PRUDENTIAL HIGH YIELD TOTAL RETURN FUND INC, 485BPOS, 2000-06-02

PRUDENTIAL HIGH YIELD TOTAL RETURN FUND INC
485BPOS, 2000-06-02

Previous: PNW CAPITAL INC, 8-K, EX-2.1, 2000-06-02

Next: PRUDENTIAL HIGH YIELD TOTAL RETURN FUND INC, 485BPOS, EX-99.(B), 2000-06-02

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 2000

SECURITIES ACT REGISTRATION NO. 333-23593
INVESTMENT COMPANY ACT REGISTRATION NO. 811-08101
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [X]

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 4 [X]

(Check appropriate box or boxes)

----------

PRUDENTIAL HIGH YIELD
TOTAL RETURN FUND, INC.
(Exact name of registrant as specified in charter)

GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANTS'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7530

----------

DEBORAH A. DOCS, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Name and address of agent for service)

----------

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

----------

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):

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

[ ] on (date) pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[ ] on ___________ 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,
$.0001 Par Value

================================================================================

<PAGE>

PROSPECTUS JUNE 5, 2000

PRUDENTIAL
HIGH YIELD TOTAL RETURN FUND, INC.

FUND TYPE Junk bond and stock

OBJECTIVE Total return through high current income and capital appreciation

BUILD

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

ON THE ROCK

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

[LOGO] PRUDENTIAL

<PAGE>

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

TABLE OF CONTENTS
--------------------------------------------------------------------------------

1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks

3 Evaluating Performance
4 Fees and Expenses

6 HOW THE FUND INVESTS
6 Investment Objective and Policies
8 Other Investments and Strategies
12 Investment Risks

17 HOW THE FUND IS MANAGED
17 Board of Directors
17 Manager
17 Investment Adviser
18 Distributor

19 FUND DISTRIBUTIONS AND TAX ISSUES
19 Distributions
20 Tax Issues
21 If You Sell or Exchange Your Shares

23 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
23 How to Buy Shares
31 How to Sell Your Shares
34 How to Exchange Your Shares
36 Telephone Redemptions or Exchanges

37 FINANCIAL HIGHLIGHTS
37 Class A Shares
38 Class B Shares
39 Class C Shares
40 Class Z Shares

41 THE PRUDENTIAL MUTUAL FUND FAMILY

A-1 DESCRIPTION OF SECURITY RATINGS

For More Information (Back Cover)

--------------------------------------------------------------------------------
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (telephone) (800) 225-1852

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

RISK/RETURN SUMMARY
--------------------------------------------------------------------------------

This section highlights key information about the PRUDENTIAL HIGH YIELD TOTAL
RETURN FUND, INC., which we refer to as "the Fund." Additional information
follows this summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is TOTAL RETURN THROUGH HIGH CURRENT INCOME AND CAPITAL
APPRECIATION. This means we seek investments that will provide high yields and
investments that will increase in value. We normally invest at least 65% of the
Fund's total assets in high-yield fixed-income securities rated Ba or lower by
Moody's Investors Service (Moody's), or BB or lower by Standard & Poor's Ratings
Group (Standard & Poor's) and securities either rated by another major rating
service or unrated securities of comparable quality, that is, junk bonds. The
Fund also invests in preferred stocks, equity-related securities and convertible
securities. Some of the securities in which we invest may be issued by
financially or operationally troubled companies, including bankrupt companies.

In determining which securities to buy and sell, the investment adviser
will consider, among other things, the financial history and condition, earnings
trends, analysts' recommendations, the prospects and the management of an
issuer. The investment adviser generally will employ fundamental analysis in
making such determinations. Fundamental analysis involves review of financial
statements and other data to try to predict an issuer's prospects and to try to
decide whether the price of the issuer's security is undervalued or overvalued.
While we make every effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. The fixed-income
securities in which the Fund invests are generally subject to the risk that the
issuer may be unable to make principal and interest payments when they are due,
as well as the risk that the securities may lose value because interest rates
change or because there is a lack of confidence in the borrower. Since the Fund
invests in lower-rated bonds, commonly known as junk bonds, there is a greater
risk of default of payment of principal and interest. Furthermore, junk bonds
tend to be less liquid than higher-rated securities. Therefore, an investment in
the Fund may not be appropriate for short-term investing.

Our investment in the securities of financially and operationally troubled
companies may result in large losses and/or share price volatility. The Fund

--------------------------------------------------------------------------------
1

<PAGE>

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

RISK/RETURN SUMMARY
--------------------------------------------------------------------------------

may also be subject to litigation risks or be unable to dispose of an investment
because it may get involved in bankruptcy proceedings, reorganizations and/or
financial restructurings. Since the Fund invests in equities as well as debt,
there is also the risk that the price of a particular security we own could go
down. In addition, the value of the equity markets or any of their sectors could
go down. Stock and bond markets are volatile.

The Fund may actively and frequently trade its portfolio securities. High
portfolio turnover results in higher transaction costs and can affect the Fund's
performance and have adverse tax consequences.

Like any mutual fund, an investment in the Fund could lose value, and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests -- Investment Risks."

An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

--------------------------------------------------------------------------------
2 PRUDENTIAL HIGH YIELD TOTAL RETURN (TELEPHONE) (800) 225-1852
FUND, INC.

<PAGE>

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

RISK/RETURN SUMMARY
--------------------------------------------------------------------------------

EVALUATING PERFORMANCE

A number of factors -- including risk -- can affect how the Fund performs. The
following bar chart shows the Fund's performance for its full calendar year of
operation. The bar chart and table below demonstrate the risk of investing in
the Fund by showing how returns can change from year to year and by showing how
the Fund's average annual total returns compare with those of a broad measure of
market performance and a group of similar mutual funds. Past performance does
not mean that the Fund will achieve similar results in the future.

Annual Return* (Class B Shares)

1999
-----
5.95%

[INSERT GRAPHICS]

--------------------------------------------------------------------------------
BEST QUARTER:4.55% (4TH QUARTER OF 1999) WORST QUARTER: (2.16)%
(3RD QUARTER OF 1999)
--------------------------------------------------------------------------------

* THIS ANNUAL RETURN DOES NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES
WERE INCLUDED, THE ANNUAL RETURN WOULD BE LOWER THAN THAT SHOWN. WITHOUT
THE MANAGEMENT FEE WAIVER AND THE DISTRIBUTION AND SERVICE (12B-1) FEE
WAIVER, THE ANNUAL RETURN WOULD HAVE BEEN LOWER, TOO. THE RETURN OF THE
CLASS B SHARES FOR THE QUARTER ENDED MARCH 31, 2000 WAS -2.43% .

Average Annual Returns(1)
(as of 12-31-99)
--------------------------------------------------------------------------------
1 YR SINCE INCEPTION

Class A shares 2.22% (2.02)% (since 5-5-98)

Class B shares 0.95% (2.54)% (since 5-5-98)

Class C shares 3.89% (0.71)% (since 5-5-98)

Class Z shares 6.86% 0.70% (since 5-5-98)

High Yield Bond Index(2) 2.39% 0.31%

Lipper High Current 4.67% (0.65)%
Yield Average(3)
--------------------------------------------------------------------------------

1 THE FUND'S RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.
WITHOUT THE MANAGEMENT FEE WAIVER AND THE DISTRIBUTION AND SERVICE (12B-1)
FEE WAIVER FOR CLASS A, CLASS B AND CLASS C SHARES, THE RETURNS WOULD HAVE
BEEN LOWER.

2 THE LEHMAN BROTHERS HIGH YIELD BOND INDEX (HIGH YIELD BOND INDEX) -- AN
UNMANAGED INDEX OF FIXED RATE NONINVESTMENT-GRADE DEBT SECURITIES WITH AT
LEAST ONE YEAR REMAINING TO MATURITY -- GIVEs A BROAD LOOK AT HOW HIGH
YIELD (JUNK) BONDS HAVE PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT
OF ANY SALES CHARGES OR OPERATING EXPENSES OF A MUTUAL FUND. THESE RETURNS
WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES AND OPERATING
EXPENSES. SOURCE: LEHMAN BROTHERS.

3 THE LIPPER HIGH CURRENT YIELD AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL
MUTUAL FUNDS IN THE LIPPER HIGH CURRENT YIELD CATEGORY. THESE RETURNS DO
NOT INCLUDE THE EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE LOWER
IF THEY INCLUDED THE EFFECT OF SALES CHARGES. SOURCE: LIPPER INC.

--------------------------------------------------------------------------------
3
<PAGE>

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

RISK/RETURN SUMMARY
--------------------------------------------------------------------------------

FEES AND EXPENSES

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

-------------------------------------------------------
SHAREHOLDER FEES(1)(PAID DIRECTLY FROM YOUR INVESTMENT)
---------------------------------------------------------------------

CLASS A CLASS B CLASS C CLASS Z

Maximum sales charge (load)
imposed on purchases (as a
percentage of offering price) 4% None 1% None

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

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

Redemption fees None None None None

Exchange fee None None None None

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

----------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
---------------------------------------------------------------------

CLASS A CLASS B CLASS C CLASS Z

Management fees .65% .65% .65% .65%

+ Distribution and service .30% 1.00% 1.00% None
(12b-1) fees(4)

+ Other expenses .28% .28% .28% .28%

= Total annual Fund operating 1.23% 1.93% 1.93% .93%
expenses

- Fee waiveror expense .05% .25% .25% None
reimbursement(4)

= NET ANNUAL FUND OPERATING 1.18% 1.68% 1.68% .93%
EXPENSES

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

1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
SALES OF SHARES.

2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B SHARES DECREASES BY 1%
ANNUALLY TO 1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH YEAR. CLASS
B SHARES CONVERT TO CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER PURCHASE.

3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN 18
MONTHS OF PURCHASE.

4 THE FUND'S FEE WAIVER OR EXPENSE REIMBURSEMENT HAS BEEN RESTATED TO REFLECT
CURRENT FEE WAIVERS. FOR THE FISCAL YEAR ENDING MARCH 31, 2001, THE
DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION
AND SERVICE (12B-1) FEES FOR CLASS A, CLASS B AND CLASS C SHARES TO .25 OF 1%,
.75 OF 1% AND .75 OF 1% OF THE AVERAGE DAILY NET ASSETS OF CLASS A, CLASS B
AND CLASS C SHARES, RESPECTIVELY.

--------------------------------------------------------------------------------
4 PRUDENTIAL HIGH YIELD TOTAL RETURN (TELEPHONE) (800) 225-1852
FUND, INC.

<PAGE>

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

RISK/RETURN SUMMARY
--------------------------------------------------------------------------------

EXAMPLE

This example will help you compare the fees and expenses of the Fund's different
share classes and compare the cost of investing in the Fund with the cost of
investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A, Class B and
Class C shares during the first year. Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:

---------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 Yrs

Class A shares $515 $770 $1,044 $1,825

Class B shares $671 $882 $1,119 $1,966

Class C shares $369 $676 $1,109 $2,311

Class Z shares $ 95 $296 $ 515 $1,143
---------------------------------------------------------------------

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

---------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 Yrs

Class A shares $515 $770 $1,044 $1,825

Class B shares $171 $582 $1,019 $1,966

Class C shares $269 $676 $1,109 $2,311

Class Z shares $ 95 $296 $ 515 $1,143
---------------------------------------------------------------------

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

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is TOTAL RETURN THROUGH HIGH CURRENT INCOME AND
CAPITAL APPRECIATION. This means we seek investments that pay interest,
dividends and other income and investments that will increase in value. While we
make every effort to achieve our objective, we can't guarantee success. In
pursuing our objective, the Fund will invest in a wide variety of debt and
equity securities, including at least 65% of the Fund's total assets in
HIGH-YIELD DEBT SECURITIES. The Fund also invests in PREFERRED STOCKS,
EQUITY-RELATED SECURITIES and CONVERTIBLE SECURITIES. We buy securities of
companies of every size -- small, medium and large capitalization. Some of these
companies may be FINANCIALLY or OPERATIONALLY TROUBLED, and could be in
bankruptcy.

The Fund may invest in debt (fixed-income) securities of companies or
governments. Bonds and other debt securities are used by issuers to borrow money
from investors. The borrower pays the investor a fixed or variable rate of
interest and must repay the amount borrowed. Consistent with its investment
objective, under normal conditions the Fund may invest up to 100% of its assets
in lower-rated fixed-income securities. A rating is an assessment of the
likelihood of the timely repayment of interest and principal and can be useful
when comparing different debt obligations. A description of bond ratings is
contained in Appendix A.

Fixed-income securities rated below Baa by Moody's or BBB by Standard &
Poor's, or comparably rated by another major rating service are considered
HIGH-YIELD SECURITIES or JUNK BONDS. The Fund may invest in bonds in the lowest
ratings categories (C for Moody's and D for Standard & Poor's) and unrated bonds
of comparable quality. Such securities are highly speculative and may be in
default of principal or interest payments.

Lower-rated securities tend to offer higher yields, but also offer greater
risks, than higher-rated securities. Under certain economic conditions, however,
lower or medium-rated securities might not yield significantly more than
higher-rated securities, or comparable unrated securities. If that happens, the
Fund may invest in higher-rated fixed-income securities that offer similar
yields but have less risk. Furthermore, if issuers redeem their high-yield
securities at a higher than expected rate, which might happen during periods of
declining interest rates, the Fund could be forced to buy higher-rated,
lower-yielding securities, which would decrease the Fund's return.

--------------------------------------------------------------------------------
6 PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

During the fiscal year ended March 31, 2000, the monthly dollar-weighted
average ratings of the debt securities held by the Fund, expressed as a
percentage of the Fund's total investments, were as follows:

RATINGS PERCENTAGE OF TOTAL INVESTMENTS

BBB/Baa ......................... 1.1%
BB/Ba ........................... 6.9%
B/B ............................. 53.9%
CCC/Caa ......................... 11.6%
Unrated/Other ................... 26.5%

These ratings are not a guarantee of quality. The opinions of the rating
agencies do not reflect market risk and they may, at times, lag the current
financial condition of a company. Although the investment adviser will consider
ratings assigned to a security, it will perform its own investment analysis,
taking into account various factors, including the company's financial history
and condition, prospects and management. In addition to investing in rated
securities, the Fund may invest in unrated securities that we determine are of
comparable quality to the rated securities that are permissible investments.
These unrated securities will be taken into account when we calculate the
percentage of the Fund's portfolio that consists of medium and lower-rated
securities.

Generally, the Fund's average weighted maturity will range from 3 to 12
years. As of March 31, 2000, the Fund's average weighted maturity was 7.41
years.

The Fund may also invest in equity securities, including PREFERRED STOCKS
and EQUITY-RELATED securities, such as COMMON STOCKS, RIGHTS and WARRANTS, which
may be attached to or included in a unit with fixed-income securities at the
time of purchase. Rights and warrants are options to buy shares of common stock
at a preset price during a specified time period.

The Fund may also invest in CONVERTIBLE SECURITIES. These are securities --
like corporate bonds, notes and preferred stocks -- that we can exchange for
other types of equity securities, typically common stock, at a preset price.
They provide a fixed-income stream (usually lower than regular bonds), but also
offer greater appreciation potential than regular bonds.

For more information, see "Investment Risks" below and the Statement of
Additional Information, "Description of the Fund, Its Investments and Risks."
The Statement of Additional Information -- which we refer to as the SAI --
contains additional information about the Fund. To obtain a copy, see the back
cover page of this prospectus.

--------------------------------------------------------------------------------
7

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

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

OTHER INVESTMENTS AND STRATEGIES

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

INVESTMENT-GRADE DEBT SECURITIES

The Fund may invest up to 35% of its total assets in INVESTMENT-GRADE DEBT
SECURITIES, which are debt securities rated Baa or higher by Moody's or BBB or
higher by Standard & Poor's, or comparably rated by another major rating
service. Debt securities rated Baa by Moody's or BBB by Standard & Poor's are
regarded as investment-grade debt securities, but have speculative
characteristics and are riskier than higher-rated debt securities.

FOREIGN SECURITIES

The Fund may invest up to 35% of its total assets in U.S. currency-denominated
equity and fixed-income FOREIGN SECURITIES of foreign governments and other
foreign issuers, including Brady Bonds, which are long-term bonds issued by
developing nations. The Fund may also invest up to 5% of its total assets in
foreign currency-denominated securities issued by foreign or domestic issuers.
FOREIGN GOVERNMENT FIXED-INCOME SECURITIES include securities issued by
quasi-governmental entities, governmental agencies, supranational entities and
other governmental entities.

ZERO COUPON BONDS, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES

The Fund may invest in ZERO COUPON BONDS, PAY-IN-KIND (PIK) or DEFERRED PAYMENT
SECURITIES. Zero coupon bonds do not pay interest during the life of the
security. An investor makes money by purchasing the security at a price that is
less than the money the investor will receive when the borrower repays the
amount borrowed (face value). PIK securities pay interest in the form of
additional securities. Deferred payment securities pay regular interest after a
predetermined date.

The Fund records the amount these securities rise in price each year
(phantom income) for accounting and federal income tax purposes, but does not
receive income currently. Because the Fund is required under federal tax laws to
distribute income to its shareholders, in certain circumstances the Fund may
have to dispose of its portfolio securities under disadvantageous conditions

--------------------------------------------------------------------------------
8 PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

or borrow to generate enough cash to distribute phantom income and the value of
the paid-in-kind interest.

TRADE CLAIMS

The Fund may invest in TRADE CLAIMS which are a right of payment due from
obligations of a bankrupt or troubled company. Trade claims typically are bought
and sold at a discount based on the expected timing and extent of recovery.

LOAN PARTICIPATIONS AND ASSIGNMENTS

The Fund may invest in fixed and floating rate loans (secured or unsecured) made
to financially troubled companies by banks, insurance companies and government
institutions. The Fund may invest in a portion of a loan (PARTICIPATIONS) and
ASSIGNMENTS of all or a portion of a loan.

Participations and assignments are high-yield, nonconvertible corporate
debt instruments of varying maturities. With participations, the Fund has the
right to receive payments of principal, interest and fees from the lender
conditioned upon the lender's receipt of payment from the borrower. In
participations, the Fund generally does not have direct rights against the
borrower on the loan, which means that if the borrower does not pay back the
loan or otherwise comply with the loan agreement, the Fund will not have the
right to make it do so. With assignments, the Fund has direct rights against the
borrower on the loan, but its rights may be more limited than the original
lender's.

SHORT SALES

The Fund may use SHORT SALES, where it sells a security it does not own, with
the expectation of a decline in the market value of that security. To complete
the transaction, the Fund will borrow the security to make delivery to the
buyer. The Fund must replace the borrowed security by purchasing it at market
price at the time of replacement. The price at that time may be more or less
than the price at which the Fund sold the security. The Fund is required to pay
the lender any dividends or interest accrued. To borrow the security, the Fund
may pay a premium which would increase the cost of the security sold.

TEMPORARY DEFENSIVE INVESTMENTS

In response to adverse market, economic or political conditions, the Fund may
take a temporary defensive position and invest up to 100% of the Fund's assets
in short-term obligations of, or securities guaranteed by, the U.S. Government,
its agencies or instrumentalities or in high-quality obligations of banks and
corporations. Investing heavily in these securities limits our ability to
achieve our investment objective, but can help to preserve the Fund's assets.

--------------------------------------------------------------------------------
9

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

ACTIVE TRADING

The Fund may engage in ACTIVE TRADING -- that is, frequent trading of its
securities -- in order to take advantage of new investment opportunities or
yield differentials. There may be tax consequences, such as a possible increase
in short-term capital gains or losses, when the Fund sells a security without
regard to how long it has held the security. In addition, active trading may
result in greater transaction costs, which will reduce the Fund's return.

REPURCHASE AGREEMENTS

The Fund may use REPURCHASE AGREEMENTS, where a party agrees to sell a security
to the Fund and then repurchases it at an agreed-upon price at a stated time. A
repurchase agreement is like a loan by the Fund to the other party, which
creates a fixed return for the Fund. Repurchase agreements are used for cash
management purposes.

DERIVATIVE STRATEGIES

We may use various DERIVATIVE STRATEGIES to try to improve the Fund's returns.
We may use hedging techniques to try to protect the Fund's assets. We cannot
guarantee that these strategies and techniques will work, that the instruments
necessary to implement these strategies and techniques will be available, or
that the Fund will not lose money. Derivatives -- such as foreign currency
forward contracts, futures contracts, including interest rate futures contracts,
options, options on futures and interest rate swaps -- involve costs and can be
volatile.

With derivatives, the investment adviser tries to predict if the underlying
investment, whether a security, market index, currency, interest rate, or some
other investment, will go up or down at some future date. We may use derivatives
to try to reduce risk or to increase return consistent with the Fund's overall
investment objective. The investment adviser will consider other factors (such
as cost) in deciding whether to employ any particular strategy or technique, or
use any particular instrument. Any derivatives we may use may not match the
Fund's underlying holdings.

OPTIONS

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

--------------------------------------------------------------------------------
10 PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

FUTURES CONTRACTS AND RELATED OPTIONS
FOREIGN CURRENCY FORWARD CONTRACTS

The Fund may purchase and sell financial futures contracts and related options
on financial futures. A FUTURES CONTRACT is an agreement to buy or sell a set
quantity of an underlying product at a future date, or to make or receive a cash
payment based on the value of a securities index. The Fund also may enter into
foreign currency forward contracts to protect the value of its assets against
future changes in the level of currency exchange rates. A FOREIGN CURRENCY
FORWARD CONTRACT is an obligation to buy or sell a given currency on a future
date at a set price.

INTEREST RATE SWAP TRANSACTIONS

The Fund may enter into INTEREST RATE SWAP TRANSACTIONS. In a swap transaction,
the Fund and another party "trade" income streams. The swap is done to preserve
a return or spread on a particular investment or portion of a portfolio or to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES

The Fund may purchase securities on a WHEN-ISSUED or DELAYED-DELIVERY basis.
When the Fund makes this type of purchase, the price and interest rate are fixed
at the time of purchase, but delivery and payment for the obligations take place
at a later time. The Fund does not earn interest income until the date the
obligations are delivered.

For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks."

ADDITIONAL STRATEGIES

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

--------------------------------------------------------------------------------
11

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

INVESTMENT RISKS

As noted, all investments involve risk, and investing in the Fund is no
exception. Since the Fund's holdings can vary significantly from broad market
indexes, performance of the Fund can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of the Fund's principal
investments and certain other non-principal investments the Fund may make. See,
too, "Description of the Fund, Its Investments and Risks" in the SAI.

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

o Credit risk -- o May offer
HIGH-YIELD DEBT the risk that higher interest
SECURITIES the borrower income and higher
(JUNK BONDS) can't pay back potential gains
the money than
UP TO 100% borrowed or make higher-quality
interest payments debt securities
(particularly
high) o Most bonds
rise in value
o Market risk -- when interest
the risk that rates fall
obligations will
lose value in the
market because
interest rates
rise or there is
a lack of
confidence in the
borrower
(particularly
high)

o Illiquidity
risk -- the risk
that bonds may be
difficult to
value precisely
and sell at a
time or price
desired, in which
case valuation
would depend more
on investment
adviser's
judgment than is
generally the
case with
higher-rated
securities

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

TROUBLED HOLDINGS o Equity securities o May offer
could lose value greater capital
UP TO 100% appreciation and
o See credit a higher rate of
risk (particularly return if
high), market companies fulfill
risk (particularly their anticipated
high) and potential
illiquidity risk

o More likely
to default,
especially during
economic downturns

o Subject to
greater
volatility than
securities of
more stable
companies

o Fund may be
subject to
litigation risks
and costs

--------------------------------------------------------------------------------
12 PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

INVESTMENT TYPE (cont'd)
% OF FUND'S POTENTIAL
TOTAL ASSETS RISKS REWARDS
--------------------------------------------------------------------------------

Convertible o See credit o Convertible
securities risk and market securities may be
risk exchanged for
PERCENTAGE VARIES; stocks, which
USUALLY LESS o Underlying historically have
THAN 25% securities could outperformed
lose value other investments
over the long term
o Equity markets
could go down, o Generally,
resulting in a economic growth
decline in value means higher
of the Fund's corporate
investments profits, which
leads to an
o Changes in increase in stock
economic or prices, known as
political capital
conditions, both appreciation
domestic and
international,
may result in a
decline in value
of the Fund's
investments

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

PREFERRED STOCKS o Individual o Historically,
AND EQUITY-RELATED stocks could lose stocks have
SECURITIES value outperformed
other investments
UP TO 35% o Equity markets over the long term
could go down,
resulting in o Generally,
a decline in economic growth
value of the means higher
Fund's corporate
investments profits, which
leads to an
o Changes in increase in stock
economic or prices, known as
political capital
conditions, both appreciation
domestic and
international, o May be a source
may result in a of dividend income
decline in value
of the Fund's
investments

o Warrants and
rights might
expire before
right to purchase
common stocks is
exercised

o Companies
that pay
dividends may not
do so if they
don't have
profits or
adequate cash flow

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

INVESTMENT-GRADE o See credit risk o Regular interest
DEBT SECURITIES and market risk income

UP TO 35% o Generally more
secure than
equity securities
and high-yield
debt securities

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

FOREIGN SECURITIES o Foreign markets, o Investors can
economies and participate
UP TO 35% OF U.S. political systems in the growth of
CURRENCY DENOMINATED may not be as foreign markets
SECURITIES; UP TO 5% stable as those and companies
OF NON-U.S. CURRENCY in the U.S., operating in
DENOMINATED particularly those markets
SECURITIES those in
developing
countries

--------------------------------------------------------------------------------
13

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

INVESTMENT TYPE (cont'd)
% OF FUND'S POTENTIAL
TOTAL ASSETS RISKS REWARDS
--------------------------------------------------------------------------------

FOREIGN SECURITIES o May be less o Opportunities for
(cont'd) liquid than U.S. diversification
debt securities
o Changing value
o Differences of foreign
in foreign laws, currencies can
accounting cause gains
standards, public (non-U.S.
information, currency
custody and denominated
settlement securities)
practices provide
less reliable
information on
foreign
investments and
involve more risks

o Currency risk
-- changing
value of foreign
currencies can
cause losses
(non-U.S.
currency
denominated
securities)

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

ZERO COUPON BONDS, o Typically o Value rises
PIK AND DEFERRED subject to faster when
PAYMENT SECURITIES greater interest rates
volatility and fall
PERCENTAGE VARIES; less liquidity
USUALLY LESS in adverse
THAN 40% markets than
other debt
securities

o See credit
risk and market
risk

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

TRADE CLAIMS o See credit risk o A trade claim
and market risk is priced at a
PERCENTAGE VARIES; discount and
USUALLY LESS o The amount of may appreciate
THAN 10% the claim may significantly
be disputed by
the debtor

o Volatile
pricing due to a
less liquid
market with a
small number of
buyers and brokers

o May be
obligated to
purchase larger
trade claim than
initially
anticipated

o Sellers of
trade claims may
fail to indemnify
the Fund against
loss due to
seller's
bankruptcy or
insolvency

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

WHEN-ISSUED AND o May magnify o May magnify
DELAYED-DELIVERY underlying underlying
SECURITIES; SHORT investment losses investment gains
SALES
o Investment costs
PERCENTAGE VARIES; may exceed
USUALLY LESS potential
THAN 10% underlying
investment gains

--------------------------------------------------------------------------------
14 PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

INVESTMENT TYPE (cont'd)
% OF FUND'S POTENTIAL
TOTAL ASSETS RISKS REWARDS
--------------------------------------------------------------------------------

LOAN PARTICIPATIONS o See credit risk o May offer the
AND ASSIGNMENTS and market risk right to receive
principal,
o In participations, interest and fees
the Fund is also without as much
PERCENTAGE VARIES; subject to the risk as a lender
USUALLY LESS credit risk of
THAN 10% the lender

o In participations,
the Fund has no
rights against
borrower in the
event borrower
does not repay
the loan

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

DERIVATIVES o Derivatives such o The Fund could
as futures, make money
PERCENTAGE VARIES; options, options and protect
USUALLY LESS on futures, against losses if
THAN 10% foreign currency the investment
forward contracts analysis proves
and interest rate correct
swaps that are
used for hedging o One way to
purposes may not manage the Fund's
fully offset the risk/return
underlying balance is to
positions and lock in the value
this could result of an investment
in losses to the ahead of time
Fund that would
not have o Derivatives
otherwise occurred used for return
enhancement
o Derivatives purposes involve
used for risk a type of
management may leverage and
not have the could generate
intended effects substantial gains
and may result in at low cost
losses or missed
opportunities

o The other party
to a derivatives
contract could
default

o Certain types
of derivatives
involve costs to
the Fund that can
reduce returns

o Derivatives
used for return
enhancement
purposes involve
a type of
leverage
(borrowing for
investment) and
could magnify
losses

--------------------------------------------------------------------------------
15

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

INVESTMENT TYPE (cont'd)
% OF FUND'S POTENTIAL
TOTAL ASSETS RISKS REWARDS
--------------------------------------------------------------------------------

U.S. GOVERNMENT o Limits potential o Regular interest
SECURITIES OR for capital income
HIGH-QUALITY appreciation
BANK OR CORPORATE o Generally more
OBLIGATIONS o See credit risk secure than
and market risk lower quality
UP TO 100% debt securities
ON A TEMPORARY o Not all U.S. and equity
BASIS Government securities
securities are
insured or o The U.S.
guaranteed by the Government
U.S. guarantees
Government--some interest and
are backed by the principal payments
issuing agency on certain
securities

o May preserve
the Fund's assets

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

ILLIQUID SECURITIES o See illiquidity o May offer a
risk more attractive
UP TO 15% OF NET yield or
ASSETS potential for
growth than
more widely
traded securities

--------------------------------------------------------------------------------
16 PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.
<PAGE>
--------------------------------------------------------------------------------

HOW THE FUND IS MANAGED
--------------------------------------------------------------------------------

BOARD OF DIRECTORS

The Fund's Board of Directors oversees the actions of the Manager, investment
adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers, who conduct and supervise the daily business operations of
the Fund.

MANAGER

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

Under a management agreement with the Fund, PIFM manages the Fund's investment
operations and administers its business affairs. PIFM also is responsible for
supervising the Fund's investment adviser. For the fiscal year ended March 31,
2000, the Fund paid PIFM management fees of .65% of the Fund's average daily net
assets.

PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of April 30, 2000, PIFM served as the
manager to all 42 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $76.2 billion.

INVESTMENT ADVISER

The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and pays Prudential Investments for its
services.

Prudential Investments' Fixed Income Group manages more than $135 billion for
Prudential's retail investors, institutional investors, and policyholders.
Senior Managing Directors James J. Sullivan and Jack W. Gaston head the Group,
which is organized into teams specializing in different market sectors.
Top-down, broad investment decisions are made by the Fixed Income Policy
Committee, whereas bottom-up security selection is made by the sector teams.

Mr. Sullivan has overall responsibility for overseeing portfolio management
and credit research. Prior to joining Prudential Investments in 1998, he was a
managing director in Prudential's Capital Management Group, where he oversaw
portfolio management and credit research for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 16 years of experience in
risk management, arbitrage trading, and corporate bond investing.

--------------------------------------------------------------------------------
17

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

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

HOW THE FUND IS MANAGED
--------------------------------------------------------------------------------

Mr. Gaston has overall responsibility for overseeing quantitative research and
risk management. Prior to this appointment in 1999, he was senior managing
director of the Capital Management Group where he was responsible for the
investment performance and risk management for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 20 years of experience in
investment management, including extensive experience applying quantitative
techniques to portfolio management.

The Fixed Income Investment Policy Committee is comprised of key senior
investment managers. Members include seven sector team leaders, the chief
investment strategist, and the head of risk management. The Committee uses a
top-down approach to investment strategy, asset allocation, and general risk
management, identifying sectors in which to invest.

