unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 14, 1997
B-66
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF PRUDENTIAL JENNISON GROWTH FUND:
We have audited the accompanying statements of changes in net assets of
Prudential Jennison Growth Fund for the period ended September 30, 1996, and the
financial highlights contained in the prospectus 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 audits.
We conducted our audits 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the changes in net assets and the financial
highlights of Prudential Jennison Growth Fund for the respective stated period
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
November 4, 1996
B-67
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Portfolio of Investments as PRUDENTIAL JENNISON GROWTH &
of September 30, 1997 INCOME FUND
- --------------------------------------------------------------------------------
Shares Description Value (Note 1)
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--88.2%
COMMON STOCKS--87.3%
- ---------------------------------------------------------------
Aerospace/Defense--2.8%
54,700 General Motors Corp., Class H $ 3,617,038
- ---------------------------------------------------------------
Airlines--1.0%
14,000 Delta Airlines, Inc. 1,318,625
- ---------------------------------------------------------------
Aluminum--4.1%
73,200 Alumax, Inc. (a) 2,992,050
33,000 Reynolds Metals Co. 2,336,812
------------
5,328,862
- ---------------------------------------------------------------
Automobiles & Trucks--3.9%
74,900 General Motors Corp. 5,013,619
- ---------------------------------------------------------------
Banking--5.6%
21,500 Chase Manhattan Corp. 2,537,000
23,600 Fleet Financial Group, Inc. 1,547,275
184,700 Hibernia Corp., Class A 3,139,900
------------
7,224,175
- ---------------------------------------------------------------
Business Services--4.3%
63,700 CUC International, Inc. (a) 1,974,700
29,100 Manpower, Inc. 1,149,450
69,800 Ryder System, Inc. 2,508,437
------------
5,632,587
- ---------------------------------------------------------------
Cellular Communications--0.5%
12,500 Vodafone Group PLC (ADR)
(United Kingdom) 671,875
- ---------------------------------------------------------------
Commercial Services--1.4%
74,600 Ogden Corp. 1,762,425
- ---------------------------------------------------------------
Computer Systems/Peripherals--6.8%
29,700 Digital Equipment Corp. (a) 1,286,381
30,100 Hewlett-Packard Co. 2,093,831
126,900 Intergraph Corp. (a) $ 1,380,038
28,800 International Business Machines
Corp. 3,051,000
71,300 Unisys Corp. (a) 1,091,781
------------
8,903,031
- ---------------------------------------------------------------
Environmental Services--1.6%
57,900 Waste Management, Inc. 2,022,881
- ---------------------------------------------------------------
Foods--2.3%
67,300 Dole Food Co., Inc. 3,041,119
- ---------------------------------------------------------------
Hotels--1.6%
61,100 Hilton Hotels Corp. 2,058,306
- ---------------------------------------------------------------
Household & Personal Care Products--1.0%
71,200 The Dial Corp. 1,241,550
- ---------------------------------------------------------------
Industrial Technology/Instruments--1.2%
34,350 Symbol Technologies, Inc. (a) 1,509,253
- ---------------------------------------------------------------
Insurance--5.7%
20,200 CIGNA Corp. 3,762,250
40,300 NAC Re Corp. 2,070,413
47,300 TIG Holdings, Inc. 1,646,631
------------
7,479,294
- ---------------------------------------------------------------
Machinery & Equipment--1.2%
24,200 Case Corp. 1,612,325
- ---------------------------------------------------------------
Manufacturing--1.0%
27,800 Kennametal, Inc. 1,348,300
- ---------------------------------------------------------------
Media--1.6%
8,200 Chris-Craft Industries, Inc. (a) 432,038
60,800 Westinghouse Electric Corp. 1,645,400
------------
2,077,438
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-68
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Portfolio of Investments as PRUDENTIAL JENNISON GROWTH &
of September 30, 1997 INCOME FUND
- --------------------------------------------------------------------------------
Shares Description Value (Note 1)
- ---------------------------------------------------------------
Office Equipment & Supplies--1.8%
28,300 Xerox Corp. $ 2,382,506
- ---------------------------------------------------------------
Oil Services--2.3%
40,400 Baker Hughes, Inc. 1,767,500
27,700 Dresser Industries, Inc. 1,191,100
------------
2,958,600
- ---------------------------------------------------------------
Paper & Forest Products--4.1%
52,500 Boise Cascade Corp. 2,208,281
31,800 Champion International Corp. 1,937,813
79,600 Stone Container Corp. 1,238,775
------------
5,384,869
- ---------------------------------------------------------------
Petroleum--5.3%
29,600 Amerada Hess Corp. 1,825,950
25,200 Anadarko Petroleum Corp. 1,809,675
66,600 Union Pacific Resources Group, Inc. 1,744,087
34,700 Unocal Corp. 1,500,775
------------
6,880,487
- ---------------------------------------------------------------
Pharmaceuticals--0.6%
10,600 Smithkline Beecham PLC (ADR)
(United Kingdom) 518,075
6,400 Vertex Pharmaceuticals, Inc. (a) 241,600
------------
759,675
- ---------------------------------------------------------------
Publishing--7.9%
66,500 American Greetings Corp., Class A 2,452,187
31,300 McGraw-Hill Companies, Inc. 2,118,619
60,900 New York Times Co., Class A 3,197,250
47,100 Tribune Co. 2,511,019
------------
10,279,075
- ---------------------------------------------------------------
Railroads--1.6%
34,300 Union Pacific Corp. 2,148,038
Real Estate--0.5%
19,000 Equity Office Properties Trust $ 644,813
- ---------------------------------------------------------------
Retail--5.1%
37,900 AutoZone, Inc.(a) 1,137,000
39,300 Sears, Roebuck & Co. 2,237,644
136,100 The Limited, Inc. 3,325,943
------------
6,700,587
- ---------------------------------------------------------------
Savings & Loan--1.7%
30,800 Washington Mutual, Inc. 2,148,300
- ---------------------------------------------------------------
Specialty Chemicals--5.2%
28,300 Betzdearborn, Inc. 1,935,012
43,200 Dexter Corp. 1,730,700
30,700 Minerals Technologies, Inc. 1,368,069
50,500 Morton International, Inc. 1,792,750
------------
6,826,531
- ---------------------------------------------------------------
Steel & Metals--2.3%
76,600 J & L Specialty Steel, Inc. 1,029,313
56,600 USX-U.S. Steel Group, Inc. 1,966,850
------------
2,996,163
- ---------------------------------------------------------------
Transportation--1.3%
58,600 Knightsbridge Tankers Ltd. 1,659,113
------------
Total common stocks
(cost $92,552,713) 113,631,460
------------
- ---------------------------------------------------------------
PREFERRED STOCK--0.9%
24,900 USX-U.S. Steel Group, Inc.
Conv., 6.75%
(cost $1,190,955) 1,190,531
------------
Total long-term investments
(cost $93,743,668) 114,821,991
------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-69
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
Portfolio of Investments as PRUDENTIAL JENNISON GROWTH &
of September 30, 1997 INCOME FUND
- --------------------------------------------------------------------------------
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--13.6%
COMMERCIAL PAPER--6.0%
P-1 $ 5,431 Ford Motor Credit Corp.
6.15%, 10/1/97 $ 5,431,000
P-1 2,300 General Electric Capital
Corp.
5.58%, 10/3/97 2,300,000
------------
Total commercial paper
(cost $7,731,000) 7,731,000
------------
U.S. GOVERNMENT SECURITIES--7.6%
10,000(b) United States Treasury
Bills
4.905%, 11/20/97
(cost $9,931,875) 9,931,875
------------
Total short-term
investments
(cost $17,662,875) 17,662,875
------------
- ---------------------------------------------------------------
Total investments before short sales--101.8%
(cost $111,406,543; Note
4) 132,484,866
------------
COMMON STOCKS SOLD SHORT(a)--(3.4%)
- ---------------------------------------------------------------
Beverages--(1.0%)
(22,000) Coca-Cola Co. $ (1,340,625)
- ---------------------------------------------------------------
Household & Personal Care Products--(1.2%)
(23,000) Procter & Gamble Co. (1,588,438)
- ---------------------------------------------------------------
Insurance--(1.2%)
(14,700) American International
Group, Inc. (1,516,856)
------------
Total common stocks sold
short
(proceeds at cost
$4,404,329) (4,445,919)
------------
- ---------------------------------------------------------------
Total investments, net of short sales--98.4% 128,038,947
Other assets in excess of
liabilities--1.6% 2,084,717
------------
Net Assets--100% $130,123,664
============
- ---------------
(a) Non-income producing securities.
