PRUDENTIAL GOVERNMENT SECURITIES TRUST, 497, 1999-04-01

PRUDENTIAL GOVERNMENT SECURITIES TRUST
497, 1999-04-01

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FUND TYPE:
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Money market

INVESTMENT OBJECTIVES:
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High current income,
preservation of capital and
maintenance of liquidity

PRUDENTIAL
GOVERNMENT
SECURITIES TRUST

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MONEY MARKET SERIES

PROSPECTUS DATED MARCH 29, 1999

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

<PAGE>

TABLE OF CONTENTS
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1 RISK/RETURN SUMMARY
1 Investment Objectives and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses

4 HOW THE SERIES INVESTS
4 Investment Objectives and Policies
5 Additional Strategies
6 Investment Risks

7 HOW THE SERIES IS MANAGED
7 Board of Trustees
7 Manager
7 Investment Adviser
7 Distributor
8 Year 2000 Readiness Disclosure

9 SERIES DISTRIBUTIONS AND TAX ISSUES
9 Distributions
10 Tax Issues

11 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE SERIES
11 How to Buy Shares
17 How to Sell Your Shares
19 How to Exchange Your Shares

22 FINANCIAL HIGHLIGHTS
22 Class A Shares
23 Class Z Shares

24 THE PRUDENTIAL MUTUAL FUND FAMILY

FOR MORE INFORMATION (Back Cover)

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MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

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RISK/RETURN SUMMARY
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This section highlights key information about the MONEY MARKET SERIES, which we
refer to as "the Series." Additional information follows this summary.

INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES

Our investment objectives are HIGH CURRENT INCOME, PRESERVATION OF CAPITAL AND
MAINTENANCE OF LIQUIDITY. To achieve our objectives, we invest primarily in a
diversified portfolio of short-term money market instruments issued or
guaranteed by the United States Government or its agencies or instrumentalities.
While we make every effort to achieve our investment objective and maintain a
net asset value of $1 per share, we can't guarantee success. To date, the
Series' net asset value has never deviated from $1 per share.

PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The money market
securities in which the Series invests are generally subject to the risk that
the obligations may lose value because interest rates change. In addition,
certain securities may be subject to the risk that the issuer may be unable to
make principal and interest payments when they are due. Repurchase agreements
have the risk of losing value if the seller defaults or the value of the
collateral securing the repurchase agreement declines. Although investments in
mutual funds involve risk, investing in money market portfolios like the Series
is generally less risky than investing in other types of funds. This is because
the Series invests only in high-quality securities, limits the average maturity
of the portfolio to 90 days or less, and limits the maturity of any security to
no more than 13 months. To satisfy the average maturity and maximum maturity
requirements, securities with demand features are treated as maturing on the
date that the Series can demand repayment of the security.

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

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MONEY MARKET FUNDS
Money market funds--which hold high-quality short-term debt obligations--provide
investors with a lower risk, highly liquid investment option. These funds
attempt to maintain a net asset value of $1 per share, although there can be no
guarantee that they will always be able to do so.
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1

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RISK/RETURN SUMMARY
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EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Series performs. The
following bar chart shows the Series' performance for each full calendar year of
operation for the last 10 years. The table shows how the Fund's average annual
returns for the periods indicated compare with those of a broad group of similar
mutual funds. They demonstrate the risk of investing in the Series and how
returns can change from year to year. Past performance does not mean that the
Series will achieve similar results in the future. For current yield
information, you can call us at (800) 225-1852.

ANNUAL RETURNS1 (CLASS A SHARES)

[THE FOLLOWING TABLE REPRESENTS A BAR CHART IN THE PRINTED PIECE]

1989 8.77%
1990 7.83%
1991 5.96%
1992 3.57%
1993 2.62%
1994 3.29%
1995 5.20%
1996 4.74%
1997 4.87%
1998 4.87%

BEST QUARTER: 2.27% (2nd quarter of 1989) WORST QUARTER: 0.63%
(2nd quarter of 1993)

AVERAGE ANNUAL RETURNS1 (AS OF 12-31-98)
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1 YR 5 YRS 10 YRS SINCE INCEPTION
Class A shares 4.82% 4.67% 5.14% 6.29% (since 1-12-82)
Class Z shares 4.94% n/a n/a 5.06% (since 3-1-96)
Lipper Average2 4.89% 4.72% 5.10% N/A

7 DAY YIELD1 (AS OF 12-31-98)
Class A shares 4.34%
Class Z shares 4.47%
IBC Average3 4.53%

1 THE SERIES' RETURNS AND YIELD ARE AFTER DEDUCTION OF EXPENSES.
2 THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN THE
LIPPER U.S. TAXABLE MONEY MARKET FUNDS CATEGORY AND DOES NOT INCLUDE THE
EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED
THE EFFECT OF SALES CHARGES. LIPPER RETURNS SINCE THE INCEPTION OF EACH CLASS
ARE 6.45% FOR CLASS A AND 4.84% FOR CLASS Z SHARES. SOURCE: LIPPER, INC.
3 THE IBC AVERAGE IS BASED UPON THE AVERAGE YIELD OF ALL MUTUAL FUNDS IN THE
INTERNATIONAL BUSINESS COMMUNICATIONS FINANCIAL DATA ALL TAXABLE MONEY MARKET
FUND CATEGORY.

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2 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

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RISK/RETURN SUMMARY
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FEES AND EXPENSES

These tables show the fees and expenses that you may pay if you buy and hold
each share class of the Series -- Class A and Z. 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
Series."

SHAREHOLDER FEES1 (PAID DIRECTLY FROM YOUR INVESTMENT)
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CLASS A CLASS Z
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) None None
Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or sale proceeds) None None
Maximum sales charge (load) imposed
on reinvested dividends and other distributions None None
Redemption fees None None
Exchange fee None None

ANNUAL SERIES OPERATING EXPENSES (DEDUCTED FROM SERIES ASSETS)
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CLASS A CLASS Z
Management fees 0.400% 0.400%
+ Distribution and service (12b-1) fees 0.125% None
+ Other expenses 0.275% 0.270%
= TOTAL ANNUAL SERIES OPERATING EXPENSES 0.800% 0.670%

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

EXAMPLE
This example will help you compare the fees and expenses of the Series' two
share classes and the cost of investing in the Series with the cost of investing
in other mutual funds.

The example assumes that you invest $10,000 in the Series 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 Series' operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions, your costs would be:

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1 YR 3 YRS 5 YRS 10 YRS
Class A shares $82 $255 $444 $990
Class Z shares $68 $214 $373 $835

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3

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HOW THE SERIES INVESTS
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INVESTMENT OBJECTIVES AND POLICIES
The Series' investment objectives are HIGH CURRENT INCOME, THE PRESERVATION OF
CAPITAL AND MAINTENANCE OF LIQUIDITY. While we make every effort to achieve our
objectives, we can't guarantee success.
The Series invests in SHORT-TERM MONEY MARKET INSTRUMENTS issued or
guaranteed by the United States Government or its agencies or instrumentalities
to try to provide investors with high current income while maintaining a stable
net asset value of $1 per share. We manage the Series to comply with specific
rules designed for money market mutual funds. All securities that we purchase
will be denominated in U.S. dollars. The Series will invest at least 80% of its
total assets in United States Government securities, including repurchase
agreements with respect to such securities.
U.S. Government securities include DEBT OBLIGATIONS ISSUED BY THE U.S.
TREASURY. Treasury securities have varying interest rates and maturities, but
they are all backed by the full faith and credit of the U.S. Government.
Treasury debt obligations are sometimes "stripped" into their component
parts--the Treasury's obligation to make periodic interest payments and its
obligation to repay the amount borrowed. These STRIPPED SECURITIES are sold to
investors separately. Stripped securities do not make periodic interest
payments. They are typically sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest
rates fall and lose value when interest rate rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional debt securities. The Fund may try to
earn money by buying stripped securities at a discount and either selling them
after they increase in value or holding them until they mature.
The Fund may also invest in CERTIFICATES OF DEPOSIT, which are obligations
issued by or through a bank. These instruments depend upon the strength of the
bank involved in the borrowing to give investors comfort that the borrowing will
be repaid when promised. Some certificates of deposit may be insured, such as
certificates of deposit insured by the Federal Deposit Insurance Corporation.
The Series may also use REPURCHASE AGREEMENTS with respect to U.S.
Government securities, where a party agrees to sell a security to the Series and
then repurchase it at an agreed-upon price at a stated time. A repurchase
agreement is like a loan by the Series to the other party that creates a fixed
return for the Series.

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4 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

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HOW THE SERIES INVESTS
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The securities that we may purchase may change over time as new types of
money market instruments are developed. We will purchase these new instruments,
however, only if their characteristics and features follow the rules governing
the operation of money market mutual funds.
For more information about this Series and its investments, see "Investment
Risks" and the Statement of Additional Information, "Descriptions of the Trust,
Its Investments and Risks." The Statement of Additional Information--which we
refer to as the SAI--contains additional information about the Series. To obtain
a copy, see the back cover of this prospectus.
The Series' investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Trust can change
investment policies that are not fundamental.

ADDITIONAL STRATEGIES
In addition to the principal strategies discussed above, we may also use the
following investment strategies to try to increase the Series' returns or
protect its assets if market conditions warrant.
The Series may purchase money market obligations on a "WHEN-ISSUED" or
"DELAYED-DELIVERY" basis. When the Series 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 Series does not earn
interest income until the date the obligations are delivered.
Any of the money market securities that the Series may purchase may be
accompanied by a put or call, that is, the right to sell (put) or purchase
(call) the instrument at an agreed-upon price.
The Series also follows certain policies when it BORROWS MONEY (the Series
may borrow up to 20% of the value of its total assets); LENDS ITS SECURITIES to
others (the Series may lend up to 30% of the value of its total assets); and
HOLDS ILLIQUID SECURITIES (the Series may hold up to 10% of its net assets in
illiquid securities, including securities without a readily available market and
repurchase agreements with maturities longer than seven days). The Series 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.

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5

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HOW THE SERIES INVESTS
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INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Series is no
exception. This chart outlines the key risks and potential rewards of the
Series' principal investments and certain other investments. See, too,
"Description of the Trust, Its Investments and Risks," in the SAI.

<TABLE>
<CAPTION>
INVESTMENT TYPE
% OF SERIES' ASSETS RISKS POTENTIAL REWARDS
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<S> <C> <C>
HIGH-QUALITY MONEY o Credit risk--the risk that o May preserve the Series'
MARKET OBLIGATIONS default of an issuer would assets
OF ALL TYPES leave the Series with
unpaid interest or principal

UP TO 100% OF TOTAL ASSETS o Market risk--the risk that o Regular interest income
the market value of an
instrument may move up o Generally are more secure
or down sometimes rapidly than lower quality debt
or unpredictably. Market securities and stock and
risk may affect an industry, other equity securities
a sector or the market as a
whole

Limited potential for
capital appreciation
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ILLIQUID SECURITIES o May be difficult to value o May offer a more
precisely attractive yield or greater
potential for growth
UP TO 10% OF NET ASSETS o May be difficult to sell at than more widely traded
the time and price desired securities
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</TABLE>

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6 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

HOW THE SERIES IS MANAGED
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BOARD OF TRUSTEES
The Board of Trustees oversees the actions of the Manager, Investment Adviser
and Distributor and decides on general policies. The Board also oversees the
Series' officers who conduct and supervise the daily business operation of the
Series.

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

Under a management agreement with Government Securities Trust (the
"Trust"), PIFM manages the Series' investment operations and administers its
business affairs. For the fiscal year ended November 30, 1998, the Series paid
PIFM management fees of .40 of 1% up to $1 billion, .375 of 1% up to 1.5
billion, .35 of 1% on greater than $1.5 billion of the Series' average net
assets.
As of January 31, 1999, PIFM served as the Manager to all 46 of the
Prudential mutual funds, and as Manager or administrator to 22 closed-end
investment companies, with aggregate assets of approximately $71.7 billion.

INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Series' investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.
Prudential Investments Fixed Income Group is organized into teams that
specialize by sector. The Fixed Income Investment Policy Committee, which is
comprised of senior investment staff from each sector team, provides guidance to
the teams regarding duration risk, asset allocations and general risk
parameters. Portfolio managers contribute bottom-up security selection within
those guidelines.

DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Series'
shares under a Distribution Agreement with the Series. The Series

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7

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HOW THE SERIES IS MANAGED
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has a Distribution and Service Plan under Rule 12b-1 of the Investment Company
Act for Class A shares. Under the Plan and Distribution Agreement, PIMS pays the
expenses of distributing the Series' Class A and Class Z shares and provides
certain shareholder support services. The Series pays distribution and other
fees to PIMS as compensation for its services for Class A shares, but not for
Class Z shares. These fees--known as 12b-1 fees--are shown in the "Fees and
Expenses" tables.

YEAR 2000 READINESS DISCLOSURE
The services provided to the Series and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Series,
the Manager, the Distributor, the Transfer Agent and the Custodian have advised
the Series that they have been actively working on necessary changes to their
computer systems to prepare for the year 2000. The Series and its Trustees
receive, and have received since early 1998, satisfactory quarterly reports from
the principal service providers as to their preparations for year 2000
readiness, although there can be no assurance that the service providers (or
other securities market participants) will successfully complete the necessary
changes in a timely manner or that there will be no adverse impact on the
Series. Moreover, the Series at this time has not considered retaining
alternative service providers or directly undertaken efforts to achieve year
2000 readiness, the latter of which would involve substantial expenses without
an assurance of success.
Additionally, issuers of securities generally as well as those purchased by
the Series may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Series.

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8 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

SERIES DISTRIBUTION AND TAX ISSUES
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Investors who buy shares of the Series should be aware of some important tax
issues. For example, the Series pays DIVIDENDS and CAPITAL GAINS, if any, to
shareholders. These distributions are subject to taxes, unless you hold your
shares in a 401(k) plan, an Individual Retirement Account (IRA), or some other
qualified tax-deferred plan or account. Dividends and distributions from the
Series may also be subject to state income tax in the state in which you reside.
The following briefly discusses some of the important income 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 Series pays DIVIDENDS out of any net investment income plus short-term
capital gains, to shareholders every month. For example, if the Series owns a
U.S. Treasury security and the security pays interest, the Series will pay out a
portion of this interest as a dividend to its shareholders, assuming the Series'
income is more than its costs and expenses. The dividends you receive from the
Series will be taxed as ordinary income whether or not they are reinvested in
the Series.
Although the Series is not likely to realize long-term capital gains
because of the types of securities we purchase, any such CAPITAL GAINS will be
paid to shareholders (typically once a year). LONG-TERM capital gains are
generated when the Series sells assets which 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, Series dividends and distributions of capital gains
are AUTOMATICALLY REINVESTED in the Series. If you ask us to pay the
distributions in cash, we will send you a check instead of purchasing more
shares of the Series. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions are subject to
taxes, unless your shares are held in a qualified 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.

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9
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SERIES DISTRIBUTION AND TAX ISSUES
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TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Series as part of a qualified 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 tax-deferred plan
or account.
Series distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in December of a calendar
year, 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 Series with your tax identification
number and certifications as to your tax status and you fail to do this, we will
withhold and pay to the U.S. Treasury 31% of your distributions. If you are
subject to backup withholding, we will withhold and pay to the U.S. Treasury 31%
of your distributions. 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.

QUALIFIED 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.

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10 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
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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 Series 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 Series, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Series) or suspend or modify the Series' sale of
its shares.

STEP 2: CHOOSE A SHARE CLASS
The Series offers Class A and Class Z shares. Except as noted below, the minimum
initial investment for Class A shares is $1,000 and the minimum subsequent
investment is $100. There is no minimum initial or subsequent investment
requirement for Class Z shares. Class Z shares of the Series are available for
purchase only by any of the following:
o Any Benefit Plan, as defined above, and certain nonqualified plans
provided the Benefit Plan--in combination with other plans sponsored by
the same employer or group of related employers--has at least $50
million in defined contribution assets
o Participants in any fee-based program or trust program sponsored by
Prudential which includes mutual funds as investment options and the
Series as an available option
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 option
o Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and, as of September 20, 1996,
were either Class Z shareholders of the Prudential mutual funds or
executed a letter of intent to purchase Class Z shares of the Prudential
mutual funds

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HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
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o Current and former Directors/Trustees of the Prudential mutual funds
(including the Series)
o Employees of Prudential who participate in a Prudential-sponsored
employee savings plan
o Prudential with an investment of $10 million or more.

All minimum investment requirements are waived for certain retirement and
employee savings plans and custodial accounts for the benefit of minors.

PURCHASES THROUGH PRUDENTIAL SECURITIES
Purchases of Class A shares of the Series through Prudential Securities are made
through automatic investment procedures (the Autosweep program). You cannot
purchase Class A shares through Prudential Securities other than through the
Autosweep program, except as specifically provided (that is, you cannot make a
manual purchase).
The Autosweep program allows you to designate the Series as your primary
money sweep fund. You have the option to change your primary money sweep fund at
any time by notifying your Prudential Securities financial advisor.
For individual retirement accounts (IRAs) and Benefit Plans in the
Autosweep program, all credit balances (that is, immediately available funds) of
$1 or more will be invested in the Series on a daily basis. Prudential
Securities will arrange for the investment of the credit balance in the Series
and will purchase shares of the Series equal to that amount. This will occur on
the business day following the availability of the credit balance. Prudential
Securities may use and retain the benefit of credit balances in your account
until Series shares are purchased.
For accounts other than IRAs and Benefit Plans, shares of the Series will
be purchased as follows:
o When your account has a credit balance of $10,000 or more, Prudential
Securities will arrange for the automatic purchase of shares of the
Series. This will occur on the business day following the availability
of the credit balance
o When your account has a credit balance that results from a securities
sale totaling $1,000 or more, the available cash will be invested in the
Series on the settlement date
o For all other credit balances of $1 or more, shares will be purchased
automatically at least once a month on the last business day of each
month.

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<PAGE>

HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
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Purchases through Autosweep are subject to a minimum initial investment of
$1,000, which is waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors.
You will begin earning dividends on your shares purchased through the
Autosweep program on the first business day after the order is placed.
Prudential Securities will purchase shares of the Series at the price determined
at 4:30 p.m. New York Time on the business day following the existence of the
credit balance, which is the second business day after the availability of the
credit balance. Prudential Securities will use and retain the benefit of credit
balances in your account until Series shares are purchased.
Your investment in the Series will be held in the name of Prudential
Securities. Prudential Securities will receive all statements and dividends from
the Series and will, in turn, send you account statements showing your
purchases, sales and dividends.
The charges and expenses of the Autosweep program are not reflected in the
Fees and Expenses tables. For information about participating in the Autosweep
program, your should contact your Prudential Securities financial advisor.

MANUAL PURCHASES
You may make a manual purchase (that is, a nonmoney market sweep purchase) of
Series shares in either of the following situations:
o You do not participate in a money market sweep program (the Autosweep
program), or
o You participate in a money market sweep program, but the Series is not
designated as your primary money market sweep fund.

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HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE SERIES
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balances in a client's brokerage account until monies are delivered to the
Series (Prudential Securities delivers federal funds on the business day after
settlement).
If you make a manual purchase through the Series' Distributor, through your
broker or dealer (other than Prudential Securities) or directly from the Series,
shares will be purchased at the net asset value next determined after receipt of
your order and payment in proper form. When your payment is received by 4:30
p.m., New York Time, shares will be purchased that day and you will begin to
earn dividends on the following business day. If you purchase shares through a
broker or dealer, your broker or dealer will forward your order and payment to
the Series. You should contact your broker or dealer for information about
services that they may provide, including an automatic sweep feature.
Transactions in Series shares may be subject to postage and other charges
imposed by your broker or dealer. Any such charge is retained by your broker or
dealer and is not sent to the Series.

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
When you invest in a mutual fund, you buy shares of the Series. Shares of a
money market mutual fund, like the Series, are priced differently than shares of
common stock and other securities.
The price you pay for each share of the Series 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. In
determining NAV, the Series values its securities using the amortized cost
method. The Series seeks to maintain an NAV of $1.
We determine the NAV of our shares once each business day at 4:30 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine the NAV on days when we have not received any orders to purchase
or sell shares of the Series or when changes in the value of the Series'
portfolio do not materially affect the NAV.

- --------------------------------------------------------------------------------
14 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852
<PAGE>

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

WHAT PRICE WILL YOU PAY FOR SHARES OF THE SERIES?
For Class A and Class Z shares, you'll pay the public offering price, which is
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 Series shareholder, you can take advantage of the following services and
privileges:

AUTOMATIC REINVESTMENT. As we explained in the "Series Distributions and Tax
Issues" section, the Series pays out--or distributes--its net investment income
and any capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Series at NAV without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, or notify your financial adviser, or notify the
Transfer Agent in writing (at the address below) not less than five full
business days before the date we determine who receives dividends.

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 Series for as
little as $50 by having the money automatically withdrawn from your bank or
brokerage account at specified intervals.

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

<PAGE>

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

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.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks.

MULTIPLE ACCOUNTS. Special procedures have been designed for banks and other
institutions that wish to open multiple accounts. An institution may open a
single master account by filing an application form with the following:

PRUDENTIAL MUTUAL FUND SERVICES LLC,
ATTN: CUSTOMER SERVICE,
P.O. BOX 15005
NEW BRUNSWICK, NEW JERSEY 08906-5005

The application form must be signed by personnel authorized to act for the
institution. Individual sub-accounts may be opened at the time the master
account is opened by listing them, or they may be added at a later date by
written advice or by filing forms supplied by the Trust. Sub-accounts may be
identified by name and number within the master account name. The investment
minimums set forth above apply to the aggregate amounts invested by a group and
not the amount credited to each sub-account.

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 Series. To reduce 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.

- --------------------------------------------------------------------------------
16 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

HOW TO SELL YOUR SHARES
You can sell your shares of the Series at any time, subject to certain
restrictions.
When you sell shares of the Series--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. If
your broker holds your shares, he must receive your order to sell by 4:30 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
Series or when we may delay paying you the proceeds from a sale. This may
happen during unusual market conditions or emergencies when the Series can't
determine the value of its assets or sell its holdings. For more information,
see the SAI, "Purchase, Redemption and Pricing of Trust Shares -- Sale of
Shares."
If you are selling more than $50,000 of shares, if you want the check sent
to someone or some place that is not in our records or you are a business or a
trust, and you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order guaranteed by a financial institution.

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

<PAGE>

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

REDEMPTION IN KIND
If the sales of Series shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Series' net assets, we can then give you
securities from the Series' 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 and close your account. We would do this to
minimize the Series' 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 tax-deferred plan or
account.

90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Series without
paying an initial sales charge. 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 Trust Shares--Sale
of Shares."

RETIREMENT PLANS
To sell shares and receive a distribution from a 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.

- --------------------------------------------------------------------------------
18 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

AUTOMATIC REDEMPTION FOR AUTOSWEEP
If you participate in the Autosweep program, your Series shares will be
automatically redeemed to cover any deficit in your Prudential Securities
account. The amount redeemed will be the nearest dollar amount necessary to
cover the deficit.
The amount of the redemption will be the lesser of the total value of
Series shares held in your Prudential Securities account or the deficit in your
Prudential Securities account. If you want to pay for a securities transaction
in your account other than through this procedure, you must deposit sufficient
cash in your securities account before the settlement date. If you use this
automatic redemption procedure and want to pay another deficit in your
securities account other than through this procedure, you must deposit
sufficient cash in your securities account before you incur the deficit.
Redemptions are automatically made by Prudential Securities, to the nearest
dollar, on each day to satisfy deficits from securities transactions or to honor
your redemption requests. Your account will be automatically scanned for
deficits each day and, if there is insufficient cash in your account, we will
redeem an appropriate number of shares of the Series at the next determined NAV
to satisfy any remaining deficit. You are entitled to any dividend declared on
the redeemed shares through the day before the redemption is made. Dividends
declared on the redemption date will be retained by Prudential Securities, which
has advanced monies to satisfy deficits in your account.

HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Series for shares of other series of the
Trust of the same class and 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 Series 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. We may change the terms of the exchange privilege
after giving you 60 days' notice.

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

<PAGE>

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

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

When you exchange Class A shares of the Fund for Class A shares of any other
Prudential mutual fund, you will be subject to any sales charge that may be
imposed by such other Prudential mutual fund. The sales charge is imposed at the
time of your exchange.
If you qualify to purchase Class Z shares, any Class A shares that you own
will be automatically exchanged for Class Z shares on a quarterly basis.
Eligibility for this special exchange privilege is determined on the business
day prior to the date of the exchange.
If you participate in any fee-based program where the Fund is an available
investment option, your Class A shares, if any, will be automatically exchanged
for Class Z shares when you elect to participate in the fee-based program. When
you no longer participate in the program, all of your Class Z shares, including
shares purchased while you were in the program, will be automatically exchanged
for Class A shares. Likewise, if you are entitled to purchase Class Z shares as
a participant in Prudential Securities 401(k) Plan and you seek to transfer your
Class Z shares out of the 401(k) Plan after your voluntary or involuntary
termination of employment or retirement, your Class Z shares held in the 401(k)
Plan will be automatically exchanged for Class A shares.

- --------------------------------------------------------------------------------
20 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

FREQUENT TRADING
Frequent trading of Series shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Series' investments. When market timing occurs, the Series 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 Series' 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 Series will
have to invest. When, in our opinion, such activity would have a disruptive
effect on portfolio management, the Series reserves the right to refuse purchase
orders and exchanges into the Series by any person, group or commonly controlled
account. The Series may notify a market timer of rejection of an exchange or
purchase order after the day the order is placed. If the Series allows a market
timer to trade Series shares, it may require the market timer to enter into a
written agreement to follow certain procedures and limitations.

<PAGE>

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

The financial highlights will help you evaluate the Series' financial
performance. The TOTAL RETURN in the chart represents the rate that a
shareholder earned on an investment in the Series, assuming reinvestment of all
dividends and other distributions. The information is for each share class for
the periods indicated.
Review this chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI and are available
upon request. Additional performance information 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 report was unqualified.

<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL YEARS ENDED 11-30)
- ------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.048 0.048 .046 .052 .033
Dividends from net investment income (0.048) (0.048) (.046) (.052) (.033)
Net asset value, end of year $1.000 $1.000 $1.000 $1.000 $1.000
TOTAL RETURN1 4.87% 4.87% 4.74% 5.20% 3.29%
- ------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
NET ASSETS, END OF YEAR (000) $590,004 $591,428 $552,123 $598,194 $637,343
Average net assets (000) $589,649 $586,513 $589,147 $597,599 $732,867
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees 80% .77% .86% .78% .77%
Expenses, excluding distribution fees .67% .65% .73% .65% .64%
Net investment income 4.77% 4.77% 4.63% 5.15% 3.19%
- ------------------------------------------------------------------------------------------------------
</TABLE>
1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS. IT
IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE
LAST DAY OF EACH PERIOD REPORTED.

- --------------------------------------------------------------------------------
22 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

CLASS Z SHARES
The financial highlights audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

CLASS Z SHARES (FISCAL YEARS ENDED 11-30)
PER SHARE OPERATING PERFORMANCE 1998 1997 19961
- -------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000 $1.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .048 .048 .038
Dividends from net investment income (.048) (.048) (.038)
Net asset value, end of period $1.000 $1.000 $1.000
TOTAL RETURN2 5.00% 5.03% 3.87%
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996
- -------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $26,901 $581 $ 2044
Average net assets (000) $19,236 $672 $1,962
RATIO OF AVERAGE NET ASSETS:
Expenses .67% .65% .68%3
Net investment income 4.89% 4.92% 4.68%3

1 INFORMATION SHOWN IS FOR THE PERIOD FROM MARCH 1, 1996 (WHEN CLASS Z SHARES
WERE FIRST OFFERED) THROUGH NOVEMBER 30, 1996.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS. IT
IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE
LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A FULL
YEAR IS NOT ANNUALIZED.
3 ANNUALIZED.
4 FIGURE IS ACTUAL AND NOT ROUNDED TO NEAREST THOUSAND.

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

<PAGE>

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

Prudential offers a broad range of mutual funds designed to meet your individual
needs. For 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
PRUDENTIAL DISTRESSED SECURITIES
FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT
PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH &
INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM
FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE
FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH
EQUITY FUND

GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS
EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES
FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.

GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY
FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL
INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND
FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.

- --------------------------------------------------------------------------------
24 MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

THE PRUDENTIAL MUTUAL FUND FAMILY

BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME
FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN
FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY
FUND, INC.
INCOME PORTFOLIO

MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET
FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.

TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES

COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND

INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

- -------------------------------------------------------------------------------
25

<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) 417-7555
(if 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 Web Site 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

SEMI-ANNUAL REPORT

In Person:
Public Reference Room in Washington, DC
(For hours of operation, call
1(800) SEC-0330)

Via the Internet:
http://www.sec.gov

- ----------------------------------------------------------------------
CUSIP Numbers:
Class A: 74434-220-5
Class Z: 74434-240-3

Investment Company Act File No:
811-3264

MF100A E Printed on Recycled Paper

<PAGE>

FUND TYPE:
- -----------------------------------
Money market

INVESTMENT OBJECTIVE:
- -----------------------------------

High current income consistent
with the preservation of
principal and liquidity

PRUDENTIAL
GOVERNMENT
SECURITIES TRUST

- -----------------------------------
U.S. TREASURY MONEY MARKET SERIES

PROSPECTUS DATED MARCH 29, 1999

[LOGO] PRUDENTIAL
INVESTMENTS

<PAGE>

TABLE OF CONTENTS 1
- -----------------------------------

RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses

5 HOW THE SERIES INVESTS
5 Investment Objective and Policies
6 Additional Strategies
7 Investment Risks

8 HOW THE SERIES IS MANAGED
8 Board of Trustees
8 Manager
8 Investment Adviser
8 Distributor
9 Year 2000 Readiness Disclosure

10 SERIES DISTRIBUTIONS AND TAX ISSUES
10 Distributions
11 Tax Issues

12 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE SERIES
12 How to Buy Shares
20 How to Sell Your Shares
23 How to Exchange Your Shares

26 FINANCIAL HIGHLIGHTS
26 Class A Shares
27 Class Z Shares

28 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (Back Cover)

- --------------------------------------------------------------------------------
U.S TREASURY MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

This section highlights key information about the U.S. TREASURY MONEY MARKET
SERIES, which we refer to as "the Series." Additional information follows this
summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is HIGH CURRENT INCOME CONSISTENT WITH THE PRESERVATION
OF PRINCIPAL AND LIQUIDITY. To achieve our objective, we invest exclusively in
U.S. Treasury obligations that mature in 13 months or less. While we make every
effort to achieve our investment objective and maintain a net asset value of $1
per share, we can't guarantee success. To date, the Series' net asset value has
never deviated from $1 per share.

- --------------------------------------------------------------------------------
MONEY MARKET FUNDS MONEY MARKET FUNDS--WHICH HOLD HIGH-QUALITY SHORT-TERM DEBT
OBLIGATIONS--PROVIDE INVESTORS WITH A LOWER RISK, HIGHLY LIQUID INVESTMENT
OPTION. THESE FUNDS ATTEMPT TO MAINTAIN A NET ASSET VALUE OF $1 PER SHARE,
ALTHOUGH THERE CAN BE NO GUARANTEE THAT THEY WILL ALWAYS BE ABLE TO DO SO.
- --------------------------------------------------------------------------------

PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The money market
securities in which the Series invests are generally subject to the risk that
the obligations may lose value because interest rates change. In addition,
certain securities may be subject to the risk that the issuer may be unable to
make principal and interest payments when they are due. Although investments in
mutual funds involve risk, investing in money market portfolios like the Series
is generally less risky than investing in other types of funds. This is because
the Series invests only in U.S. Treasury obligations, limits the average
maturity of the portfolio to 90 days or less, and limits the maturity of any
security to no more than 13 months. To satisfy the average maturity and maximum
maturity requirements, securities with demand features are treated as maturing
on the date that the Series can demand repayment of the security.
An investment in the Series is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Series seeks to preserve the value of your investment at $1
per share, like any mutual fund, an investment in the Series could lose value,
and you could lose money.