The High Yield Team, headed by Casey Walsh, is primarily responsible for
overseeing the day-to-day management of the Fund. This Team uses a bottom-up
approach, which focuses on individual securities, while staying within the
guidelines of the Investment Policy Committee and the Fund's investment
restrictions and policies. In addition, the Credit Research team of analysts
supports the sector teams using bottom-up fundamentals, as well as economic and
industry trends. Other sector teams may contribute to securities selection when
appropriate.

HIGH YIELD

ASSETS UNDER MANAGEMENT: $9.4 billion (as of December 31, 1999).

TEAM LEADER: Casey Walsh. GENERAL INVESTMENT EXPERIENCE: 17 years.

PORTFOLIO MANAGERS: 7. AVERAGE GENERAL INVESTMENT EXPERIENCE: 17 years, which
includes team members with significant mutual fund experience.

SECTOR: Below-investment-grade corporate securities.

INVESTMENT STRATEGY: Focus is generally on bonds with high total return
potential, given existing risk parameters. They also seek securities with high
current income, as appropriate. The Team uses a relative value approach.

DISTRIBUTOR

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

--------------------------------------------------------------------------------
18 PRUDENTIAL HIGH YIELD TOTAL RETURN (telephone) (800) 225-1852
FUND, INC.
--------------------------------------------------------------------------------
<PAGE>

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

FUND DISTRIBUTIONS AND TAX ISSUES
--------------------------------------------------------------------------------

Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and
CAPITAL GAINS, if any, to shareholders. These distributions are subject to
federal income taxes, unless you hold your shares in a 401(k) plan, an
Individual Retirement Account (IRA) or some other qualified or tax-deferred plan
or account. Dividends and distributions from the Fund also may be subject to
state and local income tax in the state where you live.

Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified or tax-deferred plan or account.

The following briefly discusses some of the important tax issues you should
be aware of, but is not meant to be tax advice. For tax advice, please speak
with your tax adviser.

DISTRIBUTIONS

The Fund distributes DIVIDENDS out of any net investment income, plus short-term
capital gains, to shareholders every month. For example, if the Fund owns an
ACME Corp. bond and the bond pays interest, the Fund will pay out a portion of
this interest as a dividend to its shareholders, assuming the Fund's income is
more than its costs and expenses. The dividends you receive from the Fund will
be taxed as ordinary income, whether or not they are reinvested in the Fund.
Corporate shareholders are not eligible for the 70% dividends-received deduction
on dividends paid by the Fund.

The Fund also distributes LONG-TERM CAPITAL GAINS to shareholders--typically
once a year. Long-term capital gains are generated when the Fund sells assets
that it held for more than 12 months for a profit. For an individual, the
maximum long-term capital gains rate is 20%.

For your convenience, Fund distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check if your account is with
the Transfer Agent. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified or tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.

--------------------------------------------------------------------------------
19

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

FUND DISTRIBUTIONS AND TAX ISSUES
--------------------------------------------------------------------------------

TAX ISSUES

FORM 1099

Every year, you will receive a Form 1099, which reports the amount of dividends
and long-term capital gains we distributed to you during the prior year. If you
own shares of the Fund as part of a qualified or tax-deferred plan or account,
your taxes are deferred, so you will not receive a Form 1099. However, you will
receive a Form 1099 when you take any distributions from your qualified or
tax-deferred plan or account.

Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter,
and actually pay them in January of the following year. In such cases, the
dividends are treated as if they were paid on December 31 of the prior year.

WITHHOLDING TAXES

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

IF YOU PURCHASE JUST BEFORE RECORD DATE

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

--------------------------------------------------------------------------------
20 PRUDENTIAL HIGH YIELD TOTAL RETURN (telephone) (800) 225-1852
FUND, INC.
--------------------------------------------------------------------------------

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

FUND DISTRIBUTIONS AND TAX ISSUES
--------------------------------------------------------------------------------

QUALIFIED OR TAX-DEFERRED RETIREMENT PLANS

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

IF YOU SELL OR EXCHANGE YOUR SHARES

If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax unless the shares are held in a qualified or
tax-deferred plan or account. For individuals, the maximum capital gains tax
rate is 20% for shares held for more than twelve months. If you sell shares of
the Fund for a loss, you may have a capital loss, which you may use to offset
certain capital gains you have.

------------------------------------------
+$ CAPITAL GAIN
(taxes owed)
RECEIPTS OR
FROM SALE
-$ CAPITAL LOSS
(offset against gain)
------------------------------------------

If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before the
sale of the shares). Under certain circumstances, if you acquire shares of the
Fund and sell or exchange your shares within 90 days, you may not be allowed to
include certain charges incurred in acquiring the shares for purposes of
calculating gain or loss realized upon the sale of the shares.

Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.

Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on Form 1099; however, proceeds from the sale or exchange will
be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified or tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell -- or exchange -- Fund

--------------------------------------------------------------------------------
21

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

FUND DISTRIBUTIONS AND TAX ISSUES
--------------------------------------------------------------------------------

shares, as well as the amount of any gain or loss on each transaction. For tax
advice, please see your tax adviser.

AUTOMATIC CONVERSION OF CLASS B SHARES

We have obtained a legal opinion that the conversion of Class B shares into
Class A shares -- which happens automatically approximately seven years after
purchase -- is not a "taxable event." This opinion, however, is not binding on
the Internal Revenue Service. For more information about the automatic
conversion of Class B shares, see "Class B Shares Convert to Class A Shares
After Approximately Seven Years" in the next section.

--------------------------------------------------------------------------------
22 PRUDENTIAL HIGH YIELD TOTAL RETURN (telephone) (800) 225-1852
FUND, INC.
--------------------------------------------------------------------------------

<PAGE>

HOW TO BUY, SELL AND
--------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
--------------------------------------------------------------------------------

HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT

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

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

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

STEP 2: CHOOSE A SHARE CLASS

Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.

Multiple share classes let you choose a cost structure that meets your
needs. With Class A shares, you pay the sales charge at the time of purchase,
but the operating expenses each year are lower than the expenses of Class B and
Class C shares. With Class B shares, you only pay a sales charge if you sell
your shares within six years (that is why it is called a Contingent Deferred
Sales Charge or CDSC), but the operating expenses each year are higher than
Class A share expenses. With Class C shares, you pay a 1% front-end sales charge
and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.

When choosing a share class, you should consider the following:

o The amount of your investment

o The length of time you expect to hold the shares and the impact of the
varying distribution fees

o The different sales charges that apply to each share class -- Class
A's front-end sales charge vs. Class B's CDSC vs. Class C's lower
front-end sales charge and low CDSC

o Whether you qualify for any reduction or waiver of sales charges

--------------------------------------------------------------------------------
23

<PAGE>

o The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase

o Whether you qualify to purchase Class Z shares.

See "How to Sell Your Shares" for a description of the impact of CDSCs.

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

--------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z

Minimum purchase $1,000 $1,000 $2,500 None
amount(1)
Minimum amount for $100 $100 $100 None
subsequent
purchases(1)

Maximum initial 4% of the None 1% of the None
sales charge public public
offering offering
price price

Contingent Deferred None If sold during: 1% on sales None
Sales Charge (CDSC)(2) Year 1 5% made within
Year 2 4% 18 months
Year 3 3% of purchase
Year 4 2%
Year 5 1%
Year 6 1%
Year 7 0%

Annual distribution .30 of 1% 1% 1% None
and service (.25 of 1% (.75 of 1% (.75 of 1%
(12b-1) currently) currently) currently)
fees (shown as a
percentage of
average
net assets)(3)
--------------------------------------------------------------------------------

1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN RETIREMENT AND
EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS FOR MINORS. THE MINIMUM
INITIAL AND SUBSEQUENT INVESTMENT FOR PURCHASES MADE THROUGH THE AUTOMATIC
INVESTMENT PLAN IS $50. FOR MORE INFORMATION, SEE "STEP 4: ADDITIONAL
SHAREHOLDER SERVICES -- AUTOMATIC INVESTMENt PLAN."

2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS CALCULATED, SEE "HOW TO
SELL YOUR SHARES -- CONTINGENT DEFERRED SALES CHARGE (CDSC)."

3 THESE DISTRIBUTION AND SERVICE (12B-1) FEES ARE PAID FROM THE FUND'S ASSETS
ON A CONTINUOUS BASIS. OVER TIME, THE FEES WILL INCREASE THE COST OF YOUR
INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER TYPES OF SALES CHARGES.
CLASS A SHARES MAY PAY A SERVICE FEE OF UP TO .25 OF 1%. CLASS B AND CLASS
C SHARES WILL PAY A SERVICE FEE OF .25 OF 1%. THE DISTRIBUTION FEE FOR
CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING UP TO .25 OF 1% AS A
SERVICE FEE), AND IS .75 OF 1% FOR CLASS B AND CLASS C SHARES. FOR THE
FISCAL YEAR ENDING MARCH 31, 2001, THE DISTRIBUTOR OF THE FUND HAS
CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12B-1) FEES
FOR CLASS A, CLASS B AND CLASS C SHARES TO .25 OF 1%, .75 OF 1% AND .75 OF
1% OF THE AVERAGE DAILY NET ASSETS OF CLASS A, CLASS B AND CLASS C SHARES,
RESPECTIVELY.

--------------------------------------------------------------------------------
24 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (TELEPHONE) (800) 225-1852

<PAGE>

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

INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's sales charge by
increasing the amount of your investment. This table shows how the sales charge
decreases as the amount of your investment increases.

----------------------------------------------------------------------------
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE

Less than $50,000 4.00% 4.17% 3.75%

$50,000 to $99,999 3.50% 3.63% 3.25%

$100,000 to $249,999 2.75% 2.83% 2.50%

$250,000 to $499,999 2.00% 2.04% 1.90%

$500,000 to $999,999 1.50% 1.52% 1.40%

1 million and above(1) None None None
----------------------------------------------------------------------------
1 IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A SHARES, UNLESS
YOU QUALIFY TO BUY CLASS Z SHARES.

To satisfy the purchase amounts above, you can:

o Invest with an eligible group of related investors

o Buy Class A shares of two or more Prudential mutual funds at the same
time

o Use your RIGHTS OF ACCUMULATION, which allow you to combine the
current value of Prudential mutual fund shares you already own with
the value of the shares you are purchasing for purposes of determining
the applicable sales charge (note: you must notify the Transfer Agent
if you qualify for Rights of Accumulation)

o Signa LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will invest a specific dollar amount in the
Fund and other Prudential mutual funds within 13 months.

The Distributor may reallow Class A's sales charge to dealers.

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

--------------------------------------------------------------------------------
25
<PAGE>

MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group relating
to:

o Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades and charges its clients a management, consulting or
other fee for its services

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

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

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

WAIVING CLASS C'S INITIAL SALES CHARGE

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

INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated (Prudential Securities) or one of its affili-

--------------------------------------------------------------------------------
26 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (TELEPHONE) (800) 225-1852

<PAGE>

ates. These purchases must be made within 60 days of the redemption. To qualify
for this waiver, you must do one of the following:

o Purchase your shares through an account at Prudential Securities

o Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation

o Purchase your shares through another broker.

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

QUALIFYING FOR CLASS Z SHARES

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

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

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

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

OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:

o Certain participants in the MEDLEY Program (group variable annuity

--------------------------------------------------------------------------------
27

<PAGE>

contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option

o Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund)

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

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

CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.

When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares --
Class B Shares."

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY

The price you pay for each share of the Fund is based on the share
value. The share value of a mutual fund -- known as the NET ASSET
VALUE or NAV -- is determined by a simple calculation: it's the
total value of the Fund (assets minus liabilities) divided by the
total number of shares outstanding. For example, if the value of
the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the
price of one share of the fund -- or the NAV -- is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market
quotations or, if not readily available, at fair value as
determined in good faith under procedures

--------------------------------------------------------------------------------
28 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (TELEPHONE) (800) 225-1852

<PAGE>

established by the Fund's Board. Most national newspapers report the NAVs of
most mutual funds, which allows investors to check the price of mutual funds
daily.

---------------------------------------------
MUTUAL FUND SHARES
THE NAV OF MUTUAL FUND SHARES CHANGES EVERY
DAY BECAUSE THE VALUE OF A FUND'S PORTFOLIO
CHANGES CONSTANTLY. FOR EXAMPLE, IF FUND XYZ
HOLDS ACME CORP. BONDS IN ITS PORTFOLIO AND
THE PRICE OF ACME CORP. BONDS GOES UP WHILE
THE VALUE OF THE FUND'S OTHER HOLDINGS
REMAINS THE SAME AND EXPENSES DON'T CHANGE,
THE NAV OF FUND XYZ WILL INCREASE.
----------------------------------------------

We determine the NAV of our shares once each business day at 4:15 p.m., New
York time, on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on most national holidays and Good Friday. Because the Fund
may invest in foreign securities, its NAV may change on days when you cannot buy
or sell Fund shares. We do not determine the NAV on days when we have not
received any orders to purchase, sell or exchange Fund shares, or when changes
in the value of the Fund's portfolio do not materially affect the NAV.

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

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

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

--------------------------------------------------------------------------------
29

<PAGE>

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

AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the money automatically withdrawn from your bank or
brokerage account at specified intervals.

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

THE PRUTECTOR PROGRAM. Optional group term life insurance -- which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines -- is available to investors who purchase their shares through
Prudential. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory evidence of
insurability. This insurance is subject to other restrictions and is not
available in all states.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption checks.
Remember, the sale of Class B and Class C shares may be subject to a CDSC.

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

--------------------------------------------------------------------------------
30 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (TELEPHONE) (800) 225-1852

<PAGE>

HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.

When you sell shares of the Fund -- also known as redeeming your shares --
the price you will receive will be the NAV next determined after the Transfer
Agent, the Distributor or your broker receives your order to sell (less any
applicable CDSC). If your broker holds your shares, your broker must receive
your order to sell by 4:15 p.m., New York time, to process the sale on that day.
Otherwise, contact:

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

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

RESTRICTIONS ON SALES

There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. As permitted by the
Securities and Exchange Commission, this may happen only during unusual market
conditions or emergencies when the Fund can't determine the value of its assets
or sell its holdings. For more information, see the SAI, "Purchase, Redemption
and Pricing of Fund Shares -- Sale of Shares."

If you are selling more than $100,000 of shares, if you want the check
payable or sent to someone or some place that is not in our records, or you are
a business or a trust and if you hold your shares directly with the Transfer
Agent, you will need to have the signature on your sell order signature
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker-dealer or credit union. For more
information, see the

--------------------------------------------------------------------------------
31
<PAGE>

SAI, "Purchase, Redemption and Pricing of Fund Shares -- Sale of Shares --
Signature Guarantee."

CONTINGENT DEFERRED SALES CHARGE (CDSC)

If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:

o Amounts representing shares you purchased with reinvested dividends
and distributions

o Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares
and 18 months for Class C shares

o Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares).

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

Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.

As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth, and 1% in the fifth and sixth years. The rate decreases on the first
day of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares -- which is applied
to shares sold within 18 months of purchase. For both Class B and Class C
shares, the CDSC is calculated based on the lesser of the original purchase
price or the redemption proceeds. For purposes of determining how long you've
held your shares, all purchases during the month are grouped together and
considered to have been made on the last day of the month.

The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after purchase, excluding any time
shares were held in a money market fund.

--------------------------------------------------------------------------------
32 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (TELEPHONE) (800) 225-1852

<PAGE>

WAIVER OF THE CDSC -- CLASS B SHARES

The CDSC will be waived if the Class B shares are sold:

o After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy, provided the shares were purchased before the death or
disability

o To provide for certain distributions -- made without IRS penalty --
from a qualified or tax-deferred retirement plan, IRA or Section
403(b) custodial account

o On certain sales effected through the Systematic Withdrawal Plan.

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

WAIVER OF THE CDSC -- CLASS C SHARES

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

REDEMPTION IN KIND

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

SMALL ACCOUNTS

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

--------------------------------------------------------------------------------
33

<PAGE>

90-DAY REPURCHASE PRIVILEGE

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

RETIREMENT PLANS

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

HOW TO EXCHANGE YOUR SHARES

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

--------------------------------------------------------------------------------
34 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (TELEPHONE) (800) 225-1852

<PAGE>

If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:

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

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

Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues -- If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account -- Exchange Privilege."

If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares that are not subject to a CDSC for Class A shares. We
make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained a legal opinion that this exchange is not a "taxable
event" for federal income tax purposes. This opinion is not binding on the IRS.

FREQUENT TRADING

Frequent trading of Fund shares in response to short-term fluctuations in the
market -- also known as "market timing" -- may make it very difficult to manage
the Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will

--------------------------------------------------------------------------------
35

<PAGE>

have to invest. When, in our opinion, such activity would have a disruptive
effect on portfolio management, the Fund reserves the right to refuse purchase
orders and exchanges into the Fund by any person, group or commonly controlled
account. The decision may be based upon dollar amount, volume and frequency of
trading. The Fund may notify a market timer of rejection of an exchange or
purchase order after the day the order is placed. If the Fund allows a market
timer to trade Fund shares, it may require the market timer to enter into a
written agreement to follow certain procedures and limitations.

TELEPHONE REDEMPTIONS OR EXCHANGES

You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852 before 4:15 p.m. New York time. You will receive a redemption
amount based on that day's NAV.

The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.

In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail.

The telephone redemption and exchange privileges may be modified or
terminated at any time. If this occurs, you will receive a written notice from
the Fund.

--------------------------------------------------------------------------------
36 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (TELEPHONE) (800) 225-1852
<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.

Review each chart with the financial statements and the report of
independent accountants, which appear in the annual report and the SAI and are
available upon request. Additional performance information for each share class
is contained in the annual report, which you can receive at no charge.

CLASS A SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports were unqualified.

--------------------------------------------------------------------------------
CLASS A SHARES (FISCAL YEARS ENDED 3/31)
PER SHARE OPERATING PERFORMANCE 2000 1999(1)
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $8.91 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.85 0.79
Net realized and
unrealized gain (loss)
on investment and foreign
currency transactions (0.70) (1.08)
TOTAL FROM INVESTMENT OPERATIONS .15 (0.29)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.85) (0.79)
Distributions in excess of net
investment income -- (0.01)
TOTAL DISTRIBUTIONS (0.85) (0.80)
NET ASSET VALUE, END OF YEAR $8.21 $8.91
TOTAL RETURN(2) 1.38% (2.97)%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999(1)
--------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $23,137 $37,558
Average net assets (000) $32,154 $35,147
RATIOS TO AVERAGE NET ASSETS: (3)
Expenses, including distribution
and service (12b-1) fees 1.18% 1.06%(4)
Expenses, excluding distribution and
service (12b-1) fees 0.93% 0.89%(4)
Net investment income 9.84% 9.52%(4)
Portfolio turnover 101% 97%
--------------------------------------------------------------------------------

(1) FOR THE PERIOD FROM MAY 5, 1998 (WHEN CLASS A SHARES WERE FIRST OFFERED)
THROUGH MARCH 31, 1999.

(2) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN A FULL YEAR ARE NOT
ANNUALIZED.

(3) NET OF EXPENSE SUBSIDY AND/OR FEE WAIVER.

(4) ANNUALIZED.

--------------------------------------------------------------------------------
37

<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

CLASS B SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports were unqualified.

--------------------------------------------------------------------------------
CLASS B SHARES (FISCAL YEARS ENDED 3/31)
PER SHARE OPERATING PERFORMANCE 2000 1999(1)
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $8.91 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.80 0.74
Net realized and
unrealized gain (loss)
on investment and foreign
currency transactions (0.70) (1.08)
TOTAL FROM INVESTMENT OPERATIONS 0.10 (0.34)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.80) (0.74)
Distributions in excess of net
investment income -- (0.01)
TOTAL DISTRIBUTIONS (0.80) (0.75)
NET ASSET VALUE, END OF YEAR $8.21 $8.91
TOTAL RETURN(2) 0.88% (3.45)%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999(1)
--------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $82,438 $97,454
Average net assets (000) $93,280 $92,201
RATIOS TO AVERAGE NET ASSETS: (3)
Expenses, including distribution and
service (12b-1) fees 1.68% 1.64%(4)
Expenses, excluding distribution and
service (12b-1) fees 0.93% 0.89%(4)
Net investment income 9.35% 8.97%(4)
Portfolio turnover 101% 97%
--------------------------------------------------------------------------------
(1) FOR THE PERIOD FROM MAY 5, 1998 (WHEN CLASS B SHARES WERE FIRST OFFERED)
THROUGH MARCH 31, 1999.

(2) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.TOTAL RETURNS FOR PERIODS OF LESS THAN A FULL YEAR ARE NOT
ANNUALIZED.

(3) NET OF EXPENSE SUBSIDY AND/OR FEE WAIVER.

(4) ANNUALIZED.

--------------------------------------------------------------------------------
38 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

CLASS C SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports were unqualified.

--------------------------------------------------------------------------------
CLASS C SHARES (FISCAL YEARS ENDED 3/31)
PER SHARE OPERATING PERFORMANCE 2000 1999(1)
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $8.91 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(3) 0.80 0.74
Net realized and
unrealized gain (loss)
on investment and foreign
currency transactions (0.70) (1.08)
TOTAL FROM INVESTMENT OPERATIONS 0.10 (0.34)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.80) (0.74)
Distributions in excess of net
investment income -- (0.01)
TOTAL DISTRIBUTIONS (0.80) (0.75)
NET ASSET VALUE, END OF YEAR $8.21 $8.91
TOTAL RETURN(2) 0.88% (3.45)%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999(1)
--------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $13,618 $19,249
Average net assets (000) $16,567 $18,089
RATIOS TO AVERAGE NET ASSETS: (3)
Expenses, including distribution
and service (12b-1) fees 1.68% 1.64%(4)
Expenses, excluding distribution and
service (12b-1) fees 0.93% 0.89%(4)
Net investment income 9.35% 8.96%(4)
Portfolio turnover 101% 97%
--------------------------------------------------------------------------------

(1) FOR THE PERIOD FROM MAY 5, 1998 (WHEN CLASS C SHARES WERE FIRST OFFERED)
THROUGH MARCH 31, 1999.

(3) NET OF EXPENSE SUBSIDY AND/OR FEE WAIVER.

(4) ANNUALIZED.

--------------------------------------------------------------------------------
39

<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

CLASS Z SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports were unqualified.

--------------------------------------------------------------------------------
CLASS Z SHARES (FISCAL YEARS ENDED 3/31)
PER SHARE OPERATING PERFORMANCE 2000 1999(1)
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $8.91 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.87 0.80(4)
Net realized and
unrealized gain (loss)
on investment and foreign
currency transactions (0.70) (1.08)
TOTAL FROM INVESTMENT OPERATIONS 0.17 (0.28)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.87) (0.80)
Distributions in excess of net
investment income -- (0.01)
TOTAL DISTRIBUTIONS (0.87) (0.81)
NET ASSET VALUE, END OF YEAR $8.21 $8.91
TOTAL RETURN(2) 1.63% (2.82)%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999(1)
--------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $1,683 $2,113
Average net assets (000) $1,919 $2,060
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
and service (12b-1) fees 0.93% 0.89%(3,4)
Expenses, excluding distribution
and service (12b-1) fees 0.93% 0.89%(3,4)
Net investment income 10.08% 9.90%(3,4)
Portfolio turnover 101% 97%
--------------------------------------------------------------------------------

(1) FOR THE PERIOD FROM MAY 5, 1998 (WHEN CLASS Z SHARES WERE FIRST OFFERED)
THROUGH MARCH 31, 1999.

(3) ANNUALIZED.

(4) NET OF FEE WAIVER.

--------------------------------------------------------------------------------
40 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
--------------------------------------------------------------------------------

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

STOCK FUNDS ASSET ALLOCATION/BALANCED FUNDS

PRUDENTIAL EMERGING GROWTH FUND, INC. PRUDENTIAL BALANCED FUND
PRUDENTIAL EQUITY FUND, INC. PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL EQUITY INCOME FUND CONSERVATIVE GROWTH FUND
PRUDENTIAL INDEX SERIES FUND MODERATE GROWTH FUND
PRUDENTIAL SMALL-CAP INDEX FUND HIGH GROWTH FUND
PRUDENTIAL STOCK INDEX FUND THE PRUDENTIAL INVESTMENT PORTFOLIOS,
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
INC. PRUDENTIAL ACTIVE BALANCED FUND
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME GLOBAL FUNDS
FUND GLOBAL STOCK FUNDS
PRUDENTIAL MID-CAP VALUE FUND PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND PRUDENTIAL DEVELOPING MARKETS
PRUDENTIAL SECTOR FUNDS, INC. EQUITY FUND
PRUDENTIAL FINANCIAL SERVICES FUND PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL HEALTH SCIENCES FUND PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL TECHNOLOGY FUND PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL UTILITY FUND PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL COMPANY VALUE PRUDENTIAL EUROPE INDEX FUND
FUND, INC. PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL TAX-MANAGED FUNDS PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL TAX-MANAGED SMALL-CAP PRUDENTIAL WORLD FUND, INC.
FUND INC. PRUDENTIAL GLOBAL GROWTH FUND
PRUDENTIAL 20/20 FOCUS FUND PRUDENTIAL INTERNATIONAL VALUE FUND
NICHOLAS-APPLEGATE FUND, INC. PRUDENTIAL JENNISON INTERNATIONAL
NICHOLAS-APPLEGATE GROWTH EQUITY GROWTH FUND
FUND GLOBAL UTILITY FUND, INC.
TARGET FUNDS TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND INTERNATIONAL EQUITY FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND GLOBAL BOND FUNDS
SMALL CAPITALIZATION VALUE FUND PRUDENTIAL GLOBAL TOTAL RETURN FUND,
INC.
PRUDENTIAL INTERNATIONAL BOND FUND,
INC.

--------------------------------------------------------------------------------
41

<PAGE>

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

BOND FUNDS MONEY MARKET FUNDS

TAXABLE BOND FUNDS TAXABLE MONEY MARKET FUNDS
PRUDENTIAL GOVERNMENT INCOME CASH ACCUMULATION TRUST
FUND, INC. LIQUID ASSETS FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST NATIONAL MONEY MARKET FUND
SHORT-INTERMEDIATE TERM SERIES PRUDENTIAL GOVERNMENT SECURITIES TRUST
PRUDENTIAL HIGH YIELD FUND, INC. MONEY MARKET SERIES
PRUDENTIAL HIGH YIELD TOTAL RETURN U.S. TREASURY MONEY MARKET SERIES
FUND, INC. PRUDENTIAL SPECIAL MONEY MARKET
PRUDENTIAL INDEX SERIES FUND FUND, INC.
PRUDENTIAL BOND MARKET INDEX FUND MONEY MARKET SERIES
PRUDENTIAL SHORT-TERM CORPORATE BOND PRUDENTIAL MONEYMART ASSETS, INC.
FUND, INC.
INCOME PORTFOLIO TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TOTAL RETURN BOND FUND, INC. PRUDENTIAL TAX-FREE MONEY FUND, INC.
TARGET FUNDS PRUDENTIAL CALIFORNIA MUNICIPAL FUND
TOTAL RETURN BOND FUND CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
TAX-EXEMPT BOND FUNDS CONNECTICUT MONEY MARKET SERIES
PRUDENTIAL CALIFORNIA MUNICIPAL FUND MASSACHUSETTS MONEY MARKET SERIES
CALIFORNIA SERIES NEW JERSEY MONEY MARKET SERIES
CALIFORNIA INCOME SERIES NEW YORK MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL BOND FUND COMMAND FUNDS
HIGH INCOME SERIES COMMAND MONEY FUND
INSURED SERIES COMMAND GOVERNMENT FUND
PRUDENTIAL MUNICIPAL SERIES FUND COMMAND TAX-FREE FUND
FLORIDA SERIES
MASSACHUSETTS SERIES INSTITUTIONAL MONEY MARKET FUNDS
NEW JERSEY SERIES PRUDENTIAL INSTITUTIONAL LIQUIDITY
NEW YORK SERIES PORTFOLIO, INC.
NORTH CAROLINA SERIES INSTITUTIONAL MONEY MARKET SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS
FUND, INC.

--------------------------------------------------------------------------------
42 PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC. (Telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
APPENDIX A
--------------------------------------------------------------------------------

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 the 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 to be 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.

--------------------------------------------------------------------------------
A-1 PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.

<PAGE>

--------------------------------------------------------------------------------
APPENDIX A
--------------------------------------------------------------------------------

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-l: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:

o Leading market positions in well-established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

o Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

--------------------------------------------------------------------------------
A-2

<PAGE>

--------------------------------------------------------------------------------
APPENDIX A
--------------------------------------------------------------------------------

STANDARD & POOR'S RATINGS GROUP

BOND RATINGS

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA: An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A: An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB: An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB, B, CCC and CC: Obligations rated BB, B, CCC and CC are regarded as
having significant speculative characteristics, BB indicates the least degree of
speculation and CC the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major 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-l: This designation 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-l.

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.

--------------------------------------------------------------------------------
A-3 PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.

<PAGE>

--------------------------------------------------------------------------------
APPENDIX A
--------------------------------------------------------------------------------

AA: High credit quality. Protection factors are strong. Risk is modest but
may vary slightly 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, 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-4

<PAGE>

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

NOTES

--------------------------------------------------------------------------------
PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.

<PAGE>

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

NOTES

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

<PAGE>

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

NOTES

--------------------------------------------------------------------------------
PRUDENTIAL HIGH YIELD TOTAL RETURN (Telephone) (800) 225-1852
FUND, INC.

<PAGE>
FOR MORE INFORMATION

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

PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 482-7555 (Calling from outside the U.S.)

Outside Brokers should contact

PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769

Visit Prudential's website at
http://www.prudential.com

Additional information about the Fund can
be obtained without charge and can be
found in the following documents

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

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

SEMI-ANNUAL REPORT

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

BY MAIL
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102

BY ELECTRONIC REQUEST
[email protected]
(The SEC charges a fee to copy
documents.)

IN PERSON
Public Reference Room in Washington, DC
(For hours of operation, call
1-202-942-8090)

VIA THE INTERNET
on the EDGAR Database at
http://www.sec.gov

CUSIP Numbers NASDAQ Symbols
Class A Shares--74437D-10-9 PYRAX
Class B Shares--74437D-20-8 PYRBX
Class C Shares--74437D-30-7 PHYCX
Class Z Shares--74437D-40-6 -

Investment Company Act File No. 811-08101

MF181A [SYMBOL] Printed on Recycled Paper

<PAGE>

PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.

Statement of Additional Information
dated June 5, 2000

Prudential High Yield Total Return Fund, Inc. (the Fund) is an open-end,
diversified, management investment company whose investment objective is total
return through high current income and capital appreciation. The Fund seeks to
achieve its objective by investing primarily in high-yield fixed-income
securities. Under normal circumstances, the Fund intends to invest at least 65%
of its total assets in such securities. There can be no assurance that the
Fund's investment objective will be achieved. See "Description of the Fund, Its
Investments and Risks."

The Fund'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 Fund's Prospectus dated June 5, 2000, a copy of
which may be obtained from the Fund upon request.

TABLE OF CONTENTS

PAGE
----

Fund History ............................................................ B-2
Description of the Fund, Its Investments and Risks ...................... B-2
Investment Restrictions ................................................. B-23
Management of the Fund .................................................. B-24
Control Persons and Principal Holders of Securities ..................... B-27
Investment Advisory and Other Services .................................. B-27
Brokerage Allocation and Other Practices ................................ B-32
Capital Shares, Other Securities and Organization ....................... B-34
Purchase, Redemption and Pricing of Fund Shares ......................... B-34
Shareholder Investment Account .......................................... B-44
Net Asset Value ......................................................... B-48
Taxes, Dividends and Distributions ...................................... B-49
Performance Information ................................................. B-51
Financial Statements .................................................... B-54
Report of Independent Accountants ....................................... B-87
Appendix I--Historical Performance Data ................................. I-1
Appendix II--General Investment Information ............................. II-1

===============================================================================

MF181B

<PAGE>

FUND HISTORY

The Fund was incorporated in Maryland on February 18, 1997. Prudential
Distressed Securities Fund, Inc. merged into the Fund in January 2000. There was
no material change in the operation of the Fund as a result of the merger.

DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

(A) CLASSIFICATION. The Fund is a diversified, open-end management investment
company.

(B) AND (C) INVESTMENT STRATEGIES, POLICIES AND RISKS. The Fund's investment
objective is total return through high current income and capital appreciation.
The Fund will seek to achieve its objective by investing primarily in high-yield
fixed-income securities. Under normal circumstances, the Fund intends to invest
at least 65% of its total assets in such securities. The Fund may also invest in
any other securities believed by the investment adviser to be consistent with
the Fund's investment objective, including preferred stocks, equity-related
securities, which may be attached to or included in a unit with fixed-income
securities at the time of purchase, convertible securities, loan participations
and assignments, trade claims, higher rated fixed-income securities, futures
contracts and options thereon, other derivatives and certain other investments
described in the Prospectus and this Statement of Additional Information. There
can be no assurance that the Fund's investment objective will be achieved. See
"How the Fund Invests--Investment Objective and Policies" in the Prospectus.

While the principal investment policies and strategies for seeking to
achieve the Fund's objective are described in the Fund's Prospectus, the Fund
may from time to time also use the securities, instruments, policies and
principal and non-principal strategies described below in seeking to achieve its
objective.

HIGH-YIELD DEBT SECURITIES

Low rated fixed-income securities are securities rated below Baa by Moody's
Investors Service (Moody's) or BBB by Standard & Poor's Rating Group (Standard &
Poor's), or comparably rated by any other Nationally Recognized Statistical
Rating Organization (NRSRO). Low rated and comparable unrated securities tend to
offer higher yields than higher rated securities with the same maturities
because the historical financial condition of the issuers of such securities may
not have been as strong as that of other issuers. Such high-yield securities are
commonly known as junk bonds. Since lower rated securities generally involve
greater risks of loss of income and principal than higher rated securities,
investors should consider carefully the relative risks associated with
investments in securities which carry lower ratings and in comparable unrated
securities. Changes in economic or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments in bonds rated
below Baa or BBB than is the case with higher grade bonds. Corporate bonds rated
below Baa by Moody's and BBB by Standard & Poor's are considered speculative.
Investment in these securities is a long-term investment strategy and,
accordingly, investors in the Fund should have the financial ability and
willingness to remain invested for the long term.

Fluctuations in the prices of fixed-income securities may be caused by
among other things, the supply and demand for similarly rated securities. In
addition, the prices of fixed income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in the Fund's net asset value (NAV).

The investment adviser will attempt to reduce these risks through
diversification of the portfolio and by analysis of each issuer and its ability
to make timely payments of income and principal, as well as broad economic
trends in corporate developments. The investment adviser will not rely
principally on the ratings assigned by the rating services, although such
ratings will be considered by the investment adviser. A description of corporate
bond ratings is contained in Appendix A to the Prospectus. Ratings of
fixed-income securities represent the rating agencies' opinions regarding their
credit quality and are not a guarantee of quality. Rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than a rating
indicates. Therefore, the investment adviser will also consider, among other
things, the financial history and condition, the prospects and the management of
an issuer in selecting securities for the Fund's portfolio. Since some issuers
do not seek ratings for their securities, non-rated securities will also be
considered for investment by the Fund only when the investment adviser believes
that the financial condition of the issuers of such securities and/or the
protection afforded by the terms of the securities themselves limit the risk to
the Fund to a degree comparable to that of rated securities that are consistent
with the Fund's objective and policies.

B-2

<PAGE>

RISKS RELATING TO INVESTING IN HIGH-YIELD DEBT SECURITIES

Fixed-income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Lower rated or similar unrated (that is,
high-yield) securities 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
the Fund. The achievement of its investment objective may be more dependent on
the investment adviser's own credit analysis than is the case for higher quality
bonds. Investors should carefully consider the relative risks of investing in
high-yield securities and understand that such securities are not generally
meant for short-term investing.

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. During an economic downturn or recession, securities
of highly leveraged issuers are more likely to default than securities of higher
rated issuers. 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. 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 the Fund's NAV. Under
circumstances where the Fund owns the majority of an issue, market and credit
risks may be greater. Moreover, from time to time, it may be more difficult to
value high-yield securities than more highly rated securities.

In addition to the risk of default, there are the related costs of recovery
on defaulted issues. The investment adviser will attempt to reduce these risks
through diversification of the portfolio and by analysis of each issuer and its
ability to make timely payments of income and principal, as well as broad
economic trends in corporate developments.

Since investors generally perceive that there are greater risks associated
with the lower rated securities of the type in which the Fund may invest, the
yields and prices of such securities may tend to fluctuate more than those for
higher rated securities. In the lower quality segments of the fixed-income
securities market, changes in perceptions of issuers' creditworthiness tend to
occur more frequently and in a more pronounced manner than do changes in higher
quality segments of the fixed-income securities which, as a general rule,
fluctuate in response to the general level of interest rates.

Certain of the high-yield fixed-income securities in which the Fund may
invest may be purchased at a market discount. The Fund does not intend to hold
such securities until maturity unless current yields on these securities remain
attractive. Capital losses may be recognized when securities purchased at a
premium are held to maturity or are called or redeemed at a price lower than
their purchase price. Capital gains or losses may also be recognized for federal
income tax purposes on the retirement of such securities or may be recognized
upon the sale of securities.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors.

ZERO COUPON, PAY-IN-KIND OR DEFERRED PAYMENT SECURITIES

The Fund may invest in zero coupon, pay-in-kind or deferred payment
securities. Zero coupon securities are securities that are sold at a discount to
par value and on which interest payments are not made during the life of the
security. The discount approximates the total amount of interest the security
will accrue and compound over the period until maturity on the particular
interest payment date at a rate of interest reflecting the market rate of the
security at the time of issuance. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." The effect of owning instruments which do not make current
interest payments is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount accretion during the life of the
obligations. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to invest distributions at a rate as high as the
implicit yield on the zero coupon bond, but at the same time eliminates the
holder's ability to reinvest at higher rates in the future. For this reason,
some of these securities may be subject to substantially

B-3

<PAGE>

greater price fluctuations during periods of changing market interest rates than
are comparable securities which pay interest currently, which fluctuation
increases the longer the period to maturity. These investments benefit the
issuer by mitigating its need for cash to meet debt service, but also require a
higher rate of return to attract investors who are willing to defer receipt of
cash. The Fund accrues income with respect to these securities for federal
income tax and accounting purposes prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain a zero coupon security until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparable rated securities paying cash
interest at regular intervals.

There are certain risks related to investing in zero coupon, pay-in-kind
and deferred payment securities. These securities generally are more sensitive
to movements in interest rates and are less liquid than comparably rated
securities paying cash interest at regular intervals. Consequently, such
securities may be subject to greater fluctuation in value. During a period of
severe market conditions, the market for such securities may become even less
liquid. In addition, as these securities do not pay cash interest, the Fund's
investment exposure to these securities and their risks, including credit risk,
will increase during the time these securities are held in the Fund's portfolio.
Further, to maintain its qualification for pass-through treatment under the
federal tax laws, the Fund is required to distribute income to its shareholders
and, consequently, may have to dispose of its portfolio securities under
disadvantageous circumstances to generate the cash, or may have to leverage
itself by borrowing the cash to satisfy these distributions, as they relate to
the distribution of "phantom income" and the value of the paid-in-kind interest.
The required distributions will result in an increase in the Fund's exposure to
such securities.

FOREIGN SECURITIES

The Fund may invest up to 35% of its total assets in equity and
fixed-income securities of foreign government and other foreign issuers
denominated in U.S. dollars and up to 5% of its total assets in foreign
currency-denominated securities issued by foreign or domestic issuers. American
and global depositary receipts are not included in this 35% limitation. American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) and other types of depositary receipts evidence
ownership of underlying securities issued by a foreign corporation that have
been deposited with a depositary or custodian bank, typically a U.S. bank or
trust company. Depositary receipts may be issued in connection with an offering
of securities by the issuer of the underlying securities or issued by a
depositary bank as a vehicle to promote investment and trading in the underlying
securities. While depositary receipts may not necessarily be denominated in the
same currency as the underlying securities, the risks associated with foreign
securities also generally apply to depositary receipts.

FOREIGN 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)
denominated in U.S. dollars or foreign currencies. 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-governmental entities include, among
others, the Province of Ontario and the City of Stockholm. Foreign government
securities also include mortgage-backed securities issued by Government
Entities.

BRADY BONDS. The Fund is permitted to invest in debt obligations commonly
known as "Brady Bonds" which are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructurings under a plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds have been issued in
connection with the restructuring of the bank loans, for example, of the
governments of Mexico, Venezuela and Argentina.

Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. They may be collateralized or uncollateralized and issued
in various currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market.

Dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations which have
the same

B-4

<PAGE>

maturity as the Brady Bonds. Interest payments on these Brady Bonds generally
are collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is equal to at least one year of rolling interest payments based on
the applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (1) the collateralized repayment of
principal at final maturity; (2) the collateralized interest payments; (3) the
uncollateralized interest payments; and (4) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute the "residual
risk"). In the event of a default with respect to collateralized Brady Bonds as
a result of which the payment obligations of the issuer are accelerated, the
U.S. Treasury zero coupon obligations held as collateral for the payment of
principal will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held by the collateral
agent to the scheduled maturity of the defaulted Brady Bonds, which will
continue to be outstanding, at which time the face amount of the collateral will
equal the principal payments which would have then been due on the Brady Bonds
in the normal course. In addition, in light of the residual risk of Brady Bonds
and, among other factors, the history of defaults with respect to commercial
bank loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.

RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES

Foreign securities involve certain risks, which should be considered
carefully by an investor in the Fund. These risks include political or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange
controls, the seizure or nationalization of foreign deposits and the risk of
foreign 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
issuer or government than about a domestic issuer or the U.S. Government.
Foreign issuers generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers. 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 development
which could affect investment. In many instances, foreign debt securities may
provide higher yields than securities of domestic issuers which have similar
maturities and quality. These investments, however, may be less liquid than the
securities of U.S. issuers. In the event of default of any such foreign debt
obligations, it may be more difficult for the Fund to obtain or enforce a
judgment against the issuers of such securities.

Investing in the equity and fixed-income 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 may be
greater with respect to investments in developing countries and are certainly
greater with respect to investments in the securities of financially and
operationally troubled issuers.

Additional costs could be incurred in connection with the Fund's
international investment activities. Foreign countries may impose taxes on
income on foreign investments. Foreign brokerage commissions are generally
higher than United States brokerage commissions. Increased custodian costs as
well as administrative difficulties (such as the applicability of foreign laws
to foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.

If the security is denominated in a foreign currency, it will be affected
by changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of income
the Fund is required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time the Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred.

B-5

<PAGE>

The Fund may, but need not, enter into foreign currency forward 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.

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

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

The conversion may adversely affect the Fund if the euro does not take
effect as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Fund's
service providers, or by entities with which the Fund or its service providers
do business, are not capable of recognizing the euro as a distinct currency at
the time of, and following, euro conversion. In addition, the conversion could
cause markets to become more volatile.

The conversion may impact the trading in securities of issuers located in,
or denominated in the currencies of, the member states, as well as foreign
exchanges, payments, the settlement process, custody of assets and accounting.
In addition, the transition of member states' currency into the euro will
eliminate the currency risk among the member states and will likely affect the
investment process and considerations of the Fund's investment adviser. To the
extent the Fund holds non-U.S. dollar-denominated securities, including those
denominated in the euro, the Fund will still be subject to currency risk due to
fluctuations in those currencies as compared to the U.S. dollar.

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

The overall impact of the transition of member states' currencies to the
euro cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general short- and long-term
ramifications can be expected,such as changes in the economic environment and
changes in the behavior of investors, all of which will impact the Fund's
investments and its NAV. In addition, although U.S. Treasury regulations
generally provide that the euro conversion will not, in itself, cause a U.S.
taxpayer to realize a gain or loss, other changes may occur at the time of the
conversion, such as accrual periods, holiday conventions, indexes and other
features that may require the realization of a gain or a loss by the Fund as
determined under existing tax law.

The Fund's Manager is taking steps: (a) that it believes will reasonably
address euro-related changes to enable the Fund to process transactions
accurately and completely with minimal disruption to business activities, and
(b) to obtain reasonable assurances that appropriate steps are being taken by
each of the Fund's other service providers.

BANK DEBT

The Fund may invest in bank debt which includes interests in loans to
companies or their affiliates undertaken to finance a capital restructuring or
in connection with recapitalizations, acquisitions, leveraged buyouts,
refinancings or other financially leveraged transactions and may include loans
which are designed to provide temporary or "bridge" financing to a borrower
pending the sale of identified assets, the arrangement of longer-term loans or
the issuance and sale of debt obligations. These loans, which may bear fixed or
floating rates, have generally been arranged through private negotiations
between a corporate borrower and one or more financial institutions (Lenders),
including banks. The Fund's investment may be in the form of participations in
loans (Participations) or of assignments of all or a portion of loans from third
parties (Assignments).

Participations differ both from the public and private debt securities
typically held by the Fund and from Assignments. In Participations, the Fund has
a contractual relationship only with the Lender, not with the borrower. As a
result, the Fund has the right to receive payments of principal, interest and
any fees to which it is entitled only from the Lender selling the Participation
and only upon receipt by the Lender of the payments from the borrower. In
connection with purchasing Participations, the Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan Agreement
relating to the loan, nor any rights of set-off against the borrower, and the
Fund may not benefit directly from any collateral supporting the loan in

B-6

<PAGE>

which it has purchased the Participation. Thus, the Fund assumes the credit risk
of both the borrower and the Lender that is selling the Participation. In the
event of the insolvency of the Lender, the Fund may be treated as a general
creditor of the Lender and may not benefit from any set-off between the Lender
and the borrower. In Assignments, by contrast, the Fund acquires direct rights
against the borrower, except that under certain circumstances such rights may be
more limited than those held by the assigning Lender.

Investments in Participations and Assignments otherwise bear risks common
to other debt securities, including the risk of nonpayment of principal and
interest by the borrower, the risk that any loan collateral may become impaired
and that the Fund may obtain less than the full value for loan interests sold
because they are illiquid.

The Fund may have difficulty disposing of Assignments and Participations.
Because the market for such instruments is not highly liquid, the Fund
anticipates that such instruments could be sold only to a limited number of
institutional investors. The lack of a highly liquid secondary market may have
an adverse impact on the value of such instruments and will have an adverse
impact on the Fund's ability to dispose of particular Assignments or
Participations in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower. In addition to the creditworthiness of
the borrower, the Fund's ability to receive payment of principal and interest is
also dependent on the creditworthiness of any institution (that is, the Lender)
interposed between the Fund and the borrower.

SECURITIES OF FINANCIALLY AND OPERATIONALLY TROUBLED ISSUERS

The Fund may invest in debt or equity securities of financially troubled or
bankrupt companies (financially troubled issuers) and in debt or equity
securities of companies that in the view of the Subadviser are currently
undervalued, out-of-favor or price depressed relative to their long-term
potential for growth and income (operationally troubled issuers) (collectively
distressed securities). Equity securities include common stocks, preferred stock
and rights and warrants.

The investment adviser maintains a credit unit which the Fund's portfolio
managers may consult in managing the Fund's portfolio and in researching
financially troubled and operationally troubled issuers. The Fund's portfolio
managers review on an ongoing basis financially troubled and operationally
troubled issuers, including prospective purchases and portfolio holdings of the
Fund. They have broad access to research and financial reports, data retrieval
services and industry analysts.

The securities of financially and operationally troubled issuers may
require active monitoring and at times may require the Fund's investment adviser
to participate in bankruptcy or reorganization proceedings on behalf of the
Fund. To the extent the investment adviser becomes involved in such proceedings,
the Fund may have a more active participation in the affairs of the issuer than
is generally assumed by an investor and such participation may subject the Fund
to the litigation risks described below. However, the Fund does not invest in
the securities of financially or operationally troubled issuers for the purpose
of exercising day-to-day management of any issuer's affairs.

RISKS OF FINANCIALLY AND OPERATIONALLY TROUBLED ISSUERS

Investment in the securities of financially and operationally troubled
issuers involves a high degree of credit and market risk. See "Risks Relating to
Investing in High-Yield Debt Securities" above. Although the Fund will invest in
select companies which in the view of its investment adviser have the potential
over the long term for capital growth, there can be no assurance that such
financially or operationally troubled companies can be successfully transformed
into profitable operating companies. There is a possibility that the Fund may
incur substantial or total losses on its investments. During an economic
downturn or recession, securities of financially troubled issuers are more
likely to go into default than securities of other issuers. In addition, it may
be difficult to obtain information about financially and operationally troubled
issuers.

Investment in the securities of financially and operationally troubled
issuers is a long-term investment strategy and, accordingly, investors in the
Fund should have the financial ability and willingness to remain invested for
the long term. Securities of financially troubled issuers are less liquid and
more volatile than securities of companies not experiencing financial
difficulties. The market prices of such securities are subject to erratic and
abrupt market movements and the spread between bid and asked prices may be
greater than normally expected. In addition, it is anticipated that many of the
Fund's portfolio investments may not be widely traded and that the Fund's
position in such securities may be substantial relative to the market for such
securities. As a result, the Fund may experience delays and incur losses and
other costs in connection with the sale of its portfolio securities.

The Fund may invest in the securities of companies involved in bankruptcy
proceedings, reorganizations and financial restructurings and may have a more
active participation in the affairs of the issuer than is generally assumed by
an investor. This may subject the Fund to litigation risks or prevent the Fund
from disposing of securities. In a bankruptcy or other proceeding,

B-7

<PAGE>

the Fund as a creditor may be unable to enforce its rights in any collateral or
may have its security interest in any collateral challenged, disallowed or
subordinated to the claims of other creditors. While the Fund will attempt to
avoid taking the types of actions that would lead to equitable subordination or
creditor liability, there can be no assurance that such claims will not be
asserted or that the Fund will be able to successfully defend against them.
Because (unlike the Fund) other investors may purchase the securities of these
companies for the purpose of exercising control or management, the Fund may be
at a disadvantage to the extent that the Fund's interests differ from the
interests of these other investors.

BANKRUPTCY AND OTHER PROCEEDINGS--LITIGATION RISKS

When a company seeks relief under the Federal Bankruptcy Code (or has a
petition filed against it), an automatic stay prevents all entities, including
creditors, from foreclosing or taking other actions to enforce claims, perfect
liens or reach collateral securing such claims. Creditors who have claims
against the company prior to the date of the bankruptcy filing must petition the
court to permit them to take any action to protect or enforce their claims or
their rights in any collateral. Such creditors may be prohibited from doing so
if the court concludes that the value of the property in which the creditor has
an interest will be "adequately protected" during the proceedings. If the
bankruptcy court's assessment of adequate protection is inaccurate, a creditor's
collateral may be wasted without the creditor being afforded the opportunity to
preserve it. Thus, even if the Fund holds a secured claim, it may be prevented
from collecting the liquidation value of the collateral securing its debt,
unless relief from the automatic stay is granted by the court.

Security interests held by creditors are closely scrutinized and frequently
challenged in bankruptcy proceedings and may be invalidated for a variety of
reasons. For example, security interests may be set aside because, as a
technical matter, they have not been perfected properly under the Uniform
Commercial Code or other applicable law. If a security interest is invalidated,
the secured creditor loses the value of the collateral and because loss of the
secured status causes the claim to be treated as an unsecured claim, the holder
of such claim will almost certainly experience a significant loss of its
investment. While the Fund intends to scrutinize any security interests that
secure the debt it purchases, there can be no assurance that the security
interests will not be challenged vigorously and found defective in some respect,
or that the Fund will be able to prevail against the challenge.

Moreover, debt may be disallowed or subordinated to the claims of other
creditors if the creditor is found guilty of certain inequitable conduct
resulting in harm to other parties with respect to the affairs of a company
filing for protection from creditors under the Federal Bankruptcy Code.
Creditors' claims may be treated as equity if they are deemed to be
contributions to capital, or if a creditor attempts to control the outcome of
the business affairs of a company prior to its filing under the Bankruptcy Code.
If a creditor is found to have interfered with the company's affairs to the
detriment of other creditors or shareholders, the creditor may be held liable
for damages to injured parties. While the Fund will attempt to avoid taking the
types of action that would lead to equitable subordination or creditor
liability, there can be no assurance that such claims will not be asserted or
that the Fund will be able successfully to defend against them.

While the challenges to liens and debt described above normally occur in a
bankruptcy proceeding, the conditions or conduct that would lead to an attack in
a bankruptcy proceeding could in certain circumstances result in actions brought
by other creditors of the debtor, shareholders of the debtor or even the debtor
itself in other state or federal proceedings. As is the case in a bankruptcy
proceeding, there can be no assurance that such claims will not be asserted or
that the Fund will be able successfully to defend against them. To the extent
that the Fund assumes an active role in any legal proceeding involving the
debtor, the Fund may be prevented from disposing of securities issued by the
debtor due to the Fund's possession of material, non-public information
concerning the debtor.

CONVERTIBLE SECURITIES, WARRANTS AND RIGHTS

A convertible security is typically a bond, debenture, corporate note or
preferred stock or other similar security that may be converted at a stated
price within a specified period of time into a specified number of shares of
common stock or other equity securities of the same or a different issuer.
Equity securities have a subordinate claim on an issuer's assets as compared
with fixed-income securities. As a result, the values of equity securities
generally are more dependent on the financial condition of the issuer and less
dependent on fluctuations in interest rates than are the values of many debt
securities. A warrant or right entitles the holder to purchase equity securities
at a specific price for a specific period of time. Warrants tend to be more
volatile than the underlying stock, and if, at a warrant's expiration date, the
stock is trading at a price below the price set in the warrant, the warrant will
expire worthless. Conversely, if, at the expiration date, the underlying stock
is trading at a price higher than the price set in the warrant, the Fund can
acquire the stock at a price below its market value. Convertible securities are
generally senior to common stocks in a corporation's capital structure, but are
usually subordinated to similar nonconvertible securities.

B-8

<PAGE>

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 attendant upon a market price advance in the convertible security's
underlying common stock. Convertible securities also include preferred stocks
which technically are equity securities.

In general, the market value of a convertible security is at least the
higher of its "investment value" (that is, its value as a fixed-income security)
or its "conversion value" (that is, 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
common 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.

TRADE CLAIMS

The Fund may invest in trade claims, which are non-securitized rights of
payment arising from obligations other than borrowed funds. Trade claims
typically arise when, in the ordinary course of business, vendors and suppliers
extend credit to a company by offering payment terms. Generally, when a company
files for bankruptcy protection, payments on trade claims cease and the claims
are subject to compromise along with the other debts of the company. Trade
claims typically are bought and sold at a discount reflecting the degree of
uncertainty with respect to the timing and extent of recovery. In addition to
the risks otherwise associated with low-quality obligations, trade claims have
other risks, including (1) the possibility that the amount of the claim may be
disputed by the obligor, (2) the debtor may have a variety of defenses to assert
against the claim under the bankruptcy code, (3) volatile pricing due to a less
liquid market, including a small number of brokers for trade claims and a small
universe of potential buyers, (4) the risk that the Fund may be obligated to
purchase a trade claim larger than initially anticipated and (5) the risk of
failure of the sellers of the trade claims to indemnify the Fund against loss
due to bankruptcy or insolvency of such sellers. The negotiation and enforcement
of rights in connection with trade claims may result in higher legal expenses to
the Fund, which may reduce return on such investments. It is not unusual for
trade claims to be priced at a discount to publicly traded securities that have
an equal or lower priority claim. Additionally, trade claims may be treated as
non-securities investments. As a result, any gains may be considered
"non-qualifying" for purposes of the requirement under the Internal Revenue Code
that 90% of the income of a regulated investment company has come from certain
qualifying sources. See "Taxes, Dividends and Distributions" below.

HEDGING AND RETURN ENHANCEMENT STRATEGIES

The Fund may engage in various portfolio strategies, including using
derivatives to seek to reduce certain risks of its investments and to attempt to
enhance return, but not for speculation. These strategies currently include
futures contracts and options thereon (including interest rate futures contracts
and options thereon), options on securities, financial indexes and currencies,
interest rate swaps and foreign currency forward contracts. The Fund, and thus
its investors, may lose money through any unsuccessful use of these strategies.
The Fund's ability to use these strategies may be limited by various factors,
such as market conditions, regulatory limits and tax considerations, and there
can be no assurance that any of these strategies will succeed. If new financial
products and risk management techniques are developed, the Fund may use them to
the extent consistent with its investment objective and policies.

OPTIONS TRANSACTIONS

The Fund may purchase and write (that is, sell) put and call options on
securities, financial indexes and currencies that are traded on U.S. or foreign
securities exchanges or in the over-the-counter (OTC) market to seek to enhance
return or to protect against adverse price fluctuations in securities in the
Fund's portfolio. These options will be on equity and debt securities, including
U.S. Government securities, financial indexes, including stock indexes (for
example, the S&P 500), and foreign currencies. The Fund may write covered put
and call options to attempt 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.

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

B-9

<PAGE>

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. There is
no limitation on the amount of call options the Fund may write.

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, as the writer of a put option, might, therefore, be
obligated to purchase the underlying securities or currency for more than their
current market price.

The Fund may wish to protect certain portfolio securities against a decline
in market value at a time when put options on those particular securities are
not available for purchase. The Fund may therefore purchase a put option on
other carefully selected securities, the values of which the investment adviser
expects will have a high degree of positive correlation to the values of such
portfolio securities. If the investment adviser's judgment is correct, changes
in the value of the put options should generally offset changes in the value of
the portfolio securities being hedged. If the investment adviser's judgment is
not correct, the value of the securities underlying the put option may decrease
less than the value of the Fund's investments and therefore the put option may
not provide complete protection against a decline in the value of the Fund's
investments below the level sought to be protected by the put option.

The Fund may similarly wish to hedge against appreciation in the value of
securities that it intends to acquire at a time when call options on such
securities are not available. The Fund may, therefore, purchase call options on
other carefully selected securities the values of which the investment adviser
expects will have a high degree of positive correlation to the values of the
securities that the Fund intends to acquire. In such circumstances the Fund will
be subject to risks analogous to those summarized above in the event that the
correlation between the value of call options so purchased and the value of the
securities intended to be acquired by the Fund is not as close as anticipated
and the value of the securities underlying the call options increases less than
the value of the securities to be acquired by the Fund.

The Fund may write options on securities in connection with buy-and-write
transactions; that is, the Fund may purchase a security and concurrently write a
call option against that security. If the call option is exercised, the Fund's
maximum gain will be the premium it received for writing the option, adjusted
upwards or downwards by the difference between the Fund's purchase price of the
security and the exercise price of the option. If the option is not exercised
and the price of the underlying security declines, the amount of the decline
will be offset in part, or entirely, by the premium received.

The exercise price of a call option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected
that the price of the underlying security will remain flat or decline moderately
during the option period. Buy-and-write transactions using at-the-money call
options may be used when it is expected that the price of the underlying
security will remain fixed or advance moderately during the option period. A
buy-and-write transaction using an out-of-the-money call option may be used when
it is expected that the premium received from writing the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call option is exercised in such a transaction, the
Fund's maximum gain will be the premium received by it for writing the option,
adjusted upwards or downwards by the difference between the Fund's purchase
price of the security and the exercise price of the option. If the option is not
exercised and the price of the underlying security declines, the amount of the
decline will be offset in part, or entirely, by the premium received.

Prior to being notified of the exercise of the option, the writer of an
exchange-traded option that wishes to terminate its obligation may effect a
"closing purchase transaction" by buying an option of the same series as the
option previously written. (Options of the same series are options with respect
to the same underlying security, having the same expiration date and the same
strike price.) The effect of the purchase is that the writer's position will be
canceled by the exchange's affiliated clearing organization. Likewise, an
investor who is the holder of an exchange-traded option may liquidate a position
by effecting a "closing sale transaction" 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.

Exchange-traded options are issued by a clearing organization affiliated
with the exchange on which the option is listed which, in effect, gives its
guarantee to every exchange-traded option transaction. In contrast, OTC options
are contracts between the Fund and its contra-party with no clearing
organization guarantee. Thus, when the Fund purchases an OTC option,

B-10

<PAGE>

it relies on the dealer from which it has purchased the OTC option to make or
take delivery of the securities underlying the option. Failure by the dealer to
do so would result in the loss of the premium paid by the Fund as well as the
loss of the expected benefit of the transaction.

When the Fund writes an OTC option, it generally will be able to close out
the OTC option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote the OTC option.
While the Fund will enter into OTC options only with dealers which agree to, and
which are expected to be capable of, entering into closing transactions with the
Fund, there can be no assurance that the Fund will be able to liquidate an OTC
option at a favorable price at any time prior to expiration. Until the Fund is
able to effect a closing purchase transaction in a covered OTC call option the
Fund has written, it will not be able to liquidate securities used as cover
until the option expires or is exercised or different cover is substituted. In
the event of insolvency of the contra-party, the Fund may be unable to liquidate
an OTC option. See "Illiquid Securities" below.

OTC options purchased by the Fund will be treated as illiquid securities
subject to any applicable limitation on such securities. Similarly, the assets
used to "cover" OTC options written by the Fund will be treated as illiquid
unless the OTC options are sold to qualified dealers who Agree that the Fund may
repurchase any OTC options it writes for a maximum price to be calculated by a
formula set forth in the option Agreement. The "cover" for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option. See "Illiquid Securities" below.

The Fund may write only "covered" options. This means that so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option or an option to purchase the same underlying
securities, having an exercise price equal to or less than the exercise price of
the "covered" option, or will establish and maintain for the term of the option
a segregated account consisting of cash or other liquid assets having a value
equal to or greater than the exercise price of the option. In the case of a
straddle written by the Fund, the amount maintained in the segregated account
will equal the amount, if any, by which the put is "in-the-money."

OPTIONS ON SECURITIES INDEXES. The Fund also may purchase and write call
and put options on securities indexes in an attempt to hedge against market
conditions affecting the value of securities that the Fund owns or intends to
purchase. Through the writing or purchase of index options, the Fund can achieve
many of the same objectives as through the use of options on individual
securities. Options on securities indexes are similar to options on a security
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. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike security options, all settlements are in cash and gain or loss depends
upon price movements in the market generally (or in a particular industry or
segment of the market), rather than upon price movements in individual
securities. Price movements in securities that the Fund owns or intends to
purchase will probably not correlate perfectly with movements in the level of an
index and, therefore, the Fund bears the risk that a loss on an index option
would not be completely offset by movements in the price of such securities.

When the Fund writes an option on a securities index, it will be required
to deposit and mark-to-market, eligible securities equal in value to 100% of the
exercise price in the case of a put, or the contract value in the case of a
call. In addition, where the Fund writes a call option on a securities index at
a time when the contract value exceeds the exercise price, the Fund will
segregate and mark-to-market, until the option expires or is closed out, cash or
cash equivalents equal in value to such excess.

Options on a securities index involve risks similar to those risks relating
to transactions in financial futures contracts described below. Also, an option
purchased by the Fund may expire worthless, in which case the Fund would lose
the premium paid therefor.