(b) $4,560,000 of principal amount pledged as collateral for short sales.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-70
<PAGE>
PRUDENTIAL JENNNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Statement of Assets and Liabilities INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1997
------------------
<S> <C>
Investments, at value (cost $111,406,543)............................................................... $132,484,866
Receivable for securities sold short.................................................................... 4,404,329
Receivable for investments sold......................................................................... 1,369,972
Receivable for Series shares sold....................................................................... 272,964
Dividends and interest receivable....................................................................... 146,457
Due from Broker for securities sold short............................................................... 69,677
Deferred expenses and other assets...................................................................... 13,887
------------
Total assets......................................................................................... 138,762,152
------------
Liabilities
Bank overdraft.......................................................................................... 146,374
Investments sold short, at value (proceeds $4,404,329).................................................. 4,445,919
Payable for investments purchased....................................................................... 3,579,120
Payable for Series shares reacquired.................................................................... 177,712
Accrued expenses........................................................................................ 144,192
Distribution fee payable................................................................................ 82,697
Management fee payable.................................................................................. 62,474
------------
Total liabilities.................................................................................... 8,638,488
------------
Net Assets.............................................................................................. $130,123,664
------------
------------
Net assets were comprised of:
Common stock, at par................................................................................. $ 10,113
Paid-in capital in excess of par..................................................................... 104,506,522
------------
104,516,635
Undistributed net investment income.................................................................. 39,524
Accumulated net realized gain on investments......................................................... 4,530,772
Net unrealized appreciation on investments........................................................... 21,036,733
------------
Net assets, September 30, 1997.......................................................................... $130,123,664
------------
------------
Class A:
Net asset value and redemption price per share
($34,846,059 / 2,704,237 shares of common stock issued and outstanding)........................... $12.89
Maximum sales charge (5.0% of offering price)........................................................ .68
------------
Maximum offering price to public..................................................................... $13.57
============
Class B:
Net asset value, offering price and redemption price per share
($87,557,386 / 6,808,609 shares of common stock issued and outstanding)........................... $12.86
============
Class C:
Net asset value, offering price and redemption price per share
($7,111,341 / 552,989 shares of common stock issued and outstanding).............................. $12.86
============
Class Z:
Net asset value, offering price and redemption price per share
($608,878 / 47,088 shares of common stock issued and outstanding)................................. $12.93
============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-71
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
INCOME FUND
Statement of Operations
- ------------------------------------------------------------
November 7, 1996(a)
Through
Net Investment Income September 30, 1997
-------------------
Income
Dividends (net of foreign
withholding taxes of $2,446).... $ 1,216,996
Interest and discount earned....... 901,679
-----------
Total income.................... 2,118,675
-----------
Expenses
Distribution fee--Class A.......... 60,491
Distribution fee--Class B.......... 560,606
Distribution fee--Class C.......... 50,452
Management fee..................... 513,032
Registration fees.................. 181,000
Reports to shareholders............ 109,000
Custodianclquos fees and
expenses........................ 108,000
Transfer agentclquos fees and
expenses........................ 107,000
Legal fees and expenses............ 57,000
Dividends on securities sold
short........................... 21,921
Audit fees......................... 20,000
Directorsclquo fees and expenses... 10,500
Miscellaneous...................... 8,622
-----------
Total expenses.................. 1,807,624
-----------
Net investment income................. 311,051
-----------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions............ 4,572,108
Financial futures transactions..... 140,508
Short sales........................ (181,844)
-----------
4,530,772
Net unrealized
appreciation/depreciation on:
Investments........................ 21,078,323
Short sales........................ (41,590)
-----------
21,036,733
-----------
Net gain on investments............... 25,567,505
-----------
Net Increase in Net Assets Resulting
from Operations....................... $25,878,556
-----------
-----------
- --------------------------------------------------------------
(a) Commencement of investment operations.
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
INCOME FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
November 7, 1996(a)
Increase (Decrease) Through
in Net Assets September 30, 1997
-------------------
Operations
Net investment income.............. $ 311,051
Net realized gain on investment
transactions.................... 4,530,772
Net change in unrealized
appreciation of investments..... 21,036,733
-------------
Net increase in net assets
resulting from operations....... 25,878,556
-------------
Dividends from net investment income
(Note 1)
Class A............................ (173,413)
Class B............................ (87,383)
Class C............................ (9,043)
Class Z............................ (1,688)
-------------
(271,527)
-------------
Series share transactions (net of
share conversions) (Note 5)
Net proceeds from shares sold...... 125,652,781
Net asset value of shares issued in
reinvestment of dividends....... 248,524
Cost of shares reacquired.......... (21,384,670)
-------------
Net increase in net assets from
Series share transactions....... 104,516,635
-------------
Total increase........................ 130,123,664
Net Assets
Beginning of period................... --
-------------
End of period......................... $ 130,123,664
-------------
-------------
- --------------------------------------------------------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-72
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements 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 mean between the
closing bid and asked prices on such day or at the bid price in the absence of
an asked price 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 mean between the
most recently quoted bid and asked prices provided by a principal market maker
or independent pricing agent. Options on securities and indices traded on an
exchange are valued at the mean between 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.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the "initial margin". Subsequent payments, known as "variation margin",
are made or received by the Series each day, depending on the daily fluctuations
in the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss. When
the contract expires or is closed, the gain or loss is realized and is presented
in the statement of operations as net realized gain (loss) on financial futures
contracts.
The Series invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Series intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Series may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.
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 Series 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. The proceeds received from
the short sale are maintained as collateral for its obligation to deliver the
security upon conclusion of the sale. In addition, the Series may have to make
additional subsequent deposits with the broker equal to the change in the market
value of the security sold short. The Series 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 Series 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.
- --------------------------------------------------------------------------------
B-73
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements INCOME FUND
- --------------------------------------------------------------------------------
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 Seriesclquo 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 Seriesclquo understanding of the applicable countryclquos tax rules and
rates.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to a subadvisory agreement between PIFM 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 PIFM, is responsible for
managing the assets of the Series in accordance with its investment objectives,
and policies.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .60 of 1% of the average daily net assets of the Series. PIFM 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. PIFM 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 Fundclquos 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.
Such expenses under the plans were .25 of 1%, 1% and 1% of average daily net
assets of the Class A, B and C shares, respectively, for the fiscal year ended
September 30, 1997.
PSI has advised the Series that it has received approximately $182,700 in
front-end sales charges resulting from sales of Class A shares during the period
ended September 30, 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 September 30, 1997, it
received approximately $124,500 and $1,100 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
PIFM, Jennison and PSI are wholly-owned subsidiaries of The Prudential Insurance
Company of America.
The Series, 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
Series has not borrowed any amounts pursuant to the Agreement as of September
30, 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 PIFM,
serves as the Seriesclquo transfer agent. During the period ended September 30,
1997, the Series incurred fees of approximately $88,800 for the services of
PMFS. As of September 30, 1997, approximately $10,800 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.
For the period ended September 30, 1997, PSI earned approximately $13,900 in
brokerage commissions from portfolio transactions executed on behalf of the
Series.
- --------------------------------------------------------------------------------
B-74
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Notes to Financial Statements INCOME FUND
- --------------------------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the period ended September 30, 1997 were $134,293,429 and $45,121,869,
respectively.
The cost basis of the investments for federal income tax purposes at September
30, 1997, was $111,465,724 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $21,019,142 (gross unrealized
appreciation-$21,019,566; gross unrealized depreciation--$424).
- ------------------------------------------------------------
Note 5. Capital
The Series 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 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 3 billion shares of $.001 par value common stock authorized which are
divided into three Series, each of which offers four classes, designated Class
A, Class B, Class C and Class Z, each of which consists of 250 million
authorized shares.
Transactions in shares of common stock for the period November 7, 1996
(commencement of investment operations) through September 30, 1997 were as
follows:
Class A Shares Amount
- ------- ---------- -----------
Shares sold........................... 3,742,825 $39,152,598
Shares issued in reinvestment of
dividends........................... 14,160 157,166
Shares reacquired..................... (1,113,963) (12,460,182)
---------- -----------
Net increase in shares outstanding
before conversion................... 2,643,022 26,849,582
Shares issued upon conversion from
Class B............................. 61,215 732,819
---------- -----------
Net increase in shares outstanding.... 2,704,237 $27,582,401
========== ===========
Class B
- -------
Shares sold........................... 7,590,360 $79,524,546
Shares issued in reinvestment of
dividends........................... 7,661 80,973
Shares reacquired..................... (728,030) (8,137,956)
---------- -----------
Net increase in shares outstanding
before conversion................... 6,869,991 71,467,563
Shares reacquired upon conversion into
Class A............................. (61,382) (732,819)
---------- -----------
Net increase in shares outstanding.... 6,808,609 $70,734,744
========== ===========
Class C
- -------
Shares sold........................... 608,639 $ 6,265,784
Shares issued in reinvestment of
dividends........................... 827 8,698
Shares reacquired..................... (56,477) (614,072)
---------- -----------
Net increase in shares outstanding.... 552,989 $ 5,660,410
========== ===========
Class Z
- -------
Shares sold........................... 62,839 $ 709,853
Shares issued in reinvestment of
dividends........................... 146 1,687
Shares reacquired..................... (15,897) (172,460)
---------- -----------
Net increase in shares outstanding.... 47,088 $ 539,080
========== ===========
- --------------------------------------------------------------------------------
B-75
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Financial Highlights INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 7, 1996(a) Through September 30, 1997
-------------------------------------------------------------------
Class A Class B Class C Class Z
------------- ------------- ------------- -------------
<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............................... .09 .02 .02 .10
Net realized and unrealized gain on investment
transactions..................................... 2.87 2.86 2.86 2.92
------- --------- ------- ---------
Total from investment operations................. 2.96 2.88 2.88 3.02
------- --------- ------- ---------
Less distributions
Dividends from net investment income................ (.07) (.02) (.02) (.09)
------- --------- ------- ---------
Net asset value, end of period...................... $ 12.89 $ 12.86 $ 12.86 $ 12.93
======= ========= ======= =========
TOTAL RETURN(c)..................................... 29.72% 28.83% 28.83% 30.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)..................... $34,846 $ 87,558 $ 7,111 $ 609
Average net assets (000)............................ $27,008 $ 62,575 $ 5,631 $ 227
Ratios to average net assets(b):
Expenses, including distribution fees............ 1.58% 2.33% 2.33% 1.33%
Expenses, excluding distribution fees............ 1.33% 1.33% 1.33% 1.33%
Net investment income............................ .90% .15% .15% 1.15%
Portfolio turnover rate............................. 55% 55% 55% 55%
Average commission rate paid per share.............. $ .0588 $ .0588 $ .0588 $ .0588
</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-76
<PAGE>
PRUDENTIAL JENNISON SERIES FUND, INC.
PRUDENTIAL JENNISON GROWTH &
Report of Independent Accountants INCOME FUND
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Jennison Series Fund, Inc.,
Prudential Jennison Growth & Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Jennison Series Fund,
Inc., Prudential Jennison Growth & Income Fund (the "Fund", one of the
portfolios constituting Prudential Jennison Series Fund, Inc.) at September 30,
1997, and the results of its operations, the changes in its net assets and the
financial highlights for the year then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fundclquos management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1997 by
correspondence with the custodian and brokers, and the application of
alternative auditing procedures where securities purchased had not been
received, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 14, 1997
- --------------------------------------------------------------------------------
B-77
<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.
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-1
<PAGE>
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.
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-2
<PAGE>
APPENDIX I--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.
I-1
<PAGE>
APPENDIX II--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)
EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
<TABLE>
<S> <C>
SMALL STOCKS $4,495.99
COMMON STOCKS $1,370.95
LONG-TERM BONDS $ 33.73
TREASURY BILLS $ 13.54
INFLATION $ 8.87
</TABLE>
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is for illustrative
purposes only and is not indicative of the past, present, or future
performances of any asset class or any Prudential Mutual Fund.