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

<PAGE>

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

EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Series performs. The
following bar chart shows the Series' performance since the inception of the
Series. The table shows how the Series' average annual returns for the periods
indicated compare with those of a group of similar mutual funds. They
demonstrate the risk of investing in the Series and how returns can change from
year to year. Past performance does not mean that the Series will achieve
similar results in the future. For current yield information, you can call us at
(800) 225-1852.

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

ANNUAL RETURNS1 CLASS A SHARES
- --------------------------------------------------------------------------------

The following represents a bar graph in the printed piece

1991 5.84%
1992 3.46%
1993 2.54%
1994 3.31%
1995 5.08%
1996 4.75%
1997 4.80%
1998 4.66%

BEST QUARTER: 1.53% (1st quarter of 1991) WORST QUARTER: 0.61%
(2nd quarter of1993)

AVERAGE ANNUAL RETURNS (AS OF 12-31-98)
- -------------------------------------------------------------------------------
1 YR 5 YRS 10 YRS (SINCE INCEPTION)
Class A Shares 4.61% 4.59% N/A 4.33% (since 12-3-90)
Class Z Shares 5.05% N/A N/A 5.11% (since 2-21-97)
Lipper Average2 4.69% 4.62% 5.07%

7-DAY YIELD1 (AS OF 12-31-98)
- -------------------------------------------------------------------------------
Class A Shares 4.07%
Class Z Shares 4.68%
IBC Average 4.53%

1 THE SERIES' RETURNS AND YIELD ARE AFTER DEDUCTION OF EXPENSES.
2 THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN THE
LIPPER U.S. TREASURY FUND CATEGORY AND DOES NOT INCLUDE THE EFFECT OF ANY
SALES CHARGES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF
SALES CHARGES. LIPPER RETURNS SINCE THE INCEPTION OF EACH CLASS ARE 4.72%
FOR CLASS A, AND 4.35% FOR CLASS Z SHARES. SOURCE: LIPPER, INC.
3 THE IBC AVERAGE IS BASED UPON THE AVERAGE YIELD OF ALL MUTUAL FUNDS IN THE
INTERNATIONAL BUSINESS COMMUNICATIONS FINANCIAL DATA ALL TAXABLE MONEY MARKET
FUND CATEGORY.

- --------------------------------------------------------------------------------
2 U.S TREASURY MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

FEES AND EXPENSES
These tables show the fees and expenses that you may pay if you buy and hold
each share class of the Series -- Class A and Class Z. 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 Series."

SHAREHOLDER FEES1 (PAID DIRECTLY FROM YOUR INVESTMENT)
-------------------------------------------------------------------------------
CLASS A CLASS Z
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) None None
Maximum deferred sales charge (load)
(as a percentage of the lower of original
price or sale proceeds) None None
Maximum sales charge (load) imposed
on reinvested dividends and other distributions None None
Redemption fees None None
Exchange fee None None

ANNUAL SERIES OPERATING EXPENSES (DEDUCTED FROM SERIES ASSETS)
-------------------------------------------------------------------------------
CLASS A CLASS Z
Management fees 0.400% 0.400%
+ Distribution and service (12b-1) fees 0.125% None
+ Other expenses 0.105% 0.110%
= TOTAL ANNUAL SERIES OPERATING EXPENSES 0.630% 0.510%

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

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3

<PAGE>

RISK/RETURN SUMMARY
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EXAMPLE
This example will help you compare the fees and expenses of the Series' two
share classes and the cost of investing in the Series with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Series 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 Series' operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions, your costs would be:

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1 YR 3 YRS 5 YRS 10 YRS
Class A $64 $202 $351 $786
Class Z $52 $164 $285 $640

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INVESTMENT OBJECTIVE AND POLICIES
The Series' investment objective is HIGH CURRENT INCOME CONSISTENT WITH THE
PRESERVATION OF PRINCIPAL AND LIQUIDITY. While we make every effort to achieve
our objective, we can't guarantee success.
The Series invests exclusively in U.S. TREASURY OBLIGATIONS to try to
provide investors with high current income while maintaining a stable net asset
value of $1 per share. We manage the Series to comply with specific rules
designed for money market mutual funds. The Series will invest in U.S. Treasury
securities, including bills, notes and bonds. These instruments are direct
obligations of the U.S. Government and, as such, are backed by the full faith
and credit of the United States. They differ primarily in their interest rates
and the lengths of their maturities.
The U.S. Treasury sometimes "strips" Treasury debt obligations into their
component parts--the Treasury's obligation to make periodic interest payments
and its obligation to repay the amount borrowed. These STRIPPED SECURITIES are
sold to investors separately. Stripped securities do not make periodic interest
payments. They are usually sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest
rates fall and lose value when interest rates rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional bonds. The Series may try to earn money
by buying stripped securities at a discount and either selling them after they
increase in value or holding them until they mature.
DEBT OBLIGATIONS in general, including U.S. Treasury obligations, are
basically written promises to repay a debt. Among the various types of debt
securities we may purchase, the terms of repayment may vary, as may the
commitment of other parties to honor the obligations of the issuer of the
security.
The securities that we may purchase may change over time as new types of
money market instruments are developed. We will purchase these new instruments,
however, only if their characteristics and features follow the rules governing
the operation of money market mutual funds.
For more information about this Series and its investments, see "Investment
Risks" and the Statement of Additional Information, "Description of the Trust,
Its Investments and Risks." The Statement of Additional Information--which we
refer to as the SAI--contains additional infor-

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HOW THE SERIES INVESTS
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mation about the Series. To obtain a copy, see the back cover of this
prospectus.
The Series' investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Trust can change
investment policies that are not fundamental.

ADDITIONAL STRATEGIES
In addition to the principal strategies discussed above, we may also use the
following investment strategies to try to increase the Series' returns or
protect its assets if market conditions warrant.
The Series may also purchase money market obligations on a "WHEN-ISSUED" or
"DELAYED-DELIVERY" basis. When the Series 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 Series does not earn
interest income until the date the obligations are delivered.
The Series also follows certain policies when it BORROWS MONEY (the Series
may borrow up to 20% of the value of its total assets) or HOLDS ILLIQUID
SECURITIES (the Series may hold up to 10% of its net assets in illiquid
securities). The Series 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.

INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Series is no
exception. This chart outlines the key risks and potential rewards of the
Series' principal investments. To limit these risks, we invest only in U.S.
Treasury securities, which are of the highest possible credit quality. See, too,
"Descriptions of the Trust, Its Investments and Risks," in the SAI.

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HOW THE SERIES INVESTS
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<TABLE>
<CAPTION>
INVESTMENT TYPE
% OF SERIES' TOTAL ASSETS RISKS POTENTIAL REWARDS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY o Credit risk--the risk that o Limited potential for
SECURITIES the borrower can't pay capital appreciation
back the money borrowed
100% or make interest payments o Preservation of capital

o Market risk--the risk that o Regular interest income
the market value of an
investment may move up o Generally are more secure
or down, sometimes rapidly than lower-quality debt
or unpredictably. Market securities and stock and
risk may affect an industry, equity securities
a sector or the market as a
whole.
</TABLE>
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HOW THE SERIES IS MANAGED
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MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077

Under a management agreement with Government Securities Trust (the
"Trust"), PIFM manages the Fund's investment operations and administers its
business affairs. For the fiscal year ended November 30, 1998, the Series paid
PIFM management fees of .40% of the Series' average net assets.
As of January 31, 1999, PIFM served as the Manager to all 46 of the
Prudential mutual funds, and as Manager or administrator to 22 closed-end
investment companies, with aggregate assets of approximately $71.7 billion.

DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Series'
shares under a Distribution Agreement. The Series has a Distribution and Service
Plan under Rule 12b-1 of the Investment Company Act for Class A Shares. Under
the Plan and Distribution Agreement, PIMS pays the expenses of distributing the
Series' Class A and Class Z shares and provides certain shareholder support
services. The Series pays distribution and other fees to PIMS as compensation
for its services for Class A shares, but not for Class Z shares. These
fees--known as 12b-1 fees--are shown in the "Fees and Expenses" tables.

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9

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SERIES DISTRIBUTIONS AND TAX ISSUES
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Investors who buy shares of the Series should be aware of some important tax
issues. For example, the Series pays DIVIDENDS and CAPITAL GAINS, if any, to
shareholders. These distributions are subject to taxes, unless you hold your
shares in a 401(k) plan, an Individual Retirement Account (IRA), or some other
qualified tax-deferred plan or account.
The following briefly discusses some of the important income 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 Series pays DIVIDENDS of any net investment income to shareholders every
month. For example, if the Series owns a U.S. Treasury security and the security
pays interest, the Series will pay out a portion of this interest as a dividend
to its shareholders, assuming the Series' income is more than its costs and
expenses.The dividends you receive from the Series will be taxed as ordinary
income whether or not they are reinvested in the Series.
Although the Series is not likely to realize long-term capital gains
because of the types of securities we purchase, any such CAPITAL GAINS will be
paid to shareholders (typically once a year). LONG-TERM capital gains are
generated when the Series sells its assets which 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, dividends and distributions of capital gains are
AUTOMATICALLY REINVESTED in the Series. If you ask us to pay the distributions
in cash, we will send you a check instead of purchasing more shares of the
Series. Otherwise, if your account is with a broker, you will receive a credit
to your account. Either way, the distributions are subject to taxes, unless your
shares are held in a qualified 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.

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

STEP 2: CHOOSE A SHARE CLASS
The Series offers Class A and Class Z shares. Except as noted below, the minimum
initial investment for Class A shares is $1,000 and the minimum subsequent
investment is $100. There is no minimum initial or subsequent investment
requirement for Class Z shares. Class Z shares of the Series are available for
purchase only by any of the following:
o Any Benefit Plan (that is, a pension, profit-sharing or other employee
benefit plan qualified under Section 401 of the Internal Revenue Code, a
deferred compensation or annuity plan under Sections 403(b) and 457 of
the Internal Revenue Code, a "rabbi trust" or a nonqualified deferred
compensation plan sponsored by an employer that has a tax-qualified
benefit plan with The Prudential Insurance Company of America or any of
its affiliates ("Prudential") provided the Benefit Plan--in combination
with other plans sponsored by the same employer or group of related
employers--has at least $50 million in defined contribution assets
o Participants in any fee-based program or trust program sponsored by
Prudential which includes mutual funds as investment options and the
Series as an available option

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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 option
o Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and, as of September 20, 1996,
were either Class Z shareholders of the Prudential mutual funds or
executed a letter of intent to purchase Class Z shares of the Prudential
mutual funds
o Current and former Directors/Trustees of the Prudential mutual funds
(including the Series)
o Employees of Prudential who participate in a Prudential-sponsored
employee savings plan

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

All minimum investment requirements are waived for certain retirement and
employee savings plans and custodial accounts for the benefit of minors.

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For accounts other than IRAs and Benefit Plans, shares of the Series will
be purchased as follows:

o When your account has a credit balance of $10,000 or more, Prudential
Securities will arrange for the automatic purchase of shares of the
Series. This will occur on the business day following the availability
of the credit balance
o When your account has a credit balance that results from a securities
sale totaling $1,000 or more, the available cash will be invested in the
Series on the settlement date
o For all other credit balances of $1 or more, shares will be purchased
automatically at least once a month on the last business day of each
month.

Purchases through Autosweep are subject to a minimum initial investment of
$1,000, which is waived for certain retirement and employee savings plans and
custodial accounts for the benefit of minors. You will begin earning dividends
on your shares purchased through the Autosweep program on the first business day
after the order is placed. Prudential Securities will purchase shares of the
Series at the price determined at 4:30 p.m. New York Time on the business day
following the existence of the credit balance, which is the second business day
after the availability of the credit balance. Prudential Securities will use and
retain the benefit of credit balances in your account until Series shares are
purchased.
Your investment in the Series will be held in the name of Prudential
Securities. Prudential Securities will receive all statements and dividends from
the Series and will, in turn, send you account statements showing your
purchases, sales and dividends.
The charges and expenses of the Autosweep program are not reflected in the
Fees and Expenses tables. For information about participating in the Autosweep
program, you should contact your Prudential Securities financial advisor.

PURCHASES THROUGH THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM
The Prudential Advantage Account Program (the Advantage Account Program) is a
financial services program available to clients of Pruco Securities Corporation
(Pruco) and provides for an automatic investment procedure similar to the
Autosweep program. The Advantage Account Program con-

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sists of two types of accounts: the Investor Account and the Advantage Account,
which offers additional services, such as a debit card and check writing.
The Advantage Account Program allows you to designate the Series as your
primary money sweep fund. You have the option to change your primary money sweep
fund at any time by notifying your Pruco representative or the Advantage Service
Center.
With the Advantage Account as well as the Investor Account for Benefit
Plans and individual retirement accounts (IRAs), all credit balances (that is,
immediately available funds) of $1 or more will be invested in the Series on a
daily basis. Prudential Securities (Pruco's clearing broker), arranges for the
investment of the credit balance in the Series and will purchase shares of the
Series equal to that amount. This will occur on the business day following the
availability of the credit balance. Prudential Securities may use and retain the
benefit of credit balances in your account until Series shares are purchased.
If you have an Investor Account (non-IRAs), shares of the Series will be
purchased as follows:
o When your account has a credit balance of $10,000 or more, Prudential
Securities will arrange for the automatic purchase of shares of the
Series with all cash balances of $1 or more. This will occur on the
business day following the availability of the credit balance
o When your account has a credit balance that results from a securities
sale totaling more than $1,000, all cash balances of $1 or more will be
invested in the Series on the business day following the settlement date

o For all other credit balances of $1 or more, shares will be purchased
automatically at least once a month on the last business day of each
month.

You will begin earning dividends on your shares purchased through the
Advantage Account Program on the first business day after the order is placed.
Prudential Securities will purchase shares of the Series at the price determined
at 4:30 p.m. New York Time on the business day following the availability of the
credit balance. Prudential Securities will use and retain the benefit of credit
balances in your account until Series shares are purchased.

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Purchases of, withdrawals from and dividends from the Series will be shown
on your Advantage Account or Investor Account statement.
The charges and expenses of the Advantage Account Program are not reflected
in the Fees and Expenses tables. For information about participating in the
Advantage Account Program, you should call (800) 235-7637.

MANUAL PURCHASES
You may make a manual purchase (that is, a nonmoney market sweep purchase) of
Series shares in either of the following situations:
o You do not participate in a money market sweep program (the Autosweep
program or the Advantage Account Program), or
o You participate in a money market sweep program, but the Series is not
designated as your primary money market sweep fund.

The minimum initial investment for a manual purchase for Class A shares of
the Series is $1,000 and the minimum subsequent investment is $100, except that
all minimum investment requirements are waived for certain retirement and
employee savings plans and custodial accounts for the benefit of minors.
If you make a manual purchase through Prudential Securities, Prudential
Securities will place your order for shares of the Series on the business day
after the purchase order is received for settlement that day, which is the
second business day after receipt of the purchase order by Prudential
Securities. Prudential Securities may use and retain the benefit of credit
balances in a client's brokerage account until monies are delivered to the
Series (Prudential Securities delivers federal funds on the business day after
settlement).
If you make a manual purchase through the Series' Distributor, through your
broker or dealer (other than Prudential Securities) or directly from the Series,
shares will be purchased at the net asset value next determined after receipt of
your order and payment in proper form. When your payment is received by 4:30
p.m., New York Time, shares will be purchased that day and you will begin to
earn dividends on the following business day. If you purchase shares through a
broker or dealer, your broker or dealer will forward your order and payment to
the Series. You should contact your broker or dealer for information about
services that they may provide, including an automatic sweep feature.
Transactions in Series shares may be subject to

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postage and other charges imposed by your broker or dealer. Any such charge is
retained by your broker or dealer and is not sent to the Series.

COMMAND ACCOUNTSM PROGRAM
Shares of the Series are offered to participants in the Prudential Securities
COMMAND Accountsm program, an integrated financial services program of
Prudential Securities. Investors having a Command Account may select the Series
as their primary fund. Such investors will have credit balances of $1 or more
(that is, immediately available funds) in their securities account automatically
invested in shares of the Series as described below. In the case of available
cash resulting from the proceeds of securities sales, an order to purchase
shares of the Series is placed on the settlement date of the securities sale. In
the case of available cash resulting from nontrade related credits (that is,
receipt of dividends and interest payments, or a cash payment by the participant
into his or her securities account), the order to purchase shares of the Series
is placed on the business day after receipt by Prudential Securities of the
nontrade related credit. These automatic purchase procedures are also applicable
for Corporate COMMAND Accounts.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will purchase shares of the Series at the price determined
at 4:30 p.m. New York Time on the business day the order is placed and will pay
for the shares on the next business day. Prudential Securities will use and
retain the benefits of, credit balances in your account until Series shares are
purchased. There are no minimum investment requirements for participants in the
COMMAND Account program.
Your Series shares may be automatically redeemed to cover any deficit in
your account. A deficit in your COMMAND Account may result from activity arising
under the program, such as debit balances incurred by use of the Visa(R) Gold
Account, including Visa purchases, cash advances and Visa Account checks. Debit
balances for Visa purchases are payable on the 25th day of each month or, if
that day is a weekend or holiday, on the preceding business day.
Your account will be automatically scanned for deficits each day and, if
there is insufficient cash in your account, we will redeem an appropriate number
of shares of the Series and, if necessary, shares of other money

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market funds that you own in the program but which are not designated as your
primary fund, to satisfy any remaining deficit. Margin loans will be utilized to
satisfy any deficits in your account after all of your shares in the Series and
other money market funds you own are redeemed. Shares of the Series may not be
purchased until all deficits and overdrafts in your account are satisfied.

You are entitled to any dividends declared on the redeemed shares through
the day before the redemption is made. Dividends declared on the redemption date
will be retained by Prudential Securities, which has advanced monies to satisfy
deficits in your account. The amount redeemed will be the nearest dollar amount
necessary to cover deficits from securities transactions or to honor your
redemption requests.
For information on participation in the COMMAND Account Program, you should
telephone (800) 222-4321.

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

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

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 Series 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.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks.

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PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: CUSTOMER SERVICE
P.O. BOX 15005
NEW BRUNSWICK, NEW JERSEY 08906-5005

HOW TO SELL YOUR SHARES
You can sell your shares of the Series at any time, subject to certain
restrictions.
When you sell shares of the Series--also known as redeeming 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. If your broker holds
your shares, he must receive your order to sell by 4:30 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

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Generally, we will pay you for the shares that you sold within seven days
after the Transfer Agent, the Distributor or your broker receive 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 shares 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 Series or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Series can't determine the
value of its assets or sell its holdings. If you invest by check, we will only
process your redemptions after your check clears. For more information, see the
SAI, "Purchase, Redemption and Pricing of Trust Shares--Sale of Shares."
If you are selling more than $50,000 of shares, if you want the check sent
to someone or some place that is not in our records or you are a business or a
trust, and you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order guaranteed by a financial institution.
For more information, see the SAI, "Purchase, Redemption and Pricing of Trust
Shares--Sale of Shares--Signature Guarantee."

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 Series' 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
tax-deferred plan or account.

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90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Series without
paying an initial sales charge. In order to take advantage of this privilege,
you must notify the Transfer Agent or your broker at the time of the repurchase.
See the SAI, "Purchase, Redemption and Pricing of Trust Shares--Sale of Shares."

AUTOMATIC REDEMPTION FOR AUTOSWEEP
If you participate in the Autosweep program, your Series shares may be
automatically redeemed to cover any deficit in your Prudential Securities
account. The amount redeemed will be the nearest dollar amount necessary to
cover the deficit.
The amount of the redemption will be the lesser of the total value of
Series shares held in your Prudential Securities account or the deficit in your
Prudential Securities account. If you use this automatic redemption procedure
and want to pay for a securities transaction in your account other than through
this procedure, you must deposit cash in your securities account before the
settlement date. If you use this automatic redemption procedure and want to pay
any other deficit in your securities account other than through this procedure,
you must deposit cash in your securities account before you incur the deficit.
Redemptions are automatically made by Prudential Securities, to the nearest
dollar, on each day to satisfy deficits from securities transactions or to honor
your redemption requests. Your account will be automatically scanned for
deficits each day and, if there is insufficient cash in your account, we will
redeem an appropriate number of shares of the Series at

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the next determined NAV to satisfy any remaining deficit. You are entitled to
any dividends declared on the redeemed shares through the day before the
redemption is made. Dividends declared on the redemption date will be retained
by Prudential Securities, which has advanced monies to satisfy deficits in your
account.

AUTOMATIC REDEMPTION FOR THE ADVANTAGE ACCOUNT. If you participate in the
Advantage Account Program, your Series shares may be automatically redeemed to
cover any deficit in your securities account. The amount redeemed will be the
nearest dollar amount necessary to cover the deficit.
The amount of the redemption will be the lesser of the total value of
Series shares held in your securities account or the deficit in your securities
account. A deficit in your Advantage Account may result from activity arising
under the program, such as debit balances incurred by the use of the Visa(R)
Account including Visa purchases, cash advances and Visa Account checks. Your
account will be automatically scanned for deficits each day and, if there is
insufficient cash in your account, we will redeem an appropriate number of
shares of the Series to satisfy any remaining deficit. You are entitled to any
dividends declared on the redeemed shares through the day before the redemption
is made. Dividends declared on the redemption date will be retained by
Prudential Securities, which has advanced monies to satisfy deficits by your
account.
Redemptions are automatically made by Prudential Securities, to the nearest
dollar, on each day to satisfy deficits from securities transactions or to honor
your redemption requests.

HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Series for shares of other series of the
Trust of the same class and 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 Series for Class A shares of
another Prudential mutual fund, on the basis of the relative NAV plus the
applicable sales charge but you can't exchange Class A shares for Class B, Class
C or Class Z shares. We may change the terms of the exchange privilege after
giving you 60 days' notice.

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

<PAGE>

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

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

When you exchange Class A shares of the Fund for Class A shares of any other
Prudential mutual fund, you will be subject to any sales charge that may be
imposed by such other Prudential mutual fund. The sales charge is imposed at the
time of your exchange.
If you qualify to purchase Class Z shares, any Class A shares that you own
will be automatically exchanged for Class Z shares on a quarterly basis.
Eligibility for this special exchange privilege is determined on the business
day prior to the date of the exchange.
If you participate in any fee-based program where the Series is an
available investment option, your Class A shares, if any, will be automatically
exchanged for Class Z shares when you elect to participate in the fee-based
program. When you no longer participate in the program, all of your Class Z
shares, including shares purchased while you were in the program, will be
automatically exchanged for Class A shares. Likewise, if you are entitled to
purchase Class Z shares as a participant in Prudential Securities 401(k) Plan
and you seek to transfer your Class Z shares out of the 401(k) Plan after your
voluntary or involuntary termination of employment or retirement, your Class Z
shares held in the 401(k) Plan will be automatically exchanged for Class A
shares.

- --------------------------------------------------------------------------------
24 U.S TREASURY MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

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

- --------------------------------------------------------------------------------
25

<PAGE>

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

Review this chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI and are available
upon request. Additional performance information 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 report was unqualified.

CLASS A SHARES1 (FISCAL YEARS ENDED 11-30)
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .046 0.047 .046 .050 .033
Dividends from net investment income (.046) (0.047) (.046) (.050) (.033)
Net asset value, end of year $1.000 $1.000 $1.000 $1.000 $1.000
TOTAL RETURN1 4.66% 4.80% 4.75% 5.08% 3.31%
- ----------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $336,985 $432,784 $305,330 $339,334 $293,984
Average net assets (000) $420,140 $402,634 $393,060 $345,369 $308,454
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution fees .63% .65% .63% .62% .62%
Expenses, excluding distribution fees .51% .52% .51% .50% .50%
Net investment income 4.57% 4.66% 4.57% 5.01% 3.21%
- -----------------------------------------------------------------------------------
</TABLE>

1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS.
IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON
THE LAST DAY OF EACH PERIOD REPORTED.

- --------------------------------------------------------------------------------
26 U.S TREASURY MONEY MARKET SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

CLASS Z SHARES
The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

CLASS Z SHARES (FISCAL YEARS ENDED 11-30)
PER SHARE OPERATING PERFORMANCE 1998 1997(1)
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .049 .039
Dividends from net investment income (.049) (.039)
Net asset value, end of period $1.000 $1.000
TOTAL RETURN(2) 5.05% $3.96%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1998 1997(1)
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $211(4) $205(4)
Average net assets (000) $209(4) $197(4)
RATIO OF AVERAGE NET ASSETS:
Expenses .51% .52%(3)
Net investment income 4.91% 3.89%(3)

1 Information shown is for the period from February 21, 1997 (when Class Z
shares were first offered) through November 30, 1997.
2 Total return assumes reinvestment of dividends and any other distributions.
It is calculated assuming shares are purchased on the first day and sold on
the last day of each period reported. Total return for periods of less than a
full year is not annualized.
3 Annualized.
4 Figure is actual and not rounded to nearest thousand.

27
<PAGE>

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

Prudential offers a broad range of mutual funds designed to meet your
individual needs. For 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.

<PAGE>

COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND

INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

<PAGE>

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

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) 417-7555
(if 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 Web Site 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
SEMI-ANNUAL REPORT

<PAGE>

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 20549-6009 (The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in Washington, DC
(For hours of operation, call
1(800) SEC-0330)
Via the Internet:
http://www.sec.gov

- --------------------------------------------------------------------------------
CUSIP Numbers:
Class A: 744342-30-4
Class Z: 744342-50-2
Investment Company Act File No:
811-3264
MF145A
E Printed on Recycled Paper

<PAGE>

FUND TYPE:
- ---------------------------------------
Government securities

INVESTMENT OBJECTIVE:
- ---------------------------------------
High level of income consistent
with providing reasonable
safety

PRUDENTIAL
GOVERNMENT
SECURITIES TRUST

- ---------------------------------------
SHORT-INTERMEDIATE TERM SERIES

PROSPECTUS DATED MARCH 29, 1999

[LOGO] PRUDENTIAL
INVESTMENTS

<PAGE>

TABLE OF CONTENTS
- --------------------------------------------------------------------------------
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses

5 HOW THE SERIES INVESTS
5 Investment Objective and Policies
7 Other Investments
8 Derivative Strategies
8 Additional Strategies
10 Investment Risks

13 HOW THE SERIES IS MANAGED
13 Board of Trustees
13 Manager
13 Investment Adviser
13 Portfolio Manager
14 Distributor
14 Year 2000 Readiness Disclosure

16 SERIES DISTRIBUTIONS AND TAX ISSUES
16 Distributions
17 Tax Issues
18 If You Sell or Exchange Your Shares

19 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE SERIES
19 How to Buy Shares
23 How to Sell Your Shares
25 How to Exchange Your Shares

27 FINANCIAL HIGHLIGHTS
27 Class A Shares
28 Class Z Shares

30 THE PRUDENTIAL MUTUAL FUND FAMILY

FOR MORE INFORMATION (Back Cover)

- --------------------------------------------------------------------------------
SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

This section highlights key information about the SHORT-INTERMEDIATE TERM
SERIES, which we refer to as "the Series." Additional information follows this
summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is to achieve a HIGH LEVEL OF INCOME CONSISTENT WITH
PROVIDING REASONABLE SAFETY. To achieve this objective, we invest at least 65%
of the Series' total assets in U.S. Government securities, including U.S.
Treasury bills, notes, bonds and other debt securities, such as mortgage-related
and asset-backed securities, issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. While we make every effort to achieve our
investment objective, we can't guarantee success.

PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The securities
in which the Series invests are generally subject to the risk that the
securities may lose value because interest rates change or there is a lack of
confidence in the borrower. In addition, these securities may be subject to the
risk that the issuer may be unable to make principal and interest payments when
they are due. Mortgage-related and asset-backed securities may also be subject
to prepayment risk, which means that if they are prepaid, the Series may have to
replace them with lower-yielding securities.

Some of our investment strategies involve additional risk. Like any mutual
fund, an investment in the Series could lose value, and you could lose money.
For more detailed information about the risks associated with the Series, see
"Investment Risks."

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

- --------------------------------------------------------------------------------
1
<PAGE>

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

EVALUATING PERFORMANCE

A number of factors--including risk--can affect how the Series performs. The
following bar chart shows the Series' performance for each full calendar year of
operations for the last 10 years. The table shows how the Series average annual
returns for the periods indicated compare with those of a broad measure of
market performance and a group of similar mutual funds. They demonstrate the
risk of investing in the Series and how returns can change from year to year.
Past performance does not mean that the Series will achieve similar results in
the future.

ANNUAL RETURNS1 (CLASS A SHARES)
- --------------------------------------------------------------------------------

[THE FOLLOWING TABLE REPRESENTS A BAR CHART IN THE PRINTED PIECE]

1989 11.12%
1990 6.73%
1991 12.19%
1992 7.40%
1993 8.26%
1994 -2.58%
1995 12.37%
1996 5.34%
1997 5.96%
1998 6.01%

BEST QUARTER: 5.83% (2nd quarter of 1989)
WORST QUARTER: -2.00% (1st quarter of 1994)

AVERAGE ANNUAL RETURNS1 (AS OF 12-31-98)
- --------------------------------------------------------------------------------
1 YR 5 YRS 10 YRS SINCE INCEPTION
Class A Shares 6.00% 5.40% 7.21% 8.29% (since 9-22-82)
Class Z Shares 6.20% N/A N/A 6.95% (since 2-26-97)
Lipper Average2 6.92% 29.82% 105.06% N/A
Lehman Brothers
Intermediate
Government Bond Index3 8.49% 6.45% 8.34% N/A

1 THE SERIES' RETURNS ARE AFTER DEDUCTION OF EXPENSES.

2 THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN THE
LIPPER SHORT-INTERMEDIATE U.S. GOVERNMENT FUND CATEGORY WITHOUT DEDUCTING ANY
SALES CHARGES. THESE RETURNS WOULD BE LOWER IF THEY DEDUCTED SALES CHARGES.
LIPPER RETURNS SINCE THE INCEPTION OF EACH CLASS ARE 8.36% FOR CLASS A AND
6.96% FOR CLASS Z SHARES. SOURCE: LIPPER, INC.

3 THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX IS AN UNMANAGED
WEIGHTED INDEX COMPRISED OF SECURITIES ISSUED OR BACKED BY THE U.S.
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES WITH A REMAINING MATURITY OF
ONE TO 10 YEARS. THE INT. GOV. BOND INDEX INCLUDES THE REINVESTED DIVIDENDS,
BUT DOES NOT REFLECT SALES CHARGES. THESE RETURNS WOULD BE LOWER IF THEY
DEDUCTED SALES CHARGES. INT. GOV. BOND INDEX RETURNS SINCE THE INCEPTION OF
EACH CLASS ARE 9.43% FOR CLASS A AND 8.52% FOR CLASS Z SHARES. SOURCE: LEHMAN
BROTHERS

- --------------------------------------------------------------------------------
2 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

FEES AND EXPENSES

These tables show the sales charges, fees and expenses that you may pay
if you buy each share class of the Series--Class A and Class Z. Each share class
has different 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 Series."

SHAREHOLDER FEES1 (PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS Z

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

Maximum deferred sales charge (load)
(as a percentage of the lower of original
price or sale proceeds) None None

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

Redemption fees None None

Exchange fee None None

- --------------------------------------------------------------------------------
ANNUAL SERIES OPERATING EXPENSES (DEDUCTED FROM SERIES ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS Z

Management fees .40% .40%
+ Distribution and service (12b-1) fees2 .25% None
+ Other expenses .38% .38%
= TOTAL ANNUAL SERIES OPERATING EXPENSES 1.03% .78%
- Fee waiver or expense reimbursement .07% None
= NET ANNUAL FUND OPERATING EXPENSES .96% .78%

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

2 THE FUND'S DISTRIBUTION AND SERVICE FEES HAVE BEEN RESTATED TO REFLECT CURRENT
FEE LEVELS FOR CLASS A SHARES. FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999,
THE DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY AGREED TO REDUCE ITS
DISTRIBUTION AND SERVICE FEES FOR CLASS A SHARES TO .25 OF 1% OF THE AVERAGE
DAILY NET ASSETS OF THE CLASS A SHARES.