FUTURES CONTRACTS AND RELATED OPTIONS

The Fund may enter into futures contracts for the purchase or sale of debt
securities and financial indexes (collectively, interest rate futures contracts)
and currencies in accordance with the Fund's investment objective. A "purchase"
of a futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire a specified quantity of the securities
underlying the contract at a specified price at a specified future date. A
"sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver a specified quantity of the
securities underlying the contract at a specified price at a specified future
date. At the time a futures contract is purchased or sold, the Fund is required
to deposit cash or securities with a futures commission merchant or in a
segregated account representing between

B-11

<PAGE>

approximately 1 1/2 to 5% of the contract amount, called "initial margin."
Initial margin in futures transactions is different from margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, initial
margin is in the nature of a good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Thereafter, the futures contract
will be valued daily and the payment in cash of "maintenance" or "variation
margin" may be required, resulting in the Fund paying or receiving cash that
reflects any decline or increase in the contract's value, a process known as
"marking-to-market."

Some futures contracts by their terms may call for the actual delivery or
acquisition of the underlying assets and other futures contracts must be "cash
settled." In most cases the contractual obligation is extinguished before the
expiration of the contract by buying (to offset an earlier sale) or selling (to
offset an earlier purchase) an identical futures contract calling for delivery
or acquisition in the same month. 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. The purchase (or
sale) of an offsetting futures contract is referred to as a "closing
transaction." There is no assurance that the Fund will be able to enter into a
closing transaction.

Although futures prices themselves have the potential to be extremely
volatile, in the case of any strategy involving interest rate futures contracts
and options thereon when the investment adviser's expectations are not met,
assuming proper adherence to the segregation requirement, the volatility of the
Fund as a whole should be no greater than if the same strategy had been pursued
in the cash market.

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

Exchanges on which futures and related options trade may impose limits on
the positions that the Fund may take in certain circumstances. In addition, the
hours of trading of financial futures contracts and options thereon may not
conform to the hours during which the Fund may trade the underlying securities.
To the extent 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.

Pursuant to the requirements of the Commodity Exchange Act, as amended (the
Commodity Exchange Act), all futures contracts and options thereon must be
traded on an exchange. Since a clearing corporation effectively acts as the
counterparty on every futures contract and option thereon, the counter party
risk depends on the strength of the clearing or settlement corporation
associated with the exchange. Additionally, although the exchanges provide a
means of closing out a position previously established, there can be no
assurance that a liquid market will exist for a particular contract at a
particular time. In the case of options on futures, if such a market does not
exist, the Fund, as the holder of an option on futures contracts, would
have to exercise the option and comply with the margin requirements for the
underlying futures contract to utilize any profit, and if the Fund were the
writer of the option, its obligation would not terminate until the option
expired or the Fund was assigned an exercise notice.

LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS

CFTC LIMITS. In accordance with Commodity Futures Trading Commission (CFTC)
regulations, the Fund is not permitted to purchase or sell futures contracts or
options thereon for return enhancement or risk management purposes if
immediately thereafter the sum of the amounts of initial margin deposits on the
Fund's existing futures and premiums paid for options on futures exceed 5% of
the liquidation value of such Fund's total assets (the "5% CFTC limit"). This
restriction does not apply to the purchase and sale of futures contracts and
options thereon for bona fide hedging purposes.

SEGREGATION REQUIREMENTS. To the extent the Fund enters into futures
contracts, it is required by the Securities and Exchange Commission (the
Commission) to maintain a segregated asset account sufficient to cover the
Fund's obligations

B-12

<PAGE>

with respect to such futures contracts, which will consist of cash or other
liquid assets, in an amount equal to the difference between the fluctuating
market value of such futures contracts and the aggregate value of the initial
margin deposited by the Fund with respect to such futures contracts. Offsetting
the contract by another identical contract eliminates the segregation
requirement.

With respect to options on futures, there are no segregation requirements
for options that are purchased and owned by the Fund. However, written options,
since they involve potential obligations of the Fund, may require segregation of
Fund assets if the options are not "covered" as described below under "Options
on Futures Contracts." If the Fund writes a call option that is not "covered,"
it must segregate and maintain for the term of the option cash or liquid
securities equal to the fluctuating value of the optioned futures. If the Fund
writes a put option that is not "covered," the segregated amount would have to
be at all times equal in value to the exercise price of the put (less any
initial margin deposited by the Fund) with respect to such option.

USES OF INTEREST RATE FUTURES CONTRACTS

Futures contracts will be used for bona fide hedging, risk management and
return enhancement purposes.

POSITION HEDGING. The Fund might sell interest rate futures contracts to
protect the Fund against a rise in interest rates which would be expected to
decrease the value of debt securities which the Fund holds. This would be
considered a bona fide hedge and, therefore, is not subject to the 5% CFTC
limit. For example, if interest rates are expected to increase, the Fund might
sell futures contracts on debt securities, the values of which historically have
correlated closely or are expected to correlate closely to the values of the
Fund's portfolio securities. Such a sale would have an effect similar to selling
an equivalent value of the Fund's portfolio securities. If interest rates
increase, the value of the Fund's portfolio securities will decline, but the
value of the futures contracts to the Fund will increase at approximately an
equivalent rate thereby keeping the NAV of the Fund from declining as much as it
otherwise would have. The Fund could accomplish similar results by selling debt
securities with longer maturities and investing in debt securities with shorter
maturities when interest rates are expected to increase. However, since the
futures market may be more liquid than the cash market, the use of futures
contracts as a hedging technique would allow the Fund to maintain a defensive
position without having to sell portfolio securities. If in fact interest rates
decline rather than rise, the value of the futures contract will fall but the
value of the bonds should rise and should offset all or part of the loss. If
futures contracts are used to hedge 100% of the bond position and correlate
precisely with the bond position, there should be no loss or gain with a rise
(or fall) in interest rates. However, if only 50% of the bond position is hedged
with futures, then the value of the remaining 50% of the bond position would be
subject to change because of interest rate fluctuations. Whether the bond
positions and futures contracts correlate precisely is a significant risk
factor.

ANTICIPATORY POSITION HEDGING. Similarly, when it is expected that interest
rates may decline and the Fund intends to acquire debt securities, the Fund
might purchase interest rate futures contracts. The purchase of futures
contracts for this purpose would constitute an anticipatory hedge against
increases in the price of debt securities (caused by declining interest rates)
which the Fund subsequently acquires and would normally qualify as a bona fide
hedge not subject to the 5% CFTC limit. Since fluctuations in the value of
appropriately selected futures contracts should approximate that of the debt
securities that would be purchased, the Fund could take advantage of the
anticipated rise in the cost of the debt securities without actually buying
them. Subsequently, the Fund could make the intended purchases of the debt
securities in the cash market and concurrently liquidate the futures positions.

RISK MANAGEMENT AND RETURN ENHANCEMENT. The Fund might sell interest rate
futures contracts covering bonds. This has the same effect as selling bonds in
the portfolio and holding cash and reduces the duration of the portfolio.
(Duration measures the price sensitivity of the portfolio to interest rates. The
longer the duration, the greater the impact of interest
rate changes on the portfolio's price.) Duration is described in Appendix II
under "Duration." This should lessen the risks associated with a rise in
interest rates. In some circumstances, this may serve as a hedge against a loss
of principal, but is usually referred to as an aspect of risk management.

The Fund might buy interest rate futures contracts covering bonds with a
longer maturity than its portfolio average. This would tend to increase the
duration and should increase the gain in the overall portfolio if interest rates
fall. This is often referred to as risk management rather than hedging but, if
it works as intended, has the effect of increasing principal value. If it does
not work as intended because interest rates rise instead of fall, the loss will
be greater than would otherwise have been the case. Futures contracts used for
these purposes are not considered bona fide hedges and, therefore, are subject
to the 5% CFTC limit.

B-13

<PAGE>

OPTIONS ON FUTURES CONTRACTS

The Fund may enter into options on futures contracts for certain bona fide
hedging, risk management and return enhancement purposes. This includes the
ability to purchase put and call options and write (that is, sell) "covered" put
and call options on futures contracts that are traded on commodity and futures
exchanges.

If the Fund purchases an option on a futures contract, it has the right,
but not the obligation, in return for the premium paid, to assume a position in
a futures contract (a long position if the option is a call or a short position
if the option is a put) at a specified exercise price at any time during the
option exercise period.

Unlike purchasing an option, which is similar to purchasing insurance to
protect against a possible rise or fall of security prices or currency values,
the writer or seller of an option undertakes an obligation upon exercise of the
option to either buy or sell the underlying futures contract at the exercise
price. A writer of a call option has the obligation upon exercise to assume a
short futures position and a writer of a put option has the obligation to assume
a long futures position. 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. If
there is no balance in the writer's margin account, the option is "out of the
money" and will not be exercised. The Fund, as the writer, has income in the
amount it was paid for the option. If there is a margin balance, the Fund will
have a loss in the amount of the balance less the premium it was paid for
writing the option.

When the Fund writes a put or call option on futures contracts, the option
must either be "covered" or, to the extent not "covered," will be subject to
segregation requirements. The Fund will be considered "covered" with respect to
a call option it writes on a futures contract if the Fund owns the securities or
currency which is deliverable under the futures contract or an option to
purchase that futures contract having a strike price equal to or less than the
strike price of the "covered" option. A Fund will be considered "covered" with
respect to a put option it writes on a futures contract if it owns an option to
sell that futures contract having a strike price equal to or greater than the
strike price of the "covered" option.

To the extent the Fund is not "covered" as described above with respect to
written options, it will segregate and maintain for the term of the option cash
or other liquid assets as described above under "Limitations on the Purchase and
Sale of Futures Contracts and Related Options--Segregation Requirements."

USES OF OPTIONS ON FUTURES CONTRACTS

Options on futures contracts would be used for bona fide hedging, risk
management and return enhancement purposes.

POSITION HEDGING. The Fund may purchase put options on interest rate or
currency futures contracts to hedge its portfolio against the risk of a decline
in the value of the debt securities it owns as a result of rising interest
rates.

ANTICIPATORY HEDGING. The Fund may also purchase call options on futures
contracts as a hedge against an increase in the value of securities the Fund
might intend to acquire as a result of declining interest rates.

Writing a put option on a futures contract may serve as a partial
anticipatory hedge against an increase in the value of debt securities the Fund
might intend to acquire. If the futures price at expiration of the option is
above the exercise price, the Fund retains the full amount of the option premium
which provides a partial hedge against any increase that may have occurred in
the price of the debt securities the Fund intended to acquire. If the market
price of the underlying futures contract is below the exercise price when the
option is exercised, the Fund would incur a loss, which may be wholly or
partially offset by the decrease in the value of the securities the Fund might
intend to acquire.

Whether options on futures contracts are subject to or exempt from the 5%
CFTC limit depends on whether the purposes of the options constitutes a bona
fide hedge.

RISK MANAGEMENT AND RETURN ENHANCEMENT. Writing a put option that does not
relate to securities the Fund intends to acquire would be a return enhancement
strategy which would result in a loss if interest rates rise.

Similarly, writing a covered call option on a futures contract is also a
return enhancement strategy. If the market price of the underlying futures
contract at expiration of a written call is below the exercise price, the Fund
would retain the full amount of the option premium increasing the income of the
Fund. If the futures price when the option is exercised is above the exercise
price, however, the Fund would sell the underlying securities which were the
"cover" for the contract and incur a gain or loss depending on the cost basis
for the underlying asset.

Writing a covered call option as in any return enhancement strategy can
also be considered a partial hedge against a decrease in the value of a Fund's
portfolio securities. The amount of the premium received acts as a partial hedge
against any decline that may have occurred in the Fund's debt securities.

B-14

<PAGE>

There can be no assurance that the Fund's use of futures contracts and
related options will be successful and the Fund may incur losses in connection
with its purchase and sale of future contracts and related options.

FOREIGN CURRENCY FORWARD CONTRACTS

The Fund may but need not enter into foreign currency forward 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, that is, 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. See "Risks Related to Foreign Currency Forward Contracts" below.

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.

INTEREST RATE SWAP TRANSACTIONS

The Fund may enter into interest rate swaps, on either an asset-based or
liability-based basis, depending on whether it is hedging its assets or its
liabilities. Under normal circumstances, the Fund will enter into interest rate
swaps on a net basis, that is, the two payment streams netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash or other liquid assets having an aggregate net
asset value per share (NAV) at least equal to the accrued excess will be
maintained in a segregated account by a custodian that satisfies the
requirements of the Investment Company Act. To the extent that the Fund enters
into interest rate swaps on other than a net basis, the amount maintained in a
segregated account will be the full amount of the Fund's obligations, if any,
with respect to such interest rate swaps, accrued on a daily basis. Inasmuch as
segregated accounts are established for these hedging transactions, the
investment adviser and the Fund believe such obligations do not constitute
senior securities. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to the agreement
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. The Fund will enter into interest
rate swaps only with parties meeting creditworthiness standards approved by the
Fund's Board of Directors. The investment adviser will monitor the
creditworthiness of such parties under the supervision of the Board of
Directors.

The Fund may enter into interest rate swaps as a hedge against changes in
the interest rate of a security in its portfolio or that of a security the Fund
anticipates buying.

If the Fund purchases an interest rate swap to hedge against a change in an
interest rate of a security the Fund anticipates buying, and such interest rate
changes unfavorably for the Fund, then the Fund may determine not to invest in
the securities as planned and will realize a loss on the interest rate swap that
is not offset by a change in the interest rates or the price of the securities.

The use of interest rate swaps is a highly speculative activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the investment adviser is
incorrect in its forecast of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish compared to what
it would have been if this investment technique was never used.

The Fund may enter into interest rate swaps traded on an exchange or in the
over-the-counter market. The Fund may only enter into interest rate swaps to
hedge its portfolio. Interest rate swaps do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Fund is contractually obligated to make. If the other
party to an interest rate swap defaults, the Fund's risk of loss consists of the
net amount of interest payments that the Fund is contractually entitled to
receive. Since interest rate swaps are individually negotiated, the Fund expects
to achieve an acceptable degree of correlation between its rights to receive
interest on its portfolio securities and its rights and obligations to receive
and pay interest pursuant to interest rate swaps.

B-15

<PAGE>

RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES

Participation in the options or futures markets 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 the
unsuccessful use of these strategies. If the investment adviser's predictions of
movements in the direction of the securities 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
interest rate swap transactions, options, 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 and securities
prices; (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;
and (5) 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.

The Fund may sell a futures contract to protect against the decline in the
value of securities held by the Fund. However, it is possible that the futures
market may advance and the value of securities held in the Fund's portfolio may
decline. If this were to occur, the Fund would lose money on the futures
contracts and also experience a decline in value of its portfolio securities.
However, while this could occur for a very brief period or to a very small
degree, over time the market prices of the securities of a diversified portfolio
will tend to move in the same direction as the prices of futures contracts.

If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Fund may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities.

There is a risk that the prices of securities subject to futures contracts
(and thereby the futures contract prices) may correlate imperfectly with the
behavior of the cash prices of the Fund's portfolio securities. Another such
risk is that prices of futures contracts may not move in tandem with the changes
in prevailing interest rates against which the Fund seeks a hedge. A correlation
may also be distorted by the fact that the futures market is dominated by
short-term traders seeking to profit from the difference between a contract or
security price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.

There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities (or currencies) which are the subject of the hedge. If participants
in the futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationships between the debt securities (or currencies) and futures
market could result. Price distortions could also result if investors in futures
contracts elect to make or take delivery or underlying securities (or
currencies) rather than engage in closing transactions due to the resultant
reduction in the liquidity of the futures market. In addition, due to the fact
that, from the point of view of speculators, the deposit requirements in the
futures markets are less onerous than margin requirements in the cash market,
increased participation by speculators in the futures markets could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities (or currencies) and movements in the prices of futures
contracts, a correct forecast of interest rate trends by the investment adviser
may still not result in a successful transaction.

The risk of imperfect correlation increases as the composition of the
Fund's securities portfolio diverges from the securities that are the subject of
the futures contract, for example, those included in the municipal index.
Because the change in the price of the futures contract may be more or less than
the change in prices of the underlying securities, even a correct forecast of
interest rate changes may not result in a successful hedging transaction.

Pursuant to the requirements of the Commodity Exchange Act, all futures
contracts and options thereon must be traded on an exchange. The Fund intends to
purchase and sell futures contracts only on exchanges where there appears to be
a market in such futures sufficiently active to accommodate the volume of its
trading activity. The Fund's ability to establish and close out positions in
futures contracts and options on futures contracts would be impacted by the
liquidity of these exchanges. Although the Fund generally would purchase or sell
only those futures contracts and options thereon for which there appeared to be
a liquid market, there is no assurance that a liquid market on an exchange will
exist for any particular futures contract or option at any particular time. In
the event no liquid market exists for a particular futures contract or option
thereon in which the Fund maintains a position, it would not be possible to
effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written call option, wait to sell the underlying
securities until the option expired or was exercised, or, in the case of a
purchased option, exercise the option and

B-16

<PAGE>

comply with the margin requirements for the underlying futures contract to
realize any profit. In the case of a futures contract or an option on a futures
contract which the Fund had written and which the Fund was unable to close, the
Fund would be required to maintain margin deposits on the futures contract or
option and to make variation margin payments until the contract was closed. In
the event futures contracts have been sold to hedge portfolio securities, such
securities will not be sold until the offsetting futures contracts can be
executed. Similarly, in the event futures have been bought to hedge anticipated
securities purchases, such purchases will not be executed until the offsetting
futures contracts can be sold.

Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act are exempt from the definition of
commodity pool operator, subject to compliance with certain conditions. The Fund
may enter into futures or related options contracts for return enhancement
purposes if the aggregate initial margin and option premiums do not exceed 5% of
the liquidation value of the Fund's total assets, after taking into account
unrealized profits and unrealized losses on any such contracts, provided,
however, that in the case of an option that is in-the-money, the in-the-money
amount may be excluded in computing such 5%. The above restriction does not
apply to the purchase and sale of futures and related options contracts for BONA
FIDE hedging purchases within the meaning of the regulations of the CFTC.

In order to determine that the Fund is entering into transactions in
futures contracts for hedging purposes as such term is defined by the CFTC,
either: (1) a substantial majority (that is, approximately 75%) of all
anticipatory hedge transactions (transactions in which the Fund does not own at
the tie of the transaction, but expects to acquire, the securities underlying
the relevant futures contract) involving the purchase of futures contracts will
be completed by the purchase of securities which are the subject of the hedge,
or (2) the underlying value of all long positions in futures contracts will not
exceed the total value of (a) all short-term debt obligations held by the Fund;
(b) cash held by the Fund; (c) cash proceeds due to the Fund on investments
within thirty days; (d) the margin deposited on the contracts; and (e) any
unrealized appreciation in the value of the contracts.

If the Fund maintains a short position in a futures contract, it will cover
this position by holding, in a segregated account, cash or liquid assets equal
in value (when added to any Initial or variation margin on deposit) to the
market value of the securities underlying the futures contract. Such a position
may also be covered by owning the securities underlying the futures contract, or
by holding a call option permitting the Fund to purchase the same contract at a
price no higher than the price at which the short position was established.

In addition, if the Fund holds a long position in a futures contract, it
will hold cash or liquid assets equal to the purchase price of the contract
(less the amount of initial or variation margin on deposit) in a segregated
account. Alternatively, the Fund could cover its long position by purchasing a
put option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Fund.

Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin on open
futures portions. In such situations, if the Fund has insufficient cash, it may
be disadvantageous to do so. In addition, the Fund may be required to take or
make delivery of the instruments underlying futures contracts it holds at a time
when it is disadvantageous to do so. The ability to close out options and
futures positions could also have an adverse impact on the Fund's ability to
hedge effectively its portfolio.

In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the investment adviser.

RISKS OF TRANSACTIONS IN OPTIONS ON FINANCIAL FUTURES. Compared to the
purchase or sale of futures contracts, the purchase and sale of call or put
options on futures contracts involves less potential risk to the Fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a futures contract would result in a loss to the Fund notwithstanding
that the purchase or sale of a futures contract would not result in a loss, as
in the instance where there is no movement in the prices of the future contracts
or underlying securities.

B-17

<PAGE>

An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. As described above, although
the Fund generally will purchase 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 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 transaction costs upon
the sale of underlying securities pursuant to the exercise of put options.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (1) there may be insufficient trading interest in certain
options; (2) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (3) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (4) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (5) the facilities of an exchange or
the Options clearing Corporation may not at all times be adequate to handle
current trading volume; or (6) one or more exchange 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 that class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of traders on that
exchange could 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
the Options clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.

RISKS OF OPTIONS ON FOREIGN CURRENCIES. Options on foreign currencies
involve the currencies of two nations and therefore, developments in either or
both countries affect the values of options on foreign currencies. Risks include
those described above under "Risk Factors and Special Considerations of
Investing in Foreign Securities" and "Risk Factors and Special Considerations of
Investing in Euro-Denominated Securities," including government actions
affecting currency valuation and the movements of currencies from one country to
another. The quantity of currency underlying option contracts represent odd lots
in a market dominated by transactions between banks; this can mean extra
transaction costs upon exercise. Option markets may be closed while
round-the-clock interbank currency markets are open, and this can create price
and rate discrepancies.

RISKS RELATED TO FOREIGN CURRENCY FORWARD CONTRACTS. The Fund may enter
into foreign currency forward contracts in several circumstances. When the Fund
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, or when the Fund anticipates the receipt in a foreign currency
of dividends or interest payments on a security which it holds, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be. By entering
into a forward contract for a fixed amount of dollars, for the purchase or sale
of the amount of foreign currency involved in the underlying transactions, the
Fund may be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.

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

B-18

<PAGE>

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

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

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

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

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

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
resale price is in excess of the purchase price, reflecting an agreed upon rate
of return effective for the period of time the Fund's money is invested in the
security.The Fund's repurchase agreements will be collateralized by U.S.
Government obligations. The Fund will enter into repurchase transactions only
with parties meeting creditworthiness standards approved by the Fund's
investment adviser. The Fund's investment adviser will monitor the
creditworthiness of such parties, under the general supervision of the Board of
Directors. In the event of a default or bankruptcy by a seller, the Fund will
promptly seek to liquidate the collateral. To the extent that the proceeds from
any sale of such collateral upon a default in the obligation to repurchase are
less than the repurchase price, the Fund will suffer a loss.

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

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 30% of the value of the
Fund's total assets and provided that such loans are callable at any time by the
Fund and are at all times secured by cash or equivalent collateral that is equal
to at least the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund

B-19

<PAGE>

continues to receive payments in lieu of the interest and dividends of the
loaned securities, while at the same time earning interest either directly from
the borrower or on the collateral which will be invested in short-term
obligations.

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

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

BORROWING

The Fund may borrow an amount equal to no more than 331 @3% of the value of
its total assets (calculated at the time of the borrowing) from banks for
temporary, extraordinary or emergency purposes, or for the clearance of
transactions. The Fund may pledge up to 331 @3% of the value of its total assets
to secure such borrowings. If the Fund's asset coverage for borrowings falls
below 300%, the Fund will take prompt action to reduce its borrowings as
required by law. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell portfolio
securities to reduce the debt and restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. Such liquidations could cause the Fund to realize gains on securities
held for less than three months. The Fund will not purchase securities when
borrowings exceed 5% of the value of the Fund's total assets.

ILLIQUID SECURITIES

The Fund may hold up to 15% of its net assets in illiquid securities. If
the Fund were to exceed this limit, the investment adviser would take prompt
action to reduce the Fund's holdings in illiquid securities to no more than 15%
of its net assets, as required by applicable law. Illiquid securities include
repurchase agreements which have a maturity of longer than seven days or other
illiquid securities, including certain 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 (the 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

B-20

<PAGE>

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).
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 time, uninterested in purchasing Rule 144A securities.

Restricted securities, including securities eligible for resale pursuant to
Rule 144A under the Securities Act and commercial paper for which there is a
readily available market, will be treated as liquid only when deemed liquid
under procedures established by the Board of Directors. 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 (for
example, 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" (that is, without accrued interest) or in
default as to principal or interest. Repurchase agreements subject to demand are
deemed to have a maturity equal to the notice period.

The staff of the Commission has taken the position, which the Fund 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
participating in the option and the counterparty have provided for the Fund, at
the Fund's election, to unwind the OTC option. The exercise of such an option
would ordinarily involve the payment by the Fund of an amount designed to
reflect the counterparty's economic loss from an early termination, but does
allow the Fund to treat the securities used as "cover" as liquid. See "How the
Fund Invests--Additional Strategies" in the Prospectus.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES

From time to time, in the ordinary course of business, the Fund may
purchase or sell securities on a when-issued or delayed-delivery basis, that is,
delivery and payment can take place a month or more after the date of the
transaction. The purchase price and the interest rate payable on the securities
are fixed on the transaction date. The securities so purchased are subject to
market fluctuations, and no interest accrues to the Fund until delivery and
payment take place. At the time the Fund makes the commitment to purchase
securities on a when-issued or delayed-delivery basis, it will record the
transaction and thereafter reflect the value of such securities in determining
its NAV each day. The Fund will make commitments for such when-issued
transactions only with the intention of actually acquiring the securities. The
Fund will segregate cash or other liquid assets, marked-to-market daily, having
a value equal to or greater than such commitments. If the Fund chooses to
dispose of the right to acquire a when-issued security prior to its acquisition,
it could, as with the disposition of any other portfolio security, incur a gain
or loss due to market fluctuations. At the time of delivery of the securities,
the value may be more or less than the purchase price and an increase in the
percentage of the Fund's assets committed to the purchase of securities on a
when-issued or delayed-delivery basis may increase the volatility of the Fund's
NAV.

SHORT SALES

The Fund may sell a security it does not own in anticipation of a decline
in the market value of that security (short sales). To complete the transaction,
the Fund will borrow the security to make delivery to the buyer. The Fund is
then obligated to replace the security borrowed by purchasing it at the 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 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 the borrowed security, it will (a) segregate cash or
other liquid assets at such a level that 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 will not be less than the market value of
the security at the time it was sold short, or (b) otherwise cover its short
position through a short sale "against-the-box,"

B-21

<PAGE>

which is a short sale in which the Fund owns an equal amount of the securities
sold short or securities, convertible into or exchangeable for, without payment
of any further consideration, securities of the same issue as, and equal in
amount to, the securities sold short. The value of securities of any one issuer
in which the Fund is short may not exceed the lesser of 2% of the value of the
fund's net assets or 2% of the securities of any class of any issuer.

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. The amount of any gain will be
decreased, and the amount of any loss will be increased, by the amount of any
premium, dividends or interest paid in connection with the short sale. For
federal income tax purposes, a short sale against the box of an appreciated
financial position (e.g. stock) generally will be treated as a sale of the
appreciated financial position, thus generating gain, by the Fund.

SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest in securities of other investment companies, except to
the extent permitted by applicable law. Generally, the Fund does not intend to
invest in such securities. If the Fund does invest in securities of other
investment companies, shareholders of the Fund may be subject to duplicate
management and advisory fees.

SEGREGATED ACCOUNTS

When the Fund is required to segregate assets in connection with certain
hedging transactions, it will maintain cash or liquid assets in a segregated
account. "Liquid assets" mean cash, U.S. Government securities, equity
securities, debt obligations or other liquid, unencumbered assets
marked-to-market daily, including foreign securities, high-yield fixed income
securities and distressed securities.

(D) TEMPORARY DEFENSIVE STRATEGIES AND SHORT-TERM INVESTMENTS

In response to adverse market, economic or political conditions, the Fund
may take a temporary defensive position and invest up to 100% of the Fund's
assets in short-term obligations of, or securities guaranteed by, the U.S.
Government, its agencies or instrumentalities or in high-quality obligations of
banks and corporations. The yield on these securities will tend to be lower than
the yield on other securities to be purchased by the Fund. Investing heavily in
these securities limits the Fund's ability to achieve the Fund's objective but
can help to preserve the Fund's assets.

U.S. Government securities are instruments issued or guaranteed by the U.S.
Treasury or by an agency or instrumentality of the U.S. Government. U.S.
Government guarantees do not extend to the yield or value of the securities or
the Fund's shares. 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.

(E) PORTFOLIO TURNOVER

Although the Fund does not intend to engage in substantial short-term
trading, it may sell portfolio securities without regard to the length of time
that they have been held in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions or the financial
condition of the issuer. The Fund's portfolio turnover rate is not expected to
exceed 150%. However, when portfolio changes are deemed appropriate due to
market or other conditions, such turnover rate may be greater than anticipated.
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. A 100% turnover rate would
occur, for example, if all of the securities held in the Fund's portfolio were
sold and replaced within one year. High portfolio turnover (over 100%) involves
correspondingly greater brokerage commissions and other transaction costs, which
are borne directly by the Fund. In addition, high portfolio turnover may also
mean that a proportionately greater amount of distributions to shareholders will
be taxed as ordinary income rather than long-term capital gains compared to
investment companies with lower portfolio turnover. For the fiscal period ended
March 31, 1999 and the fiscal year ended March 31, 2000, the Fund's portfolio
turnover rates were 97% and 101%, respectively. See "Brokerage Allocation and
Other Practices" and "Taxes, Dividends and Distributions" below.

B-22

<PAGE>

INVESTMENT RESTRICTIONS

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

The Fund may not:

1. Purchase any security (other than obligations of, or guaranteed by,
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) more than 10% of the voting
securities of any issuer.

2. Invest 25% or more of the market or other fair value of its total
assets in the securities of issuers, all of which conduct their principal
business activities in the same industry. For purposes of this restriction,
gas, electric, water and telephone utilities will each be treated as being
a separate industry. This restriction does not apply to obligations issued
or guaranteed by the United Sates Government or its agencies or
instrumentalities.

3. 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.

4. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow from banks up to 331 @3% of the value of its total
assets (calculated when the loan is made) for temporary, extraordinary or
emergency purposes, for the clearance of transactions. The Fund may pledge
up to 331 @3% of the value of its total assets to secure such borrowings.
For purposes of this restriction, the purchase or sale of securities on a
when-issued or delayed delivery basis, forward foreign currency exchange
contracts and collateral arrangements relating thereto, and collateral
arrangements with respect to interest rate swap transactions, reverse
repurchase agreements, dollar roll transactions, options, futures contracts
and options thereon, short sales, 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, only so long as they
are covered or collateralized in accordance with Securities and Exchange
Commission guidelines.

5. Act as underwriter of securities, 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.

6. Buy or sell real estate or interests in real estate, except that
the Fund may purchase and sell securities whichare secured by real estate,
securities of companies which invest or deal in real estate and securities
of real estateinvestment trusts.

7. 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.

8. Make loans, except through the purchase of debt obligations, bank
debt (including loan participations and assignments), trade claims,
repurchase agreements and loans of securities.

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

B-23

<PAGE>

MANAGEMENT OF THE FUND

POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) WITH FUND DURING PAST 5 YEARS
------------------------ --------- -----------------------
<S> <C> <C>

Eugene C. Dorsey (72) Director Retired President, Chief Executive Officer
and Trustee of the Gannett Foundation (now
Freedom Forum); former Publisher of four
Gannett newspapers and Vice President of
Gannett Company; past Chairman of
Independent Sector (national coalition
of philanthropic organizations); former
Chairman of the American Council for the
Arts; former Director of the Advisory
Board of Chase Manhattan Bank of
Rochester.

Delayne Dedrick Gold (61) Director Marketing and Management Consultant.

*Robert F. Gunia (53) Vice President Executive Vice President and Chief
and Director Administrative Officer (since June 1999)
of Prudential Investments; Corporate
Vice President (September 1997-March
1999) of The Prudential Insurance
Company of America (Prudential);
Executive Vice President and Treasurer
(since December 1996) of Prudential
Investments Fund Management LLC (PIFM);
President (since April 1999) of
Prudential Investment Management
Services LLC (PIMS); former Senior Vice
President (March 1987-May 1999) and
former Chief Administrative Officer
(July 1990-September 1996) of Prudential
Securities Incorporated (Prudential
Securities); Director (January
1989-September 1996), Executive Vice
President, Treasurer and Chief Financial
Officer (June 1987-December 1996) of
Prudential Mutual Fund Management, Inc.
(PMF); Vice President and Director
(since May 1989) of The Asia Pacific
Fund, Inc.