Generally, stock returns are due to capital appreciation and the reinvestment
of any gains. Bond returns are due to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the
New York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index 500 stocks (currently) in
a variety of industries. It is often used as a broad measure of stock market
performance.
Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. 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).
II-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 1996. The total returns of the indices include accrued
interest, plus the price changes (gains or losses) of the underlying
securities during the period mentioned. The data is provided to illustrate the
varying historical total returns and investors should not consider this
performance data as an indication of the future performance of the Fund or of
any sector in which the Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information
has not been verified. The figures do not reflect the operating expenses and
fees of a mutual fund. See "Fund Expenses" in the Prospectus. The net effect
of the deduction of the operating expenses of a mutual fund on these
historical total returns, including the compounded effect over time, could be
substantial.
(CHART)
Historical Total Returns of Different Bond Market Sectors
<TABLE>
<CAPTION>
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S GOVERNMENT
TREASURY
BONDS(1) 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7%
- -------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
MORTGAGE
SECURITIES(2) 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4%
- -------------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3%
- -------------------------------------------------------------------------------------------------------------------
U.S
HIGH YIELD
CORPORATE
BONDS(4) 5.0% 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4%
- -------------------------------------------------------------------------------------------------------------------
WORLD
GOVERNMENT
BONDS(5) 35.2% 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN HIGHEST
AND LOWEST RETURN PERCENT 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7
</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.
II-2
<PAGE>
This chart shows the growth of a
This chart illustrates the hypothetical $10,000 investment
performance of major world stock made in the stocks representing
markets for the period from 1986 the S&P 500 stock index with and
through September 30, 1997. It without reinvested dividends.
does not represent the performance
of any Prudential Mutual Fund.
[CHART]
Average Annual Total Returns of Capital Appreciation and
Major World Stock Markets Reinvesting Dividends $ 228,266
12/31/86-9/30/97 (in U.S. Dollars) Capital Appreciation Only $ 80,535
Source: Stocks, Bonds, Bills, and
[CHART] Inflation 1997 Yearbook, Ibbotson
Associates, Chicago (annually
updates work by Roger G. Ibbotson
and Rex A. Sinquefield). Used with
Hong Kong 23.7% permission. All rights reserved.
Sweden 22.0% This chart is used for
Netherlands 21.3% illustrative purposes only and is
Spain 21.0% not intended to represent the
Belgium 19.7% past, present or future
Switzerland 17.5% performance of any Prudential
USA 17.1% Mutual Fund. Common stock total
UK 17.0% return is based on the Standard &
France 16.1% Poor's 500 Stock Index, a market-
Germany 12.3% value-weighted index made up of
Austria 10.0% 500 of the largest stocks in the
Japan 8.8% U.S. based upon their stock market
value. Investors cannot invest
directly in indices.
Source: Morgan Stanley Capital
International (MSCI) and Lipper
Analytical Services, Inc. Used
with permission. Morgan Stanley
Country indices are unmanaged
indices which include those stocks
making up the largest two-thirds
of each country's total stock
market capitalization. Returns
reflect the reinvestment of all
distributions. This chart is for
illustrative purposes only and is
not indicative of the past,
present or future performance of
any specific investment. Investors
cannot invest directly in stock
indices.
---------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY
REGION
World Total: $12.7 Trillion
[CHART]
U.S. 34.6%
Pacific Basin 20.1%
Europe 42.6%
Canada 2.7%
Source: Morgan Stanley Capital
International, September 30, 1997.
Used with permission. This chart
represents the capitalization of major
world stock markets as measured by the
Morgan Stanley Capital International
(MSCI) World Index. The total market
capitalization is based on the value
of approximately 1577 companies in 22
countries (representing approximately
60% of the aggregate market value of
the stock exchanges). This chart is
for illustrative purposes only and
does not represent the allocation of
any Prudential Mutual Fund.
II-3
<PAGE>
The chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1996)
[CHART]
- -------
Source: Stocks, Bonds, Bills, and Inflation 1997 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 1926-1996.
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.
II-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, 1976 through December 31, 1996. The horizontal "Best Returns
Zone" band shows that a hypothetical blended portfolio constructed of one-
third U.S. stock (S&P 500), one-third foreign stock (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)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE RANGE OF ANNUAL TOTAL RETURNES FOR MAJOR STOCK AND BOND
Indices Over the Past 20 Years
(12/31/76-12/31/96)*
<S> <C> <C>
S&P 500 37.6% -7.2%
EAPE 69.9% -21.2%
Lehman Aggregate 32.6% -2.9%
"Best Returns Zone"
With a Diversified Blend
1/3 S&P 500 Index
1/3 EAPE Index
1/3 Lehman Aggregate Index
</TABLE>
- -------
* 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.
II-5
<PAGE>
APPENDIX III--INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating
to the Prudential Mutual Funds. See "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, 1996. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs more than
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 nearly 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 22 million
life insurance policies in force today with a face value of $1 trillion.
Prudential has the largest capital base ($12.1 billion) of any life insurance
company in the United States. The Prudential provides auto insurance for more
than 1.6 million cars and insures more than 1.2 million homes.
Money Management. The Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k)
plans. As of December 31, 1996, Prudential had more than $322 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. In Pensions & Investments,
May 12, 1996, Prudential was ranked third in terms of total assets under
management.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 37,000 brokers
and agents across the United States./2/
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.6
million Americans receive healthcare from a Prudential managed care
membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $1 billion in assets and serves nearly 1.5 million
customers across 50 states.
- -------
/1/Prudential Investments 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., and Jennison Associates
LLC as the subadviser to Prudential Jennison Series Fund, Inc. There are
multiple subadvisers for The Target Portfolio Trust.
/2/As of December 31, 1996.
III-1
<PAGE>
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of October 31, 1997, Prudential Investments Fund Management is the
seventeenth 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 LLC, a premier
institutional equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor 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, 1997.
Statement of Assets and Liabilities as of September 30, 1997.
Statement of Operations for the period ended September 30, 1997.
Statement of Changes in Net Assets for the periods ended September
30, 1997 and September 30, 1996.
Notes to Financial Statements.
Financial Highlights.
Report of Independent Accountants.
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.
(d) Articles Supplementary, incorporated by reference to Exhibit 1(d)
to the Registration Statement on Form N-14 (File No. 333-38087) filed
via EDGAR on October 17, 1997.
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.
(c) Form of Management Agreement between the Registrant and Prudential
Investments Fund Management LLC with respect to Prudential Jennison
Active Balanced Fund. *
(d) Form of Subadvisory Agreement between the Registrant and Jennison
Associates Capital Corp. with respect to Prudential Jennison Active
Balanced Fund.*
(e) Form of Subadvisory Agreement between the Registrant and The
Prudential Investment Corporation with respect to Prudential Jennison
Active Balanced Fund.*
6. (a) Distribution Agreement between the Registrant and Prudential
Securities Incorporated, incorporated by reference to Exhibit 6(a) to
the Registration Statement on Form N-14 (File No. 333-38087) filed via
EDGAR on October 17, 1997.
(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. (a) Consent of Independent Accountants.*
(b) Consent of Independent Auditors.*
12. Not Applicable.
13. Purchase Agreement, incorporated by reference to Exhibit 13 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.
14. Not Applicable.
15. (a) Distribution and Service Plan for Class A Shares, incorporated by
reference to Exhibit 15(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.
C-2
<PAGE>
(b) Distribution and Service Plan for Class B Shares, incorporated by
reference to Exhibit 15(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.
(c) Distribution and Service Plan for Class C Shares, incorporated by
reference to Exhibit 15(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.
16. (a) Schedule of Computation of Performance Quotations for Prudential
Jennison Growth Fund, incorporated by reference to Exhibit 16 to Post-
Effective Amendment 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, incorporated by reference to Exhibit
16(b) to Post-Effective Amendment No. 5 to the Registration Statement
on Form N-1A (File No. 33-61997) filed via EDGAR on April 30, 1997.
17. Financial Data Schedules.*
18. Rule 18f-3 Plan, incorporated by reference to Exhibit 18 to Post-
Effective Amendment No. 2 to the Registration Statement on Form N-1A
(File No. 33-61997) filed via EDGAR on April 15, 1996.
- --------
* Filed herewith
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of January 9, 1998, there were 19,522, 58,515, 3,131, and 5,209 record
holders of Class A, Class B, Class C and Class Z common stock, $.001 par value
per share, of Prudential Jennison Growth Fund, respectively. As of January 9,
1998, there were 3,403, 9,439, 699 and 116 record holders of Class A, Class B,
Class C and Class Z common stock, $.001 par value per share, of Prudential
Jennison Growth & Income Fund, respectively. As of such date, there were no
shares outstanding of Prudential Jennison Active Balanced Fund.
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 the 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.
C-3
<PAGE>
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 each Management Agreement (Exhibits 5(a) and (c) to the
Registration Statement) and Section 4 of each Subadvisory Agreement (Exhibits
5(b), (d) and (e) to the Registration Statement) limit the liability of
Prudential Investments Fund Management LLC (PIFM) and Jennison Associates LLC
(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.
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 Investments Fund Management LLC
See "How the Funds are Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager and Subadvisers" in the
Statement of Additional Information constituting Part B of this Registration
Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, New Jersey 07102.
C-4
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
---------------- ------------------ ---------------------
<C> <C> <S>
Brian Storms Officer-In-Charge, President, Prudential Mutual Funds &
President, Chief Annuities (PMF&A); Officer-In-Charge,
Executive Officer President, Chief Executive Officer and
and Chief Operating Chief Operating Officer, PIFM
Officer
Robert F. Gunia Executive Vice Vice President, Prudential
President and Investments; Executive Vice President
Treasurer and Treasurer, PIFM; Senior Vice
President of Prudential Securities
Incorporated (Prudential Securities)
Neil A. McGuinness Executive Vice Executive Vice President and Director
President of Marketing, PMF&A; Executive Vice
President, PIFM
Robert J. Sullivan Executive Vice Executive Vice President, PMF&A;
President Executive Vice President, PIFM
</TABLE>
(b) Jennison Associates LLC.