- --------------------------------------------------------------------------------
3

<PAGE>

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

EXAMPLE

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

- --------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
Class A shares $98 $306 $531 $1,178
Class Z shares $80 $249 $433 $966

- --------------------------------------------------------------------------------
4 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

HOW THE SERIES INVESTS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The Series' investment objective is to achieve a HIGH LEVEL OF INCOME CONSISTENT
WITH PROVIDING REASONABLE SAFETY. This means we seek investments that will
increase in value, as well as pay the Series interest and other income. While we
make every effort to achieve our objective, we can't guarantee success.

The Series invests at least 65% of its total assets in U.S. GOVERNMENT
SECURITIES. U.S. Government securities include U.S. Treasury bills, notes,
bonds, and other DEBT SECURITIES ISSUED BY THE U.S. TREASURY and obligations,
including MORTGAGE-BACKED SECURITIES, ASSET-BACKED SECURITIES and other
securities that are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. These guarantees do not extend to the yield or value of the
securities or the Series' 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.

The Series may also invest up to 35% of its assets in the following
PRIVATELY-ISSUED instruments: (1) fixed rate and adjustable rate mortgage-backed
securities, including collateralized mortgage obligations, multi-class
pass-through securities and stripped mortgage-backed securities, (2)
asset-backed securities, (3) corporate debt securities and (4) money market
instruments. These privately issued securities must be rated A or better by a
major rating service. Money market instruments must also have a comparable
short-term rating. A rating is an assessment of the likelihood of timely payment
of interest and principal by the issuer of the security. The Series may also
invest in unrated securities, if the Series' investment adviser determines them
to be of comparable quality.

MORTGAGE-BACKED SECURITIES are usually pass-through instruments that pay
investors a share of all interest and principal payments from an underlying pool
of fixed or adjustable rate mortgages. Some mortgage-related securities are
backed by the full faith and credit of the U.S. Government like obligations of
the Government National Mortgage Association (GNMA or "Ginnie Mae"). Debt
securities issued by the Federal Home Loan Mortgage Corporation (FHLMC or
"Freddie Mac") are not backed by the full faith and credit of the U.S.
Government. However, these issuers have the right to borrow from the
U.S.Treasury to meet their obligations. Private mortgage-related securities that
are not guaranteed by U.S. governmental entities generally have one or more
types of credit enhancement to ensure timely receipt of payments and to protect
against default.

- --------------------------------------------------------------------------------
5

<PAGE>

HOW THE SERIES INVESTS
- --------------------------------------------------------------------------------

Mortgage pass-through securities include collateralized mortgage
obligations, multiclass pass-through securities and stripped mortgage-backed
securities. A COLLATERALIZED MORTGAGE OBLIGATION (CMO) is a security backed by
an underlying portfolio of mortgages or mortgage-backed securities that may be
issued or guaranteed by a bank or by U.S. governmental entities. A MULTICLASS
PASS-THROUGH SECURITY is an equity interest in a trust composed of underlying
mortgage assets. Payments of principal of and interest on the mortgage assets
and any reinvestment thereon provide the funds to pay debt service on the CMO or
to make scheduled distributions on the multiclass pass-through security. A
STRIPPED MORTGAGE-BACKED SECURITY (MBS STRIP) may be issued by U.S. governmental
entities or by private institutions. MBS strips take the pieces of a debt
security (principal and interest) and break them apart. The resulting securities
may be sold separately and may perform differently.

The values of mortgage-related securities vary with changes in market
interest rates generally and in yields among various kinds of mortgage-related
securities. Such values are particularly sensitive to changes in prepayments of
the underlying mortgages. For example, during periods of falling interest rates,
prepayments tend to accelerate as homeowners and others refinance their
higher-rate mortgages; these prepayments reduce the anticipated duration of the
mortgage-related securities. Conversely, during periods of rising interest
rates, prepayments can be expected to decelerate, which has the effect of
extending the anticipated duration at the same time that the value of the
securities declines. MBS strips tend to be even more highly sensitive to changes
in prepayment and interest rates than mortgage-related securities and CMOs
generally.

We may invest in privately-issued ASSET-BACKED DEBT SECURITIES. An
asset-backed security is another type of pass-through instrument that pays
interest based upon the cash flow of an underlying pool of assets, such as
automobile loans and credit card receivables.

A corporation that wishes to raise cash may choose to issue a CORPORATE
DEBT SECURITY. The corporation pays the investor a fixed or variable rate of
interest and must repay the amount borrowed at maturity.

MONEY MARKET INSTRUMENTS include bank obligations, obligations of savings
institutions, fully insured certificates of deposit and commercial paper of a
comparable short-term rating.

It is currently anticipated that the Series will invest primarily in
securities with maturities ranging from two to five years, but depending on
market and

- --------------------------------------------------------------------------------
6 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

HOW THE SERIES INVESTS
- --------------------------------------------------------------------------------

changing economic conditions, the Series may invest in securities of any
maturity of 10 years or less or, for hedging purposes, in longer term
securities, including 30 year futures.

ACTIVE TRADING

The Series may also 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 Series 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 Series' return.

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

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

OTHER INVESTMENTS

In addition to the principal investments, we may also make the following
investments to try to increase the Series' returns or protect its assets if
market conditions warrant.

The Series may use REPURCHASE AGREEMENTS where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. A repurchase agreement is like a loan by the Series to the other party
that creates a fixed return for the Series that creates a fixed return for the
Series.

The Series may use REVERSE REPURCHASE AGREEMENTS, where the Series borrows
money on a temporary basis by selling a security with an obligation to
repurchase it at an agreed-upon price and time.

The Series may enter into DOLLAR ROLLS in which the Series sells securities
to be delivered in the current month and repurchases substantially similar (same
type and coupon) securities to be delivered on a specified future date

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

<PAGE>

HOW THE SERIES INVESTS
- --------------------------------------------------------------------------------

by the same party. The Series is paid the difference between the current sales
price and the forward price for the future purchase as well as the interest
earned on the cash proceeds of the initial sale.

For TEMPORARY DEFENSIVE PURPOSES, the Series may invest up to 100% of its
assets in cash, U.S. Government securities and high quality money market
instruments. Investing heavily in these securities limits our ability to achieve
a high level of income, but may help to preserve the Series' assets.

DERIVATIVE STRATEGIES

The Series may use various derivative strategies to try to improve the Series'
returns or protect its assets. We cannot guarantee that these strategies will
work, that the instruments necessary to implement these strategies will be
available or that the Series will not lose money. Derivatives--such as FUTURES
CONTRACTS, OPTIONS AND OPTIONS ON FUTUREs--involve costs and can be volatile. 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. An option is the right to buy or sell securities,
or in the case of an option on a futures contract, the right to buy or sell a
futures contract in exchange for a premium. With derivatives, the investment
adviser tries to predict if the underlying investment--whether a security,
market index, currency, interest rate or some other benchmark-- 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 Series' overall investment objective. Any
derivatives we may use may not match the Series' underlying holdings.

For more information about these strategies, see the SAI, "Description of
the Trust, Its Investments and Risks--Hedging and Return Enhancement
Strategies."

ADDITIONAL STRATEGIES

We may use a number of investment strategies to try to improve the Series'
returns or to protect its assets.

The Series may purchase money market obligations on a WHEN-ISSUED or
DELAYED-DELIVERY basis. When the Series 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 Series does not earn
interest income until the date the obligations are delivered.

- --------------------------------------------------------------------------------
8 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

HOW THE SERIES INVESTS
- --------------------------------------------------------------------------------

The Series may enter into INTEREST-RATE SWAP TRANSACTIONS. In a swap
transaction the Series 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
Series anticipates purchasing at a later date.

The Series may purchase FLOATING RATE and VARIABLE RATE securities. These
securities pay interest at rates that change periodically to reflect changes in
market interest rates. Because these securities adjust the interest they pay,
they may be beneficial when interest rates are rising because of the additional
return the Series will receive, and they may be detrimental when interest rates
are falling because of the reduction in interest payments to the Series.

The Series may also purchase U.S. dollar-denominated FOREIGN DEBT
SECURITIES, which include securities that are issued by foreign governments and
corporations. Foreign government debt securities include securities issued by
quasi-governmental entities, governmental agencies and supranational entities.

The Series may make SHORT SALES, where we sell a security we have borrowed
because we expect the value of the security to drop, at which point we purchase
the security at the lower market price and return it to the lender. The Series'
use of short sales is subject to certain fundamental restrictions described in
the SAI.

The Series 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, for the clearance of
transactions or for investment purposes. Borrowing for investment purposes is
generally known as LEVERAGING. Leveraging is a speculative technique that
exaggerates the effect of any increase or decrease in the market value of the
Series' portfolio.

The Series follows certain policies when it LENDS ITS SECURITIES to others
(the Series can lend up to 30% of the value of its total assets); and HOLDS
ILLIQUID SECURITIES (the Series may hold up to 15% of its net assets in
securities, including securities with legal or contractual restrictions, those
without a readily available market and repurchase agreements with maturities
longer than seven days). The Series 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.

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

<PAGE>

HOW THE SERIES INVESTS
- --------------------------------------------------------------------------------

INVESTMENT RISKS

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

INVESTMENT TYPE
% OF SERIES' TOTAL ASSETS

U.S. GOVERNMENT
SECURITIES

AT LEAST 65%

RISKS

o Credit risk--the risk that default of an issuer would leave the Series with
unpaid interest or principal (relatively low for U.S. Government securities)

o Market risk--the risk that the market value of an investment may move up or
down, sometimes rapidly or unpredictably. Market risk may affect an industry,
a sector or the market as a whole

o Not all U.S. Government securities are insured or guaranteed by the
government--some are backed by the issuing agency

POTENTIAL REWARDS

o Regular interest income

o Generally more secure than lower-quality debt securities and stock and other
equity securities

- --------------------------------------------------------------------------------
MORTGAGE-RELATED
SECURITIES

PERCENTAGE VARIES

RISKS
o Prepayment risk -- the risk that the underlying mortgage may be prepaid
partially or completely, generally during periods of falling interest rates,
which could adversely affect yield to maturity and could require the Series
to reinvest in lower-yielding securities

POTENTIAL REWARDS

o Regular interest income

o The U.S. Government guarantees interest and principal payments on certain
securities

o May benefit from security interest in real estate collateral

o Pass-through instruments provide greater diversification than direct
ownership of loans

- --------------------------------------------------------------------------------
10 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

HOW THE SERIES INVESTS
- --------------------------------------------------------------------------------

INVESTMENT TYPE

% OF SERIES' TOTAL ASSETS

- --------------------------------------------------------------------------------
MORTGAGE-RELATED
SECURITIES (CONT'D)

RISKS
o Credit risk--the risk that the underlying mortgages will not
be paid by debtors or by credit insurers or guarantors of such instruments.
Some private mortgage securities are unsecured or secured by lower-rated
insurers or guarantors and thus may involve greater risk

o Market risk

- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES
(PRIVATELY-ISSUED)

PERCENTAGE VARIES

RISKS

o Prepayment risk

o The security interest in the underlying collateral may not be as great as
with mortgage-related securities

o Credit risk--the risk that the underlying receivables will not
be paid by debtors or by credit insurers or guarantors of such instruments.
Some asset-backed securities are unsecured or secured by lower-rated
insurers or guarantors and thus may involve greater risk

o Market risk

POTENTIAL REWARDS

o Regular interest income

o Prepayment risk is generally lower than with mortgage-related securities

o Pass-through instruments provide greater diversification than direct
ownership of loans

- --------------------------------------------------------------------------------
CORPORATE
DEBT OBLIGATIONS

UP TO 35% UNDER
NORMAL CONDITION

RISKS
o Credit risk

o Market riskS

POTENTIAL REWARDS

o Regular interest income

o Generally more secure than stock and other equity securities

- --------------------------------------------------------------------------------
DERIVATIVES

PERCENTAGE VARIES

RISKS

o Derivatives such as futures, and options may not fully offset
the underlying positions and this could result in losses to the Series that
would not have otherwise occurred

POTENTIAL REWARDS

o The Series could make money and protect against losses if the
investment analysis proves correct

o Derivatives that involve leverage could generate substantial gains
at low cost

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

<PAGE>

HOW THE SERIES INVESTS
- --------------------------------------------------------------------------------

INVESTMENT TYPE (CONT'D)
% OF SERIES' TOTAL ASSETS

DERIVATIVES (CONT'D)

RISKS

o Derivatives used for risk management may not have the intended effects and
may result in losses or missed opportunities

o The other party to a derivatives contract could default

o Derivatives that involve leverage could magnify losses

o Certain types of derivatives involve costs to the Series which
can reduce returns

POTENTIAL REWARDS

o One way to manage the Series' risk/return balance is to lock in the value
of an investment ahead of time

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

INVESTMENT TYPE (CONT'D)
% OF SERIES' TOTAL ASSETS

WHEN-ISSUED AND
DELAYED-DELIVERY SECURITIES,
REVERSE REPURCHASE
AGREEMENTS AND
DOLLAR ROLLS AND
SHORT SALES

PERCENTAGE VARIES

RISKS

o Use of such instruments and strategies may magnify underlying investment
losses

o Investment costs may exceed potential underlying investment gains

POTENTIAL REWARDS

o Use of instruments may magnify underlying investment gains

- --------------------------------------------------------------------------------
INVESTMENT TYPE (CONT'D)
% OF SERIES' TOTAL ASSETS

ILLIQUID SECURITIES

UP TO 15% OF NET ASSETS

RISKS

o May be difficult to value precisely

o May be difficult to sell at the time and price desired

POTENTIAL REWARDS

o May offer a more attractive yield or potential for growth than
more widely traded securities

- --------------------------------------------------------------------------------
INVESTMENT TYPE (CONT'D)
% OF SERIES' TOTAL ASSETS

MONEY MARKET
INSTRUMENTS

UP TO 100% ON A
TEMPORARY BASIS

RISKS
o Credit risk
o Market risk

o Limited potential for capital appreciation

POTENTIAL REWARDS
o May preserve the Series' assets

- --------------------------------------------------------------------------------
12 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

HOW THE SERIES IS MANAGED

BOARD OF TRUSTEES

The Board of Trustees oversees the actions of the Manager, Investment Adviser
and Distributor and decides on general policies. The Board also oversees the
Series' officers who conduct and supervise the daily business operation of the
Series.

MANAGER

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

Under a management agreement with Government Securities Trust (the Trust),
PIFM manages the Series' investment operations and administers its business
affairs. For the fiscal year ended November 30, 1998, the Series paid PIFM
management fees of .40% of the Series' average net assets.

As of January 31, 1999, PIFM served as the Manager to all 46 of the
Prudential mutual funds, and as Manager or administrator to 22 closed-end
investment compTnies, with aggregate assets of approximately $71.7 billion.

INVESTMENT ADVISER

The Prudential Investment Corporation, called Prudential Investments, is the
Series' investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.

PORTFOLIO MANAGER

Prudential Investments' fixed-income group is organized by teams that specialize
by sector. The Fixed Income Investment Policy Committee, which is comprised of
senior investment staff from each sector team, provides guidance to the teams
regarding duration risk, asset allocations and general risk parameters.
Portfolio managers BARBARA KENWORTHY and ROBERT N. FELICE contribute bottom-up
securities selection within those guidelines and is responsible for the
day-to-day management of the Fund.

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

<PAGE>

HOW THE SERIES IS MANAGED

Barbara Kenworthy, a Managing Director of Prudential Investments, has managed
the Series since May 1995. Before joining Prudential in 1994, she served as
president and portfolio manager for several Dreyfus fixed-income funds. She
earned a B.A. from WilsonCollege and an M.B.A. from New York University. Barbara
has over 30 years of investment experience and is a member of the Treasury
Borrowing Advisory Committee of the Public Securities Association.

Robert Felice, a Vice President of Prudential Investments, has co-managed the
Series since September 1998. Prior to this appointment, he spent 10 years as
lead portfolio manager of many of Prudential's money market funds. He earned a
B.S. from Villanova and an M.B.A. from New YorkUniversity. He was awarded the
Chartered Financial Analyst (CFA) designation.

Rob will be responsible for the day-to-day management of the Series'
portfolio under the supervision of Barbara who remains responsible for its
overall portfolio strategy. Barbara conducts extensive analysis of U.S. and
overseas markets to identify trends in interest rates, supply and demand and
economic growth while. Rob will then select the sectors, maturities and
individual bonds be believes provide the best value under these conditions.

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS) distributes the Series'
shares under a Distribution Agreement with the Series. The Series has a
Distribution and Service Plan under Rule 12b-1 of the Investment Company Act for
Class A shares. Under the Plan and Distribution Agreement, PIMS pays the
expenses of distributing the Series' Class A and Class Z shares and provides
certain shareholder support services. The Fund pays distribution and other fees
to PIMS as compensation for its services for Class A shares, but not for Class Z
shares. These fees--known as 12b-1 fees--are shown in the "Fees and Expenses"
tables.

YEAR 2000 READINESS DISCLOSURE

The services provided to the Series and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities

- --------------------------------------------------------------------------------
14 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

HOW THE SERIES IS MANAGED

trades, payments of interest and dividends, pricing and account services.
Although, at this time, there can be no assurance that there will be no adverse
impact on the Series, the Manager, the Distributor, the Transfer Agent and the
Custodian have advised the Series that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000. The
Series and its Trustees receive and have received since early 1998, satisfactory
quarterly reports from the principal service providers as to their preparations
for year 2000 readiness, although there can be no assurance that the service
providers (or other securities market participants) will successfully complete
the necessary changes in a timely manner or that there will be no adverse impact
on the Series. Moreover, the Series at this time has not considered retaining
alternative service providers or directly undertaken efforts to achieve year
2000 readiness, the latter of which would involve substantial expenses without
an assurance of success. Additionally, issuers of securities generally as well
as those purchased by the Series may confront year 2000 compliance issues which,
if material and not resolved, could have an adverse impact on securities markets
and/or a specific issuer's performance and could result in a decline in the
value of the securities held by the Series.

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

<PAGE>

SERIES DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------

Investors who buy shares of the Series should be aware of some important income
tax issues. For example, the Series distributes DIVIDENDS 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 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 Series pays DIVIDENDS out of any net investment income plus short-term
capital gains, to shareholders every month. For example, if the Series owns a
U.S. Government bond and the bond pays interest, the Series will pay out a
portion of this interest as a dividend to its shareholders, assuming the Series'
income is more than its costs and expenses. The dividends you receive from the
Series will be taxed as ORDINARY INCOME, whether or not they are reinvested in
the Series.

The Series also distributes LONG-TERM capital gains to shareholders--
typically once a year--which are generated when the Series 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, dividends and distributions of capital gains are
AUTOMATICALLY REINVESTED in the Series. If you ask us to pay the distributions
in cash, we will send you a check instead of purchasing more shares of the
Series. Otherwise, if your account is with a broker, you will receive a credit
to your account. Either way, the distributions are subject to taxes, unless your
shares are held in a qualified 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.

As of November 30, 1998, the Series had a capital loss carryforward for
federal income tax purposes of approximately $33,882,000. Accordingly, no
capital gains distribution is expected to be paid to shareholders until we have
realized net gains greater than that carryforward.

- --------------------------------------------------------------------------------
16 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

SERIES DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------

TAX ISSUES
FORM 1099

During the tax season every year, you will receive a Form 1099, which reports
the amount of dividends and capital gains we distributed to you during the prior
year. If you own shares of the Series as part of a qualified 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 tax-deferred plan or account.

Series distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in December of a calendar
year, 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 Series with your tax identification
number and certifications as to your tax status and you fail to do this, we will
withhold and pay to the U.S. Treasury 31% of your distributions. If you are
subject to backup withholding, we will withhold and pay to the U.S. Treasury 31%
of your distributions. 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.

QUALIFIED 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.

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

<PAGE>

SERIES DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------

IF YOU SELL OR EXCHANGE YOUR SHARES

If you sell any shares of the Series for a profit, you have realized a capital
gain, which is subject to tax, unless you hold shares in a qualified
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 Series 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
FROM OR
SALE
CAPITAL LOSS
(offset against gain)

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

Exchanging your shares of the Series 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 Series shares will
not be be reported on the 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 tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell -- or exchange -- Series
shares, as well as the amount of any gain or loss on each transaction. For tax
advice, please see your tax adviser.

- --------------------------------------------------------------------------------
18 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

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 Series 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

STEP 2: CHOOSE A SHARE CLASS

Individual investors can choose between Class A and Class Z shares of the
Series, although Class Z shares are available only to a limited group of
investors.

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

o The amount of your investment
o Whether you qualify to purchase Class Z shares.

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

<PAGE>

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

SHARE CLASS COMPARISON. Use this chart to help you compare the Series' two 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 Z

Minimum purchase amount1 $1,000 None
Minimum amount for subsequent purchases1 $ 100 None
Maximum initial sales charge None None
Contingent Deferred Sales Charge (CDSC) None None
Annual distribution and service (12b-1) fees
(shown as a percentage of average net assets)2 (.25 of 1%) None

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 "ADDITIONAL SHAREHOLDER
SERVICES--AUTOMATIC INVESTMENT PLAN."

2 THESE DISTRIBUTION FEES ARE PAID FROM THE SERIES' 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. THE SERVICE FEE FOR
CLASS A SHARES IS .25 OF 1%. THE DISTRIBUTION FEE FOR CLASS A SHARES IS
LIMITED TO .30 OF 1% (INCLUDING THE .25 OF 1% SERVICE FEE).

QUALIFYING FOR CLASS Z SHARES

Class Z shares of the Series can be purchased by any of the following:

o Pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code and deferred compensation and
annuity plans under Sections 457 and 403(b)(7) of the Internal Revenue
Code--which we call Benefit Plans--and certain nonqualified plans,
provided the Benefit Plan--in combination with other plans sponsored by
the same employer or group of related employers--has at least $50
million in defined contribution assets

o Participants in any fee-based programs or trust program sponsored by
Prudential or an affiliate which includes mutual funds as investment
options and the Fund as an available option

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 option

o Benefit Plans for which an affiliate of the Distributor provides
administrative or recording keeping services and, as of September 20,
1996 were either Class Z shareholders of the Prudential mutual funds or
executed a letter of intent to purchase Class Z shares of the
Prudential mutual funds

- --------------------------------------------------------------------------------
20 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

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

o Employees of Prudential and/or Prudential Securities who participate in
a Prudential-sponsored employee savings plan

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
finder's fee for Class Z shares from their own resources based on a percentage
of the net asset value of shares sold or otherwise.

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY

The price you pay for each share of the Series is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV per share--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 established by the Board of the Trust. Most national newspapers
report the NAVs of most mutual funds, which allows investors to know 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 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 is open for trading. We do
not determine the NAV on days when we have not received any orders to purchase
or sell shares of the Series or when changes in the value of the Series'
portfolio do not materially affect the NAV.

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

<PAGE>

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

STEP 4: ADDITIONAL SHAREHOLDER SERVICES

As a Series shareholder, you can take advantage of the following services and
privileges:

AUTOMATIC REINVESTMENT. As we explained in the Series Distributions and

Tax Issues section, the Series pays out--or distributes--its net investment
income and any capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Series at NAV without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, or notify your broker, or notify the Transfer
Agent in writing (at the address below) not less than five full business days
before the date we determine who receives dividends.

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

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

- --------------------------------------------------------------------------------
22 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

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 downturns--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks.

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 Series. To reduce Series 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 financial adviser
otherwise.

HOW TO SELL YOUR SHARES

You can sell your shares of the Series for cash (in the form of a check) at
any time, subject to certain restrictions.

When you sell shares of the Series--also known as redeeming 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. If your broker holds
your shares, he 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 sold 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

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

<PAGE>

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

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 shares 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 Series or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Series can't determine the
value of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Trust Shares--Sale of Shares."

If you are selling more than $50,000 of shares, if you want the check sent
to someone or some place that is not in our records or you are a business or a
trust, and you hold shares directly with the Transfer Agent, you will need to
have the signature on your sell order guaranteed by a financial institution. For
more information, see the SAI, "Purchase,Redemption and Pricing of Trust
Shares--Sale of Shares--Signature Guarantee."

REDEMPTION IN KIND

If the sales of Series shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Series' net assets, we can then give you
securities from the Series' 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 and close your account. We would do this to
minimize the Series' 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 tax-deferred plan or
account.

90-DAY REPURCHASE PRIVILEGE

After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Series

- --------------------------------------------------------------------------------
24 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

without paying an initial sales charge. In order to take advantage of this
privilege, you must notify the Transfer Agent or your broker at the time of the
repurchase. See the SAI, "Purchase, Redemption and Pricing of Trust Shares--Sale
of Shares."

RETIREMENT PLANS

To sell shares and receive a distribution from a 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 Series for shares of other series of the
Trust of the same class and 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 Series for Class A shares of
another Prudential mutual fund, on the basis of the relative NAV plus the
applicable sales charge, but you can't exchange Class A shares for Class B,
Class C or Class Z shares. We may change the terms of the exchange privilege
after giving you 60 days' notice.

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

Remember as we explained in the section entitled "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, "Purchase, Redemption and Pricing of Fund Shares--Exchange Privilege."

- --------------------------------------------------------------------------------
25

<PAGE>

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

- --------------------------------------------------------------------------------
26 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

FINANCIAL HIGHLIGHTS

Review this chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI. Additional
performance information is contained in the annual report, which you can receive
at no charge.

CLASS A SHARES

The financial highlights for the five-year period ended November 30, 1998 were
audited by PricewaterhouseCoopers LLP, independent accountants, whose report was
unqualified.

<TABLE>
<CAPTION>
CLASS A SHARES (FISCAL YEARS ENDED 11-30)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
NET ASSET VALUE, BEGINNING OF YEAR $9.74 $9.70 $9.74 $9.17 $10.06
INCOME FROM INVESTMENT OPERATIONS:

Net investment income .51 .56 .51 .56 .64
Net realized and unrealized gain (loss) on
investment transactions .06 -- (.01) .55 (.89)
TOTAL FROM INVESTMENT OPERATIONS .57 .56 .50 1.11 (.25)
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.54) (.52) (.54) (.54) (.52)
Tax return of capital distribution -- -- -- -- (.12)
TOTAL DISTRIBUTIONS (.54) (.52) (.54) (.54) (.64)
NET ASSET VALUE, END OF YEAR $9.77 $9.74 $9.70 $9.74 $9.17
TOTAL RETURN1 6.01% 5.96% 5.34% 12.37% (2.58)%
<CAPTION>
- ----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

NET ASSETS, END OF YEAR (000) $149,508 $149,162 $185,235 $212,996 $241,980
Average net assets (000) $155,680 $166,651 $186,567 $209,521 $307,382
RATIO TO AVERAGE NET ASSETS:

Expenses, including distribution fees .96% .97% 1.01% .95% .84%
Expenses, excluding distribution fees .78% .77% .79% .75% .63%
Net investment income 5.26% 5.76% 5.99% 5.82% 5.48%
Portfolio turnover rate 155% 210% 132% 217% 431%
</TABLE>

1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS. IT
IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE
LAST DAY OF EACH YEAR REPORTED.

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

<PAGE>

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

CLASS Z SHARES

The financial highlights for the fiscal year period ended November 30,
1998, and for the period from February 26, 1997 through November 30, 1997, were
audited by PricewaterhouseCoopers LLP, independent accountants, whose report was
unqualified.

CLASS Z SHARES (FISCAL YEAR ENDED 11-30)
- ---------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 19971
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.77 $9.64
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .47 0.47
Net realized and unrealized gain (loss) on investment transactions .130.07
TOTAL FROM INVESTMENT OPERATIONS .60 .54
- ---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (.56) (.41)
TOTAL DISTRIBUTIONS (.56) (.41)
NET ASSET VALUE, END OF PERIOD $9.81 $9.77
TOTAL RETURN2 6.31% 5.70%

- ---------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1998 19971
- ---------------------------------------------------------------------------------------

NET ASSETS, END OF PERIOD (000) $4,635 $2074
Average net assets (000) $3,631 $2024
RATIO OF AVERAGE NET ASSETS:

Expenses .78% .77%3
Net investment income 5.36% 6.52%3
Portfolio turnover rate 155% 210%
- ---------------------------------------------------------------------------------------
</TABLE>

1 INFORMATION SHOWN IS FOR THE PERIOD FROM FEBRUARY 26, 1997 (WHEN CLASS Z
SHARES WERE FIRST OFFERED) THROUGH NOVEMBER 30, 1997.

2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS.
IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD
ON THE LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS
THAN A FULL YEAR IS NOT ANNUALIZED.

3 ANNUALIZED.

4 FIGURE IS ACTUAL AND NOT ROUNDED TO NEAREST THOUSAND.

- --------------------------------------------------------------------------------
28 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

[This page has been left blank intentionally]

- --------------------------------------------------------------------------------
29
<PAGE>

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

STOCK FUNDS

PRUDENTIAL DISTRESSED SECURITIES
FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT
PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH
& INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM
FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE
FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH
EQUITY FUND

ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCEDFUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTHFUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT
PORTFOLIOS,INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCKFUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS
EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES
FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BONDFUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY
FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL
INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND
FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.

- --------------------------------------------------------------------------------
30 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

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

BOND FUNDS
TAXABLE BOND FUNDS

PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME
FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN
FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY
FUND, INC.
INCOME PORTFOLIO

TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS
FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET
FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES

COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

- --------------------------------------------------------------------------------
31

<PAGE>

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- --------------------------------------------------------------------------------
32 SHORT-INTERMEDIATE TERM SERIES [GRAPHIC OMITTED] (800) 225-1852

<PAGE>

[This page has been left blank intentionally.]

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

<PAGE>

FOR MORE INFORMATION:
- --------------------------------------------------------------------------------

Please read this prospectus before
you invest in the Series 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) 417-7555
(if 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 Web Site 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

SEMI-ANNUAL REPORT

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

By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy
documents.)

In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call
1(800) SEC-0330)

Via the Internet:
http://www.sec.gov

- -------------------------------------------------------------------
CUSIP Numbers:
Class A: 744342-10-6
Class Z: 744342-60-1

Investment Company Act File No:
811-3264

MF111A E Printed on Recycled Paper

<PAGE>

PRUDENTIAL GOVERNMENT SECURITIES TRUST

Statement of Additional Information
dated March 29, 1999

Prudential Government Securities Trust (the Trust) is offered in three
series: the U.S. Treasury Money Market Series, the Money Market Series and the
Short-Intermediate Term Series. Each series operates as a separate fund with its
own investment objectives and policies designed to meet its specific investment
goals. The investment objective of the U.S. Treasury Money Market Series is high
current income consistent with the preservation of principal and liquidity. The
investment objective of the Money Market Series is to obtain high current
income, preservation of capital and maintenance of liquidity. The investment
objective of the Short-Intermediate Term Series is to achieve a high level of
income consistent with providing reasonable safety. There can be no assurance
that any series' investment objective will be achieved. See "Description of the
Trust, Its Investments and Risks."

The Trust's address is Gateway Center Three, 100 Mulberry Street, Newark,
NJ 07102-4077, and its telephone number is (800) 225-1852.

This Statement of Additional Information sets forth information about each
of the series. This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Trust's U.S. Treasury Money Market Series
Prospectus, Money Market Series Prospectus or Short-Intermediate Term Series
Prospectus, each dated March 29, 1999, copies of which may be obtained from the
Trust upon request.