Thomas T. Mooney (58) Director President of the Greater Rochester Metro
Chamber of Commerce; former Rochester
City Manager; former Deputy Monroe
County Executive; Trustee of Center for
Governmental Research, Inc.; Director of
Blue Cross of Rochester, Monroe County
Water Authority, Executive Service Corps
of Rochester.

Stephen P. Munn (57) Director Chairman (since January 1994), Director and
President (since 1988) and Chief
Executive Officer (since 1988) of
Carlisle Companies Incorporated
(manufacturer of industrial products).

*David R. Odenath, Jr. (42) Vice President Officer in Charge, President, Chief Executive
and Director Officer and Chief Operating Officer
(since June 1999) of PIFM; Senior Vice
President (June 1999) of Prudential;
Senior Vice President (August 1993-May
1999) of PaineWebber Group, Inc.

Richard A. Redeker (56) Director Former employee of Prudential
Investments (October 1996-December
1998); prior thereto, President, Chief
Executive Officer and Director (October
1993-September 1996) of PMF Executive
Vice President, Director and Member of
the Operating Committee (October
1993-September 1996) of Prudential
Securities; Director (October
1993-September 1996) of Prudential
Securities Group, Inc.; Executive Vice
President of The Prudential Investment
Corporation (January 1994-September
1996); Director (January 1994-September
1996) of Prudential Mutual Fund
Distributors, Inc. and Prudential Mutual
Fund Services, Inc.; former Senior
Executive Vice President and Director of
Kemper Financial Services, Inc.
(September 1978-September 1993).

</TABLE>

B-24

<PAGE>

POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) WITH FUND DURING PAST 5 YEARS
------------------------ --------- -----------------------
<S> <C> <C>

*John R. Strangfeld, Jr. (45) President and Chief Executive Officer, Chairman, President
Director and Director (since January 1990) of The
Prudential Investment Corporation;
Executive Vice President (since February
1998) of Prudential Global Asset
Management Group of Prudential; and
Chairman (since August 1989) of Pricoa
Capital Group; formerly various
positions to Chief Executive Officer
(November 1994-December 1998) of Private
Asset Management Group of Prudential and
Senior Vice President (January
1986-August 1989) of Prudential Capital
Group, a unit of Prudential.

Nancy H. Teeters (69) Director Economist; former Vice President and Chief
Economist (July 1984-July 1990) of
International Business Machines
Corporation; former Governor of Federal
Reserve System (1978-1984); former
Director of Inland Steel Industries
(July 1991-1999).

Louis A. Weil, III (59) Director Chairman (since January 1999), President
and Chief Executive Officer (since
Janaury 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.;
former Publisher of Time Magazine (May
1989- March 1991); former President,
Publisher and Chief Executive Officer of
The Detroit News (February 1986-August
1989); member of the Advisory Board,
Chase Manhattan Bank-Westchester.

Grace C. Torres (40) Treasurer and First Vice President (since December 1996)
Principal of PIFM; former First Vice President
Financial and (March 1993-May 1999) of Prudential
Accounting Securities; First Vice President (March
Officer 1994-September 1996) of Prudential Mutual
Fund Management, Inc.

Stephen M. Ungerman (46) Assistant Tax Director (since March 1996) of Prudential
Treasurer Investments and the Private Asset Group
of the Prudential Insurance Company of
America (Prudential); former First Vice
President (February 1993- September
1996) of Prudential Mutual Fund
Management, Inc.

Deborah A. Docs (42) Secretary Vice President (since December 1996) of PIFM;
former Vice President and Associate
General Counsel (June 1991-September
1996) of Prudential Securities; Vice
President and Associate General Counsel
(June 1991-September 1996) of PMF.

William V. Healey (46) Assistant Vice President and Associate General Counsel
Secretary (since 1998) of Prudential; Chief Legal
Officer (since August 1998) of
Prudential Investments; Director (since
June 1999) of ICI Mutual Insurance
Company; prior to August 1998, Associate
General Counsel of The Dreyfus
Corporation ("Dreyfus"), a subsidiary of
Mellon Bank, N.A. ("Mellon Bank"), and
an officer and/or director of various
affiliates of Mellon Bank and Dreyfus.
</TABLE>

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

** The address of the Directors and officers is c/o Prudential Investments Fund
Management, LLC, Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077.

B-25
<PAGE>

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

The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Investment Advisory and Other Services--Manager and Investment Adviser" and
"--Principal Underwriter, Distributor and Rule 12b-1 Plans," review such actions
and decide on general policy.

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

The Fund pays each of its Directors who is not an affiliated person of PIFM
or The Prudential Investment Corporation (PIC, the Subadviser or the investment
adviser) annual compensation of $1,632, in addition to certain out-of-pocket
expenses. The amount of annual compensation paid to each Director may change as
a result of the introduction of additional funds upon which the Director will be
asked to serve.

Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of such agreement, the Fund accrues
daily the amount of Directors' fees which accrue interest at a rate equivalent
to the prevailing rate applicable to 90-day U.S. Treasury bills at the beginning
of each calendar quarter or, pursuant to a Commission exemptive order, at the
daily rate of return of any Prudential mutual fund. Payment of the interest so
accrued is also deferred and accruals become payable at the option of the
Director. The Fund's obligation to make payments of deferred Directors' fees,
together with interest thereon, is a general obligation of the Fund.

The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 75.

The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended March 31, 2000, to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's Board and the boards of all other investment
companies managed by PIFM (Fund Complex) for the calendar year ended December
31, 1999.

COMPENSATION TABLE
<TABLE>
<CAPTION>

TOTAL 1999
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM FUND
AGGREGATE BENEFITS ACCRUED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
----------------- --------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Edward D. Beach, Director (a) $1,632 None N/A $142,500(43/70)*
Eugene C. Dorsey, Director** $1,632 None N/A $ 81,000(17/48)
Delayne Dedrick Gold, Director $1,700 None N/A $144,500(43/70)*
Robert F. Gunia, Director and Vice President (1) -- -- -- --
Thomas T. Mooney, Director** $1,632 None N/A $129,500(35/75)*
Stephen P. Munn--Director $ 650 None N/A $ 62,250(29/53)
Thomas H. O'Brien, Director (a) $1,632 None N/A $ 47,500(11/26)*
David R. Odenath, Jr., Director and Vice President (1) -- -- -- --
Richard A. Redeker, Director $1,632 None N/A $ 95,000(29/53)
John R. Strangfeld, Jr., Director and President (1) -- -- -- --
Nancy H. Teeters, Director $1,632 None N/A $ 97,000(25/43)*
Louis A. Weil, III, Director $1,632 None N/A $ 96,000(29/53)*

</TABLE>

-----------

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

(a) Former Director, retired on December 31, 1999.

* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.

** Total aggregate compensation from all of the funds in the Fund Complex for
the calendar year ended December 31, 1999, includes amounts deferred at the
election of Directors under the Fund's deferred compensation plans.
Including accrued interest, total compensation amounted to $103,574 and
$135,102 for Messrs. Dorsey and Mooney, respectively.

B-26

<PAGE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Directors of the Fund are eligible to purchase Class Z shares of the Fund,
which are sold without either an initial sales charge or contingent deferred
sales charge to a limited group of investors.

As of May 7, 2000, the Directors and officers of the Fund, as a group,
owned less than 1% of each Class of the outstanding common stock of the Fund.

As of May 7, 2000, the beneficial owners, directly or indirectly, of more
than 5% of the outstanding shares of any class of beneficial interest were:
Amsouth Bank, Trustee, T/F Morrison's Restaurants Inc., Pension Plan, Attn:
Tracey Crain, P.O. Box 11426, Birmingham, AL 35202, who held 231,828 Class A
shares of the Fund (or 8% of the outstanding Class A shares); Prudential Bank &
Trust, c/f John Furino, IRA DTD 11/18/98, 310 San Marco Drive, Ft. Laudertdale,
FL 33301, who held 11,498 Class Z shares of the Fund (or 6% of the outstanding
Class Z shares); Margaret Weiner, Robert Weiner, CO-TTEES, Margaret Weiner REV
TR UA DTD 04/03/95, 3320 Bridle Path Lane, Weston, FL 33331, who held 10,752
Class Z shares of the Fund (or 6% of the outstanding Class Z shares); and Mark
Jeffrey Weiner, 3320 Bridle Path Lane, Weston, FL 33331, who held 15,113 Class Z
shares of the Fund (or 8% of the outstanding Class Z shares).

As of May 7, 2000, Prudential Securities was the record holder for other
beneficial owners of 2,573,802 Class A shares (or 89% of the outstanding Class A
shares), 8,795,981 Class B shares (or 89% of the outstanding Class B shares),
1,481,347 Class C shares (or 91% of the outstanding Class C shares) and 185,223
Class Z shares (or 98% of the outstanding Class Z shares) of the Fund. In the
event of any meetings of shareholders, Prudential Securities will forward, or
cause the forwarding of, proxy materials to the beneficial owners for which it
is the record holder.

INVESTMENT ADVISORY AND OTHER SERVICES

(A) MANAGER AND INVESTMENT ADVISER

The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. PIFM serves as manager to all of the other investment companies
that, together with the Fund, comprise the Prudential Mutual Funds. See "How the
Fund is Managed" in the Prospectus. As of April 30, 2000, PIFM managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $76.2 billion. According to the Investment Company Institute,
as of September 30, 1999, the Prudential mutual funds were the 20th largest
family of mutual funds in the United States.

PIFM is a subsidiary of Prudential Securities and The Prudential Insurance
Company of America (Prudential). Prudential Mutual Fund Services LLC (PMFS or
the Transfer Agent), a wholly-owned subsidiary of Prudential, serves as the
Transfer Agent and dividend distribution agent for the Prudential mutual funds
and, in addition, provides customer service, recordkeeping and management and
administration services to qualified plans.

Pursuant to the Management Agreement with the Fund (the Management
Agreement), PIFM, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities and other
assets. In connection therewith, PIFM is obligated to keep certain books and
records of the Fund. PIFM has hired the Subadviser to provide subadvisory
services to the Fund. PIFM also administers the Fund's corporate affairs and, in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by State Street Bank and Trust Company, the Fund's custodian (the Custodian),
and PMFS, the Fund's transfer and dividend disbursing agent. The management
services of PIFM for the Fund are not exclusive under the terms of the
Management Agreement and PIFM is free to, and does, render management services
to others.

For its services, PIFM receives, pursuant to the Management Agreement, a
fee at an annual rate of .65 of 1% of the Fund's average daily net assets. The
fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of
PIFM, but excluding interest, taxes, brokerage commissions, distribution fees
and litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PIFM will be
reduced by the amount of such excess. Currently, the Fund believes there are no
such expense limitations.

B-27

<PAGE>

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

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

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

(c) the costs and expenses payable to the Subadviser pursuant to the
Subadvisory Agreement between PIFM and the Subadviser (the Subadvisory
Agreement).

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

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

For the fiscal year ended March 31, 2000 and the fiscal period ended March
31, 1999, the Fund paid PIFM management fees of $680,461 and $465,324,
respectively.

PIFM has entered into the Subadvisory Agreement with the Subadviser, a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
the Subadviser will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, the Subadviser is obligated to
keep certain books and records of the Fund. PIFM continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises the Subadviser's performance of such services. The
Subadviser was reimbursed by PIFM for the reasonable costs and expenses incurred
by the Subadviser in furnishing those services. Effective January 1, 2000, the
Subadviser is paid by PIFM at an annual rate of .325 of 1.00% of the Fund's
average daily net assets.

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

Prudential Investment's Fixed Income Group includes the following sector
teams which may contribute towards security selection in addition to the sector
team described in the prospectus (assets under management are as of December 31,
1999).

B-28

<PAGE>

U.S. LIQUIDITY
--------------

ASSETS UNDER MANAGEMENT: $22.6 billion.
TEAM LEADER: Michael Lillard. GENERAL INVESTMENT EXPERIENCE: 12 years.
PORTFOLIO MANAGERS: 9. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.
SECTOR: U.S. Treasuries, agencies and mortgages.
INVESTMENT STRATEGY: Focus is on high quality, liquidity and controlled risk.

CORPORATE
---------

ASSETS UNDER MANAGEMENT: $47.3 billion.
TEAM LEADER: Steven Kellner. GENERAL INVESTMENT EXPERIENCE: 13 years.
PORTFOLIO MANAGERS: 8. AVERAGE GENERAL INVESTMENT EXPERIENCE: 13 years, which
includes team members with significant mutual fund experience.
SECTOR: U.S. investment-grade corporate securities.
INVESTMENT STRATEGY: Focus is on identifying spread, credit quality and
liquidity trends to capitalize on changing opportunities in the market.
Ultimately, they seek the highest expected return with the least risk.

GLOBAL BOND
-----------

ASSETS UNDER MANAGEMENT: $3.9 billion.
TEAM LEADERS: Steven Koomar and David Bessey. GENERAL INVESTMENT EXPERIENCE: 13
years and 10 years, respectively.
PORTFOLIO MANAGERS: 5. AVERAGE GENERAL INVESTMENT EXPERIENCE: 9 years, which
includes team members with significant mutual fund experience.
SECTOR: Corporate and government securities of foreign issuers.
INVESTMENT STRATEGY: Focus is on higher quality sovereign debt and on high-grade
and high yield foreign corporate and emerging market issues.

MONEY MARKETS
-------------

ASSETS UNDER MANAGEMENT: $36.0 billion.
TEAM LEADER: Joseph Tully. GENERAL INVESTMENT EXPERIENCE: 16 years.
PORTFOLIO MANAGERS: 9. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.
SECTOR: High-quality short-term securities, including both taxable and
tax-exempt instruments.
INVESTMENT STRATEGY: Focus is on safety of principal, liquidity and controlled
risk.

CODE OF ETHICS
--------------

The Board of Directors of the Fund has adopted a Code of Ethics. In
addition, the Manager, Subadviser and Distributor have each adopted a Code of
Ethics (the "Codes"). The Codes permit personnel subject to the Codes to invest
in securities, including securities that may be purchased or held by the Fund.
However, the protective provisions of the Codes prohibit certain investments and
limit such personnel from making investments during periods when the Fund is
making such investments. The Codes are on public file with, and are available
from, the Commission.

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

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

Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted 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.

B-29

<PAGE>

The Distributor also incurs the expenses of distributing the Fund's Class Z
shares under a Distribution Agreement, none of these expenses of distribution
are reimbursed or paid for by the Fund. See "How the Fund is
Managed--Distributor" in the Prospectus.

The expenses incurred under the Plans include commissions and account
servicing fees paid to or on account of brokers or financial institutions that
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 the Distributor associated with the sale of Fund 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.

The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.

CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor for
its distribution-related activities with respect to Class A shares at an annual
rate of up to .30 of 1% of the average daily net assets of the Class A shares.
The Class A Plan provides that (1) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (2) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1%. The
Distributor has contractually agreed to limit its distribution-related fees
payable under the Class A Plan to .25 of 1% of the average daily net assets of
the Class A Shares for the fiscal year ending March 31, 2001. Fee waivers will
increase the Fund's total return.

For the fiscal year ended March 31, 2000, the Distributor received payments
of $80,386 under the Class A Plan and spent approximately $69,500 in
distributing the Fund's Class A shares. This amount was primarily expended for
payments of account servicing fees to financial advisers and other persons who
sell Class A shares. For the fiscal year ended March 31, 2000, the Distributor
also received approximately $41,800 in initial sales charges attributable to
Class A shares.

CLASS B AND CLASS C PLANS. Under the Class B and Class C Plans, the Fund
pays the Distributor for its distribution-related activities with respect to
Class B and Class C shares at an annual rate of up to 1% of the average daily
net assets of each of the Class B and Class C shares. The Class B Plan provides
that (1) up to .25 of 1% of the average daily net assets of the Class B shares
may be paid as a service fee and (2) up to .75 of 1% (not including the service
fee) of the average daily net assets of the Class B shares (asset-based sales
charge) may be paid for distribution-related expenses with respect to the Class
B shares. The Class C Plan provides that (1) up to .25 of 1% of the average
daily net assets of the Class C shares may be paid as a service fee for
providing personal service and/or maintaining shareholder accounts and (2) up to
.75 of 1% of the average daily net assets of the Class C shares may be paid for
distribution-related expenses with respect to Class C shares. The service fee
(.25 of 1% of average daily net assets) is used to pay for personal service
and/or the maintenance of shareholder accounts. The Distributor also receives
contingent deferred sales charges from certain redeeming shareholders and, with
respect to Class C shares, initial sales charges. The Distributor has
contractually agreed to limit its distribution-related fees payable under the
Class B and Class C Plans to .75 of 1% of the average daily net assets of each
of the Class B and Class C shares for the fiscal year ending March 31, 2001. Fee
waivers will increase the Fund's total return.

CLASS B PLAN. For the fiscal year ended March 31, 2000, the Distributor
received $699,601 from the Fund under the Class B Plan and spent approximately
$663,500 in distributing the Class B shares of the Fund. It is estimated that of
the latter amount, approximately 1.1% ($7,200) was spent on printing and mailing
of prospectuses to other than current shareholders; 4.9% ($32,900) was spent on
compensation to Pruco Securities Corporation, an affiliated broker-dealer
(Prusec), for commissions to its representatives and other expenses, including
an allocation on account of overhead and other branch office
distribution-related expenses, incurred by it for distribution of Fund shares;
and 94.0% ($623,400) on the aggregate of (i) payments of commissions and account
servicing fees to financial advisers ($371,800 or 56.1%) and (ii) an allocation
of overhead and other branch office distribution-related expenses ($251,600 or
37.9%). The term "overhead and other branch office distribution-related
expenses" represents (a) the expenses of operating Prudential Securities' and
Prusec's branch offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales

B-30

<PAGE>

seminars, (c) expenses of mutual fund sales coordinators to promote the sale of
Fund shares and (d) other incidental expenses relating to branch promotion of
Fund sales.

The Distributor also receives the proceeds of contingent deferred sales
charges paid by holders of Class B shares upon certain redemptions of Class B
shares. See "How to Buy, Sell and Exchange Shares of the Fund--How to Sell Your
Shares--Contingent Deferred Sales Charge (CDSC)" in the Prospectus. For the
fiscal year ended March 31, 2000, the Distributor received approximately
$468,500 in contingent deferred sales charges attributable to Class B shares.

CLASS C PLAN. For the fiscal year ended March 31, 2000, the Distributor
received $124,255 from the Fund under the Class C Plan and spent approximately
$116,000 in distributing the Fund's Class C shares. It is estimated that of the
latter amount approximately 0.9% ($1,000) was spent on printing and mailing of
prospectuses to other than current shareholders; 0.1% ($200) on compensation to
Prusec, for commissions to its representatives and other expenses, including an
allocation on account of overhead and other branch office distribution-related
expenses, incurred by it for distribution of Fund shares; and 99.0% ($114,800)
on the aggregate of (i) payments of commission and account servicing fees to
financial advisers (15.3% or $17,800) and (ii) an allocation of overhead and
other branch office distribution-related expenses (83.7% or $97,000).

The Distributor also receives an initial sales charge and the proceeds of
contingent deferred sales charges paid by investors upon certain redemptions of
Class C shares. See "How to Buy, Sell and Exchange Shares of the Fund--How to
Sell Your Shares--Contingent Deferred Sales Charge (CDSC)" in the Prospectus.
For the fiscal year ended March 31, 2000, the Distributor received approximately
$11,300 in contingent deferred sales charges attributable to Class C shares. For
the fiscal year ended March 31, 2000, the Distributor also received
approximately $29,400 in initial sales charges with respect to Class C shares.

Distribution expenses attributable to the sale of Class A, Class B and
Class C shares of the Fund are allocated to each such class based upon the ratio
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.

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

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

Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under federal securities law.

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 out of its own resources to dealers (including Prudential
Securities) and other persons

B-31

<PAGE>

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.

FEE WAIVERS/SUBSIDIES

PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has contractually agreed to waive a portion of its distribution
fees for Class A, Class B and Class C shares as described above. Fee waivers and
subsidies will increase the Fund's total return. Beginning April 1, 2000, PIFM
has discontinued its management fee waiver of .15 of 1%.

NASD MAXIMUM SALES CHARGE RULE.

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

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

Prudential Mutual Fund Services LLC (PMFS), 194 Wood Avenue South, Iselin,
New Jersey 08830, serves as the transfer and dividend disbursing agent of the
Fund. PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee of $13.00 per
shareholder account, a new account set-up fee of $2.00 for each manually
established shareholder account and a monthly inactive zero balance account fee
of $.20 per shareholder account. PMFS is also reimbursed for its out-of-pocket
expenses, including but not limited to postage stationary, printing, allocable
communication expenses and other costs.

For the fiscal year ended March 31, 2000, the Fund incurred expenses of
approximately $127,000 for the services of PMFS.

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

BROKERAGE ALLOCATION AND OTHER PRACTICES

The Manager is responsible for decisions to buy and sell securities,
futures and options on securities and futures for the Fund, the selection of
brokers, dealers and futures commission merchants to effect the transactions and
the negotiation of brokerage commissions, if any. The term "Manager" as used in
this section includes the Subadviser. In placing orders for portfolio securities
of the Fund, the Manager is required to give primary consideration to obtaining
the best possible combination of favorable price and efficient execution. This
means that the Manager will seek to execute each transaction at a price and
commission, if any, which will provide the most favorable total cost or proceeds
reasonably obtainable in the circumstances. While the Manager generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available. Within the framework of this
policy, the Manager will consider the research and investment services provided
by brokers, dealers or futures commission merchants who effect or are parties to
portfolio transactions of the Fund, the Manager or the Manager's other clients.
Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and

B-32

<PAGE>

research reports on particular companies and industries. Such services are used
by the Manager in connection with all of its investment activities, and some of
such services obtained in connection with the execution of transactions for the
Fund may be used in managing other investment accounts. Conversely, brokers,
dealers or futures commission merchants furnishing such services may be selected
for the execution of transactions of such other accounts, whose aggregate assets
are far larger than the Fund's, and the services furnished by such brokers,
dealers or futures commission merchants may be used by the Manager in providing
investment management for the Fund. Commission rates are established pursuant to
negotiations with the broker, dealer or futures commission merchant based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The Manager's policy is to pay higher commissions
to brokers, other than Prudential Securities, for particular transactions than
might be charged if a different broker had been selected, on occasions when, in
the Manager's opinion, this policy furthers the objective of obtaining best
price and execution. In addition, the Manager is authorized to pay higher
commissions on brokerage transactions for the Fund to brokers other than
Prudential Securities (or any affiliate) in order to secure research and
investment services described above, subject to the primary consideration of
obtaining the most favorable price and efficient execution in the circumstances
and subject to review by the Fund's Board of Directors from time to time as to
the extent and continuation of this practice. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the Fund's
Board of Directors.

Broker-dealers may receive negotiated brokerage commissions on Fund
portfolio transactions, including options and the purchase and sale of
underlying securities upon the exercise of options. On foreign securities
exchanges, commissions may be fixed. Orders may be directed to any broker or
futures commission merchant including, to the extent and in the manner permitted
by applicable law, Prudential Securities and its affiliates.

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

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

Subject to the above considerations, Prudential Securities (or any
affiliate) may act as a securities broker or futures commission merchant for the
Fund. In order for Prudential Securities (or any affiliate) to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by Prudential Securities (or any affiliate) must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other firms in
connection with comparable transactions involving similar securities or futures
being purchased or sold on an exchange or board of trade 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 firm in a commensurate arm's-length transaction.
Furthermore, the Board of Directors of the Fund, including a majority of the
Directors who are not "interested" persons, has adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to Prudential Securities (or any affiliate) are consistent with the
foregoing standard. In accordance with Section 11(a) of the Securities Exchange
Act of 1934, as amended, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for the Fund unless the
Fund has expressly authorized the retention of such compensation. Prudential
Securities must furnish to the Fund at least annually a statement setting forth
the total amount of all compensation retained by Prudential Securities from
transactions effected for the Fund during the applicable period. Brokerage and
futures transactions with Prudential Securities are also subject to such
fiduciary standards as may be imposed by applicable law.

For the fiscal period ended March 31, 1999, the Fund paid brokerage
commissions of $2,000 to Prudential Securities, approximately 7.6% of the
aggregate brokerage commissions paid by the Fund, for effecting approximately
5.2% of the

B-33

<PAGE>

aggregate dollar amount of transactions in which the Fund paid brokerage
commissions. For the fiscal year ended March 31, 2000, there were no commissions
paid to Prudential Securities by the Fund.

The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents at March 31, 2000. As of March 31, 2000, the Fund did not hold
anysecurities of its regular brokers and dealers.

CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

The Fund is authorized to issue 2.5 billion shares of common stock, $.0001
par value per share, divided into four classes, designated Class A, Class B,
Class C and Class Z common stock. Of the authorized shares of common stock, one
billion shares have been designated Class A common stock, 500 million shares
have been designated Class B common stock, 500 million shares have been
designated Class C common stock and 500 million shares have been designated
Class Z common stock. Each class of common stock represents an interest in the
same assets of the Fund and is identical in all respects except that (1) 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, (2) 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, (3) each class has a different exchange privilege, and (4) only
Class B shares have a conversion feature. Class Z shares are offered exclusively
for sale to a limited group of investors. Currently, the Fund is offering Class
A, Class B, Class C and Class Z shares of common stock. In accordance with the
Fund's Articles of Incorporation, the Board of Directors may authorize the
creation of additional series of common stock and classes within such series,
with such preferences, privileges, limitations and voting and dividend rights as
the Board may determine.

The Board of Directors may increase or decrease the number of authorized
shares. Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. Each share of
each class of common stock is equal as to earnings, assets and voting
privileges, except as noted above, and each class (with the exception of Class Z
shares, which are not subject to any distribution and/or service fees) bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debts and expenses of the Fund have been paid. Since Class B and Class C
shares generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders and to Class Z shareholders, whose shares are not
subject to any distribution and/or service fees. The Fund's shares do not have
cumulative voting rights for the election of Directors.

The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of 10% or more
of the Fund's outstanding shares for the purpose of voting on the removal of one
or more Directors or to transact any other business.

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

Shares of the Fund may be purchased at a price equal to the next determined
NAV per share plus a sales charge which, at the election of the investor, may be
imposed either (1) at the time of purchase (Class A or Class C shares) or (2) on
a deferred basis (Class B or Class C shares). Class Z shares of the Fund are
offered to a limited group of investors at NAV without any sales charges. See
"How to Buy, Sell and Exchange Shares of the Fund--How to Buy Shares" in the
Prospectus.

Each class of shares represents an interest in the same assets of the Fund
and has the same rights, except that (1) each class is subject to different
sales charges and distribution and/or service fees (except for Class Z shares
which are not subject to any sales charge or distribution and/or service fees),
which may affect performance, (2) 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, (3) each
class has a different exchange privilege, (4) only Class B shares have a
conversion feature and (5) Class Z shares are offered exclusively

B-34

<PAGE>

for sale to a limited group of investors. See "Investment Advisory and Other
Services--Principal Underwriter, Distributor and Rule 12b-1 Plans" above and
"Shareholder Investment Account--Exchange Privilege" below.

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire,
you must complete an application and telephone PMFS at (800) 225-1852
(toll-free) to receive an account number. The following information will be
requested: your name, address, tax identification number, fund and 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 High Yield
Total Return Fund, Inc., specifying on the wire the account number assigned by
PMFS and your name and identifying the class in which you are investing (Class
A, Class B, Class C or Class Z shares).

If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 p.m., New York time) on a business day, you may
purchase shares of the Fund as of that day.

In making a subsequent purchase by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential High Yield Total
Return Fund, Inc. 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 using federal funds. The minimum amount which may be invested by
wire is $1,000.

ISSUANCE OF FUND SHARES FOR SECURITIES

Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations,(2) statutory mergers, or (3)
other acquisitions of portfolio securities that (a) meet the investment
objective and policies of the 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, and (d) are approved by the Fund's investment adviser.

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 4%, Class C*
shares are sold with a 1% sales charge, and Class B* and Class Z shares of the
Fund are sold at NAV. Using the Fund's NAV at March 31, 2000, the maximum
offering prices of the Fund's shares are as follows:

CLASS A
Net asset value and redemption price per Class A share ......... $ 8.21
Maximum sales charge (4% of offering price) .................... 0.34
--------
Offering price to public ....................................... $ 8.55
========
CLASS B
Net asset value, offering price and redemption price
per Class B share* ............................................. $ 8.21
========
CLASS C
Net asset value and redemption price per Class C share* ........ $ 8.21
========
Sales charge (1% of offering price) ............................ $ 0.08
--------
Offering Price to Public ....................................... $ 8.29
========
CLASS Z
Net asset value, offering price and redemption price
per Class Z share .............................................. $ 8.21
========

---------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "How to Buy, Sell and Exchange Shares of
the Fund--How to Sell Your Shares" in the Prospectus

SELECTING A PURCHASE ALTERNATIVE

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:

B-35

<PAGE>

If you intend to hold your investment in the Fund for less than 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 4% 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 more than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, the
sales charges and cumulative annual distribution-related fees would be
approximately the same for Class A, Class B and Class C shares. However, you
should consider purchasing Class B shares over Class A shares or Class C shares
because all of your money would be invested initially in the case of Class B
shares.

If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than those of the Class
B or 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 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 for more than 5 years in the
case of Class C shares for the higher cumulative annual distribution-related fee
on those shares plus, in the case of Class C shares, the 1% initial sales charge
to exceed the initial sales charge plus cumulative annual distribution-related
fees on Class A shares. This does not take into account the time value of money,
which further reduces the impact of the higher Class B or Class C
distribution-related fee on the investment, fluctuations in NAV, the effect of
the return on the investment over this period of time or redemptions when the
CDSC is applicable.

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

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

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

o officers of the Prudential mutual funds (including the Fund)

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

o employees of subadvisers of the Prudential mutual funds provided that
purchases at NAV are permitted by such person's employer

o 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

o members of the Board of Directors of Prudential

o real estate brokers, agents and employees of real estate brokerage
companies affiliated with The Prudential Real Estate Affiliates who
maintain an account at Prudential Securities, Prusec or with the
Transfer Agent

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

o investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) 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. (2) 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 (3) the financial adviser served as the client's broker on the
previous purchase

B-36

<PAGE>

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

o orders placed by broker-dealers, investment advisers or financial
planners who have entered into an agreement with the Distributor, who
place trades for their own accounts or the accounts of their clients and
who charge a management consulting or other fee for their services (for
example, mutual fund "wrap" or asset allocation programs)

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

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

For an investor to obtain any reduction or waiver of the initial sales
charges at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions.

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential mutual funds, the purchases
may be combined to take advantage of the reduced or waived sales charges
applicable to larger purchases. See "How to Buy, Sell and Exchange Shares of the
Fund--How to Buy Shares--Step 2: Choose a Share Class--Reducing or Waiving Class
A's Initial Sales Charge" in the Prospectus.

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

o an individual

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

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

o 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)

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

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

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

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

The Transfer Agent, Distributor or your broker must be notified at the time
of purchase that the investor is entitled to a reduced sales charge. The reduced
sales 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.

B-37

<PAGE>

LETTERS OF INTENT. Reduced sales charges also are available to investors
(or an eligible group of related investors), who enter into a written Letter of
Intent providing for the investment, within a thirteen-month period, of a
specific dollar amount in the Fund and other Prudential mutual funds (Letter of
Intent). Retirement and group plans no longer qualify to purchase Class A shares
at NAV by entering into a Letter of Intent.

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

A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal as if it were a single
investment. 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
investors. The effective date of a Letter of Intent may be back-dated up to 90
days, in order that any investments made during this 90-day period, valued at
the investor's cost, can be applied to the fulfillment of the Letter of Intent
goal.

The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.

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. Letters of Intent are not
available to any individual participants in any retirement or group plans.