See "How the Funds are Managed--Subadvisers" in the Prospectus constituting
Part A of this Registration Statement and "Manager and Subadvisers" 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
Joseph P. Ferrugio Senior Vice Senior Vice President and
President and Director, Jennison
Director
Bradley L. Goldberg Executive Vice Executive Vice President and
President and Director, Jennison
Director
Jonathan M. Greene Director President--Investment
The Prudential Insurance Management, Prudential
Company of America Investments, a business group
751 Broad Street of The Prudential Insurance
Newark, NJ 07102 Company of America; Senior
Vice President and Director,
The Prudential Investment
Corporation
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH JENNISON PRINCIPAL OCCUPATIONS
---------------- ---------------------- ---------------------
<C> <C> <S>
John H. Hobbs Chairman and Chairman and Chief Executive
Chief Executive Officer and Director, Jennison
Officer and
Director
James N. Kannry Senior Vice Senior Vice President, Treasurer
President, and Director, Jennison
Treasurer and
Director
Karen E. Kohler Senior Vice Senior Vice President, Chief
President, Chief Compliance Officer, Secretary and
Compliance Director, Jennison
Officer,
Secretary and
Director
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
Catherine D. Wood Senior Vice Senior Vice President and
President and Director, Jennison
Director
</TABLE>
(c) The Prudential Investment Corporation (PIC)
See "How the Funds are Managed--Subadvisers" in the Prospectus constituting
Part A of this Registration Statement and "Manager and Subadvisers" in the
Statement of Additional Information constituting Part B of this Registration
Statement.
The business and other connections of PIC's directors and executive officers
are as set forth below. The address of each person is Prudential Plaza,
Newark, New Jersey 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<C> <C> <S>
E. Michael Caulfield Chief Executive Officer,
Chairman of the Board, Prudential Investments of
President and Chief The Prudential Insurance
Executive Officer and Company of America
Director (Prudential)
Jonathan M. Greene Senior Vice President and President--Investment
Director Management, Prudential
Investments of Prudential;
Senior Vice President and
Director, PIC
John R. Strangfeld, Jr. Vice President and Director President of Private Asset
Management Group of
Prudential; Senior Vice
President, Prudential;
Vice President and
Director, PIC
</TABLE>
C-6
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Prudential Securities Incorporated
Prudential Securities Incorporated is distributor for The BlackRock
Government Income Trust, Cash Accumulation Trust, Command Government Fund,
Command Money Fund, Command Tax-Free Fund, The Global Total Return Fund, Inc.,
Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund), Prudential Balanced Fund, Prudential California Municipal
Fund, Prudential Distressed Securities Fund, Inc., Prudential Diversified Bond
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 International Bond 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-Cap Quantum Fund, Inc., Prudential
Small Company Value Fund, Inc., Prudential Special Money Market Fund, Inc.,
Prudential Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund,
Inc., Prudential 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
(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>
Alan D. Hogan........... Executive Vice President and Director None
William Horan........... Chief Financial Officer 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 and Director None
Vincent T. Pica, II..... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Hardwick Simmons........ Chief Executive Officer, President and Director None
Lee B. Spencer, Jr...... Executive Vice President, Secretary, General Counsel and Director None
Brian Storms............ Director None
751 Broad Street
Newark, NJ 07102
</TABLE>
- -------
/1/The address of each person named is One Seaport Plaza, New York, NY
10292 unless otherwise indicated.
C-7
<PAGE>
(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 LLC, 466 Lexington Avenue, New York,
N.Y. 10017, the Registrant, Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 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 Gateway Center Three 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," "How the Funds are Managed--Subadvisers" and "How the Funds are
Managed--Distributor" in the Prospectus and the captions "Manager and
Subadvisers" 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 undertakings:
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.
To file a Post-Effective Amendment using financial statements which need not
be certified, within four to six months from the effective date of Post-
Effective Amendment No.6 to Registrant's Registration Statement.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newark, and State of New Jersey, on the 21st day of
January, 1998.
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/ Grace C. Torres Treasurer and
- ----------------------------------- Principal January 21,
GRACE C. TORRES Financial and 1998
Accounting
Officer
/s/ Edward D. Beach Director
- ----------------------------------- January 21,
EDWARD D. BEACH 1998
/s/ Delayne Dedrick Gold Director
- ----------------------------------- January 21,
DELAYNE DEDRICK GOLD 1998
/s/ Robert F. Gunia Director
- ----------------------------------- January 21,
ROBERT F. GUNIA 1998
/s/ Douglas McCorkindale Director
- ----------------------------------- January 21,
DOUGLAS MCCORKINDALE 1998
/s/ Mendel A. Melzer Director
- ----------------------------------- January 21,
MENDEL A. MELZER 1998
/s/ Thomas T. Mooney Director
- ----------------------------------- January 21,
THOMAS T. MOONEY 1998
C-9
<PAGE>
SIGNATURES TITLE DATE
/s/ Stephen P. Munn Director
- ------------------------------------ January 21,
STEPHEN P. MUNN 1998
/s/ Richard A. Redeker President and
- ------------------------------------ Director January 21,
RICHARD A. REDEKER 1998
/s/ Robin B. Smith Director
- ------------------------------------ January 21,
ROBIN B. SMITH 1998
/s/ Louis A. Weil, III Director
- ------------------------------------ January 21,
LOUIS A. WEIL, III 1998
Director
- ------------------------------------
CLAY T. WHITEHEAD
C-10
<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 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.
(d) Articles Supplementary, incorporated by reference to Exhibit 1(d) to
the Registration Statement on Form N-14 (File No. 333-38087) filed via
EDGAR on October 17, 1997.
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.
(c) Form of Management Agreement between the Registrant and Prudential
Investments Fund Management LLC with respect to Prudential Jennison Active
Balanced Fund.*
(d) Form of Subadvisory Agreement between the Registrant and Jennison
Associates Capital Corp. with respect to Prudential Jennison Active
Balanced Fund.*
(e) Form of Subadvisory Agreement between the Registrant and The Prudential
Investment Corporation with respect to Prudential Jennison Active Balanced
Fund.*
6. (a) Distribution Agreement between the Registrant and Prudential
Securities Incorporated, incorporated by reference to Exhibit 6(a) to the
Registration Statement on Form N-14 (File No. 333-38087) filed via EDGAR
on October 17, 1997.
(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.
<PAGE>
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 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. (a) Consent of Independent Accountants.*
(b) Consent of Independent Auditors.*
12. Not Applicable.
13. Purchase Agreement, incorporated by reference to Exhibit 13 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.
14. Not Applicable.
15. (a) Distribution and Service Plan for Class A Shares, incorporated by
reference to Exhibit 15(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) Distribution and Service Plan for Class B Shares, incorporated by
reference to Exhibit 15(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.
(c) Distribution and Service Plan for Class C Shares, incorporated by
reference to Exhibit 15(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.
16. (a) Schedule of Computation of Performance Quotations for Prudential
Jennison Growth Fund, incorporated by reference to Exhibit 16 to Post-
Effective Amendment 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, incorporated by reference to Exhibit 16(b)
to Post-Effective Amendment No. 5 to the Registration Statement on Form N-
1A (File No. 33-61997) filed via EDGAR on April 30, 1997.
17. Financial Data Schedules.*
18. Rule 18f-3 Plan, incorporated by reference to Exhibit 18 to 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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> JENNISON GROWTH FUND (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 863,162,444
<INVESTMENTS-AT-VALUE> 1,196,939,929
<RECEIVABLES> 10,406,735
<ASSETS-OTHER> 1,267,935
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 6,036,257
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,148,482
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 784,377,372
<SHARES-COMMON-STOCK> 78,189,708
<SHARES-COMMON-PRIOR> 63,469,301
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81,276,520
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 333,775,968
<NET-ASSETS> (141,659,009)
<DIVIDEND-INCOME> 6,429,231
<INTEREST-INCOME> 967,368
<OTHER-INCOME> 0
<EXPENSES-NET> 10,847,913
<NET-INVESTMENT-INCOME> (3,451,314)
<REALIZED-GAINS-CURRENT> 90,453,012
<APPREC-INCREASE-CURRENT> 224,732,097
<NET-CHANGE-FROM-OPS> 311,733,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 859,180,110
<NUMBER-OF-SHARES-REDEEMED> (666,161,401)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 504,752,504
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9,176,492)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,276,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,847,913
<AVERAGE-NET-ASSETS> 105,982,000
<PER-SHARE-NAV-BEGIN> 10.97
<PER-SHARE-NII> 4.42
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.39
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> JENNISON GROWTH FUND (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 863,162,444
<INVESTMENTS-AT-VALUE> 1,196,939,929
<RECEIVABLES> 10,406,735
<ASSETS-OTHER> 1,267,935
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 6,036,257
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,148,482
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 784,377,372
<SHARES-COMMON-STOCK> 78,189,708
<SHARES-COMMON-PRIOR> 63,469,301
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81,276,520
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 333,775,968
<NET-ASSETS> (141,659,009)
<DIVIDEND-INCOME> 6,429,231
<INTEREST-INCOME> 967,368
<OTHER-INCOME> 0
<EXPENSES-NET> 10,847,913
<NET-INVESTMENT-INCOME> (3,451,314)
<REALIZED-GAINS-CURRENT> 90,453,012
<APPREC-INCREASE-CURRENT> 224,732,097
<NET-CHANGE-FROM-OPS> 311,733,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 859,180,110
<NUMBER-OF-SHARES-REDEEMED> (666,161,401)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 504,752,504
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9,176,492)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,276,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,847,913
<AVERAGE-NET-ASSETS> 419,405,000
<PER-SHARE-NAV-BEGIN> 10.89
<PER-SHARE-NII> 4.29
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.18
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> JENNISON GROWTH FUND (CLASS C)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 863,162,444