TABLE OF CONTENTS

PAGE

------
<S> <C>
Trust History ................................................ B-2
Description of the Trust, Its Investments and Risks .......... B-2
U.S. Treasury Money Market Series ............................ B-2
Money Market Series .......................................... B-2
Short-Intermediate Term Series ............................... B-4
Investment Restrictions ...................................... B-19
Management of the Trust ...................................... B-21
Control Persons and Principal Holders of Securities .......... B-25
Investment Advisory and Other Services ....................... B-26
Brokerage Allocation and Other Practices ..................... B-29
Capital Shares, Other Securities and Organization ............ B-29
Purchase, Redemption and Pricing of Trust Shares ............. B-29
Shareholder Investment Account ............................... B-32
Net Asset Value .............................................. B-35
Taxes, Dividends and Distributions ........................... B-35
Performance Information ...................................... B-37
Money Market Series and U.S. Treasury
Money Market Series-Calculation of Yield ................. B-37
Short-Intermediate Term Series-Calculation
of Yield and Total Return ................................ B-37
Financial Statements ......................................... B-39
Report of Independent Accountants ............................ B-54
Appendix I-General Investment Information .................... I-1
Appendix II-Historical Performance Data ...................... II-1
Appendix III-Information Relating to The Prudential .......... III-1
</TABLE>

================================================================================
MF111B

B-1

<PAGE>

TRUST HISTORY

The Trust was organized under the laws of Massachusetts on July 1, 1982 as
an unincorporated business trust, a form of organization that is commonly known
as a Massachusetts business trust.

DESCRIPTION OF THE TRUST, ITS INVESTMENTS AND RISKS

(a) CLASSIFICATION. The Trust is a diversified open-end, management
investment company whose shares of beneficial interest are presently offered in
three series.

(b) and (c) INVESTMENT STRATEGIES, POLICIES AND RISKS. Each Series operates
as a separate fund with its own investment objectives and policies designed to
meet its specific investment goals. The investment objective of the U.S.
Treasury Money Market Series is high current income consistent with the
preservation of principal and liquidity. The investment objectives of the Money
Market Series are to obtain high current income, preservation of capital and
maintenance of liquidity. The investment objective of the Short-Intermediate
Term Series is to achieve a high level of income consistent with providing
reasonable safety. The Series may not be successful in achieving their
objectives and you could lose money.

U.S. TREASURY MONEY MARKET SERIES

The U.S. Treasury Money Market Series seeks to achieve its objective by
investing in U.S. Treasury securities, including bills, notes and bonds. These
instruments are direct obligations of the U.S. Government and, as such, are
backed by the full faith and credit of the United States. They differ primarily
in their interest rates and the lengths of their maturities.

The U.S. Treasury Money Market Series may also invest in component parts of
U.S. Treasury notes or bonds, namely, either the corpus (principal) of such
Treasury obligations or one of the interest payments scheduled to be paid on
such obligations. These obligations may take the form of (1) Treasury
obligations from which the interest coupons have been stripped, (2) the interest
coupons that are stripped, or (3) book-entries at a Federal Reserve member bank
representing ownership of Treasury obligation components.

The U.S. Treasury Money Market Series does not engage in repurchase
agreements or lend its portfolio securities because the income from such
activities is generally not exempt from state and local income taxes, but may
purchase or sell securities on a when-issued or delayed delivery basis. See
"When-Issued and Delayed Delivery Securities" below.

MONEY MARKET SERIES

The Money Market Series seeks to achieve its objectives by investing in
United States Government securities that mature within thirteen months from date
of purchase, including a variety of securities which are issued or guaranteed by
the United States Treasury, by various agencies of the United States Government
or by various instrumentalities which have been established or sponsored by the
United States Government. These obligations, including those which are
guaranteed by Federal agencies or instrumentalities, may or may not be backed by
the full faith and credit of the United States. Obligations of the Government
National Mortgage Association (GNMA), the Farmers Home Administration and the
Small Business Administration are backed by the full faith and credit of the
United States. In the case of securities not backed by the full faith and credit
of the United States, the Trust must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Money
Market Series may invest which are not backed by the full faith and credit of
the United States include, but are not limited to, obligations of the Tennessee
Valley Authority, the Federal National Mortgage Association (FNMA) and the
United States Postal Service, each of which has the right to borrow from the
United States Treasury to meet its obligations, and obligations of the Federal
Farm Credit System and the Federal Home Loan Banks, whose obligations may only
be satisfied by the individual credits of each issuing agency. Treasury
securities include Treasury bills, Treasury notes and Treasury bonds, all of
which are backed by the full faith and credit of the United States, as are
obligations of the Government National Mortgage Association, the Farmers Home
Administration and the Export-Import Bank. The Money Market Series will invest
at least 80% of its assets in such types of government securities.

MORTGAGE-BACKED SECURITIES. The Money Market Series may invest in
mortgage-backed securities, which are securities that directly or indirectly
represent a participation in, or are secured by and payable from, fixed or
adjustable rate mortgage loans secured by real property. There are currently
three basic types of mortgage-backed securities; (1) those issued or guaranteed
by the U.S. Government or one of its agencies or instrumentalities, such as
GNMA, FNMA and FHLMC, (2) those issued by private issuers that represent an
interest in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. Government or one of its agencies or instrumentalities;
and (3) those issued by private issuers that represent an interest in or are
collateralized by whole mortgage loans or mortgage-backed securities without a
U.S. Government guarantee but usually having some form of private credit
enhancement.

B-2

<PAGE>

Private mortgage pass-through securities are structured similarly to the
GNMA, FNMA and FHLMC mortgage pass-through securities and are issued by
originators of and investors in mortgage loans including depository
institutions, mortgage banks, investment banks and special purpose subsidiaries
of the foregoing. These securities usually are backed by a pool of conventional
fixed-rate or adjustable rate mortgage loans. Since private mortgage
pass-through securities typically are not guaranteed by an entity having the
credit status of GNMA, FNMA and FHLMC, such securities generally are structured
with one or more types of credit enhancement. For a more complete description of
the types of mortgage-backed securities in which the Money Market Series may
invest, see "Short-Intermediate Term Series-U.S. Government Securities" and
"-Mortgage-Backed and Asset-Backed Securities."

ASSET-BACKED SECURITIES. Through the use of trusts and special purpose
corporations, various types of assets, primarily home equity loans and
automobile and credit card receivables are being securitized in pass-through
structures similar to the mortgage-backed securities described above. The Money
Market Series may invest in these and other types of asset-backed securities
which may be developed in the future. The remaining maturity of an asset-backed
security will be deemed to be equal to the average maturity of the assets
underlying such security determined by the investment adviser on the basis of
assumed prepayment rates and other factors with respect to such assets. In
general, these types of loans are of shorter duration than mortgage loans and
are less likely to have substantial prepayments.

For a description of the risks of investing in mortgage-backed and
asset-backed securities, see "Short-Intermediate Term Series-Mortgage-Backed and
Asset-Backed Securities-Risk Factors Relating to Investing in Mortgage-Backed
and Asset-Backed Securities."

U.S. TREASURY SECURITIES. The Money Market Series may also invest in
component parts of U.S. Treasury notes or bonds, namely, either the corpus
(principal) of such Treasury obligations or one of the interest payments
scheduled to be paid on such obligations. These obligations may take the form of
(1) Treasury obligations from which the interest coupons have been stripped, (2)
the interest coupons that are stripped, (3) book-entries at a Federal Reserve
member bank representing ownership of Treasury obligation components, or (4)
receipts evidencing the component parts (corpus or coupons) of Treasury
obligations that have not actually been stripped. Such receipts evidence
ownership of component parts of Treasury obligations (corpus or coupons)
purchased by a third party (typically an investment banking firm) and held on
behalf of the third party in physical or book-entry form by a major commercial
bank or trust company pursuant to a custody agreement with the third party.
Treasury obligations, including those underlying such receipts, are backed by
the full faith and credit of the U.S. Government.

CERTIFICATES OF DEPOSIT. The Money Market Series may also invest in fully
insured certificates of deposit. The Federal Deposit Insurance Corporation and
the Federal Savings and Loan Insurance Corporation, which are agencies of the
United States Government, insure the deposits of insured banks and savings and
loan associations, respectively, up to $100,000 per depositor. Current federal
regulations also permit such institutions to issue insured negotiable
certificates of deposit (CDs) in amounts of $100,000 or more without regard to
the interest rate ceilings on other deposits. To remain fully insured as to
principal, such CDs must currently be limited to $100,000 per bank or savings
and loan association. Interest on such CDs is not insured. The Money Market
Series may invest in such CDs, limited to the insured amount of principal
($100,000) in each case and to 10% or less of the gross assets of the Money
Market Series in all such CDs in the aggregate. Such CDs may or may not have a
readily available market, and the investment of the Money Market Series in CDs
which do not have a readily available market is further limited by the
restriction on investment by the Money Market Series of not more than 10% of
assets in securities for which there is no readily available market. See
"Investment Restrictions."

The Money Market Series will attempt to balance its objectives of high
income, capital preservation and liquidity by investing in securities of varying
maturities and risks. As a result, the Money Market Series may not necessarily
invest in securities with the highest available yield. The Money Market Series
will not, however, invest in securities with remaining maturities of more than
thirteen months or maintain a dollar-weighted average maturity which exceeds 90
days. The amounts invested in obligations of various maturities of thirteen
months or less will depend on management's evaluation of the risks involved.
Longer-term issues, while frequently paying higher interest rates, are subject
to greater fluctuations in value resulting from general changes in interest
rates than are shorter-term issues. Thus, when rates on new securities increase,
the value of outstanding longer-term securities may decline and vice versa. Such
changes may also occur, but to a lesser degree, with short-term issues. These
changes, if realized, may cause fluctuations in the amount of daily dividends
and, in extreme cases, could cause the net asset value per share to decline. In
the event of unusually large redemption demands, securities may have to be sold
at a loss prior to maturity or the Money Market Series may have to borrow money
and incur interest expense. Either occurrence would adversely affect the amount
of daily dividends and could result in a decline in daily net asset value per
share or the reduction by the Money Market Series of the number of shares held
in a shareholder's account. The Money Market Series will attempt to minimize
these risks by investing in longer-term securities, subject to the foregoing
limitations, when it appears to management that yields on such securities are
not likely to increase substantially during the period of expected holding, and
then only in securities which are readily marketable. However, there can be no
assurance that the Money Market Series will be successful in achieving this
objective.

B-3

<PAGE>

LIQUIDITY PUTS. The Money Market Series may also purchase instruments of
the types described in this section together with the right to resell the
instruments at an agreed-upon price or yield within a specified period prior to
the maturity date of the instruments. Such a right to resell is commonly known
as a put, and the aggregate price which the Money Market Series pays for
instruments with puts may be higher than the price which otherwise would be paid
for the instruments. Consistent with the Money Market Series' investment
objective and applicable rules issued by the Securities and Exchange Commission
(SEC or Commission) and subject to the supervision of the Trustees, the purpose
of this practice is to permit the Money Market Series to be fully invested while
preserving the necessary liquidity to meet unusually large redemptions and to
purchase at a later date securities other than those subject to the put. The
Money Market Series may choose to exercise puts during periods in which proceeds
from sales of its shares and from recent sales of portfolio securities are
insufficient to meet redemption requests or when the funds available are
otherwise allocated for investment. In determining whether to exercise puts
prior to their expiration date and in selecting which puts to exercise in such
circumstances, the Money Market Series' investment adviser considers, among
other things, the amount of cash available to the Money Market Series, the
expiration dates of the available puts, any future commitments for securities
purchases, the yield, quality and maturity dates of the underlying securities,
alternative investment opportunities and the desirability of retaining the
underlying securities in the Money Market Series' portfolio.

Since the value of the put is dependent on the ability of the put writer to
meet its obligation to repurchase, the Money Market Series' policy is to enter
into put transactions only with such brokers, dealers or financial institutions
which present minimal credit risks. There is a credit risk associated with the
purchase of puts in that the broker, dealer or financial institution might
default on its obligation to repurchase an underlying security. In the event
such a default should occur, the Money Market Series is unable to predict
whether all or any portion of any loss sustained could subsequently be recovered
from the broker, dealer or financial institution.

The Money Market Series values instruments which are subject to puts at
amortized cost; no value is assigned to the put. The cost of the put, if any, is
carried as an unrealized loss from the time of purchase until it is exercised or
expires.

SHORT-INTERMEDIATE TERM SERIES

The Short-Intermediate Term Series' investment objective is to achieve a
high level of income consistent with providing reasonable safety. In seeking to
achieve its objective, the Series will under normal circumstances invest at
least 65% of its total assets in U.S. Government securities, including U.S.
Treasury Bills, Notes, Bonds and other debt securities issued by the U.S.
Treasury, and obligations issued, including mortgage-backed securities, asset
backed securities and other securities, or guaranteed by the U.S. Government,
its agencies or instrumentalities. The Series may also invest up to 35% of its
assets in fixed-rate and adjustable rate mortgage-backed securities,
asset-backed securities, corporate debt securities (among other privately issued
instruments), rated A or better by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc. or comparably rated by any other Nationally Recognized
Statistical Rating Organization (NRSRO) or, if unrated, determined to be of
comparable quality by the Series' investment adviser, and money market
instruments of a comparable short-term rating. The Series may also engage in
various strategies using derivatives, including the use of put and call options
on securities and financial indices, transactions involving futures contracts
and related options, short selling and use of leverage, including reverse
repurchase agreements and dollar rolls, which entail additional risks to the
Series.

The Short-Intermediate Term Series intends to vary the proportion of its
holdings of longer and shorter-term debt securities in order to reflect its
assessment of prospective changes in interest rates even if such action may
adversely affect current income. For example, if, in the opinion of the
Short-Intermediate Term Series' investment adviser, interest rates generally are
expected to decline, the Short-Intermediate Term Series may sell its
shorter-term securities and purchase longer-term securities in order to benefit
from greater than expected relative price appreciation; the securities sold may
have a higher current yield than those being purchased. The success of this
strategy will depend on the investment adviser's ability to forecast changes in
interest rates. Moreover, the Short-Intermediate Term Series intends to manage
its portfolio actively by taking advantage of trading opportunities such as
sales of portfolio securities and purchases of higher yielding securities of
similar quality due to distortions in normal yield differentials. In addition,
if, in the opinion of the investment adviser market conditions warrant, the
Short-Intermediate Term Series may purchase U.S. Government securities at a
discount or trade securities in response to fluctuations in interest rates to
provide for the prospect of modest capital appreciation at maturity.

U.S. GOVERNMENT SECURITIES

MORTGAGE-RELATED SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES AND INSTRUMENTALITIES. The Short-Intermediate Term Series may purchase
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including GNMA, FNMA and FHLMC certificates. See
"Mortgage-Backed and Asset-Backed Securities" below. Mortgages backing the
securities which may be purchased by the Short-Intermediate Term Series include
conventional thirty-year fixed rate mortgages, graduated payment mortgages,
fifteen-year mortgages, adjustable rate mortgages and balloon payment mortgages.
A balloon payment mortgage-backed security is an amortized mortgage security
with installments of principal and interest,

B-4

<PAGE>

the last installment of which is predominately principal. All of these mortgages
can be used to create pass-through securities. A pass-through security is formed
when mortgages are pooled together and undivided interests in the pool or pools
are sold. The cash flow from the mortgages is passed through to the holders of
the securities in the form of periodic payments of interest, principal and
prepayments (net of a service fee). Prepayments occur when the holder of an
undivided mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. The remaining expected average life of a pool of mortgage loans
underlying a mortgage-backed security is a prediction of when the mortgage loans
will be repaid and is based upon a variety of factors, such as the demographic
and geographic characteristics of the borrowers and the mortgaged properties,
the length of time that each of the mortgage loans has been outstanding, the
interest rates payable on the mortgage loans and the current interest rate
environment.

During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When
mortgage obligations are prepaid, the Short-Intermediate Term Series reinvests
the prepaid amounts in securities, the yields of which reflect interest rates
prevailing at that time. Therefore, the Short-Intermediate Term Series' ability
to maintain a portfolio of high-yielding mortgage-backed securities will be
adversely affected to the extent that prepayments of mortgages are reinvested in
securities which have lower yields than the prepaid mortgages. Moreover,
prepayments of mortgages which underlie securities purchased at a premium
generally will result in capital losses. During periods of rising interest
rates, the rate of prepayment of mortgages underlying mortgaged-backed
securities can be expected to decline, extending the projected average maturity
of the mortgage-backed securities. This maturity extension risk may effectively
change a security which was considered short- or intermediate-term at the time
of purchase into a long-term security. The value of long-term securities
generally fluctuate more widely in response to changes in interest rates than
short- or intermediate-term securities.

GNMA CERTIFICATES. GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the Housing Act), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
that are based on and backed by a pool of mortgage loans issued by the Federal
Housing Administration under the Housing Act, or Title V of the Housing Act of
1949 (FHA Loans), or guaranteed by the Veterans' Administration under the
Servicemen's Readjustment Act of 1944, as amended (VA Loans), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. Government is pledged to the payment of all amounts that may
be required to be paid under the guarantee. In order to meet its obligations
under such guarantee, GNMA is authorized to borrow from the U.S. Treasury with
no limitations as to amount.

The GNMA Certificates will represent a pro rata interest in one or more
pools of the following types of mortgage loans: (1) fixed rate level payment
mortgage loans; (2) fixed rate graduated payment mortgage loans; (3) fixed rate
growing equity mortgage loans; (4) fixed rate mortgage loans secured by
manufactured (mobile) homes; (5) mortgage loans on multifamily residential
properties under construction; (6) mortgage loans on completed multifamily
projects; (7) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (8) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (9) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one to
four-family housing units.

FNMA CERTIFICATES. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA provides funds to the mortgage market primarily by
purchasing home mortgage loans from local lenders, thereby replenishing their
funds for additional lending. FNMA acquires funds to purchase home mortgage
loans from many capital market investors that may not ordinarily invest in
mortgage loans directly.

Each FNMA Certificate will entitle the registered holder thereof to receive
amounts, representing such holder's pro rata interest in scheduled principal
payments and interest payments (at such FNMA Certificate's pass-through rate,
which is net of any servicing and guarantee fees on the underlying mortgage
loans), and any principal prepayments on the mortgage loans in the pool
represented by such FNMA Certificate and such holder's proportionate interest in
the full principal amount of any foreclosed or otherwise finally liquidated
mortgage loan. The full and timely payment of principal and interest on each
FNMA Certificate will be guaranteed by FNMA, which guarantee is not backed by
the full faith and credit of the U.S. Government.

Each FNMA Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (that is, mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (1) fixed rate level payment mortgage loans; (2) fixed rate
growing equity mortgage loans; (3) fixed rate graduated payment mortgage loans;
(4) variable rate California mortgage loans; (5) other adjustable rate mortgage
loans; and (6) fixed rate mortgage loans secured by multifamily projects.

FHLMC CERTIFICATES. FHLMC is a corporate instrumentality of the United
States created pursuant to the Emergency Home Finance Act of 1970, as amended
(the FHLMC Act). The principal activity of FHLMC consists of the purchase of
first lien,

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conventional, residential mortgage loans and participation interests in such
mortgage loans and the resale of the mortgage loans so purchased in the form of
mortgage securities, primarily FHLMC Certificates.

FHLMC guarantees to each registered holder of the FHLMC Certificate the
timely payment of interest at the rate provided for by such FHLMC Certificate,
whether or not received. FHLMC also guarantees to each registered holder of a
FHLMC Certificate ultimate collection of all principal on the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. FHLMC may remit the amount due on account
of its guarantee of collection of principal at any time after default on an
underlying mortgage loan, but not later than 30 days following (1) foreclosure
sale, (2) payment of a claim by any mortgage insurer or (3) the expiration of
any right of redemption, whichever occurs later, but in any event no later than
one year after demand has been made upon the mortgagor for accelerated payment
of principal. The obligations of FHLMC under its guarantee are obligations
solely of FHLMC and are not backed by the full faith and credit of the U.S.
Government.

FHLMC Certificates represent a pro rata interest in a group of mortgage
loans (a FHLMC Certificate group) purchased by FHLMC. The mortgage loans
underlying the FHLMC Certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one to four-family
residential properties or multifamily projects. Each mortgage loan must meet the
applicable standards set forth in the FHLMC Act. An FHLMC Certificate group may
include whole loans, participation interests in whole loans and undivided
interests in whole loans and participations comprising another FHLMC Certificate
group.

STRIPS. The Short-Intermediate Term Series may invest in component parts of
U.S. Government Securities, namely, either the corpus (principal) of such
obligations or one of the interest payments scheduled to be paid on such
obligations. These obligations may take the form of (1) obligations from which
the interest coupons have been stripped, (2) the interest coupons that are
stripped, (3) book entries at a Federal Reserve member bank representing
ownership of obligation components or (4) receipts evidencing the component
parts (corpus or coupons) of U.S. Government obligations that have not actually
been stripped. Such receipts evidence ownership of component parts of U.S.
Government obligations (corpus or coupons) purchased by a third party (typically
an investment banking firm) and held on behalf of the third party in physical or
book-entry form by a major commercial bank or trust company pursuant to a
custody agreement with the third party. U.S. Government obligations, including
those underlying such receipts, are backed by the full faith and credit of the
U.S. Government.

The Series may also invest in mortgage pass-through securities where all
interest payments go to one class of holders (Interest Only Securities or IOs)
and all principal payments go to a second class of holders (Principal Only
Securities or POs). These securities are commonly referred to as mortgage-backed
securities strips or MBS strips.

The yields to maturity on IOs are very sensitive to the rate of principal
payments (including prepayments) on the related underlying assets, and a rapid
rate of principal payments may have a material adverse effect on the yield to
maturity. If the underlying assets experience greater than anticipated
prepayments of principal, the Series may not fully recoup its initial investment
in these securities. Conversely, if the underlying assets experience less than
anticipated prepayments of principal, the yield on POs could be materially
adversely affected.

SPECIAL CONSIDERATIONS. Fixed income U.S. Government securities are
considered among the most creditworthy of fixed income investments. The yields
available from U.S. Government securities are generally lower than the yields
available from corporate debt securities. The values of U.S. Government
securities will change as interest rates fluctuate. To the extent U.S.
Government securities are not adjustable rate securities, these changes in value
in response to changes in interest rates generally will be more pronounced.
During periods of falling interest rates, the values of outstanding long-term
fixed rate U.S. Government securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline. The
magnitude of these fluctuations will generally be greater for securities with
longer maturities. Although changes in the value of U.S. Government securities
will not affect investment income from those securities, they may affect the net
asset value of the Short-Intermediate Term Series.

At a time when the Short-Intermediate Term Series has written call options
on a portion of its U.S. Government securities, its ability to profit from
declining interest rates will be limited. Any appreciation in the value of the
securities held in the portfolio above the strike price would likely be
partially or wholly offset by unrealized losses on call options written by the
Short-Intermediate Term Series. The termination of option positions under these
conditions would generally result in the realization of capital losses, which
would reduce the Short-Intermediate Term Series' capital gains distribution.
Accordingly, the Short-Intermediate Term Series would generally seek to realize
capital gains to offset realized losses by selling portfolio securities. In such
circumstances, however, it is likely that the proceeds of such sales would be
reinvested in lower yielding securities.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES

Mortgage-backed securities are securities that directly or indirectly
represent a participation in, or are secured by and payable from, fixed or
adjustable rate mortgage loans secured by real property. There are currently
three basic types of mortgage-backed

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securities: (1) those issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities, such as GNMA, FNMA and FHLMC, described under
"U.S. Government Securities" above; (2) those issued by private issuers that
represent an interest in or are collateralized by mortgage-backed securities
issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities; and (3) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or mortgage-backed
securities without a U.S. Government guarantee but usually having some form of
private credit enhancement.

Private mortgage pass-through securities are structured similarly to the
GNMA, FNMA and FHLMC mortgage pass-through securities and are issued by
originators of and investors in mortgage loans, including depository
institutions, mortgage banks, investment banks and special purpose subsidiaries
of the foregoing. These securities usually are backed by a pool of conventional
fixed-rate or adjustable rate mortgage loans. Since private mortgage
pass-through securities typically are not guaranteed by an entity having the
credit status of GNMA, FNMA and FHLMC, such securities generally are structured
with one or more types of credit enhancement. See "Types of Credit Enhancement"
below.

ADJUSTABLE RATE MORTGAGE SECURITIES. The Short-Intermediate Term Series may
invest in adjustable rate mortgage securities (ARMs), which are pass-through
mortgage securities collateralized by mortgages with adjustable rather than
fixed rates. Generally, ARMs have a specified maturity date and amortize
principal over their life. ARMs eligible for inclusion in a mortgage pool
generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve, thirteen, thirty-six or sixty scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes to a designated benchmark index.

ARMS contain maximum and minimum rates beyond which the mortgage interest
rate m ay not vary over the lifetime of the security. In addition, certain ARMs
provide for limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Alternatively, certain ARMs
contain limitations on changes in the required monthly payment. In the event
that a monthly payment is not sufficient to pay the interest accruing on an ARM,
any such excess interest is added to the principal balance of the mortgage loan,
which is repaid through future monthly payments. If the monthly payment for such
an instrument exceeds the sum of the interest accrued at the applicable mortgage
interest rate and the principal payment required at such point to amortize the
outstanding principal balance over the remaining term of the loan, the excess is
utilized to reduce the then outstanding principal balance of the ARM.

In periods of declining interest rates, there is a reasonable likelihood
that ARMs will experience increased rates of prepayment of principal. However,
the major difference between ARMs and fixed rate mortgage securities is that the
interest rate and the rate of amortization of principal of ARMs can and do
change in accordance with movements in a particular, pre-specified, published
interest rate index.

The amount of interest on an ARM is calculated by adding a specified
amount, the "margin," to the index, subject to limitations on the maximum and
minimum interest that can be charged to the mortgagor during the life of the
mortgage or to maximum and minimum changes to that interest rate during a given
period. Because the interest rate on ARMs generally moves in the same direction
as market interest rates, the market value of ARMs tends to be more stable than
that of long-term fixed rate securities.

There are two main categories of indices which serve as benchmarks for
periodic adjustments to coupon rates on ARMs; those based on U.S. Treasury
securities and those derived from a calculated measure such as a cost of funds
index or a moving average of mortgage rates. Commonly utilized indices include
the one-year and five-year constant maturity Treasury Note rates, the
three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or commercial
paper rates. Some indices, such as the one-year constant maturity Treasury Note
rate, closely mirror changes in market interest rate levels. Others, such as the
11th District Home Loan Bank Cost of Funds index (often related to ARMs issued
by FNMA), tend to lag changes in market rate levels and tend to be somewhat less
volatile.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) AND REAL ESTATE MORTGAGE
INVESTMENT CONDUITS (REMICS). A CMO is a debt security that is backed by a
portfolio of mortgages or mortgage-backed securities. The issuer's obligation to
make interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. Typically, CMOs are collateralized by
GNMA, FNMA or FHLMC certificates, but also may be collateralized by whole loans
or private mortgage pass-through securities (such collateral is collectively
referred to as Mortgage Assets). Multi-class pass-through securities are equity
interests in a trust composed of Mortgage Assets. Payments of principal and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multi-class pass-through securities. CMOs may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in, mortgage loans, including depository institutions, mortgage banks,
investment banks and special purpose subsidiaries of the foregoing. The issuer
of a series of CMOs may elect to be treated as REMIC. All future references to
CMOs include REMICs.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a tranche, is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on

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the Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates. Interest is paid or accrues
on all classes of the CMOs on a monthly, quarterly or semi-annual basis. The
principal and interest on the Mortgage Assets may be allocated among the several
classes of a CMO to the various classes is to obtain a more predictable cash
flow to the individual tranches than exists with the underlying collateral of
the CMO. As a general rule, the more predictable the cash flow is on a CMO
tranche, the lower the anticipated yield will be on that tranche at the time of
issuance relative to prevailing market yields on mortgage-backed securities.

The Short-Intermediate Term Series also may invest in, among other things,
parallel pay CMOs and Planned Amortization Class CMOs (PAC Bonds). Parallel pay
CMOs are structured to provide payments of principal on each payment date to
more than one class. These simultaneous payments are taken into account in
calculating the stated maturity date of final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier. PAC Bonds generally
require payments of a specified amount of principal on each payment date.PAC
Bonds always are parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.

Certain issuers of CMOs, including certain CMOs that have elected to be
treated as REMICs, are not considered investment companies pursuant to a rule
recently adopted by the SEC, and the Short-Intermediate Term Series may invest
in the securities of such issuers without the limitations imposed by the
Investment Company Act on investments by the Short-Intermediate Term Series in
other investment companies. In addition, in reliance on an earlier SEC
interpretation, the Short-Intermediate Term Series' investments in certain other
qualifying CMOs, which cannot or do not rely on the rule, are also not subject
to the limitation of the Investment Company Act on acquiring interests in other
investment companies. In order to be able to rely on the SEC's interpretation,
these CMOs must be unmanaged, fixed asset issuers, that (a) invest primarily in
mortgage-backed securities, (b) do not issue redeemable securities, (c) operate
under general exemptive orders exempting them from all provisions of the
Investment Company Act and (d) are not registered or regulated under the
Investment Company Act as investment companies. To the extent that the Series
selects CMOs or REMICs that cannot rely on the rule or do not meet the above
requirements the Series may not invest more than 10% of its assets in all such
entities and may not acquire more than 3% of the voting securities of any single
such entity.

The underlying mortgages which collateralized the CMOs and REMICs in which
the Series invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down
(1) per reset or adjustment interval and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative amortization.

STRIPPED MORTGAGE-BACKED SECURITIES (PRIVATELY ISSUED). In addition to MBS
strips issued by agencies or instrumentalities of the U.S. Government, the
Series may purchase MBS strips issued by private originators of, or investors
in, mortgage loans, including depository institutions, mortgage banks,
investment banks and special purpose subsidiaries of the foregoing.

ASSET-BACKED SECURITIES. Through the use of trusts and special purpose
corporations, various types of assets, primarily home equity loans and
automobile and credit card receivables, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above or in
a pay-through structure similar to the collateralized mortgage structure. The
Series may invest in these and other types of asset-backed securities which may
be developed in the future. Asset-backed securities present certain risks that
are not presented by mortgage-backed securities. The remaining maturity of an
asset-backed security will be deemed to be equal to the average maturity of the
assets underlying such security determined by the investment adviser on the
basis of assumed prepayment rates and other factors with respect to such assets.
In general, these types of loans are of shorter duration than mortgage loans and
are less likely to have substantial prepayments.

TYPES OF CREDIT ENHANCEMENT. Mortgage-backed securities and asset-backed
securites are often backed by a pool of assets representing the obligations of a
number of different parties. To lessen the effect of failures by obligors on
underlying assets to make payments, those securities may contain elements of
credit support which fall into two categories: (i) liquidity protection and (ii)
protection against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provisions of advances,
generally by the entity administering the pool of assets, to seek to ensure that
the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from default seeks to ensure ultimate
payment of the obligations on at least a portion of the assets in the pool. This
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could aversely affect the return on an investment in a security. The
Series will not pay any additional fees for credit support, although the
existence of credit support may increase the price of security.

RISK FACTORS RELATING TO INVESTING IN MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES. Mortgage-backed securities, including those issued or guaranteed
privately or by the U.S. Government or one of its agencies or
instrumentalities, and

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asset-backed securities differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a
result, if the Series purchases such a security at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Alternatively, if the Series purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. The Series may invest a
portion of its assets in derivative mortgage-backed securities such as MBS
strips which are highly sensitive to changes in prepayment and interest rates.
The investment adviser will seek to manage these risks (and potential benefits)
by diversifying its investments in such securities and through hedging
techniques.

In addition, mortgage-backed securities which are secured by manufactured
(mobile) homes and multi-family residential properties, such as GNMA and FNMA
certificates, are subject to a higher risk of default than are other types of
mortgage-backed securities. See "U.S. Government Securities" above. The
investment adviser will seek to minimize this risk by investing in
mortgage-backed securities rated at least A by Moody's and S&P.

Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Series are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates. Asset-backed
securities, although less likely to experience the same prepayment rate as
mortgage-backed securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors may predominate.
Mortgage-backed securities and asset-backed securities generally decrease in
value as a result of increases in interest rates and usually have less potential
for capital appreciation during periods of declining interest rates than other
fixed-income securities with comparable maturities because of the risk of
prepayment. In addition, to the extent such mortgage securities are purchased at
a premium, mortgage foreclosures and unscheduled principal prepayments generally
will result in some loss of the holders' principal to the extent of the premium
paid. On the other hand, if such mortgage securities are purchased at a
discount, an unscheduled prepayment of principal will increase current and total
returns and accelerate the recognition of income which when distributed to
shareholders will be taxable as ordinary income.

During periods of rising interest rates, the rate of prepayment of
mortgages underlying mortgage-backed securities can be expected to decline,
extending the projected average maturity of the mortgage-backed securities. The
maturity extension risk may effectively change a security which was considered
short- or intermediate-term at the time of purchase into a long-term security.
Long-term securities generally fluctuate more widely in response to changes in
interest rates than short- or intermediate-term securities.

Asset-backed securities involve certain risks that are not posed by
mortgage-backed securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit card laws, some of which may reduce the ability to
obtain full payment. In the case of automobile receivables, due to various legal
and economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.

OTHER INVESTMENTS. Obligations issued or guaranteed as to principal and
interest by the United States Government may be acquired by the
Short-Intermediate Term Series in the form of custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
United States Treasury notes or bonds. Such notes and bonds are held in custody
by a bank on behalf of the owners. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investment Growth Receipts"
(TIGRs) and "Certificates of Accrual on Treasury Securities" (CATS). The
Short-Intermediate Term Series will not invest more than 5% of its assets in
such custodial receipts.

HEDGING AND RETURN ENHANCEMENT STRATEGIES

The Short-Intermediate Term Series may also engage in various portfolio
strategies, including utilizing derivatives, to reduce certain risks of its
investments and to attempt to enhance return, but not for speculation. The
Series, and thus the investor, may lose money through any unsuccessful use of
these strategies. These strategies include the use of futures contracts and
options. The Series' ability to use these strategies may be limited by market
conditions, regulatory limits and there can be no assurance that any of these
strategies will succeed.

OPTIONS ON SECURITIES. The purchaser of a call option has the right, for a
specified period of time, to purchase the securities subject to the option at a
specified price (the "exercise price" or "strike price"). By writing a call
option, the Short-Intermediate Term Series becomes obligated during the term of
the option, upon exercise of the option, to deliver the underlying securities or
a specified amount of cash to the purchaser against receipt of the exercise
price. When the Short-Intermediate Term Series writes

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a call option, the Short-Intermediate Term Series loses the potential for gain
on the underlying securities in excess of the exercise price of the option
during the period that the option is open.

The purchaser of a put option has the right, for a specified period of
time, to sell the securities subject to the option to the writer of the put at
the specified exercise price. By writing a put option, the Short-Intermediate
Term Series becomes obligated during the term of the option, upon exercise of
the option, to purchase the securities underlying the option at the exercise
price. The Short-Intermediate Term Series might, therefore, be obligated to
purchase the underlying securities for more than their current market price.

The writer of an option retains the amount of any premium paid for the
writing of the option. The Series' maximum gain with respect to an option
written is the premium. In the case of a covered call option that is not
exercised, the amount of any premium may be offset or exceeded by a decline in
the value of the securities underlying the call option that the Series must
retain in order to maintain the "cover" on such option and, with respect to put
options written, the amount of any premium may be offset or exceeded by the
difference between the then current market price of the underlying security and
the strike price of the put option (the price at which the Series must purchase
the underlying security).

The Short-Intermediate Term Series 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 Short-Intermediate
Term Series 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
Short-Intermediate Term Series' investments and therefore the put option may not
provide complete protection against a decline in the value of the
Short-Intermediate Term Series' investments below the level sought to be
protected by the put option.

The Short-Intermediate Term Series may similarly wish to hedge against
appreciation in the value of debt securities that it intends to acquire at a
time when call options on such securities are not available. The
Short-Intermediate Term Series may, therefore, purchase call options on other
carefully selected debt securities the values of which the investment adviser
expects will have a high degree of positive correlation to the values of the
debt securities that the Short-Intermediate Term Series intends to acquire. In
such circumstances the Short-Intermediate Term Series will be subject to risks
analogous to those summarized below 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 Short-Intermediate Term Series 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
Short-Intermediate Term Series.

The Short-Intermediate Term Series may write options on securities in
connection with buy-and-write transactions; that is, the Short-Intermediate Term
Series may purchase a security and concurrently write a call option against that
security.

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
Short-Intermediate Term Series' maximum gain will be the premium received by it
for writing the option, adjusted upwards or downwards by the difference between
the Short-Intermediate Term Series' 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 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
cancelled 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 Short-Intermediate Term Series and its contra-party
with no clearing organization guarantee. Thus, when the Short-Intermediate Term
Series purchases an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery

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of the securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Short-Intermediate Term Series as
well as the loss of the expected benefit of the transaction. The Board of
Trustees of the Trust has approved a list of dealers with which the
Short-Intermediate Term Series may engage in OTC options.

When the Short-Intermediate Term Series writes an OTC option, it generally
will be able to close out the OTC options prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the
Short-Intermediate Term Series originally wrote the OTC option. While the
Short-Intermediate Term Series 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 Short-Intermediate Term Series. There can be no assurance
that the Short-Intermediate Term Series will be able to liquidate an OTC option
at a favorable price at any time prior to expiration. Until the
Short-Intermediate Term Series is able to effect a closing purchase transaction
in a covered OTC call option the Short-Intermediate Term Series 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 Short-Intermediate Term Series may be unable to liquidate
an OTC option.

OTC options purchased by the Short-Intermediate Term Series 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
Short-Intermediate Term Series will be treated as illiquid unless the OTC
options are sold to qualified dealers who agree that the Short-Intermediate Term
Series 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.

The Short-Intermediate Term Series may write only "covered" options. This
means that so long as the Short-Intermediate Term Series 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 with the Trust's Custodian 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 fluctuating market value of the optioned
securities (the exercise price of the option). In the case of a straddle written
by the Short-Intermediate Term Series, the amount maintained in the segregated
account will equal the amount, if any, by which the put is "in-the-money."

OPTIONS ON SECURITIES INDICES. The Short-Intermediate Term Series also may
purchase and write put and call options on securities indices in an attempt to
hedge against market conditions affecting the value of securities that the
Short-Intermediate Term Series owns or intends to purchase, and not for
speculation. Through the writing or purchase of index options, the
Short-Intermediate Term Series can achieve many of the same objectives as
through the use of options on individual securities. Options on securities
indices 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 Short-Intermediate Term Series owns or intends to purchase
will probably not correlate perfectly with movements in the level of an index
and, therefore, the Short-Intermediate Term Series 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 Short-Intermediate Term Series writes an option on a securities
index, it will be required to deposit with the Trust's Custodian, 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 Short-Intermediate Term Series writes a call option on a securities
index at a time when the contract value exceeds the exercise price, the
Short-Intermediate Term Series 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 Short-Intermediate Term Series may expire worthless, in which
case the Short-Intermediate Term Series would lose the premium paid therefor.

OPTIONS ON GNMA CERTIFICATES. Options on GNMA Certificates are not
currently traded on any Exchange. However, the Short-Intermediate Term Series
may purchase and write such options should they commence trading on any Exchange
and may purchase or write OTC Options on GNMA Certificates.

Since the remaining principal balance of GNMA Certificates declines each
month as a result of mortgage payments, the Short-Intermediate Term Series as a
writer of a covered GNMA call holding GNMA Certificates as "cover" to satisfy
its delivery obligation in the event of assignment of an exercise notice, may
find that its GNMA Certificates no longer have a sufficient remaining

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principal balance for this purpose. Should this occur, the Short-Intermediate
Term Series will enter into a closing purchase transaction or will purchase
additional GNMA Certificates from the same pool (if obtainable) or replacement
GNMA Certificates in the cash market in order to remain covered.

A GNMA Certificate held by the Short-Intermediate Term Series to cover an
option position in any but the nearest expiration month may cease to represent
cover for the option in the event of a decline in the GNMA coupon rate at which
new pools are originated under the FHA/VA loan ceiling in effect at any given
time. Should this occur, the Short-Intermediate Term Series will no longer be
covered, and the Short-Intermediate Term Series will either enter into a closing
purchase transaction or replace the GNMA Certificate with a GNMA Certificate
which represents cover. When the Short-Intermediate Term Series closes its
position or replaces the GNMA Certificate, it may realize an unanticipated loss
and incur transaction costs.

FUTURES CONTRACTS. As a purchaser of a futures contract (futures contract),
the Short-Intermediate Term Series incurs an obligation to take delivery of a
specified amount of the obligation underlying the futures contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Short-Intermediate Term Series incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price. The Short-Intermediate Term Series may purchase futures
contracts on debt securities, aggregates of debt securities, financial indices
and U.S. Government securities including futures contracts or options linked to
the London Interbank Offered Rate (LIBOR).

The Short-Intermediate Term Series will purchase or sell futures contracts
for the purpose of hedging its portfolio (or anticipated portfolio) securities
against changes in prevailing interest rates. If the investment adviser
anticipates that interest rates may rise and, concomitantly, the price of the
Short-Intermediate Term Series' portfolio securities may fall, the
Short-Intermediate Term Series may sell a futures contract. If declining
interest rates are anticipated, the Short-Intermediate Term Series may purchase
a futures contract to protect against a potential increase in the price of
securities the Short-Intermediate Term Series intends to purchase. Subsequently,
appropriate securities may be purchased by the Short-Intermediate Term Series in
an orderly fashion; as securities are purchased, corresponding futures positions
would be terminated by offsetting sales of contracts. In addition, futures
contracts will be bought or sold in order to close out a short or long position
in a corresponding futures contract.

Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. A futures contract sale is closed out
by effecting a futures contract purchase for the same aggregate amount of the
specific type of security and the same delivery date. If the sale price exceeds
the offsetting purchase price, the seller would be paid the difference and would
realize a gain. If the offsetting purchase price exceeds the sale price, the
seller would pay the difference and would realize a loss. Similarly, a futures
contract purchase is closed out by effecting a futures contract sale for the
same aggregate amount of the specific type of security and the same delivery
date. If the offsetting sale price exceeds the purchase price, the purchaser
would realize a gain, whereas if the purchase price exceeds the offsetting sale
price, the purchaser would realize a loss. There is no assurance that the
Short-Intermediate Term Series will be able to enter into a closing transaction.

When the Short-Intermediate Term Series enters into a futures contract it
is initially required to deposit with the Trust's Custodian, in a segregated
account in the name of the broker performing the transaction, an "initial
margin" of cash or other liquid assets equal to approximately 2-3% of the
contract amount. Initial margin requirements are established by the Exchanges on
which futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required by
the Exchanges. Under a recently adopted SEC rule, Short-Intermediate Term Series
may place and maintain cash or other liquid assets with a futures commissions
merchant in amounts necessary to effect such Series' transactions in
exchange-traded futures contracts and options thereon, provided certain
conditions are satisfied.

Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a broker's client but is, rather, a good faith deposit on a futures
contract which will be returned to the Short-Intermediate Term Series upon the
proper termination of the futures contract. The margin deposits made are
marked-to-market daily and the Short-Intermediate Term Series may be required to
make subsequent deposits into the segregated account, maintained at the Trust's
Custodian for that purpose, of cash or other liquid assets, called "variation
margin," in the name of the broker, which are reflective of price fluctuations
in the futures contract.

OPTIONS ON FUTURES CONTRACTS. The Short-Intermediate Term Series may
purchase and sell call and put options on futures contracts which are traded on
an Exchange and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right (in return for the premium paid), and the writer the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the assumption of an offsetting futures position 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.

The Short-Intermediate Term Series may only write "covered" put and call
options on futures contracts. The Short-Intermediate Term Series will be
considered "covered" with respect to a call option it writes on a futures
contract if the

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Short-Intermediate Term Series owns the assets which are 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 and having
an expiration date not earlier than the expiration date of the "covered" option,
or if it segregates and maintains with the Custodian for the term of the option
cash, or other liquid equal assets to the fluctuating value of the optioned
future. The Short-Intermediate Term Series 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, or if it segregates and maintains with the
Custodian for the term of the option cash or other liquid assets at all times
equal in value to the exercise price of the put (less any initial margin
deposited by the Short-Intermediate Term Series with the Trust's Custodian with
respect to such option). There is no limitation on the amount of the
Short-Intermediate Term Series' assets which can be placed in the segregated
account.

The Short-Intermediate Term Series may purchase options on futures
contracts for identical purposes to those set forth above for the purchase of a
futures contract (purchase of a call option or sale of a put option) and the
sale of a futures contract (purchase of a put option or sale of a call option),
or to close out a long or short position in futures contracts. If, for example,
the investment adviser wished to protect against an increase in interest rates
and the resulting negative impact on the value of a portion of its U.S.
Government securities portfolio, it might purchase a put option on an interest
rate futures contract, the underlying security of which correlates with the
portion of the portfolio the investment adviser seeks to hedge.

RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES. Participation in the
options or futures markets involves investment risks and transaction costs to
which the Series would not be subject absent the use of these strategies. The
Short-Intermediate Term Series 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 Short-Intermediate Term
Series may leave the Series in a worse position than if such strategies were not
used. Risks inherent in the use of these strategies 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
Short-Intermediate Term Series 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 Short-Intermediate Term Series to sell a portfolio security at a
disadvantageous time, due to the need for the Short-Intermediate Term Series to
maintain cover or to segregate securities in connection with hedging
transactions.

The Short-Intermediate Term Series may sell a futures contract to protect
against the decline in the value of securities held by the Short-Intermediate
Term Series. However, it is possible that the futures market may advance and the
value of securities held in the Short-Intermediate Term Series' portfolio may
decline. If this were to occur, the Short-Intermediate Term Series would lose
money on the futures contracts and also experience a decline in value in 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 Short-Intermediate Term Series 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 Short-Intermediate Term Series 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 may exist an imperfect correlation between the price movements of
futures contracts purchased by the Short-Intermediate Term Series 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 of 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 hedging transaction.

The risk of imperfect correlation increases as the composition of the
Short-Intermediate Term Series' securities portfolio diverges from the
securities that are the subject of the futures contract, for example, those
included in an 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
Short-Intermediate Term Series intends to purchase and sell futures contracts
only on exchanges where there

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appears to be market in such futures sufficiently active to accommodate the
volume of its trading activity. The Short-Intermediate Term Series' 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
Short-Intermediate Term Series 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 Short-Intermediate Term Series 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 Short-Intermediate Term Series 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
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 Short-Intermediate Term Series had written and which the
Short-Intermediate Term Series was unable to close, the Short-Intermediate Term
Series would be required to maintain margin deposits on the futures contract or
option and to make variation margin payments until the contract is closed. In
the event futures contract 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.

Exchanges on which futures and related options trade may impose limits on
the positions that the Short-Intermediate Term Series 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
Short-Intermediate Term Series 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.

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
Short-Intermediate Term Series 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
Short-Intermediate Term Series' 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 Short-Intermediate Term Series 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
Short-Intermediate Term Series does not own at the time 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 Short-Intermediate Term Series; (b)
cash held by the Short-Intermediate Term Series; (c) cash proceeds due to the
Short-Intermediate Term Series investments within thirty days; (d) the margin
deposited on the contracts; and (e) any unrealized appreciation in the value of
the contracts.

If the Short-Intermediate Term Series 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 or 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 Short-Intermediate Term Series to purchase the same contract at a
price no higher than the price at which the short position was established.

In addition, if the Short-Intermediate Term Series 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 Short-Intermediate Term
Series 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 Short-Intermediate Term Series.

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
Short-Intermediate Term Series would continue to be required to make daily cash
payments of variation margin on open futures positions. In such situations, if
the Short-Intermediate Term Series has insufficient cash, it may be
disadvantageous to do so. In addition, the Short-Intermediate Term Series 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
Short-Intermediate Term Series' ability to hedge effectively its portfolio.

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In the event of the bankruptcy of a broker through which the
Short-Intermediate Term Series engages in transactions in futures or options
thereon, the Short-Intermediate Term Series 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 Short-Intermediate Term Series only with brokers or
financial institutions deemed creditworthy by the investment adviser.

RISKS OF TRANSACTIONS IN OPTIONS ON FUTURES CONTRACTS. 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
Short-Intermediate Term Series 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 Short-Intermediate Term Series 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 futures contract
or underlying securities.

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 Short-Intermediate Term Series 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 Short-Intermediate
Term Series 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 more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in 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 trades 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.

INTEREST RATE SWAP TRANSACTIONS

The Short-Intermediate Term Series may enter into interest rate swaps.
Interest rate swaps involve the exchange by the Series with another party of
their respective commitments to pay or receive interest, for example, an
exchange of floating rate payments for fixed rate payments. The Series expects
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Series intends to use these transactions as a hedge and not as a
speculative investment.

The Series may enter into either asset-based interest rate swaps or
liability-based interest rate swaps, depending on whether it is hedging its
assets or its liabilities. The Short-Intermediate Term Series will usually enter
into interest rate swaps on a net basis, that is the two payment streams are
netted out, with the Short-Intermediate Term Series receiving or paying, as the
case may be, only the net amount of the two payments. Inasmuch as these hedging
transactions are entered into for good faith hedging purposes, the investment
adviser and the Short-Intermediate Term Series believe such obligations do not
constitute senior securities and, accordingly, will not treat them as being
subject to its borrowing restrictions. The net amount of the excess, if any, of
the Short-Intermediate Term Series' obligations over its entitlements with
respect to each interest rate swap will be accrued on a daily basis and an
amount of cash, U.S. Government securities, equity securities or other liquid,
unencumbered assets, marked-to-market daily having an aggregate net asset value
at least equal to the accrued excess will be maintained in a segregated account.
To the extent that the Short-Intermediate Term Series enters into interest rate
swaps on other than a net basis, the amount maintained in the segregated account
will be the full amount of the Short-Intermediate Term Series' obligations, if
any, with respect to such interest rate swaps, accrued on a daily basis. If
there is a default by the other party to such a transaction, the
Short-Intermediate Term Series 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 use of interest rate swaps is 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

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values, interest rates and other applicable factors, the investment performance
of the Short-Intermediate Term Series would diminish compared to what it would
have been if this investment technique was never used.

The Short-Intermediate Term Series 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 Short-Intermediate Term Series is contractually
obligated to make. If the other party to an interest rate swap defaults, the
Short-Intermediate Term Series' risk of loss consists of the net amount of
interest payments, if any, that the Short-Intermediate Term Series is
contractually entitled to receive. Since interest rate swaps are individually
negotiated, the Short-Intermediate Term Series 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. The Short-Intermediate Term Series will enter into
interest rate swaps only with parties meeting creditworthiness standards
approved by the Trust's Board of Trustees. The investment adviser will monitor
the creditworthiness of such parties under the supervision of the Trust's Board
of Trustees.

SHORT SALES

The Short-Intermediate Term Series may sell a security it does not own in
anticipation of a decline in the market value of the security (short sales). To
complete the transaction, the Series will borrow the security to make delivery
to the buyer. The Series 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
Series. Until the security is replaced, the Series is required to pay the lender
any interest which accrues during the period of the loan. To borrow the
security, the Series 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 Series replaces the borrowed security, it will
(a) maintain in a segregated account 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 market 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.

The Series will incur a loss as a result of the short sales if the price of
the security increases between the date of the short sale and the date on which
the Series replaces the borrowed security. The Series will realize a gain if the
security declines in price between those dates. The result is the opposite of
what one would expect from a cash purchase of a long position in a security. The
amount of any gain will be decreased, and the amount of any loss will be
increased, by the amount of any premium or interest paid in connection with the
short sale. No more than 25% of the Series' net assets will be, when added
together: (1) deposited as collateral for the obligation to replace securities
borrowed to effect short sales and (2) allocated to segregated accounts in
connection with short sales. The Series may also may make short sales
against-the-box without regard to this limitation. A short sale against-the-box
is a short sale in which the Series owns an equal amount of the securities
convertible into or exchangeable, without payment of any further consideration,
for securities of the same issue as, and equal in amount to, the securities
sold, short. Under newly enacted legislation, a short sale against-the-box will
be treated as a sale for federal income tax purposes.

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS

Reverse repurchase agreements involves sales by the Short-Intermediate Term
Series of assets concurrently with an agreement by the Series to repurchase the
same assets at a later date at a fixed price. During the reverse repurchase
agreement period, the Series continues to receive principal and interest
payments on these securities.

The Series may enter into dollar rolls in which the Series sells securities
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date from the same party. During the roll period, the Series forgoes principal
and interest paid on securities. The Series is compensated by the difference
between the current sales price and the forward price for the future purchases
(often referred to as the drop) as well as by the interest earned on the cash
proceeds of the initial sale.

The Series will establish a segregated account with its custodian in which
it will maintain cash or other liquid assets equal in value to its obligations
in respect of reverse repurchase agreements and dollar rolls. Reverse repurchase
agreements and dollar rolls involve the risk that the market value of the
securities retained by the Series may decline below the price of the securities
the Series has sold but is obligated to repurchase under the agreement. In the
event the buyer of the securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Series, use of the proceeds of the
agreement may be restricted pending a termination by the other party, or its
trustee or receiver, whether to enforce the Series' obligation to repurchase the
securities.

Whenever the Series enters into a reverse repurchase or dollar roll
transaction, it will maintain an offsetting cash equivalent security position
which matures on or before the forward settlement date of the transaction.

B-16

<PAGE>

Reverse repurchase agreements and dollar rolls are considered borrowings by
the Series for purposes of the percentage limitation applicable to borrowings.

OTHER INVESTMENTS

Unless specified otherwise, each Series may invest in the following
investments:

REPURCHASE AGREEMENTS

The Money Market and Short-Intermediate Term Series each may enter into
repurchase agreements, whereby the seller agrees to repurchase that security
from the Series at a mutually agreed-upon time and price. The period of maturity
is usually quite short, possibly overnight or a few days, 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
Series' money is invested in the security. The Series' repurchase agreements
will at all times be fully collateralized in an amount at least equal to the
resale price. The instruments held as collateral are valued daily, and if the
value of such instruments declines, the Series will require additional
collateral.

The Series will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Trustees. The Series'
investment adviser will monitor the creditworthiness of such parties, under the
general supervision of the Trustees. In the event of a default or bankruptcy by
a seller, the Series 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 Series will
suffer a loss.

The Series participate in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (PIFM or the
Manager) pursuant to an order of the Securities and Exchange Commission (SEC).
On a daily basis, any uninvested cash balances of the Series 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 of its investment.

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Short-Intermediate
Term Series and Money Market Series may lend their portfolio securities to
brokers, dealers and other financial institutions, provided that such loans are
callable at any time by the Series and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations that are equal to at least the market value, determined daily, of
the loaned securities. As a matter of fundamental policy, neither Series will
lend more than 30% of the value of their total assets. The advantage of such
loans is that the Series continue to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral, which will be invested in short-term obligations.

A loan may be terminated by the borrower on one business day's notice, or
by the Series on two business days' notice. If the borrower fails to deliver the
loaned securities within two days after receipt of notice, the Series 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 even 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 Series' investment adviser to be creditworthy and when the income which
can be earned from such loans justifies the attendant risks. Upon termination of
the loan, the borrower is required to return the securities to the Series. Any
gain or loss in the market price during the loan period would inure to the
Series. The creditworthiness of firms to which the Series lends their portfolio
securities will be monitored on an ongoing basis by the investment adviser
pursuant to procedures adopted and reviewed, on an ongoing basis, by the Board
of Trustees of the Trust.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Series will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Series' investment
in such loaned securities. The Series may pay reasonable finders',
administrative and custodial fees in connection with a loan of their securities
and may share the interest earned on collateral with the borrower.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

Each Series may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Series with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Series at the time of entering into the transaction. The
Series segregate cash, or other liquid assets having a value equal to or greater
than the Series' purchase commitments. The

B-17

<PAGE>

securities so purchased are subject to maket fluctuation and no interest accrues
to the purchaser during the period between purchase and settlement. 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 Series' assets committed to the
purchase of securities on a when-issued or delayed delivery basis may increase
the volatility of the Series' net asset value.

ILLIQUID SECURITIES

The Trust may not hold more than 10% of the net assets of any Series (15%
in the case of the Short-Intermediate Term Series) in, illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
certain securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Repurchase
agreements subject to demand are deemed to have a maturity equal to the
applicable notice period.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.

Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a safe harbor from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).
A Series' 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 purchase to
Rule 144A under the Securities Act, and commercial paper that have a readily
available market are treated as liquid only when deemed liquid under procedures
established by the Trustees. The investment adviser will monitor the liquidity
of such restricted securities subject to the supervision of the Trustees. In
reaching liquidity decisions, the investment adviser will consider, among
others, 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 (for example, the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). With respect to
commercial paper that is issued in reliance on Section 4(2) of the Securities
Act, (1) 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 (2) 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 that purchased OTC
options and the assets used as "cover" for written OTC options are illiquid
securities unless the Fund and the counterparty have provided for the Fund, at
the Fund's election, to unwind the OTC option. The exercise of such an option
ordinarily would 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 assets used as "cover" as "liquid."

SEGREGATED ASSETS

When the Trust is required to segregate assets in connection with certain
hedging transactions, it will segregate cash or liquid assets. "Liquid assets"
means cash, U.S. Government securities, equity securities (including foreign
securities), debt obligations or liquid, unencumbered assets, marked-to-market
daily. Such hedging transactions may involve when-issued and delayed delivery

B-18

<PAGE>

securities futures contracts written options and options on futures contracts
(unless otherwise covered). If collateralized or otherwise covered, in
accordance with Commission guidelines, these will not be deemed to be senior
securities.

D) DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

When conditions dictate a temporary defensive strategy, the
Short-Intermediate Term Series may invest up to 100% of its assets in cash, U.S.
Government securities and high quality money market instruments, including
commercial paper of a U.S. or foreign company or foreign government,
certificates of deposit, bankers acceptances and time deposits of domestic and
foreign banks; and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. These obligations will be U.S. dollar
denominated. Commercial paper will be rated, at the time of purchase, at least
"A-2" by S&P or "Prime-2" by Moody's or if not rated, issued by an entity having
an outstanding unsecured debt issue rated at least "A" or "A-2" by S&P or "A" or
"Prime-2" by Moody's.

(E) PORTFOLIO TURNOVER

The Money Market Series and the U.S. Treasury Money Market Series intend
normally to hold their portfolio securities to maturity. The Money Market
Series and the U.S. Treasury Money Market Series do not normally expect to
trade portfolio securities although they may do so to take advantage of
short-term market movements. The Money Market Series and the U.S. Treasury
Money Market Series will make purchases and sales of portfolio securities with
a government securities dealer on a net price basis; brokerage commissions are
not normally charged on the purchase or sale of U.S. Treasury Securities. See
"Portfolio Transactions and Brokerage."

Although the Short-Intermediate Term Series has no fixed policy with
respect to portfolio turnover, 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
Short-Intermediate Term Series desires to preserve gains or limit losses due to
changing economic conditions. Accordingly, it is possible that the portfolio
turnover rate of the Short-Intermediate Term Series may reach, or even exceed,
250%. The portfolio turnover rate is computed by dividing the lesser of the
amount of the securities purchased or securities sold (excluding all securities
whose maturities at acquisition were one year or less) by the average monthly
value of such securities owned during the year. A 100% turnover rate would
occur, for example, if all of the securities held in the portfolio of the
Short-Intermediate Term Series were sold and replaced within one year. However,
when portfolio changes are deemed appropriate due to market or other conditions,
such turnover rate may be greater than anticipated. A higher rate of turnover
results in increased transaction costs to the Short-Intermediate Term Series.
The portfolio turnover rate for the Short-Intermediate Term Series for the
fiscal years ended November 30, 1997 and 1998 was 210% and 155% respectively.

The Fund will not invest 25% or more of its total assets in a single
industry.

INVESTMENT RESTRICTIONS

The Trust's fundamental policies as they affect a particular Series cannot
be changed without the approval of the outstanding shares of such Series by a
vote which is the lesser of (i) 67% or more of the voting securities of such
Series represented at a meeting at which more than 50% of the outstanding voting
securities of such Series are present in person or represented by proxy or (ii)
more than 50% of the outstanding voting securities of such Series. With respect
to the submission of a change in fundamental policy or investment objective to a
particular Series, such matters shall be deemed to have been effectively acted
upon with respect to all Series of the Trust if a majority of the outstanding
voting securities of the particular Series votes for the approval of such
matters as provided above, notwithstanding (1) that such matter has not been
approved by a majority of the outstanding voting securities of any other Series
affected by such matter and (2) that such matter has not been approved by a
majority of the outstanding voting securities of the Trust.

MONEY MARKET SERIES

The following investment restrictions are fundamental policies of the Trust
with respect to the Money Market Series of the Trust and may not be changed
except as described above.

The Trust may not:

1. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities; borrowing in the aggregate may not exceed
20%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the value of the Trust's total assets (including the amount borrowed),
less liabilities (not including the amount borrowed) at the time the borrowing
is made; investment securities will not be purchased while borrowings are
outstanding.

2. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 10% of the value of its net assets but only to secure
permitted borrowings of money.

B-19

<PAGE>

3. Make loans to others, except through the purchase of the debt
obligations and the repurchase agreements covering government securities and the
lending of portfolio securities (limited to thirty percent of the Series' total
assets).

4. Purchase or sell real estate or real estate mortgage loans.

5. Purchase securities on margin or sell short.

6. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs.

7. Underwrite securities of other issuers.

8. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.

9. Issue senior securities as defined in the Investment Company Act except
insofar as the Trust may be deemed to have issued a senior security by reason
of: (a) entering into any repurchase agreement; (b) permitted borrowings of
money; or (c) purchasing securities on a when-issued or delayed delivery basis.

10. Purchase securities on a when-issued basis if, as a result, more than
15% of the Trust's net assets would be committed.

SHORT-INTERMEDIATE TERM SERIES

The following investment restrictions are fundamental policies of the Trust
with respect to the Short-Intermediate Term Series of the Trust and may not be
changed except as described above.

The Trust may not:

1. Issue senior securities, borrow money or pledge its assets, except that
the Series may borrow from banks or through dollar rolls or reverse repurchase
agreements up to 331|M/3% of the value of its total assets (calculated when the
loan is made) for temporary, extraordinary or emergency purposes, to take
advantage of investment opportunities or for the clearance of transactions and
may pledge up to 331|M/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, collateral arrangements with
respect to interest rate swap transactions reverse repurchase agreements or
dollar rolls or the purchase and sale of futures contracts are not deemed to be
a pledge of assets and neither such arrangements nor the purchase or sale of
futures contracts nor the purchase and sale of related options, nor obligations
of the Series to the Trustees of the Trust pursuant to deferred compensation
arrangements are deemed to be the issuance of a senior security.

2. Make loans to others, except through the purchase of the debt
obligations and the repurchase agreements covering government securities and the
lending of portfolio securities (limited to 30% of the Series' total assets).

3. Purchase or sell real estate or real estate mortgage loans, except that
the Series may purchase and sell mortgaged-backed securities, securities
collateralized by mortgages, securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Series may not purchase
interests in real estate limited partnerships which are not readily marketable.

4. Purchase securities on margin (but the Series may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Series of initial or variation margin in
connection with options or futures contracts is not considered the purchase of a
security on margin.

5. Make short sales of securities, or maintain a short position if, when
added together, more than 25% of the value of the Series' net assets would be
(i) deposited as collateral for the obligation to replace securities borrowed to
effect short sales and (ii) allocated to segregated accounts in connection with
short sales. Short sales "against-the-box" are not subject to this limitation.

6. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs, except that the Fund may
purchase and sell financial futures contracts and options thereon.

7. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.

8. Purchase securities on a when-issued basis if, as a result, more than
15% of the Series' net assets would be committed.

U.S. TREASURY MONEY MARKET SERIES

In connection with its investment objective and policies as set forth in
the Prospectus, the U.S. Treasury Money Market Series has adopted the following
investment restrictions.