CLASS B SHARES

The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, your broker or the
Distributor. Redemptions of Class B shares may be subject to a CDSC. See
"Contingent Deferred Sales Charge" below.

The Distributor will pay, from its own resources, sales commissions of up
to 4% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase, The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee.

CLASS C SHARES

The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

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

INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Class C shares at NAV, without the initial sales charge,
with the proceeds from the redemption of shares of any unaffiliated registered
investment company which were not held through an account with any Prudential
affiliate. Such purchases must be made within 60 days of the redemption.
Investors eligible for this waiver include: (1) investors purchasing shares
through an account

B-38

<PAGE>

at Prudential Securities; (2) investors purchasing shares through an ADVANTAGE
Account or an Investor Account with Pruco Securities Corporation (Prusec); and
(3) investors purchasing shares through other brokers. This waiver is not
available to investors who purchase shares directly from the Transfer Agent. You
must notify the Transfer Agent directly or through your broker if you are
entitled to this waiver and provide the Transfer Agent with such supporting
documents as it may deem appropriate.

CLASS Z SHARES

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

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

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

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

o Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available investment option

o Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund)

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

In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
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.

RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential mutual funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. Rights of Accumulation may be applied across the classes
of the Prudential mutual funds. However, the value of shares held directly with
the Transfer Agent and through your broker will not be aggregated to determine
the reduced sales charge. The value of existing holdings for purposes of
determining the reduced sales charge is calculated using the maximum offering
price (NAV plus maximum sales charge) as of the previous business day.

The Distributor or the Transfer Agent must be notified at the time of
purchase that the shareholder 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.

B-39

<PAGE>

SALE OF SHARES

You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described below. See "Contingent Deferred Sales Charge"
below. If you are redeeming your shares through a broker, your broker must
receive your sell order before the Fund computes its NAV for that day (that is,
4:15 p.m., New York time) in order to receive that day's NAV. Your broker will
be responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the Fund.

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.

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

SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $100,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or (4) are
to be paid to a corporation, partnership, trust or fiduciary, the signature(s)
on the redemption request or stock power must be signature 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. In the case of redemptions from a PruArray 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, the Distributor or your broker
of the written request and certificates, if issued, except as indicated below.
If you hold shares through Prudential Securities, payment for shares presented
for redemption will be credited to your account at your broker, unless you
indicate otherwise. Such payment may be postponed or the right of redemption
suspended at times (1) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (2) when trading on such Exchange is
restricted, (3) 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 (4) during any other period when the Securities and Exchange
Commission (the "Commission"), by order, so permits; provided that applicable
rules and regulations of the Commission shall govern as to whether the
conditions prescribed in (2), (3) or (4) exist.

Payment for redemption of recently purchased shares will be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has been
honored, which may take up to 10 calendar days from the time of receipt of the
purchase check by the Transfer Agent. Such delay may be avoided by purchasing
shares by wire or by certified or cashier's check.

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 Commission. Securities will be readily marketable and will be valued in the
same manner as in a regular redemption. If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, under which the Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any
one shareholder.

INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the 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
such shareholders 60 days' prior written notice in which to

B-40

<PAGE>

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 back into your
account any portion or all of the proceeds of such redemption in shares of the
same fund at the NAV next determined after the order is received, which must be
within 90 days after the date of the redemption. Any CDSC paid in connection
with such redemption will be credited (in shares) to your account. (If less than
a full repurchase is made, the credit will be on a PRO RATA basis.) You must
notify the Transfer Agent, either directly or through the Distributor or your
broker, at the time the repurchase privilege is exercised, to adjust your
account for the CDSC you previously paid. Thereafter, any redemptions will be
subject to the CDSC applicable at the time of the redemption. See "Contingent
Deferred Sales Charge" below. Exercise of the repurchase privilege may affect
the federal tax treatment of the redemption.

CONTINGENT DEFERRED SALES CHARGE

Redemptions of Class B shares will be subject to a contingent deferred
sales charge of CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within 18 months 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 18 months, 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 acquired through reinvestment of dividends or distributions are not
subject to a CDSC. The amount of any CDSC will be paid to and retained by the
Distributor.

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.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund. See
"Shareholder Investment Account--Exchange Privilege" below.

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

CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------- -------------------------

First ............................................... 5.0%
Second .............................................. 4.0%
Third ............................................... 3.0%
Fourth .............................................. 2.0%
Fifth ............................................... 1.0%
Sixth ............................................... 1.0%
Seventh ............................................. None

In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in NAV above the total amount of
payments for the purchase of Class B shares made during the preceding six years;
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

B-41

<PAGE>

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.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholders 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, at the time of death or initial determination of disability, provided
that the shares were purchased prior to death or disability.

The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. For more information, call Prudential at (800) 353-2847.

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

SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions effected through the Systematic Withdrawal Plan. On an annual basis,
up to 12% of the total dollar amount subject to the CDSC may be redeemed without
charge. The Transfer Agent will calculate the total amount available for this
waiver annually on the anniversary date of your purchase or, for shares
purchased prior to March 1, 1998, on March 1 of the current year. 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
Directors of the Fund.

You must notify the Fund's Transfer Agent either directly or through your
broker, at the time of redemption, that you are entitled to waiver of the CDSC
and provide the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement.

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

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

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

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

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

</TABLE>

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

B-42
<PAGE>

WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES

CONVERSION FEATURE--CLASS B SHARES

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

Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.

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

Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion. Thus, although the aggregate
dollar value will be the same, you may receive fewer Class A shares than Class B
shares converted.

For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during the month will be deemed to have been
made on the last day of the month, or for Class B shares acquired through
exchange, or a series of exchanges, on the last day of the month in which the
original payment for purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a shares
until approximately eight years from purchase. For purpose 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 shares.

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) 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 (2) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into 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.

B-43

<PAGE>

SHAREHOLDER INVESTMENT ACCOUNT

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

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

EXCHANGE PRIVILEGE. The Fund makes available to its shareholders the
privilege of exchanging their shares of the Fund for shares of certain other
Prudential mutual funds, including one or more specified money market funds,
subject in each case to the minimum investment requirements of such funds.
Shares of such other Prudential mutual funds may also be exchanged for shares of
the Fund. All exchanges are made on the basis of the relative NAV next
determined after receipt of an order in proper form. An exchange will be treated
as a redemption and purchase for tax purposes. Shares may be exchanged for
shares ofanother 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.

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 8:00 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.

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 must be returned in order for the
shares to be exchanged.

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

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

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

B-44

<PAGE>

The following money market funds participate in the Class A exchange
privilege:

Prudential California Municipal Fund
(California Money Market Series)

Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)

Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)

Prudential MoneyMart Assets, Inc.

Prudential Tax-Free Money Fund, Inc.

CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares of the Fund for Class B and Class C shares, respectively, of
certain other Prudential mutual funds and shares of Prudential Special Money
Market Fund, Inc., a money market mutual 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 first day of the month after the initial
purchase, rather than the date of the exchange.

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

At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, 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 Transfer Agent, Prudential
Securities or Prusec. The Exchange Privilege may be modified, terminated or
suspended on 60 days' notice, and any fund, including the Fund, or the
Distributor, has the right to reject any exchange application relating to such
fund's shares.

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. Under this exchange privilege, amounts
representing any Class B and Class C shares which are not subject to a CDSC,
held in such a shareholder's account will 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. 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-45

<PAGE>

B or Class C shares acquired pursuant to the automatic reinvestment of dividends
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities, Prusec or
another broker that they are eligible for this special exchange privilege.

Participants in any fee-based program for which the Fund is an available
option will have their Class A shares if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value.

Additional details about the exchange privilege and prospectuses for each of
the Prudential mutual funds are available from the Fund's Transfer Agent, the
Distributor or your broker. The exchange privilege may be modified, terminated
or suspended on sixty days' notice, and any fund, including the Fund, or the
Distributor, has the right to reject any exchange application relating to such
fund's shares. See "How to Buy, Sell and Exchange Shares of the Fund--Frequent
Trading" in the Prospectus.

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 may
average 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)

PERIOD OF MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
------------------------------ -------- -------- -------- --------
25 Years ................... $ 105 $ 158 $ 210 $ 263
20 Years ................... 170 255 340 424
15 Years ................... 289 433 578 722
10 Years ................... 547 820 1,093 1,366
5 Years ................... 1,361 2,041 2,721 3,402

See "Automatic Investment Plan (AIP)" below.

----------

(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 the Fund.
The investment return and principal value of an investment will fluctuate so
that an investor's shares when redeemed may be worth more or less than their
original cost.

AUTOMATIC INVESTMENT PLAN (AIP)

Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund by authorizing his or her bank account or
brokerage account (including a Command Account) to be debited to invest
specified dollar amounts for subsequent investment into the Fund. The investor's
bank must be a member of the Automatic Clearing House System.

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

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly,
quarterly, semi-annual or annual redemption checks in any amount, except as
provided

B-46

<PAGE>

below, up to the value of the shares in the shareholder's account. Systematic
withdrawals of Class B or Class C shares may be subject to a CDSC. See "How to
Buy, Sell and Exchange Shares of the Fund--How to Sell Your Shares--Contingent
Deferred Sales Charge (CDSC)" in the Prospectus.

In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) systematic withdrawals may not be for less than $100
and (3) all dividends and/or distributions must be automatically reinvested in
additional full and fractional shares of the Fund in order for the shareholder
to participate in the plan. See "Automatic Reinvestment of Dividends and/or
Distributions" above.

The Transfer Agent, the Distributor or your broker act as an agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic 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.

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

Furthermore, each systematic withdrawal constitutes a redemption of shares,
and any gain or loss realized must be recognized for federal income tax
purposes. In addition, systematic withdrawals made concurrently with purchases
of additional shares are inadvisable because of the sales charges applicable to
(1) the purchase of Class A and Class C shares and (2) the redemption of Class B
and Class C shares. Each shareholder should consult his or her own tax adviser
with regard to the tax consequences of the plan, particularly if used in
connection with a retirement plan.

TAX-DEFERRED RETIREMENT PLANS

Various tax-deferred retirement plans, including 401(k) plans, 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,
administration, and custodial fees as well as other plan details are available
from the Distributor or the Transfer Agent.

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

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

TAX-DEFERRED COMPOUNDING(1)

CONTRIBUTIONS MADE OVER: PERSONAL SAVINGS IRA
------------------------ ---------------- ---------
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

----------

(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in a traditional IRA account will be subject to tax when withdrawn
from the account. Distributions from a Roth IRA which 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, the Fund (or a portfolio of the Fund, if applicable) may
be included in a mutual fund program with other Prudential mutual funds. Under
such a program, a group of portfolios will be selected and thereafter marketed
collectively.

B-47

<PAGE>

Typically, these programs are created with an investment theme, such as pursuit
of greater diversification, protection from interest rate movements or access to
different management styles. In the event such a program is instituted, there
may be a minimum investment requirement for the program as a whole. The Fund may
waive or reduce the minimum initial investment requirements in connection with
such a program.

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

NET ASSET VALUE

The price an investor pays for each share is based on the share value. The
Fund's share value-known as the net asset value per share or NAV-is determined
by subtracting its liabilities from the value of its assets and dividing the
remainder by the number of outstanding shares. NAV is calculated separately for
each class. The Directors have fixed the specific time of day for the
computation of the Fund's net asset value to be as of 4:15 p.m., New York time.

Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sale price on 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 or principal market marker. 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. Options on stock and stock indices traded on an exchange are valued at
the mean between the most recently quoted bid and asked prices on the respective
exchange and futures contracts and options thereon are valued at their last sale
prices as of the close of trading on the applicable commodities exchange.
Quotations of foreign securities in a foreign currency are converted to U.S.
dollar equivalents at the current rate obtained from a recognized bank or
dealer, and forward currency exchange contracts are valued at the current cost
of covering or offsetting such contacts. Should an extraordinary event, which is
likely to affect the value of the security, occur after the close of an exchange
on which a portfolio security is traded, such security will be valued at fair
value considering factors determined in good faith by the investment adviser
under procedures established by and under the general supervision of the Fund's
Board of Directors.

Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Directors) does not represent fair value, are valued by the Valuation
Committee or Board of Directors in consultation with the Manager or 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 Directors not to represent fair value.
Short-term securities with remaining maturities of more than 60 days, for which
market quotations are readily available, are valued at their current market
quotations as supplied by an independent pricing agent or principal market
maker.

The Fund will compute its NAV at 4:15 p.m., New York time, on each day the
New York Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem Fund shares have been received or days on which changes
in the value of the Fund's portfolio securities do not affect NAV. In the event
the New York Stock Exchange closes early on any business day, the NAV of the
Fund's shares shall be determined at the time between such closing and 4:15
p.m., New York time.

B-48

<PAGE>

TAXES, DIVIDENDS AND DISTRIBUTIONS

The Fund is qualified as, intends to remain qualified as, and has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code for each taxable year. This will relieve the Fund (but not its
shareholders) from paying federal income tax on income which is distributed to
shareholders, and, permit net capital gains of the Fund (that is, the excess of
capital gains from the sale of assets held for more than 12 months over net
short-term capital losses) to be treated as capital gains of the shareholders.

Qualification of the Fund as a regulated investment company under the
Internal Revenue Code requires, among other things, that (a) at least 90% of the
Fund's annual gross income (without reduction for losses from the sale or other
disposition of stock, securities, or foreign currency) 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
stock or 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
stock or 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 and net short-term gains (that is, the excess
of net short-term capital gains over net long-term capital losses) in each year.

The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
12 months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a nondeductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which the Fund pays income
tax is treated as distributed.

Any dividends or capital gains distributions paid shortly after a purchase
by an investor may have the effect ofreducing the per share NAV of the
investor's shares by the per share amount of the dividends or capital gains
distributions. Furthermore, such dividends or capital gains distributions,
although in effect a return of capital, are subject to federal income taxes.
Therefore, prior to purchasing shares of the Fund, the investor should carefully
consider the impact of dividends or capital gains distributions, which are
expected to be or have been announced.

For federal income tax purposes, the Fund had a capital loss carryforward as
of March 31, 2000, of approximately $8,678,148 of which $1,697,618 expires in
2007 and $6,980,530 expires in 2008.

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

Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Interest income, capital gain net income, gain or loss from Section 1256
contracts (described above), dividend income from foreign corporations and
income from other sources will not constitute qualified dividends. Individual
shareholders are not eligible for the dividends-received deduction.

If the Fund pays a dividend in January which was declared in the previous
October, November or December to shareholders of record on a specified date in
one of such months, then such dividend or distribution will be treated for tax
purposes as being paid by the Fund and received by its shareholders on December
31 of the year in which such dividend was declared.

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

Dividends of net investment income and net short-term capital gains paid to
a shareholder (including a shareholder acting as a nominee or fiduciary) who is
a nonresident alien individual, a foreign corporation or a foreign partnership
(foreign shareholder) are subject to a 30% (or lower treaty rate) withholding
tax upon the gross amount of the dividends or distributions unless the dividends
or distributions are effectively connected with a U.S. trade or business
conducted by the foreign shareholder. Capital gain distributions 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.

B-49

<PAGE>

Under certain provisions of the Internal Revenue Code, some shareholders may
be subject to a 31% withholding tax on ordinary income dividends, capital gains
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom a certified
taxpayer identification number is not on file with the Fund or who, to the
Fund's knowledge, have furnished an incorrect number.

Any net capital gains distributed to shareholders will be taxable as capital
gains to the shareholders, whether or not reinvested and regardless of the
length of time a shareholder has owned his or her shares. The maximum capital
gains rate for individuals is 20% with respect to assets held for more than 12
months. The maximum tax rate for individuals for ordinary income is 39.6%. The
maximum capital gains rate for corporate shareholders currently is the same as
the maximum corporate tax rate for ordinary income. Not later than 60 days after
the close of its taxable year, the Fund will provide the shareholders with a
written notice designating the amounts of any capital gain or ordinary income
dividends.

Any gain or loss realized upon a sale or redemption of shares of the Fund by
a shareholder who is not a dealer in securities will be treated as capital gain
or loss. Any such capital gain or loss will be treated as long-term capital loss
if the shares were held for more than 12 months. In the case of an individual,
the maximum long-term capital gains rate is 20%. However, any loss realized by a
shareholder upon the sale of shares of the Fund held by the shareholder for six
months or less will be treated as long-term capital loss to the extent of any
capital gains distributions received by the shareholder.

Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period beginning 30 days before the disposition of shares. Shares
purchased pursuant to the reinvestment of a dividend or distribution will
constitute a replacement of shares. Under certain circumstances, a shareholder
who acquires shares of the Fund and sells, exchanges or otherwise disposes of
such shares within 90 days of acquisition may not be allowed to include 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.

In certain cases where the fund acquires a put or writes a call on
securities or otherwise holds an offsetting position with respect to the
securities, the Fund's holding period in such securities may be tolled. Gains
and losses on the sale, lapse or other termination of options on securities will
generally be treated as gains and losses from the sale of securities. If an
option written by the Fund on securities lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will generally realize short-term capital gain or loss. If
securities are sold by the Fund pursuant to the exercise of a call option
written by it, the fund will include the premium received in the sale proceeds
of the securities delivered in determining the amount of gain or loss on the
sale. Certain of the Fund's transactions may be subject to wash sale, short
sale, conversion transaction, constructive sale and straddle provisions of the
Internal Revenue Code.

Special rules apply to most options on stock indexes, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. See "Description of the Fund, Its Investments and Risks." These
investments will generally constitute Section 1256 contracts and will be
required to be "marked-to-market" for federal income tax purposes at the end of
the Fund's taxable year; that is, treated as having been sold at their fair
market value on the last day of the Fund's taxable year. Except with respect to
certain forward foreign currency exchange contracts, 60% of any gain or loss
recognized on such "deemed sales" and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss.

Gain or loss on the sale, lapse or other termination of options on stock and
on narrowly-based stock indices will be capital gain or loss and will be
long-term or short-term depending upon the holding period of the option. In
addition, positions which are part of a straddle will be subject to certain wash
sale and short sale provisions of the Internal Revenue Code. In the case of a
straddle, the Fund may be required to defer the recognition of losses on
positions it holds to the extent of any unrecognized gain on offsetting
positions held by the Fund. The conversion transaction rules may apply to
certain transactions to treat all or a portion of the gain thereon as ordinary
income rather than as capital gain.

Internal Revenue Code Section 1259 requires the recognition of gain (but not
loss) if the Fund makes a "constructive sale" of an appreciated financial
position (for example, stock). The Fund generally will be considered to make a
constructive sale of an appreciated financial position if it sells the same or
substantially identical property short, enters into a futures or forward
contract to deliver the same or substantially identical property, or enters into
certain other similar transactions.

Debt securities acquired by the Fund, such as zero coupon, pay-in-kind,
deferred payment and distressed securities, may be subject to original issue
discount and market discount rules. In any such case, as income accrues it will
be treated as earned by the Fund and will be subject to the distribution
requirements of the Internal Revenue Code described above. Because the accrued
income may not be represented by cash, the Fund may have to dispose of other
securities and use the proceeds to make the required distributions.

B-50

<PAGE>

Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or ordinary
loss. Similarly, gains or losses on forward foreign currency exchange contracts
or dispositions of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition also are treated
as ordinary gain or loss. These gains, referred to under the Internal Revenue
Code as "Section 988" gains or losses, increases or decreases the amount of the
Fund's investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If Section 988 losses exceed other investment
company taxable income during a taxable year, the Fund would not be able to make
any ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's basis in his or
her Fund shares.

Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary. The Fund does not expect
to meet the requirements of the Internal Revenue Code for "passing-through" to
its shareholders any foreign income taxes paid.

Prospective investors in the Fund, including foreign persons are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in the Fund.

PERFORMANCE INFORMATION

YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B, Class C
and Class Z shares. This yield is computed by dividing the Fund's net investment
income per share earned during this 30-day period by the maximum offering price
per share on the last day of this period. Yield is calculated according to the
following formula:

YIELD = 2 [(a - b + 1)6 - 1]
-----
cd

Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).

c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.

d = the maximum offering price per share on the last day of the period.

The yields for the 30-day period ended March 31, 2000 for the Fund's Class
A, Class B, Class C and Class Z shares were 10.56%, 10.49%, 10.39%, and 11.29%,
respectively.

Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. Yields for the Fund will vary based on a number of factors
including changes in NAV, market conditions, the level of interest rates and the
level of Fund income and expenses.

The Board of Directors of the Fund has adopted procedures to ensure that the
Fund's yield is calculated in accordance with Commission regulations. Under
those procedures, limitations may be placed on yield to maturity calculations of
particular securities.

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

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

P (1 + T ) n = ERV

Where: P = a hypothetical initial payment of $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).

B-51

<PAGE>

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

Below are the average annual total returns for the Fund's share classes for
the periods ended March 31, 2000.

WITH WAIVER 1 5 10 SINCE INCEPTION
AND/OR EXPENSE SUBSIDY YEAR YEARS YEARS INCEPTION DATE
---------------------- ---- ----- ----- --------- ----
Class A ..................... (2.68)% N/A N/A (2.96)% 5-5-98
Class B ..................... (4.12)% N/A N/A (3.52)% 5-5-98
Class C ..................... (1.13)% N/A N/A (1.89)% 5-5-98
Class Z ..................... 1.63% N/A N/A (0.65)% 5-5-98

WITHOUT WAIVER 1 5 10 SINCE INCEPTION
AND/OR EXPENSE SUBSIDY* YEAR YEARS YEARS INCEPTION DATE
----------------------- ---- ----- ----- --------- ----
Class A ..................... (2.91)% N/A N/A (3.21)% 5-5-98
Class B ..................... (4.37)% N/A N/A (3.78)% 5-5-98
Class C ..................... (1.38)% N/A N/A (2.15)% 5-5-98
Class Z ..................... 1.38% N/A N/A 0.91% 5-5-98

----------

* Beginning April 1, 2000, PIFM has discontinued its management fee waiver of
.15 of 1%.

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

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

ERV - P
-------
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.

Below are the aggregate total returns for the Fund's share classes for the
periods ended March 31, 2000.

WITH WAIVER 1 5 10 SINCE INCEPTION
AND/OR EXPENSE SUBSIDY YEAR YEARS YEARS INCEPTION DATE
---------------------- ---- ----- ----- --------- ----

Class A ..................... 1.38% N/A N/A (1.63)% 5-5-98
Class B ..................... .88% N/A N/A (2.60)% 5-5-98
Class C ..................... .88% N/A N/A (2.61)% 5-5-98
Class Z ..................... 1.63% N/A N/A (1.24)% 5-5-98

WITHOUT WAIVER 1 5 10 SINCE INCEPTION
AND/OR EXPENSE SUBSIDY* YEAR YEARS YEARS INCEPTION DATE
----------------------- ---- ----- ----- --------- ----

Class A ..................... (2.91)% N/A N/A (6.02)% 5-5-98
Class B ..................... (4.37)% N/A N/A (7.08)% 5-5-98
Class C ..................... (1.38)% N/A N/A (4.05)% 5-5-98
Class Z ..................... 1.38% N/A N/A (0.91)% 5-5-98

----------

* Beginning April 1, 2000, PIFM has discontinued its management fee waiver of
.15 of 1%.

ADVERTISING. Advertising materials for the Fund may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Fund's manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for the Fund also may
include mention of The Prudential Insurance Company of America, its affiliates
and subsidiaries, and reference the assets, products and services of those
entities.

B-52

<PAGE>

From time to time, advertising materials for the Fund may include
information concerning retirement and investing for retirement, may refer to the
approximate number of Fund shareholders and may refer to Lipper rankings or
Morningstar ratings, other related analyses supporting those ratings, other
industry publications, business periodicals and market indices. In addition,
advertising materials may reference studies or analyses performed by the Manager
or its affiliates. Advertising materials for sector funds, funds that focus on
market capitalizations, index funds and international/global funds may discuss
the potential benefits and risks of that investment style. Advertising materials
for fixed income funds may discuss the benefits and risks of investing in the
bond market including discussions of credit quality, duration and maturity.

Set forth below is a chart which compares the performance of different types
of investments over the long-term and the rate of inflation.(1)

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

PERFORMANCE
COMPARISON OF DIFFERENT
TYPES OF INVESTMENTS
OVER THE LONG TERM
(12/31/25-12/31/99)

Common Stocks.............................. 11.4%
Long-Term Gov't. Bonds..................... 5.1%
Inflation.................................. 3.1%

----------

(1) Source: Ibbotson Associates. Used with permission. All rights reserved.
Common stock returns are based on the Standard and Poor's 500 Composite
Stock Price 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-53

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 96.1%
Corporate Bonds 83.9%
----------------------------------------------------------------------------------------
Aerospace 0.7%
BE Aerospace, Inc., Sr. Sub.
Notes B1 9.50% 11/01/08 $ 250 $ 215,000
Stellex Technologies, Inc.,
Sr. Sub. Notes B3 9.50 11/01/07 1,000 650,000
------------
865,000
----------------------------------------------------------------------------------------
Automotive 2.3%
Collins & Aikman Products Co.,
Sr. Sub. Notes B2 11.50 4/15/06 100 95,250
Federal Mogul Corp., Sr. Notes Ba2 7.50 1/15/09 195 150,084
Hayes Wheels Int'l., Inc.,
Sr. Sub. Notes B2 9.125 7/15/07 500 447,500
JPS Automotive Products Corp.,
Sr. Notes B1 11.125 6/15/01 650 654,875
MSX Int'l., Inc., Gtd. Sr. Sub.
Notes B-(a) 11.375 1/15/08 500 465,000
Paragon Corp. Holdings, Inc.,
Sr. Notes B3 9.625 4/01/08 155 54,250
Stanadyne Automotive Corp.,
Sr. Sub. Notes B(a) 10.25 12/15/07 250 202,500
Tenneco Automotive, Inc.,
Sr. Sub. Notes NR 11.625 10/15/09 375 363,750
Venture Holdings, Sr. Notes B2 9.50 7/01/05 460 391,000
------------
2,824,209
----------------------------------------------------------------------------------------
Broadcasting & Other Media 2.6%
Alliance Atlantis Communications
Corp., Sr. Sub. Notes B2 13.00 12/15/09 300 298,500
Capstar Broadcasting,
Sr. Disc. Notes,
Zero Coupon (until 2/1/02) B2 12.75 2/01/09 2,000 1,760,000
Imax Corp., Sr. Notes Ba2 7.875 12/01/05 100 91,250
</TABLE>
See Notes to Financial Statements B-54

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lin Holdings Corp., Sr. Disc.
Notes, Zero Coupon (until
3/1/03) B3 10.00% 3/01/08 $ 500 $ 308,750
Radio Unica Corp., Sr. Disc.
Notes, Zero Coupon (until
8/1/02) Caa1 11.75 8/01/06 500 303,750
XM Satellite Radio Holdings,
Inc.,
Sr. Sec'd. Notes NR 14.00 3/15/10 345 326,025
------------
3,088,275
----------------------------------------------------------------------------------------
Building/Construction 1.8%
New Millenium Homes, Sr. Notes
(cost $1,953,041; purchased
5/27/98) NR 13.50 9/03/04 2,000(b) 1,740,000
Nortek, Inc., Sr. Notes B1 9.125 9/01/07 420 384,300
------------
2,124,300
----------------------------------------------------------------------------------------
Cable 8.6%
Adelphia Communications Corp.,
Sr. Notes B1 10.50 7/15/04 500 505,000
Sr. Notes, PIK B1 9.50 2/15/04 43 41,870
Avalon Cable Holdings LLC,
Sr. Disc. Notes,
Zero Coupon (until 12/1/02) B2 11.875 12/01/08 1,000 630,000
Charter Communications Holdings
LLC, Sr. Notes B2 10.25 1/15/10 500 480,000
Classic Cable, Inc.,
Sr. Sub. Notes B3 10.50 3/01/10 345 341,550
Coaxial Communications, Inc.,
Sr. Notes B3 10.00 8/15/06 250 241,250
CSC Holdings, Inc., Sr. Sub.
Debs. Ba3 10.50 5/15/16 225 244,125
Diamond Cable Co., Sr. Disc.
Notes, Zero Coupon (until
12/15/00) (United Kingdom) B3 11.75 12/15/05 2,000(e) 1,910,000
International Cabletel, Inc., Sr.
Disc. Notes, Zero Coupon (until
4/15/00) B3 12.75 4/15/05 500 507,500
</TABLE>
B-55 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mediacom LLC, Sr. Notes B2 7.875% 2/15/11 $ 250 $ 215,000
Multicanal S.A., (Argentina) B1 13.125 4/15/09 500(e) 522,500
NTL Communications Corp.,
Sr. Disc. Notes, Zero Coupon
(until 10/1/03) B3 12.375 10/01/08 1,500 990,000
Rogers Cablesystems Ltd.,
Gtd. Sr. Sub. Debs. (Canada) B2 11.00 12/01/15 215(e) 241,875
Scott Cable Communications, Inc.,
Jr. Notes, PIK (cost $6,472;
purchased 3/17/98) NR 16.00 7/18/02 18(b) 5,436
Telewest Communications PLC,
Sr. Disc. Notes, Zero Coupon
(until 2/01/05) (United Kingdom) B1 11.375 2/01/10 620(e) 353,400
United Int'l. Holdings, Inc., Sr.
Disc. Notes, Zero Coupon
(until 2/15/03) B3 10.75 2/15/08 1,500 1,027,500
United-Pan Europe
Communications, Inc.,
Sr. Disc. Notes, Zero Coupon
(until 8/01/04) (Netherlands) B2 12.50 8/01/09 2,050(e) 1,025,000
Sr. Notes (Netherlands) B2 10.875 8/01/09 1,060(e) 1,001,700
------------
10,283,706
----------------------------------------------------------------------------------------
Chemicals 2.1%
Avecia Group PLC, Gtd. Sr. Notes
(United Kingdom) B2 11.00 7/01/09 595(e) 586,075
Huntsman ICI Chemicals LLC,
Sr. Sub. Notes B2 10.125 7/01/09 650 627,250
Lyondell Chemical Co., Sr. Sub.
Notes B2 10.875 5/01/09 750 701,250
Polymer Group, Inc., Gtd.
Sr. Sub. Notes B2 8.75 3/01/08 145 126,150
Sterling Chemical Holdings, Inc.,
Sr. Disc. Notes,
Zero Coupon (until 8/15/01) Caa 13.50 8/15/08 472 155,760
</TABLE>
See Notes to Financial Statements B-56