<INVESTMENTS-AT-VALUE> 1,196,939,929
<RECEIVABLES> 10,406,735
<ASSETS-OTHER> 1,267,935
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 6,036,257
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,148,482
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 784,377,372
<SHARES-COMMON-STOCK> 78,189,708
<SHARES-COMMON-PRIOR> 63,469,301
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81,276,520
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 333,775,968
<NET-ASSETS> (141,659,009)
<DIVIDEND-INCOME> 6,429,231
<INTEREST-INCOME> 967,368
<OTHER-INCOME> 0
<EXPENSES-NET> 10,847,913
<NET-INVESTMENT-INCOME> (3,451,314)
<REALIZED-GAINS-CURRENT> 90,453,012
<APPREC-INCREASE-CURRENT> 224,732,097
<NET-CHANGE-FROM-OPS> 311,733,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 859,180,110
<NUMBER-OF-SHARES-REDEEMED> (666,161,401)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 504,752,504
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9,176,492)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,276,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,847,913
<AVERAGE-NET-ASSETS> 25,134,000
<PER-SHARE-NAV-BEGIN> 10.89
<PER-SHARE-NII> 4.29
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.18
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> JENNISON GROWTH FUND (CLASS Z)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 863,162,444
<INVESTMENTS-AT-VALUE> 1,196,939,929
<RECEIVABLES> 10,406,735
<ASSETS-OTHER> 1,267,935
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 6,036,257
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,148,482
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 784,377,372
<SHARES-COMMON-STOCK> 78,189,708
<SHARES-COMMON-PRIOR> 63,469,301
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81,276,520
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 333,775,968
<NET-ASSETS> (141,659,009)
<DIVIDEND-INCOME> 6,429,231
<INTEREST-INCOME> 967,368
<OTHER-INCOME> 0
<EXPENSES-NET> 10,847,913
<NET-INVESTMENT-INCOME> (3,451,314)
<REALIZED-GAINS-CURRENT> 90,453,012
<APPREC-INCREASE-CURRENT> 224,732,097
<NET-CHANGE-FROM-OPS> 311,733,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 859,180,110
<NUMBER-OF-SHARES-REDEEMED> (666,161,401)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 504,752,504
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9,176,492)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,276,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,847,913
<AVERAGE-NET-ASSETS> 455,684,000
<PER-SHARE-NAV-BEGIN> 10.98
<PER-SHARE-NII> 4.47
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.45
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> JENNISON GROWTH & INCOME FUND (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 111,406,543
<INVESTMENTS-AT-VALUE> 132,484,866
<RECEIVABLES> 6,193,722
<ASSETS-OTHER> 83,564
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 3,579,120
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,059,368
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,516,635
<SHARES-COMMON-STOCK> 10,112,923
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 39,524
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,530,772
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,036,733
<NET-ASSETS> (10,112,923)
<DIVIDEND-INCOME> 1,216,996
<INTEREST-INCOME> 901,679
<OTHER-INCOME> 0
<EXPENSES-NET> 1,807,624
<NET-INVESTMENT-INCOME> 311,051
<REALIZED-GAINS-CURRENT> 4,530,772
<APPREC-INCREASE-CURRENT> 21,036,733
<NET-CHANGE-FROM-OPS> 25,878,556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (271,527)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 125,652,781
<NUMBER-OF-SHARES-REDEEMED> (21,384,670)
<SHARES-REINVESTED> 248,524
<NET-CHANGE-IN-ASSETS> 130,123,664
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 513,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,807,624
<AVERAGE-NET-ASSETS> 27,008,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 2.87
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.89
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> JENNISON GROWTH & INCOME FUND (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 111,406,543
<INVESTMENTS-AT-VALUE> 132,484,866
<RECEIVABLES> 6,193,722
<ASSETS-OTHER> 83,564
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 3,579,120
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,059,368
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,516,635
<SHARES-COMMON-STOCK> 10,112,923
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 39,524
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,530,772
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,036,733
<NET-ASSETS> (10,112,923)
<DIVIDEND-INCOME> 1,216,996
<INTEREST-INCOME> 901,679
<OTHER-INCOME> 0
<EXPENSES-NET> 1,807,624
<NET-INVESTMENT-INCOME> 311,051
<REALIZED-GAINS-CURRENT> 4,530,772
<APPREC-INCREASE-CURRENT> 21,036,733
<NET-CHANGE-FROM-OPS> 25,878,556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (271,527)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 125,652,781
<NUMBER-OF-SHARES-REDEEMED> (21,384,670)
<SHARES-REINVESTED> 248,524
<NET-CHANGE-IN-ASSETS> 130,123,664
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 513,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,807,624
<AVERAGE-NET-ASSETS> 62,575,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 2.86
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.86
<EXPENSE-RATIO> 2.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> JENNISON GROWTH & INCOME FUND (CLASS C)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 111,406,543
<INVESTMENTS-AT-VALUE> 132,484,866
<RECEIVABLES> 6,193,722
<ASSETS-OTHER> 83,564
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 3,579,120
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,059,368
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,516,635
<SHARES-COMMON-STOCK> 10,112,923
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 39,524
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,530,772
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,036,733
<NET-ASSETS> (10,112,923)
<DIVIDEND-INCOME> 1,216,996
<INTEREST-INCOME> 901,679
<OTHER-INCOME> 0
<EXPENSES-NET> 1,807,624
<NET-INVESTMENT-INCOME> 311,051
<REALIZED-GAINS-CURRENT> 4,530,772
<APPREC-INCREASE-CURRENT> 21,036,733
<NET-CHANGE-FROM-OPS> 25,878,556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (271,527)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 125,652,781
<NUMBER-OF-SHARES-REDEEMED> (21,384,670)
<SHARES-REINVESTED> 248,524
<NET-CHANGE-IN-ASSETS> 130,123,664
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 513,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,807,624
<AVERAGE-NET-ASSETS> 5,631,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 2.86
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.86
<EXPENSE-RATIO> 2.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> JENNISON GROWTH & INCOME FUND (CLASS Z)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 111,406,543
<INVESTMENTS-AT-VALUE> 132,484,866
<RECEIVABLES> 6,193,722
<ASSETS-OTHER> 83,564
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 3,579,120
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,059,368
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,516,635
<SHARES-COMMON-STOCK> 10,112,923
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 39,524
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,530,772
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,036,733
<NET-ASSETS> (10,112,923)
<DIVIDEND-INCOME> 1,216,996
<INTEREST-INCOME> 901,679
<OTHER-INCOME> 0
<EXPENSES-NET> 1,807,624
<NET-INVESTMENT-INCOME> 311,051
<REALIZED-GAINS-CURRENT> 4,530,772
<APPREC-INCREASE-CURRENT> 21,036,733
<NET-CHANGE-FROM-OPS> 25,878,556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (271,527)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 125,652,781
<NUMBER-OF-SHARES-REDEEMED> (21,384,670)
<SHARES-REINVESTED> 248,524
<NET-CHANGE-IN-ASSETS> 130,123,664
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 513,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,807,624
<AVERAGE-NET-ASSETS> 227,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 2.92
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.93
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> THE PRUDENTIAL DRYDEN FUND - ACTIVE BALANCED (A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 137,103,422
<INVESTMENTS-AT-VALUE> 161,891,870
<RECEIVABLES> 1,571,349
<ASSETS-OTHER> 212,703
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163,675,922
<PAYABLE-FOR-SECURITIES> 2,261,304
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,534,265
<TOTAL-LIABILITIES> 3,795,569
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 120,819,797
<SHARES-COMMON-STOCK> 11,064,552
<SHARES-COMMON-PRIOR> 11,806,338
<ACCUMULATED-NII-CURRENT> 3,191,713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,080,395
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,788,448
<NET-ASSETS> 159,880,353
<DIVIDEND-INCOME> 1,282,755
<INTEREST-INCOME> 4,870,516
<OTHER-INCOME> 0
<EXPENSES-NET> 1,636,437
<NET-INVESTMENT-INCOME> 4,516,834
<REALIZED-GAINS-CURRENT> 11,725,117
<APPREC-INCREASE-CURRENT> 13,786,966
<NET-CHANGE-FROM-OPS> 30,028,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,627,814)
<DISTRIBUTIONS-OF-GAINS> (9,255,627)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 55,048,728
<NUMBER-OF-SHARES-REDEEMED> (78,785,554)
<SHARES-REINVESTED> 13,883,406
<NET-CHANGE-IN-ASSETS> 6,292,056
<ACCUMULATED-NII-PRIOR> 3,302,693
<ACCUMULATED-GAINS-PRIOR> 8,610,905
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,009,861
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,636,437
<AVERAGE-NET-ASSETS> 100,000
<PER-SHARE-NAV-BEGIN> 13.40
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 1.97
<PER-SHARE-DIVIDEND> (0.39)
<PER-SHARE-DISTRIBUTIONS> (0.78)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.41
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> THE PRUDENTIAL DRYDEN FUND - ACTIVE BALANCED (B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 137,103,422
<INVESTMENTS-AT-VALUE> 161,891,870
<RECEIVABLES> 1,571,349
<ASSETS-OTHER> 212,703
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163,675,922
<PAYABLE-FOR-SECURITIES> 2,261,304
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,534,265
<TOTAL-LIABILITIES> 3,795,569
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 120,819,797
<SHARES-COMMON-STOCK> 11,064,552
<SHARES-COMMON-PRIOR> 11,806,338
<ACCUMULATED-NII-CURRENT> 3,191,713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,080,395
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,788,448
<NET-ASSETS> 159,880,353
<DIVIDEND-INCOME> 1,282,755
<INTEREST-INCOME> 4,870,516
<OTHER-INCOME> 0
<EXPENSES-NET> 1,636,437
<NET-INVESTMENT-INCOME> 4,516,834
<REALIZED-GAINS-CURRENT> 11,725,117
<APPREC-INCREASE-CURRENT> 13,786,966
<NET-CHANGE-FROM-OPS> 30,028,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,627,814)
<DISTRIBUTIONS-OF-GAINS> (9,255,627)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 55,048,728
<NUMBER-OF-SHARES-REDEEMED> (78,785,554)
<SHARES-REINVESTED> 13,883,406
<NET-CHANGE-IN-ASSETS> 6,292,056
<ACCUMULATED-NII-PRIOR> 3,302,693
<ACCUMULATED-GAINS-PRIOR> 8,610,905
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,009,861
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,636,437
<AVERAGE-NET-ASSETS> 71,000
<PER-SHARE-NAV-BEGIN> 13.40
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 1.92
<PER-SHARE-DIVIDEND> (0.39)
<PER-SHARE-DISTRIBUTIONS> (0.78)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.34