B-20

<PAGE>

The U.S. Treasury Money Market Series may not:

1. Invest in any securities other than U.S. Treasury obligations.

2. Purchase securities on margin (but the Series may obtain such short-term
credits as may be necessary for the clearance of transactions).

3. Make short sales of securities or maintain a short position.

4. Issue senior securities, borrow money or pledge its assets, except that
the Series may borrow up to 20% of the value of its total assets (calculated
when the loan is made) from banks and from entities other than banks if so
permitted pursuant to an order of the Securities and Exchange Commission for
temporary, extraordinary or emergency purposes. The Series may pledge up to 20%
of the value of its total assets to secure such borrowings.

5. Buy or sell real estate or interests in real estate.

6. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal laws.

7. Make investments for the purpose of exercising control or management.

8. Invest in interests in oil, gas or other mineral exploration or
development programs.

9. Buy or sell commodities or commodity contracts (including futures
contracts and options thereon).

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

MANAGEMENT OF THE TRUST

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS ** (AGE) TRUST DURING PAST 5 YEARS
- --------------------------- --------------- -----------------------------------------------------------
<S> <C> <C>
Edward D. Beach (74) Trustee President and Director of BMC Fund, Inc., a closed-end
investment company; formerly, Vice Chairman of
Broyhill Furniture Industries, Inc.; Certified Public
Accountant; Secretary and Treasurer of Broyhill Family
Foundation, Inc.; Member of the Board of Trustees of
Mars Hill College; Director or Trustee of 44 funds within
the Prudential Mutual Funds.

Eugene C. Dorsey (72) Trustee 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; Director of the Advisory Board of
Chase Manhattan Bank of Rochester, The High Yield
Income Fund Inc. and First Financial Fund, Inc.

Delayne Dedrick Gold (60) Trustee Marketing and Management Consultant and Director or
Trustee of 44 funds within the Prudential Mutual Funds.
</TABLE>

B-21

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS ** (AGE) TRUST DURING PAST 5 YEARS
- --------------------------- -------------- ----------------------------------------------------------
<S> <C> <C>
*Robert F. Gunia (52) President President (since March 1999) and Vice President
and Trustee (September 1997-March 1999), Prudential Insurance
Company of America (Prudential); Executive Vice President
and Treasurer (since December 1996), Prudential Investments
Fund Management LLC (PIFM); Senior Vice President (since
March 1987) of Prudential Securities Incorporated
(Prudential Securities) formerly Chief Administrative
Officer (July 1990-September 1996), Director (January
1989-September 1996), Executive Vice President, Treasurer
and Chief Financial Officer (June 1987-December 1996) of
Prudential Mutual Fund Management, Inc.; Vice President and
Director of The Asia Pacific Fund, Inc.; and Director or
Trustee of 44 funds within the Prudential Mutual Funds.

Thomas T. Mooney (57) Trustee President of the Greater Rochester Metro Chamber of
Commerce; former Rochester City Manager; Trustee of
Center for Governmental Research, Inc.; Director of Blue
Cross of Rochester, The Business Council of New York
State, Monroe County Water Authority, Executive Service
Corps of Rochester, Monroe County Industrial
Development Corporation, Northeast Midwest Institute;
President Director and Treasurer of First Financial Fund,
Inc., and The High Yield Plus Fund, Inc.; Director or
Trustee of 33 other funds within the Prudential Mutual
Funds.

Thomas H. O'Brien (74) Trustee President of O'Brien Associates (Financial and
Management Consultants) (since April 1984); formerly
President of Jamaica Water Securities Corp. (holding
company) (February 1989-August 1990); Chairman of
the Board and Chief Executive Officer (September 1987-
February 1989) of Jamaica Water Supply Company and
Director (September 1987-August 1990); Director and
President of Winthrop Regional Health System and
United Presbyterian Home at Syoset Inc.; Director of
Ridgewood Savings Bank and the High Yield Income
Fund, Inc.; Trustee of Hofstra University.
</TABLE>

B-22

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS ** (AGE) TRUST DURING PAST 5 YEARS
- --------------------------- --------------------- -----------------------------------------------------------
<S> <C> <C>
Richard A. Redeker (55) Trustee Formerly President, Chief Executive Officer and Director
(October 1993-September 1996), Prudential Mutual
Fund Management, Inc.; Executive Vice President,
Director and Member of Operating Committee (October
1993- September 1996), Prudential Securities; Director
(since October 1993-September 1996), Prudential
Securities Group, Inc.; Executive Vice President, The
Prudential Investment Corporation (July
1994-September 1996); Director (January
1994-September 1996), Prudential Mutual Fund
Distributors, Inc. and Prudential Mutual Fund Services,
Inc., formerly Senior Executive Vice President and
Director of Kemper Financial Services, Inc. (September
1978-September 1993) and Director or Trustee of 30
funds within the Prudential Mutual Funds.

Nancy H. Teeters (68) Trustee Economist; formerly Vice President and Chief Economist
(March 1986-June 1990) of International Business
Machines Corporation; Director of Inland Steel
Industries (since July 1991) and The High Yield Income
Fund, Inc.

Louis A. Weil, III (57) Trustee Chairman (since January 1999), President and Chief
Executive Officer (since January 1996) and Director
(since September 1991) of Central Newspapers, Inc.;
Chairman of the Board (since January 1996), Publisher
and Chief Executive Officer (August 1991-December
1995) of Phoenix Newspapers, Inc.; formerly, Publisher
of Time Magazine (May 1989-March 1991); President,
Publisher and Chief Executive Officer of The Detroit
News (February 1986-August 1989); and member of the
Advisory Board, Chase Manhattan Bank-Westchester;
and Director or Trustee of 30 funds within the Prudential
Mutual Funds.

Grace C. Torres (39) Treasurer and First Vice President (since December 1996) of PIFM; First
Principal Financial Vice President (since March 1993) of Prudential
and Accounting Securities; formerly First Vice President (March 1994-
Officer September 1996) of Prudential Mutual Fund
Management, Inc. and Vice President (July 1989-
March 1994) of Bankers Trust Corporation.

Stephen M. Ungerman (45) Assistant Tax Director of Prudential Investments (since March 1996);
Treasurer formerly First Vice President of Prudential Mutual Fund
Management, Inc. (February 1993-September 1996);

</TABLE>

B-23

<PAGE>

Deborah A. Docs (41) Secretary Vice President (since December 1996) of PIFM; Vice
President and Associate General Counsel of Prudential
Securities; formerly Vice President and Associate
General Counsel (June 1991-September 1996) of PIFM.
</TABLE>

- -----------
* "Interested" Trustee, as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities or PIFM.

** Unless otherwise stated, the address of the Trustees and Officers is c/o:
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, 9th Floor, Newark, New Jersey 07102-4077.

The Trust has Trustees who, in addition to overseeing of actions of the
Trust's Manager, Subadviser and Distributor, decide upon matters of general
policy. The Trustees also review the actions of the Trust's officers, who
conduct and supervise the daily business operations of the Trust.

Pursuant to the terms of the Management Agreement with the Trust, the
Manager pays all compensation of officers and employees of the Trust as well as
the fees and expenses of all Trustees of the Trust who are affiliated persons of
the Manager. The Trust pays each of its directors who is not an affiliated
person of the Manager or the Subadviser annual compensation of $4,500, in
addition to certain out-of-pocket expenses. The amount of annual compensation
paid to each Trustee may change as a result of the introduction of additional
funds on the boards of which the Trustees, will be asked to serve.

Trustees may receive their Trustee's fee pursuant to a deferred fee
agreement with the Trust. Under the terms of the agreement, the Trust accrues
daily the amount of such Trustee's fee which accrues 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 the Trust (the Trust Rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Trustee. The Trust's obligation to make payments of deferred Trustees'
fees, together with interest thereon, is a general obligation of the Trust.

The Trustees have adopted a retirement policy which calls for the
retirement of Trustees on December 31 of the year in which they reach the age of
72, except that retirement is being phased in for Trustees who were age 68 or
older as of December 31, 1993. Under this phase-in provision, Messrs. Beach,
Dorsey and O'Brien are scheduled to retire on December 31, 1999.

B-24

<PAGE>

The following table sets forth the aggregate compensation paid by the
Portfolio for the fiscal year ended November 30, 1998 to current Trustees of the
Trust. The table also shows aggregate compensation paid to those Trustees for
service on Boards of all funds managed by Prudential Investments Fund Management
LLC, including the Trust (Fund Complex), for the calendar year ended December
31, 1998.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM TRUST
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF TRUST BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES
- ----------------- ------------ ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Edward D. Beach-Trustee $4,500 None N/A $135,000 (38/63)
Eugene C. Dorsey-Trustee** $4,500 None N/A $ 70,000 (16/43)
Delayne Dedrick Gold-Trustee $4,500 None N/A $135,000 (38/63)
Robert F. Gunia-Trustee and Vice President(1) -- --
Mendel A. Melzer CFA-Trustee(1) -- --
Thomas T. Mooney-Trustee** $4,500 None N/A $115,000 (31,64)
Thomas H. O'Brien-Trustee $4,500 None N/A $ 45,000 (11/29)
Richard A. Redeker-Trustee None N/A
Brian Storms-Trustee and President(1)
Nancy H. Teeters-Trustee $4,500 None N/A $ 90,000 (23/42)
Louis A. Weil, III-Trustee $4,500 -- -- $ 90,000 (26/50)
</TABLE>

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

(1) Interested Trustees do not receive compensation from the Trust or any fund
in the Fund complex. Mr. Redeker is no longer an interested Trustee.

** Total compensation from all of the funds in the Fund complex for the
calendar year ended December 31, 1998, includes amounts deferred at the
election of Trustees under the Trust's deferred compensation plan. Including
accrued interest, total compensation amounted to $85,445 and $119,740 for
Dorsey and Mooney, respectively.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Trustees of the Trust are eligible to purchase Class Z shares of the Trust
which are sold without either an initial sales charge or Contingent Deferred
Sales Charge to limited group of investors.

As of March 5, 1999, the Trustees and officers of the Trust, as a group,
owned less than 1% of the outstanding shares of beneficial interest of each
class of the Money Market Series, U.S. Treasury Money Market Series and the
Short-Intermediate Term Series of the Trust.

As of March 5, 1999, Prudential Securities was the record holder for other
beneficial owners of 7,756,746 Short-Intermediate Term Series Class A Shares (or
52% of such shares outstanding), and 1,046 Short-Intermediate Term Series Class
Z Shares (or 1% of such shares outstanding), 261,345,124 Money Market Series
Class A Shares (or 43% of such shares outstanding), and NO Money Market Series
Class Z Shares (or 0% of such shares outstanding) and 339,412,568 U.S. Treasury
Money Market Series Class A Shares (or 99% of such shares outstanding) and NO
U.S. Treasury Money Market Series Class Z Shares (or 0% of such shares
outstanding). 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.

As of March 5, 1999, the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of beneficial interest
were: South Bergen Savings and Loan, Attn. Mr. Albert Gossheiler, 250 Valley
Blvd, WoodBridge, NJ 07075, who held 693,072 Class A shares of the Short
Intermediate Terms Series (5.1%); Prudential Trust Company, FBO PRU-DC Clients,
30 Scranton Office Park, Moosic, PA 18507, who held 1,034,479 Class Z shares of
Short-Intermediate Term Series (98.1%); Pru Defined Contribution Services, FBO
Pru Non Trust Accounts, 30 Scranton Office Park, Moosic, PA 18507, who held
7,842,133 Class Z shares of the Money Market Series (27.9%); and Pru Defined
Contribution Services, FBO Pru Non Trust Accounts, 30 Scranton Office Park,
Moosic, PA 18507, who held 2,724,984 Class Z shares of the U.S. Treasury Money
Market Series (99%).

B-25

<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

(A) MANAGER AND INVESTMENT ADVISER

The Manager of the Trust 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 Trust, comprise the Prudential Mutual Funds.
See "How the Series is Managed-Manager" in the Prospectus of each Series. As of
January 31, 1999, PIFM managed and/or administered open-end and closed-end
management investment companies with assets of approximately $71.7 billion.
According to the Investment Company Institute, as of November 30, 1998, the
Prudential Mutual Funds were the 18th 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) serves as the transfer agent for the Prudential Mutual Funds
and, in addition, provides customer service, recordkeeping and management and
administration services to qualified plans.

Pursuant to a management agreement with the Trust (the Management
Agreement), PIFM, subject to the supervision of the Trustees and in conformity
with the stated policies of the Trust, manages both the investment operations of
the Trust and the composition of the Trust's portfolio, including the purchase,
retention, disposition and loan of securities and other investments. PIFM is
obligated to keep certain books and records of the Trust in connection
therewith. PIFM is also obligated to provide research and statistical analysis
and to pay costs of certain clerical and administrative services involved in the
portfolio management. The management services of PIFM to the Trust are not
exclusive under the terms of the Management Agreement and PIFM is free to, and
does, render management services to others.

In connection with the services it renders, PIFM bears the following
expenses:

(a) the salaries and expenses of all personnel of the Trust and the
Manager, except the fees and expenses of Trustees who are not affiliated persons
of the Manager or the Trust's investment adviser;

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

(c) the costs and expenses payable to The Prudential Investment
Corporation, doing business as Prudential Investments (PI, the Subadviser or the
investment adviser), pursuant to a subadvisory agreement between PIFM and PI
(the Subadvisory Agreement).

Under the terms of the Management Agreement, the Trust is responsible for
the payment of the following expenses, including (a) the fee payable to the
Manager, (b) the fees and expenses of Trustees who are not affiliated with the
Manager or the Trust's investment adviser, (c) the fees and certain expenses of
the Trust's 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 Trust and of pricing the Trust's shares, (d)
the fees and expenses of the Trust's legal counsel and independent accountants,
(e) brokerage commissions and any issue or transfer taxes chargeable to the
Trust in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Trust to governmental agencies, (g) the fees of
any trade association of which the Trust is a member, (h) the cost of share
certificates representing shares of the Trust, (i) the cost of fidelity,
directors and officers and errors and omissions insurance, (j) the fees and
expenses involved in registering and maintaining registration of the Trust and
of its shares with the Commission and registering the Trust as a broker or
dealer and qualifying its shares under state securities laws, including the
preparation and printing of the Trust's registration statements and prospectuses
for such purposes, (k) allocable communications expenses with respect to
investor services and all expenses of shareholders' and Trustees' meetings and
of preparing, printing and mailing reports to shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Trust's business and (m) distribution fees.

The Trust pays a fee to PIFM for the services performed and the facilities
furnished by PIFM, computed daily and payable monthly, at an annual rate of .40
of 1% of the Short-Intermediate Term Series' and the U.S. Treasury Money Market
Series' average daily net assets and at an annual rate of .40 of 1% of the
average daily net assets up to $1 billion, .375 of 1% on assets between $1
billion and $1.5 billion and .35 of 1% on assets in excess of $1.5 billion of
the average daily net assets of the Money Market Series. The Management
Agreement also provides that in the event the expenses of a Series (including
the fees of the Manager but excluding interest, taxes, brokerage commissions,
distribution fees, litigation and indemnification expenses and other
extraordinary expenses) for any fiscal year exceed the lowest applicable annual
expense limitation established and enforced pursuant to the statute or
regulations of any jurisdictions in which shares of the Series are then
qualified for offer and sale, PIFM will reduce its fee by the amount of such
excess. Reductions in excess of the total compensation payable to PIFM will be
paid by PIFM to the Series. Any such reductions are subject to readjustment
during the year. Currently, the Trust believes that the most restrictive expense
limitation of state securities commissions is 21-1/2% of the average daily net
assets of each Series up to $30 million, 2% of the average daily net assets of
each Series from $30 million to $100 million and 11-1/2% of any excess over $100
million. The Management Agreement provides that the Manager shall not be liable
to the Trust for any error of judgment by the Manager

B-26

<PAGE>

or for any loss sustained by the Trust except in the case of a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages will be limited as provided in the Investment
Company Act) or of wilful misfeasance, bad faith, gross negligence or reckless
disregard of duty.

The Management Agreement provides that it shall 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 was last approved by the Trustees, including all of the Trustees who
are not interested persons as defined in the Investment Company Act, on May 8,
1996 and by a majority of the outstanding shares of the Money Market Series and
the Short-Intermediate Term Series on April 28, 1988 and a majority of the
outstanding shares of the U.S. Treasury Money Market Series on November 26,
1991.

For the fiscal year ended November 30, 1998, the Trust paid management fees
to PIFM of $2,435,541, $637,243 and $1,680,560 relating to the Money Market
Series, Short-Intermediate Term Series and U.S. Treasury Money Market Series.
For the fiscal year ended November 30, 1997, the Trust paid management fees to
PIFM of $2,348,740, $666,606 and $1,610,536 relating to the Money Market Series,
Short-Intermediate Term Series and U.S. Treasury Money Market Series,
respectively. For the fiscal year ended November 30, 1996, the Trust paid
management fees to PIFM of $2,362,419, $810,455 and $1,572,239 relating to the
Money Market Series, Short-Intermediate Term Series and U.S. Treasury Money
Market Series, respectively. 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 Trust. Fee waivers and subsidies will increase the Trust's total return.
These voluntary waivers may be terminated at any time without notice.

PIFM has entered into the Subadvisory Agreement with PI. The Subadvisory
Agreement provides that PI furnish investment advisory services in connection
with the management of the Trust. In connection therewith, PI is obligated to
keep certain books and records of the Trust. PIFM continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises PI's performance of those services. PI is reimbursed by
PIFM for the reasonable costs and expenses incurred by PI in furnishing those
services. Investment advisory services are provided to the Trust by a unit of
the Subadviser known as Prudential Mutual Fund Investment Management.

The Subadvisory Agreement was last approved by the Trustees, including all
of the Trustees who are not interested persons as defined in the Investment
Company Act, on May 22, 1997, and by the shareholders of each of the Money
Market Series and the Short-Intermediate Term Series on April 28, 1988 and the
shareholders of the U.S. Treasury Money Market Series on November 26, 1991.

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 Trust, PIFM or PI upon not less than 30 days' nor more than 60
days' written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years only so long as such continuance
is specifically approved at least annually in accordance with the requirements
of the Investment Company Act.

(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 distributor for the Trust's shares. Prior to June 1, 1998, Prudential
Securities Incorporated (Prudential Securities) was the company's distributor.
PIMS and Prudential Securities are subsidiaries of Prudential.

CLASS A PLAN. Under the Class A Plan for the Money Market Series and the
U.S. Treasury Money Market Series, the Trust may pay the Distributor for its
distribution-related activities with respect to Class A shares of each Series at
an annual rate of up to .125 of 1% of the average daily net assets of each
Series' Class A shares. Under the Class A Plan for the Short-Intermediate
Series, the Trust may pay the Distributor for its distribution-related
activities with respect to Class A shares of the Series' Class A shares at the
annual rate of the lesser of (a) .25 of 1% per annum of the aggregate sales of
the Series' Class A shares, not including shares issued in connection with
reinvestment of dividends and capital gains distributions issued on or after
July 1, 1985 (the effective date of the Short-Intermediate Term Series Class A
Plan) less the aggregate net asset value of any such Shares redeemed, or (b) .25
of 1% per annum of the average daily net asset value of the Series' Class A
shares issued after the effective date of the Class A Plan.

During the fiscal year ended November 30, 1998, the Distributor and
Prudential Securities incurred distribution expenses in the aggregate of
$737,062 and $525,175 with respect to the Money Market Series and the U.S.
Treasury Money Market Series, respectively, all of which was recovered through
the distribution fee paid by each Series to the Distributor and Prudential
Securities. It is estimated that of these amounts approximately $586,000 (79.5%)
and $412,300 (78.5%) was spent on payment of account servicing fees to financial
advisers for the Money Market Series and U.S. Treasury Money Market Series,
respectively, and $151,100 (20.5%) and $112,900 (21.5%) on allocation of
overhead and other branch office distribution-related expenses for the Money
Market Series and U.S. Treasury Money Market Series, respectively. The term
"overhead and other branch office distribution-related expenses" represents (a)
the expenses of operating the Distributor's branch offices in connection with
the sale of shares of the

B-27

<PAGE>

series, including lease costs, the salaries and employee benefits of operations
and sales support personnel, utility costs, communications costs and the costs
of stationary and supplies, (b) the costs of client sales seminars, (c) travel
expenses of mutual fund sales coordinators to promote the sale of shares of the
series, and (d) other incidental expenses relating to branch promotion of sales
of the series. Reimbursable distribution expenses do not include any direct
interest or carrying charges.

For the fiscal year ended November 30, 1998, the Distributor and Prudential
Securities collectively received $294,161 from the Short-Intermediate Term
Series under the Plan all of which was spent on behalf of the Short-Intermediate
Term Series or the payment of account servicing fees to financial advisers.

In each Distribution and Service Agreement, the Trust has agreed to
indemnify PIMS to the extent permitted by applicable law against certain
liabilities under the Securities Act.

In addition to distribution and service fees paid by the Fund under the
Class A Plans, the Manager (or one of its affiliates) may make payments to
dealers (including Prudential Securities) and other persons which distribute
shares of each Series, including Class Z shares. Such payments may be calculated
by reference to the net asset values of shares sold by such persons or
otherwise.

Pursuant to the Plans, the Trustees are provided at least quarterly with
written reports of the amounts expended under the Plans and the purposes for
which such expenditures were made. The Trustees review such reports on a
quarterly basis.

The Plans provide that they will continue in effect from year to year,
provided each such continuance is approved annually by a vote of the Trustees in
the manner described above. The Plans may not be amended to increase materially
the amount to be spent for the services described therein without approval of
the shareholders of the applicable Series, and all material amendments of the
Plans must also be approved by the Trustees in the manner described above. Each
Plan may be terminated at any time, without payment of any penalty, by vote of a
majority of the Rule 12b-1 Trustees, or by a vote of a majority of the
outstanding voting securities of the applicable Series (as defined in the
Investment Company Act). Each Plan will automatically terminate in the event of
its assignment (as defined in the Investment Company Act).

So long as the Plans are in effect, the selection and nomination of
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not interested persons. The Trustees have
determined that, in their judgment, there is a reasonable likelihood that the
Plans will benefit the Trust and its shareholders. In the Trustees' quarterly
review of the Plans, they consider the continued appropriateness and the level
of payments provided therein.

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. Fee waivers
and subsidies will increase the Fund's total return.

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-backed 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), Raritan Plaza One, Edison, New
Jersey 08837, serves as the transfer and dividend disbursing agent of the Fund.
PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary transfer
agency services to the Trust, 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 maintenance fee
of $10.00 per shareholder account, a new account set-up fee $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, stationery,
printing, allocable communication expenses and other costs.

B-28

<PAGE>

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

BROKERAGE ALLOCATION AND OTHER PRACTICES

The Manager is responsible for decisions to buy and sell securities for the
Money Market Series, Short-Intermediate Term Series and U.S. Treasury Money
Market Series, arranging the execution of portfolio security transactions on
each Series' behalf, and the selection of brokers and dealers to effect the
transactions. Purchases of portfolio securities are made from dealers,
underwriters and issuers; sales, if any, prior to maturity, are made to dealers
and issuers. Each Series does not normally incur any brokerage commission
expense on such transactions. The instruments purchased by the Series 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. Securities purchased in underwritten offerings
include a fixed amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. When securities are purchased or
sold directly from or to an issuer, no commissions or discounts are paid.

The policy of each of the Series regarding purchases and sales of
securities is that primary consideration will be given to obtaining the most
favorable price and efficient execution of transactions.

The Trust paid no brokerage commissions for the fiscal years ended November
30, 1996, 1997 and 1998.

CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

THE TRUST, ORGANIZED IN 1981 AS AN UNINCORPORATED BUSINESS TRUST UNDER THE
LAWS OF MASSACHUSETTS, IS A TRUST FUND OF THE TYPE COMMONLY KNOWN AS A
MASSACHUSETTS BUSINESS TRUST. The Trust's activities are supervised by its
Trustees. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares in separated series and classes within such
securities. Each Series is authorized to issue an unlimited number of shares,
divided into two classes, designated Class A and Class Z.

The shareholders of the Money Market Series, the Short-Intermediate Term
Series and the U.S. Treasury Money Market Series are each entitled to a full
vote for each full share of beneficial interest (par value $.01 per share) held
(and fractional votes for fractional shares). Shares of each Series are entitled
to vote as a class only to the extent required by the provisions of the
Investment Company Act or as otherwise permitted by the Trustees in their sole
discretion. Under the Investment Company Act, shareholders of each Series have
to approve the adoption of any investment advisory agreement relating to such
series and of any changes in investment policies related thereto.

Shares of each Series are currently divided into two classes designated
Class A and Class Z shares. Each class represents an interest in the same assets
of the Series and is identical in all respects except that (1) each class is
subject to different expenses 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 manner submitted
to shareholders in which the interests of one class differ from the interests of
the other class, (3) each class has a different exchange privilege and (4) Class
Z shares are offered exclusively for sale to a limited group of investors. Since
Class A shares are subject to distribution and/or service expenses, the
liquidation proceeds to shareholders of that class are likely to be lower than
to Class Z shareholders whose shares are not subject to any distribution and/or
service expenses. In accordance with the Trust's Declaration of Trust, the
Trustees may authorize the creation of additional classes, with such
preferences, privileges, limitations and voting and dividend rights as the
Trustee may determine.

It is the intention of the Trust not to hold annual meetings of
shareholders. The Trustees may call special meetings of shareholders for action
by shareholder vote as may be required by the Investment Company Act or the
Declaration of Trust. Shareholders have certain rights, including the right to
call a meeting upon a vote of 10% of the Trust's outstanding shares for the
purpose of voting on the removal of one or more Trustees.

PURCHASE, REDEMPTION AND PRICING OF TRUST SHARES

Shares of the Trust may be purchased at a price equal to the next
determined net asset value (NAV) per share. Class Z shares of the Fund are
offered to a limited group of investors at NAV without any sales charge.

PURCHASES BY WIRE. For an initial purchase of shares of the Trust 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, 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 Government Securities
Trust, specifying on the wire the account number assigned by PMFS and your name
and identifying the Series and the class in which you are eligible to invest
(Class A or Class Z shares).

B-29

<PAGE>

If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York Time for the Short-Intermediate Term
Series; 4:30 P.M. New York Time for the Money Market Series and U.S. Treasury
Money Market Series), on a business day, you may purchase shares of the Fund as
of that day.

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Government
Securities Trust-(specify the Series), Class A or Class Z shares and your name
and individual account number. It is not necessary to call PMFS to make
subsequent purchase orders utilizing Federal Funds. The minimum account which
may be invested by wire is $1,000.

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
Trust at (800) 225-1852 to execute .a telephone exchange of shares, on weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
Neither the Trust 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, signed in the name(s) shown on
the face of 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.

ISSUANCE OF TRUST SHARES FOR SECURITIES

Transactions involving the issuance of Trust shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the investment
objectives and policies of the Trust, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via a
listing on or trading in a recognized United States or international exchange or
market, and (d) are approved by the Trust's investment adviser.

CLASS Z SHARES

Class Z shares of the Trust currently are available for purchase by the
following categories of investors:

o pension, profit-sharing or other employee benefits plans qualified under
Section 401 of the Internal Revenue Code, deferred compensation and annuity
plans under Sections 457 and 403(b)(7) of the Internal Revenue Code and
non-qualified plans for which the Trust is an available option
(collectively, Benefits Plans), provided such Benefit Plans (in combination
with other plans sponsored by the same employer or group of related
employers) have at least $50 million in defined contribution assets;

o participants in any fee-based program or trust program sponsored by an
affiliate of the Distributor which includes mutual funds as investment
options and for which the Trust is an available option;

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 Benefits Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and as of September 20, 1996, (a)
were Class Z shareholders of the Prudential Mutual Funds or (b) executed a
letter of intent to purchase Class Z shares of the Prudential Mutual Funds:

o the Prudential Securities Cash Balance Pension Plan, an employee defined
benefit plan sponsored by Prudential Securities;

o current and former Directors/Trustees of the Prudential Mutual Funds
(including the Trust);

o employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee savings plan and

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

After a Benefit Plan qualifies to purchase Class Z shares, all subsequent
purchases will be for Class Z shares.

In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders fee, from its own resources, based on a
percentage of the NAV of shares sold by such persons.

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<PAGE>

Class Z shares of the Trust may also be purchased by certain savings,
retirement and deferred compensation plans, qualified or non-qualified under the
Internal Revenue Code of 1986, as amended (the Internal Revenue Code), provided
that (1) the plan purchases shares of the Trust pursuant to an investment
management agreement with the Prudential Insurance Company of America or its
affiliates, (2) the Trust is an available investment option under the agreement
and (3) the plan will participate in the PruArray and SmartPath Programs
(benefit plan recordkeeping service) sponsored by PMFS. These plans include
pension, profit-sharing, stock-bonus or other employee benefit plans under
Section 401 of the Internal Revenue Code and deferred compensation and annuity
plans under Sections 457 or 403 (b)(7) of the Internal Revenue Code.

SALE OF SHARES

You can redeem 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. If you are redeeming your shares
through a broker, your broker must receive your sell order before the Trust
computes its NAV for that day (that is, 4:15 P.M., New York time for
Short-Intermediate Term Series or 4:30 P.M., New York time for Money Market
Series and U.S. Treasury Money Market Series) 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 Trust through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your
Prudential-Securities financial adviser.

If you hold shares in non-certificate form, a written request for
redemption signed by you exactly as the account is registered is required. If
you hold certificates, the certificates, signed in the name(s) shown on the face
of 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 Trust in care of its Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010, the Distributor or to your broker.

SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $50,000,
(2) are to be paid to a person other that 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, and your shares
are held directly with the Transfer Agent, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices. 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 certificate and/or written request, except as indicated below. If you
hold shares through a broker, 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 Trust of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Trust
fairly to determine the value of its net assets, or (4) during any other period
when 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 Trust 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 Trustees determine that it would be detrimental
to the best interests of the remaining shareholders of the Trust to make payment
wholly or partly in cash, the Trust may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio the
Trust, 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 Trust, however, has
elected to be governed by Rule 18f-1 under the Investment Company Act, under
which the Trust 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 Trust, the
Trustees 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 NAV of less than

B-31

<PAGE>

$500 due to a redemption. The Trust will give such shareholders 60 days' prior
written notice in which to purchase sufficient additional shares to avoid such
redemption. No contingent deferred sales charge will be imposed on any such
involuntary redemption.

90-DAY REPURCHASE PRIVILEGE. After you redeem your shares, you have a
90-day period during which you may reinvest any of the redemption proceeds in
shares of the same Series without paying an initial sales charge. 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. Exercise of the exchange privilege
may affect federal tax treatment of any gain realized upon redemption.

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Trust shares, a Shareholder Investment Account
is established for each investor under which shares are held for the investor by
the Transfer Agent. Whenever a transaction takes place in the Shareholder
Investment Account, the shareholder will be mailed a statement showing the
transaction and the status of such account. 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 Trust makes
available to its shareholders the following privileges and plans.

PROCEDURE FOR MULTIPLE ACCOUNTS

Special procedures have been designed for banks and other institutions that
wish to open multiple accounts. An institution may open a single master account
by filing an Application Form with Prudential Mutual Fund Services LLC (PMFS or
the Transfer Agent), Attention: Customer Service, P.O. Box 15005, New Brunswick,
New Jersey 08906, signed by personnel authorized to act for the institution.
Individual sub-accounts may be opened at the time the master account is opened
by listing them, or they may be added at a later date by written advice or by
filing forms supplied by the Trust. Procedures are available to identify
sub-accounts by name and number within the master account name. The investment
minimums set forth above are applicable to the aggregate amounts invested by a
group and not to the amount credited to each sub-account.

PMFS provides each institution with a written confirmation for each
transaction in sub-accounts. Further, PMFS provides, to each institution on a
monthly basis, a statement which sets forth for each master account its share
balance and income earned for the month. In addition, each institution receives
a statement for each individual account setting forth transactions in the
sub-account for the year-to-date, the total number of shares owned as of the
dividend payment date and the dividends paid for the current month, as well as
for the year-to-date.