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sterling Chemical, Inc., Sr. Sub.
Notes B3 11.75% 8/15/06 $ 465 $ 395,250
------------
2,591,735
----------------------------------------------------------------------------------------
Consumer 2.4%
Coinstar, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/1/99) NR 13.00 10/01/06 800 800,000
Corning Consumer Product Co.,
Sr. Sub. Notes B3 9.625 5/01/08 1,080 680,400
Desa Int'l., Inc., Sr. Sub. Notes B3 9.875 12/15/07 750 540,000
La Petite Academy, Inc., Sr.
Notes B3 10.00 5/15/08 500 305,000
Packaged Ice, Inc., Sr. Notes B3 9.75 2/01/05 500 420,000
Revlon Consumer Products Corp.,
Sr. Notes B3 9.00 11/01/06 290 205,900
------------
2,951,300
----------------------------------------------------------------------------------------
Containers/Packaging 1.4%
Graham Packaging Holdings Co.,
Sr. Disc. Notes,
Zero Coupon (until 1/15/03) Caa1 10.75 1/15/09 2,000 1,140,000
Packaging Resources, Inc.,
Gtd. Sr. Notes (cost $321,616;
purchased 1/14/00) NR 13.00 6/30/03 322(b) 273,374
Radnor Holdings Corp., Gtd. Sr.
Notes B2 10.00 12/01/03 300 255,000
------------
1,668,374
----------------------------------------------------------------------------------------
Drugs & Health Care 4.2%
Columbia/HCA Healthcare Corp.,
Debs. Ba2 7.50 11/15/95 105 80,719
Concentra Operating Corp.,
Sr. Sub. Notes B3 13.00 8/15/09 650 520,000
Harborside Healthcare Corp.,
Sr. Sub. Disc. Notes,
Zero Coupon (until 8/1/03) B3 11.00 8/01/08 750 240,000
HEALTHSOUTH Corp., Sr. Notes Baa3 6.875 6/15/05 740 645,842
</TABLE>
B-57 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Integrated Health Svcs., Inc.,
Sr. Sub. Notes C 9.25% 1/15/08 $ 4,000(d) $ 80,000
Lifepoint Hospitals Holdings,
Inc.,
Sr. Sub. Notes B3 10.75 5/15/09 130 130,325
Magellan Health Svcs., Inc.,
Sr. Sub. Notes B3 9.00 2/15/08 1,500 1,035,000
Mariner Post-Acute Network, Inc.,
Sr. Sub. Disc. Notes, Zero
Coupon (until 11/1/02) C 10.50 11/01/07 1,840(d) 9,200
Team Health, Inc.,
Gtd. Sr. Sub. Notes B3 12.00 3/15/09 750 675,000
US Healthworks, Inc.,
Sr. Disc. Notes (cost
$1,929,750; purchased 6/25/98) NR 13.00 10/15/04 1,500(b) 1,650,000
------------
5,066,086
----------------------------------------------------------------------------------------
Energy 4.7%
Canadian Forest Oil Ltd.,
Sr. Sub. Notes (Canada) B2 8.75 9/15/07 215(e) 197,800
Comstock Resources, Inc.,
Sr. Notes B2 11.25 5/01/07 500 485,000
DI Industries, Inc., Sr. Notes B1 8.875 7/01/07 425 386,750
Gothic Prod. Corp., Sr. Sec'd.
Notes B3 11.125 5/01/05 550 467,500
Gulf Canada Resources Ltd.,
Sr. Sub. Debs. (Canada) Ba2 9.625 7/01/05 110(e) 110,275
Sr. Notes (Canada) Ba1 8.35 8/01/06 515(e) 500,837
Houston Expl. Co., Sr. Sub. Notes B2 8.625 1/01/08 130 118,300
Leviathan Gas Pipeline LLP,
Sr. Sub. Notes Ba2 10.375 6/01/09 350 357,000
Parker Drilling Co., Sr. Notes B1 9.75 11/15/06 525 506,625
Plains Resources, Inc.,
Sr. Sub. Notes B2 10.25 3/15/06 150 144,188
R & B Falcon Corp., Sr. Notes Ba3 12.25 3/15/06 1,250 1,343,750
RBF Finance Co., Gtd. Sr. Sec'd.
Notes Ba3 11.00 3/15/06 170 181,900
</TABLE>
See Notes to Financial Statements B-58

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Swift Energy Co., Sr. Sub. Notes B2 10.25% 8/01/09 $ 355 $ 340,800
Vintage Petroleum, Inc., Sr. Sub.
Notes B1 9.75 6/30/09 505 508,787
------------
5,649,512
----------------------------------------------------------------------------------------
Entertainment 1.0%
Bally Total Fitness Holdings
Corp.,
Sr. Sub. Notes B3 9.875 10/15/07 665 608,475
Intrawest Corp., Sr. Notes B1 10.50 2/01/10 250 240,000
SFX Entertainment, Inc.,
Sr. Sub. Notes B3 9.125 2/01/08 375 375,000
------------
1,223,475
----------------------------------------------------------------------------------------
Environmental 2.1%
Allied Waste North America, Inc.,
Sr. Sub. Notes B2 10.00 8/01/09 1,600 1,184,000
ICF Kaiser Int'l., Inc., Sr. Sub.
Notes B3 13.00 12/31/03 2,020(d) 1,010,000
IT Group, Inc., Sr. Sub. Notes B3 11.25 4/01/09 360 334,800
------------
2,528,800
----------------------------------------------------------------------------------------
Financial Services 2.5%
Aircraft Funding, Sr. Notes (cost
$2,046,781; purchased 7/1/98) NR 12.00 7/15/00 2,000(b) 1,700,000
DeGeorge Home Alliance, Inc.,
Sr. Notes Caa 12.00 4/01/01 300(d) 15,000
Hanvit Bank, Sr. Notes B1 12.75 3/01/10 500 515,000
Metris Cos., Inc.,
Sr. Notes Ba3 10.125 7/15/06 500 477,500
Superior National Insurance
Group, Inc., Sr. Notes NR 10.75 12/01/17 1,000(d) 250,000
------------
2,957,500
----------------------------------------------------------------------------------------
Food & Beverage 2.9%
Agrilink Foods, Inc.,
Sr. Sub. Notes B3 11.875 11/01/08 820 762,600
Aurora Foods Inc., Sr. Sub. Notes B1 9.875 2/15/07 385 145,337
</TABLE>
B-59 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Del Monte Foods Co.,
Sr. Disc. Notes, Zero Coupon
(until 12/15/02) B3 12.50% 12/15/07 $ 60 $ 44,400
Dominos, Inc., Sr. Sub. Notes B3 10.375 1/15/09 25 22,875
Fresh Foods, Inc., Sr. Sub. Notes B3 10.75 6/01/06 500 320,000
Grupo Azucarero, S.A.,
Sr. Notes (Mexico) B3 11.50 1/15/05 1,250(e) 512,500
Iowa Select Farms L.P., Sr. Sub.
Notes B3 10.75 12/01/05 1,125 225,000
Nebco Evans Holdings Co.,
Sr. Disc. Notes C Zero 7/15/07 500(c) 625
Purina Mills, Inc., Sr. Sub.
Notes
(cost $1,494,322; purchased
7/9/99) B2 9.00 3/15/10 2,000(b)(d) 580,000
SFAC New Holdings, Inc.,
Sr. Sec'd. Disc. Debs., Zero
Coupon (until 6/15/04) B3 13.00 6/15/09 460 32,184
Sr. Sub. Notes CCC(a) 13.25 8/15/03 526 378,720
SFC New Holdings, Inc., Sr.
Notes,
Zero Coupon (until 6/15/05) NR 11.00 12/15/09 296 30
Stater Brothers Holdings, Inc.,
Sr. Notes B2 10.75 8/15/06 225 222,750
Sun World International, Inc.,
Gtd. First Mtge. Notes B2 11.25 4/15/04 50 48,500
Vlasic Foods Int'l., Inc.,
Sr. Sub. Notes B2 10.25 7/01/09 265(d) 166,950
------------
3,462,471
----------------------------------------------------------------------------------------
Gaming 2.8%
Alliance Gaming Corp., Sr. Sub.
Notes B3 10.00 8/01/07 665 365,750
Boyd Gaming Corp., Sr. Sub. Notes B1 9.50 7/15/07 165 151,800
Harveys Casino Resorts,
Sr. Sub. Notes B2 10.625 6/01/06 250 252,500
Isle Capri Black Hawk LLC,
First Mtge. Notes B2 13.00 8/31/04 1,000 1,090,000
Santa Fe Hotel, Inc., First Mtge.
Notes Caa 11.00 12/15/00 1,000 970,000
Trump Atlantic City Assoc., First
Mtge. Notes B3 11.25 5/01/06 170 113,900
</TABLE>
See Notes to Financial Statements B-60

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Venetian Casino Resort LLC, Gtd.
First Mtge. Notes B-(a) 12.25% 11/15/04 $ 505 $ 469,650
------------
3,413,600
----------------------------------------------------------------------------------------
Industrials 1.7%
AMM Holdings, Inc., Sr. Disc.
Notes, Zero Coupon (until
7/1/03) B-(a) 13.50 7/01/09 2,000 240,000
Applied Power, Inc., Sr. Sub.
Notes B1 8.75 4/01/09 250 256,250
Eagle-Picher Industries, Inc.,
Sr. Sub. Notes B3 9.375 3/01/08 400 340,000
Gentek, Inc., Gtd. Sr. Sub. Notes B2 11.00 8/01/09 300 298,500
Motors & Gears, Inc., Sr. Notes B3 10.75 11/15/06 150 144,000
Thermadyne Holdings Corp.,
Sr. Disc. Notes, Zero Coupon
(until 6/1/03) CCC1(a) 12.50 6/01/08 500 210,000
Sr. Sub. Notes B3 9.875 6/01/08 500 400,000
United Rentals, Inc., Sr. Sub.
Notes B1 8.80 8/15/08 245 210,700
------------
2,099,450
----------------------------------------------------------------------------------------
Lodging & Leisure 1.0%
HMH Properties, Inc., Sr. Notes Ba2 7.875 8/01/08 500 417,500
Lodgian Financing Corp.,
Gtd., Sr. Sub. Notes B3 12.25 7/15/09 65 57,200
Town Sports Int'l., Inc., Sr.
Notes B2 9.75 10/15/04 775 724,625
------------
1,199,325
----------------------------------------------------------------------------------------
Mining 0.8%
Great Lakes Carbon Corp.,
Sr. Disc. Deb., Zero Coupon
(until 5/15/03) B-(a) 13.125 5/15/09 185 96,200
Sr. Sub. Notes, PIK B3 10.25 5/15/08 1,000 910,000
------------
1,006,200
----------------------------------------------------------------------------------------
Oil Services 0.1%
Eott Energy Partners L.P.,
Sr. Notes Ba2 11.00 10/01/09 120 119,400
</TABLE>
B-61 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Miscellaneous Services 0.3%
Production Resource LLC, Sr. Sub.
Notes Caa1 11.50% 1/15/08 $ 1,000 $ 400,000
----------------------------------------------------------------------------------------
Paper & Forest Products 2.6%
Ainsworth Lumber Ltd., Sr. Notes,
PIK B2 12.50 7/15/07 500 510,000
Doman Industries Ltd.,
Sr. Notes (Canada) B1 8.75 3/15/04 415(e) 340,300
Sr. Notes, Ser. B (Canada) B1 9.25 11/15/07 100(e) 78,000
Maxxam Group Holdings, Inc.,
Sr. Notes B3 12.00 8/01/03 500 460,000
Repap New Brunswick, Inc.,
Sr. Sec'd. Notes Caa 10.625 4/15/05 510 464,100
Riverwood Int'l. Corp.,
Sr. Notes B3 10.625 8/01/07 85 83,725
Sr. Sub. Notes Caa 10.875 4/01/08 85 81,600
Stone Container Corp.,
Sr. Notes B2 12.58 8/01/16 250 265,000
Sr. Sub. Debs. B3 12.25 4/01/02 750 755,625
Stone Container Finance Co.,
Gtd. Sr. Notes (Canada) B2 11.50 8/15/06 95(e) 100,225
------------
3,138,575
----------------------------------------------------------------------------------------
Printing/Publishing 1.8%
American Lawyer Media
Holdings, Inc., Sr. Disc. Notes,
Zero Coupon (until 12/15/02) B3 12.25 12/15/08 1,000 637,500
Phoenix Color Corp., Sr. Sub.
Notes B3 10.375 2/01/09 1,000 905,000
World Color Press, Inc.,
Sr. Sub. Notes Baa3 8.375 11/15/08 250 232,500
Sr. Sub. Notes Baa3 7.75 2/15/09 500 460,000
------------
2,235,000
----------------------------------------------------------------------------------------
Restaurants 1.0%
Advantica Restaurant Group, Inc.,
Sr. Notes B3 11.25 1/15/08 750(d) 534,375
</TABLE>
See Notes to Financial Statements B-62

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ameriking, Inc., Sr. Notes B3 10.75% 12/01/06 $ 215 $ 180,600
CKE Restaurants, Inc.,
Gtd. Sr. Sub. Notes B2 9.125 5/01/09 650 471,250
------------
1,186,225
----------------------------------------------------------------------------------------
Retail 2.0%
Big 5 Holdings Corp., Sr. Disc.
Notes, Zero Coupon (until
11/30/02) NR 13.45 11/30/08 1,000 490,000
Musicland Group, Inc., Sr. Sub.
Notes B3 9.00 6/15/03 1,500 1,365,000
Phar-Mor, Inc., Sr. Notes B3 11.72 9/11/02 545 490,500
Specialty Retailers, Inc., Sr.
Notes B2 8.50 7/15/05 375 112,500
------------
2,458,000
----------------------------------------------------------------------------------------
Steel & Metals 3.1%
Algoma Steel, Inc., First Mtg.
Notes B2 12.375 7/15/05 440 429,000
Continental Global Group, Inc.,
Sr. Notes B2 11.00 4/01/07 1,500 600,000
Golden Northwest Aluminum, Inc.,
Gtd. First Mtge. Notes B2 12.00 12/15/06 175 182,000
Kaiser Aluminum & Chemical Corp.,
Sr. Sub. Notes B3 12.75 2/01/03 1,000 925,000
LTV Corp., Sr. Notes Ba3 11.75 11/15/09 215 208,550
National Steel Corp., Gtd. Sec'd.
First Mtge. Ba3 9.875 3/01/09 85 82,875
Sheffield Steel Corp., First Mtg.
Notes (cost $288,946;
purchased 7/01/99) B-(a) 11.50 12/01/05 325(b) 260,000
WHX Corp., Sr. Notes B3 10.50 4/15/05 1,150 1,052,250
------------
3,739,675
----------------------------------------------------------------------------------------
Supermarkets 0.9%
Pantry, Inc., Sr. Sub. Notes B3 10.25 10/15/07 1,250 1,106,250
</TABLE>
B-63 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Technology 2.5%
Ampex Corp., Sr. Notes B(a) 12.00% 3/15/03 $ 1,000 $ 950,000
InterAct Systems, Inc.,
Sr. Disc. Notes, PIK NR 14.00 8/01/03 1,508 814,050
Intersil Corp., Sr. Sub. Notes B3 13.25 8/15/09 137 156,180
South Carolina G Holdings Corp.,
Gtd. Notes B2 12.00 8/01/09 400 428,000
Viasystems, Inc., Sr. Sub. Notes B3 9.75 6/01/07 680 571,200
------------
2,919,430
----------------------------------------------------------------------------------------
Telecommunications 19.5%
Allegiance Telecom, Inc.,
Sr. Disc. Notes, Zero Coupon
(until 2/15/03) B(a) 11.75 2/15/08 330 224,400
Sr. Notes B(a) 12.875 5/15/08 500 532,500
AMSC Acquisition Co., Inc.,
Sr. Notes NR 12.25 4/01/08 750 675,000
Bestel S.A. De CV, Sr. Disc.
Notes, Zero Coupon (until
5/15/01) (Mexico) NR 12.75 5/15/05 1,500(e) 1,140,000
Caprock Communications Corp.,
Sr. Notes B3 12.00 7/15/08 500 490,000
CD Radio, Inc., Sr. Disc. Notes,
Zero Coupon (until 12/1/02) CCC(a) 15.00 12/01/07 1,000 550,000
Exodus Communications, Inc.,
Sr. Notes NR 10.75 12/15/09 295 293,525
Global Crossing Holdings Ltd.,
Sr. Notes Ba2 9.50 11/15/09 260 251,550
Globix Corp., Sr. Notes NR 12.50 2/01/10 505 464,600
GT Group Telecom, Inc., Sr. Disc.
Notes, Zero Coupon (until
2/01/05) NR 13.25 2/01/10 1,170 631,800
Hyperion Telecommunications,
Inc., Sr. Disc. Notes, Zero
Coupon (until 4/15/01) (cost
$328,978; purchased 9/22/99) B3 13.00 4/15/03 370(b) 340,400
</TABLE>
See Notes to Financial Statements B-64

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ICG Holdings, Inc., Sr. Disc.
Notes, Zero Coupon (until
9/15/00) B3 13.50% 9/15/05 $ 415 $ 388,025
ImpSat Corp., Sr. Notes B3 12.375 6/15/08 1,000 900,000
KMC Telecom Holdings, Inc.,
Sr. Notes CCC1(a) 13.50 5/15/09 340 319,600
Level 3 Communications, Inc.,
Sr. Disc. Notes, Zero Coupon
(until 3/15/03) B3 12.875 3/15/08 2,000 995,000
Sr. Disc. Notes, Zero Coupon
(until 12/1/03) B3 10.50 12/01/08 2,000 1,100,000
Metromedia Fiber Network, Inc.,
Sr. Notes B2 10.00% 12/15/09 535 508,250
Microcell Telecommunications,
Inc., Sr. Disc. Notes, Zero
Coupon (until 6/1/04) B3 12.00 6/01/09 1,250 803,125
Millicom Int'l. Cellular, Sr.
Disc. Notes, Zero Coupon (until
6/01/01) B3 13.50 6/01/06 740 629,000
Netia Holdings BV, Gtd. Sr. Notes
(Poland) B3 10.25 11/01/07 500(e) 422,500
Nextel Communications, Inc.,
Sr. Disc. Notes, Zero Coupon
(until 9/15/02) B1 10.65 9/15/07 1,505 1,098,650
Nextel Partners, Inc., Sr. Disc.
Notes, Zero Coupon (until
2/1/04) B3 14.00 2/01/09 286 180,895
Nextlink Communications, Inc.,
Sr. Notes B2 10.50 12/01/09 295 280,250
Sr. Notes B2 10.75 6/01/09 515 494,400
Northeast Optic Network, Inc.,
Sr. Notes NR 12.75 8/15/08 500 500,000
Primus Telecommunications Group,
Inc., Sr. Notes B3 12.75 10/15/09 430 417,100
PSINet, Inc., Sr. Notes B3 11.00 8/01/09 950 931,000
RCN Corp.,
Sr. Notes B3 10.00 10/15/07 50 45,250
Sr. Notes B3 10.125 1/15/10 325 292,500
</TABLE>
B-65 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RSL Communications Ltd.,
Sr. Notes B2 12.25% 11/15/06 $ 250 $ 247,500
Sr. Notes B2 12.00 11/01/08 100 93,500
Spectrasite Holdings, Inc., Sr.
Disc. Notes, Zero Coupon (until
4/15/04) B3 11.25 4/15/09 350 191,625
Splitrock Svcs., Inc., Sr. Notes NR 11.75 7/15/08 225 238,500
Tritel PCS, Inc., Sr. Sub. Disc.
Notes
Zero Coupon (until 5/15/04) B3 12.75 5/15/09 1,000 615,000
Triton PCS, Inc.,
Sr. Sub. Disc. Notes, Zero
Coupon (until 5/01/03) B3 11.00 5/01/08 445 305,938
US Unwired, Inc.,
Sr. Sub. Disc. Notes, Zero
Coupon (until 11/01/04) CCC(a) 13.375 11/01/09 1,255 668,287
U.S. Xchange LLC, Sr. Notes NR 15.00 7/01/08 750 547,500
Verio, Inc.,
Sr. Notes B3 11.25 12/01/08 35 34,650
Sr. Notes B3 10.625 11/15/09 500 482,500
Versatel Telecom BV, Sr. Notes
(Netherlands) B3 13.25 5/15/08 1,000(e) 1,015,000
Viatel, Inc., Sr. Notes B-(a) 11.25 4/15/08 1,000 910,000
Voicestream Wireless Corp.,
Sr. Notes B2 10.375 11/15/09 505 505,000
Williams Communications
Group, Inc., Sr. Notes B2 10.875 10/01/09 920 906,200
Winstar Communications, Inc.,
Sr. Disc. Notes, Zero Coupon
(until 10/15/00) B3 14.00 10/15/05 500 515,000
Worldwide Fiber, Inc., Sr. Notes B3 12.50 12/15/05 500 492,500
------------
23,668,020
----------------------------------------------------------------------------------------
Textiles 0.6%
Cluett American Corp., Sr. Sub.
Notes B3 10.125 5/15/08 250 165,000
Collins & Aikman Floorcovering,
Sr. Sub. Notes B3 10.00 1/15/07 45 42,300
</TABLE>
See Notes to Financial Statements B-66

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (Unaudited) Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Steel Heddle Mfg. Co., Sr. Sub.
Notes B3 10.625% 6/01/08 $ 1,000 $ 500,000
------------
707,300
----------------------------------------------------------------------------------------
Transportation/Trucking/Shipping 1.0+%
American Commercial Lines LLC,
Sr. Notes B1 10.25 6/30/08 1,000 830,000
Trism, Inc., Sr. Sub. Notes NR 12.00 2/04/05 435 326,163
------------
1,156,163
----------------------------------------------------------------------------------------
Utility 2.9%
AES Corp.,
Sr. Notes Ba1 9.50 6/01/09 750 720,000
Sr. Sub. Debs. Ba1 8.875 11/01/27 1,750 1,347,500
TNP Enterprises, Inc., Sr. Sub.
Notes Ba3 10.25 4/01/10 500 501,250
York Power Funding, Sr. Sec'd.
Notes (Cayman Islands) NR 12.00 10/30/07 1,000(e) 980,000
------------
3,548,750
Total corporate bonds
(cost $118,961,629) 101,386,106
------------
CONVERTIBLE BONDS 0.6%
<CAPTION>
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Key Energy Group, Inc., Sr. Sub.
Notes
(cost $772,400) NR 5.00 9/15/04 1,000 760,000
------------
FOREIGN GOVERNMENT BONDS 0.4%
<CAPTION>
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Republic of Brazil
(cost $496,027) B2 11.625 4/15/04 500(e) 501,250
------------
COMMON STOCKS 3.9%
Shares
<CAPTION>
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AmeriKing, Inc. 50 500
Baycorp Holdings, Ltd.(c) 19,000 413,250
Beverly Enterprises, Inc.(c) 40,000 147,500
Canadian Airlines Corp.(c) 4,400 3,940
Charter Communications, Inc.(c) 39,000 558,797
</TABLE>
B-67 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Value
Description Shares (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chesapeake Energy Corp. 12,000 $ 39,000
Classic Communications, Inc.(c) 3,000 50,010
Dobson Communications Corp.(c) 2,400 55,200
Dr. Pepper Bottling Holdings, Inc.
(cost $250,500; purchased 9/19/97) 11,500(b) 287,500
Electronic Retailing Systems Int'l., Inc.(c) 40,000 37,500
Firearms Training Systems, Inc.(c) 122,000 76,250
Flag Telecom Holdings Ltd.(c) 5,100 115,388
Forstmann & Co., Inc.(c) 13,304 426
Fresh Del Monte Produce, Inc.(c) 5,000 42,500
Grand Union Co.(c) 90,772 266,643
Grant Geophysical, Inc.(c) 28,675 28,675
GT Group Telecom, Inc.(c) 2,800 58,450
Jordon Telecommunications(c) 125 3,750
McLeodusa, Inc. 2,286 193,868
Packaging Corporation America 32,900 345,450
Premier Cruises, Ltd.(c) 74,059 240,692
RCN Corp. 5,500 296,312
RSL Communications, Ltd.(c) 5,000 120,000
Samuels Jewelers, Inc.(c) 23,750 155,859
SFAC Holdings, Inc.(c) 25 0
Star Gas Partners L.P. 440 5,995
Telecorp PCS, Inc.(c) 10,000 517,500
Trism, Inc.(c) 27,543 4,131
Voicestream Wireless Corp.(c) 1,983 255,462
Waste Systems Int'l., Inc. 131,410 377,804
------------
Total common stocks
(cost $6,288,912) 4,698,352
------------
PREFERRED STOCKS 6.0%
<CAPTION>
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Adelphia Communications Corp., $13.00 8,750 936,250
AmeriKing, Inc., $13.00 1,182 13,004
Century Maintenance Supply, Inc., $13.25 12,091 1,027,735
Cluett American Corp., $12.50 8,986 242,622
Dobson Communications Corp., $13.00 826 875,560
Geneva Steel Co., $14.00 3,000 555
</TABLE>
See Notes to Financial Statements B-68

<TABLE>
<CAPTION>
Expiration Value
Date Warrants (Note 1)
------------------------------------------------------------------------------------------------------------
WARRANTS(c) 0.9%
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Banknote Corp. 12/1/02 750 8
American Mobile Satellite Corp. 4/1/08 750 86,250
Anker Coal Group, Inc. (cost $0; purchased 11/19/98) 10/31/30 28(b) 0
Bestel S.A. De CV 5/15/05 1,500 16,500
Birch Telecom, Inc. 6/15/08 1,000 5,500
GT Group Telecom, Inc. 2/1/10 1,170 0
HF Holdings, Inc. 7/15/02 4,375 6,562
InterAct Systems, Inc. 8/1/03 2,910 29
Intermediate Act Electronic Mktg., Inc. 12/15/09 2,910 72,750
Isle Capri Casinos, Inc. 3/5/01 2,968 30
R & B Falcon Corp. 5/1/09 550 192,500
</TABLE>
B-69 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Portfolio of Investments as of March 31, 2000 Cont'd.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Expiration Value
Description Date Warrants (Note 1)
-------------------------------------------------------------------------------------------------------------
Star Choice Communications (cost $87; purchased 3/21/00)
12/15/05 8,685(b) $ 49,939
Versatel Telecom International BV 5/15/08 1,000 600,000
XM Satellite Radio, Inc. 3/3/10 345 0
------------
Total warrants (cost $50,997) 1,030,068
------------
Total long-term investments (cost $136,156,539) 116,123,971
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS 1.9%
<S> <C> <C> <C> <C> <C> <C>
Principal
Interest Maturity Amount
Corporate Bonds Rate Date (000)

<CAPTION>
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Johnson Controls, Inc.
(cost $2,335,178) 6.33% 4/03/00 $ 2,336 2,335,178
------------
Total Investments 98.0%
(cost $138,491,717; Note 4) 118,459,149
Other assets in excess of
liabilities 2.0% 2,416,584
------------
Net Assets 100% $120,875,733
------------
------------
</TABLE>

(a) Standard & Poor's Rating.
(b) Indicates a restricted security; the aggregate cost of such securities is
$8,866,128. The aggregate value $6,972,412 is approximately 5.7% of net
assets.
(c) Non-income producing securities.
(d) Represents issuer in default on interest payments; non-income producing
security.
(e) US$ denominated foreign bonds.
NR--Not rated by Moody's or Standard & Poor's.
PIK--Payment in kind securities.
L.P.--Limited Partnership.
LLC--Limited Liability Company.
LLP--Limited Liability Partnership.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
See Notes to Financial Statements B-70

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Statement of Assets and Liabilities as of March 31, 2000
<TABLE>
<CAPTION>
March 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $138,491,717) $118,459,149
Dividends and interest receivable 2,892,301
Receivable for investments sold 2,140,800
Receivable for Fund shares sold 399,722
Receivable from manager 212,090
Other assets 112,334
----------------
Total assets 124,216,396
----------------
LIABILITIES
Bank overdraft 94,962
Payable for investments purchased 2,049,284
Payable for Fund shares reacquired 529,119
Dividends payable 304,706
Accrued expenses and other liabilities 293,683
Due to Distributor 68,909
----------------
Total liabilities 3,340,663
----------------
NET ASSETS $120,875,733
----------------
----------------
Net assets were comprised of:
Common stock, at par $ 1,473
Paid-in capital in excess of par 150,381,247
----------------
150,382,720
Undistributed net investment income 46,874
Accumulated net realized loss on investments (9,757,797)
Net unrealized depreciation on investments (19,796,064)
----------------
Net assets, March 31, 2000 $120,875,733
----------------
----------------
</TABLE>

B-71 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Statement of Assets and Liabilities as of March 31, 2000
<TABLE>
<CAPTION>
March 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share
($23,137,158 3 2,819,548 shares of common stock issued
and outstanding) $8.21
Maximum sales charge (4% of offering price) .34
Maximum offering price to public $8.55
Class B:
Net asset value, offering price and redemption price per
share ($82,438,197 3 10,045,364 shares of common stock
issued and outstanding) $8.21
Class C:
Net asset value and redemption price per share
($13,617,583 3 1,659,544 shares of common stock issued
and outstanding) $8.21
Sales charge (1% of offering price) .08
Offering price to public $8.29
Class Z:
Net asset value, offering price and redemption price per
share ($1,682,795 3 205,001 shares of common stock
issued and outstanding) $8.21
</TABLE>

See Notes to Financial Statements B-72

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
March 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest $ 15,532,724
Dividends 337,317
-----------------
Total income 15,870,041
-----------------
Expenses
Management fee 935,483
Distribution fee--Class A 80,386
Distribution fee--Class B 699,601
Distribution fee--Class C 124,255
Custodian's fees and expenses 195,000
Reports to shareholders 150,000
Transfer agent's fees and expenses 127,000
Registration fees 70,000
Amortization of organizational costs 36,014
Audit fees and expenses 30,000
Legal fees and expenses 25,000
Directors' fees 6,000
Amortization of offering cost 519
Miscellaneous 14,410
-----------------
Net expenses 2,493,668
Less: Management fee waiver (Note 2) (255,022)
-----------------
Net expenses 2,238,646
-----------------
Net investment income 13,631,395
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investment transactions (5,819,171)
Options written 10,000
-----------------
(5,809,171)
Net change in unrealized depreciation of investments (7,145,217)
-----------------
Net loss on investments (12,954,388)
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 677,007
-----------------
-----------------
</TABLE>

B-73 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
May 5, 1998(a)
Year Ended Through
March 31, 2000 March 31, 1999
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 13,631,395 $ 12,113,394
Net realized loss on investment transactions (5,809,171) (3,948,626)
Net change in unrealized depreciation of
investments (7,145,217) (12,650,847)
-------------- --------------
Net increase (decrease) in net assets
resulting from operations 677,007 (4,486,079)
-------------- --------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A (3,165,069) (3,017,075)
Class B (8,723,889) (7,451,879)
Class C (1,548,954) (1,460,665)
Class Z (193,483) (183,775)
-------------- --------------
(13,631,395) (12,113,394)
-------------- --------------
Distributions in excess of net investment
income
Class A -- (50,574)
Class B -- (132,431)
Class C -- (25,580)
Class Z -- (3,622)
-------------- --------------
-- (212,207)
-------------- --------------
Fund share transactions (Net of share
conversions)
(Note 5)
Net proceeds from shares sold(b) 35,075,107 200,008,881
Net asset value of shares issued in
reinvestment of dividends and
distributions 8,145,708 7,763,506
Cost of shares reacquired (65,764,308) (34,687,093)
-------------- --------------
Net increase (decrease) in net assets from
Fund share transactions (22,543,493) 173,085,294
-------------- --------------
Total increase (decrease) (35,497,881) 156,273,614
NET ASSETS
Beginning of period 156,373,614 100,000
-------------- --------------
End of period $120,875,733 $156,373,614
-------------- --------------
-------------- --------------
</TABLE>

------------------------------
(a) Commencement of investment operations.
(b) For year ended March 31, 2000 includes shares issued in connection with
acquisition of Prudential Distressed Securities Fund.
See Notes to Financial Statements B-74

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Notes to Financial Statements
Prudential High Yield Total Return Fund, Inc. (the 'Fund') is registered
under the Investment Company Act of 1940 as a diversified, open-end management
investment company. The Fund was incorporated in Maryland on February 18, 1997.
The Fund issued 2,500 shares each of Class A, Class B, Class C and Class Z
common stock for $100,000 on February 18, 1998 to Prudential Investments Fund
Management LLC ('PIFM'). The Fund commenced investment operations on May 5,
1998. The primary investment objective of the Fund is total return through high
current income and capital appreciation. It seeks to achieve this objective by
investing in high yield fixed income securities, equity securities that were
attached to or included in a unit with fixed income securities at the time of
purchase, convertible securities and preferred stocks.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation: Portfolio 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 prices provided by
principal market makers and pricing agents. Any security for which the primary
market is on an exchange is valued at the last sales price on such exchange on
the day of valuation or, if there was no sale on such day, the last bid price
quoted on such day. Securities issued in private placements are valued at the
bid price or the mean between the bid and asked prices, if available, provided
by principal market makers. Any security for which a reliable market quotation
is unavailable is valued at fair value as determined in good faith by or under
the direction of the Fund's Board of Directors.
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, which approximates market value.
Repurchase Agreements: 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
and, 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
B-75