<EXPENSE-RATIO> 2.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> THE PRUDENTIAL DRYDEN FUND - ACTIVE BALANCED (C)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 137,103,422
<INVESTMENTS-AT-VALUE> 161,891,870
<RECEIVABLES> 1,571,349
<ASSETS-OTHER> 212,703
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163,675,922
<PAYABLE-FOR-SECURITIES> 2,261,304
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,534,265
<TOTAL-LIABILITIES> 3,795,569
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 120,819,797
<SHARES-COMMON-STOCK> 11,064,552
<SHARES-COMMON-PRIOR> 11,806,338
<ACCUMULATED-NII-CURRENT> 3,191,713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,080,395
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,788,448
<NET-ASSETS> 159,880,353
<DIVIDEND-INCOME> 1,282,755
<INTEREST-INCOME> 4,870,516
<OTHER-INCOME> 0
<EXPENSES-NET> 1,636,437
<NET-INVESTMENT-INCOME> 4,516,834
<REALIZED-GAINS-CURRENT> 11,725,117
<APPREC-INCREASE-CURRENT> 13,786,966
<NET-CHANGE-FROM-OPS> 30,028,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,627,814)
<DISTRIBUTIONS-OF-GAINS> (9,255,627)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 55,048,728
<NUMBER-OF-SHARES-REDEEMED> (78,785,554)
<SHARES-REINVESTED> 13,883,406
<NET-CHANGE-IN-ASSETS> 6,292,056
<ACCUMULATED-NII-PRIOR> 3,302,693
<ACCUMULATED-GAINS-PRIOR> 8,610,905
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,009,861
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,636,437
<AVERAGE-NET-ASSETS> 1,000
<PER-SHARE-NAV-BEGIN> 13.40
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 1.98
<PER-SHARE-DIVIDEND> (0.39)
<PER-SHARE-DISTRIBUTIONS> (0.78)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.34
<EXPENSE-RATIO> 2.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> THE PRUDENTIAL DRYDEN FUND - ACTIVE BALANCED (Z)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 137,103,422
<INVESTMENTS-AT-VALUE> 161,891,870
<RECEIVABLES> 1,571,349
<ASSETS-OTHER> 212,703
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163,675,922
<PAYABLE-FOR-SECURITIES> 2,261,304
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,534,265
<TOTAL-LIABILITIES> 3,795,569
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 120,819,797
<SHARES-COMMON-STOCK> 11,064,552
<SHARES-COMMON-PRIOR> 11,806,338
<ACCUMULATED-NII-CURRENT> 3,191,713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,080,395
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,788,448
<NET-ASSETS> 159,880,353
<DIVIDEND-INCOME> 1,282,755
<INTEREST-INCOME> 4,870,516
<OTHER-INCOME> 0
<EXPENSES-NET> 1,636,437
<NET-INVESTMENT-INCOME> 4,516,834
<REALIZED-GAINS-CURRENT> 11,725,117
<APPREC-INCREASE-CURRENT> 13,786,966
<NET-CHANGE-FROM-OPS> 30,028,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,627,814)
<DISTRIBUTIONS-OF-GAINS> (9,255,627)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 55,048,728
<NUMBER-OF-SHARES-REDEEMED> (78,785,554)
<SHARES-REINVESTED> 13,883,406
<NET-CHANGE-IN-ASSETS> 6,292,056
<ACCUMULATED-NII-PRIOR> 3,302,693
<ACCUMULATED-GAINS-PRIOR> 8,610,905
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,009,861
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,636,437
<AVERAGE-NET-ASSETS> 154,199,000
<PER-SHARE-NAV-BEGIN> 13
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 2
<PER-SHARE-DIVIDEND> (0)
<PER-SHARE-DISTRIBUTIONS> (1)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.B5(c)
PRUDENTIAL JENNISON SERIES FUND, INC.
(Prudential Jennison Active Balanced Fund)
Management Agreement
--------------------
Agreement made this 23rd day of January, 1998 between Prudential
Jennison Series Fund, Inc., a Maryland corporation (the Fund), on behalf of its
series, Prudential Jennison Active Balanced Fund (the Series), and Prudential
Investments Fund Management LLC, a New York limited liability corporation (the
Manager).
W I T N E S S E T H
WHEREAS, the Fund is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
1940 Act); and
WHEREAS, the Fund desires to retain the Manager to render or contract
to obtain as hereinafter provided investment advisory services to the Series and
the Fund also desires to avail itself of the facilities available to the Manager
with respect to the administration of its day to day corporate affairs, and the
Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the
Series and administrator of its corporate affairs for the
<PAGE>
period and on the terms set forth in this Agreement. The Manager accepts such
appointment and agrees to render the services herein described, for the
compensation herein provided. The Manager is authorized to enter into an
agreement with Jennison Associates LLC (Jennison) pursuant to which
Jennison shall furnish to the Series the investment advisory services in
connection with the management of the Series (the Subadvisory Agreement). The
Manager will continue to have responsibility for all investment advisory
services furnished pursuant to the Subadvisory Agreement.
2. Subject to the supervision of the Board of Directors of the Fund,
the Manager shall administer the Fund's corporate affairs and, in connection
therewith, shall furnish the Fund with office facilities and with clerical,
bookkeeping and recordkeeping services at such office facilities and, subject to
Section 1 hereof and the Subadvisory Agreement, the Manager shall manage the
investment operations of the Series and the composition of the Series'
portfolio, including the purchase, retention and disposition thereof, in
accordance with the Series'investment objectives, policies and restrictions as
stated in the Prospectus (hereinafter defined) and subject to the following
understandings:
(a) The Manager shall provide supervision of the Series' investments and
determine from time to time what investments
2
<PAGE>
or securities will be purchased, retained, sold or loaned by the Series, and
what portion of the assets will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Articles of Incorporation, By-
Laws and Prospectus (hereinafter defined) of the Series and with the
instructions and directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts to be
purchased or sold by the Series and will place orders pursuant to its
determinations with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential Securities
Incorporated) in conformity with the policy with respect to brokerage as set
forth in the Fund's Registration Statement and Prospectus (hereinafter defined)
or as the Board of Directors may direct from time to time. In providing the
Series with investment supervision, it is recognized that the Manager will give
primary consideration to securing the most favorable price and efficient
execution. Consistent with this policy, the
3
<PAGE>
Manager may consider the financial responsibility, research and investment
information and other services provided by brokers, dealers or futures
commission merchants who may effect or be a party to any such transaction or
other transactions to which other clients of the Manager may be a party. It is
understood that Prudential Securities Incorporated may be used as principal
broker for securities transactions but that no formula has been adopted for
allocation of the Series' investment transaction business. It is also
understood that it is desirable for the Fund that the Manager have access to
supplemental investment and market research and security and economic analysis
provided by brokers or futures commission merchants and that such brokers may
execute brokerage transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers or futures commission merchants on the
basis of seeking the most favorable price and efficient execution. Therefore,
the Manager is authorized to pay higher brokerage commissions for the purchase
and sale of securities and futures contracts for the Fund to brokers or futures
commission merchants who provide such research and analysis, subject to review
by the Fund's Board of Directors from time to time with respect to the extent
and continuation
4
<PAGE>
of this practice. It is understood that the services provided by such broker or
futures commission merchant may be useful to the Manager in connection with its
services to other clients.
On occasions when the Manager deems the purchase or sale of a security or a
futures contract to be in the best interest of the Series as well as other
clients of the Manager or the Subadviser, the Manager, to the extent permitted
by applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities or futures contracts to be so sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities or futures
contracts so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to the Fund and to
such other clients.
(d) The Manager shall maintain all books and records with respect to the
Series' portfolio transactions and shall render to the Fund's Board of Directors
such periodic and special reports as the Board may reasonably request.
5
<PAGE>
(e) The Manager shall be responsible for the financial and accounting
records to be maintained by the Series (including those being maintained by the
Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each business day
with information relating to all transactions concerning the Series' assets.
(g) The investment management services of the Manager to the Series under
this Agreement are not to be deemed exclusive, and the Manager shall be free to
render similar services to others.
3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, as filed with the Secretary of
State of Maryland (such Articles of Incorporation, as in effect on the date
hereof and as amended from time to time, are herein called the "Articles of
Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on the date hereof and
as amended from time to time, are herein called the "By-Laws");
6
<PAGE>
(c) Certified resolutions of the Board of Directors of the Fund authorizing
the appointment of the Manager and approving the form of this agreement;
(d) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-1A (the Registration Statement), as filed with the
Securities and Exchange Commission (the Commission) relating to the Series and
shares of the Series' Common Stock and all amendments thereto;
(e) Notification of Registration of the Fund under the 1940 Act on Form N-
8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Series (such Prospectus and Statement of Additional
Information, as currently in effect and as amended or supplemented from time to
time, being herein called the "Prospectus").
4. The Manager shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of the Fund
to serve in the capacities in which they are elected. All services to be
furnished by the Manager under this Agreement may be furnished through the
medium of any such directors, officers or employees of the Manager.
7
<PAGE>
5. The Manager shall keep the Fund's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any such records upon the Fund's request,
provided however that the Manager may retain a copy of such records. The
Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be maintained by the
Manager pursuant to Paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay the
following expenses:
(i) the salaries and expenses of all personnel of the Fund and the Manager
except the fees and expenses of directors who are not affiliated persons of the
Manager or the Fund's investment adviser,
(ii) all expenses incurred by the Manager or by the Fund in connection with
managing the ordinary course of the Fund's business other than those assumed by
the Fund herein, and
(iii) the fees and other expenses payable to Jennison and The Prudential
Investment Corporation pursuant to separate Subadvisory Agreements.