Further information on the sub-accounting system and procedures is
available from the Transfer Agent, Prudential Securities or Prusec.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically invested in full and fractional shares of the applicable Series at
net asset value. An investor may direct the Transfer Agent in writing not less
than 5 full business days prior to the payable date to have subsequent dividends
and/or distributions sent in cash rather than invested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the broker. Any
shareholder who receives a cash payment representing a dividend or distribution
may reinvest such dividend or distribution at net asset value by returning the
check or the proceeds to the Transfer Agent within 30 days after the payment
date. Such investment will be made at the NAV per share next determined after
receipt of the check or proceeds by the Transfer Agent.

EXCHANGE PRIVILEGE

The Trust makes available to its Money Market Series, Short-Intermediate
Term Series and U.S. Treasury Money Market Series shareholders the privilege of
exchanging their shares for shares of either of the other Series and 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. Class A or Class Z shares of such other Prudential Mutual Funds may also
be exchanged for Class A or Class Z shares of the Money Market Series and for
shares of the Short-Intermediate Term Series and U.S. Treasury Money Market
Series. An exchange is treated as a redemption and purchase for Federal income
tax purposes. All exchanges are made on the basis of 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 of another fund only if shares of such fund may legally be sold under
applicable state laws.

It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.

Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Trust'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
Trust, or the Distributor, has the right to reject any exchange application
relating to such fund's shares.

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<PAGE>

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

CLASS A. Shareholders of the Trust may exchange their Class A shares for
Class A shares of the Prudential Mutual Funds, and shares of the money market
funds specified below. No fee or sales load will be imposed upon the exchange.
The following money market funds participate in the Class A Exchange Privilege:

Prudential California Municipal Fund
(California Money Market Series)

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

Prudential Municipal Series Fund
(Connecticut Money Market Series)

(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)

Prudential MoneyMart Assets

Prudential Tax-Free Money Fund, Inc.

Shareholders of the Trust may not exchange their shares for Class B or
Class C shares of the Prudential Mutual Funds or shares of Prudential Special
Money Market Fund, a money market fund, except that shares acquired prior to
January 22, 1990 subject to a contingent deferred sales charge can be exchanged
for Class B shares.

CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.

DOLLAR COST AVERAGING-SHORT-INTERMEDIATE TERM SERIES

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 overall cost
is lower than it would be if a constant number of shares were bought at set
intervals.

Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class beginning in 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
- -------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
25 Years .................. $ 110 $ 165 $ 220 $ 275
20 Years .................. 176 264 352 440
15 Years .................. 296 444 592 740
10 Years .................. 555 833 1,110 1,388
5 Years ................... 1,371 2,057 2,742 3,428
</TABLE>

See "Automatic Investment Plan."

- -----------
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 1993-94 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 any Series' shares each month by authorizing his or her bank account
or brokerage account (including a Prudential Securities COMMAND Account) to be
debited to invest specified dollar amounts in shares of that Series. The
investor's bank must be a member of the Automatic Clearing House System. Share
certificates are not issued to AIP participants.

B-33

<PAGE>

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 for shareholders having shares of
the Trust held through the Transfer Agent, the Distributor or your broker. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.

In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) withdrawals may not be for less than $100 and (3) the
shareholder must elect to have all dividends and/or distributions automatically
reinvested in additional full and fractional shares of the applicable series at
NAV on shares held under this plan. See "Shareholder Investment
Account-Automatic Reinvestment of Dividends and Distributions" above.

The Transfer Agent, the Distributor or your broker acts as an agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the

shareholder. Withdrawal payments should not generally be considered as
dividends, yield or income. If periodic withdrawals continuously exceed
reinvested dividends and distributions, the shareholder's original investment
will be correspondingly reduced and ultimately exhausted. Furthermore, each
withdrawal constitutes a redemption of shares, and any gain or loss realized
must generally be recognized for federal income tax purposes. 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 a 401(k) Plan,
self-directed individual retirement accounts and "tax-deferred accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
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 COMPOUNDING1

<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- --------------- ---------- ----------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>

- -----------
1 The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA which meet the conditions required under
the Internal Revenue Code will not be subject to tax upon withdrawal from the
account.

MUTUAL FUND PROGRAMS

From time to time, a Series of the Fund may be included in a mutual fund
program with other Prudential Mutual Funds. Under such a program, a group of
portfolios will be selected and thereafter promoted collectively. Typically,
these programs are created with an investment theme, such as, to seek greater
diversification, protection from interest rate movements or access to different
management styles. In the event such a program is instituted, there may be a
minimum investment requirement for the program as a whole. A Series may waive or
reduce the minimum initial investment requirements in connection with such a
program.

The mutual funds in the program may be purchased individually or as a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their financial
adviser concerning the

B-34

<PAGE>

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

MONEY MARKET SERIES AND U.S. TREASURY MONEY MARKET SERIES

AMORTIZED COST VALUATION. The Money Market Series and the U.S. Treasury
Money Market Series use the amortized cost method to determine the value of
their portfolio securities in accordance with regulations of the Securities and
Exchange Commission. The amortized cost method involves valuing a security at
its cost and amortizing any discount or premium over the period until maturity.
The method does not take into account unrealized capital gains and losses which
may result from the effect of fluctuating interest rates on the market value of
the security.

With respect to the Money Market Series and the U.S. Treasury Money Market
Series, the Trustees have determined to maintain a dollar-weighted average
maturity of 90 days or less, to purchase instruments having remaining maturities
of thirteen months or less and to invest only in securities determined by the
investment adviser under the supervision of the Trustees to present minimal
credit risks and to be of eligible quality in accordance with the provisions of
Rule 2a-7 of the Investment Company Act. The Trustees have adopted procedures
designed to stabilize, to the extent reasonably possible, both Series' price per
share as computed for the purpose of sales and redemptions at $1.00. Such
procedures will include review of the Series' portfolio holdings by the
Trustees, at such intervals as they may deem appropriate, to determine whether
the Series' net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Trustees. If such deviation exceeds 1/2 of 1%,
the Trustees will promptly consider what action, if any, will be initiated. In
the event the Trustees determine that a deviation exists which may result in
material dilution or other unfair results to prospective investors or existing
shareholders, the Trustees will take such corrective action as they consider
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, the withholding of dividends, redemptions of shares in kind, or the
use of available market quotations to establish a net asset value per share.

SHORT-INTERMEDIATE TERM SERIES

Under the Investment Company Act, the Trustees are responsible for
determining in good faith the fair value of the Short-Intermediate Term Series'
securities. In accordance with procedures adopted by the Trustees, the value of
each U.S. Government security for which quotations are available will be based
on the valuation provided by an independent pricing service. Pricing services
consider such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
securities valuations. Securities for which market quotations are not readily
available are valued by appraisal at their fair value as determined in good
faith by the Manager under procedures established under the general supervision
and responsibility of the Trustees.

Short-term investments which mature in 60 days or less are valued at
amortized cost, if their term to maturity from date of purchase was 60 days or
less, or by amortizing their value on the 61st day prior to maturity if their
term to maturity when acquired by the Intermediate Series was more than 60 days,
unless this is determined not to represent fair value by the Trustees.

TIME NET ASSET VALUE IS CALCULATED

The Trust will compute its NAV value at 4:15 P.M., New York Time, for the
Short-Intermediate Term Series and at 4:30 P.M. for the Money Market Series and
U.S. Treasury Money Market Series, on each day the New York Stock Exchange is
open for trading except on days on which no orders to purchase, sell or redeem
series shares have been received or days on which changes in the value of a
series' securities do not affect NAV. In the event the New York Stock Exchange
closes early on any business day, the net asset value of the Short-Intermediate
Term Series' shares shall be determined at a time between such closing and 4:15
P.M. New York time and at a time between such closing and 4:30 P.M. for the
Money Market Series' and US Treasury Money Market Series' shares. The New York
Stock Exchange is closed on the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.

TAXES, DIVIDENDS AND DISTRIBUTIONS

Each Series of the Trust is treated as a separate entity for federal income
tax purposes and each has elected to qualify and intends to remain qualified as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the Internal Revenue Code). If each Series qualifies as a regulated
investment company, it will not be subject to federal income taxes on the
taxable income it distributes to shareholders, provided at least 90% of its net
investment income and net short-term capital gains earned in the taxable year is
so distributed.

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<PAGE>

To qualify for this treatment, each Series must, among other things, (a)
derive at least 90% of its gross income (without offset for losses from the sale
or other disposition of securities or foreign currencies) from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of securities or foreign currencies and certain financial
futures, options and forward contracts; and (b) diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the value of
its assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount no greater than 5%
of its 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). The performance and
tax qualification of one Series will have no effect on the federal income tax
liability of shareholders of the other Series.

Each Series is required to distribute 98% of its ordinary income in the
same calendar year in which it is earned. Each Series is also required to
distribute during the calendar year 98% of the capital gain net income it
earned, if any, 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 twelve-month period ending on October 31 of such
prior year, respectively. To the extent a Series does not meet these
distribution requirements, it will be subject to a nondeductible 4% excise tax
on the undistributed amount. For purposes of this excise tax, income on which a
Series pays income tax is treated as distributed. Each Series intends to make
timely distributions in order to avoid this excise tax. For this purpose,
dividends declared in October, November and December payable to shareholders of
record on a specified date in October, November and December and paid in the
following January will be treated as having been received by shareholders on
December 31 of the calendar year in which declared. Under this rule, therefore,
a shareholder may be taxed in the prior year on dividends or distributions
actually received in January of the following year.

Dividends paid by a Series from its ordinary income and distributions of a
Series's net realized short-term capital gains are taxable to shareholders as
ordinary income, whether or not reinvested. Generally none of the income of the
Trust will consist of dividends from domestic corporations. Therefore, dividends
of net investment income and distributions of net short-term capital gains will
not be eligible for the dividends received deduction for corporate shareholders.

Distribution of net capital gains (that is, the excess of net capital gains
from the sale of assets held for more than 12 months over net short-term capital
losses, and including such gains from certain transactions in futures and
options), if any, are 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 capital gains rate
for corporate shareholders currently is the same as the maximum tax rate for
ordinary income. The U.S. Treasury Money Market Series and the Money Market
Series are not likely to realize long-term capital gains because of the types of
securities they purchase. Net capital gains of a Series that are available for
distribution to shareholders will be computed by taking into account any capital
loss carryforward of such Series.

Upon the redemption, sale or exchange of shares of a Series, a shareholder
may recognize gain or loss. Such gain or loss will be capital gain or loss if
the Shares were held as a capital investment, and such capital gain or loss will
be long-term capital gain or loss if such shares were held for more than 12
months. However, any short-term capital loss from the sale of shares held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain distributions on such shares.

Any loss realized on a sale, redemption or exchange of shares of a Series
by a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.

The Trust has obtained an opinion of counsel to the effect that the
exchange of one class of a Series' shares for another class of its shares does
not constitute a taxable event for federal income tax purposes. However, such an
opinion is not binding on the Internal Revenue Service.

The Trust may purchase debt securities that contain original issue
discount. Original issue discount that accrues in a taxable year is treated as
income earned by that Series and therefore is subject to the distribution
requirements of the Internal Revenue Code. Debt securities acquired by the Trust
also may be subject to the market discount rules. Because the original issue
discount income earned by a Series in a taxable year may not be represented by
cash income, a Series may have to dispose of other securities and use the
proceeds to make distributions to satisfy the Internal Revenue Code's
distribution requirement.

The Short-Intermediate Term Series may engage in various strategies using
derivatives, including the use of put and call options on securities and
financial indices, transactions involving futures contracts and related options,
short selling and the use of leverage, including reverse repurchase agreements
and dollar rolls. Gains and losses on the sale, lapse or other termination of
options on securities will generally be treated as gains and loses from the sale
of securities (assuming they do not qualify as Section 1256 contracts). If an
option written by the Series on securities lapses or is terminated through a
closing transaction, such as a repurchase by the Series of the option from its
holder, the Series should generally realize short-term capital gain or loss. If
securities are sold by the Series pursuant to the exercise of a call option
written by it, the Series 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 Series' transactions may

B-36

<PAGE>

be subject to wash sale, short sale and constructive sale provisions of the
Internal Revenue Code, which may, in general, disallow or defer certain losses
realized by the Series, recharacterize certain of the Series' long-term capital
gains as short-term capital gains (or short-term capital losses as long term
capital losses), and toll the Series' holding period in certain capital assets.

Regulated future contracts and certain listed options which are not equity
options constitute Section 1256 contracts. Such 1256 contracts will be required
to be marked to market for federal income tax purposes at the end of the Series'
taxable year; that is, treated as having been sold at market value. Sixty
percent 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.

In addition, positions which are part of a straddle are subject to special
rules including wash sale, short sale and constructive sale provisions of the
Internal Revenue Code. The Series generally will be required to defer the
recognition of losses on positions it holds as part of a straddle to the extent
of any unrecognized gain on offsetting positions held by the Series, and will
not be able to deduct the net interest or other charges incurred to purchase or
carry straddle positions. Capital gains realized by the Series in connection
with a conversion transaction (generally, a transaction the Series' return from
which is attributable solely to the time value of the Series' net investment)
will generally be recharacterized as ordinary income.

See "Taxes, Dividends and Distributions" in the Prospectus of each Series.

PERFORMANCE INFORMATION

MONEY MARKET SERIES AND U.S. TREASURY MONEY MARKET SERIES-CALCULATION OF YIELD
The Money Market Series and U.S. Treasury Money Market Series will each

prepare a current quotation of yield from time to time. The yield quoted will be
the simple annualized yield for an identified seven calendar day period. The
yield calculation will be based on a hypothetical account having a balance of
exactly one share at the beginning of the seven-day period. The base period
return will be the change in the value of the hypothetical account during the
seven-day period, including dividends declared on any shares purchased with
dividends on the shares but excluding any capital changes. The yield will vary
as interest rates and other conditions affecting money market instruments
change. Yield also depends on the quality, length of maturity and type of
instruments in the Money Market Series and U.S. Treasury Money Market Series'
portfolios and their operating expenses. The Money Market Series and U.S.
Treasury Money Market Series may also each prepare an effective annual yield
computed by compounding the unannualized seven-day period return as follows: by
adding 1 to the unannualized seven-day period return, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result.

Effective yield = [(base period return + 1)365/7 ]-1 The U.S.
Treasury Money Market Series may also calculate the tax

equivalent yield over a 7-day period. The tax equivalent yield will be
determined by first computing the current yield as discussed above. The Series
will then determine what portion of the yield is attributable to securities, the
income of which is exempt for state and local income tax purposes. This portion
of the yield will then be divided by one minus the maximum state tax rate of
individual taxpayers and then added to the portion of the yield that is
attributable to other securities.

Comparative performance information may be used from time to time in
advertising or marketing the Money Market Series' and U.S. Treasury Money Market
Series' shares, including data from Lipper Analytical Services, Inc., Donoghue's
Money Fund Report, The Bank Rate Monitor, other industry publications, business
periodicals, rating services and market indices.

The Money Market Series' and U.S. Treasury Money Market Series' yields
fluctuate, and annualized yield quotations are not a representation by the Money
Market Series or U.S. Treasury Money Market Series as to what an investment in
the Money Market Series and U.S. Treasury Money Market Series will actually
yield for any given period. Yield for the Money Market Series and U.S. Treasury
Money Market Series will vary based on a number of factors including changes in
market conditions, the level of interest rates and the level of each series'
income and expenses.

SHORT-INTERMEDIATE TERM SERIES-CALCULATION OF YIELD AND TOTAL RETURN
YIELD. The Short-Intermediate Term Series may from time to time advertise

its yield as calculated over a 30-day period. Yield will be computed by dividing
the Short-Intermediate Term Series' net investment income per share earned
during this 30-day period by the net asset value per share on the last day of
this period. Yield is calculated according to the following formula:

a - b
YIELD = 2 [(---- + 1)6-1]

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 net asset value per share on the last day of the period.

Yield fluctuates and an annualized yield quotation is not a representation
by the Trust as to what an investment in the Intermediate Term Series will
actually yield for any given period.

B-37

<PAGE>

The Short-Intermediate Term Series' 30-day yield for the period ended
November 30, 1998 was 5.02% for Class A and 5.22% for Class Z.

AVERAGE ANNUAL TOTAL RETURN. The Short-Intermediate Term Series may from
time to time advertise its average annual total return.

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 at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year periods.

Average annual total return does not take into account any federal or state
income taxes that may be payable upon redemption.

The Short-Intermediate Term Series' average annual total return with
respect to Class A shares for the one, five, ten year and since inception
September 22, 1982 periods ended November 30, 1998 was 6.01%, 5.31%, 7.20% and
8.29%, respectively. The Short-Intermediate Term Series' average annual total
return with respect to Class Z shares for the one year and since inception
(February 26, 1997) periods ended November 30, 1998 was 6.31% and 6.86%,
respectively.

AGGREGATE TOTAL RETURN. The Short-Intermediate Term Series may also
advertise its aggregate total return. See "How the Trust Calculates

Performance" in the Prospectus.

Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:

ERV - P
-------
P

Where: P = a hypothetical initial payment of $1,000.

ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of the 1, 5 or 10 year periods.

Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption.

The Short-Intermediate Term Series' aggregate total return with respect to
Class A shares for the one, five, ten year and since inception (September 22,
1982) periods ended November 30, 1998 was 6.01%, 29.53%, 100.39% and 262.92%,
respectively. The Short-Intermediate Term Series' aggregate total return with
respect to Class Z shares for the one year and since inception (February 26,
1997) periods ended November 30, 1998 was 6.31% and 12.37%, respectively.

B-38

<PAGE>

Portfolio of Investments as of November 30, 1998
MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Federal Home Loan Bank--34.0%
$ 26,500 4.84%, 12/1/98 $ 26,482,917
2,500 5.01%, 12/1/98 2,499,921
12,000 5.01%, 12/2/98 11,994,961
73,000 5.10297%, 12/8/98, F.R.N. 72,971,677
12,000 4.78%, 1/28/99 11,907,587
23,000 4.90%, 1/29/99 22,815,297
10,000 5.58%, 3/11/99 10,000,467
7,000 5.50%, 3/26/99 6,996,827
12,000 5.54%, 4/7/99 11,990,909
10,000 5.54%, 7/13/99 9,996,426
2,000 5.25%, 10/14/99 2,000,000
20,000 5.00%, 10/27/99 20,000,000
------------
209,656,989
- ------------------------------------------------------------
Federal Home Loan Mortgage Corporation--14.4%
23,000 5.07656%, 12/18/98, F.R.N. 22,988,705
22,550 4.83984%, 12/28/98, F.R.N. 22,547,603
22,500 5.11%, 1/22/99 22,333,925
11,000 4.92%, 2/16/99 10,884,243
10,000 5.505%, 3/12/99 9,997,953
------------
88,752,429
- ------------------------------------------------------------
Federal National Mortgage Association--30.9%
25,000 4.96%, 12/1/98 24,996,404
24,600 4.97%, 12/1/98 24,580,928
4,405 7.05%, 12/10/98 4,406,467
3,000 5.06391%, 12/17/98, F.R.N. 2,999,401
10,000 4.81%, 12/18/98 9,977,286
30,000 5.20%, 12/23/98 29,904,667
12,500 5.21%, 12/23/98 12,460,201
11,500 5.065%, 1/8/99 11,438,516
10,000 5.00%, 2/5/99 9,908,333
22,000 5.41%, 2/23/99 21,993,170
$ 8,000 5.37%, 2/26/99 $ 7,995,084
30,000 5.32%, 9/17/99, F.R.N. 29,985,625
------------
190,646,082
- ------------------------------------------------------------
Student Loan Marketing Association--8.4%
13,966 5.58%, 3/11/99 13,965,064
5,000 5.53%, 7/16/99 4,997,911
7,000 4.50%, 8/2/99 6,975,009
17,500 4.85%, 11/4/99, F.R.N. 17,490,400
8,500 5.31%, 11/9/99 8,495,287
------------
51,923,671
- ------------------------------------------------------------
Repurchase Agreements(a)--13.1%
1,373 Credit Suisse First Boston Corp.,
5.00%, dated 11/27/98, due
12/1/98 in the amount of
$1,373,763 (cost $1,373,000; the
value of the collateral including
accrued interest is $1,400,889) 1,373,000
18,762 Credit Suisse First Boston Corp.,
4.81%, dated 11/19/98, due
12/3/98 in the amount of
$18,797,095 (cost $18,762,000;
the value of the collateral
including accrued interest is
$19,143,103) 18,762,000
33,000 J.P. Morgan Securities, Inc., 5.15%,
dated 11/5/98, due 1/20/99 in the
amount of $33,358,783 (cost
$33,000,000; the value of the
collateral including accrued
interest is $33,670,312) 33,000,000
6,424 Morgan Stanley Dean Witter, 4.83%,
dated 11/25/98, due 12/2/98 in
the amount of $6,430,033 (cost
$6,424,000; the value of the
collateral including accrued
interest is $6,554,487) 6,424,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-39

<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
Portfolio of Investments as of November 30, 1998
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Repurchase Agreements(a) (cont'd.)
$ 21,040 Salomon Smith Barney Inc., 5.05%,
dated 11/30/98, due 12/7/98 in
the amount of $21,060,660 (cost
$21,040,000; the value of the
collateral including accrued
interest is $21,473,950) $ 21,040,000
------------
80,599,000
------------
- ------------------------------------------------------------
Total Investments--100.8%
(amortized cost $621,578,171(b)) 621,578,171
Liabilities in excess of other
assets--(0.8%) (4,673,333)
------------
Net Assets--100% $616,904,838
============
</TABLE>
- ---------------
F.R.N.--Floating Rate Note. The interest rate reflected is the rate in effect at
November 30, 1998.
(a) Repurchase Agreements are collateralized by U.S. Treasury or Federal agency
obligations.
(b) Federal income tax basis of portfolio securities is the same as for
financial reporting purposes.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-40

<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Portfolio of Investments as of November 30, 1998
SHORT-INTERMEDIATE TERM SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--95.1%
- ------------------------------------------------------------
Asset-Backed--15.9%
Capital One Master Trust
$ 5,000 Ser. 98-4 A, 5.43%, 1/15/07 $ 4,987,500
Contimortgage Home Equity Loan
Trust
10,000(a) Ser. 98-2 A3, 6.13%, 3/15/13 10,021,875
Federal Home Loan Mortgage
Corporation,
Loan Receivable Trust
33,129 Ser. 97-A AX, 3.80%, 4/15/19, I/O 4,410,364
Premier Auto Trust
5,000 Ser. 98-2 A3, 5.77%, 1/6/02 5,032,031
------------
24,451,770
- ------------------------------------------------------------
Collateralized Mortgage Obligations--10.9%
Bayview Financial Acquisition Trust
4,403 Ser. 98-1 A1, 7.01%, 5/25/29 4,445,149
Federal Home Loan Mortgage
Association
793 7.00%, 2/15/05 791,916
Federal National Mortgage
Association
11,605(a) 6.65%, 3/25/02, REMIC 11,590,076
------------
16,827,141
- ------------------------------------------------------------
Corporate Obligations--1.7%
Merck and Company
2,500(a) 5.76%, 5/3/37 2,590,625
- ------------------------------------------------------------
U.S. Government Agency Mortgage Pass-Through
Obligations--17.3%
Federal Home Loan Mortgage
Association
594 6.317%, 6/01/28 590,711
198 7.375%, 3/01/06 202,809
1,315(a) 9.00%, 9/01/05 - 11/01/05 1,350,760
Federal National Mortgage
Association
8,830 6.50%, 1/01/13 - 4/01/13 8,956,533
4,179 6.765%, 1/01/07 4,181,537
3,740(a) 7.50%, 4/01/10 - 12/01/10 3,847,821
Government National Mortgage
Association
7,340(a) 7.00%, 1/15/25 - 11/15/25 7,518,979
------------
26,649,150
- ------------------------------------------------------------
U.S. Government Agency Obligation--3.3%
5,000(a) 6.30%, 9/25/02 5,089,050
- ------------------------------------------------------------
U.S. Treasury Notes--46.0%
300(a) 6.25%, 5/31/99 302,298
1,950(a) 5.875%, 7/31/99 1,964,313
500 6.375%, 5/15/00 512,030
4,750(a) 6.00%, 8/15/00 4,854,642
4,720 6.50%, 5/31/01 4,926,500
2,500(a) 6.00%, 7/31/02 2,611,725
2,300(a) 5.75%, 11/30/02 2,389,838
4,200(a) 5.50%, 1/31/03 4,329,948
17,800 4.25%, 11/15/03 17,605,268
5,000(a) 6.625%, 5/15/07 5,617,950
11,500 6.125%, 8/15/07 12,545,810
3,000(b) 5.50%, 2/15/08 3,167,820
10,080(b) 4.75%, 11/15/08 10,095,725
------------
70,923,867
------------
Total long-term investments
(cost $145,090,712) 146,531,603
------------
SHORT-TERM INVESTMENT--4.5%
- ------------------------------------------------------------
Repurchase Agreement
7,030 Joint Repurchase Agreement Account
5.25%, 12/1/98
(cost $7,030,000; Note 5) 7,030,000
------------
- ------------------------------------------------------------
Total Investments--99.6%
(amortized cost $152,120,712; Note
4) 153,561,603
Other assets in excess of
liabilities--0.4% 582,185
------------
Net Assets--100% $154,143,788
============
</TABLE>
- ---------------
I/O--Interest Only.
REMIC--Real Estate Mortgage Investment Conduit.
(a) Asset segregated for dollar rolls.
(b) Securities on loan, see Note 4.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-41

<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
U.S. TREASURY MONEY MARKET SERIES
Portfolio of Investments as of November 30, 1998
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
U.S. Treasury Bills--67.2%
$ 50,000 4.86%, 12/15/98 $ 49,905,500
412 3.76%, 12/24/98 411,010
440 4.13%, 12/24/98 438,839
35,000 4.495%, 1/21/99 34,777,123
35,254 4.505%, 1/21/99 35,029,006
48,734 4.51%, 1/21/99 48,422,630
2,698 4.525%, 1/21/99 2,680,705
1,276 4.53%, 1/21/99 1,267,811
46,231 4.67%, 1/21/99 45,925,144
7,737 4.435%, 2/25/99 7,655,029
------------
226,512,797
- ------------------------------------------------------------
U.S. Treasury Notes--33.9%
8,300 6.375%, 1/15/99 8,309,343
12,435 5.875%, 1/31/99 12,465,922
34,805 8.875%, 2/15/99 35,109,681
2,515 5.50%, 2/28/99 2,521,254
6,460 6.25%, 3/31/99 6,482,991
11,672 7.00%, 4/15/99 11,732,936
31,877 6.00%, 6/30/99 31,972,648
5,701 6.375%, 7/15/99 5,732,406
------------
114,327,181
- ------------------------------------------------------------
Total Investments--101.1%
(amortized cost $340,839,978(a)) 340,839,978
Liabilities in excess of other
assets--(1.1%) (3,855,009)
------------
Net Assets--100% $336,984,969
============
</TABLE>
- ---------------
(a) Federal income tax basis of Portfolio securities is the same
as for financial reporting purposes.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-42

<PAGE>
Statement of Assets and Liabilities
November 30, 1998 PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Treasury
Money Short- Money
Market Intermediate Market
Assets Series Term Series Series
------------ ------------ ------------
<S> <C> <C> <C>
Investments, at value (cost $540,979,171, $152,120,712 and $340,839,978,
respectively)............................................................ $540,979,171 $153,561,603 $340,839,978
Repurchase agreements, at value (cost $80,599,000, $0 and $0,
respectively)............................................................ 80,599,000 -- --
Cash........................................................................ 993,658 58,159 3,491
Receivable for investments sold............................................. -- -- 53,429,001
Interest receivable......................................................... 3,065,982 1,052,770 2,497,641
Securities lending income receivable........................................ -- 39,322 --
Receivable for Series shares sold........................................... 6,785,610 49,447 4,135,372
Deferred expenses and other assets.......................................... 161,709 4,175 7,064
------------ ------------ ------------
Total assets............................................................. 632,585,130 154,765,476 400,912,547
------------ ------------ ------------
Liabilities
Payable for investments purchased........................................... 7,080,009 -- 57,560,529
Payable for Series shares reacquired........................................ 7,820,570 179,086 5,688,689
Due to Manager.............................................................. 196,222 50,630 112,923
Due to distributor.......................................................... 32,435 12,536 18,592
Dividends payable........................................................... 525,087 197,257 283,617
Accrued expenses and other liabilities...................................... 25,969 182,179 263,228
------------ ------------ ------------
Total liabilities........................................................ 15,680,292 621,688 63,927,578
------------ ------------ ------------
Net Assets.................................................................. $616,904,838 $154,143,788 $336,984,969
============ ============ ============
Net assets were comprised of:
Shares of beneficial interest, at par ($.01 per share)................... $ 6,169,048 $ 157,741 $ 3,369,848
Paid-in capital in excess of par......................................... 610,735,790 179,251,802 333,615,121
------------ ------------ ------------
616,904,838 179,409,543 336,984,969
Undistributed net investment income...................................... -- 92,624 --
Accumulated net realized losses.......................................... -- (26,799,270) --
Net unrealized appreciation of investments............................... -- 1,440,891 --
------------ ------------ ------------
Net assets, November 30, 1998............................................... $616,904,838 $154,143,788 $336,984,969
============ ============ ============
Net asset value
Class A:
Net asset value, offering price and redemption price per share
($590,004,099 / 590,004,099 shares of beneficial interest issued and
outstanding).......................................................... $1.00
============
($149,508,346 / 15,301,689 shares of beneficial interest issued and
outstanding).......................................................... $9.77
============
($336,984,758 / 336,984,758 shares of beneficial interest issued and
outstanding).......................................................... $1.00
============

Net asset value, offering price and redemption price per share
($26,900,739 / 26,900,739 shares of beneficial interest issued and
outstanding).......................................................... $1.00
============
($4,635,442 / 472,414 shares of beneficial interest issued and
outstanding).......................................................... $9.81
============
($211 / 211 shares of beneficial interest issued and outstanding)..... $1.00
============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-43

<PAGE>
Statement of Operations
Year Ended November 30, 1998 PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Short- U.S. Treasury
Market Intermediate Money
Net Investment Income Series Term Series Market Series
----------- ------------ -------------
<S> <C> <C> <C>
Income
Interest................................................................. $33,861,520 $ 9,767,728 $ 21,867,471
Income from securities loaned, net....................................... -- 150,213 --
----------- ------------ -------------
33,861,520 9,917,941 21,867,471
Expenses
Management fee........................................................... 2,435,541 637,243 1,680,560
Distribution fee--Class A................................................ 737,062 294,161 525,175
Transfer agent's fees and expenses....................................... 1,435,000 210,000 170,000
Custodian's fees and expenses............................................ 84,000 100,000 80,000
Reports to shareholders.................................................. 50,000 100,000 75,000
Registration fees........................................................ 30,000 90,000 60,000
Audit fee and expenses................................................... 25,000 34,000 25,000
Legal fees............................................................... 11,000 50,000 13,000
Trustees' fees........................................................... 10,500 10,500 10,500
Insurance expense........................................................ 11,000 3,000 2,000
Miscellaneous............................................................ 5,271 5,236 10,794
----------- ------------ -------------
Total expenses........................................................ 4,834,374 1,534,140 2,652,029
----------- ------------ -------------
Net investment income....................................................... 29,027,146 8,383,801 19,215,442
----------- ------------ -------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................................................. 26,721 1,529,814 293,468
Financial future contracts............................................... -- (28,110) --
Written options transactions............................................. -- 5,078 --
----------- ------------ -------------
26,721 1,506,782 293,468
Net change in unrealized depreciation on investments........................ -- (564,958) --
----------- ------------ -------------
Net gain on investments..................................................... 26,721 941,824 293,468
----------- ------------ -------------
Net Increase in Net Assets Resulting from Operations........................ $29,053,867 $ 9,325,625 $ 19,508,910
=========== ============ =============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-44

<PAGE>
Statement of Changes in Net Assets PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short- U.S. Treasury
Money Market Intermediate Money Market
Series Term Series Series
------------------------------- --------------------------- -------------------------------
Year ended November 30,
Increase (Decrease) ------------------------------------------------------------------------------------------------
in Net Assets 1998 1997 1998 1997 1998 1997
-------------- -------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income....... $ 29,027,146 $ 28,073,367 $ 8,383,801 $ 9,598,358 $ 19,215,442 $ 18,750,863
Net realized gain on
investment transactions.. 26,721 106,570 1,506,782 89,964 293,468 121,988
Net change in unrealized
depreciation on
investments.............. -- -- (564,958) (324,291) -- --
-------------- -------------- ------------ ------------ -------------- --------------
Net increase in net assets
resulting from
operations............... 29,053,867 28,179,937 9,325,625 9,364,031 19,508,910 18,872,851
-------------- -------------- ------------ ------------ -------------- --------------
Dividends and distributions to
shareholders:
Dividends to shareholders... (29,053,867) (28,179,937) (8,799,007) (9,002,839) (19,508,910) (18,872,851)
-------------- -------------- ------------ ------------ -------------- --------------
Series share transactions(a)
(Note 6):
Net proceeds from shares
subscribed
(Note 7)................. 2,267,004,069 2,067,231,815 48,203,029 8,117,531 4,398,749,349 4,683,800,784
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........ 27,554,570 26,745,177 5,999,888 5,839,123 17,472,551 17,070,655
Cost of shares reacquired... (2,269,663,230) (2,054,090,306) (49,748,114) (50,390,144) (4,512,021,356) (4,573,416,591)
-------------- -------------- ------------ ------------ -------------- --------------
Net increase (decrease) in
net assets from Series
share transactions....... 24,895,409 39,886,686 4,454,803 (36,433,490) (95,799,456) 127,454,848
-------------- -------------- ------------ ------------ -------------- --------------
Total increase (decrease) in
net assets..................... 24,895,409 39,886,686 4,981,421 (36,072,298) (95,799,456) 127,454,848
Net Assets
Beginning of year.............. 592,009,429 552,122,743 149,162,367 185,234,665 432,784,425 305,329,577
-------------- -------------- ------------ ------------ -------------- --------------
End of year(b)................. $ 616,904,838 $ 592,009,429 $154,143,788 $149,162,367 $ 336,984,969 $ 432,784,425
============== ============== ============ ============ ============== ==============
- ---------------
(a) At $1.00 per share for the Money Market Series and the U.S. Treasury Money Market Series.
(b) Includes undistributed net
investment income of........ $ -- $ -- $ 92,624 $ 508,830 $ -- $ --
-------------- -------------- ------------ ------------ -------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-45

<PAGE>
Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
Prudential Government Securities Trust (the 'Fund') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund consists of three series--the Money Market Series, the
Short-Intermediate Term Series and the U.S. Treasury Money Market Series; the
monies of each series are invested in separate, independently managed
portfolios.
- ------------------------------------------------------------
Note 1. Significant Accounting Policies

The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuations: The Money Market Series and U.S. Treasury Money Market
Series value portfolio securities at amortized cost, which approximates market
value. The amortized cost method of valuation involves valuing a security at its
cost on the date of purchase and thereafter assuming a constant amortization to
maturity of any discount or premium.