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Notes to Financial Statements Cont'd.
commenced with respect to the seller of the security, realization of the
collateral by the Fund may be delayed or limited.
All securities are valued as of 4:15 p.m., New York time.
The Fund may hold up to 15% of its net assets in illiquid securities,
including those which are restricted as to disposition under securities law
('restricted securities'). Certain issues of restricted securities held by the
Fund at March 31, 2000 include registration rights under which the Fund may
demand registration by the issuer, of which the Fund may bear the cost of such
registration. Restricted securities, sometimes referred to as private
placements, are valued pursuant to the valuation procedures noted above.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of portfolio securities are calculated on an identified cost basis. Interest
income is recorded on an accrual basis and dividend income is recorded on the
ex-dividend date. The Fund accretes discount and amortizes premium as
adjustments to interest income. Income from payment-in-kind bonds is recorded
daily based on an effective interest method. Expenses are recorded on the
accrual basis which may require the use of certain estimates by management.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares of the Fund
based upon the relative proportion of net assets of each class at the beginning
of the day.
Dividends and Distributions: The Fund declares daily and pays dividends
of net investment income monthly and makes distributions at least annually of
any net capital gains. 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.
Options: The Fund may either purchase or write options in order to
hedge against adverse market movements or fluctuations in value caused by
changes in prevailing interest rates or foreign currency exchange rates with
respect to securities or currencies which the Fund currently owns or intends to
purchase. When the Fund purchases an option, it pays a premium and an amount
equal to that premium is recorded as an investment. When the Fund writes an
option, it receives a premium and an amount equal to that premium is recorded as
a liability. The investment or liability is adjusted daily to reflect the
current market value of the option. If an option expires unexercised, the Fund
realizes a gain or loss to the extent of the premium received or paid. If an
option is exercised, the premium received or paid is an adjustment to the
proceeds from the sale or the cost basis of the purchase in determining
B-76

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Notes to Financial Statements Cont'd.
whether the Fund has realized a gain or a loss. The difference between the
premium and the amount received or paid on effecting a closing purchase or sale
transaction is also treated as a realized gain or loss. Gain or loss on
purchased options is included in net realized gain (loss) on investment
transactions. Gain or loss on written options is presented separately as net
realized gain (loss) on written option transactions.
The Fund, as writer of an option, has no control over whether the
underlying securities or currencies may be sold (called) or purchased (put). As
a result, the Fund bears the market risk of an unfavorable change in the price
of the security or currency underlying the written option. The Fund, as
purchaser of an option, bears the risk of the potential inability of the
counterparties to meet the terms of their contracts.
Taxes: It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
Offering and Organization Expenses: Approximately $283,300 were
incurred in connection with the organization of the Fund. Offering cost of
approximately $110,400 and organization cost of approximately $172,900 are being
amortized ratably over a period of twelve months and sixty months, respectively,
from the date the Fund commenced investment operations.
Reclassification of Capital Accounts: The Fund accounts for 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. The effect of applying
this statement was to decrease paid-in capital in excess of par and increase
accumulated net investment income by $46,874 for certain expenses not deductible
for tax purposes. 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 this agreement PIFM
has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PIFM has entered into a subadvisory
agreement with The Prudential Investment Corporation ('PIC'); PIC furnishes
investment advisory services in connection with the management of the Fund. PIFM
pays for the subadviser's services, the compensation of officers of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.
The management fee paid to PIFM is computed daily and payable monthly, at
an annual rate of .65% of the Fund's average daily net assets. PIFM agreed to
waive a
B-77

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Notes to Financial Statements Cont'd.
portion of its management fee. The waiver was .30 of 1% of the Fund's average
daily net assets for the period April 1, 1999 through May 31, 1999. Effective
June 1, 1999, such waiver was .15 of 1% of the Fund's average daily net assets.
The waiver amounted to $255,022 ($0.017 per share; .18 of 1% of the Fund's
average daily net assets). The Fund is not required to reimburse PIFM for such
waiver. Effective April 1, 2000 PIFM eliminated its management fee waiver.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Class A,
Class B, Class C and Class Z shares of the Fund. The Fund compensates PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of distribution (the 'Class A, B and C Plans'), regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PIMS as distributor
of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS with
respect to Class A, B and C shares, 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%, .75 of 1% and .75 of 1% of the average daily net assets of the Class A, B
and C shares, respectively, for the fiscal year ended March 31, 2000.
PIMS has advised the Fund that it received approximately $41,800 and
$29,400 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the year ended March 31, 2000. From these fees,
PIMS paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the year ended March 31, 2000, it
received approximately $468,500 and $11,300 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIC and PIMS 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 syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was
B-78

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Notes to Financial Statements Cont'd.
.065 of 1% of the unused portion of the credit facility. The Fund did not borrow
any amounts pursuant to the SCA during the year ended March 31, 2000.
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC, a wholly owned subsidiary of PIFM, serves
as the Fund's transfer agent and during the year ended March 31, 2000, the Fund
incurred fees of approximately $120,000 for the services of PMFS. As of March
31, 2000, approximately $9,600 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 nonaffiliates.
At March 31, 2000, the net receivable of $212,090 due from the manager
includes $236,504 relating to an unrealized loss in connection with an
investment transaction. This unrealized loss has been included in net change in
unrealized depreciation of investments in the Statement of Operations.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended March 31, 2000 were $138,803,651 and $160,943,548,
respectively.
Transactions in options written during the year ended March 31, 2000 were
as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- --------
<S> <C> <C>
Options outstanding at March 31, 1999 -- --
Options written 500 $ 10,000
Options expired 500 10,000
--------- --------
Options outstanding at March 31, 2000 -- $ --
</TABLE>

The federal income tax basis of the Fund's investments as of March 31,
2000 was $138,657,951; accordingly, net unrealized depreciation for federal
income tax purposes was $20,198,802 (gross unrealized appreciation--$3,830,974;
gross unrealized depreciation--$24,029,776).
For federal income tax purposes, the Fund had a capital loss carryforward
as of March 31, 2000, of approximately $8,678,148, of which $1,697,618 expires
in 2007 and $6,980,530 expires in 2008. In addition, the Fund has elected to
treat net capital losses of approximately $913,415 incurred in the five month
period ended March 31, 2000 as having occurred in the current fiscal year.
B-79

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Notes to Financial Statements Cont'd.
Note 5. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 4%. 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 front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualify to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors. Of the 14,729,457 shares of common stock issued and outstanding at
March 31, 2000, Prudential Bank and Trust owned 11,393.
The Fund has 2.5 billion shares of $0.0001 par value common stock
authorized; 1 billion shares for Class A and 500 million shares each for Class
B, Class C and Class Z.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
----------------------------------------------------------- ---------- ------------
<S> <C> <C>
Year ended March 31, 2000:
Shares sold 976,232 $ 9,080,865
Shares issued in connection with acquisition of Prudential
Distressed Securities Fund (Note 6) 69,637 590,579
Shares issued in reinvestment of dividends 249,600 2,154,014
Shares reacquired (2,762,076) (23,742,436)
---------- ------------
Net decrease in shares outstanding before conversions (1,466,607) (11,916,978)
Shares issued upon conversion and/or exchange from Class B 69,457 597,173
---------- ------------
Net decrease in shares outstanding (1,397,150) $(11,319,805)
---------- ------------
---------- ------------
May 5, 1998(a) through March 31, 1999:
Shares sold 5,287,840 $ 51,217,401
Shares issued in reinvestment of dividends and
distributions 223,342 2,028,273
Shares reacquired (1,316,676) (11,925,521)
---------- ------------
Net increase in shares outstanding before conversions 4,194,506 41,320,153
Shares issued upon conversion from Class B 19,692 174,213
---------- ------------
Net increase in shares outstanding 4,214,198 $ 41,494,366
---------- ------------
---------- ------------
</TABLE>
B-80

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class B Shares Amount
----------------------------------------------------------- ---------- ------------
Year ended March 31, 1999:
<S> <C> <C>
Shares sold 2,005,636 $ 18,038,865
Shares issued in connection with acquisition of Prudential
Distressed Securities Fund (Note 6) 182,384 1,546,694
Shares issued in reinvestment of dividends 574,564 4,953,680
Shares reacquired (3,587,910) (30,685,872)
---------- ------------
Net decrease in shares outstanding before conversion (825,326) (6,146,633)
Shares reacquired upon conversion and/or exchange into
Class A (69,463) (597,173)
---------- ------------
Net decrease in shares outstanding (894,789) $ (6,743,806)
---------- ------------
---------- ------------
May 5, 1998(a) through March 31, 1999:
Shares sold 12,231,118 $119,622,135
Shares issued in reinvestment of dividends and
distributions 514,809 4,669,308
Shares reacquired (1,788,582) (16,165,146)
---------- ------------
Net increase in shares outstanding before conversion 10,957,345 108,126,297
Shares reacquired upon conversion into Class A (19,692) (174,213)
---------- ------------
Net increase in shares outstanding 10,937,653 $107,952,084
---------- ------------
---------- ------------
<CAPTION>
Class C
-----------------------------------------------------------
<S> <C> <C>
Year ended March 31, 2000:
Shares sold 456,465 $ 4,116,251
Shares issued in connection with acquisition of Prudential
Distressed Securities Fund (Note 6) 40,835 346,284
Shares issued in reinvestment of dividends 101,770 878,590
Shares reacquired (1,100,472) (9,540,313)
---------- ------------
Net decrease in shares outstanding (501,402) $ (4,199,188)
---------- ------------
---------- ------------
May 5, 1998(a) through March 31, 1999:
Shares sold 2,556,202 $ 24,882,076
Shares issued in reinvestment of dividends and
distributions 98,953 898,112
Shares reacquired (496,709) (4,436,511)
---------- ------------
Net increase in shares outstanding 2,158,446 $ 21,343,677
---------- ------------
---------- ------------
<CAPTION>
Class Z
-----------------------------------------------------------
<S> <C> <C>
Year ended March 31, 2000:
Shares sold 156,866 $ 1,355,569
Shares issued in reinvestment of dividends 18,479 159,424
Shares reacquired (207,613) (1,795,687)
---------- ------------
Net decrease in shares outstanding (32,268) $ (280,694)
---------- ------------
---------- ------------
May 5, 1998(a) through March 31, 1999:
Shares sold 452,123 $ 4,287,269
Shares issued in reinvestment of dividends and
distributions 18,552 167,813
Shares reacquired (235,906) (2,159,915)
---------- ------------
Net increase in shares outstanding 234,769 $ 2,295,167
---------- ------------
---------- ------------
</TABLE>

------------------------------
(a) Commencement of investment operations.
B-81

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Notes to Financial Statements Cont'd.
Note 6. Acquisition of Prudential Distressed Securities Fund
On January 14, 2000, the High Yield Total Return Fund acquired all the net
assets of Prudential Distressed Securities Fund, Inc. ('Distressed Securities')
pursuant to a plan of reorganization approved by Distressed Securities
shareholders on May 26, 1999. The acquisition was accomplished by a tax-free
exchange of 69,637 Class A shares, 182,384 Class B shares and 40,835 Class C
shares of the High Yield Total Return Fund (valued at $2,483,555 in the
aggregate) for 58,352 Class A shares, 152,526 Class B shares and 34,150 Class C
shares, respectively, of Distressed Securities outstanding on January 14, 2000.
Distressed Securities' net assets at that date ($2,483,555), including
$1,638,031 of unrealized depreciation were combined with those of the High Yield
Total Return Fund. The aggregate net assets of the High Yield Total Return Fund
and Distressed Securities immediately before the acquisition were $135,419,598
and $2,483,555, respectively.
B-82

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Financial Highlights
<TABLE>
<CAPTION>
Class A
<S> <C> <C>
--------------
<CAPTION>
Year Ended
March 31, 2000
---------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 8.91
--------------
Income from investment operations
Net investment income(d) .85
Net realized and unrealized loss on investments (.70)
--------------
Total from investment operations .15
--------------
Less distributions
Dividends from net investment income (.85)
Distributions in excess of net investment income --
--------------
Total distributions (.85)
--------------
Net asset value, end of year $ 8.21
--------------
--------------
TOTAL RETURN(b) 1.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 23,137
Average net assets (000) $ 32,154
Ratios to average net assets(d):
Expenses, including distribution fees 1.18%
Expenses, excluding distribution fees .93%
Net investment income 9.84%
For Classes A, B, C and Z shares:
Portfolio turnover rate 101%
</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.
(d) Net of management fee waiver.
B-83 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C> <C>
---------------------- ---------------------------------------------
<CAPTION>
May 5, 1998(a) Year Ended May 5, 1998(a)
through March 31, 1999 March 31, 2000 through March 31, 1999
------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 10.00 $ 8.91 $ 10.00
---------- ---------- ----------
.79 .80 .74
(1.08) (.70) (1.08)
---------- ---------- ----------
(.29) .10 (.34)
---------- ---------- ----------
(.79) (.80) (.74)
(.01) -- (.01)
---------- ---------- ----------
(.80) (.80) (.75)
---------- ---------- ----------
$ 8.91 $ 8.21 $ 8.91
---------- ---------- ----------
---------- ---------- ----------
(2.97)% .88% (3.45)%
$ 37,558 $ 82,438 $ 97,454
$ 35,147 $ 93,280 $ 92,201
1.06%(c) 1.68% 1.64%(c)
0.89%(c) 0.93% 0.89%(c)
9.52%(c) 9.35% 8.97%(c)
97%
</TABLE>
See Notes to Financial Statements B-84

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
--------------
Year Ended
March 31, 2000
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 8.91
--------------
Income from investment operations
Net investment income(d) .80
Net realized and unrealized loss on investments (.70)
--------------
Total from investment operations .10
--------------
Less distributions
Dividends from net investment income (.80)
Distributions in excess of net investment income --
--------------
Total distributions (.80)
--------------
Net asset value, end of year $ 8.21
--------------
--------------
TOTAL RETURN(b) .88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 13,618
Average net assets (000) $ 16,567
Ratios to average net assets(d):
Expenses, including distribution fees 1.68%
Expenses, excluding distribution fees .93%
Net investment income 9.35%
</TABLE>

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C Class Z
<S> <C> <C> <C>
---------------------- ---------------------------------------------
<CAPTION>
May 5, 1998(a) Year Ended May 5, 1998(a)
through March 31, 1999 March 31, 2000 through March 31, 1999
------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 10.00 $ 8.91 $ 10.00
---------- ---------- ----------
.74 .87 .80
(1.08) (.70) (1.08)
---------- ---------- ----------
(.34) .17 (.28)
---------- ---------- ----------
(.74) (.87) (.80)
(.01) -- (.01)
---------- ---------- ----------
(.75) (.87) (.81)
---------- ---------- ----------
$ 8.91 $ 8.21 $ 8.91
---------- ---------- ----------
---------- ---------- ----------
(3.45)% 1.63% (2.82)%
$ 19,249 $ 1,683 $ 2,113
$ 18,089 $ 1,919 $ 2,060
1.64%(c) 0.93% 0.89%(c)
0.89%(c) 0.93% 0.89%(c)
8.96%(c) 10.08% 9.90%(c)
</TABLE>

See Notes to Financial Statements B-86

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Report of Independent Accountants
To the Shareholders and Board of Directors of
Prudential High Yield Total Return Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential High Yield Total Return
Fund, Inc. (the 'Fund') at March 31, 2000, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for the year then ended and for the period May 5, 1998 (commencement of
operations) through March 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at March 31,
2000 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
May 23, 2000
B-87 See Notes to Financial Statements

<PAGE>
Prudential High Yield Total Return Fund, Inc.
Federal Income Tax Information (Unaudited)
We are required by the Internal Revenue Code to advise you within 60 days
of the Fund's fiscal year end (March 31, 2000) as to the federal tax status of
dividends paid by the Fund during such fiscal period. Accordingly, we are
advising you that in the fiscal period ended March 31, 2000, dividends were paid
of $.79, $.75, $.75 and $.81 per share (representing net investment income for
Class A, B, C and Z shares respectively, which are taxable as ordinary income).
Further, we wish to advise you that 2.43% of the ordinary income dividends paid
in the fiscal period ended March 31, 2000 qualified for the corporate dividends
received deduction available to corporate taxpayers.
In January 2001, you will be advised on IRS Form 1099 DIV or substitute
1099 DIV as to the federal tax status of the dividends received by you in
calendar year 2000.
See Notes to Financial Statements B-88

<PAGE>

APPENDIX I--HISTORICAL PERFORMANCE DATA

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

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

EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY

[CHART]

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

Generally, stock returns are due to capital appreciation and the reinvestment of
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 1926-1989 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index of 500 stocks (currently) in
a variety of industries. It is often used as a broad measure of stock market
performance.

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

IMPACT OF INFLATION. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.

I-1

<PAGE>

Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1989
through 1999. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.

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

<TABLE>

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
<CAPTION>

===========================================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0% -2.56%
-----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
MORTGAGE
SECURITIES(2) 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0% 1.86%
-----------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE BONDS(3) 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6% -1.96%
-----------------------------------------------------------------------------------------------------------
U.S. HIGH YIELD
CORPORATE BONDS(4) 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6% 2.39%
-----------------------------------------------------------------------------------------------------------
WORLD GOVERNMENT
BONDS(5) (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3%) 5.3% -5.07%
===========================================================================================================
DIFFERENCE BETWEEN
HIGHEST AND LOWEST
RETURNS PERCENT 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1% 8.4% 7.46%
===========================================================================================================

</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. Source: Lipper Inc.

(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 SMITH BARNEY WORLD GOVERNMENT INDEX (NON U.S.) includes over 800
bonds issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.

I-2

<PAGE>

This chart illustrates the performance of major world stock markets for the
period from December 31, 1985 through December 31, 1999. It does not represent
the performance of any Prudential mutual fund.

AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS
(12/31/1985 - 12/31/1999) (in U.S. dollars)

[Chart]

Source: Morgan Stanley Capital International (MSCI) and Lipper Inc. as of
12/31/99. Used with permission. Morgan Stanley Country indexes are unmanaged
indexes 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 indexes.

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

[Chart]

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

I-3

<PAGE>

WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL: 20.7 TRILLION

Canada ...................... 2.1%
U.S. ........................ 49.0%
Europe ...................... 32.5%
Pacific Basin ............... 16.4%

Source: Morgan Stanley Capital International, December 31, 1999. 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.

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

LONG TERM U.S. TREASURY BOND YIELD IN PERCENT (1926-1999)

[CHART]

Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1999. Yields represent that of an annually renewed one-bond portfolio with
a remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
mutual fund.

I-4

<PAGE>

APPENDIX II--GENERAL INVESTMENT INFORMATION

ASSET ALLOCATION

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

DIVERSIFICATION

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

DURATION

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

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

MARKET TIMING

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

STANDARD DEVIATION

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

II-1

<PAGE>

OTHER INFORMATION

ITEM 23. EXHIBITS.

(a)(1) Articles of Incorporation. Incorporated by reference to Exhibit 1
to the Initial Registration Statement on Form N-1A filed via EDGAR
on March 19, 1997 (File No. 333-23593).

(a)(2) Articles Supplementary. Incorporated by reference to Exhibit
(a)(2) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed via EDGAR on March 29, 1999 (File No.
333-23593).

(b) Amended and Restated By-Laws of Registrant.*

(c) Instruments defining rights of shareholders. Incorporated by
reference to Exhibit 4 to the Initial Registration Statement on
Form N-1A filed via EDGAR on March 19, 1997 (File No. 333-23593).

(d)(1) Management Agreement between the Registrant and Prudential
Investments Fund Management LLC. Incorporated by reference to
Exhibit 5(a) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed via EDGAR on February 26, 1998 (File
No. 333-23593).

(d)(2) Subadvisory Agreement between Prudential Investments Fund
Management LLC and The Prudential Investment Corporation.
Incorporated by reference to Exhibit 5(b) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A filed
via EDGAR on February 26, 1998 (File No. 333-23593).

(d)(3) Amendment to Subadvisory Agreement dated as of November 18, 1999,
between Prudential Investments Fund Management LLC and The
Prudential Investment Corporation.*

(e)(1) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC. Incorporated by reference to
Exhibit (e)(1) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed via EDGAR on March 29,
1999 (File No. 333-23593).

(e)(2) Form of Selected Dealer Agreement. Incorporated by reference to
Exhibit (e)(2) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed via EDGAR on March 29,
1999 (File No. 333-23593).

(g)(1) Custodian Contract between the Registrant and State Street
Bank and Trust Company. Incorporated by reference to Exhibit
8 to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed via EDGAR on February 26, 1998
(File No. 333-23593).

(g)(2) Amendment to Custodian Contract/Agreement dated as of February 22,
1999 by and between the Registrant and State Street Bank and Trust
Company.*

(h)(1) Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services LLC. Incorporated by reference to
Exhibit 9 to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed via EDGAR on February 26, 1998 (File
No. 333-23593).

(h)(2) Amendment to Transfer Agency and Service Agreement dated as of
August 24, 1999 by and between the Registrant and Prudential
Mutual Fund Services LLC (successor to Prudential Mutual Fund
Services, Inc.).*

(i)(1) Opinion of Swidler Berlin Shereff Friedman, LLP. Incorporated by
reference to Exhibit (i) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File No. 333-23593) filed via
EDGAR on May 28, 1999.

(i)(2) Consent of Counsel.*

(j) Consent of Independent Accountants.*

(l) Purchase Agreement. Incorporated by reference to Exhibit 13 to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed via EDGAR on February 26, 1998 (File No.
333-23593).

(m)(1) Distribution and Service Plan for Class A shares. Incorporated by
reference to Exhibit (m)(1) to Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A filed via EDGAR on March
29, 1999 (File No. 333-23593).

(m)(2) Distribution and Service Plan for Class B shares. Incorporated by
reference to Exhibit (m)(2) to Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A filed via EDGAR on March
29, 1999 (File No. 333-23593).

(m)(3) Distribution and Service Plan for Class C shares. Incorporated by
reference to Exhibit (m)(3) to Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A filed via EDGAR on March
29, 1999 (File No. 333-23593).

(n) Amended and Restated Rule 18f-3 Plan. Incorporated by reference to
Exhibit (o) to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A filed via EDGAR on March 29, 1999 (File No.
333-23593).

(p)(1) Code of Ethics of Registrant.*

(p)(2) Code of Ethics of The Prudential Investment Corporation,
Prudential Investments Fund Management LLC and Prudential
Investment Management Services LLC.*

----------
* Filed herewith.
C-1

<PAGE>

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

None.

ITEM 25. INDEMNIFICATION.

As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940, as amended (the 1940 Act) and pursuant to Article VII of the Fund's
By-Laws (Exhibit (b) to the Registration Statement), officers, directors,
employees and agents of the Registrant will not be liable to the Registrant, any
shareholder, officer, director, employee, or other person for any action or
failure to act, except for bad faith, willful misfeasance, gross negligence or
reckless disregard of duties, and such former and present individuals may be
indemnified against liabilities in connection with the Registrant, subject to
the same exceptions. Section 2-418 of Maryland General Corporation Law permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant. As permitted by
Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution
Agreement (Exhibit (e)(1) to the Registration Statement), the Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act) may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1940 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1940 Act and will be governed by the final
adjudication of such issue.

The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances. Pursuant and
subject to the provisions of Article VII of the Registrant's By-Laws, the
Registrant shall indemnify each present and former director, officer, employee,
and agent of the Registrant against, or advance the expenses of any such person
for, the amount of any deductible provided in any liability insurance policy
maintained by the Registrant.

Section 9 of the Management Agreement (Exhibit (d)(1) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d)(2) to the
Registration Statement) limit the liability of Prudential Investments Fund
Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
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 Sections 17(h) and 17(i) of such Act remain
in effect and are consistently applied.

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

Under its Articles of Incorporation and By-Laws, the Registrant may advance
funds to provide for indemnification. Pursuant to the Securities and Exchange
Commission staff's position of 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

C-2

<PAGE>

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

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

(a) Prudential Investments Fund Management LLC (PIFM)

See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Investment Advisory and Other Services" 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, 100 Mulberry Street, Newark, New
Jersey 07102-4077.

NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATION
---------------- ------------------ --------------------
<S> <C> <C>
David R. Odenath, Jr. Officer in Charge, Officer in Charge, President, Chief Executive
President, Chief Officer and Chief Operating Officer, PIFM; Senior
Executive Officer and Vice President, The Prudential Insurance Company
Chief Operating Officer of America (Prudential)

Robert F. Gunia Executive Vice President Executive Vice President and Chief Administrative
and Chief Administrative Officer, PIFM; Vice President, Prudential;
Officer President, Prudential Investment Management
Services LLC (PIMS)

William V. Healey Executive Vice Executive Vice President, Chief Legal Officer and
President, Chief Legal Secretary, PIFM; Vice President and Associate
Officer and General Counsel, Prudential; Senior Vice
Secretary President, Chief Legal Officer and Secretary, PIMS

Brian W. Henderson Executive Vice President Executive Vice President, PIFM; Senior Vice
President and Chief Operating Officer, PIMS

Stephen Pelletier Executive Vice President Executive Vice President, PIFM

Judy A. Rice Executive Vice President Executive Vice President, PIFM

Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
</TABLE>

(b) The Prudential Investment Corporation (PIC)

See "How the Fund is Managed--Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory and
Other Services--Manager and Investment Adviser" in the Statement of Additional
Information consituting Part B of this Registration Statement.

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

NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<S> <C> <C>
Jeffrey Hiller Chief Compliance Officer Chief Compliance Officer, Prudential Global Asset
Management

John R. Strangfeld, Jr. Chairman of the Board, President of Prudential Global Asset Management
President, Chief Group of Prudential; Senior Vice President,
Executive Officer and Prudential; Chairman of the Board, President,
Director Chief Executive Officer and Director, PIC

Bernard Winograd Senior Vice President Chief Executive Officer, Prudential Real Estate
and Director Investors; Senior Vice President and Director, PIC
</TABLE>

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Prudential Investment Management Services LLC (PIMS)

PIMS is distributor for the following open-end management companies: Cash
Accumulation Trust, COMMAND Money Fund, COMMAND Government Fund, COMMAND
Tax-Free Fund, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Diversified Funds, Prudential Emerging
Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Genesis Fund,

C-3

<PAGE>

Inc., Prudential Global Total Return Fund, Inc., Prudential Government Income
Fund, Inc., Prudential Government Securities Trust, Prudential High Yield Fund,
Inc., Prudential High Yield Total Return Fund, Inc., Prudential Index Series
Fund, Prudential Institutional Liquidity Portfolio, Inc., Prudential
International Bond Fund, Inc., Prudential Mid-Cap Value Fund, Prudential
MoneyMart Assets, 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 Real
Estate Securities Fund, Prudential Sector Funds, Inc., Prudential Small Company
Value Fund, Inc., Prudential Special Money Market Fund, Inc., Prudential
Short-Term Corporate Bond Fund, Inc., Prudential 20/20 Focus Fund, Prudential
Tax-Free Money Fund, Inc., Prudential Tax-Managed Funds, Prudential Total Return
Bond Fund, Inc., Prudential Tax-Managed Small-Cap Fund, Inc., Prudential World
Fund, Inc., The Prudential Investment Portfolios, Inc., Strategic Partners
Series Target Funds and The Target Portfolio Trust.

PIMS is also distributor of the following unit investment trusts: Separate
Accounts: Prudential's Gibraltar Fund, Inc., The Prudential Variable Contract
Account-2, The Prudential Variable Contract Account-10, The Prudential Variable
Contract Account-11, The Prudential Variable Contract Account-24, The Prudential
Variable Contract G1-2, The Prudential Discovery Select Group Variable Contract
Account, The Pruco Life Flexible Premium Variable Annuity Account, The Pruco
Life of New Jersey Flexible Premium Variable Annuity Account, The Prudential
Individual Variable Contract Account and the Prudential Qualified Individual
Variable Contract Account.

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

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
------- ----------- ----------

<S> <C> <C>
Margaret Deverell ......... Vice President and Chief Financial Officer None

Robert F. Gunia ........... President Vice President
and Director

Kevin Frawley ............. Senior Vice President and Compliance Officer None
213 Washington Street
Newark, NJ 07102

William V. Healey ......... Senior Vice President, Secretary and Chief None
Legal Officer

Brian W. Henderson ........ Senior Vice President and Officer None

John R. Strangfeld, Jr. ... Advisory Board Member President and
Director
</TABLE>

----------

(1) The address of each person named is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102-4077 unless otherwise indicated.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102-4077, the Registrant, Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077 and Prudential Mutual
Fund Services LLC, 194 Wood Avenue South, Iselin, New Jersey 08830. Documents
required by Rules 31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) and
Rules 31a-1(b)(4) and (11) and 31a-1(d) will be kept at Gateway Center Three,
100 Mulberry Street, Newark, New Jersey 07102-4077, and the remaining accounts,
books and other documents required by such other pertinent provisions of Section
31(a) and the Rules promulgated thereunder will be kept by State Street Bank and
Trust Company and Prudential Mutual Fund Service LLC.

ITEM 29. MANAGEMENT SERVICES

Other than as set forth under the captions "How the Fund is
Managed--Manager," and "--Distributor" in theProspectus and the captions
"Investment Advisory and Other Services--Manager and Investment Adviser,"
and"--Principal Underwriter, Distributor and Rule 12b-1 Plans" in the Statement
of Additional Information, constituting Parts A and B, respectively, of this
Post-Effective Amendment to the Registration Statement, Registrant is not a
party to any management-related service contract.

ITEM 30. UNDERTAKINGS

The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of Registrant's latest annual report to shareholders
upon request and without charge.

C-4

<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 31st day of May 2000.

PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.

By /s/ JOHN R. STRANGFELD
----------------------------------
JOHN R. STRANGFELD, PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----
/s/ Eugene C. Dorsey Director May 31, 2000
----------------------------
EUGENE C. DORSEY

/s/ Delayne D. Gold Director May 31, 2000
----------------------------
DELAYNE D. GOLD

/s/ Robert F. Gunia Vice President and Director May 31, 2000
----------------------------
ROBERT F. GUNIA

/s/ Thomas T. Mooney Director May 31, 2000
----------------------------
THOMAS T. MOONEY

/s/ Stephen P. Munn Director May 31, 2000
----------------------------
STEPHEN P. MUNN

/s/ David R. Odenath, Jr. Vice President and Director May 31, 2000
----------------------------
DAVID R. ODENATH, JR.

/s/ Richard A. Redeker Director May 31, 2000
----------------------------
RICHARD A. REDEKER

/s/ John R. Strangfeld President and Director May 31, 2000
----------------------------
JOHN R. STRANGFELD

/s/ Nancy H. Teeters Director May 31, 2000
----------------------------
NANCY H. TEETERS

/s/ Louis A. Weil, III Director May 31, 2000
----------------------------
LOUIS A. WEIL, III

/s/ Grace C. Torres Principal Financial and
---------------------------- Accounting Officer May 31, 2000
GRACE C. TORRES

C-5

<PAGE>

EXHIBIT INDEX

EXHIBITS PAGE
----
(b) Amended and Restated By-Laws of Registrant.

(d)(3) Amendment to Subadvisory Agreement dated as of November 18,
1999, between Prudential Investments Fund Management LLC and
The Prudential Investment Corporation.

(g)(2) Amendment to Custodian Contract/Agreement dated as of
February 22, 1999 by and between the Registrant and State
Street Bank and Trust Company.

(h)(2) Amendment to Transfer Agency and Service Agreement dated as
of August 24, 1999 by and between the Registrant and
Prudential Mutual Fund Services LLC (successor to Prudential
Mutual Fund Services, Inc.).

(i)(2) Consent of Counsel.

(j) Consent of Independent Accountants.

(p)(1) Code of Ethics of Registrant.

(p)(2) Code of Ethics of The Prudential Investment
Corporation, Prudential Investments Fund Management
LLC and Prudential Investment Management Services LLC.

C-6