The Fund assumes and will pay the expenses described below:
8
<PAGE>
(a) the fees and expenses incurred by the Fund in connection with the
management of the investment and reinvestment of the Fund's assets,
(b) the fees and expenses of directors who are not affiliated persons of
the Manager or the Fund's investment adviser,
(c) the fees and expenses of the Custodian that relate to (i) the custodial
function and the recordkeeping connected therewith, (ii) preparing and
maintaining the general accounting records of the Fund and the providing of any
such records to the Manager useful to the Manager in connection with the
Manager's responsibility for the accounting records of the Fund pursuant to
Section 31 of the 1940 Act and the rules promulgated thereunder, (iii) the
pricing of the shares of the Fund, including the cost of any pricing service or
services which may be retained pursuant to the authorization of the Board of
Directors of the Fund, and (iv) for both mail and wire orders, the cashiering
function in connection with the issuance and redemption of the Fund's
securities,
(d) the fees and expenses of the Fund's Transfer and Dividend Disbursing
Agent, which may be the Custodian, that relate to the maintenance of each
shareholder account,
9
<PAGE>
(e) the charges and expenses of legal counsel and independent accountants
for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable to the
Fund in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by the Fund to federal, state or
other governmental agencies,
(h) the fees of any trade associations of which the Fund may be a member,
(i) the cost of stock certificates representing, and/or non-negotiable
share deposit receipts evidencing, shares of the Fund,
(j) the cost of fidelity, directors and officers and errors and omissions
insurance,
(k) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the Securities and Exchange
Commission, registering the Fund as a broker or dealer and paying notice filing
fees under state securities laws, including the preparation and printing of the
Fund's registration statements, prospectuses and statements of additional
information for filing under federal and state securities laws for such
purposes,
10
<PAGE>
(l) allocable communications expenses with respect to investor services and
all expenses of shareholders' and directors' meetings and of preparing, printing
and mailing reports to shareholders in the amount necessary for distribution to
the shareholders,
(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
(n) any expenses assumed by the Fund pursuant to a Plan of Distribution
adopted in conformity with Rule 12b-1 under the 1940 Act.
11
<PAGE>
7. For the services provided and the expenses assumed pursuant to this
Agreement, the Series will pay to the Manager as full compensation therefor a
fee at an annual rate of .65 of 1% of the average daily net assets of the
Series. This fee will be computed daily and will be paid to the Manager
monthly. Any reduction in the fee payable and any payment by the Manager to the
Fund pursuant to paragraph 7 shall be made monthly. Any such reductions or
payments are subject to readjustment during the year.
8. The Manager shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
9. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such
12
<PAGE>
continuance is specifically approved at least annually in conformity with the
requirements of the 1940 Act; provided, however, that this Agreement may be
terminated by the Fund at any time, without the payment of any penalty, by the
Board of Directors of the Fund or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Series, or by the Manager
at any time, without the payment of any penalty, on not more than 60 days' nor
less than 30 days' written notice to the other party. This Agreement shall
terminate automatically in the event of its assignment (as defined in the 1940
Act).
10. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a director, officer
or employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
11. Except as otherwise provided herein or authorized by the Board of
Directors of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent
13
<PAGE>
contractor and shall have no authority to act for or represent the Fund in any
way or otherwise be deemed an agent of the Fund.
12. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
shareholders of the Fund or the public, which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund will continue to furnish to the Manager copies of any of the
above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Manager such other information relating to
the business affairs of the Fund as the Manager at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
13. This Agreement may be amended by mutual consent, but the consent
of the Fund must be obtained in conformity with the requirements of the 1940
Act.
14
<PAGE>
14. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Manager at Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey, 07102-4077, Attention: Secretary; or (2) to the
Fund at 100 Mulberry Street, Newark, New Jersey, 07102-4077, Attention:
President.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. The Fund may use the name "Prudential Jennison Series Fund, Inc. "
or any name including the word "Prudential" and/or "Jennison" only for so long
as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to the Manager's business as Manager or any extension, renewal or
amendment thereof remain in effect. At such time as such an agreement shall no
longer be in effect, the Fund will (to the extent that it lawfully can) cease to
use such a name or any other name indicating that it is advised by, managed by
or otherwise connected with the Manager or the Subadviser, or any organization
which shall have so succeeded to such businesses. In no event shall the Fund
use the name "Prudential Jennison Series Fund, Inc."
15
<PAGE>
or any name including the word "Prudential" or the word "Jennison" if the
Manager's function is transferred or assigned to a company of which The
Prudential Insurance Company of America does not have control or the
Subadviser's function is transferred or assigned to a company which is not
affiliated with Jennison.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL JENNISON SERIES
FUND, INC.
By___________________________
Richard A. Redeker
President
PRUDENTIAL INVESTMENTS FUND
MANAGEMENT LLC
By___________________________
Brian M. Storms
President
e:morrison\agrmts\
jen-actbal.mgt
16
<PAGE>
EXHIBIT 99.B5(d)
PRUDENTIAL JENNISON SERIES FUND, INC.
(Prudential Jennison Active Balanced Fund)
SUBADVISORY AGREEMENT
Agreement made as of this 23rd day of January, 1998, between Prudential
Investments Fund Management LLC, a New York Limited Liability corporation (PIFM
or the Manager), and Jennison Associates LLC, a New York limited liability
corporation (the Subadviser).
W I T N E S S E T H
WHEREAS, the Manager has entered into a Management Agreement, dated January
23, 1998 (the Management Agreement), with Prudential Jennison Series Fund, Inc.
(the Corporation), a Maryland corporation and a diversified, open-end management
investment company registered under the Investment Company Act of 1940 (the 1940
Act), pursuant to which PIFM will act as Manager of the Corporation;
WHEREAS, the shares of common stock of the Corporation are divided into
separate series or funds, each of which is established pursuant to a resolution
of the Board of Directors of the Corporation, and the Board of Directors may
from time to time terminate such series or funds or establish and terminate
additional series or funds;
<PAGE>
WHEREAS, the Manager has entered into a separate subadvisory agreement
dated January 23, 1998 with The Prudential Investment Corporation (PIC), a New
Jersey corporation, pursuant to which PIC will provide investment advisory
services to the Prudential Jennison Active Balanced Fund (the Fund) with respect
to (i) the management of short-term assets, including cash, money market
instruments and repurchase agreements and (ii) the lending of portfolio
securities;
WHEREAS, the Manager desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services;
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Corporation, the Subadviser shall manage the investment
operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition thereof, in accordance
with the Fund's investment objective, policies and restrictions as stated
in the Prospectus (such Prospectus and Statement of Additional Information
as currently in effect and as amended or supplemented from time to time,
being herein collectively called the "Prospectus") and subject to the
following understandings:
(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments and securities will
be
2
<PAGE>
purchased, retained, sold or loaned by the Fund, and what portion of the assets
will be invested or held uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus of the Fund and the Corporation and with
the instructions and directions of the Manager and of the Board of Directors of
the Corporation and will conform to and comply with the requirements of the 1940
Act, the Internal Revenue Code of 1986 and all other applicable federal and
state laws and regulations.
(iii) The Subadviser shall advise PIC of the dollar amount of the
Fund's assets that shall be invested in repurchase agreements, money market
instruments or held in cash and advise PIC as to the securities available for
lending and the securities to be recalled from loan. In the event the agreement
with PIC is terminated, the Subadviser shall provide investment advisory
services to the Fund with respect to the management of short-term assets and the
lending of portfolio securities under this Agreement.
(iv) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by the Fund and will place orders with or
through such persons, brokers, dealers or futures commission merchants
(including but not limited to Prudential Securities Incorporated) to carry out
the policy with respect to brokerage as set forth in the Corporation's
Registration Statement and Prospectus or as the Board of Directors may direct
from time to time. In
3
<PAGE>
providing the Fund with investment supervision, it is recognized that the
Subadviser will give primary consideration to securing the most favorable price
and efficient execution. Within the framework of this policy, the Subadviser
may consider the financial responsibility, research and investment information
and other services provided by brokers, dealers or futures commission merchants
who may effect or be a party to any such transaction or other transactions to
which the Subadviser's other clients may be a party. It is understood that
Prudential Securities Incorporated may be used as principal broker for
securities transactions but that no formula has been adopted for allocation of
the Corporation's investment transaction business. It is also understood that it
is desirable for the Fund that the Subadviser have access to supplemental
investment and market research and security and economic analysis provided by
brokers or futures commission merchants who may execute brokerage transactions
at a higher cost to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the Subadviser is authorized to place orders for the
purchase and sale of securities and futures contracts for the Fund with such
brokers or futures commission merchants, subject to review by the Board of
Directors of the Corporation from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided by
such brokers or futures commission
4
<PAGE>
merchants may be useful to the Subadviser in connection with the Subadviser's
services to other clients.
On occasions when the Subadviser deems the purchase or sale of a
security or futures contract to be in the best interest of the Fund as well as
other clients of the Subadviser, the Subadviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities or futures contracts to be sold or purchased in order
to obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities or futures contracts so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the Subadviser in the manner the Subadviser considers to be the most
equitable and consistent with its fiduciary obligations to the Fund, the
Corporation and to such other clients.
(v) The Subadviser shall maintain all books and records with respect to
the Fund's portfolio transactions required by subparagraphs (b)(5), (6), (7),
(9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act and shall
render to the Board of Directors of the Corporation such periodic and special
reports as the Board may reasonably request.
(vi) The Subadviser shall provide the Corporation's Custodian on
each business day with information relating to all transactions
concerning the Fund's assets and shall provide the Manager with such
information upon request of the Manager.
5
<PAGE>
(vii) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the Subadviser
shall be free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its directors, officers
and employees who may be elected as Directors or officers of the
Corporation to serve in the capacities in which they are elected. Services
to be furnished by the Subadviser under this Agreement may be furnished
through the medium of any of such directors, officers or employees.
(c) The Subadviser shall keep the Corporation's books and records required to
be maintained by the Subadviser pursuant to paragraph 1(a)(v) hereof and
shall timely furnish to the Manager all information relating to the
Subadviser's services hereunder needed by the Manager to keep the other
books and records of the Corporation required by Rule 31a-1 under the 1940
Act. The Subadviser agrees that all records which it maintains for the
Corporation are the property of the Corporation and the Subadviser will
surrender promptly to the Corporation any of such records upon the
Corporation's request, provided however that the Subadviser may retain a
copy of such records. The Subadviser further agrees to preserve for the
periods prescribed by Rule 31a-2 of the Commission under the 1940 Act any
such records as are required to be maintained by it pursuant to paragraph
1(a)(v) hereof.
2. The Manager shall continue to have responsibility for all services
to be provided to the Corporation pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.
6
<PAGE>
3. The Manager shall compensate the Subadviser for the services
provided and the expenses assumed pursuant to this Subadvisory Agreement, by
paying a fee at an annual rate of .30 of 1% of the Fund's average daily net
assets up to $300 million and .25 of 1% of average daily net assets in excess of
$300 million. This fee will be computed daily and paid monthly.
4. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by the Fund or the Manager in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the Subadviser's part in the performance of its
duties or from its reckless disregard of its obligations and duties under this
Agreement.
5. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the
Corporation or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, or by the Manager or the Subadviser at any
time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other party. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act) or
upon the termination of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any
of the Subadviser's directors, officers, or employees who may also be a
Director, officer or employee of the Corporation to engage in any other business
or to devote his or her time and attention in part to the management or other
aspects of any business, whether of a similar or a dissimilar
7
<PAGE>
nature, nor limit or restrict the Subadviser's right to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
7. During the term of this Agreement, the Manager agrees to furnish
the Subadviser at its principal office all prospectuses, proxy statements,
reports to stockholders, sales literature or other material prepared for
distribution to shareholders of the Fund or the public, which refer to the
Subadviser in any way, prior to use thereof and not to use material if the
Subadviser reasonably objects in writing five business days (or such other time
as may be mutually agreed) after receipt thereof. Sales literature may be
furnished to the Subadviser hereunder by first-class or overnight mail,
facsimile transmission equipment or hand delivery.
8. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Manager at Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077, Attention: Secretary; or (2) to the
Subadviser at 466 Lexington Avenue, New York, NY 10017, Attention: President.
9. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the 1940 Act.
10. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without reference to choice of law
principles thereof and in accordance with the 1940 Act. In the case of any
conflict the 1940 Act shall control.
8
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IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC
By ______________________________________________
Brian M. Storms
President
JENNISON ASSOCIATES LLC
By ______________________________________________
Karen Kohler
Senior Vice President
e:morrison\agrmts\
jen-ac2.ad
9
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EXHIBIT 99.B5(e)
PRUDENTIAL JENNISON SERIES FUND, INC.
(Prudential Jennison Active Balanced Fund)
SUBADVISORY AGREEMENT
Agreement made as of this 23rd day of January, 1998 between Prudential
Investments Fund Management LLC (PIFM or the Manager), a New York Limited
Liability Corporation, and The Prudential Investment Corporation (PIC), a New
Jersey Corporation.
W I T N E S S E T H
WHEREAS, the Manager has entered into a Management Agreement, dated January
23, 1998 (the Management Agreement), with Prudential Jennison Series Fund, Inc.
(the Corporation), a Maryland corporation and a diversified, open-end management
investment company registered under the Investment Company Act of 1940 (the 1940
Act), pursuant to which PIFM will act as Manager of the Corporation;
WHEREAS, the shares of common stock of the Corporation are divided into
separate series or portfolios, each of which is established pursuant to a
resolution of the Board of Directors of the Corporation, and the Board of
Directors may from time to time terminate such funds or establish and terminate
additional funds;
<PAGE>
WHEREAS, the Manager has entered into a separate subadvisory agreement for
the Prudential Jennison Active Balanced Fund (the Fund) with Jennison Associates
LLC (the Subadviser) pursuant to which investment advisory services will be
provided to the Fund except with respect to (i) the management of short-term
assets, including cash, money market instruments and repurchase agreements and
(ii) the lending of portfolio securities;
WHEREAS, the Manager desires to retain PIC to provide investment advisory
services to the Fund with respect to (i) the management of short-term assets,
including cash, money market instruments and repurchase agreements and (ii) the
lending of portfolio securities in connection with the management of the Fund
and PIC is willing to render such investment advisory services;
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Corporation, PIC shall manage the short-term assets and
cash of the Fund, including the purchase, retention and disposition
thereof, in accordance with the Fund's investment objectives, policies and
restrictions as stated in the Prospectus (such Prospectus and Statement of
Additional Information as currently in effect and as amended or
supplemented from time to time, being herein collectively called the
"Prospectus") and subject to the following understandings:
(i) PIC shall provide supervision of the Fund's investments and
determine from time to time what investments and securities will be
2
<PAGE>
purchased, retained, sold or loaned by the Fund, and what portion of the assets
will be invested or held uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, PIC shall act in conformity with the Articles of Incorporation, By-
Laws and Prospectus of the Fund and the Corporation and with the instructions
and directions of the Manager and of the Board of Directors of the Corporation
and will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986 and all other applicable federal and state laws
and regulations.
(iii) The Subadviser shall advise PIC of the dollar amount of the
Fund's assets that shall be invested in repurchase agreements, money market
instruments or held in cash and advise PIC as to the securities available for
lending and the securities to be recalled from loan.
(iv) Upon receipt of information from the Subadviser as to the amount
of funds available for short-term investment, as described in paragraph
1(a)(iii) above, PIC shall determine the securities to be purchased or sold by
the Fund and will place orders with or through such persons, brokers or dealers
(including but not limited to Prudential Securities Incorporated) to carry out
the policy with respect to brokerage as set forth in the Corporation's
Registration Statement and Prospectus or as the Board of Directors may direct
from time to time. In providing the Fund with investment supervision, it is
recognized that PIC will give primary consideration to securing the most
3
<PAGE>
favorable price and efficient execution. Within the framework of this policy,
PIC may consider the financial responsibility, research and investment
information and other services provided by brokers or dealers who may effect or
be a party to any such transaction or other transactions to which PIC's other
clients may be a party. On occasions when PIC deems the purchase or sale of a
security to be in the best interest of a Fund as well as other clients of PIC,
PIC, to the extent permitted by applicable laws and regulations, may, but shall
be under no obligation to, aggregate the securities to be sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by PIC
in the manner PIC considers to be the most equitable and consistent with its
fiduciary obligations to the Fund, the Corporation and to such other clients.
(v) PIC shall maintain all books and records with respect to the Fund's
portfolio transactions required by subparagraphs (b)(5), (6), (7), (9), (10) and
(11) and paragraph (f) of Rule 31a-1 under the 1940 Act and shall render to the
Board of Directors of the Corporation such periodic and special reports as the
Board may reasonably request.
(vi) PIC shall provide the Corporation's Custodian on each business
day with information relating to all transactions concerning the Fund's
assets and shall provide the Manager with such information upon request
of the Manager.
4
<PAGE>
(vii) The investment management services provided by PIC hereunder
are not to be deemed exclusive, and PIC shall be free to render similar
services to others.
(b) PIC shall authorize and permit any of its directors, officers and employees
who may be elected as Board of Directors or officers of the Corporation to
serve in the capacities in which they are elected. Services to be
furnished by PIC under this Agreement may be furnished through the medium
of any of such directors, officers or employees.
(c) PIC shall keep the Corporation's books and records required to be
maintained by PIC pursuant to paragraph 1(a)(v) hereof and shall timely
furnish to the Manager all information relating to PIC's services hereunder
needed by the Manager to keep the other books and records of the
Corporation required by Rule 31a-1 under the 1940 Act. PIC agrees that all
records which it maintains for the Corporation are the property of the
Corporation and PIC will surrender promptly to the Corporation any of such
records upon the Corporation's request, provided however that PIC may
retain a copy of such records. PIC further agrees to preserve for the
periods prescribed by Rule 31a-2 of the Commission under the 1940 Act any
such records as are required to be maintained by it pursuant to paragraph
1(a)(v) hereof.
2. The Manager shall continue to have responsibility for all services
to be provided to the Corporation pursuant to the Management Agreement and shall
oversee and review PIC's performance of its duties under this Agreement.
5
<PAGE>
3. The Manager shall reimburse PIC for reasonable costs and expenses
incurred by PIC determined in a manner acceptable to the Manager in furnishing
the services provided in paragraph 1 hereof.
4. PIC shall not be liable for any error of judgment or for any loss
suffered by the Fund or the Manager in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on PIC's part in the performance of its duties or from its
reckless disregard of its obligations and duties under this Agreement.
5. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the
Corporation or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, or by the Manager or PIC at any time,
without the payment of any penalty, on not more than 60 days' nor less than 30
days' written notice to the other party. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act) or
upon the termination of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any
of PIC's directors, officers, or employees who may also be a Director, officer
or employee of the Corporation to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor
6
<PAGE>
limit or restrict PIC's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish
PIC at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature or other material prepared for distribution to
shareholders of the Fund or the public, which refer to PIC in any way, prior to
use thereof and not to use material if PIC reasonably objects in writing five
business days (or such other time as may be mutually agreed) after receipt
thereof. Sales literature may be furnished to PIC hereunder by first-class or
overnight mail, facsimile transmission equipment or hand delivery.
8. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Manager at Gateway Center Three, Newark, New
Jersey 07102-4077, Attention: Secretary; or (2) to the Subadviser at Prudential
Plaza, 751 Broad Street, 2nd floor, Newark, New Jersey, 07102, Attention: Chief
Investment Officer.
9. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the 1940 Act.
10. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without reference to choice of law
principles thereof and in accordance with the 1940 Act. In the case of any
conflict the 1940 Act shall control.
7
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC
By _____________________________________________
Brian M. Storms
President
THE PRUDENTIAL INVESTMENT CORPORATION
By ______________________________________________
Jonathan M. Greene
Senior Vice President
E:MORRISON\AGRMTS\
JEN-ACTBAL.AD
8
<PAGE>
EXHIBIT 99.B11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 7 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
November 14, 1997, relating to the financial statements and financial highlights
of Prudential Jennison Series Fund, Inc.-Prudential Jennison Growth Fund,
Prudential Jennison Series Fund, Inc.-Prudential Jennison Growth & Income Fund
and Prudential Dryden Fund-Prudential Active Balanced Fund, which appear in such
Statement of Additional Information, and to the incorporation by reference of
our reports into the Prospectuses which constitute part of this Registration
Statement. We also consent to the reference to us under the heading "Custodian,
Transfer and Dividend Disbursing Agent and Independent Accountants" in such
Statement of Additional Information and to the reference to us under the heading
"Financial Highlights" in such Prospectuses.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
l177 Avenue of the Americas
New York, New York 10036
January 20, 1998
<PAGE>
EXHIBIT 99.B11(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post Effective Amendment No. 7 to Registration
Statement No. 33-61997 of Prudential Jennison Series Fund, Inc., of our reports
for the The Prudential Institutional Fund-Active Balanced Fund and the
Prudential Jennison Growth Fund dated November 13, 1996 and November 4, 1996,
respectively, appearing in the Statement of Additional Information, which is
included in such Registration Statement, and to the references to us under the
heading "Financial Highlights" appearing in the Prospectus, which is also
included in such Registration Statement.
Deloitte & Touche LLP
New York, New York
January 21, 1998