For the Short-Intermediate Term Series, the Trustees have authorized the use of
an independent pricing service to determine valuations. The pricing service
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
securities valuations. When market quotations are not readily available, a
security is valued by appraisal at its fair value as determined in good faith
under procedures established under the general supervision and responsibility of
the Trustees. 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.

Repurchase Agreements: In connection with transactions in repurchase agreements,
the Fund's custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, takes possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.

Financial Futures Contracts: The Short-Intermediate Term Series enters into a
financial futures contract which is an agreement to purchase (long) or sell
(short) an agreed amount of securities at a set price for delivery on a future
date. Upon entering into a financial futures contract, the Series is required to
pledge to the broker an amount of cash and/or other assets equal to a certain
percentage of the contract amount. This amount is known as the 'initial margin'.
Subsequent payments, known as 'variation margin', are made or received by the
Series each day, depending on the daily fluctuations in the value of the
underlying security. Such variation margin is recorded for financial statement
purposes on a daily basis as unrealized gain or loss. When the contract expires
or is closed, the gain or loss is realized and is presented in the statement of
operations as net realized gain (loss) on financial futures contracts.

The Short-Intermediate Term Series invests in financial futures contracts in
order to hedge its existing portfolio securities, or securities the Series
intends to purchase, against fluctuations in value caused by changes in
prevailing interest rates. Should interest rates move unexpectedly, the Series
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts, interest
rates and the underlying hedged assets.

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 with respect to securities 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 whether the Fund has realized a gain or 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. There were no written
options outstanding at November 30, 1998.

Securities Lending: The Short-Intermediate Term Series may lend its portfolio
securities to brokers or dealers, banks or other recognized institutional
borrowers of securities, provided that the borrower at all times maintains cash
or other liquid assets or secures an irrevocable letter of credit in favor of
the Series in an amount equal to at least 100% of the market value of the
securities loaned. During the time portfolio securities are on loan, the
borrower will pay the Series an amount equivalent to any dividend or interest
paid on such securities and the Series may invest the cash collateral and earn
additional income, or it may receive an agreed-upon amount of interest income
from the borrower. In these transactions, there are risks of delay in recovery
and in some cases even loss of rights in the collateral should the borrower of
the securities fail financially. Loans are subject to termination at the option
of the borrower or the Series. The Series may pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities
and may share the interest earned on the collateral with the borrower. As a
matter of
- --------------------------------------------------------------------------------
B-46

<PAGE>
Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
fundamental policy the Series may not lend more than 30% of the value of its
total assets.

Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of portfolio
securities are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. The Fund amortizes discounts and premiums on
purchases of portfolio securities as adjustments to income.

Dollar Rolls: The Short-Intermediate Term Series enters into dollar roll
transactions in which the Series sells securities for delivery in the current
month, realizing a gain or loss, and simultaneously contracts to repurchase
somewhat similar (same type, coupon and maturity) securities on a specified
future date. During the roll period the Short-Intermediate Term Series forgoes
principal and interest paid on the securities. The Series is compensated by the
interest earned on the cash proceeds of the initial sale and by the lower
repurchase price at the future date. The difference between the sale proceeds
and the lower repurchase price is taken into income. The Short-Intermediate Term
Series maintains a segregated account, the dollar value of which is equal to its
obligations in respect of dollar rolls.

Federal Income Taxes: For federal income tax purposes, each series of the Fund
is treated as a separate taxable entity. It is each Series' policy to continue
to meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable net income to its
shareholders. Therefore, no federal income tax provision is required.

Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with American Institute of Certified
Public Accountants (AICPA) Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. For the
Short-Intermediate Term Series, the effect of applying this statement was to
decrease undistributed net investment income by $1,000, decrease accumulated net
realized losses by $5,357,258 and decrease paid-in-capital in excess of par by
$5,356,258 which represents the expiration of a portion of the capital loss
carryforward. Net realized gains and net assets were not affected by this
change.

Dividends and Distributions: The Money Market Series and U.S. Treasury Money
Market Series declare daily dividends from net investment income and net
short-term capital gains and losses. Dividends are paid monthly.

The Short-Intermediate Term Series declares dividends from net investment income
daily; payment of dividends is made monthly. Distributions of net capital gains,
if any, are made annually.

Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.

Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. Pursuant to a subadvisory agreement between PIFM and The Prudential
Investment Corporation ('PIC'), PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of 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 .40 of 1% of the average daily net assets of the
Short-Intermediate Term Series and the U.S. Treasury Money Market Series. With
respect to the Money Market Series, the management fee is payable as follows:
.40 of 1% of average daily net assets up to $1 billion, .375 of 1% of average
daily net assets between $1 billion and $1.5 billion and .35 of 1% in excess of
$1.5 billion.

The Fund had a distribution agreement with Prudential Securities Incorporated
('PSI'), which acted as the distributor of the shares of the Money Market Series
and the U.S. Treasury Money Market Series through May 31, 1998. Prudential
Investment Management Services LLC ('PIMS') became the distributor of the Fund
effective June 1, 1998 and is serving the Fund under the same terms and
conditions as under the agreement with PSI. The Fund compensated the
distributors for distributing and servicing each of the Series' shares, pursuant
to plans of distribution, regardless of expenses actually incurred by them. The
distribution fees are accrued daily and payable monthly at an annual rate of
.125% of each of the Series' average daily net assets. The distributors pay
various broker-dealers for account servicing fees and for the expenses incurred
by such broker-dealers.

The Fund also compensated PSI and PIMS for its expenses as distributor of the
Short-Intermediate Term Series. The Short-Intermediate Term Series entered into
a distribution agreement and a plan of distribution pursuant to which it pays
PSI a fee, accrued daily and payable monthly, at an annual rate of .25 of 1% of
the lesser of (a) the aggregate sales of shares issued (not including
reinvestment of dividends and distributions) on or after July 1, 1985 (the
effective date of the plan) less the aggregate net asset value of any such
shares redeemed, or (b) the average net asset value of the shares issued after
the effective date of the plan. Distribution expenses include commission credits
to PSI branch offices for payments of commissions and account servicing fees to
financial advisers and an allocation on account of overhead and other
distribution-related expenses, the cost of printing and mailing prospectuses to
potential investors and of advertising incurred in connection with the
distribution of Series shares.
- --------------------------------------------------------------------------------
B-47

<PAGE>
Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
In addition, PSI pays other broker-dealers, including Pruco, an affiliated
broker-dealer, for account servicing fees and other expenses incurred by such
broker-dealers in distributing these shares.
PIFM, PIC, PSI and PIMS are (indirect) wholly owned subsidiaries of The
Prudential Insurance Company of America.

The Fund, along with other affiliated registered investment companies (the
'Funds'), has a credit agreement (the 'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of November 30,
1998. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds. The Agreement expired on December
30, 1997 and has been extended through December 29, 1998 under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates

Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended November 30, 1998,
the Fund incurred fees of approximately $1,415,000, $197,700, and $143,000,
respectively, for the Money Market Series, Short-Intermediate Term Series, and
U.S. Treasury Money Market Series. Transfer agent fees and expenses in the
Statement of Operations includes certain out-of-pocket expenses paid to
non-affiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities

Purchases and sales of portfolio securities other than short-term investments,
for the Short-Intermediate Term Series for the year ended November 30, 1998 were
$232,752,606 and $234,614,563, respectively.

For the Short-Intermediate Term Series, the cost basis of investments for
federal income tax purposes was $152,120,712 and, accordingly, as of November
30, 1998, net unrealized appreciation of investments for federal income tax
purposes was $1,440,891 (gross unrealized appreciation $2,341,916; gross
unrealized depreciation--$901,025).

For federal income tax purposes, the Short-Intermediate Term Series has a
capital loss carryforward as of November 30, 1998 of approximately $33,882,000
of which $4,746,000 expires in 1999, $3,746,000 expires in 2000, $7,594,000
expires in 2001, $12,125,000 expires in 2002, $448,000 expires in 2003,
$1,933,000 expires in 2004 and $3,290,000 expires in 2005. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such carryforward. During the fiscal year
ended November 30, 1998, approximately $5,357,000 of the capital loss
carryforward expired unused.

The average balance of dollar rolls outstanding during the year ended November
30, 1998 was approximately $4,811,000. The Fund did not hold any outstanding
dollar rolls at November 30, 1998.

As of November 30, 1998, the Short-Intermediate Term Series had securities on
loan with an aggregate market value of $13,263,545. As of this date, the
collateral held for securities on loan was comprised of U.S. government
securities with an aggregate market value of $13,274,850.

Transactions in options written during the period ended November 30, 1998, were
as follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
(000) Received
--------- ---------
<S> <C> <C>
Options written...................... 50 $ 5,078
Options expired...................... 50 (5,078)
--------- ---------
Options outstanding at November 30,
1998............................... 0 $ 0
========= ========
</TABLE>
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account

The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of November 30, 1998, the
Short-Intermediate Term Series had a 0.90% undivided interest in the repurchase
agreements in the joint account. This undivided interest represented $7,030,000
in principal amount. As of such date, the repurchase agreements in the joint
account and the value of the collateral therefor were as follows:

Bear, Stearns & Co. Inc., 5.30%, in the principal amount of $200,000,000,
repurchase price $200,029,444, due 12/1/98. The value of the collateral
including accrued interest was $204,347,311.

Deutsche Bank Securities Inc., 5.30%, in the principal amount of $200,000,000,
repurchase price $200,029,444, due 12/1/98. The value of the collateral
including accrued interest was $204,000,795.

Salomon Smith Barney Inc., 5.25%, in the principal amount of $200,000,000,
repurchase price $200,029,167, due 12/1/98. The value of the collateral
including accrued interest was $204,141,845.

Warburg Dillon Read LLC, 5.17%, in the principal amount of $185,154,000,
repurchase price $185,180,590, due 12/1/98. The value of the collateral
including accrued interest was $188,871,445.
- --------------------------------------------------------------------------------
B-48

<PAGE>
Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
Note 6. Capital

Each series has authorized an unlimited number of shares of beneficial interest
at $.01 par value. Effective March 1, 1996 the Money Market Series commenced
offering Class Z shares. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors.

Transactions in shares of beneficial interest for the Money Market Series for
the fiscal years ended November 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Year ended November 30,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Class A
- -------------------------------
Shares sold.................... 2,221,883,796 2,065,348,142
Shares issued in reinvestment
of dividends and
distributions................ 26,646,608 26,712,713
Shares reacquired.............. (2,249,954,294) (2,052,755,405)
--------------- ---------------
Net increase (decrease) in
shares
outstanding.................. (1,423,890) 39,305,450
=============== ==============
<CAPTION>
Class Z
- -------------------------------
Shares sold.................... 45,120,273 1,883,673
Shares issued in reinvestment
of dividends and
distributions................ 907,962 32,464
Shares reacquired.............. (19,708,936) (1,334,901)
--------------- ---------------
Net increase in shares
outstanding.................. 26,319,299 581,236
=============== ==============
</TABLE>

Effective February 26, 1997 the Short-Intermediate Term Series commenced
offering Class Z shares. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively to a limited group of investors.
Transactions in shares of beneficial interest for the Short-Intermediate Term
Series for the fiscal years ended November 30, 1998 and November 30, 1997 were
as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
Year ended November 30, 1998:
Shares sold.......................... 1,705,356 $ 16,600,350
Shares issued in connection with
acquisition of BlackRock Government
Income Trust (Note 7).............. 2,597,731 25,405,808
Shares issued in reinvestment of
dividends and distributions........ 594,479 5,797,497
Shares reacquired.................... (4,917,018) (47,986,897)
---------- ------------
Net decrease in shares outstanding... (19,452) $ (183,242)
========== ============
<CAPTION>
Class A Shares Amount
- ------------------------------------- ---------- ------------
Year ended November 30, 1997:
Shares sold.......................... 842,329 $ 8,117,331
Shares issued in reinvestment of
dividends and distributions........ 605,236 5,839,119
Shares reacquired.................... (5,221,544) (50,390,144)
---------- ------------
Net decrease in shares outstanding... (3,773,979) $(36,433,694)
========== ============
<CAPTION>
Class Z
- -------------------------------------
Year ended November 30, 1998:
Shares sold.......................... 631,680 $ 6,196,871
Shares issued in reinvestment of
dividends and distributions........ 20,672 202,391
Shares reacquired.................... (179,959) (1,761,217)
---------- ------------
Net increase in shares outstanding... 472,393 $ 4,638,045
========== ============
February 26, 1997* through
November 30, 1997:
Shares sold.......................... 21 $ 200
Shares issued in reinvestment of
dividends and distributions........ -- 4
---------- ------------
Net increase in shares outstanding... 21 $ 204
========== ============
</TABLE>
- ---------------
* Commencement of offering of Class Z shares.

Effective February 21, 1997 the U.S. Treasury Money Market Series commenced
offering Class Z shares. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors.

Transactions in shares of beneficial interest for the U.S. Treasury Money Market
Series for the fiscal years ended November 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Year ended November 30,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Class A
- -------------------------------
Shares sold.................... 4,398,749,349 4,683,800,584
Shares issued in reinvestment
of dividends and
distributions................ 17,472,545 17,070,650
Shares reacquired.............. (4,512,021,356) (4,573,416,591)
--------------- ---------------
Net increase (decrease) in
shares outstanding........... (95,799,462) 127,454,643
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
B-49

<PAGE>
Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 21,
Year 1997*
Ended through
November 30, November 30,
1998 1997
--------------- ---------------
<S> <C> <C>
Class Z
- -------------------------------
Shares sold.................... -- 200
Shares issued in reinvestment
of dividends and
distributions................ 6 5
--------------- ---------------
Net increase in shares
outstanding.................. 6 205
=============== ===============
</TABLE>
- ---------------
* Commencement of offering of Class Z shares.
- ------------------------------------------------------------
Note 7. Acquisition of BlackRock Government Income Trust

On January 30, 1998, the Fund acquired all the net assets of The BlackRock
Government Income Trust pursuant to a plan of reorganization approved by
BlackRock Government Income Trust shareholders on January 23, 1998. The
acquisition was accomplished by a tax-free exchange of 2,597,731 Class A shares
of the Fund (valued at $25,405,808) for 2,697,007 shares of BlackRock Government
Income Trust outstanding on January 30, 1998. BlackRock Government Income
Trust's net assets at that date ($25,398,048), including $50,840 of unrealized
appreciation, were combined with those of the Fund. The aggregate net assets of
the Fund and BlackRock Government Income Trust immediately before the
acquisition were $142,497,936 and $25,398,048, respectively.
- --------------------------------------------------------------------------------
B-50

<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
------------------------------------------------------------ -----------------------------
Year Ended November 30, Year Ended November 30,
------------------------------------------------------------ -----------------------------
1998 1997 1996 1995 1994 1998 1997
-------- -------- -------- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
Net investment income........ 0.048 0.048 0.046 0.052 0.033 0.049 0.048
Dividends from net investment
income..................... (0.048) (0.048) (0.046) (0.052) (0.033) (0.049) (0.048)
-------- -------- -------- -------- -------- ------ -----
Net asset value, end of
period..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
======== ======== ======== ======== ======== ======== ======
TOTAL RETURN(a).............. 4.87% 4.87% 4.74% 5.20% 3.29% 5.00% 5.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $590,004 $591,428 $552,123 $598,194 $637,343 $ 26,901 $ 581
Average net assets (000)..... $589,649 $586,513 $589,147 $597,599 $732,867 $ 19,236 $ 672
Ratios to average net assets:
Expenses, including
distribution fees...... 0.80% 0.77% 0.86% 0.78% 0.77% 0.67% 0.65%
Expenses, excluding
distribution fees...... 0.67% 0.65% 0.73% 0.65% 0.64% 0.67% 0.65%
Net investment income..... 4.77% 4.77% 4.63% 5.15% 3.19% 4.89% 4.92%

<CAPTION>
March 1,
1996(b)
Through
November 30,
1996
------------
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period..................... $ 1.000
Net investment income........ 0.038
Dividends from net investment
income..................... (0.038)
-----
Net asset value, end of
period..................... $ 1.000
=======
TOTAL RETURN(a).............. 3.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $ 204(c)
Average net assets (000)..... $ 1,962
Ratios to average net assets:
Expenses, including
distribution fees...... 0.68%(d)
Expenses, excluding
distribution fees...... 0.68%(d)
Net investment income..... 4.68%(d)
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total return for a period of less than one
year is not annualized.
(b) Commencement of offering of Class Z shares.
(c) Figure is actual and not rounded to nearest thousand.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-51

<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights SHORT-INTERMEDIATE TERM SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
------------------------------------------------------------ -----------------------------
February 26,
1997(b)
Year Ended November 30, Year Ended Through
------------------------------------------------------------ November 30, November 30,
1998 1997 1996 1995 1994 1998 1997
-------- -------- -------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period..................... $ 9.74 $ 9.70 $ 9.74 $ 9.17 $ 10.06 $ 9.77 $ 9.64
-------- -------- -------- -------- -------- ----- -----
Income from investment
operations:
Net investment income........ 0.51 0.56 0.51 0.56 0.64 0.47 0.47
Net realized and unrealized
gain (loss) on investment
transactions............... 0.06 -- (0.01) 0.55 (0.89) 0.13 0.07
-------- -------- -------- -------- -------- ----- -----
Total from investment
operations............. 0.57 0.56 0.50 1.11 (0.25) 0.60 0.54
-------- -------- -------- -------- -------- ----- -----
Less distributions:
Dividends from net investment
income..................... (0.54) (0.52) (0.54) (0.54) (0.52) (0.56) (0.41)
Tax return of capital
distribution............... -- -- -- -- (0.12) -- --
-------- -------- -------- -------- -------- ----- -----
Total distributions.......... (0.54) (0.52) (0.54) (0.54) (0.64) (0.56) (0.41)
-------- -------- -------- -------- -------- ----- -----
Net asset value, end of
period..................... $ 9.77 $ 9.74 $ 9.70 $ 9.74 $ 9.17 $ 9.81 $ 9.77
======== ======== ======== ======== ======== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $149,508 $149,162 $185,235 $212,996 $241,980 $4,635 $ 207(c)
Average net assets (000)..... $155,680 $166,651 $186,567 $209,521 $307,382 $3,631 $ 202(c)
Ratios to average net assets:
Expenses, including
distribution fees...... 0.96% 0.97% 1.01% 0.95% 0.84% 0.78% 0.77%(d)
Expenses, excluding
distribution fees...... 0.78% 0.77% 0.79% 0.75% 0.63% 0.78% 0.77%(d)
Net investment income..... 5.26% 5.76% 5.99% 5.82% 5.48% 5.36% 6.52%(d)
Portfolio turnover rate...... 155% 210% 132% 217% 431% 155% 210%
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total return for a period of less than one
year is not annualized.
(b) Commencement of offering of Class Z shares.
(c) Figure is actual and not rounded to nearest thousand.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-52

<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights U.S. TREASURY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
------------------------------------------------------------ -----------------------------
February 21,
1997(b)
Year Ended November 30, Year Ended Through
------------------------------------------------------------ November 30, November 30,
1998 1997 1996 1995 1994 1998 1997
-------- -------- -------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000 $1.000
Net investment income........ 0.046 0.047 0.046 0.050 0.033 0.049 0.039
Dividends from net investment
income..................... (0.046) (0.047) (0.046) (0.050) (0.033) (0.049) (0.039)
-------- -------- -------- -------- -------- ----- -----
Net asset value, end of
period..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000 $1.000
======== ======== ======== ======== ======== ====== ======
TOTAL RETURN(a).............. 4.66% 4.80% 4.75% 5.08% 3.31% 5.05% 3.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $336,985 $432,784 $305,330 $339,334 $293,984 $ 211(c) $ 205(c)
Average net assets (000)..... $420,140 $402,634 $393,060 $345,369 $308,454 $ 209(c) $ 197(c)
Ratios to average net assets:
Expenses, including
distribution fees...... 0.63% 0.65% 0.63% 0.62% 0.62% 0.51% 0.52%(d)
Expenses, excluding
distribution fees...... 0.51% 0.52% 0.51% 0.50% 0.50% 0.51% 0.52%(d)
Net investment income..... 4.57% 4.66% 4.57% 5.01% 3.21% 4.91% 3.89%(d)
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total return for a period of less than one
year is not annualized.
(b) Commencement of offering of Class Z shares.
(c) Figure is actual and not rounded to nearest thousand.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-53

<PAGE>
Report of Independent Accountants PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
Prudential Government Securities Trust:

In our opinion, the accompanying statement of assets and liabilities, including
the portfolios 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 Money Market Series,
Short-Intermediate Term Series and U.S. Treasury Money Market Series
(constituting Prudential Government Securities Trust, hereafter referred to as
the 'Fund') at November 30, 1998, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as 'financial statements') are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
January 21, 1999
- --------------------------------------------------------------------------------
B-54

<PAGE>

APPENDIX I

GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

Asset allocation is a technique for reducing risk 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 off-set
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.

I-1

<PAGE>

APPENDIX II

HISTORICAL PERFORMANCE DATA

The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.

The following chart shows the long-term performance of various asset
classes and the rate of inflation.

EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY

[CAMERA READY CHART OMITTED]

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 attributable to capital appreciation and the
reinvesting any gains. Bond returns are due mainly 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).

Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart

II-1

<PAGE>

shows the historical total returns of U.S. Treasury bonds, U.S. mortgage
securities, U.S. corporate bonds, U.S. high yield corporate bonds and world
government bonds on an annual basis from 1988 through 1998. 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 each Series'
prospectus. The net effect of the deduction of the operating expenses of a
mutual fund on these historical total returns, including the compounded effect
over time, could be substantial.

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR 1998 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury
Bonds(1) 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0%
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government
Treasury
Securities(2) 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0%
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Investment Grade
Corporate Bonds(2) 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6%
- ---------------------------------------------------------------------------------------------------------------------------
U.S. High Yield
Bonds(4) 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6%
- ---------------------------------------------------------------------------------------------------------------------------
World Government
Bonds(2) 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3%
===========================================================================================================================
Difference between
highest and lowest
returns percent 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1% 8.4%
- ---------------------------------------------------------------------------------------------------------------------------
</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 mortgaged-backed securities of
the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).

3 Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign
governments, municipalities, governmental agencies or international agencies.
All bonds in the index have maturities of at least one year.

4 Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or
Fitch Investors Service). All bonds in the index have maturities of at least
one year. Data retrieved from Lipper, Inc.

5 Salomon Smith Barney World Government Index (Non U.S.) includes 800 bonds
issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.

II-2

<PAGE>

This chart illustrates the performance of major world stock markets for the
period from 1985 through 1998. It does not represent the performance of any
Prudential Mutual Fund.

AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK
MARKETS 12/31/85-12/31/98 (IN U.S. DOLLARS)

Belgium 22.7%
Spain 22.5%
The Netherlands 20.8%
Sweden 19.9%
Switzerland 18.3%
USA 18.1%
Hong Kong 17.8%
France 17.4%
UK 16.7%
Germany 13.4%
Austria 8.9%
Japan 6.5%

Source: Morgan Stanley Capital International (MSCI). Used with permission.
Morgan Stanley Country indices are unmanaged indices which include those stocks
making up the largest two-thirds of each country's total stock market
capitalization. Returns reflect the reinvestment of all distributions. This
chart is for illustrative purposes only and is not indicative of the past,
present or future performance of any specific investment. Investors cannot
invest directly in stock indices.

This chart shows the growth of a hypothetical $10,000 investment made in
the stocks representing the S&P 500 stock index with and without reinvested
dividends.

[CAMERA READY CHART OMITTED]

- -----------
Source: Lipper, Inc. Used with permission. All rights reserved. This chart
is used for illustrative purposes only and is not intended to represent the
past, present or future perfomnance of any Prudential Mutual Fund. Common stock
total return is based on the Standard & Poor's 500 Stock Index, a
market-value-weighted index made up of 500 of the largest stocks in the U.S.
based upon their stock market value. Investors cannot invest directly in
indices.

II-3

<PAGE>

CHART

Source: Morgan Stanley Capital Intenational, December 1998. 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 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.

This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.

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 1926-1998. 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 constnued to represent the yields of
any Prudential Mutual Fund.

II-4

<PAGE>

APPENDIX III-INFORMATION RELATING TO PRUDENTIAL

Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "How the Series is Managed-Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1997 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.

INFORMATION ABOUT PRUDENTIAL

The Manager and PIC1 are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1997. Its principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities brokerage
asset management, investment advisory services and real estate brokerage .
Prudential (together with its subsidiaries) employs more than 79,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and 6,500
financial advisors. Prudential is a major issuer of annuities, including
variable annuities. Prudential seeks to develop innovative products and services
to meet consumer needs in each of its business areas. Prudential uses the rock
of Gibraltar as its symbol. The Prudential rock is a recognized brand name
throughout the world.

INSURANCE. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to more than 40 million people
worldwide. Long one of the largest issuers of life insurance, Prudential has 25
million life insurance policies in force today with a face value of almost $1
trillion. Prudential has the largest capital base ($12.1 billion) of any life
insurance company in the United States. Prudential provides auto insurance for
more than 1.5 million cars and insures more than 1.2 million homes.

MONEY MANAGEMENT. The Prudential is one of the largest pension fund
managers in the country, providing pension services to 1 in 3 Fortune 500 firms.
It manages $36 billion of individual retirement plan assets, such as 401(k)
plans. As of of December 31,1997, Prudential had more than $370 billion in
assets under management. Prudential Investments, a business group of Prudential
(of which Prudential Mutual Funds is a key part), manages over $211 billion in
assets of institutions and individuals. In INSTITUTIONAL INVESTOR, July 1998,
Prudential was ranked eighth in terms of total assets under management as of
December 31, 1997.

REAL ESTATE. The Prudential Real Estate Affiliates is one of the leading
real estate residential and commercial brokerage networks in North America and
has more than 37,000 real estate brokers and agents with over 1,400 office
across the United States. 2

HEALTHCARE. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care
membership.3

FINANCIAL SERVICES. The Prudential Savings Bank (FSB), a wholly-owned
subsidiary of the Prudential, has nearly $1 billion in assets and serves nearly
1.5 million customers across 50 states.

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

As of November 30, 1998, Prudential Investments Fund Management was the
eighteenth largest mutual fund company in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.

The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.

From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRONS and USA TODAY.

- -----------
1 PIC serves as the Subadviser to substantially all of the Prudential Mutual
Funds. Wellington Management Company serves as the subadviser to Global
Utility Fund, Inc., Nicholas-Applegate Capital Management as subadviser to
Nicholas-Applegate Fund, Inc., Jennison Associates Capital Corp. as one of
the subadvisers to The Prudential Investment Portfolios, Inc. and Mercator
Asset Management LP as the subadviser to International Stock Series, a
portfolio of Prudential World Fund, Inc. There are multiple subadvisers
for The Target Portfolio Trust.

2 As of December 31, 1997.

3 On December 10, 1998, Prudential announced its intention to sell Prudential
Health Care to Aetna Inc. for $1 billion.

III-1

<PAGE>

EQUITY FUNDS. Prudential Equity Fund is managed with a "value" investment style
by PIC. In 1995, Prudential Securities introduced Prudential Jennison Growth
Fund, a growth-style equity fund managed by Jennison Associates LLC, a premier
institutional equity manager and a subsidiary of Prudential.

HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor
approximately 200 issues held in the Prudential High Yield Fund (currently the
largest fund of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchased.4 Non-investment grade bonds, also
known as junk bonds or high yield bonds, are subject to a greater risk of loss
of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.

Prudential's portfolio managers are supported by a large and sophisticated
research organization. Investment grade bond analysts monitor the financial
viability of different bond issuers in the investment grade corporate and
municipal bond markets-from IBM to small municipalities, such as Rockaway
Township, New Jersey. These analysts consider among other things sinking fund
provisions and interest coverage ratios.

Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers-from Pulp and Paper Forecaster to Women's Wear
Daily-to keep them informed of the industries they follow.

Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential Mutual
Fund.

Prudential Mutual Funds trade billions in U.S. and foreign government securities
a year. PIC seeks information from government policy makers. Prudential's
portfolio managers met with several senior U.S. and foreign government
officials, on issues ranging from economic conditions in foreign countries to
the viability of index-linked securities in the United States.

INFORMATION ABOUT PRUDENTIAL SECURITIES

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1997, assets held by Prudential Securities for its
clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities.5

Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment and financial

planning areas. In addition to training, Prudential Securities provides its
financial advisors with access to firm economists and market analysts. It has
also developed proprietary tools for use by financial advisors, including the
Financial Architects/Financial Advisors to evaluate a client's objectives and
overall financial plan, and a comprehensive mutual fund information and analysis
system that compares different mutual funds.

For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.

- -----------
4 As of December 31, 1997. The number of bonds and the size of the Fund are
subject to change.

5 As of December 31, 1998.

III-2